AFFILIATED MANAGERS GROUP, INC. 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, 2020 . These factors (among others) could affect our financial condition, business activities, results of operations, cash flows, or overall financial performance and cause 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 leading partner to independent active investment management firms globally. Our strategy is to generate long-term value by investing in a diverse array of high-quality independent partner-owned investment firms, which we call our "Affiliates," through a proven partnership approach, and allocating resources across our unique opportunity set to the areas of highest growth and return. Our innovative partnership approach enables each Affiliate's management team to own significant equity in their firm while maintaining operational and investment autonomy. In addition, we offer our Affiliates growth capital, global distribution, and other strategic value-added capabilities, which enhance the long-term growth of these independent businesses and enable them to align equity incentives across generations of principals to build enduring franchises. As ofJune 30, 2021 , our aggregate assets under management were$755.7 billion across a broad range of return-oriented strategies. In the first quarter of 2021, we completed a minority investment inBoston Common Asset Management LLC , a women-owned leader in global sustainable and impact investing. In the second quarter of 2021, we completed a minority investment inOCP Asia Limited , a leading alternative manager in private markets, providing customized secured lending solutions across theAsia-Pacific region . InJuly 2021 , we entered into a definitive agreement to acquire a majority equity interest in Parnassus Investments ("Parnassus"), an ESG-dedicated fund manager. Following the close of the transaction, Parnassus partners will continue to hold a substantial portion of the equity of the business and direct its day-to-day operations. The transaction, which is expected to close during the second half of 2021, is subject to customary closing conditions and regulatory approvals. 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 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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As of and for the Three Months As of and for the Six Months
Ended June 30, Ended June 30,
(in billions, except as noted) 2020 2021 % Change 2020 2021 % Change
Assets under management $ 638.4 $ 755.7 18 % $ 638.4 $ 755.7 18 %
Average assets under management 635.7 752.1 18 % 649.4 742.8 14 %
Aggregate fees (in millions) 960.9 1,185.6 23 % 2,214.0 2,600.0 17 %
Assets under management and therefore average assets under management, include the assets under management of our consolidated and equity method Affiliates. 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 generally represents an average of the assets at the beginning or end of each month during the applicable period. Aggregate fees consist of the total asset- and performance-based fees earned by all of our consolidated and equity method Affiliates. 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 are 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 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 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 liquid alternative strategies and equities strategies. In addition, investor demand for passively-managed products, including exchange traded funds has continued, and we have experienced outflows in certain equity strategies, consistent with this industry-wide trend. However, 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. We also anticipate that independent investment firms will continue to seek access to an evolving range of partnership solutions, and that we have a significant opportunity to invest in outstanding firms across the global asset management industry. The following charts present information regarding the composition of our assets under management by strategy and client type as ofJune 30, 2021 :
Assets Under Management
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(1)Alternatives include illiquid alternative strategies, which accounted for 14%
of our assets under management as of
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(2)Global equities include emerging markets strategies, which accounted for 8%
of our assets under management as of June 30, 2021 .
The following tables present changes in our assets under management by strategy
and client type for the three and six months ended June 30, 2021 :
By Strategy - Quarter to Date
Global U.S. Multi-Asset &
(in billions) Alternatives Equities Equities Fixed Income Total
March 31, 2021 $ 222.8 $ 284.7 $ 110.7 $ 119.8 $ 738.0
Client cash inflows and commitments 9.1 10.3 7.7 6.5 33.6
Client cash outflows (5.1) (21.7) (9.1) (5.8) (41.7)
Net client cash flows 4.0 (11.4) (1.4) 0.7 (8.1)
New investments 2.6 - - - 2.6
Market changes 4.6 17.3 6.1 4.6 32.6
Foreign exchange(1) 0.2 0.7 0.1 0.2 1.2
Realizations and distributions (net) (9.1) (0.1) - - (9.2)
Other(2) (1.4) (0.1) - 0.1 (1.4)
June 30, 2021 $ 223.7 $ 291.1 $ 115.5 $ 125.4 $ 755.7 By Client Type - Quarter to Date
High Net
(in billions) Institutional Retail Worth Total
March 31, 2021 $ 408.9 $ 196.8 $ 132.3 $ 738.0
Client cash inflows and commitments 12.4 15.2 6.0 33.6
Client cash outflows (21.4) (15.0) (5.3) (41.7)
Net client cash flows (9.0) 0.2 0.7 (8.1)
New investments 2.3 - 0.3 2.6
Market changes 16.6 10.4 5.6 32.6
Foreign exchange(1) 0.6 0.5 0.1 1.2
Realizations and distributions (net) (8.8) (0.2) (0.2) (9.2)
Other(2) (1.0) (0.2) (0.2) (1.4)
June 30, 2021 $ 409.6 $ 207.5 $ 138.6 $ 755.7
By Strategy - Year to Date
Global U.S. Multi-Asset &
Alternatives Equities Equities Fixed Income Total
December 31, 2020 $ 216.5 $ 278.5 $ 103.5 $ 117.7 $ 716.2
Client cash inflows and commitments 17.5 19.5 14.3 13.2 64.5
Client cash outflows (11.3) (38.8) (16.9) (13.1) (80.1)
Net client cash flows 6.2 (19.3) (2.6) 0.1 (15.6)
New investments 2.6 2.9 1.1 - 6.6
Market changes 8.9 27.8 13.1 7.2 57.0
Foreign exchange(1) 0.4 1.4 0.3 0.4 2.5
Realizations and distributions (net) (9.5) (0.1) - - (9.6)
Other(2) (1.4) (0.1) 0.1 - (1.4)
June 30, 2021 $ 223.7 $ 291.1 $ 115.5 $ 125.4 $ 755.7
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By Client Type - Year to Date
High Net
Institutional Retail Worth Total
December 31, 2020 $ 401.0 $ 189.3 $ 125.9 $ 716.2
Client cash inflows and commitments 21.6 29.7 13.2 64.5
Client cash outflows (36.9) (32.3) (10.9) (80.1)
Net client cash flows (15.3) (2.6) 2.3 (15.6)
New investments 4.5 1.0 1.1 6.6
Market changes 28.7 18.8 9.5 57.0
Foreign exchange(1) 1.4 0.9 0.2 2.5
Realizations and distributions (net) (9.2) (0.1) (0.3) (9.6)
Other(2) (1.5) 0.2 (0.1) (1.4)
June 30, 2021 $ 409.6 $ 207.5 $ 138.6 $ 755.7
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(1)Foreign exchange reflects the impact of translating into U.S. dollars the
assets under management of our Affiliates whose functional currency is not the
U.S. dollar.
(2)Other includes assets under management attributable to product transitions
and reclassifications.
Aggregate Fees
Aggregate fees consist of asset- and performance-based fees of our consolidated
and equity method Affiliates. 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 generally
recognized when it is improbable that there will be a significant reversal in
the amount of revenue recognized. 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 are generally determined by the level of our average assets under
management and the composition of these assets across our 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 $1,185.6 million for the three months ended June 30, 2021 ,
an increase of $224.7 million or 23% as compared to the three months ended
June 30, 2020 . The increase in our aggregate fees was due to a $154.0 million or
16% increase from asset-based fees and a $70.7 million or 7% increase from
performance-based fees. The increase in asset-based fees was due to an increase
in our average assets under management, primarily driven by significant market
appreciation and strong Affiliate investment performance.
Aggregate fees were $2,600.0 million for the six months ended June 30, 2021 , an
increase of $386.0 million or 17% as compared to the six months ended June 30,
2020 . The increase in our aggregate fees was due to a $214.0 million or 10%
increase from performance-based fees and a $172.0 million or 7% increase from
asset-based fees. The increase in asset-based fees was due to an increase in
our average assets under management, primarily driven by significant market
appreciation and strong Affiliate investment performance.
Financial and Supplemental Financial Performance Measures
The following table presents our key financial and supplemental financial
performance measures:
For the Three Months Ended For the Six Months Ended
June 30, June 30,
(in millions) 2020 2021 % Change 2020 2021 % Change
Net income (controlling interest)
N.M.(1)$ 15.1 $ 258.9 N.M.(1) Adjusted EBITDA (controlling interest)(2) 162.1 227.3 40 % 362.4 474.1 31 % Economic net income (controlling interest)(2) 129.6 171.2 32 % 280.9 356.0 27 %
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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 endedJune 30, 2021 , our Adjusted EBITDA (controlling interest) increased$65.2 million or 40%, primarily due to a$224.7 million or 23% increase in aggregate fees. Adjusted EBITDA (controlling interest) increased more than aggregate fees on a percentage basis due to the recognition of performance-based fees at Affiliates in which we hold a greater economic interest. The increase was also due to an$8.9 million decrease in share-based compensation expense, primarily due to an event in 2020 that accelerated certain share-based compensation. For the six months endedJune 30, 2021 , our Adjusted EBITDA (controlling interest) increased$111.7 million or 31%, primarily due to a$386.0 million or 17% increase in aggregate fees. Adjusted EBITDA (controlling interest) increased more than aggregate fees on a percentage basis due to the recognition of performance-based fees at Affiliates in which we hold a greater economic interest. The increase was also due to a$7.4 million decrease in share-based compensation expense, primarily due to an event in 2020 that accelerated certain share-based compensation. For the three months endedJune 30, 2021 , our Net income (controlling interest) increased$78.3 million . The increase in Net income (controlling interest) was greater than the increase in Adjusted EBITDA (controlling interest) primarily due to a$50.7 million decrease in intangible amortization and impairments attributable to the controlling interest and a$29.6 million increase in Investment and other income attributable to the controlling interest, partially offset by a$61.1 million increase in Income tax expense attributable to the controlling interest. For the six months endedJune 30, 2021 , our Net income (controlling interest) increased$243.8 million . The increase in Net income (controlling interest) was greater than the increase in Adjusted EBITDA (controlling interest) primarily due to a$205.9 million decrease in intangible amortization and impairments attributable to the controlling interest and a$46.9 million increase in Investment and other income attributable to the controlling interest, partially offset by a$109.4 million increase in Income tax expense 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. For the three months endedJune 30, 2021 , our Economic net income (controlling interest) increased$41.6 million or 32%, primarily due to a$65.2 million increase in Adjusted EBITDA (controlling interest), partially offset by a$27.0 million increase in current and other deferred taxes, attributable to the controlling interest. For the six months endedJune 30, 2021 , our Economic net income (controlling interest) increased$75.1 million or 27%, primarily due to a$111.7 million increase in Adjusted EBITDA (controlling interest), partially offset by a$35.4 million increase 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 (expense), 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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