For the first quarter of 2017, diluted earnings per share were $2.13, compared to $1.90 for the same period of 2016, and Economic earnings per share (“Economic EPS”) were $3.21, compared to $2.92 for the same period of 2016. For the first quarter of 2017, Net income was $122.5 million, compared to $104.0 million for the same period of 2016. For the first quarter of 2017, Economic net income was $183.2 million, compared to $159.3 million for the same period of 2016. For the first quarter of 2017, Adjusted EBITDA was $243.8 million, compared to $215.7 million for the same period of 2016. For the first quarter of 2017, Revenue was $544.3 million, compared to $545.4 million for the same period of 2016. For the first quarter of 2017, Aggregate revenue, which includes revenue from consolidated Affiliates as well as Equity method revenue (which represents asset-based fees and performance fees earned by Affiliates accounted for under the equity method), was $1.4 billion, compared to $1.0 billion for the same period of 2016. (Economic EPS, Economic net income, and Adjusted EBITDA are defined in the attached tables, along with reconciliations to the most directly comparable GAAP measure.)

Net client cash flows for the first quarter of 2017 were $(1.3) billion. AMG’s aggregate assets under management were approximately $754 billion at March 31, 2017.
AMG repurchased approximately $80 million in stock, or 0.5 million common shares, during the first quarter of 2017. The Company initiated a cash dividend in the first quarter, and yesterday, announced a second-quarter cash dividend of $0.20 per common share, payable May 25, 2017 to stockholders of record as of the close of business on May 11, 2017.

“AMG had a strong start to 2017, including year-over-year growth of 10% in our Economic earnings per share, which were $3.21 for the first quarter,” stated Sean M. Healey, Chairman and Chief Executive Officer of AMG. “Through successful execution across all aspects of our growth strategy, our assets under management have grown 17% since the first quarter of 2016 to a record $754 billion – reflecting positive organic growth from net client cash flows over the period, the long-term track records of alpha generation by our Affiliates, and the addition of excellent new Affiliates.”

“Our positive net flows into alternative strategies were offset by elevated outflows from U.S. equity strategies, resulting in modest outflows overall for the quarter,” Mr. Healey continued. “Our Affiliates generated excellent investment performance across their industry-leading product sets, particularly in alternatives and global equities. We continue to see strong client demand across a diverse array of liquid and illiquid alternative strategies, and while our Affiliates’ equity products saw overall outflows during the quarter, client appetite remains robust for differentiated equity strategies focused on non-U.S. markets. Lower correlations, higher volatility, and the shift from monetary to fiscal policy worldwide will favor the abilities of skilled active managers, providing an increasingly constructive environment for performance-oriented managers running truly active strategies to generate excess returns. As global clients continue to seek outperformance from value-added strategies for the alpha portions of their portfolios, the best alpha managers will gain increasing market share, and given their long-term records of investment outperformance in attractive return-oriented areas, we expect our Affiliates to benefit from this trend.”

“Finally, we have an outstanding ongoing opportunity to enhance our earnings growth and the diversity of our business through accretive investments in new Affiliates. With our unique competitive position and track record of successful partnerships, our opportunity set remains unmatched in the industry. Through our disciplined commitment to prudent capital allocation, consistent return of capital to shareholders, and enhancing the organic growth of our Affiliates, we are positioned to generate substantial shareholder value ahead.”

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Under the terms of the agreement, AMG will acquire the interests in the firms from Petershill Fund I for approximately $800 million in total consideration, which will be paid in cash at closing, funded up to 50% in equity. Upon the closing of the transaction, senior management at each of the firms will continue to hold an unchanged majority of the equity in each respective business and retain operating autonomy in the business under the same terms as the prior arrangements with Petershill Fund I. In addition, upon closing, AMG’s assets under management are expected to increase by $55 billion to nearly $700 billion (pro forma as of March 31, 2016), and AMG expects that the transaction will increase Economic earnings per share by $0.50 to $0.80 in 2017. These firms are recognized as among the industry’s best managers across an array of alternative investment strategies, including systematic trading and managed futures; fixed income relative value; equity long/short; and global macro, and serve a wide range of institutional, retail, and high net worth investors around the world:

• Winton Capital Group Ltd. is a global investment manager that utilizes scientific methods to develop investment systems across a broad range of products from diversified multi-asset offerings to regional long-only equities, with approximately $34.5 billion in assets under advisement for a diverse set of investors including some of the world’s largest institutions. Founded in 1997, the firm is headquartered in London and has over 400 employees, with additional offices in Oxford, Zurich, Hong Kong, Shanghai, New York, Tokyo, Sydney, and San Francisco
• Capula Investment Management LLP is a global fixed income specialist firm located in London with affiliated entities in Greenwich, CT, Hong Kong, and Tokyo. With approximately $12.7 billion under management, the firm manages absolute return, enhanced fixed income and tail risk strategies. Established in 2005, the firm focuses on developing innovative investment strategies that exhibit low correlation to traditional equity and fixed income markets
• Partner Fund Management, L.P. (“PFM”) manages approximately $4.3 billion, primarily in global equities, across global diversified long/short, global long, and global healthcare strategies. Founded in 2004, PFM seeks to generate long-term capital appreciation through a fundamental research process integrated with a macro framework. The firm is headquartered in San Francisco, CA and has 69 employees
• Mount Lucas Management LP manages approximately $1.7 billion across global macro, a diversified futures index strategy, a commodity futures index strategy, and large cap equity. The firm was founded in 1986 with the launch of an innovative, actively managed diversified futures program, and is headquartered in Newtown, PA with over 20 employees
• CapeView Capital LLP is a London-based alternative manager operating a European credit and distressed fund as well as a European equity long/short fund. Founded in 2001, the firm currently has 23 staff and manages approximately $1.7 billion

“We are delighted to be investing in these excellent firms, and have tremendous regard for the businesses built by their outstanding management teams,” said Sean M. Healey, Chairman and Chief Executive Officer of AMG. “Consistent with AMG’s partnership philosophy, the management team of each firm will continue to have operating autonomy and substantial retained equity in their own businesses.”

“With our global scale and capabilities, and 23-year track record of successful investments, AMG is the preeminent partner to leading boutique firms around the world, and has an expanding forward opportunity set to invest in the world’s most successful independent investment managers,” Mr. Healey continued. “We are confident in our ability to continue to generate earnings growth both from the organic growth of our existing business and through making accretive investments in additional outstanding firms around the world.”

Closing of the transaction is subject to customary closing conditions, and AMG’s investment in interests representing approximately half of the total transaction value is expected to close during the third quarter of 2016, with the balance of the investment expected to close by year-end 2016.

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The analysis incorporated data from more than 1,200 investment management firms and nearly 5,000 institutional equity strategies comprising approximately $7 trillion in assets under management. The study found that active boutique investment managers have consistently outperformed both non-boutique peers and indices over the past twenty years, in many cases by a wide margin.

Key Highlights from the Study

The analysis found that over the last twenty years:

• Boutiques significantly outperformed non-boutiques: The average boutique outperformed the average non-boutique in 9 of 11 equity product categories, by an average annual 51 basis points. Investing exclusively with boutiques across all categories would have created 11 percent greater wealth for clients over the last twenty years, as opposed to investing with non-boutiques.
• Boutiques delivered significant value as compared to primary indices: The average boutique strategy outpaced its primary index in 9 of 11 equity product categories, by an average annual 141 basis points after fees.
• Top-performing boutiques generated exceptional excess returns: Top-decile and topquartile boutique strategies added 1,133 basis points and 589 basis points, respectively, on an average annual basis after fees as compared to their primary indices.

“Our comprehensive study demonstrates that boutique investment managers have outperformed non-boutique peers and created significant value for clients over the long term,” stated Sean M. Healey, Chairman and Chief Executive Officer of AMG.

“In addition, top-performing boutiques added 55 basis points more value than poorly performing boutiques detracted on an annual basis, illustrating that these strong returns were not simply a function of higher risk,” said Andrew C. Dyson, AMG’s Executive Vice President and Head of Global Distribution. “The top-performing boutiques also created exceptional net excess returns, with top-quartile boutique strategies outperforming their primary indices by an average annual 589 basis points after fees. These results support our belief that the alignment of interests fundamental to the boutique model creates significant value for clients.”

Several core characteristics position boutiques to deliver consistent, superior long-term investment performance, including:

• Principals have significant, direct equity ownership, ensuring alignment of interests with clients;
• Presence of a multi-generational management team, fully engaged across the business; • Entrepreneurial culture with a partnership orientation, which attracts and retains the most talented investors;
• Investment-centric organizational alignment, including careful management of investment capacity; and
• Principals have a long-term orientation and are committed to building an enduring franchise.

“The primacy of a boutique investment manager lies in its focused, entrepreneurial culture and ownership structure, with principals maintaining significant, direct equity in their business,” Mr. Healey added. “We believe that these core characteristics give boutiques a competitive advantage in generating consistent outperformance. Our research clearly demonstrates the significant value that boutiques have generated for investors over an extended time horizon.”

To review this analysis in full, download “The Boutique Premium” at www.amg.com.

Methodology: The Boutique Premium

The study incorporated data from more than 1,200 investment management firms around the world and nearly 5,000 institutional equity strategies comprising approximately $7 trillion in assets under management. The study analyzed rolling one-year returns for the trailing 20-year period ending December 31, 2014, across 11 broad institutional equity product categories, on a strategy-by-strategy basis.

The classification of firms as either “boutiques” or “non-boutiques” was based on AMG’s proprietary analysis, while the MercerInsight® database was utilized for return data. Primary indices for comparison included MSCI Emerging Markets, MSCI World, Russell 1000® Value, Russell 1000® Growth, S&P 500®, Russell Midcap® Value, Russell Midcap® Growth, Russell Midcap®, Russell 2000® Value, Russell 2000® Growth and Russell 2000®.

The study estimated boutique net excess returns as compared to indices – incorporating boutiques’ available published or “rack” fee rates in the MercerInsight® database – in order to assess net value creation for investors.

The classification of investment managers and their corresponding strategies as “boutiques” in the study was based on four criteria. First, principals were required to hold a significant amount of equity in their own firms, defined as at least 10 percent ownership. Second, investment management was the sole focus of each firm; investment managers captive in broader financial services platforms were excluded. Third, firms with assets under management greater than $100 billion were not eligible for inclusion. Finally, exclusively “smart beta” or fund-of-funds platforms were removed from consideration, as the analysis concentrated on active boutique investment managers with distinct investment philosophies and highly-focused investment processes.

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Following the transaction, AQR’s Principals will continue to hold a majority of the firm’s partnership interests and operate the firm independently.  Founding Principals Clifford S. Asness, David G. Kabiller, and John M. Liew, as well as the firm’s other 18 Principals, have entered into long-term commitments with the firm.  In addition,all of the net after-tax proceeds from the transaction will be invested in AQR strategies.

Founded in 1998, AQR is one of the most dynamic and innovative investment managers globally, with approximately $115 billion in assets as of September 30, 2014 across a diverse set of alternative and traditional investment strategies.  AQR has a long track record of innovation in developing systematic investmentstrategies based on fundamental economic concepts for institutional investors and financial advisors.  The firm has 21 Principals and over 450 employees in offices around the world including Greenwich, Chicago, London, Sydney and Bermuda.

“We are very pleased to strengthen and deepen our successful partnership with AQR,” said Sean M. Healey, AMG’s Chairman and Chief Executive Officer.  “Cliff, David, John, and the rest of the AQR management team have been outstanding partners over the past decade, and have built a tremendous franchise – one of the fastest-growing, most successful firms in the industry – and our increased investment reflects our strong belief in the firm’s long-term growth potential and future prospects.”

“AMG has been a great partner to us over the last ten years.  We thank them for their unwavering commitment to our firm, and look forward to continuing a long and prosperous partnership,” said Mr. Asness, Managing and Founding Principal of AQR.

Following the transaction, AMG will hold a minority interest in the partnership and will continue to account for AQR as an equity method investment.  The transaction is expected to close by December 31, 2014.  While the terms of the transaction were not disclosed, AMG expects that the additional investment will increase Economic earnings per share by approximately $0.60 in 2015.

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