Affiliated Managers Group Inc (AMG) 2011 Q4 法說會逐字稿

Greetings and welcome to the Affiliated Managers Group Fourth Quarter 2011 Earnings 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). As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Alexandra Lynn, Vice President of Corporate Strategy and Investor Relations for Affiliated Managers Group. Thank you, Ms. Lynn. You may begin.

Thank you for joining Affiliated Managers Group to discuss our results for the fourth quarter and full year 2011. 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.

AMG will provide on its website at www.AMG.com a replay of the call and a copy of our announcement of our results for the 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, Chairman and CEO; Nate Dalton, President and COO; and Jay Horgen, CFO. And now I would like to turn the call over to Sean Healey.

Thanks, and good morning everyone. AMG reported economic earnings per share of $1.76 for the fourth quarter and $6.62 for the full year. Despite the volatile markets in 2011, including 15% to 20% declines in non-US equity markets, AMG generated strong results with year-over-year earnings growth and outstanding net client cash flows of $23 billion.

Against an industry backdrop of muted client demand for alpha-generating products, we were very pleased with our organic growth from net client flows of $4 billion in the quarter, marking our seventh consecutive quarter of strong net inflows.

Our net flows, which lead the industry in return-oriented products, reflect the quality of our specialist affiliates, our unique position in highly attractive product areas, and the ongoing success of our global distribution strategy. Our strategic focus on global and emerging market equity and alternative products, which collectively account for 75% of our EBITDA, continues to drive the growth of our business.

Our highly regarded affiliates are leaders in their respective investment disciplines, including global and emerging market equity managers such as Tweedy Browne, Genesis, and Harding Loevner, and alternative firms like Pantheon, AQR, BlueMountain, and ValueAct. Our affiliates continue to generate excellent relative investment performance in these areas. And we are particularly pleased and proud that Tweedy Browne was just named MorningStar's International Stock Manager of the Year for 2011.

Our global distribution strategy combines the resources and scale of a global asset management company with the investment expertise of our boutique affiliates, and continues to generate strong client cash flows, especially from non-US clients, which accounted for all of our net flows this quarter.

We are seeing strong momentum in each region including Australia, the Middle East, Europe and Asia. And given the ongoing success of our global strategy, we are continuing to invest in our distribution platform worldwide with the addition of new personnel and incremental coverage regions.

Given our forward new business pipeline, and the strong execution of our global distribution strategy, we continue to be confident in both our near and long-term organic growth prospects. We have generated strong organic growth from net client flows in a difficult period for return-oriented products, and we expect that we will see even greater growth as markets stabilize and institutional and retail investors, including especially US investors, increasingly return to risk-oriented products. This trend will benefit our affiliates broadly and we expect continuing and even accelerating client demand for our global and emerging markets equity and alternative products.

Finally, we are making significant progress in the new investments area. As we have noted, our market position and opportunity set are outstanding. And we are having active discussions with traditional, alternative, and wealth management prospects around the world with prospective affiliates at all stages of the pipeline.

While the timing and execution of transactions is inherently difficult to predict, we are confident that we will continue to materially enhance our earnings growth through accretive investments in new affiliates going forward.

Looking ahead, were very well-positioned across all aspects of our business. We have a fantastic group of performance-oriented affiliates which are recognized as industry leaders in highly attractive product areas. We are successfully executing our global distribution strategy and generating outstanding net client cash flows, even in a volatile market environment.

And finally, our new investment opportunity is better than ever.

While there are ongoing concerns about the macroeconomic and political environment, we come into 2012 poised to build on our strong momentum and are feeling very optimistic about our business and forward prospects. Let me now turn it over to Nate, who will discuss our affiliates' results in greater detail.

Thanks, good morning everyone. Against a challenging backdrop, we and our affiliates executed very well in 2011. Broadly speaking, our affiliates continued to generate strong relative returns particularly in the global equities, emerging markets, and alternatives areas.

The combination of this strong performance and our global distribution strategy, which Sean outlined, resulted in industry-leading flows for 2011.

As we described in the release, net client cash flows were over $4 billion for the fourth quarter and $23 billion for the full year. With seven straight quarters of strong, positive client cash flows we were very pleased with the execution of our organic growth strategy.

This success is especially notable given that the dominant flow trends last year favored fixed income products. We are very encouraged not only by the ongoing tactical opportunities we see to further enhance our affiliates' reach on a global basis, but also by the long-term macro opportunity as investors re-risk their portfolios and move back to return-oriented products. As we have said before, we believe institutional retail investors both will have to do this in order to achieve the returns they need.

Now, turning to the most important element, investment performance. In the global equity category, we had another strong quarter. The majority of Tweedy Browne's strategies outperformed on a relative basis for the quarter and year, and remain well ahead of benchmarks across all relevant time periods.

As Sean mentioned, we were very proud of the team at Tweedy Browne, which received MorningStar's International Stock Manager of the Year award for 2011.

Harding Loevner also had very impressive year overall, with a majority of their global equity funds outperforming for the quarter, and so remaining ahead for the full year as well as longer-term periods. AQR and Trilogy each also had a good quarter among their largest global equity products.

In the emerging markets category, we had another strong quarter and year. The flagship strategy at Genesis continued to post excellent results and is significantly ahead of its benchmark for the quarter, one-, three- and five-year periods. Similarly, Harding Loevner's emerging market products significantly outperformed their benchmarks in the fourth quarter and for the full year.

Now, turning to our alternatives category. We had strong absolute performance among many of our largest products which, despite the difficult market environment, delivered meaningful performance fees. Highlights include good performance from major products at AQR, BlueMountain and ValueAct.

At AQR, this included especially strong performance from their Global Risk Premium, Aggressive Multi-Strategy, and Diversified Arbitrage Funds; while at BlueMountain this included their flagship Credit Alternatives Fund as well as their newer long-term credit fund.

-- Long/Short Credit Fund. We had more mixed performance at First Quadrant, with strong performance from their beta-oriented products and a slightly negative quarter but strong full year from their Tactical Currency product. Global TA, on the other hand, was down slightly for the year.

Finally, ValueAct had another great year with excellent performance across all strategies.

Turning to our US equity products and starting on the value side, while as I noted earlier Tweedy Browne generated outstanding performance across its global products, their US equity products missed for the quarter but were ahead of benchmarks for the full year as well as longer time periods.

Third Avenue's US equity products generally missed for the quarter as well, while Systematic Financial Management delivered very strong performance across its value product set in the fourth quarter.

On the growth side, fundamentally it was a challenging market environment for many managers. We saw this at Frontier, where the firm's products trailed their respective benchmarks, as well as Friess Associates, which continued to face challenges from a performance and flow perspective. Times Square, on the other hand, generated outstanding performance really across their suite of growth strategies.

Now, turning to flows in more detail. As I said, we had another quarter of strong growth with approximately $4.1 billion in positive net client cash flows, coming principally in the global equities, emerging markets equities and alternatives areas. We do continue to see outflows in US equities reflecting broader industry trends.

From a geographic standpoint, on a net basis all of our flow growth is coming from clients outside the US. Now, let me describe to flows for the quarter by channel.

Starting with the institutional channel, we had positive flows of approximately $3.1 billion. Looking at the flows in greater detail, it was a quarter where we had significant flows in global and emerging markets products and alternative strategies, with notable contributions from Genesis, AQR, Harding Loevner and Pantheon.

As we always say, flows in the institutional channel are inherently lumpy. And this quarter was no exception, as there were some sizable wins. That said, the long-term trend remains very good in terms of pipeline of won business, finals, and RFPs.

Moving to the mutual fund channel, we had positive flows of over $600 million, again continuing the positive trends over the past several quarters. From a product category standpoint, we had strong flows into alternatives and some global strategies, offset by outflows in US equities.

I will reiterate that while we are benefiting from the trend to alternative products, we believe our affiliates' outstanding and diverse product set enables us to continue to generate positive flows in this channel despite the fact that fixed income is a very small portion of our business and we do not offer any passive products.

This quarter we again had strong flows in the sub-advisory channel, and especially for alternatives and global equity products in the sub-advisory channel. As I said before, our sub-advisory distribution platform has done a good job of generating new business for our affiliates.

In our high net worth channel, flows are about $300 million for the quarter. We had positive flows from Gannett, Welsh and Cutler which continues to attract flows through our US retail distribution platform, while Canadian affiliate Beutel also attracted positive flows.

Finally, turning to our overall global distribution efforts. In 2012 we'll celebrate the fifth anniversary of our first international office, which we opened in Sydney, Australia. We saw the growing demand for performance oriented boutiques among sophisticated institutional investors worldwide, and we continued to build out the platform even during the financial crisis, bringing new regions online and recruiting outstanding teams to cover the Middle East, Europe, and Asia, and opening offices in London and Hong Kong.

As we look at this initiative today, we are obviously pleased with our execution so far. But looking ahead, with the hiring of Andrew Dyson to lead the team, we are very optimistic for continued growth within the regions and channels we are covering. And we continue to work towards expanding into additional regions and channels as well.

Now, with that, I will turn it Jay to discuss our financials.

Thank you Nate. As you saw in the release, we reported economic earnings per share of $1.76 for the fourth quarter, with performance fees contributing $0.26. On a GAAP basis, we reported earnings of $0.77 per share.

The ratio of our EBITDA contribution to end-of-period assets under management was about 16.8 basis points for the fourth quarter, reflecting the strong contribution of performance fees. We expect this ratio to return to approximately 15 basis points for the first quarter and 16 basis points for the full year 2012, which includes a reasonable assumption for performance fees.

Holding Company expenses were $21 million in the fourth quarter and we expect them to continue at this level, reflecting our ongoing focus on operational efficiency, while at the same time we continue to invest in our global distribution effort.

In the fourth quarter, there were two GAAP accounting items to point out, neither of which impacted our economic earnings per share. The first was a $9.2 million expense resulting from the reduction in indefinite-lived ACR, and the second was a $4.8 million gain resulting from adjustments to our contingent payment liabilities.

Together and adjusting for taxes, these items reduced our GAAP earnings per share by a net $0.07. But, as I mentioned, these were non-cash items that have no effect on our economic earnings per share.

With regard to our taxes, our effective GAAP tax rate for the fourth quarter was 30.6%, reflecting flow-through items and an adjustment resulting from UK tax law changes. Our cash tax rate was 22.5% for the quarter, primarily due to the strong contribution of performance fees as well as flow-through items.

For modeling purposes, we expect our GAAP tax rate should be 36% going forward. And we expect our cash tax rate to decline approximately 15% in the first quarter, and then trend upward in 2012 with organic growth and performance fees.

Intangible related deferred taxes were $7 million for the fourth quarter, also reflecting the UK tax rate change and the ACR adjustment I mentioned earlier. Going forward we expect intangible related deferred taxes to return to approximately $13 million per quarter.

With reported amortization of intangible assets of $31.3 million, our share was $27.9 million, together with $8.2 million of amortization from affiliates accounted under the equity method, AMG's controlling interest portion of amortization was $36.1 million in the quarter. We expect our amortization to return to a normalized $27 million per quarter going forward.

For the fourth quarter our portion of total interest expense was $20.7, million which included non-cash imputed interest of $2.5 million pretax. We expect our total interest expense to return to approximately $26 million for the first quarter and going forward.

Turning to our balance sheet, in November we refinanced our bank facility with a new $1 billion five-year unsecured revolver and term loan. Together with our flexible and liquid capital position, strong recurring cash flow and low leverage, we are well-positioned to execute our growth strategy.

Now, turning to guidance, we are raising the bottom end of our 2012 guidance and expect our economic earnings per share to be in the range of $6.70 to $7.40. This guidance assumes our normal convention of market through yesterday with 2% quarterly growth beginning in the second quarter and a weighted average share count of 53 million. The lower end of our 2012 guidance includes a relatively modest contribution for performance fees and organic growth, while the upper end of the range assumes a more robust contribution from performance fees and flow expectation.

As always, these assumptions do not include earnings from future new investments and are based on our current expectations of affiliate growth rates, performance, and the mix of affiliate contributions to earnings. Of course, substantial changes in markets and the earnings contribution of affiliates would impact these expectations.

Now, we would be happy to take your questions.

(Operator Instructions) Bill Katz, Citigroup.

Thanks very much. Just sort of starting with the new investment opportunity, I think Blackrock early in the quarter suggested that the supply/demand is sort of asymmetric to the benefit of the buyers. I think that is something you've been talking about for a bit of time. So I'm just sort of curious; what is going to be the trigger actually to get a deal done? And then secondarily, can you talk a little bit about sort of the pricing dynamics as you see them on a go forward basis?

Thanks, Bill. I think we have been saying for quite some time that the supply/demand balance among buyers and sellers is highly favorable to us. And I would note that relative to other public asset management companies, as well as the mix of other buyers which, of course, as a whole has contracted significantly, the opportunity set that we are looking at is relatively differentiated and unique. Many of the opportunities we are working on are one-on-one transactions that are the product of years of relationship building, for example.

I think going forward the only trigger that we will need is time. We need to execute to completion the transactions that we're working on. We need the market to avoid falling off a cliff, but as you could tell from the tone of our remarks we are highly confident in the new investment opportunity set that we have.

Pricing continues to be favorable. Obviously it varies according to the quality and nature of the firm. But we are seeing a great set of opportunities, both to what's in the market as well as what I will call more proprietary opportunities, and are optimistic about this year.

And this is sort of a follow-up question. I think you continue to sort of mention the phrase Friess continues to be challenged, and I can appreciate the diversification of your business. But how much of a drag on flows is it? And where are they in terms of assets and EBITDA contribution to the overall story?

Nate, do you want to?

Sure, so let me -- I will spend a minute on Friess in general. So I think -- as you know, right, it's a difficult period for US equities in general, especially active US equities. I mean, it is -- I don't remember the exact number, but it's something like 10% or 15% of active managers in the large cap growth category are sort of beating benchmarks, so difficult environment for them.

It's especially difficult for firms with sort of their style, right, where they are looking for high earnings growth with reasonable P/E. So the fact that the market is sort of moving in such a highly correlated way, sort of risk on/risk off way, it's just tough for them to get rewarded for identifying the kind of stocks they are identifying. And they're actually doing a good job identifying stocks that are growing faster. So, you're right; it's a challenging environment and they have been in outflows.

The other thing I will say is, again we've said this before, but the only thing I would say is it's the same team, same process and we're very confident in that group. So we do feel good about that. But, yes, it is a challenging space and they have been going through a challenging performance period.

I think if you step back more broadly, part of what is going on is just an industrywide phenomenon where active US equities as a group are in massive outflows. I think our view is that that is going to change and reverse, and you'll have equity inflows, active equity inflows, active equity inflows both in the US as well as -- and I think this is the point that we want to emphasize -- as well as in global and emerging market equities and alternatives.

So, we have been generating very strong growth notwithstanding the drag which is common across US equity managers of US equity outflows. And also notwithstanding the drag last year, which I think is easy to forget because we think, oh, the market ended up ended up flat. Global IFA and emerging market indices were down 15% and 20% respectively, so it's a very tough year for beta.

And as we look forward, we see that beta hopefully -- no one knows, of course, in the short-term -- but we're confident that hopefully in the short-term and absolutely in the long-term that that beta is going to be strongly positive in global and emerging market equities. And we see continued strong inflows. And to the extent that we have market stability and flows generally positive into active equities, we think we'll get more than our share going forward.

And just one last one; thanks for taking my questions, this one maybe for Jay. I'm just sort of struggling with the low end of the guidance discussion a little bit. I can appreciate, obviously, it's only January 31 and a dose of conservatism as well as the averaging of asset issue.

That being said, with growing at 4% to 5% organic growth rate, what appears to be a pretty good pipeline of new business plus what seems to be in aggregate good performance notwithstanding Friess, I don't understand why the low end of the guidance is as low as it is, particularly given your run rate earnings going into the new year. Maybe a little more -- one or two sentences on that would be helpful.

Sure, thanks Bill, it is Jay. I think if you look at the market blend from October call to now, it's up just around 3%. But as you remember, our market convention is 2% per quarter, so 2% of that was expected and 1% is really the delta. So on a beta basis we have gotten a little bit of lift, but it's modest.

I think we certainly feel good about our prospects this year and we feel good about this range.

Robert Lee, KBW.

Thanks, good morning guys (multiple speakers). Sean, I have a question for you. I am just curious with the transactions pipeline -- I guess this really relates mainly to things you may be thinking about or in the pipeline in the US.

To what extent does the prospective, fairly significant increases in capital gains and Medicare taxes and all that next year, kind of -- do you think that could actually spur some activity, at least in US deals as the year progresses?

I do, I do. I think the pipeline that we are working on includes a mix, as we said, of traditional, alternative, and wealth management prospects, including on a global basis. And most of the pipeline consists of firms where, as you would expect given the timing of the year, where we have been in discussions for some time, and in a number of cases, as I mentioned, exclusive discussions that are the product of a long-term relationship.

So I think we'll continue to have those kinds of opportunities going forward. But I think it will be a catalytic effect of -- assuming markets are at least stable -- of the prospect of impending taxes that will encourage a number of independent firms that know that they must find a succession or solution to their succession-oriented issues. And they don't have any imperative to do it this year versus next year.

But there has been, as we have talked about, a long buildup given the market volatility over the past few years. And so, inevitably, we think that there will be an acceleration of transactions. I think you are right. As we get later in the year, there could be an even bigger pickup in these transactions as people start to do their long-term planning.

Thanks, and maybe one follow-up. I am just curious; this is specific to AQR. And I know you are probably going to be loath to comment on it, but they certainly -- if I think back to I think it was maybe 2007 or 2006 when there was all kinds of things going around about them doing a kind of corporate strategic transaction in terms of an IPO or something. And I think to where they are now, it looks like they substantially rebuilt it. They have done a pretty good job building a mutual fund platform along the way, which I think has been growing at a pretty rapid pace.

So just curious, to the extent you can comment on it, do you think there is -- they have kind of given up a lot of those thoughts? Do you think there is some possibility, as they rebuilt the firms substantially and remade it, that they could be thinking along those lines since you're still a minority holder?

I think there's absolutely no news to report on that front. Their focus has been 100% on building their firm. They have done a fabulous job over the past few years in a whole bunch of ways.

And of course with any of our investments where there is -- where we have a minority interest, there's the theoretical possibility. But that's certainly not in prospect.

All right, great. That was it. Thanks for taking my questions.

Michael Kim, Sandler O'Neill.

Hey guys, good morning, maybe to just kind of approach the deal pipeline a bit differently, can you just kind of talk about where you are in terms of the different stages of getting something done? So, where you might stand as it relates to potential transactions that are maybe more sensitive to the markets or the environment, versus those that just need to get through some kind of final due diligence, if you will.

I don't think any -- that there are any firms where we would expect that there is an unusual exposure to, or lack of exposure to, market volatility. I think it's obviously going to vary, to some extent, by firm. But in general, I think, as long as markets are stable, we feel confident in our ability to execute a number of transactions this year.

I said as much as you could really say when -- in our prepared remarks, I said we have investments or prospective affiliates at all stages of the pipeline. So that means all stages, but I can't be more specific about timing. And inevitably it is quite difficult to predict.

Even when we're very close to a transaction, sometimes it gets pushed off or deferred. But we look at our entire set of opportunities and feel very good about it.

Okay, fair enough; and then moving on to capital management, I don't think you bought back a meaningful amount of stock during the quarter. Was that more a function of maybe a bit better visibility into deals, like you talked about? Or how much of that was related to kind of price sensitivity?

So we just bought a few shares, I think less than 200,000 in the quarter, Michael, and it was earlier in the quarter. It really is a view of the pipeline, a forward pipeline and use of cash.

Okay, and then finally just another one for Jay, in terms of the guidance range. Can you just walk through what you are expecting or how you're thinking about performance fees at both the low and the high ends?

Sure. We -- maybe I will take a step back and just talk about performance fees. We had $0.50 for the year, $0.26 in the fourth quarter. I think I would characterize that as a good year. I think we have the potential to do better than that in performance fees.

In the main, we do not have high watermark issues. I know that's talked about a lot. Of course you could pick a product here and there that might, but in the main, we do not have high watermark issues. It's just a question of return absolute and relative, depending on the type of performance fee.

So I think we look at 2012 and say our opportunity for performance fees is at least as it's good as it was in 2011, in part because we're having net flows in quite a number of alternative managers in their performance fee products. So when we look at this year, of course, we're more conservative on the low side and just, frankly, slightly more positive on the upside.

We can actually go above our own estimate, if you will, internally on performance fees because there is quite an upside opportunity there. But in the main, we have kind of stuck to this 5% to 10% range on performance fees as a percentage of our earnings. We did about 7% this year and so that's kind of the range that we're looking at.

That's helpful. Thanks for taking my questions.

Daniel Fannon, Jefferies & Co.

Hi, good morning. I guess first question is on distribution and flows. I think the comment was that the bulk of the flows are all coming from outside the US. I guess is it concentrated in one region, or is it pretty well split out amongst all the different sales offices? Kind of give some color here would be helpful.

Sure. I think it's pretty diverse. Let me talk about it along another dimension, which is maybe the opportunity too, right? So, good flows coming from places like Australia and the Middle East, where we have had distribution built in operating for a while.

Australia we talked about coming up on our fifth anniversary, really increasing flows in Europe. So that's an area where we had sort of good flows in a bunch of areas, but we see a lot of opportunity going ahead. And what we're doing in Asia, for example, I still think it's pretty early days and there's a lot of upside opportunity there.

So I would say it's broad and diverse not just by regions, but also by affiliates. But I do think there are some places where we see the opportunity to really pick it up going ahead.

Okay, great. And then you said pipelines, RFPs, wins all look good. I guess can you characterize that today versus at other points in 2011 where you made similar comments?

Okay, so obviously the huge caveat of it is very, very -- two caveats, very early in the quarter and then the second is you obviously have much more visibility to the wins than you do to the things you might lose, right?

But, let me do it this way from a sort of won but not funded perspective. This quarter we were running decently ahead of where we were last quarter at this time, and finals continue to be -- probably about the same pace. Maybe overall a little bit better than where we were coming into this quarter.

And then the other thing I'll say is if you sort of look at -- we've been talking about this for a couple of quarters now. It did seem like the pace of decision-making in some parts of the institutional market got slowed down, and I do think we had that effect. So some of that may just be -- there may be a little bit of the buildup in there as well, which we'll hopefully see come through in closed business.

Great, and then I guess, Sean, one more question about the deal opportunity. I guess just trying to compare to '08 and into '09 when you guys deployed a lot of capital, how would you kind of characterize your backlog today and opportunity set versus then?

Well, as you recall, 2008 was the year to avoid deploying capital, and the back half of 2009 in hindsight, it wasn't obvious at the time, was the time to be making substantial investments, which we did.

I think every year is different. We don't have -- we have a number of divestiture opportunities, but it's nothing like the level that you saw at the back half of 2009. The market opportunities and the supply/demand balance I think continue to be very positive, as we said earlier, very much in our favor specifically as well as for buyers generally in the market.

And we feel quite optimistic. I think the opportunity set includes the full range. And I would say more -- sorry, it includes small firms, wealth management firms, which is new from just the past year, as well as some larger opportunities, which are unique and potentially attractive. So we look across that range and feel very good about the opportunities.

And then you know, the core of our investment activity over the past 18 years has been and will continue to be succession-oriented transactions with independent firms, increasingly on a global basis. And we have a tremendous asset in the firm, which is our long-term relationships that we have built up with these firms over time.

Last year was the year where we didn't execute any investments, but I can assure you we were very busy working with firms, building relationships, maintaining and enhancing the ones that we have built over time. And as we look forward, I think there will be inevitably, just for demographic reasons, a substantial increase in succession-oriented transactions.

Part of it may be -- taxes may be a catalyst, but I think as long as we have a measure of stability in the markets, there is going to be a substantial set of opportunities for us. And that's what gives us the optimism, both in the short term with the existing pipelines as well as over the medium to long term where we feel very, very good about our position.

Craig Siegenthaler, Credit Suisse.

Thanks guys, good morning. And just to kind of read between the lines on the M&A commentary, so a question here really for Sean. It seems like you're actually more positive at this point on the succession planning in terms of kind of the timing of the pipeline, but maybe a little softer on the divestiture side. So maybe I'm reading too much into that. Maybe you can comment on that?

And also maybe, Jay, you can pipe in, in terms of what is the kind of accretion ranges for deals. And I know some of these larger deals would be very accretive. Some of the succession deals may be a little smaller. Maybe you can comment in terms of accretion ranges for potential acquisitions.

I think to the extent that you heard me emphasize succession-oriented transactions more than divestiture transactions, it was more -- I intended it to be more around the contrast between the world of 2009, early 2010 and the world of today where we certainly -- in 2009 it was very largely divestiture opportunities. Today we have got some divestiture opportunities, many of which you have read about, but there are some others that are out there that we are looking at.

But you have also got a huge array of succession-oriented transactions, potential investments in alternative firms, as well as wealth management, which is brand-new for us. It is more the breadth than it is one category versus another. Jay?

Yes, and on the accretion, of course it depends on where we are and where we pay or how we fund it. But in general I would say our opportunity for accretion is exactly the same as we said before, which is per hundred million somewhere between $0.10 and $0.20. Again, it depends on what kind of consideration mix.

I think of course we have got a buildup of cash that is occurring on our balance sheet now. And so there's quite a bit of time before we even have to consider anything other than just issuing debt or taking it off of our revolver.

Got it. Thank you. And Jay, just a housekeeping item -- actually two housekeeping items. Will interest expense drop again in the first quarter? Because you paid back that debt I believe in the middle of the fourth quarter, so I thought there might be another step down.

And I believe you said performance fees are $0.26, meaning baseline EPS of $1.50. Did I get those two numbers right?

So on the latter, yes, you got those numbers correct. On the interest expense, our cash interest expense will stay approximately the same quarter over quarter. We don't expect to repay any debt. We just expect to accumulate cash or deploy it.

All right, great, guys. Thanks for taking my questions.

Our final question today is coming from Robert Lee, KBW.

Thank you. I just did have one follow-up question. Just really -- just more curious; I think a couple of years ago you guys had taken a small stake in -- I think it was Value Partners in Hong Kong, you know, it's a publicly traded manager. I think it was only a few percent. But I'm just kind of curious on any update in terms of how they may be -- that relationship has helped maybe gain some access to China, or any possibility of your intention to increase your stake there?

Well, we slightly increased our stake in Value Partners last year. It is a unique opportunity, unique situation and a great firm. And we are great friends with Cheah Cheng Hye, the Chairman and Founder of Value Partners.

And from a broad relationship standpoint, both with Value Partners where we have a great ongoing relationship which could continue to evolve over time, as well as in the perspective in relationships in the region that Mr. Cheah gives us, I think it has been terrific. And we certainly, as we look forward, expect to spend more and more time in the region both in terms of new investment opportunities as well as distribution, which of course is a huge focus for us.

Maybe I'll ask Nate to elaborate on the distribution front.

Sure, so it took us a little bit of time to sort out maybe exactly how to work together. We have started working both with our institutional sales forces in a couple of regions working with them on the sales, marketing, and client service side. So I think we just actually added them to the euro platform.

So some of it is, I think, you know we're going to be helpful to them there. And it's also helpful to our guys because it's a pretty unique, differentiated product set.

And then also the other way, which is they are being very helpful to us as we look at a couple of specific things in different countries. I'm thinking of a specific opportunity in Taiwan where they are being very helpful to us because of some of the relationships they've got, both on the sort of general client servicing but also some regulatory things.

So, yes, again, it's a great relationship and we're finding more and more ways to work together.

Okay great, thanks for the color.

Gentlemen, we have one further question. It was from Cynthia Mayer, Bank of America.

Hi, good morning. (multiple speakers). Can you talk a little bit about in terms of buying the wealth management firms? Are those structured similarly? And would those have the same accretion as a more typical asset management deal?

Broadly speaking, yes. I think there is certainly aspects to the relationship and the degree to which we can provide in the AMG Wealth Partners business a broader set of capabilities, or maybe I will say a different set of capabilities to help our Wealth Management affiliates. I think it will look a little bit different.

But the core approach and core philosophy is very much the same -- investing in very high quality, growing businesses where the management partners want a degree of liquidity, but very much believe in the ongoing growth of their business.

I think with respect to the level of accretion in those investments, it is really going to be a function of size. And by and large there, they are at the smaller end, but not all. But they will tend to be at the smaller end of the size range of our investments, and therefore, just less accretive given the lower scale.

Great, okay. And then really briefly on -- it looks like through AQR you really benefited through the trend toward '40 Act alternative funds. And how do you see that trend going? Do you see those flows industrywide continuing to take greater and greater share, and/or do you think that if equity markets improve and equity flows improve that those would back off a little bit, and equity would take some share back from them?

Why don't you start and then I will --

So I think in the short run, the things we can see -- you asked a really challenging question, right? In the short run the things we can see, I do think there's lots of opportunity for them to continue to take share both from firms like AQR and First Quadrant.

But this idea of sort of liquid alternatives, I think there's lots of opportunities in lots of different places where that can be used in retail investment structures, whether it is '40 Act here or elsewhere in the world. So I do think there's lots of opportunity for that. And we think that there are -- we're working with a number of affiliates that have other alternative strategies to find ways to get them into sort of forms that they can be used in these distribution channels. So, I do think that trend has had a bunch of legs.

If there is sort of very strong equity market returns, I think over time we do think that will of course have some impact on behaviors. And there should be more -- as the risk trade comes back on, maybe, there should be increasing allocations to equities.

Will that come at the expense of what is happening in the alternative space? I think it will be -- personal view, I think it will be a while before it really slowed it down dramatically. But you know at some point sure, maybe.

I think as we look more broadly, and you have probably heard our peers say this, it seems inevitable that there will be a return and a shift back in the cycle toward positive equity market betas, as well as positive active equity flows. And to the extent that that occurs and when it occurs, I think there's no question that we will benefit across our affiliate group.

But I think our point is that we are -- given how we are positioned, already generating industry-leading flows into return-oriented products. And we see going forward, to the extent that there is a broad increase in active equity flows, a continuation. And even, we would argue, an acceleration of our growth because we believe that increasingly investors, as they return to risk assets, and this is US as well as global investors, as they return to risk assets they will look increasingly not just US equity products, but also to global and emerging market equities, and also on an ongoing basis to alternative products.

And it's really that optimism about our ongoing organic growth capability that gives us a lot of confidence going forward about our growth potential. It's not just deals. We're growing faster from an organic growth standpoint than any of our peers, and we see that going forward.

Great, thank you.

Thank you. At this time there are no further questions. I would like to turn the floor back over to Mr. Healey for closing comments.

Thank you again for joining us this morning. As you have heard, we are pleased with our results for the quarter and the year, especially given the market environment, and confident in our prospects for continued growth ahead. We look forward to speaking with you again in April. Thanks.

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