Affiliated Managers Group Inc (AMG) 2016 Q1 法說會逐字稿

Greetings, and welcome to the AMG's first-quarter 2016 earnings call.

(Operator Instructions)

As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Ms. Selene Oh, Vice President Investor Relations for AMG. Please go ahead.

Thank you for joining AMG to discuss our results for the first quarter of 2016. 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 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'll turn the call over to Sean Healey.

Thanks, Selene, and good morning, everyone. AMG reported economic earnings per share of $2.94 for the first quarter of 2016, which is an increase over the first quarter of 2015, notwithstanding declines in global market indices over the past year. Assets under management were $642 billion at quarter end, an increase of 5% in the quarter, driven by successful execution across all aspects of our growth strategy, including the completion of two new Affiliate investments during the quarter, and the excellent investment performance and net flows of our existing Affiliates.

As Jay will describe further, even in a relatively difficult environment for the asset management industry, we see continued earnings growth ahead. We were very pleased with our net client cash flows of over $5 billion into our Affiliates' actively managed strategies this quarter, which were notable, especially given the muted investor risk appetite across the industry more broadly. With more than $110 billion in net inflows over the past five years, we continue to benefit from the ongoing success of our global distribution strategy, including the marketing efforts of our Affiliates, as well as the strength of our global distribution platform.

And importantly, our organic growth also reflects the quality of our boutique Affiliates, and the impact of our strategic focus on high-value added, alpha generating products including global equities and alternatives. The best boutique firms have a competitive advantage in generating excess returns in these product areas, as demonstrated by the outstanding long-term performance records of our Affiliates and it is clear from AMG's organic growth results, that clients continue to prefer boutiques across a range of differentiated return-oriented strategies.

The advantages of boutiques and alpha oriented products are especially evident in the alternatives area. While there has been much discussion recently about the challenges facing hedge funds, especially in certain strategies, there are two points that are important to keep in mind. First, volatility among managers is both inevitable and healthy, and over time, it will benefit the best firms with the strongest franchises. Second, the alternative product area encompasses a much broader range of strategies than hedge funds alone and during the first quarter of 2016, AMG's Affiliates continued to generate strong investment performance and net flows across a wide array of alternative products.

In an environment of low returns clients around the world, from sophisticated large institutions to individual retail investors, increasingly seek diversifying and uncorrelated return streams, and they are expanding allocations to a wide cross-section of alternative strategies. With a broad range of liquid and illiquid strategies from industry leaders including AQR, BlueMountain, Pantheon and ValueAct, AMG is well-positioned to meet an increasing client appetite for the best alternative products.

Likewise, we also see substantial opportunities for global equity managers, given the ongoing erosion of home country bias, and continued globalization of client portfolios. And the outstanding global equity managers such as Artemis, Harding Loevner, Genesis, Veritas and Tweedy, Browne are clearly positioned to benefit. And while the prevailing popular narrative is that active investing underperforms passive, as we all know, averages by definition do not tell a complete story.

AMG recently published the results of research, focusing on the investment performance of boutique firms over 20 years, with the finding that boutiques clearly outperform broad indices over the period. Our Affiliates' long-term performance track records across many market environments speak for themselves, and it's clear to us that there will always be strong client demand for high conviction, differentiated actively managed strategies.

Finally turning to new investments. We were very pleased to complete our investments in Systematica and Baring Asia during the quarter, two outstanding new Affiliates which enhance the diversity of our alternative product set. As exemplified by these and other new Affiliate investments, the founders of leading independent investment firms want to create an enduring franchise, which will persist across generations while preserving their operational and investment culture and autonomy, and they need a permanent ownership solution to enable them to achieve these goals.

The largest and most successful boutiques around the world attach special importance to finding a permanent partner with global scale and a demonstrable and outstanding long-term track record of partnerships with other excellent firms. It's clear from the discussions we're having with prospective Affiliates that AMG's preeminent position as a partner to leading boutique firms is becoming more important than ever, and we're extremely optimistic about our forward prospects to invest in the finest boutique firms globally.

While volatile markets create challenges, they also reveal opportunities, and the transaction environment remains highly favorable for AMG. We are very pleased with the quality and diversity of our new investment pipeline. We're confident in our ability to make additional accretive investments in new Affiliates and together with the organic growth of our existing Affiliates, we are uniquely positioned for continued strong earnings growth going forward.

With that, I'll turn it to Nate to discuss our Affiliate results in more detail.

Thanks, good morning, everyone. As Sean said, in a quarter marked by significant volatility our Affiliates, including especially our largest Affiliates performed very well. We generated good organic growth, with $5.1 billion in positive net client cash flows, coming in across all three of our distribution channels.

Before getting into the details of the quarter, let me start with a couple of the themes that cut across our business. First, we continue to benefit from some durable trends you've heard us talk about many times before, and Sean mentioned a couple of these. The highest quality boutiques are able to generate outperformance across return-oriented product categories.

Institutions and intermediaries are continuing to barbell their portfolios, between passive exposures on the one side, and active exposures on the other, where they are seeking their excess return. Because of their ability to outperform, high-quality boutiques such as our Affiliates are very well positioned to gather these return-seeking assets.

There's a related point here also, which is that boutiques are very well-suited to nimbly evolve their products for these opportunities. This is a trait inherent in the entrepreneurial spirit of successful boutiques, and one that we see in our own Affiliates. We believe all of these trends contributed to the $110 billion in net positive flows over the past five years, that Sean referenced.

Second, let me take a moment to frame our alternatives book for you. Our alternatives business is made up of private equity, infrastructure, various macro, multi-strategy and other non-traditional products, as well as traditional hedge funds in areas such as long-short equity, relative value credit, and managed futures. All of these provide different alternative exposures to client portfolios.

We continue to have very strong alternative flows across all three of our distribution channels. In fact, this was the fifth consecutive quarter that our alternative strategies have had positive flows in all three channels, which is a testament to the breadth of our offerings, as well as the ability of our Affiliates to evolve their products for the various channels, while staying true to their investment disciplines. We think the strong investor interest in alternative products is likely to continue, or even accelerate.

Third, specific to the institutional channel, I would note a couple things. In terms of the first quarter, gross inflows were muted relative to our very strong longer term track record, as investors slowed down the pace at which they put capital to work during the market volatility last quarter. On the other hand, we did not have any significant idiosyncratic outflows in the quarter. Now, while institutional flows will always be lumpy, looking ahead, we feel very good given the long-term trends we've talked about, and the activity level in terms of RFPs, searches and finals.

Fourth and finally, we obviously had a very good flow quarter in our mutual fund channel, particularly in alternative and global equity funds. In addition, the outflows from our US equity funds slowed significantly, as especially Yacktman has been performing very well during the volatility of the last four quarters. Looking ahead, given the strength in our position, the diversity of products with good traction, and the evolution of new products, we continue to believe that there's a significant long-term opportunity to drive material growth in retail.

Now, turning to our product categories, and performance for the first quarter, and starting with alternatives. Across our Affiliate group, we are one of the largest managers of alternative products in the world. And as I described earlier, we have a very diverse portfolio across product categories and investment styles, and including large scale exposure to both liquid and illiquid products is truly a differentiating feature.

In terms of performance, and starting on the more liquid side, in the quarter a number of strategies at AQR delivered solid absolute and relative performance, notably Managed Futures, Global Risk Premium, Long-Short Equity and Equity Market-Neutral.

Our new Affiliate, Systematica, also a good quarter as its flagship BlueTrend strategy featured strong positive returns in the quarter. Although you may have seen from publicly available data that many managed futures products, including some managed by Systematica and AQR, had a pull back in April. Lastly, major strategies at First Quadrant, including Currency and Essential Beta delivered good returns in the quarter.

On the illiquid side, returns from Pantheon's infrastructure offerings and co-investments remain quite strong, and they continue to diversify their product set. For example, broadening their successful infrastructure team into real assets in 2015, and they will be in the market raising a real assets fund later this year. Finally, ValueAct had a more challenging quarter as they underperformed their benchmarks, although they continue to have an excellent long-term track record.

Now turning to our equity products. One theme I would highlight is that we have number of Affiliates with significant value disciplines as part of their investment process. For the first time in several years, value meaningfully outperformed growth in the quarter, and a number of our Affiliates benefited from this.

Starting with the global developed markets category, this value theme was evident as Tweedy, Browne's flagship Global Value Fund outperformed its benchmarks and peers by sizeable margin in the quarter, further improving their category leading track record. In addition, Harding Loevner continued to deliver good returns in the quarter across their international and global equity strategies, as they added to their excellent long-term records, while AQR also delivered solid performance in the quarter. On the other hand, Artemis underperformed these benchmarks, though they still maintained good long-term performance records in their major, non-US equity strategies.

Emerging markets had the best returns of the major equity asset classes, and our Affiliates performed well in the quarter. In the category, Genesis and Harding Loevner posted solid absolute and relative returns, adding to their excellent long-term track records of outperformance. Trilogy also generated good relative returns in their emerging market strategy, while AQR was in line with the MSCI EM index in the quarter, and has excellent relative returns over the long-term.

Finally with respect to our US equities, Affiliates with a significant valuation component generally outperformed their benchmarks and peers in the quarter. This includes Yacktman, whose recently reopened funds featured top decile rankings in the quarter. In addition, major products at GW&K, River Road, SouthernSun and TimesSquare outperformed in the quarter.

Now turning to flows, and starting with the institutional channel, while I'll remind you that flows are inherently lumpy, in the quarter we had net inflows of $285 million. In addition to the major themes I noted earlier, the key drivers of net inflows from an asset class perspective, were alternatives both liquid and illiquid and emerging markets equities, offset by outflows from US and other equities. From an Affiliate perspective, key contributors to positive flows were AQR, Harding Loevner, Pantheon, and Systematica.

In the mutual fund channel, we had net inflows of $3.4 billion in the quarter. In addition to the major positive themes I noted earlier, this quarter we also benefited from some seasonality in the US, as tax-deferred accounts funded in the first quarter, some of which have a meaningful allocation to return-seeking assets.

From an asset class perspective, net inflows were driven by alternatives in global and emerging market equities, and continue to be offset a bit by US equities, although flow trends are continuing to improve there. In our high net worth channel, we had record inflows of $1.3 billion for the quarter. Key contributors to this quarter's strong flows were global and emerging markets equities, alternatives and municipal bonds.

Finally, let me give you some color more broadly on the contribution of our global distribution teams this quarter. Within AMG funds, we've established real traction from the investments we've made over the last 18 months, with growing gross sales, and especially in platform-driven sales this past quarter. Institutionally, we have good traction with clients across the world, dominated by alternatives and global equities, very much consistent with the broader trends I described earlier. We continue to have a strong and growing pipeline of new opportunities, including some that got pushed from the fourth quarter, given the market volatility.

Looking ahead, our Affiliates have excellent long-term track records across a wide range of strategies, and a proven ability to adapt to the evolving needs of the marketplace, while staying true to their investment disciplines. Because of this, we are very optimistic about our ability to continue to drive significant positive flows across all three of our distribution channels, both from our Affiliates' selling efforts, as well as those of our complementary global distribution teams.

With that, I'll turn it to Jay.

Thank you, Nate. As Sean discussed, we are pleased with our first quarter results which included an increase in assets under management of 5% as compared to the prior quarter, primarily due to significant growth from net client cash flows and new investments. Given the strength and diversity of our Affiliates and the substantial cash generated by the scale of our business, we continue to produce stable and growing earnings, even in periods of market volatility. As you saw in the release, we reported economic earnings per share of $2.94 for the first quarter, which included net performance fees of $0.09. On a GAAP basis, we reported earnings per share of $1.92.

Now turning to more specific modeling items, for the first quarter our EBITDA was $215.7 million, and the ratio of our EBITDA to end of period assets under management was approximately 13.4 basis points, or approximately 13 basis points excluding performance fees. These figures include a full quarter impact of EBITDA from Systematica and Baring Asia, which closed at the beginning of January. In the second quarter of 2016, we expect this ratio to be approximately 13.5 basis points.

With regard to our taxes, our effective GAAP tax rate for the quarter was 34.3%, and our cash tax rate was 20.4%. Going forward for modeling purposes, we expect our GAAP tax rate to be 33%, and our cash tax rate to be 20%. Intangible related deferred taxes for the first quarter were $22.1 million, and in the second quarter we expect this number to remain at approximately $22 million.

Our share of reported amortization for the first quarter was $34.4 million, which includes $14.2 million of amortization from Affiliates accounted for under the equity method. For the second quarter, we expect our share of amortization to remain at approximately $34 million. Our share of interest expense for the first quarter was $22.3 million, and in the second-quarter we expect our share of interest expense to remain at approximately $22 million.

Our economic items for the first quarter were negative $1.1 million, which included a non-cash imputed gain of $1.7 million related to our contingent payment obligations. For modeling purposes, we expect other economic items to be approximately $1 million per quarter.

Turning to our balance sheet. Given the outlook for new investments that Sean described, we continue to position our balance sheet to have the capacity and flexibility to execute on our new investment strategy, while also returning capital to shareholders. In the first quarter, we closed on two new investments and repurchased $33 million in shares.

Now turning to guidance. We are raising our 2016 guidance, as we now expect economic earnings per share to be in the range of $12.70 to $14.20. This guidance range assumes our normal model convention of actual market performance through yesterday for the current quarter, and 2% quarterly market growth beginning in the third quarter of 2016. We also assume share repurchases equal to 50% of expected annual economic net income over the course of 2016, which results in an expected weighted average share count of approximately 54 million for the year.

The lower end of our guidance includes a modest contribution from performance fees and organic growth, while the upper end assumes a more robust contribution from both 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 contribution of our Affiliates would impact these expectations.

Now we'll be happy to answer your questions.

Thank you.

(Operator Instructions)

William Katz, Citigroup.

Okay. Thanks so much. Good morning, everyone. Appreciate you taking the question. You mentioned, I think, during the quarter you had accelerated, I think some movement with the shelf financing. And I guess, taken in concert with just the ongoing description of quote/unquote excellent pipeline. Could you talk about maybe the motivation behind that, and what kind of deals you might be looking at this point in time?

So just on the shelf specifically, Bill. Of course, a shelf is just a normal course filing, that lets you issue securities off of it. We had to do it anyway later this year, in August, but we did accelerate it. And of course, we always want to be in a position to be prepared to execute on our new investment pipeline, which as you heard from Sean is a strong pipeline. So I think we're in a good position to do that for the balance of the year.

Yes, I wouldn't add much to what Jay said, and to our prepared remarks. As you could hopefully tell from the tone, we, we're in a very strong position and working very hard, on broadly, but especially in the new investment area. Of course, no fundamental change in strategy. So I wouldn't read anything into the shelf, other than the normal preparation for new investment opportunities.

Thank you. Michael Kim, Sandler O'Neill.

Hey, guys. Good morning. Maybe just a question for Jay on the new guidance range. Just wondering if you could maybe give us a bit more color in terms of the different moving parts, particularly as it relates to the incremental market appreciation last quarter? And then, just a sense of the marks thus far this quarter relative to that 2% convention? Thanks.

Thanks, Michael. And as you know, it was a volatile quarter, so let's start from the beginning. We did raise our guidance for 2016 to $12.70 to $14.20. And it was really based on two factors, a higher mark for AUM since our last call, and an updated performance fee assumption for the year. And so, I'll take both of those. The building blocks on the market assumption -- we last gave guidance on February 2, which was our fourth-quarter call. At that time, our market blend was down about 4%, but has since rebounded toward the end of the quarter, which you can see in our AUM table.

In the second quarter to date through May 2, we estimate our market blend up approximately 1%, which is in line with broader markets. Just to remind you, and you mentioned the model convention in the quarter, we remove for model purposes, the 2% beta assumption, and we replace it with the -- what we experienced quarter to date, which is the 1% I just mentioned. So in summary, from the point of our last call, until the updated guidance today, our model is up 4%. And then, as you know thereafter, starting in the third quarter, we assume 2% quarterly market growth for the third and fourth quarter to round out our 2016 market assumption.

On performance fees, we've updated that assumption as well. Given that we're four months into the year, and while it's still early, we now expect our performance fees to be approximately 8% at the midpoint of our range, it's just down modestly since the last time we gave guidance. As you also know, the breadth and diversity of our performance fee opportunity creates a positive asymmetry. It decreases the probability of achieving the low end of our guidance, while at the top end there's a greater expected value. So there is asymmetry in our performance fee opportunity. And finally, just to remind you as I say every time we talk about performance fees, we only account for performance fee when we recognize them to cash.

Thank you. Dan Fannon, Jefferies.

Thanks, good morning. If we could talk a bit about flows. You kind of characterized the institutional gross sales number as being low, and we can see it's the lowest number since the second quarter of 2014. I guess, a little more color. If it's just -- do you think it's just timing? I think you gave a pretty positive outlook, but a little more color maybe at the Affiliate level or product level as to -- or even region -- as to maybe where you're seeing strength, or even the weakness?

Great. So this is Nate I'll take that one. So as we said, that the gross sales were little lower than prior periods. And I think there was no single factor that really drove it. We called out one, which was this quarter, sort of risk aversion, delayed fundings, and we definitely saw some of that. Also I'll just say, in the last quarter, we didn't really see any lumpy capital commitments to sort of long-lock periods, which is something that happens with some frequency.

And then again, a little bit at the margin seasonality. Q1 is often a somewhat light quarter. But again, so now moving to looking ahead to the current quarter, the second quarter, and looking ahead -- I'll repeat that the flows -- the institutional flows are always lumpy, and it's still early. But we feel very good, both because of long-term trends we talk about, as well as we can see the things that have already funded this quarter.

And some of those were the ones we talked about that slipped, a few things have already funded this quarter. And then, just look at the level of activity in RFPs and finals and whatnot. So feel really good about that.

And in terms of geography and product. I'd say the geography is quite broad, US, non-US, really globally, the activity level is very high. And in terms of product, I think it's the themes we've been talking about, which is especially the alternatives and non-US equities are the places we still continue to see the strongest institutional traction.

And broad-based among Affiliates. A majority of the largest Affiliates, all had positive flows.

Thank you. Craig Siegenthaler, Credit Suisse.

Thanks, good morning. So in the mutual fund channel, AQR contributed a very high percentage of your total flows in 1Q. But did AQR also contribute a high percentage of institutional sales in 1Q or was it more balanced?

Yes. So the institutional sales were very balanced and broad-based. So just to do that piece first. But then when you look at the gross sales on the mutual fund channel, look, obviously AQR obviously had a very good quarter, and is doing a very good job, building up their mutual fund business. But if you look at the five or six largest contributors, it was AQR. But it was also, there were a couple of very strong global equities, global international equities through firms like Harding Loevner. And even on the US equity side, especially on sub advisory firms like Frontier with their Vanguard relationship continue to do very well. So it's -- there's good contribution from a number of Affiliates there as well.

Thank you. Chris Shutler, William Blair.

Good morning. As you look at the strategies that have been generating the most flows in recent quarters, are you approaching a point where there are capacity constraints in any of those strategies? Thanks.

So look, I think when you talk about the capacity issues, I guess, what I would do, is I would probably say, let's step back for a second, and just make sure we're all grounded on it. There's absolutely some places, where there are capacity issues. When you look at the largest contributors to flows in recent quarters, I don't think it's been so much an issue -- and I'll say that for a couple reasons.

So one is, we do have Affiliates in there who are managing their capacity, managing the pace of flows as they are coming in. But a lot of the places we're seeing flows, and we alluded to this in our prepared remarks, with talking about the product development opportunity from our Affiliates that are seeing good flows. There's a lot of good large capacity product coming online at Affiliates. And so, when I say coming online, what I mean by that is they're getting into that sweet spot where they've got the track record.

They've got enough assets that it's critical mass, and they can drive flows, and so, that good three year track record kind of range. But even in some of these newer areas, it's -- even that's less important. So plenty of new products coming online. And some of it's also, and I think that we talked about this as well, the new packaging theme. And that's is a place, where we can be really helpful, which is bringing institutional products into retail channels, or bringing products that are performing very well in one geography into another.

And then, the final thing I'll say, it's also very important to remember, that we have a unique product development opportunity, which is this ability to bring on new Affiliates. So as you look back at the two last firms we talked about, Systematica and Baring, those are very different, unique highly attractive product sets today, as well as good product development opportunities within each of those firms. And we're starting to work with both of them on ways, to both broaden the geographic reach of their distribution, but also to work with them bringing their newer products to market. And so, very excited about the new product development opportunity.

Thank you. Brian Bedell, Deutsche Bank.

Good morning, folks. Nate, maybe just talk a little bit again about the new sales rate? If you could comment on, is the pace so far in the second-quarter, on a prorated basis exceeding the pace of new funded wins in the first quarter? So I guess, are we running a bit above say $3 billion to $4 billion, or $3 billion actually. And then secondly, if you can talk also about how you're thinking about, maybe Sean, how you're thinking about Department of Labor, fiduciary rules, whether that changes any kind of strategy within your sales into 401(k) plans and IRAs?

Maybe I will try both, and Nate add in, if I miss something. I think, starting from the second part of your question, the DOL. I think we said at the time, that we did not really see an impact. In fact, the thing that was ultimately put in place was more benign, than I think many industry observers had feared, and definitely not having any kind of a material impact on our business.

With respect to flows, and this is really just echoing what Nate and I have said in our prepared remarks, and made earlier in response to a question. We see continued good momentum in retail, which is growth in the funds that are having positive flows, and abatement or a lessening of outflows in some other areas, and generally good performance across the group. And then, institutionally, we see very good momentum, and there were some elements of Q1 that were a little anomalous. But without guiding specifically, we feel very positive and optimistic about our forward flow opportunity in institutional as well. You put them together, and that's obviously very good momentum.

And the only thing I would add, is you can look on the mutual fund channel. You can sort of to see the flow momentum continuing, or I think we were running somewhere over $400 million in -- across the whole complex on US mutual funds. And again, just to be clear, that's not including sub advisory, and that's not including non US.

Like again, good flow momentum is continuing there. And then, yes, as we said, what we can see in the institutional channel, both from things that have already funded -- and some of that's the stuff that slipped, as I said before -- as well as the activity level, I feel like we should getting back on pace in terms of gross sales and in institutional. And then, one thing I should also say, is it -- obviously, it was a very good quarter in high net worth as well, and their especially in the intermediated high net worth channels, and the momentum is continuing there as well. And that's international equities. In SMA, that's munis, and that's definitely some alternatives by a number of Affiliates who are on good platforms there.

Thank you. Patrick Davitt, Autonomous Research.

Good morning, and thanks. Kind of a longer-term question around, what feels like a much more increased regulatory environment for asset managers. Curious, one, do you feel like you're equipped to provide compliance and risk management for smaller boutiques that may not be prepared for what's coming through the pipeline? And is that starting to factor into your conversations with potential new Affiliates?

I think there's nothing on the horizon, that is a more than sand in the gears, I would say. I mean, the environment is increasingly complex both here and around the world, and we understand that, and there's certainly heightened awareness among firms broadly. And it is probably more of a conversation, more of an element in the conversations that we have with prospective Affiliates, but it's certainly not a dominant feature. The very best firms are well-equipped to manage these issues, but recognize that if you have a global partner with capabilities and experience around the world, both directly and then coordinating among other Affiliates, that there's, of course, an advantage.

And so, I think it -- the regulatory effects generally are -- setting aside the element of regulation that is positive and needed -- much of the regulatory regime as I said, is probably decreasing efficiency and making business more challenging for all asset management firms. But I think on a relative basis, it certainly positions us and our Affiliates very well. So there's nothing as we look forward, that gives us any particular concern.

Thank you. Mike Carrier, Bank of America Merrill Lynch.

Thanks, guys. Just when we look at the Affiliate line up, and then when we think about performance, I think from an allocation standpoint, you guys definitely have the product areas where we're seeing flows going. I guess, just on performance overall, particularly on the alternative and the international equity, if you look at the overall AMG portfolio with all the Affiliates, and you compare maybe like, the three to five year track record versus a year ago or three years ago, like how are things looking from like the competitive standpoint? Meaning the allocation trends are favorable, but are the performance trends across most of the Affiliates relatively strong?

And then, just a quick one, on the high net worth. I just want to get any color on that, because obviously that was strong, and just wanted to see if there was any more outlook, in terms of what's driving that? Thanks.

Maybe I'll answer at a higher level, and talk about client demand trends, and then let Nate pick up the second part of your question around specific Affiliates. I think the trends that have been in place -- well, across the industry, I think we are still a bit swimming against the current, in terms of where industry flow trends are generally. And you can judge that by the results that you've seen our peers put up, and what you know about the industry generally.

But I think if you look underneath and say, where are the most successful firms gaining share and getting positive flows? And it really is around bar-belling, and recognizing that -- notwithstanding what we read in the popular press, the very best, high active share, alpha oriented, equity managers, especially non-US equity, and alternative managers -- and alternative is a much broader category, and it's -- for all that we hear about individual hedge funds and certain isolated strategies, the truth is that broadly speaking, around the world, there's increasing interest in allocation toward the best alternative firms.

And so, we feel like we're playing -- that this consistent product strategy that we've been executing now for almost 20 years is increasingly attractive to clients, and you're seeing that in our results and we're increasingly positive about the forward opportunities. And the last bit is, this -- in our view -- appreciation that clients have more and more -- in the alpha oriented product set -- of the advantages of the very best boutique firms, and their focus, and discipline and nimbleness and all of the other attributes that make boutiques, the best boutiques attractive. So all of those broad themes, very much in place, very much playing into our core product strategy. And Nate, do you want to talk about specific Affiliates or Affiliates broadly?

Let me add, one -- I think, really add one piece on top of that. So you have -- you understand obviously, there's 500-plus products, and new products being developed, as we talked about earlier all the time. When you think about the framework you were using, which is where the flow opportunities and sort of how we think about that mix and the evolution. Let me walk you through just a simple exercise here, which is we believe overall, there's a very high quality level across our boutiques, and they do obviously a wide range of different things.

Those things will come in and out of favor over time, and they each have their own dedicated strong distribution teams in their own regions and channels as we find them, and they're growing organically very well, and they're excellent businesses. We can marry that -- this relates a little bit to the prior question as well -- which is we can marry that to the scope and scale of our organization.

Whether that's -- again as appropriate -- whether that's in distribution, or in legal and compliance or what have you. And we can help bring their product and the product as they evolve them, bring them into the most appropriate marketplaces in the world for that product, or process, or the amount of capacity they want to use, and where's the best place to find the best matches for them, with the most appropriate distribution channels and clients. And that opportunity has combined the best of boutiques with some of the scale, in scale activities -- distribution and legal and compliance are good examples -- and you need both in order to effectively bring a product around the world and into different channels.

So that's part of it. And then, the other part is, increasingly as we're interacting with the marketplace on behalf of our Affiliates, we're able to bring the Affiliates' product to the marketplace in a way the marketplace wants. So we're having a marketplace joined up conversation, sort of partnership with the consultants or intermediaries or end users, large-scale end-users in these marketplace. And we get the Affiliate product into the right package for those end-users. And so, really there is a very powerful dynamic which is, as the products move in and out of favor, we can take the ones that are in favor. Get them matched up with the right places, and again, as the Affiliates want. So I thought I would add that on top.

Thank you. Alex Blostein, Goldman Sachs.

Thanks. Good morning, everybody. I was hoping you guys could comment on the contribution of AQR to flows kind of overall. We obviously can see the retail channel. But I guess, more broadly, when it comes to performance of your quant Affiliates, whether it's AQR, First Quadrant, et cetera. First quarter was a pretty funky quarter with a lot of volatility. So was just wondering, if you could comment on how each of them has performed over the course of the first quarter, maybe on an absolute basis as well as relative to the benchmark?

So I think broadly, and I think we said some of this in our prepared remarks. I think broadly, the quantitative managers including AQR, and we called out a number of their products, as well as I believe we called out some of FQ's products in both currency and risk parity. I think they had good quarters, and both from a performance standpoint were strong positive contributors. From a flow standpoint again, as we said earlier, I think the AQR guys are doing a fantastic job. But when you look at the flow profile, it really is a combination of firms like AQR, as well as the fundamental global. And even in this quarter, as I mentioned -- sort of US equity firms, you could see contributing.

Okay, thanks.

Thank you. Alex Paris, Barrington Research.

Hi, guys. Most of my questions have been asked and answered. I did have one last question though. Based on your comments with regard to the pipeline, the pipeline appears strong. I think you even said, Sean, that the volatility of the first quarter as being, pushed out some discussions with the first quarters into future quarters. Jay, I guess, this question is for you. Looking at the current balance sheet, what is the capacity for additional acquisitions excluding potential future financings?

Let me answer that, maybe Jay, you can add in as appropriate. I don't think I said that the volatility in the first quarter has pushed things out. I think that reference was around the pipeline, in terms of new client mandates, as opposed to new Affiliate investments. And so with the new Affiliate investments, I think the opportunity set, the environment, our relative position, are really as good as they can be. And we feel quite positive about the opportunity to add new Affiliates from a universe of, a broad universe of outstanding firms. And where we, we're going to choose to invest in really the most outstanding firms who fit both our -- within our culture and philosophy -- but also, of course, the quality and commitment to building an enduring franchise.

And so, we see that opportunity set. The challenge that Jay always has is, to manage our capital position in a way that maintains substantial flexibility. And I think if you look over the last five years, or indeed beyond that, almost the entirety of our corporate history we've had, I think very effective capital management. We've had a commitment to, not holding a lot of cash on the balance sheet, to returning cash in, especially in the form of repurchases to shareholders. But also to make sure that we're positioned to execute on new investment opportunities when they arise. And they often arise in groups, and at times where you can't necessarily choose. And so, you just have to be ready.

Jay can answer the question, although at a high level, it's the business generates over $1 billion in EBITDA. We have lots of that cash that is available to invest in new Affiliates. We have a revolver that is, has lots of spare capacity, and we could, of course, increase it. But the other point is, and your question, without additional financing -- look, we don't have an issue with going to the capital markets including with equity where we see an opportunity.

And anytime we do that, it will be a highly accretive, attractive transaction set for -- and I say set, because by definition that would mean it's at some scale. So those kinds of opportunities, however financed, I think are very attractive to our shareholders, and we'll pursue them. So it really there is no constraint in the way we think about capacity. Jay, do you want --?

No, that was perfect.

Thank you. Michael Kim, Sandler O'Neill.

Hey, guys. Thanks for taking my follow-up. Just curious to get your thoughts on a potential Brexit, in terms of how that might impact any of your Affiliates from more of a structural standpoint? And then, assuming a step up in costs related to some type of transition, just how you're thinking about that dynamic, just given the revenue-sharing arrangements?

I think we are not that concerned, even for the UK-based Affiliates. They're making their plans as you would expect prudently, but don't expect any major disruption. And at the highest level, we don't expect it to happen. Of course, it's possible. And so, prudence dictates that you make contingency plans both at the highest level, but at each individual Affiliate as appropriate. So it's something that, of course, we will all pay attention to, but not something that we're losing a lot of sleep over.

Thank you. Mr. Healey, there are no further questions at this time. I would like to turn the floor back to you for any final remarks.

Thank you, again for joining us this morning. As you've heard, we're pleased with our continued earnings growth through the first quarter of 2016, and we're confident in our ability to continue to create shareholder value, through both the organic growth of our existing Affiliates, as well as accretive investments in new Affiliates. We look forward to speaking with you again in August. Thank you.

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