Forward-Looking Statements Certain matters discussed in this Quarterly Report on Form 10-Q, in our other filings with theSecurities and Exchange Commission , in our press releases and in oral statements made with the approval of an executive officer may constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These statements include, but are not limited to, statements related to our expectations regarding the performance of our business, our financial results, our liquidity and capital resources, and other non-historical statements, and may be prefaced with words such as "outlook," "guidance," "believes," "expects," "potential," "preliminary," "continues," "may," "will," "should," "seeks," "approximately," "predicts," "projects," "positioned," "prospects," "intends," "plans," "estimates," "pending investments," "anticipates" or the negative version of these words or other comparable words. Such statements are subject to certain risks and uncertainties, including, among others, the factors discussed under the caption "Item 1A. Risk Factors" in our Annual Report on Form 10-K for the year endedDecember 31, 2019 , and also under "Item 1A. Risk Factors" in our Quarterly Report on Form 10-Q for the period endedMarch 31, 2020 . These factors (among others) could affect our financial condition, business activities, results of operations, cash flows or overall financial performance and could cause our actual results and business activities to differ materially from historical periods and those presently anticipated and projected. Forward-looking statements speak only as of the date they are made, and we will not undertake and we specifically disclaim any obligation to release publicly the result of any revisions that may be made to any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of events, whether or not anticipated. In that respect, we caution readers not to place undue reliance on any such forward-looking statements. Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our Consolidated Financial Statements and the notes thereto contained elsewhere in this Quarterly Report on Form 10-Q. Executive Overview We are a global asset management company with equity investments in high-quality boutique investment management firms, which we call our "Affiliates." Our strategy is to generate long-term value by investing in leading independent active investment managers, through a proven partnership approach, and allocating resources across our unique opportunity set to the areas of highest growth and return. Through our innovative partnership approach, each Affiliate's management team retains significant equity ownership in their firm while maintaining operational autonomy. In addition, we offer centralized capabilities to our Affiliates across a variety of areas, including strategy, marketing and distribution, and product development. As ofSeptember 30, 2020 , our aggregate assets under management were$653.5 billion , across a broad range of active, return-oriented strategies. During the nine months endedSeptember 30, 2020 , the pandemic caused by the novel coronavirus ("COVID-19") had a significant impact on the global economy, which may continue for months to come. The overall extent and duration of COVID-19 on businesses and economic activity generally remains unclear. We and our Affiliates remain focused on the health and well-being of the individuals and families at AMG, our Affiliates, and the community at large. Given the nature of our decentralized operations and our entrepreneurial culture, we and our Affiliates remain fully operational and have experienced minimal disruption in continuing to serve our key stakeholders, most importantly our clients. We continue to monitor the economic uncertainty related to COVID-19, and the extent of the impact on our business operations and financial results will depend on a number of factors and future developments, which are uncertain and cannot be predicted. Operating Performance Measures Under accounting principles generally accepted in theU.S. ("GAAP"), we are required to consolidate certain of our Affiliates and use the equity method of accounting for others. Whether we consolidate an Affiliate or use the equity method of accounting, we maintain the same innovative partnership approach and provide support and assistance in substantially the same manner for all of our Affiliates. Furthermore, all of our Affiliates are boutique investment managers and are impacted by similar marketplace factors and industry trends. Therefore, our key aggregate operating performance measures are important in providing management with a more comprehensive view of the operating performance and material trends across our entire business. The following table presents our key aggregate operating performance measures: 25
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Table of Contents As of and for the Three Months As of and for the Nine Months Ended September 30, Ended September 30, (in billions, except as noted) 2019 2020 % Change 2019 2020 % Change Assets under management$ 750.7 $ 653.5 (13) %$ 750.7 $ 653.5 (13) % Average assets under management 765.4 657.9 (14) % 770.7 652.2 (15) % Aggregate fees (in millions) 1,130.5 961.7 (15) % 3,545.6 3,175.7
(10) %
As of and for the three and nine months endedSeptember 30, 2020 , assets under management and average assets under management exclude the assets under management of certain Affiliates in which we have repositioned or are repositioning our interests. These Affiliates are not significant to our operating performance measures or our results of operations. Assets under management is presented on a current basis without regard to the timing of the inclusion of an Affiliate's financial results in our operating performance measures and Consolidated Financial Statements. Average assets under management reflects the timing of the inclusion of an Affiliate's financial results in our operating performance measures and Consolidated Financial Statements. Average assets under management for mutual funds and similar retail investment products represents an average of the daily net assets under management, while for institutional and high net worth clients, average assets under management represents an average of the assets at the beginning or end of each month during the applicable period. For the three and nine months endedSeptember 30, 2019 and 2020, aggregate fees consists of the total asset and performance based fees earned by all of our consolidated and equity method Affiliates, and includes the aggregate fees of certain Affiliates in which we have repositioned or are repositioning our interests. These Affiliates are not significant to our operating performance measures or our results of operations. For certain of our Affiliates accounted for under the equity method, we report aggregate fees and the Affiliate's financial results in our Consolidated Financial Statements one quarter in arrears. Aggregate fees is provided in addition to, but not as a substitute for, Consolidated revenue or other GAAP performance measures. Assets Under Management Through our Affiliates, we provide a comprehensive and diverse range of active, return-oriented strategies designed to assist institutional, retail and high net worth clients worldwide in achieving their investment objectives. We continue to see demand for active, return-oriented strategies, particularly in illiquid alternative and multi-asset and fixed income strategies, reflecting continued investor demand for returns that are less correlated to traditional equity markets, while we are experiencing outflows in quantitative strategies across alternative strategies and equities strategies. We believe the best performing active equity managers (whether global-, regional-, or country-specific) will continue to have significant opportunities to grow as a result of net client cash inflows. We believe we are well-positioned to benefit from these trends. The outbreak of COVID-19 has created significant disruption in economic activity. The impact of the COVID-19 outbreak on our Affiliates and their clients' demand for investment strategies is currently uncertain, and could result in changes in investor demand for our strategies in ways that cannot be predicted but could vary from recent trends. If financial markets were to worsen as a result of COVID-19 or other factors, our average assets under management and asset based fees could be adversely impacted. 26
-------------------------------------------------------------------------------- Table of Contents The following charts present information regarding the composition of our assets under management by active, return-oriented strategy and client type as ofSeptember 30, 2020 :
Assets Under Management (in billions)
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(1)Alternatives include illiquid alternative strategies, which accounted for 15%
of our assets under management as of
(2)Global equities include emerging markets strategies, which accounted for 8%
of our assets under management as of
The following tables present changes in our assets under management by active, return-oriented strategy and client type for the three months endedSeptember 30, 2020 : By Strategy - Quarter to Date Global Multi-Asset & (in billions) Alternatives Equities U.S. Equities Fixed Income Total June 30, 2020$ 220.5 $ 229.2 $ 84.0$ 104.7 $ 638.4 Client cash inflows and commitments 6.3 7.7 3.1 5.8 22.9 Client cash outflows (9.9) (13.5) (8.5) (5.0) (36.9) Net client cash flows (3.6) (5.8) (5.4) 0.8 (14.0) Market changes 1.3 15.1 5.5 3.5 25.4 Foreign exchange(1) 1.7 2.3 0.2 0.5 4.7 Realizations and distributions (net) (0.7) (0.1) - - (0.8) Other(2) (0.1) - - (0.1) (0.2) September 30, 2020$ 219.1 $ 240.7 $ 84.3$ 109.4 $ 653.5 27
-------------------------------------------------------------------------------- Table of Contents By Client Type - Quarter to Date High Net (in billions) Institutional Retail Worth Total June 30, 2020$ 364.9 $ 161.8 $ 111.7 $ 638.4 Client cash inflows and commitments 9.1 8.9 4.9 22.9 Client cash outflows (19.4) (12.9) (4.6) (36.9) Net client cash flows (10.3) (4.0) 0.3 (14.0) Market changes 14.0 7.7 3.7 25.4 Foreign exchange(1) 2.5 2.0 0.2 4.7 Realizations and distributions (net) (0.7) (0.1) - (0.8) Other(2) - (0.2) - (0.2) September 30, 2020$ 370.4 $ 167.2 $ 115.9 $ 653.5 By Strategy - Year to Date Global U.S. Multi-Asset & Alternatives Equities Equities Fixed Income Total December 31, 2019$ 241.2 $ 274.9 $ 100.0 $ 106.4 $ 722.5 Client cash inflows and commitments 22.6 24.9 10.8 16.7 75.0 Client cash outflows (35.9) (46.4) (23.0) (15.7) (121.0) Net client cash flows (13.3) (21.5) (12.2) 1.0 (46.0) New investments 3.7 - - - 3.7 Market changes (9.5) (9.5) (2.4) 2.9 (18.5) Foreign exchange(1) (1.3) (2.8) (0.2) (0.9) (5.2) Realizations and distributions (net) (1.4) (0.1) - (0.2) (1.7) Other(2) (0.3) (0.3) (0.9) 0.2 (1.3) September 30, 2020$ 219.1 $ 240.7 $ 84.3 $ 109.4 $ 653.5 By Client Type - Year to Date High Net Institutional Retail Worth Total December 31, 2019$ 407.2 $ 198.1 $ 117.2 $ 722.5 Client cash inflows and commitments 30.4 30.4 14.2 75.0 Client cash outflows (57.2) (48.9) (14.9) (121.0) Net client cash flows (26.8) (18.5) (0.7) (46.0) New investments 3.7 - - 3.7 Market changes (9.2) (9.2) (0.1) (18.5) Foreign exchange(1) (2.6) (2.3) (0.3) (5.2) Realizations and distributions (net) (1.4) (0.2) (0.1) (1.7) Other(2) (0.5) (0.7) (0.1) (1.3) September 30, 2020$ 370.4 $ 167.2 $ 115.9 $ 653.5 ___________________________ (1)Foreign exchange reflects the impact of translating intoU.S. dollars the assets under management of our Affiliates whose functional currency is not theU.S. dollar.
(2)Other includes assets under management attributable to product transitions and reclassifications.
Aggregate Fees 28
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Table of Contents
Aggregate fees consists of asset and performance based fees. Asset based fees include advisory and other fees earned by our Affiliates for services provided to their clients and are typically determined as a percentage of the value of a client's assets under management. Performance based fees are based on investment performance, typically on an absolute basis or relative to a benchmark, and are recognized when they are earned (i.e., when they become billable to customers and are not subject to claw-back). Performance based fees are generally billed less frequently than asset based fees, and although performance based fees inherently depend on investment performance and will vary from period to period, we anticipate performance based fees will be a recurring component of our aggregate fees. Aggregate fees is generally determined by the level of our average assets under management, the composition of these assets across our active, return-oriented strategies that realize different asset based fee ratios, and performance based fees. Our asset based fee ratio is calculated as asset based fees divided by average assets under management. Aggregate fees were$961.7 million for the three months endedSeptember 30, 2020 , a decrease of$168.8 million or 15% as compared to the three months endedSeptember 30, 2019 . The decrease in our aggregate fees was due to a$165.5 million or 15% decrease from asset based fees and a$3.3 million or less than 1% decrease from performance based fees. The decrease in asset based fees was due to a decrease in our average assets under management, principally in our alternative strategies and equities strategies due to net client cash outflows and a change in the composition of our assets under management. Aggregate fees were$3,175.7 million for the nine months endedSeptember 30, 2020 , a decrease of$369.9 million or 10% as compared to the nine months endedSeptember 30, 2019 . The decrease in our aggregate fees was due to a$464.1 million or 13% decrease from asset based fees, partially offset by a$94.2 million or 3% increase from performance based fees. The decrease in asset based fees was due to a decrease in our average assets under management, principally in our alternative strategies and global equity strategies due to net client cash outflows and a change in the composition of our assets under management.
Financial and Supplemental Financial Performance Measures
The following table presents our key financial and supplemental financial performance measures: For the Three Months Ended For the Nine Months Ended September 30, September 30, (in millions) 2019 2020 % Change 2019 2020 % Change Net income (loss) (controlling interest)$ 86.3 $ 71.3 (17) %$ (6.8) $ 86.3 N.M.(1) Adjusted EBITDA (controlling interest)(2) 206.5 181.2 (12) % 641.3 543.6 (15) % Economic net income (controlling interest)(2) 159.4 152.1 (5) % 498.5 433.0 (13) %
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(1)Percentage change is not meaningful.
(2)Adjusted EBITDA (controlling interest) and Economic net income (controlling interest) are non-GAAP performance measures and are discussed in "Supplemental Financial Performance Measures." Adjusted EBITDA (controlling interest) is an important supplemental financial performance measure for management as it provides a comprehensive view of our share of the financial performance of our business. For the three months endedSeptember 30, 2020 , our Adjusted EBITDA (controlling interest) decreased$25.3 million or 12%, primarily due to a$168.8 million or 15% decrease in aggregate fees. While aggregate fees decreased$369.9 million or 10% in the nine months endedSeptember 30, 2020 , our Adjusted EBITDA (controlling interest) decreased$97.7 million or 15%. Adjusted EBITDA (controlling interest) decreased more than aggregate fees on a percentage basis due to a decline in earnings at certain Affiliates in which we share in revenue less agreed-upon expenses and the recognition of performance based fees at Affiliates in which we hold less of an economic interest. The decrease was also due to a$15.7 million increase in share-based compensation primarily due to an event that accelerated certain share-based compensation. For the three months endedSeptember 30, 2020 , our Net income (controlling interest) decreased$15.0 million or 17%, primarily due to a$25.3 million decrease from the decline in Adjusted EBITDA (controlling interest), partially offset by a$9.3 million decrease in Intangible amortization and impairments attributable to the controlling interest. 29
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While Adjusted EBITDA (controlling interest) decreased$97.7 million or 15%, for the nine months endedSeptember 30, 2020 , our Net income (controlling interest) increased$93.1 million . The increase in Net income (controlling interest) was primarily due to a$278.6 million decrease in equity method intangible amortization and impairments. This increase was partially offset by a$36.2 million increase in Intangible amortization and impairments, and a$36.8 million increase in Income tax expense, both attributable to the controlling interest. We believe Economic net income (controlling interest) is an important supplemental financial performance measure because it represents our performance before non-cash expenses relating to the acquisition of interests in Affiliates and improves comparability of performance between periods. In the three months endedSeptember 30, 2020 , our Economic net income (controlling interest) decreased$7.3 million or 5%. This decrease was primarily due to a$25.3 million decrease in Adjusted EBITDA (controlling interest), partially offset by a$19.3 million decrease in current and other deferred taxes attributable to the controlling interest. In the nine months endedSeptember 30, 2020 , our Economic net income (controlling interest) decreased$65.5 million or 13%. This decrease was primarily due to a$97.7 million decrease in Adjusted EBITDA (controlling interest), partially offset by a$39.7 million decrease in current and other deferred taxes attributable to the controlling interest. Results of Operations The following discussion includes the key operating performance measures and financial results of our consolidated and equity method Affiliates. Our consolidated Affiliates' financial results are included in our Consolidated revenue, Consolidated expenses, and Investment and other income, and our share of our equity method Affiliates' financial results is reported, net of intangible amortization and impairments, in Equity method income (loss) (net). Consolidated Revenue The following table presents our consolidated Affiliate average assets under management and Consolidated revenue:
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