A Rising Market Pushes Affiliated Managers Group Higher

For Affiliated Managers Group (NYSE: AMG), strength in the financial markets helps its asset management business in many ways. Not only do good returns bring in more clients, but the asset base against which the company charges its management fees grows of its own accord during bull markets. Yet even when times haven't been as good for the markets, AMG has demonstrated a competitive advantage in keeping clients satisfied.

Coming into Monday's second-quarter financial report, AMG shareholders expected that solid market conditions would foster further growth, and the company largely gave those investors what they were looking to see. Yet the bigger question that Affiliated Managers Group addressed was how it intends to move forward with its fast-growing business. Let's look more closely at Affiliated Managers Group and what's ahead for the asset manager.

AMG sees green

Affiliated Managers Group's second-quarter results were solid. Revenue rose 3% to $570.9 million, which was just a bit slower than the 3.5% growth rate that most investors were hoping to see. Economic net income was higher by 13% to $188.7 million, and the corresponding adjusted earnings of $3.33 per share topped the $3.24 per share consensus forecast among those following the stock.

Taking a closer look at AMG's numbers, the asset manager was able to reverse investor outflows from the first quarter, bringing in more money than left the company during the most recent period. Net inflows companywide were $1.8 billion, with the best performance coming from the alternative space, which brought in a net of $4.7 billion. Interestingly, the U.S. equities portion of AMG's business fared the worst, suffering outflows of $3.2 billion, but interest in global equities and multi-asset strategies also helped to bolster the asset manager's fund flows. For the quarter, Affiliated Managers Group finished with $772.1 billion in assets under management, with favorable markets adding $15.6 billion to the total.

Crucial to AMG's overall performance was the continuing success of its cost-cutting efforts. Declines in overhead expenses were especially useful in offsetting higher compensation costs, and a reduction in impairment charges helped send overall operating expenses down slightly for the quarter. A slight rise in interest expense ate into those gains, but it wasn't enough to take away the positive benefits of the work AMG has done.

CEO Sean Healey believes that AMG is doing very well because of its overall vision. "Through the ongoing execution of our growth strategy, including consistent alpha generation by our affiliates, positive organic growth from net flows, and the continued success of our strategy to partner with the leading boutique firms worldwide," Healey said, "we have meaningfully increased the earnings power of our business."

What's ahead for AMG?

Affiliated Managers Group also sees plenty of runway left toward further growth. In the CEO's words, "In a dynamic market environment, our affiliates are well-positioned to outperform peers and benchmarks, building further on their long-term track records of leading investment performance. With our affiliates' outstanding offerings across attractive alpha-oriented product areas, we have excellent prospects for continued strong organic growth going forward."

The unique thing about AMG is how its business model gives it the opportunity to profit in two different ways. The company gets the typical revenue from management fees and incentives earned in management agreements. However, Affiliated Managers Group also takes equity positions in the boutique investment companies that are its partners, and so when one particular investment firm does well, AMG reaps the firm-specific rewards. At the same time, AMG also values the need for investment companies to be autonomous, and its philosophy allows its affiliates to maintain an entrepreneurial spirit that might otherwise be lost in a large combined enterprise.

Affiliated Managers Group shareholders were pleased with the news, and the stock climbed more than 2% in the first hour of trading following the announcement. With forward progress from its strategic vision, AMG seems almost not to need favorable market conditions in order to make the most of its business opportunities going forward.

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Dan Caplinger has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Affiliated Managers Group. The Motley Fool has a disclosure policy.