How Will Affiliated Managers Boost Its Margins in 2016?
Why Is Affiliated Managers Targeting Inflows in 2016?
Decline in revenue
Affiliated Managers Group (AMG) reported that its economic EPS (earnings per share) expanded by 1.6% on a year-over-year basis in 4Q15. However, the company’s revenue fell to $590 million in 4Q15—compared to $641 million in 4Q14. The fall was mainly due to withdrawals of funds by clients and weak global equities. In 2016, revenues are expected to decline by 3% since fund deployment declined in 2015. However, the bottom line is expected to expand due to lower expenses.
The company’s performance on a relative basis was better compared to other players in the industry. Alternative asset managers like KKR (KKR) and Blackstone (BX) also reported weak earnings and marginal improvement in their valuations.
Affiliates’ performance
In the fourth quarter, the performance of the company’s affiliates led to a $12.2 billion appreciation in its assets. The company generated EBITDA (earnings before interest, tax, depreciation, and amortization) of $263.1 billion. Its EBITDA-to-assets under management ratio stood at 17.2 basis points or ~13.2 basis points excluding performance fees. The company expects a ratio of 13.6 basis points in 1Q16 mainly due to relatively lower performance fees in the first quarter.
Affiliated Managers reported net income of $531 million in the last fiscal year. In comparison, its competitors reported the following net incomes:
BlackRock (BLK) reported $3.3 billion
T. Rowe Price (TROW) reported $1.2 billion
Bank of New York Mellon (BK) reported $2.7 billion
Together, these companies form 2.8% of the Vanguard Financials ETF (VFH).
Lower expenses
Affiliated Managers Group boosted its margins through expense management. Its operating expenses fell to $397 million in 4Q15—compared to $443 million in the same quarter last year. It was mainly due to lower compensation as well as lower selling and general expenses.
Affiliated Managers’ interest expenses increased to $20.6 million from $19.9 million on higher leverage. The company expects interest expense of $22 million in 1Q16 due to higher revolver balances from financing new investments.
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