Affiliated Managers Group Inc (AMG) 2010 Q3 法說會逐字稿

Greetings and welcome to the Affiliated Managers Group third quarter earnings call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation.

(Operator Instructions)

It is now my pleasure to introduce your host, Alexandra Lynn, Vice President of Corporate Strategy and Investor Relations. Please go ahead.

Thank you for joining Affiliated Managers Group to discuss our results for the third quarter of 2010.

By now you should have received the 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 it's website at www.amg.com a replay of the call and a copy of our announcement of our results for this quarter, as well as a reconciliation of any non-GAAP financial measures to the most directly comparable GAAP financial measures.

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. Now I would like to turn the call over to Sean Healey.

Thanks Ali, Good morning everyone. I'm pleased to report that AMG had an excellent quarter with strong execution across all elements of our growth strategy. First, our affiliates continue to generate outstanding performance, especially those specializing in global and emerging markets equity and alternative products. Next, the marketing efforts of our global distribution team and our affiliates resulted in strong positive client cash-flows of $5.5 billion, mainly from large global institutional investors. Finally, we continued to successfully execute our new investment strategy as we announced our investment in Trilogy Global Advisors, further enhancing our position in global and emerging markets equities.

For the third quarter we reported economic earnings per share of $1.50, which is an increase of 43% from the third quarter of 2009. Pro forma for our most recently announced investment, our assets and our management grew by 48% over the same period, and are now approximately $300 billion.

Our strong earnings growth reflects the excellence of our boutique affiliates, and also the impact of our strategic focus on global and emerging markets equities and alternatives. Over 70% of our earnings are now generated by these products areas, where we see strong secular growth trends as well as substantial competitive advantages for outstanding boutiques such as our affiliates, which are recognized as world leaders in their perspective investment disciplines.

Affiliates participating in these areas produced excellent performance in the quarter, and highlights include, most notably, the results from Global manager Tweedy , Browne and emerging markets manager Genesis, which both continue to generate significant outperformance in their largest products against peers and benchmarks over every relevant time period.

In the alternative productive area AQR and First Quadrant have produced excellent absolute and relative returns across their global products in the year-to-date, as has Value Act in its activist value strategies.

Our results and strong positive client cash-flows in the quarter, reflect our affiliates outstanding investment performance in highly attractive product areas. But also the success of our global distribution platform. Over the past several years we've established AMG distribution offices covering Australia, the Middle East, Europe and now Asia with the opening of our Hong Kong office. Over half of our earnings are now generated by clients outside the 'U. S' . and we expect that our global client base will continue to grow as sophisticated investors around the world increasingly appreciate the specialized investment expertise of our boutique affiliates, combined with the scale, resources and risk management of a global investment management company.

As Nate will describe in a moment, during the quarter we saw strong client cash-flows in a number of international markets, especially from Australia and the Middle East.

Turning to new investments, this quarter we were pleased to announce our investment in Trilogy, a highly regarded global and emerging markets manager with an excellent long-term track record of performance in these fast growing product areas. With its broad and E team of seasoned investment professionals, Trilogy has outstanding forward prospects which will be further enhanced as they begin to participate in our distribution platforms. Trilogy is our sixth investment in the past 18 months, and we continue to be pleased with the quality and diversity of our new investments pipeline. With a transaction environment that remains very favorable to AMG, we see substantial opportunities for additional accretive investments in new affiliates. And, looking ahead, together with the organic growth of our existing affiliates, we are uniquely positioned for strong earnings growth and shareholder value creation over the long term.

With that I'll turn it to Nate, who will discuss our affiliates'

Good morning, everyone. As a follow up to Sean's comments, we are very pleased with our results, which reflect the excellent investment performance of our affiliates, the benefits of our strategic focus on global and emerging markets equities and alternative product and the success of our affiliates' distribution teams, as well as global distribution and 'U. S' distribution platforms.

In terms of performance for the quarter, against the backdrop of favorable equity markets, our affiliates delivered strong investment performance. With over 70% of our earnings coming from global and emerging markets equities and alternatives, we are particularly pleased with the strength of the performance of our affiliates specializing in these product areas, as well as benefiting from the underlying (inaudible) in international and emerging markets.

Now, starting with global equites. Tweedy's global value product outperformed its benchmark for the quarter and remains ahead for all relevant time periods. While their worldwide high-dividend fund missed its benchmark in the quarter, the five-star rated fund ranked in the top (inaudible) over longer-term periods. AQR's E fee and Third Avenue's value product keep their benchmarks for the quarter, while Harding Loevner's global and international product continue to have a record of outperformance across their entire suite of investment strategies over the long term.

On the emerging markets side, an area which continues to be highly sought after among institutional investors around the world, Genesis continues to deliver outstanding performance with their flagship emerging markets product once again meeting its benchmark for the quarter and remaining well ahead for all relevant time periods. Harding Loevner's emerging markets product also beat its benchmark by 180 basis points in the quarter , ranking near the top quartile by Morningstar and Loevner.

Now, turning to our alternative product -- Performance among most of our largest products continues to be good. Affiliates of strong performance included AQR, [Le Mountain] and Value Act. As we discussed last quarter, it is not possible for us to report on Pantheon's performance on a quarter-to-quarter basis in any sort of peer group or benchmark-relative way, but suffice it to say they continue to see opportunities to put money to work in both primary and attractively priced secondary opportunities.

Finally, our domestic equity managers had more mixed performance. Friess missed its benchmarks for the quarter, while Tweedy, Browne Times Square and Frontier also missed their benchmarks for the quarter, but remain well ahead for longer term time periods. Systematic, on the other hand, had a very good quarter, with all major products remaining ahead of benchmarks for all relevant time periods.

Now, turning to flows which, as you heard, were approximately $5.5 billion for the quarter, and were positive across all of our channels. From a product category perspective, the biggest drivers in the quarter were alternatives, as well as global and emerging markets product. Now, Those trends were particularly notable in the institutional channel, where we saw positive flows of approximately $4.2 billion.

As I said at the outset, the execution by our global distribution teams contributed significantly to our organic growth this quarter, with a number of mandates funded. Also, this quarter we made good progress toward the opening of our Hong Kong office, and expect it to be licensed and fully operational next month. This will add an Asian distribution platform to our existing Australia, Middle East and European platforms.

Now, Stepping back for a minute. As we build out these platforms, and I include our US retail and sub-advisory platforms in this as well, we are creating a real virtuous circle. We are enhancing the value of an AMG partnership to our affiliates, and increasing their growth rates in a very efficient way. This, in turn, is making AMG a more attractive partner to new affiliates with excellent investment products in attractive areas of the market, such as global and emerging markets and alternative strategies. And, as these new affiliates come on, they in turn allow us to leverage the distribution infrastructure we are building even more.

Now, Trilogy is a great example of a new affiliate with excellent global and emerging markets products. They'll be able to efficiently leverage our distribution infrastructure, and which will, in turn, expand the list of high-quality products available through our US and global distribution platforms.

Now, we were obviously very pleased with the breadth and diversity of institutional flows this quarter. We know, however, that institutional flows are inherently [longbeam], and the precise timing is very difficult to predict.

Next, moving to the mutual fund channel. We have positive net flows of just over $1 billion in the quarter, driven by the growing demand for alternative products among mutual fund investors. For example, we saw AQR's diversified arbitrage fund and the managers FQ global alternatives fund continue to generate significant flows in the quarter. In addition, our sub-advisory distribution platform won significant alternative mandates for both AQR and First Quadrant, which funded in the quarter. We also had positive flows from several of our global and emerging markets funds, including those managed by Harding Loevner. Offsetting this we continued to see outflows from a number of equity funds, especially US equity funds.

In our high net worth channel, we had positive flows of approximately $200 million for the quarter, earned principally by GWK's municipal bond product, including store manager's platform. Harding Loevner and Canadian affiliate Beutel Goodman were also strong contributors in the high net worth channel in the quarter. Similar to the mutual fund channel, these positive flows were partially offset by equity outflows, especially US equities.

To wrap up, we're very pleased with the strong performance of our affiliates, and our positive flows for both the quarter and year-to-date, especially in a time when fixed income flows have dominated. Looking ahead, with product that's concentrated in return-oriented equity and alternative strategies, we are confident in significant growth opportunities when investors inevitably reallocate to return-oriented strategies.

Now with that I'll turn it over to Darrell, to discuss

Thanks, Nate. Good morning everyone. As Sean and Nate mentioned, AMG had a strong third quarter and our results reflected successful execution of all areas of our growth strategy. As you saw in the release, we reported economic earnings per share of $1.50 for the third quarter. On a GAAP basis, we reported earnings of $0.65 for the quarter. Performance fees contributed about $0.04 to our results. Turning to more specific modeling items, the ratio of our EBITDA contribution to end-of-period assets under management was about 17.2 basis points for the third quarter, reflecting the contribution of Pantheon for a full quarter, as well as the impact of higher equity markets. We expect this ratio to be 16.5 basis points before any contribution from performance fees for the fourth quarter.

I should note that this ratio assumes that we close our investment in Trilogy at the very end of the fourth quarter. As a result, the fourth quarter's calculation includes Trilogy's AUM, but none of its' EBITDA.

As we look forward to 2011, we expect the ratio of EBITDA contribution to assets under management to be about 17.5 bases points, which includes a reasonable assumption for performance fees.

Holding company expenses were $18 million for the third quarter, a decrease from the second quarter, in which we realized transaction expenses resulting from our new investment activities. We expect holding company expenses to remain at $18 million for the fourth quarter, and to modestly increase to $19 million for the first quarter of 2011.

With regard to taxes, our effective GAAP tax rate for the third quarter was 32.5%, which incorporated a one-time benefit from the reduction in UK corporate tax rates. We expect our tax rates to return to 37% for the fourth quarter, our cash tax rate for the third quarter was 15.8% and we expect this rate to decline to approximately 13% in the fourth quarter, and going forward, as we realized the benefits of foreign tax credits.

Intangible-related deferred taxes were $9.8 million for the third quarter, below our guided level of $12.4 million, as a result of the change in the UK tax rate I just mentioned. We expect intangible-related deferred taxes to return to a normalized $12.5 million in the fourth quarter, and to increase to approximately $12.9 million on a quarterly basis following the close of Trilogy.

Our amortization for the quarter was $26 million, including $8 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 our income statement, all net of amortization.

We expect our amortization to remain at approximately this level for the fourth quarter, and then increase to about $26.7 million for the first quarter for 2011. Depreciation for the third quarter was $3.7 million, with $2.6 million of that amount attributable to affiliate depreciation. Depreciation will increase to $4.1 million in the fourth quarter.

We reported total interest expense of $23.5 million for the third quarter, of which $7.2 million was non-cash imputed interest expense. We expect interest expense to increase modestly,to about $24 million in the fourth quarter, of which approximately $7.2 million will be non-cash.

Now turning to the balance sheet. Following the closing of our investment Pantheon in late June, we continue to maintain a conservative balance sheet characterized by low leverage and ample liquidity. Given the strong recurring cash-flow generated by our business, and the general recovery in capital markets, particularly the bonding convertible markets, we're very confident in our ability to continue to execute on our growth strategy at a very favorable cost of capital.

We expect to close our investment in Trilogy at the end of the fourth quarter, and will fund the transaction with cash.

Now turning to guidance. We expect our 2010 economic earnings per share to be in the range of $5.50 to $6. This guidance factors in actual markets through yesterday, and also assumes a weighted-average share count for the year of 49.1 million. As you've noticed, we've narrowed our guidance range to reflect our current expectations for performance fees in the fourth quarter. The lower end of this new range assumes no contribution from performance fees in the fourth quarter, while the upper end includes a reasonable expectation for additional performance fees during the quarter.

As I mentioned before, we do not expect our investment in Trilogy to close until the end of the fourth quarter, and as a result do not expect it to contribute to our earnings until 2011.

As we look forward to 2011, we use our normal guidance convention and assume a 2% quarterly growth in markets. We also assume a weighted average share count of 53 million. Giver these assumptions, we expect to report economic earnings per share in the range of $6.50 to $7.25 for the year.

Similar to our 2010 earnings guidance, the lower ends of this new range assumes no contribution from performance fees, while the upper end includes more robust performance fee expectations, along with some positive assumptions for increasing flows.

Neither our 2010, nor our 2011 in guidance includes earnings from future new investment activity. In addition, earnings guidance for both 2010 and 2011 is based on current expectations about affiliate growth rates, performance, and the mix of affiliate contribution to our earnings. Of course, substantial changes in the equity markets and earnings contribution of our affiliates would impact these expectations. Now, we'll be happy to answer your questions.

Thank you. Ladies and gentlemen at this time we will conduct a question and answer session.

(Operator Instructions)

Our first question comes from Bill Katz with Citigroup. Please state your question.

Okay, thanks. I have two questions. First one centers on performance fees. I was wondering if you can quantify a little bit more the percentage of assets that are now above their high-water mark, were the hurdle rates were respective to where they were in the second quarter?

As we look at the performance fees and the capacity to generate performance fees to the end of the year, and into 2011, we are -- One, for 2010, feeling very good as we look at the book of business and it is consistent with the consensus estimate with regards to performance fee generation for the fourth quarter. The entire book of business is around $33 billion. And, as we said before, more than half of that is above its high-water mark.

These are -- there's a wide range of contracts and different arrangements, so it's very difficult to get specific metrics that can enable investors to calculate these performance fees. But what I would say to characterize our overall performance fee generation, is that if you look at 2008 we generated around $0.53 in performance fees. Last year we generated a little less than $0.20 in performance fees. And, this year, looking at consensus estimate, we're at approximately $0.50 in performance fees, with just about, a little over, $0.20 of that recorded in prior quarters. First, second and third quarter.

As we look ahead and we -- as markets have appreciated, we would say that the ability for that portfolio to generate performance fees has grown. And so we feel more optimistic about performance fee generation in 2011 than our expectations for 2010.

Okay. That's helpful. Second question centers on what you just mention about money markets and the convert market. Can you talk a little bit about, a couple things -- One, does that infer that maybe some of the deals coming down the pipe might be bigger sized than the Trilogy transaction, more in line with Pantheon? And, secondarily, could you talk about your thoughts between financing and more traditional debt-product versus complexity of the balance sheet?

I'll do the first bit, Bill, and then let Darrell handle the second part of your question. I wouldn't infer anything about the size of opportunities in our pipeline from the comments that we're making about capacity. I would rather say we should step back and understand that, to the extent that we see attractive opportunities -- and as you heard me say, we are very -- we continue to be very excited about the prospects for our new investment strategy -- But, as we see attractive opportunities, we will execute on them without respect to considerations of how much available cash we happen to have at any giver point. An investment in a great boutique firm is something we're going to pursue without regard to where exactly we are in our particular capital cycle.

And clearly the way balance sheet is positioned -- we have ample liquidity to look at a very wide range of transactions. And Sean's referring -- capital markets are open at all levels of the balance sheet, and it's not lost on us that Treasury rates are at historic lows.

We believe that, as we talk about the opportunity before us, we've never been better positioned in the market to execute on our new investment pipeline. We're generating more cash as a business than we ever have before. And the opportunity to debt-finance with more simple instruments has never been at lower rates.

So, I think we'll be able to execute that strategy. We're going to -- Nate talks at the ability for us to not only make new investments for succession reasons with strong firms, but also to add to their growth rate. We look at those growth rates, and we compare where we are able to finance these vehicles in the market. I think that there's more opportunity per shareholder value creation today than we've seen in the firm's history.

Okay. One last thing. I apologize I was going as quick as I could to keep up with Nate. Did you mention where the institutional pipeline is today, entering the fourth quarter, versus where it was entering the third quarter? I know the third quarter seemed a bit higher than I would have thought on the $4 billion.

Sure. So, I think -- First, let me step back and make sure everybody is grounded in what we're talking about here with the pipeline. Which is, we have both the institutional flows which are being driven by our affiliate distribution teams, and then we have on top of that the incremental flows that we're looking at that are driven by our global distribution teams. And it's helpful to think about it in those two pieces.

If you look at the pipelines coming through our affiliates -- one overall comment I made in the prepared remarks, and I'll make again, is that the institutional flows are inherently (inaudible). So, I'll give you sense how the pipeline looks. When the flows come in -- and some of these have long sales cycles -- they're hard to predict. So, the affiliate pipelines look pretty consistent. Both the RFP kind of stages as well as the competing, and then finals stages. Those all look pretty consistent. The global distribution pipeline, layered on top of that -- and I'll do this a little bit longer term. If you layer the global distribution pipeline on top of that, some of this is driven by the number of platforms and maturity.

So, we've got Australia, that's been open now for almost four years, and that's grown and matured and contributing, as Sean said, very significantly. The Middle East has been almost three years, grown and matured, contributing significantly. Europe has been opened almost two years, growing, maturing. And we just opened Asia.

So, those are -- those incremental ones, as we add additional platforms, and as we add more resources to each of those platforms, that just grows on top of it. So, hopefully that gives you a sense of longer term how this is all (inaudible). If you look at it quarter over quarter. -- Again, we definitely did harvest. We definitely had a number of significant mandates fund. But the pipeline still looks very good.

Okay. That's helps. Thanks so much.

Our next question comes from Robert Lee with KBW. Please state your question,

Good morning, guys.

Good morning, Ralph.

Quick question. A lot of your recent acquisitions, in Trilogy, are all focused, as you point out, on global strategies and -- At what point do the managers start stepping on each other as you try to help them with their global distribution? You have multiple managers of diverging markets. Are their strategies different enough, that there's not that much competition among your affiliates for shelf space on your distribution? Or is it self selecting? How should we think of that?

I think the first thing to understand is that we are extremely pleased with how we're positioned. And we think it's a differentiated strategy and very much what is right for this time. We're focused on the highest value-added return-oriented products and we have in the industry among the strongest, if not the strongest, level of participation, earnings contribution from global and emerging market equities and alternative product. 70%. So that's significant as we look at the forward pipeline where we continue to have a strategic focus to build in these areas.

With that said, it's not as if we're going to double the number of affiliates or anything close to that in the short- to medium-term. We'll add incremental investments and new affiliates and, even given the number of investments that we've made over the past 18 months, if you look at it from a client perspective, as opposed to us talking broadly about, let's say, emerging markets -- If you look from a client perspective the strategies really are quite distinct. And we think there's plenty of room for other investments in the broad categories of global equities, emerging markets and alternatives.

If you think about where we were a decade ago. We had a number of US value equity managers, for example. We still do. But we had a much higher proportion then, and I think folks were less concerned, appropriately less concerned, about whether there was going to be competition or issues around having investments in firms like Tweedy, Browne and Third Avenue at the same time. It just hasn't been an issue and we're confident it won't be in the future.

All right. Great. Maybe a question on the Pantheon -- I seem to recall somewhere that they were in the market with a new fund. I'm curious -- to what degree -- I don't you don't quantify specific managers, but -- did they recently close on a new fund? And to what degree is that --? Did they close on a fund, but it's not in the AUM base yet because it hasn't started to call capital?

I'll do the first bit of that. So, yes, they did close on a fund. It was a -- it was a fund that had multiple closes. That's one component part to it. So assets have -- some assets have come on earlier and assets have also continued to come on. I'm not sure if that's the specific one you've been referencing. They also just come to market with -- that was a secondaries fund -- they also just come to market with an Asia fund, which has not closed. They're actually out marketing that now. I don't think we can go into too much detail about, because they're marketing it. But, they've just come to market with an Asia fund, and they are also planning to come to market with both a Europe fund and a US fund. So, we will see all of these over time as they bring them out, market them, and have closes on them, start to come into AUM.

And I'd remind, just as we think about Pantheon and AMG earnings, when they close a fund is when that he begin to charge fees. So revenues are based on that committed capital, and there was a modest closing this last quarter and that's part of our organic growth.

Great. That was it. Thanks, guys.

Sure.

Our next question comes from Dan Fannon with Jefferies and Companies. Please state your question.

Good morning. Maybe Darrell -- if we can start with the guidance as you think about 2011. Could you give us a little context of what the components of the changes were with regards to market? And then the contribution from Trilogy? And then, you said, I think, a component of pick up and flows?

Sure. As we look to 2011 -- remember, our guidance convention is to have the bottom end of our guidance essentially be what we think is the rock bottom performance of our business. Meaning, that there's no performance fees, there's no new investment activity, it's just looking at the business as it stands today, with our convention of 2% markets.

Since the last time we gave guidance, markets are up approximately 6% and we gave guidance that Trilogy was going to contribute earnings of $0.15 to $0.20 on a run rate basis. As I said a couple times, Trilogy will close -- let's think about December 31st, and will make no contributions our earnings this year.

As we look at 650, again, that doesn't include any of the additional earnings.

I talked a little bit about performance fees, and explained that, this year, looking at consensus estimate, and seeing where we are today with our performance book of unaccrued fees, producing close to $0.50 is reasonable.

And as we look to next year, that being modestly larger -- that book being positioned to generate a modestly larger amount of performance fees is very reasonable. So I have a high conviction at the upper end of the guidance range, that that's where we'll see business performance in 2011.

And remembering that the balance sheet is incredibly well positioned, our position and in the M and A market is very very strong, and so the opportunity for there to be meaningful accretive deals in 2011 is certainly not included in these estimates.

Great. That's helpful. In terms of that -- on the potential investment activity -- as you think about your backlog, or your pipeline of deals, is it growing at this point? Or, has it been relatively stable here for the last couple of periods? Just trying to get some sense of your opportunities.

I would say that pipeline continues to be very strong, as you've heard us say for the last year and a half. We are extremely well positioned from a competitive standpoint, as well as just in terms of the supply and demand balance, and the number of very attractive opportunities we're seeing really around the world. So the pipeline continues to be strong. We've, of course, as you know, made six investments in the last 18 months. We've put $1.4 billion to work in those investments, and continue to see for the foreseeable future, a very attractive opportunity set.

Great. Thank you.

Sure.

Next question comes from Cynthia Mayer with Bank of America Merrill Lynch. Please state your question.

Hi, just to follow up on that last question. If you go out and look at the potential new investments -- Does size matter to you? Would you prefer a single large manager to several smaller ones? Are you indifferent to that? And, obviously, performance fees are playing a bigger roll looking ahead. Do you prefer managers with performance fees to those without? Just, maybe some color on what the ideal investment is for you right now.

Cynthia, we only want the best ever firms to partner with. We don't care how big they are. Obviously, if they're too small to make a meaningful contribution, then that doesn't make sense for a direct AMG investment. Though it very well might as an add-on to an existing affiliate.

A very large transaction is something that we would probably be a little sensitive about, but I'm not sure I can even quantify what "very large" is. The universe of outstanding boutique asset managers around the world, both traditional and alternative, includes some outstanding -- some really tremendous firms which represent great opportunities for us to invest. Very much in the line of what you've seen us do over the last 18 months.

The last thing I would say is that, with respect to your question about performance fees, we continued to have a strategic focus on finding firms that are well positioned in the attractive -- in these very attractive product areas of global and emerging market equities and alternatives. We believe that these product areas, in addition to offering outstanding secular growth opportunities and sitting well with our global distribution strategy, represent product areas where boutiques have a real competitive advantage. As opposed to areas like fixed income or core equity strategies, which are probably more vulnerable to passive products.

Okay. And maybe a question for Nate. Freiss has been underperforming on and off for a while now. I'm just wondering, if they face a situation where (inaudible) begin to accelerate?

I think the -- if you look at Freiss' performance, I'll say a couple of things. First, they continue to stick to their discipline. They have a sort of quality growth orientation, and a significant portion of under performance is actually attributable to style and creative styles then out of favor. So, that's the first thing. There's no change in their investment process.

The other thing I'd say about this is, They've also been through periods like this before where style favor and performance has been challenged for a while, and they've always come back very strongly from that. And it's the same team that's done it before. So, the first bit is lots of confidence in them, and so still continue to feel very good about them and the products and process. So that's the first bit.

From a flow standpoint -- look there's always that kind of risk, I guess. But their client base is pretty diverse. A significant portion of their client base has actually been with them for a long period of time. So, some of the normal concerns you might have, I think, are less here. It's definitely something we're paying close attention to, and trying to be helpful with them on.

Okay. Maybe just one more question if that's okay. Just on your Hong Kong office -- What products in particular do you think are an opportunity there? And, is there any issue in terms of selling alongside value partners there? Or, is that an advantage there in terms of entree?

I would say, No issue, with respect to value partners and having a partnership with a firm -- and especially a CEO (inaudible) who are very well regarded in the market -- is only a positive. The same kinds of products which are attractive to other global institutional investors will be attractive to institutional clients in the Asia space. So it's the global and emerging market equities and the whole range of alternative products that our affiliates found.

Thank you.

Our next question comes from [Bren Hawkin] with Collins Stewart. Please state your question.

Hey, guys.

Good morning.

So, a couple quick questions. Number one. The -- you mentioned the Pantheon fund closing was included in flows for the quarter. How much was that?

There was -- just to be clear, there was one piece of the Pantheon fund closing, so it closed in multiple trunches. And it was a couple hundred --

About $700 million.

Okay. And then, also, it seemed as though the institutional and mutual fund revenue rate as a percentage of AUM, took a bit of a dip this quarter. I was wonder if there were any one-time items, anything skewing that? Excuse me. The institutional didn't drop, but it increased much less than I was expecting, given that it's the first full quarter of Pantheon. So, maybe, if you could give a little color on why institutional didn't increase as maybe I had been expecting? And then, Why the mutual fund rate dipped?

Sure. Some of it, I would say probably the lion's share of the mutual fund channel, handling that one first, is just related to billable AUM versus end-of-period AUM. So you end up with an asset a figure at the end of the quarter, obviously, that was not the asset number throughout the quarter.

And, from the institutional perspective, the -- I think that that rate is really -- is roughly in line with prior period, accounting for Pantheon being incorporated into the overall investment.

Okay. So maybe I just was a little bit too optimistic on Pantheon moving the needle just a little bit more than --

There's a normalization of some performance fees which last quarter were generated by First Quadrant which also is in the institutional channel.

Okay.

So I think that's probably the easiest way to think about it.

Terrific.

Thanks.

Thanks.

Our next question comes from Michael Kim with Sandler O'Neill. Please state your question.

Thanks. Good morning. First, just more broadly -- It seems like maybe some of the other multi-manager firms out there are sort of moving toward the way you guys structure your deals. So, maybe leaning toward building a equity component, or giving the affiliates more control of their own P&Ls, or, better leveraging shared distribution platforms. So just wondering if you think this trend could perhaps mean greater competition, or have any impact on your deal flow going forward?

You know, we've been doing this for 17 years now, and that includes all market cycles back when European banks were paying very high levels of EBITDA multiples on boutique firms, that they somehow thought were good investments or acquisitions for them. A period where the IPO market was extremely attractive for boutique firms and, of course, that has changed dramatically given the market declines in the midst of the financial crisis. And all shapes and sizes of other competitors have come along. And so what I would say is that we have a very long track record of successful partnerships with our affiliates.

That is by far our greatest advantage in making new investments. And the recommendations that those affiliates provide to perspective affiliates. We continue to believe that we are better position than really ever before, given our track record, given the competitive environment and the forward opportunities that are upgrade firms for us to partner with.

Okay. And then maybe just a question for Darrell. Should we be reading anything into the narrower guidance range for next year? I think the range previously was $0.85, and now you're at $0.75. Just wondering if that might be driven perhaps by a bit more confidence on the performance fees looking out to next year?

I think it's a function that it's October and we're talking about 2011. And there's lots of volatility in the market in the past, so trying to give investors a very clear sense of performance of the business is what we're attempting to do by narrowing that range.

As I mentioned, us having confidence in the upper end of that range is where we are today. That is increased confidence in performance fees as markets have continued to improve. And, that the book of performance fee opportunity business has grown. So as we look forward I think it's -- it can give investors a greater sense of how we're look at the business and seeing the opportunity of all through 2011. Clearly there are many good news things that can occur as we move through 2011 with new investments, with markets improving. But this seems like a very reasonable and conservative place to start as we sit in 2010 looking forward.

Okay. Great. Thanks for taking my questions.

Sure.

Our next question comes from Mark Lane with William Blair and Company.

Good morning. A couple quick ones. One on flows -- The $4.2 billion of net in flows in the institutional channel. How much of that was sourced from AMG's global distribution efforts versus the affiliate level?

I think you could say about half of that comes from AMG distribution efforts, is the way I think about it. Again, it's broad. Let me preface with -- obviously, all of -- every bit of it is because of the affiliates' good performance. The affiliates are participating significantly in every piece of this. So, the idea of saying, "Hey, it's just AMG," really doesn't make sense.

But about 70% overall flows were non-US.

Yes. So then on the deals front -- As I understand it, your corporate philosophy is to have cash on your balance sheet at the time you announced a transaction. Has that changed at all? Would there be a circumstance where, if there was a bigger opportunity, you could announce some sort of capital racing effort commensurate with the deal?

Sure. I think the I'm not sure I call it a philosophy. The strategy is to position our balance sheet ahead of new investment opportunities. But there inevitably will be, and have been in the past, circumstances where the pace and timing of new investment opportunities relative to what we view as appropriate or attractive financing opportunities doesn't exactly match up. And we're, especially given the increased scale of the business -- I wouldn't read really too much, if anything, into how we position the balance sheet as a metric for the magnitude of the new investment opportunities.

So, given the way that you describe your competitive position, and the quality of the pipeline, and the fact that you've been doing this for 17 years, and rates are at record lows, and the market is very very open, yet we've seen tremendous volatility in the last 12 months -- Why wouldn't you raise capital right now?

Why not?

We very well may as we see new investment opportunities. But the business generates a substantial amount of excess cash which is available to us. So I think we will not -- we will not raise capital just because we have a view that we're in a particularly attractive market cycle, and then be in a position of warehousing the cash on balance sheet. We will try to -- we'll try to finance when we need to, not when we think it's especially opportunistic.

The balance sheet does has ample liquidity. It's got low leverage. The opportunity to close transactions with cash and additional -- and some additional debt it's very material. And so -- and we're sensitive to dilution. As we look forward, and as we look at the opportunities for increasing bank facility for accessing the public fund market. These are all areas where we look to first for financing our pipeline.

Okay. Thanks a lot.

Sure.

Our next question comes from Bill Katz with Citigroup. Please state your question.

Hi. Just a couple follow ups. Back to Pantheon -- Can you tell me what's the actual level of committed capital at the end of the quarter?

Just around $27 billion.

Okay. And, not to be your guidance to a dead horse, but penciling around some numbers, if we adjust for the 6%move in the market the last guidance, and an average 4% for next year, given 2% per quarter, and then throw in Trilogy, you're getting a number that's substantially higher than the low end of your guidance. And I can appreciate your conservativism here in October, and your confidence in the higher end, but it would still seem to me that this range is still step function below the inherent earnings power of the company, even before "stretching" in terms of flows and performance fees. Am I missing something here, or is that the right math?

Again, math is math. Don't want to argue about nickels and dimes. As we sit and look forward to 2011 every component of our growth strategy is incredibly well positioned. We want to give investors, as you know, with over a decade of time doing this -- we want to find current income, we want to provide stability of cash flow, and we want to provide extraordinary growth. And so, putting a guidance range out for next year where the low end of the range is rock bottom, is, we think is valuable to investors. For all the reasons I just mentioned, current consensus is a very reasonable place for investors to think about our future expectations, and having confidence in the upper end of the range is wholly appropriate.

I think will add if you look at the implied growth rate in the guidance levels, it is a very attractive growth rate. The main message that we focus on, that is clear to us as we think about expectations of the business going forward, is that in addition to the organic growth opportunity -- which is very substantial and I think given how our business is positioned and our affiliates are performing, we feel very good about that opportunity --

But the most significant element which is in our forward opportunity, which is never been included in our guidance, as you've heard us say, I think it sometimes gets lost as people talk about the business opportunity -- We spend a lot of time and a lot of money and have a very substantial embedded asset in our relationships with outstanding boutique asset management firms all around the world and we don't include contribution from that new investment opportunity in our forward guidance for reasons that are -- here I will say philosophical reasons we don't want to be in a question where we "feel the need" to make an investment in any giver quarter. And we don't. That forward opportunity looking out over the long term and given the track record, including six investments over the past 18 months. That opportunity is quite exciting and is not included at all.

Thanks a lot. Very helpful.

There are no further questions at this time. I'll turn the conference call back over to management for closing remarks. Thank you.

Thank you once again for joining us. We're pleased with our results for this quarter and confident in our prospects going forward. We look forward to speaking with you again in January.

This concludes today's conference, all parties may disconnect.