Earnings Call Transcript - AMG Q3 2023

Operator, Operator

Greetings and welcome to the AMG Third Quarter 2023 Earnings Call. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Patricia Figueroa, Head of Investor Relations for AMG. Thank you. You may begin.

Patricia Figueroa, Head of Investor Relations

Good morning, and thank you for joining us today to discuss AMG's results for the third quarter of 2023. Before we begin, I'd like to remind you that during this call, we may make a number of forward-looking statements, which could differ from our actual results materially, and AMG assumes no obligation to update these statements. A replay of today's call will be available on the Investor Relations section of our website, along with a copy of our earnings release and the reconciliation of any non-GAAP financial measures, including any earnings guidance announced on this call. In addition, this morning, we posted an updated investor presentation to our website and encourage investors to consult our site regularly for updated information. With us today to discuss the company's results for the quarter are Jay Horgen, President and Chief Executive Officer; and Tom Wojcik, Chief Financial Officer. With that, I'll turn the call over to Jay.

Jay Horgen, President and Chief Executive Officer

Thanks, Patricia, and good morning, everyone. AMG's strong third quarter and year-to-date results reflect the positive impact of our capital allocation strategy across both growth investments and share repurchases. During the quarter, the changing market environment continued to challenge investors as the collective impact of higher rates, persistent inflation and increasing geopolitical risks pressured clients' ability to achieve their investment objectives. High-quality independent managers have distinguished themselves in volatile times. As uncertainty and asset dispersion create opportunities to generate differentiated returns in both liquid and private markets, we believe this dynamic is playing out again. Differentiated return streams are critical for clients to achieve their long-term objectives. Independent partner-owned firms possess fundamental competitive advantages in generating those differentiated returns, especially during periods of heightened uncertainty. With specialized expertise, entrepreneurial cultures and alignment with our clients, our affiliates are among the highest quality independent firms globally. For our shareholders, AMG offers a unique opportunity to access the long-term growth and profitability of this diverse set of high-quality independent managers through a proven partnership approach. In 2023, we have continued to add to this diverse set of affiliates, having made two new investments in specialized private markets businesses operating in areas of secular growth. In August, we completed our investment in Forbion, a leading European private markets investor in the fast-growing life sciences sector. In October, we completed our investment in AR Partners, a private market manager specializing in industrial decarbonization. Given the heightened global focus on achieving a lower carbon economy, investor allocations to fund this transition are accelerating, and our partners are well-positioned to continue to benefit from these secular tailwinds. As Ara entered the next phase in its evolution, aligning its business with a long-term strategic partner was critical, and the team chose AMG based on our distinctive approach of magnifying firms' long-term success while preserving their independence. With our investments in our partners and Forbion, AMG now has eight affiliates managing more than $100 billion in private markets assets across a broad range of specialized strategies, including private equity, private credit, secondaries, real estate, infrastructure, growth equity, and venture capital. Given our affiliates' strong alignment with client demand trends and excellent investment performance, their fundraising momentum has remained strong this year, including approximately $7 billion raised year-to-date and approximately $10 billion pro forma for Forbion and our partners. These strong flows in an otherwise challenging fundraising environment highlight the appeal of our affiliates' specialized strategies. Stepping back, we have strategically evolved AMG by deliberately investing in high-quality independent managers operating in areas of secular growth. The growth investments we have made over the last few years have played a critical role in reshaping AMG from a business profile largely characterized by traditional long-only exposures to one with a substantial contribution from alternatives. Today, alternatives account for approximately half of our earnings, and we expect the composition of our earnings to reflect an even greater contribution from both private markets and liquid alternatives in the future as we continue to execute on our growth strategy, including investments in new and existing affiliates. Fundamentally, we partner to magnify the advantages of independent firms, and as part of our strategy, we collaborate with existing affiliates on their growth strategies, investing our capital and resources to develop new strategies and products to meet evolving client needs. As part of our capital formation capabilities, AMG offers affiliates a comprehensive, vertically integrated U.S. wealth platform that enables them to access this large and growing market that is difficult or even impossible for independent firms to enter on their own. Our U.S. wealth platform is uniquely positioned to enable our affiliates to participate in the ongoing democratization of alternative strategies as wealth investors increase their allocations to both private markets and liquid alternatives. We have been successful in bringing affiliate strategies to market through this platform, having launched one of the first evergreen funds in the private equity space, the AMG Pantheon Fund. With approximately $2.5 billion in assets under management, the fund has nearly doubled over the past year and is one of the largest and most established private markets products in the U.S. wealth channel. We recently filed to register a new fund, the AMG Pantheon Credit Solutions Fund, a private credit secondary strategy that will be the first of its kind in the wealth channel. After a decade of growth in direct lending, the private credit secondaries market is gaining significant momentum as an asset class with growth in both allocations and deployment opportunities. Having built a leading position in this fast-growing segment, Pantheon is well-positioned to capitalize on the significant market opportunity that's unfolding. In addition, we expect to bring a series of unique and differentiated alternative offerings to the market by combining our multi-decade experience in U.S. wealth with our affiliates' investment expertise. For example, we are collaborating with Comvest partners to bring nonsponsored middle-market direct lending to wealth clients. AMG's distinctive approach continues to attract outstanding firms seeking a strategic partner that can magnify their long-term success while preserving their independence. Given our broadened partnership solution set and our successful strategic engagement with affiliates, prospective affiliates are increasingly attracted to AMG's model, especially in this evolving landscape. Additionally, by increasing our origination resources and focusing our efforts on secular growth areas, the quality and size of our prospect universe has been enhanced. Our two growth investments in 2023 for Bandra Partners, which both operate in our strategic focus areas, are strong evidence of the success of our enhanced new investment approach. Looking ahead, having advanced several attractive new investment opportunities during the quarter, we are well-positioned to increase our new investment activity, further evolving the composition of our business towards in-demand strategies. Finally, I want to emphasize our continued focus on disciplined capital allocation, particularly during this period of heightened volatility and uncertainty. We will continue to evolve our business through growth investments in new and existing affiliates, given our unmatched 30-year track record of successful partnerships, our new investment prospects, and our significant financial flexibility. That said, as we evaluate opportunities to deploy our capital, we will remain disciplined as we make growth investments and continue to return excess capital through repurchases. Our discipline is evidenced by our track record, having invested more than $1.6 billion in growth areas over the past five years while also returning more than $2 billion in excess capital to shareholders over the same period. Today, as a result of our ongoing evolution, AMG's profile is truly unique with independent firms operating in private markets, liquid alternatives, and differentiated active equities. Our diversified portfolio of high-quality entrepreneurial businesses is a competitive advantage that enhances our earnings stability and supports our capacity to continue investing in areas of the highest growth and return to benefit our shareholders. Looking ahead, given the combination of our competitive advantages, excellent capital position, and disciplined approach to capital allocation, we are highly confident in our ability to create significant incremental shareholder value going forward. And with that, I'll turn it over to Tom to review the details of the quarter.

Thomas Wojcik, Chief Financial Officer

Thank you, Jay, and good morning, everyone. AMG's disciplined approach to capital allocation, along with the growing opportunity we see to deploy our capital, has enabled us to both increase our activity level and our impact in 2023. We made two new investments in affiliates operating in areas of secular growth, and we continue to invest alongside our affiliates to magnify their competitive advantages. At the same time, we have strengthened our balance sheet through the completion of the sale of our remaining EQT stake as well as the closing of the Veritable transaction, and we have continued to return substantial capital to shareholders through share repurchases. Our actions reflect the increasingly attractive opportunity for AMG, and we remain focused on allocating capital to further evolve our business mix toward areas of secular demand, which we expect will translate into significant long-term earnings per share growth and shareholder returns. Turning to our third quarter results, adjusted EBITDA of $208 million included $12 million of net performance fee earnings, $6 million of catch-up fees at one of our private markets affiliates, and a partial quarter contribution from Veritable. The Veritable transaction was completed in September, and AMG received $294 million in gross cash proceeds. For GAAP purposes, we recorded a pretax gain of approximately $133 million, which we have reported as a separate line item on our income statement. This gain is excluded from our supplemental financial metrics, consistent with our EBITDA and economic net income definitions. Economic earnings per share of $4.08 benefited from the impact of share repurchases. Client demand for alternative strategies remains strong, while headwinds in global equities persisted, resulting in net client cash outflows, excluding certain quantitative strategies, of $7 billion for the quarter. Looking at performance across our business, excluding certain quantitative strategies, in alternatives, we again reported strong results with nearly $3 billion in net inflows in the quarter. These inflows were primarily driven by private markets fundraising at Pantheon, Comvest, and EIG. Including fundraising at Forbion and Ara Partners prior to our investments this year, our private markets affiliates have raised nearly $10 billion of new long-duration capital year-to-date. Our affiliates continue to generate outstanding investment performance, and their excellent long-term track records across credit, real estate, secondaries, and infrastructure are driving fundraising momentum. We also generated positive flows in liquid alternative strategies where clients are benefiting from outstanding investment performance across a wide range of products. In addition, we continue to see pockets of strength in certain quantitative liquid alternative strategies, which delivered modest net inflows in the quarter, building on strong multi-year performance track records. Industry headwinds in equities continued, and we saw approximately $7 billion in net outflows in global strategies, as well as $3 billion in U.S. equities. Despite near-term performance headwinds in equities, we remain confident that our affiliates' strong long-term track records across multiple cycles position them to recapture client demand over time. Finally, in multi-asset and fixed income, we had positive flows and continue to see demand for fixed income strategies at GW&K. Now moving to fourth quarter guidance. We expect fourth quarter adjusted EBITDA to be between $260 million and $285 million based on current AUM levels, reflecting our market blend, which was down 1% quarter-to-date as of Friday. This range reflects a partial quarter contribution from Forbion, excludes earnings from Veritable, and does not include the impact of our latest new affiliate investment, Ara Partners, which will be reported on a one-quarter lag and will begin to contribute in the first quarter of 2024. Taken together, we expect Forbion and Ara will add 2% to 3% to economic earnings per share on an annualized basis. Additionally, this guidance range includes net performance fee earnings of $75 million to $100 million in the fourth quarter, which translates to a full-year range of approximately $130 million to $155 million. AMG's performance fee earnings are generated by a well-diversified group of affiliates and products across absolute return, beta-sensitive, and private market strategies and are paid in cash. Performance fee earnings continue to be a consistent contributor to our earnings, making AMG's overall earnings power stronger and more resilient across market cycles. We expect a fourth quarter economic earnings per share range of $5.43 to $5.96, assuming an adjusted weighted average share count of 35.2 million shares for the quarter. We have posted a guidance reconciliation to the Investor Relations section of our website, where you can find all of the detailed modeling items that I have historically discussed on our earnings call, including interest expense, amortization and impairments, income taxes, and other economic items. Finally, turning to the balance sheet and capital allocation. Our balance sheet is in an excellent position and remains a source of strength as we look to generate shareholder value. In the third quarter, we completed the sale of both Veritable and our remaining EQT stake, generating approximately $350 million of pretax proceeds. That capital has and will continue to contribute to growth investments, share repurchases, and net debt reduction. In the third quarter, we repurchased $172 million of shares, bringing our total repurchases this year to $441 million, inclusive of the $225 million ASR completed in the second quarter. Given the combination of our strong liquidity position, recurring cash flows, and building business momentum, we now anticipate full-year repurchases of at least $550 million and are on pace to repurchase more than 10% of our shares outstanding this year. As always, these expectations remain subject to market conditions and new investment activity. As we have discussed previously, we take a disciplined approach to capital allocation, with all of our decision-making running through a common framework, including growth investments, the return of excess capital to shareholders, as well as prudently managing our leverage levels and financial flexibility. Our strong liquidity position has enabled us to fully defease our $400 million February 2024 notes with short-term treasuries, and we expect to fully pay down these bonds in the first quarter. We continue to have significant capacity to both invest for growth and return capital to shareholders, and we head into 2024 with a strong balance sheet and the full capacity of our $1.25 billion undrawn revolver. Our approach to investing in the growth of our business is intentional. We generate substantial cash flow, and we have a diverse set of growth opportunities to deploy capital available to us. Cross investments in new affiliates, innovating alongside our existing affiliates, launching new products, and investing in AMG capabilities. Looking ahead, given our disciplined capital allocation framework and distinct competitive advantages, we remain well positioned to execute on our growth strategy and generate shareholder value over time. Now we're happy to take your questions.

Operator, Operator

Thank you. Our first question comes from the line of Dan Fannon with Jefferies.

Dan Fannon, Analyst

Thanks, good morning. I guess a couple of clarifications on the new investments in the quarter. The new investments show up as $3 billion in the statements, but I believe you said they've raised close to $3 billion thus far this year. So maybe if you could talk about the fundraising and what the growth rate has looked like for both of those investments? And then I believe you also said 2% to 3% EPS accretive. I just wanted to add it on an annual basis. Just want to make sure what's that accretive to.

Jay Horgen, President and Chief Executive Officer

Yes. Good morning, Dan. Thanks for your question. I'm going to have Tom start to answer those questions. They're all related, and maybe we'll just talk about new investments more broadly after that. Go ahead.

Thomas Wojcik, Chief Financial Officer

Yes. Thanks, Dan. So on the first question around AUM, the $3 billion that you're seeing come through is only related to the Forbion transaction, which closed in the quarter. We'll see the AUM impact from our partners on a go-forward basis once we include that. In terms of fundraising for the two businesses, without getting into specifics on fund by fund, each of them has been really growing quite nicely across their franchises. If you recall, Forbion has both a venture capital business in the biotech space and the growth equity business, and they've been raising larger vehicles in each of those over the course of time, including some very strong fundraising in 2022 and into 2023. Ara, on the decarbonization private equity side, is in the process of closing on their flagship fundraise and has really had an exceptional 2023 in a fundraising environment that's been incredibly challenging. This speaks to the quality of what they're doing and the demand that clients have for their offering. In terms of the accretion number, that's 2% to 3% on EBITDA, net of the impact of the cash that we spent there. Look, that cash is obviously earning quite a bit. So I think you can look at both Forbion and Ara not being at all in our 2023 numbers; they'll be in our 2024 numbers and about 2% to 3% accretive to baseline EBITDA in 2024.

Jay Horgen, President and Chief Executive Officer

Yes, Dan, let me just follow that with our private markets business overall. I think you heard in my prepared remarks, year-to-date $7 billion prior to Forbion in terms of new fundraisings and $10 billion with the two together. That kind of gives you a sense of how much has been raised by those two this year and $10 billion of dry powder just in the last nine months. We've had some good fundraising, lots of dry powder going into this environment. I will end with just taking it back up a level to remind everyone that our strategy is to invest in secular growth. I'll use Ara here as my example; one of the largest and most sustainable pockets of secular growth is in the lower carbon economy. We're looking for large mega trends that might include breakthroughs in healthcare, energy transition, or the need for data. That really describes our partners, Forbion and Peppertree, our last three investments. What we think is happening here is capital has and continues to form around these trends because they are highly attractive in terms of their return profiles for investors. We want to be part of the increasing allocations from clients to these areas. So we’re out looking for those businesses, independent firms that really have advantages because they are aligned with their clients. These specialized sustainable strategies have structural tailwinds, and we see a significant opportunity for growth. Specifically for our partners, the accelerating demand for capital to transition to a lower carbon economy is supported by a number of factors, including lower emissions targets, growing customer interest in sustainable products, and increased government incentives. These are the structural tailwinds that we are trying to get in front of and our partners is well positioned in those trends. One important point about our partners is that it sits in a unique place in the industrial value chain, bridging the gap between new technology development and the ultimate operators of the assets. Once new technologies have been proven in commercial applications, Ara and their team can build, implement, and scale these technologies within assets and businesses to the point where they are ready for large industrial buyers to fold them into their own operating environment. So there is no real technology risk here; we are just trying to capitalize on the move to a lower carbon economy. We're excited about this partnership in addition to having them transition from an early seed investor, which was where we purchased our interest. We also facilitated our partners’ management principles to own more of the firm, which is a hallmark of our partnership model. We’re very excited about that, as well as about Forbion and a number of our other specialized firms operating in private markets. Thanks for your question.

Operator, Operator

Our next question comes from the line of Alex Blostein with Goldman Sachs.

Alex Blostein, Analyst

It's great to see continued momentum on the old fundraising. I think, Tom, you mentioned a couple of sources between liquids and illiquids. It sounds like the liquid business had positive flows in the quarter, including some of the quant managers. I was wondering if you could just kind of take a step back and talk a little bit about what you guys are seeing on the fundraising front for your liquid alt managers, what the pipeline looks like, and whether you think we've turned the corner on better flows on the liquids as well.

Jay Horgen, President and Chief Executive Officer

Yes. Thanks, Alex, and good morning to you, and thanks for noticing. I think the alternatives bucket generally, which today, for us, is about $230 billion in assets – about $100 billion in private markets and $130 billion in liquid alternatives – is a growing segment for us. So maybe I'll let Tom give you some of the details.

Thomas Wojcik, Chief Financial Officer

Yes. So let me start with an overview and then Jay may come over the top with a bit more color on some of the liquid alts names. Overall, importantly, our growth strategy continues to drive that evolution of our business toward the area Jay just mentioned: alternatives overall, in addition, broadly to overall secular growth areas. As we continue to execute against that strategy, we expect to enhance both the long-term organic growth of the business as well as the earnings growth of the business over time. When analyzing flows at the highest level, obviously, we continue to see this bifurcation between strength in alternatives, both private markets and liquid alternatives, as well as challenges on the fundamental equity side. Year-to-date, our results really speak to that story. We continue to benefit from both the diversity and the depth of our private markets affiliates, and we're seeing fundraising across a number of well-positioned strategies: credit, infrastructure, secondaries, energy transition, and real estate. These flows are very valuable to us. They're long-term in nature, fee rates are strong, and we have the ability to generate potential carried interest over time. We're focused on that area. Jay also mentioned that increasingly, we are focused on businesses that are aligned with these global economic megatrends where we will see long-term client demand. He spoke to Peppertree, with data proliferation, Forbion, and biotechnology and healthcare, our partners, and decarbonization. These are decade-long trends, and we think we're getting in front of them really early, and we're going to see strong demand for a long time there. Specific to your question around liquid alternatives, most importantly, we're seeing excellent performance really across all time periods over the last several years, and we're having a more active dialogue with clients in terms of portfolio construction, in terms of the value of uncorrelated and diversifying return sources. We think all of this positions us well in terms of forward flow opportunities. This quarter, we did see positive flows in liquid alternatives. We also saw modest positive flows in certain liquid alternatives, where clients have 2-3 years of track record after a tougher time going back 4-5 years and you're starting to see clients return to some of those strategies as they continue to post strong numbers and provide the benefits to portfolios mentioned earlier. Overall, we feel really good about private markets and where we are in liquid alternatives, both of which offer differentiation from independent specialized firms as clients focus on building portfolios that can benefit from these types of exposures.

Jay Horgen, President and Chief Executive Officer

Thank you, Tom. I'll connect this to the current market environment. We've discussed the mega trends, which is where we are directing our new investments, both in existing and new affiliates, as reflected in our recent affiliate transactions. One example is the AMG Pantheon Credit Solutions Fund, recently filed, which is a unique offering in the wealth for credit secondaries space. We plan to support this initiative with resources and collaboration with Pantheon. Currently, about 30% of our earnings or EBITDA comes from liquid alternatives, 20% from private markets, and the remainder from long-only equities. The prevailing environment, characterized by higher rates and returning macro volatility, encourages a return to fundamental investing, which we view positively. We believe not only in our commitment to the megatrends but also that this environment will benefit AMG, especially in liquid alternatives. Specifically regarding liquid alternatives, we have seen excellent performance. Following some tough years, firms like AQR and Systematica are gaining momentum. AQR has seen strong results over the past two years, and Systematica has consistently performed well. Both are major affiliates for us. We anticipate further client allocations in this sector, which typically generates significant performance fees over time, allowing us to reinvest in our growth strategy and return capital to shareholders. Last year and over the past five years, we generated substantial performance fees, and we expect to see this trend continue based on the guidance Tom provided. Our combination of liquid alternatives, private markets with locked-up capital, and differentiated active equities sets us apart in the market. We truly believe in our uniqueness and are enthusiastic about our business prospects over the next 5-10 years.

Operator, Operator

Our next question comes from the line of Craig Siegenthaler with Bank of America.

Craig Siegenthaler, Analyst

Tom, I hope you're doing well. For our first question, we just want to dive a little deeper into the institutional channel flow dynamics. First, what do you view as the key drivers in the $3 billion sequential increase in net flows? Do you view it as sustainable? Secondly, historically, the industry has faced some redemption challenges in 4Q and December months, partly driven by seasonality and year-end decisions. Are you expecting any one-time outflows in 4Q?

Jay Horgen, President and Chief Executive Officer

Craig will follow the same pattern here. I'll let Tom start and then I'll add to it.

Thomas Wojcik, Chief Financial Officer

Yes, Craig, thanks for your question. I think a lot of this drives with the answer we gave to the previous question. Our business is changing. If you look at the makeup of our business today versus five or six years ago, in some ways, the answer to your question would be quite different. Given the concentration we have now in private markets and liquid alternatives, I believe a lot of the institutional client dynamics in those areas differ from the client dynamics that AMG perhaps dealt with historically in long-only equity strategies. First, in terms of strength this quarter and looking ahead, much of the strength we are seeing continues to be in liquid alternatives and private markets. When institutional clients think about these areas, they're looking for where managers have a demonstrated ability to add value uniquely. For example, our private markets are experiencing challenges, but affiliates are bucking that trend. They're looking for businesses that provide unique value in their client portfolios that they're filling with non-commoditized products. Many have allocated private equity and sponsor-backed lending over the past 10 years but haven't yet filled their allocations in industrial decarbonization, data management, cell towers, real estate, or infrastructure. As they think about allocating scarce capital, they search for managers like many of our affiliates who can provide distinctive offerings. With respect to our expectations for 4Q, there is always year-end cleanup concerning how institutions approach the 2024 outlook. However, we continue to see uncertainty in the market, notably regarding equities, adding difficulty for institutions managing their respective exposures. Therefore, we do not anticipate anything outsized on the institutional side in terms of expectations for Q4, other than continued uncertainty and waiting for the market to evolve. We do see modest seasonality in a couple of our products, but overall, I wouldn't speak to anything outsized.

Jay Horgen, President and Chief Executive Officer

Yes. That was a solid summary. I don't have much to add. I want to remind everyone that we don’t think about our flows as a quarter-to-quarter event. We actually try to consider it over several years. Net flows will emerge from successfully executing our strategy to shape our business toward areas of secular growth, which will inevitably behave differently between private markets, liquid alternatives, and differentiated equities. However, we expect to see long-term improvements in flows and genuine growth in business as we capitalize on these trends. Thanks for your question, Craig.

Operator, Operator

Our next question comes from the line of Brian Bedell with Deutsche Bank.

Brian Bedell, Analyst

Maybe just to revisit some of the topics you discussed in your opening comments about the pipeline of new investment activity and your emphasis on the private capital area. I'd like to ask two questions: first, financially, regarding the capital available for new investments. It sounds like you have a $1.25 billion revolver and about, I'll say, $1 billion in cash flow. You're paying down to a $400 million tranche in February. I wanted to gain insight into your available capital. Secondly, which areas do you believe will emerge in your investment pipeline in private capital asset classes? Do you think you'll be adding more of the same or looking to focus on different areas? Or do you plan to invest more in your current private capital affiliates?

Jay Horgen, President and Chief Executive Officer

Great. Thanks, Brian. Let's see. I'm going to take the new investment pipeline question and what we're looking for, and then I'll turn it over to Tom to talk about financial capacity and balance sheet movements. I think these are two good questions, and it might take us a minute to go through both. So what are we looking for? I will just remind everyone, our focus is much broader than private markets. Although private markets are very much a point of emphasis, we are focused at the higher level on areas we think will receive client allocations over time because they are durable, long-term trends. So when you look at our efforts, there is no surprise; we look for specialized, high-quality independent firms that operate in these areas. We think they possess an edge over larger firms because they are aligned with their clients and maintain entrepreneurialism within their businesses. Therefore, our origination and prospecting efforts for new investments center on areas of secular growth. We see growth in private markets; we've discussed that previously, along with specialized areas. Tom mentioned that we now have eight affiliates operating in those sectors. Each affiliate has a specific client orientation, with the capacity to add adjacencies. The private market is absolutely an area we want to explore, and frankly, it’s becoming more constructive to execute private market deals today following a period of high valuations, with valuations now moderating and risk sharing between buyers and sellers improving. That means we find it easier to move forward with such investments. Liquid alternatives also remain an area of concentration for us; we recognize the importance of the absolute return and opportunistic strategies in liquid markets. We believe that higher rates, coupled with increased volatility, create demand that hasn't been prevalent for some time. Thus, we believe that liquid market alternative firms will provide solutions for institutional and wealth investors to produce returns in volatile or sideways markets. We've also examined wealth businesses and niches in economies, like Asia, where we see long-term secular growth opportunities. The medium-term outlook seems to be improving despite short-term difficulties. Finally, I'd like to add that the current investment environment is favorable due to lower valuations and improved risk-sharing structures. Our confidence that we can convert our ongoing prospecting into solid investments is growing. As you've heard in my earlier remarks, we have actively pursued opportunities throughout the past quarter, just like we did in prior quarters, and we have announced two investments year-to-date. So we’re optimistic regarding our ability to invest in growth with both current and new affiliates. Now I will turn it to Tom to address financial capacity.

Thomas Wojcik, Chief Financial Officer

Yes, thanks, Jay. And Brian, I appreciate your question. Let me begin by discussing our debt pay-down and then expand to talk about overall capital. Overall, we're quite pleased with how our debt has been implemented over the past several years. We've optimized our debt structure around two core principles: extending duration to align with our long-term affiliate partnerships and enhancing flexibility, which guarantees we have options to execute on our forward opportunity set, which is robust, as Jay just mentioned. Currently, about $1.1 billion of our debt is fixed via long-duration junior securities, with an average duration of 30 years at attractive fixed rates. This provides us excellent flexibility. The remainder includes well-laddered senior institutional and bank debt that matures over the next seven years. We're currently operating comfortably below our baseline 2x leverage levels. Netting cash can be said to be around 70% of our total balance sheet exposure in terms of leverage. Regarding the February maturity we previously discussed, we've been holding maturity-matched treasuries against that, and we plan to repay that bond in Q1, essentially rightsizing our overall debt level. Importantly, I've used the term 'optionality' earlier, and we stand firmly on that point. We possess the ability to re-lever; we still have access to our $1.25 billion revolver and the public debt markets. Our primary reason for re-levering would be to capitalize on high-quality growth investment opportunities, fund new product launches, and foster cash flows through potential growth investments. As for the capital we have available for immediate deployment, we possess more than $500 million in cash beyond what is needed for expected debt repayments and share repurchase programs designed for growth investments. This translates to more than $1 in incremental earnings potential. As we enter 2024, our business is set to consistently generate substantial cash flow. While there are many opportunities ahead, we've demonstrated, over the past five years, our disciplined approach. If we don't uncover excellent growth investments in the medium term, we have consistently returned capital through share repurchases, and both approaches will enable us to enhance earnings per share over time. Yes, we do maintain a disciplined nature, emphasizing that we intend to invest in growth for returns that we expect to yield mid-teens for our investors. However, if suitable new investments are not available, we will return capital, and we have been successful in following through on that strategy. Our next question comes from the line of Thomas Wojcik Brown with KBW. So I wanted to switch over to the equity side of the business. That's about 43% of your EBITDA today and 26% from the global equity side. The full pressure there continues to be unrelenting really for the industry and remains a challenge for you guys. In light of some of those mega trends that you referenced, how are you truly thinking about the equity side of the business, specifically the global equities component? Can we expect to see a bit of improvement here as we look out to 2024? What are you maybe seeing or hearing from institutional investors as they reassess their broader asset allocations and what that could potentially mean for the flow picture?

Jay Horgen, President and Chief Executive Officer

Yes. I’m going to have Tom start with the detail, and I do have a couple of comments that I'll follow up with after that.

Thomas Wojcik, Chief Financial Officer

Yes. Thanks for your question, Mike. It begins with understanding the overall industry dynamics and environment. I spoke to this a bit in the answer to the previous question. Clients today are navigating a number of challenges regarding global equity markets. The first critical point for stabilization and flows would be improvement in the overall global economy, both from a macroeconomic and geopolitical standpoint. The second factor is performance; we benefit from excellent long-term performance across many of our global equity managers, but we face more challenging near-term performance. Stabilizing near-term performance that coincides with the quality of brands and long-term track records would greatly enhance our position. Furthermore, the investment landscape is changing, and both institutional and wealth clients are contemplating how to balance these strategies in their portfolios, consuming these alpha streams through various wrappers. This is an area that we are also dedicating considerable time to with our capital formation efforts and through our affiliate product strategy and development group. We are exploring innovative ways to present some of these unique investment capabilities to clients, focusing on optimal delivery methods for these strategies. Although there are modifications required in terms of market dynamics and client preferences, we maintain a strong core of long-term performance and track records that should yield good demand once the environment stabilizes.

Jay Horgen, President and Chief Executive Officer

Yes. I think I’ll summarize one of the points Tom made. The nature of differentiating equity investing over the next 10 years will differ significantly from that of the last decade. I observe that the market environment appears completely different: higher risk-free rates, increased volatility, and more asset dispersion. We believe this is favorable for fundamental managers. AMG has consistently maintained a value and quality bias within the equity book, which aligns well with the current environment. The macro backdrop, as Tom mentioned, will also transform over time. Considering the differentiated strategies our Affiliates offer, alongside the entrepreneurial nature and ownership mindset of independent firms, we think they're exceptionally positioned to capture the attention of clients globally for their active equity portfolios. Thank you.

Operator, Operator

Thank you. Mr. Horgen, there are no other questions at this time. I'll turn the floor back to you for final comments.

Jay Horgen, President and Chief Executive Officer

Well, again, thank you all for joining us this morning, and we look forward to speaking with you next quarter.

Operator, Operator

Thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.