Affiliated Managers Group Attracts Cash Flows Despite Tough Markets

By Markets Fool.com

Financial markets have been volatile throughout most of 2016, and investment managers at Affiliated Managers Group (NYSE: AMG) have had to work hard to hold their own amid turbulent conditions. AMG's peers have already shown some of the pressure hitting the investment management space, and coming into the company's third-quarter financial report, AMG shareholders were prepared for only modest growth in earnings and a sizable drop in revenue from year-ago levels. What Affiliated Managers Group told investors was encouraging given the iffy state of the industry, but some investors still weren't satisfied with its performance. Let's take a closer look at Affiliated Managers Group's latest results and what lies ahead for the company in the future.

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AMG reaches record assets under management

Affiliated Managers Group's third-quarter results showed the efforts that the company made in fending off the worst impacts of the turmoil in the market. Revenue fell 11% to $544.7 million, which was a steeper drop than most investors were expecting. However, AMG posted a modest 3% rise in economic net income to $164.5 million, and that produced adjusted economic earnings per share of $3.02, topping the consensus forecast for $3 per share.

Looking more closely at Affiliated Managers Group's numbers, the company had plenty to reason to be proud. Net client cash flows for the quarter amounted to $5.8 billion, reflecting the company's ability to draw capital even in a tough environment. Assets under management jumped to $730 billion, which was a new record. Money came in from all three of AMG's primary sources, with mutual funds and high-net-worth accounts seeing assets rise more than 1% and institutional assets climbing nearly as much. Favorable market changes played a vital role in pushing assets to record levels.

One area where Affiliated Managers Group wasn't quite as successful as it has been in the past is in controlling costs. Despite the revenue decline, compensation-related expenses were roughly flat, and that led to only a 6% drop in operating expenses. That pushed operating margin lower from year-ago levels.

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CEO Sean Healey was happy with the company's accomplishments. "Our results reflect excellent execution across all aspects of our business," Healey said, "including ongoing organic growth, the long-term investment outperformance of our Affiliates, and the continued success of our strategy to partner with the highest-quality boutiques worldwide." The CEO was also highly pleased with AMG's ability to bring in net cash flows despite market pressures, pointing to "clients' increased recognition of the competitive advantages of independent boutique firms in generating alpha, even in a low-return environment."

Can AMG keep doing well?

Affiliated Managers Group also believes it will continue to attract high-profile investment advisors to boost its future business. In Healey's words, "AMG is the partner of choice for the most highly regarded firms globally, [and] we are confident in our ability to generate meaningful earnings growth through accretive new investments in outstanding new Affiliates."

Yet AMG chose not to make any changes to its guidance for 2016 and 2017. In its conference call, the company's executives said that AMG still expects $12.30 to $13.30 in economic earnings per share for 2016, and 2017 should see that figure grow to between $14 and $16 per share.

Perhaps because of that lack of decisive optimism, investors in Affiliated Managers Group didn't celebrate the news, sending the stock down 3.5% by mid-afternoon following the announcement. That disconnect between the tone of AMG's report and the stock's movement suggests that investors expect further tough times in the financial markets. But if AMG can keep defying difficult conditions and find ways to grow its fundamental business, then investors in the investment company could end up having the last laugh even in a broad market decline.

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Dan Caplinger has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Affiliated Managers Group. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.