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How AMG is Boosting Its Margins through Expense Management

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Revenues decline

On February 3, Affiliated Managers Group (AMG) announced that its economic earnings per share expanded by 1.6% on a year-over-year basis. However, the company’s revenues fell to $590 million in 4Q15 as compared to $641 million in 4Q14. The fall was mainly due to withdrawals of funds by clients, and weak global equities.

The company’s performance on a relative basis was better in comparison 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.

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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 ratio of EBITDA to assets under management stood at 17.2 basis points, or approximately 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 $834 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 (AMG) boosted its margins through expense management. Its operating expenses fell to $397 million in 4Q15 as compared to $443 million in the prior year’s quarter. They were driven mainly by lower compensation, as well as lower selling and general expenses.

AMG’s 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 due to higher revolver balances from the financing of new investments.

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