Affiliated Managers Group, Inc. — FY2021 Form 10-K Summary
Business context and reporting period
AMG is a global partner to independent active investment management firms. Its Affiliates serve institutional, retail, and high-net-worth clients through equity, alternative, multi-asset, and fixed-income strategies. The filing covers the fiscal year ended December 31, 2021, with comparisons primarily to fiscal 2020.
- Assets under management increased to $813.8 billion from $716.2 billion.
- AMG had approximately 4,050 employees, including approximately 225 corporate employees.
- 2021 investments included majority investments in Parnassus Investments and Abacus Capital Group, and minority investments in Boston Common Asset Management and OCP Asia.
Financial and operating metrics
| Metric | 2021 | 2020 | Change |
|---|---|---|---|
| Consolidated revenue | $2,412.4 million | $2,027.5 million | +19% |
| Aggregate fees | $5,611.4 million | $4,626.4 million | +21% |
| Net income | $890.1 million | $427.0 million | +108% |
| Net income attributable to controlling interest | $565.7 million | $202.2 million | +180% |
| Diluted earnings per share | $13.05 | $4.33 | +202% |
| Adjusted EBITDA attributable to controlling interest | $1,058.6 million | $798.8 million | +33% |
| Economic net income attributable to controlling interest | $779.8 million | $624.4 million | +25% |
| Economic earnings per share | $18.28 | $13.36 | +37% |
| Operating cash flow | $1,259.2 million | $1,009.3 million | +25% |
Aggregate fees increased due to a $512.9 million increase in performance-based fees, primarily in liquid alternatives, and a $472.1 million increase in asset-based fees. Approximately 25% of total AUM was potentially eligible for performance-based fees.
Consolidated expenses increased 8% to $1,631.4 million. Compensation and related expenses rose 18% to $1,047.1 million, while selling, general and administrative expenses rose 8% to $347.1 million. Intangible amortization and impairment expense declined 75% to $35.7 million.
Net income attributable to controlling interest benefited from higher equity method income, higher consolidated revenue, investment gains, and lower intangible amortization and impairments. These benefits were partially offset by a $169.6 million increase in income tax expense and a $19.1 million increase in interest expense.
Income before taxes was $1,141.1 million and consolidated income tax expense was $251.0 million. The effective tax rate attributable to the controlling interest was 28.9%, compared with 25.6% in 2020.
Cash flow, liquidity, capital allocation, and debt
- Cash and cash equivalents were $908.5 million at December 31, 2021, compared with $1,039.7 million at year-end 2020.
- Operating cash flow was $1,259.2 million; investing cash flow was negative $583.7 million, primarily reflecting $562.6 million of investments in Affiliates; financing cash flow was negative $798.3 million.
- AMG returned $598.9 million to shareholders through share repurchases and paid $1.7 million in common stock dividends.
- AMG repurchased 3.5 million shares in 2021 at an average price of $146.54. It repurchased an additional 0.8 million shares for approximately $110 million from January 1 through February 16, 2022.
- Debt carrying value was $2,490.4 million at year-end, including $349.9 million of senior bank debt, $1,093.5 million of senior notes, $751.4 million of junior subordinated notes, and $295.6 million of junior convertible securities.
- The company reported approximately $2.6 billion of outstanding debt on a gross basis, maintained investment-grade ratings of A3 from Moody’s and BBB+ from S&P, and had no borrowings under its $1.25 billion revolving credit facility.
- Bank leverage was 1.1x versus a maximum covenant of 3.25x; bank interest coverage was 10.9x versus a minimum covenant of 3.00x. AMG was in compliance with its credit facilities.
- Management expects current cash, operating cash flow, and available revolver capacity to support foreseeable needs, while noting that acquisitions and Affiliate equity obligations may require additional capital.
Material changes versus the prior comparable period
- AUM increased 14%, despite net client cash outflows of $18.5 billion, supported by $59.0 billion of new investments and $76.3 billion of market appreciation.
- Alternatives AUM rose from $216.5 billion to $238.2 billion, while U.S. equity AUM rose from $103.5 billion to $170.7 billion. Global equity AUM declined modestly to $277.5 billion, reflecting net outflows.
- Equity method income increased to $242.5 million from a $43.4 million loss, primarily because of higher performance-based fees and lower impairment charges.
- Equity method impairment expense declined to $52.0 million from $185.0 million, although AMG recorded a $52.0 million fourth-quarter impairment for one Affiliate due to lower AUM and reduced projected growth.
- Investment and other income increased to $117.6 million, primarily from net unrealized gains on other investments.
- Acquired client relationships increased to $1,966.4 million from $1,048.8 million, principally because of the Parnassus and Abacus acquisitions.
- Redeemable non-controlling interests were $673.9 million, and AMG expects approximately $125 million of net Affiliate equity purchases in 2022.
Guidance, outlook, risks, contingencies, and unusual items
Management did not provide a specific 2022 earnings or revenue outlook in the filing. It expects continued demand in private markets, liquid alternatives, Asia, wealth management, and ESG, while acknowledging ongoing outflows in certain equity strategies and continued industry demand for lower-fee passive products.
- AMG completed an additional Systematica investment in January 2022; it remains an equity method investment.
- Acquisition accounting for Parnassus and Abacus remained provisional, although management did not expect material changes.
- AMG had $156.3 million of unfunded commitments to co-invest in Affiliate-sponsored investment products.
- Potential contingent payments tied to Affiliate performance totaled $185.0 million, with $37.5 million potentially payable in 2022; the company expected actual payments of approximately $13 million.
- Deferred and contingent payment obligations associated with Parnassus and Abacus included $265.0 million of deferred obligations and $40.3 million of contingent obligations at year-end. Maximum contingent payments could reach $110.0 million.
- Key risks include market declines affecting AUM and fee revenue, client withdrawals, investment underperformance, fee compression, performance-fee volatility, acquisition execution, Affiliate succession and key-person risk, regulatory and tax changes, cyber threats, COVID-19-related disruption, foreign exchange exposure, and impairment of substantial intangible assets.
- Total assets were $8.9 billion, including $4.7 billion of intangibles and $2.1 billion of equity method investments, making valuation assumptions and impairment testing material to reported results.
- There were no legal proceedings that management believed would have a material adverse effect on financial position, liquidity, or results of operations. Management and the auditor reported effective internal control over financial reporting, excluding Parnassus and Abacus from the 2021 assessment because they were acquired during the year.
Most important facts for investors to verify
- Whether performance-based fee revenue remains elevated and how much of the 2021 increase is recurring versus market- or performance-dependent.
- Net client flows and AUM trends by strategy, particularly continued outflows in global and U.S. equity products.
- The final purchase price allocations and ongoing contribution of Parnassus and Abacus.
- The timing and cash impact of Affiliate equity purchases, deferred payments, contingent payments, and put obligations.
- Leverage, refinancing requirements for the 2024 and 2025 senior notes, and the effect of rising interest rates or LIBOR transition provisions.
- Potential impairment of goodwill, acquired client relationships, and equity method investments if AUM, fee rates, or Affiliate growth expectations weaken.
- The effect of share repurchases, junior convertible securities, and the $500 million equity distribution program on future share count and dilution.