Affiliated Managers Group Inc (AMG) 2013 Q4 法說會逐字稿

Greetings and welcome to the Affiliated Managers Group fourth quarter 2013 earnings call. At this time all participants are in a listen-only mode. (Operator Instructions). As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Alexandra Lynn. Thank you. You may begin.

Thank you for joining Affiliated Managers Group to discuss our results for the fourth quarter and full year of 2013. 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 assumed obligation to update any forward-looking statements made during the 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 Chief Executive Officer; Nate Dalton, President and Chief Operating Officer; and Jay Horgen, Chief Financial Officer. With that, I will turn the call over to Sean Healey.

Thanks, Ali, and good morning, everyone. We were pleased to report record earnings for both the quarter and full year with economic earnings per share of $3.66 for the fourth quarter and $10.31 for the year, an increase of 34% over 2012. And assets under management of over $540 billion, an increase of approximately 25% year over year. Our results for the quarter and the year reflect excellent execution across our business, including the ongoing success of our distribution strategy, the addition of two highly regarded new affiliates and, above all, the continued strong investment performance of our affiliates, including the outstanding results of our alternative managers, which in turn generated exceptional performance fees.

We continue to benefit from our strategic focus on alpha generating equity and alternative products as global clients increasingly seek return-oriented strategies for the alpha portions of their portfolios to complement their passive beta exposure. And unlike in more scale-oriented product categories, such as fixed income or passive equity, sophisticated clients around the world view specialist firms as having a competitive advantage in alpha generation. In US, global, and emerging market equities, affiliates such as Tweedy, Browne, Harding Loevner, Genesis, Artemis, and Yacktman are recognized as among the best managers globally. While affiliates such as ValueAct, AQR, First Quadrant, and BlueMountain offer a broad array of the most highly-regarded alternative strategies in the industry. On this note, we were very pleased to see that AQR was recently named MorningStar's alternative fund manager of the year.

With the outstanding investment performance of our affiliates and the ongoing success of our global distribution strategy, we continue to generate industry-leading organic growth from net client cash flows with $5.5 billion in net flows during the fourth quarter and over $40 billion for the full year, and now 15 consecutive quarters of strong positive net flows.

Given the opportunities we see for our affiliates to gather new business around the world, we are continuing to build out our global distribution platform by expanding the breadth and depth of our capabilities with additional coverage and personnel in key markets and channels worldwide. As Nate will describe further, in 2013 we made senior hires in several major institutional markets and we are continuing to enhance our position in US retail, which is an increasingly important strategic priority for us. The investments we have been making in our global distribution platform continue to yield excellent results, as evidenced by new mandates generated in every institutional coverage region, with net client cash flows probably spread across all product areas and distribution channels during the year.

Turning to new investments, during the quarter we were pleased to announce an investment in SouthernSun, an exceptional small- and mid-cap equity manager. And looking ahead, the deal environment is very favorable to AMG. Our opportunity set is extremely strong and our 20-year track record of successful partnerships, combined with the strength of our distribution capabilities, gives us a unique competitive advantage. We have entered 2014 with a substantial transaction pipeline, which includes a diverse array of traditional and alternative firms around the world, and we continue to be very optimistic about our prospects for making additional investments in outstanding new affiliates.

Looking back on 2013, I'm very pleased with what we accomplished. Through the successful execution of our growth strategy, including the organic growth of our existing affiliates as well as partnering with new affiliates, we have continued to broaden the scale, diversity and earnings power of our business. Going forward we are uniquely positioned on a global basis. We have a remarkable group of performance-oriented affiliates which are recognized as industry leaders in highly attractive product areas. We are effectively executing our global distribution strategy across an increasing number of markets and channels, and our new investment opportunity is better than ever. As always, we know that future success requires an ongoing focus on excellent execution across our business and we look forward to continuing to create outstanding long-term shareholder value in the years to come.

With that I will turn it to Nate to discuss our affiliates' results in greater detail.

Thanks. Good morning, everyone. As Sean said, 2013 was a great year for AMG, with strong organic growth and excellent investment performance. Our affiliates' outstanding long-term investment track records, combined with our robust global distribution strategy and resources, resulted in another year of exceptional net client cash flows. During the year, we continued to build out our very successful global institutional platforms while, at the same time, we have been increasing our focus on retail distribution channels, especially in the US. We believe we have a unique opportunity to bring an unmatched array of boutique firms with exceptional long-term track records into retail markets by leveraging scale and distribution.

We recently announced several steps towards building upon the scale we have already achieved and, in particular, to leverage the AMG brand into our retail business. I will talk more about those specific steps in a moment. But first, turning to investment performance and starting with the global developed markets category, against the backdrop of generally rising equity markets last quarter our affiliates generated good investment performance.

Highlights included strong performance from significant products at AQR, Artemis, and Third Avenue. Tweedy, Browne, with its deep value strategy, not surprisingly lagged in such a sharply rising market, but the long-term track records remain outstanding and relative performance so far in 2014 has improved. In the emerging markets category we continue to have generally strong performance as all of the major products managed by Genesis and Harding Loevner are well ahead of their respective benchmarks for the quarter, one, three and five-year periods.

Looking at the performance of various emerging and frontier markets recently, it seems very clear that this is a time for active management in EM generally, and we expect that sophisticated clients will continue to maintain and even increase their allocations to our affiliates' emerging markets products.

Turning to our alternatives products category, where, as Sean noted, we offer a broad suite of strategies, for the quarter and full year many of our affiliates' most significant products performed very well, including high-quality products at BlueMountain, First Quadrant, ValueAct, Pantheon, and AQR. In addition to the strong performance of our alternative managers, affiliates which offer both alternative and traditional strategies with incentive fee structures delivered exceptional performance fees in 2013 and the year ended well for a number of our products.

Also during the fourth quarter, several large clients with multiyear performance fee contracts decided to recommit their assets under new long-term contracts, obviously a very positive endorsement, which resulted in the realization of the fees that had been earned on the contracts through 2013.

Turning to our US equity products, we had a mixed quarter and year on the performance side, where Yacktman, like Tweedy, lagged in such a sharply rising market, as you would expect, while the relative performance so far in 2014 has improved and the long-term records are outstanding. TimesSquare, Systematic, and GW&K finished a very strong year, delivering outstanding performance across their respective suites of equity products. As Sean noted, we are also very pleased to welcome SouthernSun Asset Management to our affiliate group. SouthernSun offers industry-leading US, small- and mid-cap strategies with top rated investment products in the trailing 1, 3, 5 and 10-year periods.

Now, turning to flows for the quarter. As I said, we had another good quarter with $5.5 billion in positive net client cash flows. As we emphasize on every call, flows, especially in the institutional and subadvisory channels, are inherently lumpy. However, overall flow momentum continues to be strong.

Turning to the channel review and starting with the institutional channel, we had positive net flows of approximately $2 billion. These flows came primarily in global and emerging markets products and alternative strategies, including notable contributions from Pantheon, Harding Loevner, AQR, BlueMountain, and Artemis. Similar to previous quarters, we had a number of high quality wins coming from leading institutions located around the world.

Moving to the mutual fund channel, we had positive flows of $3.6 billion. From a product category standpoint, we had strong flows into US and global equities and alternative strategies. The breakdown of flows in this channel was also very broad as we had a number of affiliates make significant contributions, including AQR, Artemis, Harding Loevner, Tweedy, Browne, Beutel Goodman, TimesSquare and Yacktman. In our high net worth channel flows were essentially flat for the quarter and rebalancing outflows from some products with annual liquidity features offset inflows, principally in US and global developed markets products.

Now, turning to an update of our distribution platforms which complement our affiliates' dedicated marketing and sales efforts. We continue to generate strong flows among a diverse set of products and across geographies and remain very pleased with the success of the global distribution business to date. As Sean noted, during the year we generated significant new business in each of our coverage regions including Australia, Europe, the Middle East, and Asia, with 2013 being a real breakthrough for us in Asia. As you know, we opened our Hong Kong office just over three years ago.

In addition, we made several investments in our European team over the last year with a new office in Zurich, notable senior hires for the Benelux, German, and Swiss markets, and new Head of Europe, who brings with her significant additional UK expertise and relationships.

In the US, as you saw, we recently announced several initiatives related to the increased strategic focus on our retail distribution business. While this business is already generating good flows for a number of our affiliates, we see significant additional opportunities. It is clear that over time retail investors, just like global institutions, will need to increase their allocations to return-oriented products to achieve their Investment goals. With our wide array of outstanding boutique affiliates, we are very well positioned to capture additional market share as we increasingly leverage our scale and brand.

Now, as we announced two weeks ago, part of this strategy includes bringing Aston Asset Management into the AMG retail platform, enhancing our scale. Next, leveraging the success we have achieved building the AMG brand in global institutional channels, both with end clients as well as intermediaries, we also announced two weeks ago that in the spring we will begin to use the AMG brand for our US retail distribution business. Through this process, the approximately 40 mutual funds available as Managers funds will be rebranded as AMG funds, and we will be able to leverage our brand across channels and geographies. The combined AMG funds business will service over $70 billion of mutual fund, SMA, and subadvised products.

Finally, 2014 is off to a good start and as we continue to see increasing demand for return-oriented products managed by leading boutique firms, we are confident we can continue to generate strong organic growth. With that I will turn it to Jay.

Thank you, Nate. As Sean and Nate discussed, our exceptional fourth-quarter results completed an excellent year of earnings driven by organic growth from net client cash flows and continued outperformance by our affiliates. As you saw in the release for 2013, we reported economic earnings per share of $10.31. For the fourth quarter, we reported economic earnings per share of $3.66, which included net performance fees of $1.41. These performance fees reflect the upside earnings potential in this element of our business, which we normally expect to contribute between 5% and 10% of our economic earnings in a typical year, but which always have the embedded asymmetric upside opportunity to generate a larger earnings contribution.

In addition, we continue to take a conservative approach to the recognition of performance fees, which are included in our earnings only in the quarter in which they are realized as cash. Finally, on a GAAP basis, we reported earnings of $2.79 for the quarter.

Turning to more specific modeling items, the ratio of our EBITDA contribution to end of period assets under management was approximately 25 basis points in the quarter, reflecting the exceptional contribution from performance fees. We expect this ratio to be approximately 15.5 basis points in the first quarter of 2014, and for the full year we expected to be approximately 16.7 basis points, which includes a normalized assumption for performance fees.

Holding company expenses were approximately $33 million in the fourth quarter, reflecting final year-end expenses, and we expect them to return to approximately $27 million in the first quarter for 2014. With regard to our taxes, our effective GAAP tax rate for the quarter was 34.5% and our cash tax rate was 32.9%. For modeling purposes, we expect our GAAP tax rate to be approximately 35% and our cash tax rate to be approximately 25%.

Intangible-related deferred taxes for the fourth quarter were $8.6 million. We expect this number to return to approximately $17 million per quarter in 2014. Our share of reported amortization for the quarter was $23.7 million, and together with $10.5 million of amortization from affiliates accounted for under the equity method, AMG's controlling interest portion of amortization was $34.2 million. We expect AMG's amortization to decline to approximately $27 million per quarter in 2014.

Our interest expense for the fourth quarter was $24.1 million and for the first quarter of 2014 we expect it to decrease to approximately $22 million.

Turning to our balance sheet. With the increasing scale of our annual free cash flow and our $1.25 billion bank revolver, we have ample capacity to execute on our new investment pipeline, and we continue to consider opportunistic access to the capital markets as part of our ongoing effort to lower our cost of capital and simplify our capital structure while maintaining a liquid and flexible balance sheet.

Now, turning to guidance, we continue to expect our 2014 economic earnings per share to be in the range of $10.50 to $11.70. Our guidance assumes our normal convention of actual market performance through yesterday for the current quarter and 2% quarterly market growth beginning in the second quarter of 2014. We also assume a weighted average share count of approximately 55.5 million for the year.

The lower end of our guidance range includes a modest incremental contribution from performance fees and organic growth, while the upper end of the range assumes a more robust contribution of performance fees and net client cash flows. As always, these assumptions do not include earnings from future new investments and are based on our current expectation of affiliate growth rates, performance and the mix of affiliate contribution to our earnings. Of course, substantial changes in markets and earnings contributions of our affiliates would impact these expectations.

Now we will be happy to answer your questions.

(Operator Instructions). Craig Siegenthaler, Credit Suisse.

So, I'm just wondering, have you spent any time looking at non-bank, non-insured SIFI regulations and other regulations that could impact the industry? And what I'm getting at is it looks like certain regulations may attack at the product level, which could have a greater impact on smaller asset managers that don't have the same infrastructure like a larger asset manager has.

So, I'm wondering, do you have any thoughts on longer-term consolidation and the benefits you can provide on the compliance back-office risk management side? And do you think this will be a bigger trend going forward?

Wow, that's a big question. I think the answer is, of course, we think about all of those regulatory initiatives and the breadth and increasing complexity of regulation across jurisdictions. And I guess what I would say is it is increasingly evident to us, not only in our own business -- but of course we have global scale, and for us it's just part of doing business -- but for boutique firms who are considering in the mix of criteria to decide whether they want to seek a strategic partner and which strategic partner would be best for them, increasingly they're thinking about the breadth and complexity and expense of global compliance.

And we have a business that obviously has global scale. We are effectively marketing and distributing, together with our affiliates, products in a large number of jurisdictions. I think over 40 different jurisdictions, over 50 regulators, all of which have ongoing transition and change and increased complexity. And so the ability for us to offer our affiliates and prospective affiliates the opportunity to connect not just to our marketing and distribution platform, but also to our global compliance platform, is becoming increasingly important, and it's a real strategic advantage for us going forward.

Thank you, Sean. And I just have one follow-up to Nate. A more shorter-term focused question, but we know fourth-quarter seasonality tends to be a little weaker on the institutional side. But I'm wondering, were there any large institutional decisions that were pushed off into January? Or maybe pushed forward into September, which caused a sort of a low trend fourth quarter flow quarter for the institutional channel?

So, look, of course there's always a pipeline won but not funded, and of course there are always, again, given the scale of the business, there are always some things that are slipping from one quarter to the next. So, I'm not going to say there wasn't that there. I don't think -- I think if you were going to sort of say, look, what was the seasonality, if any, this last quarter -- that's probably not what I would -- not specifically what I would focus on. Although, again, there is of course there's some of that.

I think the thing I would focus you on is there were some rebalance decisions. There were a number of rebalance decisions, which, again, is not surprising, given the real run in especially US equity, but US and developed market equities. We had some affiliates who had done very, very well, obviously on a relative basis as well. And so there was some rebalance both in the institutional, and then I would also say in the US subadvisory space there were some rebalance decisions that impacted the net number by impacting the gross outflow number.

Nate, were the rebalances from a specific investor like corporate defined-benefit plans or sovereign wealth fund, insurance companies?

Yes. No. I think it was really less than the -- I understand that's part of the question. I think it's less the type of investor thing. And, again, if I were -- again, it's anecdotal and not scientific and all that -- but if I were drawing a conclusion, I really would say I would bring it back just to the movement in the performance in the product category. The only thing I would say is, looking ahead, the momentum in the channels, including for US equity product remains really, really strong.

And so it's less a decision about US equity, I think it's just a set of different investors who have had really good performance and who were rebalancing back to long-term objectives. So the pipeline, including the pipeline for US equities, still remains really good both here in the US and direct global distribution platforms.

Michael Kim, Sandler O'Neill.

First, just a broad question. As you and your affiliates have discussions with existing and potential clients, are you getting a sense that there has been a broad-based pickup in demand for smaller boutique firms, particularly those managing high-value-added strategies? And then within that trend, it seems like boutiques continue to put up strong performance, so just wondering to what extent those factors may be driving market share gains and the outlook for further gains going forward.

Thanks, Michael. I think there is no question that you are right and we have been seeing for a while -- as I said, 15 straight quarters of strong positive flows -- much of that outside the US. But increasingly I think we are seeing US institutional and retail investors re-risk. We think that if you are focused on the alpha generating side of your asset allocation, you are thinking in active equities, specialist equity categories and certainly in alternative strategies.

If you are thinking as a client, you think of the best firms in the world as being very largely the very best boutique firms in the world. And if you can -- if you are a client outside the US, if you can get the best of the focused performance-oriented boutique firm in, let's say, a given alternative strategy, but get all of the benefits of a global scale asset management company when it comes to in-market client service and distribution support but also global compliance, that's really the ideal.

Nate, would you add anything to that?

No. I think that's -- I think that captures it exactly right. We agree with the broad trend. Performance is the ticket. You need to, obviously, have performance. And then, as Sean said, I think it's both. It's our ability to combine access, because people do have limited time and bandwidth, and you have to understand the end users and find, effectively, a partner with them.

And then it's providing comfort to other parts of those same organizations, but providing comfort with the operational, compliance, and infrastructure support. And so I think we can do all of those things, be big where big is helpful, and then get out of the way with respect to the thing, as you say, that they think they are really looking for, which is, ultimately, the performance of the boutique.

Okay, that's helpful. And then can you maybe talk about a potential step up in flows related to opening up access to SouthernSun's funds by plugging them into your distribution platform? And then any color on sales trends for Yacktman more recently, just given the recent fund closures?

Okay. So, SouthernSun -- you are understanding it exactly right. I think we are adding them to the platform. I think they have very good short, medium and long-term track records and we certainly think there's opportunity to leverage our distribution and relationships and add distribution appropriately where it's a good match for them, as we've done with Yacktman and others. So I think you understand that piece exactly right.

On the Yacktman flows, it's two things? So, one, obviously the soft flows has an impact, of course. But it was a soft close. The performance has been -- had been, if you look back at last year, had been softer. And I'm sure that has had an impact as well. I know that has had an impact as well. In part, as they built up cash and all the rest of it. I think if you look at their recent performance, the recent performance this year-to-date so far has been very, very good.

So, I think looking ahead, the question will be -- again, if you remember back to when they closed, the close wasn't really a capacity problem close. It was a -- they were building up cash and they needed to find places to put it to work. I don't know the answer, I'm not speaking for them, but maybe they are finding some opportunities to do some of that. So, I think those are the factors there.

But I think it's a great question and important to underscore an element of our strategy which has a real virtuous circle. In other words, we have been generating very strong organic growth from net client cash flows among the existing affiliates. And you have seen that, as we have said, very consistently, and really industry-leading, especially among return-oriented products.

And then you think separately about the new investment opportunity. And I think historically we viewed the new investment opportunity as certainly very accretive, but accretive on a stand-alone basis. And what we are really seeing, and we've executed this if you look at recent new investments, and where we have been asked by affiliate partners to help with distribution -- whether it's retail distribution, in the case of Yacktman, or global distribution in the case of, let's say, some of the alternative firms or emerging market equity firms, global equity firms.

And as we look forward, we know that an increasingly important element of the decision-making by prospective affiliates is the strength of our distribution capabilities. In turn, as we think about adding new affiliates, we see an opportunity to enhance our organic growth because we are bringing and building into an existing distribution pipeline a whole set of very attractive products that, in some cases, are being offered in a new and different way into the channel or into the geography.

So it's a great opportunity for us, and as we look forward we think all elements of our growth strategy will come into play as we make incremental new affiliate investments.

Okay. And then maybe just one for Jay. Nice to see you maintain the guidance range despite the rough start to the year. So, just wondering where you are maybe seeing a bit better than expected trends to offset the quarter-to-date market losses, or is it just really a function of being so early in the year?

Thank you, Michael. Just a reminder of the convention, first. We do assume 2% per quarter. And the last time we gave guidance was November 5. Clearly, most recently, markets are down, but since that third-quarter call we are off about 1.5% on the market blend basis. So we are down, if not significantly down. But it is -- relative to the 2% convention, we are down 3.5% relative to the model.

Notwithstanding markets and notwithstanding that, we continue to see our earnings in that range of $10.50 to $11.70. And this guidance really reflects the scale and the stability of our business, including the run rate carryover effect of the 2013 organic growth, as well as the expected closing of SouthernSun and the accretion associated with that, which really hasn't changed materially. So that's what is reflected in the current guidance.

Just to also remind people, on performance fees, we are going to again assume a typical year and expect our performance fee opportunity to be in that 5% to 10% of the number that we just gave.

So, obviously, as we showed in 2013, there is this asymmetric upside and there are opportunities which, starting this year, I'm just as optimistic as I was last year about the prospect for having a tremendously strong earnings contribution from performance fees.

Robert Lee, KBW.

Sean, I have a question for you. For those of us on the other side of the call are -- I guess every quarter we try to read the tea leaves of comments around the pipeline and whatnot. And at least my take on maybe the tea leaves is that you feel a little bit better about the deal pipeline heading into this year, whether it's the scope of it or how far down into the pipeline things may be.

So could you maybe -- if that's the case, could you maybe give us a sense of what you think has evolved or changed maybe over the past year, if I'm reading it right, that maybe makes you feel a little bit better about that?

Sure. Well, I've been feeling very good about AMG's prospects in the medium- to long-term for a while. And I see that in the strength of our competitive position, including, as I said, the distribution capabilities and the track record of success in terms of helping our affiliates; the track record of success in terms of being a good partner following the financial crisis. And so, in our systematic now 20-year calling effort, where we build relationships with the very best boutique firms around the world -- and we know that, inevitably, whether they are traditional or alternative, inevitably, in almost all cases, the firm's principals are going to seek some kind of solution to their succession and transition needs. And the demographic reality of senior partners getting older and needing to think more about that then perhaps they ever have before is -- it is clear.

And we have a very compelling story to tell around that. And so, as you have seen in -- of course, strong equity markets -- not in every category, but generally strong equity markets, generally good performance and very good, as we were discussing earlier, very good client demand trends in active equities and alternative products generally. So, strong business momentum certainly for the very best of these boutique firms.

You are seeing more and more of these principals thinking about doing a transaction. And so we see that in our calling efforts and relationship building. If you say, why now? Well, to some extent it's hard to gauge. Waves of M&A activity are very common in this industry and more broadly. And I think I said last quarter that we are in the midst of a wave, I think, of activity in the industry broadly. And you will see some of those transactions.

Certainly you will see transactions that may be great for some other business but don't make any sense for AMG. And so keep those in mind. But with respect to investments in outstanding boutique asset management firms that are seeking to continue to build and create enduring franchises, and where we have got a great multigenerational partner group, we see some from transactions that are in the industry, banker-led transactions, but especially in our what I will call relationship-driven investment opportunities, we see a lot of activity.

And, as I said, we have a very strong pipeline. We have this firm policy that we don't announce deals until we announce them, so I can't really say more than that. But there is a strong level of underlying optimism. And I think, of course, if there is a severe bear market, that is going to dampen activity. But I think if it's a typical correction, which I think it seems to us is more likely, that's not really going to do anything to activity. I could even argue that it might accelerate activity. So we continue to feel very optimistic about our new investment strategy.

Great. And maybe just one last question for Nate, if that's okay. I'm just curious, with the refocus or increased focus maybe on the retail channel, are there any particular segments within that that you feel offer particular opportunity, whether it's maybe the DCIO channel or the RIA channel? When you are looking at attacking that, do you see specific pockets of more opportunity than others?

Yes. And I think I -- well, I'll answer it in a couple ways. One, I think some of it is driven by where we are today. So if you look at our business today, the Managers' business is relatively stronger in the BD channels. The Aston business is good in the BD channels but also relatively strong in the RIA channels. And I think we have a big opportunity ahead of us in the DC markets, I think, in general. But that's partly driven by macro things; it's partly driven by where are we today, relative to the opportunity sets we see. That's the first thing I'll say.

But the second thing I'll say is we do see a really large opportunity for us, if you look at us from a product mix standpoint, because -- again, good global and emerging markets. I think there's some things we can do on both of those and certainly on the emerging markets side. But also, if you look at the mix of alternative products that we have across our affiliate group, I think there were some really strong or some really interesting opportunities that bring those products to bear in a couple of those channels. Maybe in all of those channels. And so I think those are -- maybe that's a different way to dimension it. But I think that's another way that we are thinking about it.

Dan Fannon, Jefferies.

I guess, Nate, just thinking about the backlog and your outlook for 2014 in terms of demand for certain products and/or affiliates, would you characterize it as very similar to how you ended a year ago or in recent quarters, just in terms of the puts and takes around demand in various regions?

To look at it at a very high level, I'd say the long-term trends remain intact. I do think -- look, it's very early in the year and obviously there will be things that affect it. I think, for example, looking backwards -- and I think I said this in my prepared remarks -- this was a year for us where our distribution in Asia really came on.

And so I think another way to think about the distribution opportunity for us is looking at the increased scope and scale of the resources we are bringing to bear. And a lot of it is not necessarily right after we bring things on but it's over time. And so we are having a really good set of conversations [in order to bring] stuff along that has been there for a few years.

We are pretty early in Germany and Switzerland, but those are growing faster. We had good European coverage. We just increased our debt. So, I think you are seeing more resources coming on and so I do think that, from that perspective, the opportunity set at the big end is growing. Now, again, how long it takes to really translate that to wins -- that's obviously something we are working hard at.

But at a very high level I think the opportunity set and all that looks reasonably similar. But we are bringing more and more resources online. And that was institutional I spoke to. And then obviously on the retail side we think there's a big opportunity there and we need to get ourselves organized to go execute on that, too. And I think that's a big potential opportunity.

And also I'd say so far we have really been talking about US retail. There is also an opportunity in retail outside the US. And one other thing we are working on is in geographies where we've built very strong, high-end institutional business, we are also looking at how do we extend that into subadvisory and more platform-driven sales and retail as well.

And this is all in a backdrop of real, secular trends favoring alpha generating active management, favoring alternative strategies that generate alpha. And so, for us, we see broad industry trends -- institutional and retail, US, non-US -- all coming increasingly in our favor. And for us, we feel that, notwithstanding the very strong organic growth that we put up, that we are in very early days in some very large market sent in very large channels. So for us there's lots of optimism and I think we are in the early innings of executing this opportunity.

Great. And then just a follow up, I think you mentioned that some of the performance fee crystallization in the quarter was a result of some clients re-upping some longer-term agreements. Maybe if you could discuss -- is it similar terms that they re-upped? And then also just on the performance fee contribution in general, just the breakdown of number of affiliates, or number of funds, or a little more granularity on that would be helpful.

Sure. So, broadly speaking, it was some large institutions re-upping -- which, again, very positive endorsement -- and into similar kinds of products and structures. So I think that's to the first part of your question.

And then in terms of the performance fees in the quarter, I think it was -- there was a number of affiliates that contributed. It was, I'd say especially, the more alternative firms. So AQR, BlueMountain, ValueAct, all had very strong years and very, very strong quarters in some of their significant performance fee products. And -- but yes, there were a wide set of other ones that contributed as well. And I think that covers most of them.

Yes, and Jay mentioned this, Dan. I know you know this, but it's worth emphasizing, relative to other firms that have alternative products. We always have a very conservative approach to the guidance that we give around performance fee contribution. And it starts with a very conservative approach to the way we account for and talk about performance fee opportunity.

So we have -- we have, right now; we have, every quarter -- I'm knocking on wood here little bit. But we have a broad business with some really excellent firms that have outstanding products, and they generate a lot of performance fees. And there's a level of earned alpha that we don't talk about. We don't talk about performance fees until we realize them as cash. And so you will see some lumpiness because of that. But it's important to understand it's a real asymmetric opportunity.

We guide a very, very conservative base level, but there will be years -- we just had one and we could have another one; will have another one, I'm confident. Whether it's this year or the next, et cetera. But we have terrific upside opportunity in the way that our business is structured and positioned.

Chris Shutler, William Blair.

So, in emerging markets you continue to see strong investment performance, I know. I think that you saw inflows in Q4. So, maybe just talk about the tone around EM? I know it's a relatively small piece of the business today, but the tone and any movement that you are seeing of clients from passive strategies into more actively managed strategies?

Yes. I appreciate the question. I would say that, in the main, global institutional investors have long-term strategic asset allocation models. And they very much, in our experience, favor emerging markets. They recognize that there is inherent volatility, and they view opportunities like the current environment as periods where certainly they will maintain. And indeed, in our experience, we have seen them even enhance and increase their allocations to emerging markets.

I think if you step back and you say, how are we positioned? I think we have a meaningful position on a relative basis. We have a number of affiliates that are recognized as among the best emerging market equity managers in the world. And, given the period of volatility that we are in, it is very clear -- and I think clients recognize this and will increasingly recognize this -- it's a period which favors the very best active managers.

It's a period where stock selection is more important than ever. It's a period where country selection is more important than ever. And so a lot of the competition is index-hugging or its passive, and those kinds of products, I think, are in for a really difficult period. And, for us, you have to live through the volatility, but we think there are big, big silver linings to the period of volatility that we are going through. And we remain very optimistic about our long-term opportunity in emerging market equities.

Great. Thanks, Sean. And then just one more. On the retail platform, obviously you guys announced the rebranding. So, just thinking about the retail opportunity, what should we really expect to change over the next couple of years beyond the name that's on the funds? And do you expect the new deal pipeline to be tilted little bit more towards retail firms? Or are you focusing more on retail-oriented firms going forward? Thanks.

Okay, so in terms of what should you expect going forward, I guess I would try and focus you on two or three just big themes. So the first theme is -- and I know I touched on these before -- I think the first theme is just scale. So you are going to see -- we think this is absolutely a scale business, and so you will see us adding additional scale to this from a sales and marketing, client service standpoint. Certainly from a product packaging standpoint, and you will see us doing some things there so we can be a better partner to the big intermediaries, both US and global. So I think you will see -- so, scale is definitely a theme and you will see us doing things there.

We think brand is absolutely a theme, and you'll see us be able to invest more in the brand because we will have a consistent brand across geographies and channels. And so what I mean by this is we are already interacting with some of the largest global platforms, but we are interacting with them in different ways, in different places now. And this will allow us to bring all of those things together. So I think those are two themes I would focus you on.

A third thing I would say is, look, it's already a successful platform, it is driving good flows, and so this is building strength on top of that strength. And then, maybe just one last thing, on the question of -- and, again, on what product this means, I think there's certainly the opportunity to add other retail-oriented or more retail-oriented firms -- a SouthernSun or what have you -- to it, and really accelerate their growth, expose them to additional opportunities and all that.

But there's also this real opportunity that we talked about to bring much more institutionally focused firms, historically institutionally focused firms, especially alternative firms, through this platform as it is building out. And so I think there's lots of opportunities this will open up for us.

I think that's exactly right. Just to add a little bit to that, first there's this virtuous circle component where, as we add new products, new affiliates and new products, we are an even more attractive and helpful partner to the large distributors. So we are aware of that. We have seen that institutionally, and I'm certain we are going to increasingly see that in retail, both US retail and then non-US.

And I think there's no question that, for retail-oriented firms -- but I think Nate said it well, also institutional firms, the degree to which our distribution capability, both in terms of the number of people and the number of funds and all of that, and offices -- but, most importantly, and I think this is where we really distinguish ourselves from other entities in the market, the track record of success.

We are generating very strong flows on behalf of our affiliates when they ask us to. And I think there's no question that, as we build up US retail -- which is already large and very successful -- we would be happy to put our US retail organic growth against anyone's on a base of now $70 billion, so it's not small. But we think there's lots of opportunities. And our capability, as it expands and broadens, is increasingly compelling to prospective affiliates, as they think about what they're looking for in a partner.

But with respect to who we are looking for, we are going to continue to look for the very best firms all around the world, whether they are traditional, alternative, US, non-US. And that's our focus. And then we will find ways, whether it's US retail or global distribution, to serve those affiliates and enhance our overall growth as a business.

Bill Katz, Citigroup.

I apologize. You may have covered this and I might have missed it. But in terms of the rebalancing, I'm curious, where is the product going? And if you could maybe more specifically quantify how the pipeline looks versus either the third quarter or perhaps year on year to get some perspective about the opportunity for the new year.

Sure. So in terms of the rebalancing side, I think I -- well, the thing I can speak to, the rebalancing was largely out of US equities. Again, it's sort of institutional and also subadvisory are both places we saw that. So it was already out of US equity. Again, exactly where it went is probably hard for us to specifically say.

And then to the question year over year, I think I would describe it, or I think I did describe it two ways. One is, at a very high level, I think the broad, long-term trends remain the same. So if you look at where competitions are happening, our fees and finals, and won but not funded, those kind of things that we track, the long-term looks about the same as where it was -- I'm sorry, it's not long-term. High level looks about the same as where it was a year ago.

But, again, as I said, the thing that is different is I do think we entered the year with additional resources, both at affiliates but also at AMG, that are coming online. And so there it's just not the same kind of year-over-year comparisons coming online. Now, is it this year or next year or whatever? That kind of stuff is hard to tell.

Okay. And then maybe Sean or Jay, I don't know who wants to take it -- but in the past you have gone through the pipeline a little bit, parsing it between early-stage versus late stage discussions, putting the markets aside, how does that look today? It seems like the verbiage is a little stronger, all else being equal, for first and last quarter. Just trying to gauge that pipeline opportunity.

I think all that, what I've already said, stand by itself. I think we have said what we can say about the pipeline. We feel extremely optimistic about our new investment prospects.

Thank you. It seems we have no further questions at this time. I would turn the call back over to Sean 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 and we are confident in our prospects for continued strong growth ahead. We look forward to speaking with you next quarter.

Thank you. Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time, and thank you for your participation.