Earnings Call Transcript - AMG Q4 2020

Operator, Operator

Greetings, and welcome to the AMG Fourth Quarter 2020 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Ms. Anjali Aggarwal, Head of Investor Relations for AMG. Thank you. You may begin.

Anjali Aggarwal, Head of Investor Relations

Good morning and thank you for joining us today to discuss AMG's results for the fourth quarter of 2020. Before we begin, I would 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 a reconciliation of any non-GAAP financial measures, including any earnings guidance announced on this call. In addition, we posted an updated investor presentation to our website this morning 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 CEO

Thanks, Anjali, and good morning, everyone. 2020 was an extraordinary year and the consistent execution of AMG's long-term strategy resulted in strong business performance and growth. Complex operating conditions and volatile markets accelerated transitions across the investment management industry, with a number of our peers and competitors pursuing scale, while others look to divest or exit businesses altogether. Throughout this period, AMG remained committed to our fundamental principles. That investment performance is about skill, not scale. That investment alpha is best generated by differentiated active managers and that the entrepreneurial investment-centric cultures of independent partner-owned firms offer clients the greatest opportunity for alpha. As a result, we remain focused on executing our long-term strategy with excellence and discipline. Our Affiliates built on their strong long-term performance records, demonstrating our ability to distinguish themselves across market cycles, including during volatile periods like 2020. Today, approximately three-quarters of our products are outperforming their long-term benchmarks on an EBITDA basis. Our Affiliates also continue to evolve and enhance their product offerings, often in collaboration with AMG, expanding their abilities to meet long-term client needs. And we welcomed four new Affiliates in the past year, all of which operate in areas of strong secular growth, including sustainable and impact investing, private markets, and global equities. Overall, AMG emerged from the unprecedented events of 2020 in an even stronger position than we entered the year. And we enter 2021 with significant momentum across our business and substantial capacity and flexibility to generate meaningful additional earnings growth and shareholder value. Turning to our results. Since the second quarter of 2020, the earnings power of our business has increased considerably, driven by the strong and improving performance from the large majority of our Affiliates, combined with the impact of strategic investments and actions we have taken to reposition our business over the past 18 months. These collective actions contributed to year-over-year growth in EBITDA of 27% in the fourth quarter, driven by growth in management fees and performance fees, as well as operational efficiency. We also capitalized on the market environment in 2020 to strengthen our balance sheet and improve flexibility for the benefit of our shareholders. With our enhanced capital position and substantial free cash flow, we deployed more than $800 million across a combination of growth investments and share repurchases, including new partnerships with Comvest, Jackson Square and Boston Common, while simultaneously repurchasing 10% of our shares over the course of the year. AMG had a strong finish to 2020, but the results do not fully capture the magnitude of the earnings power heading into 2021, during which significant market, business performance and new investment tailwinds will further contribute to our earnings growth. In the second half of 2020, business activity and client flows in private markets, wealth management, and specialty fixed income were particularly strong. These areas collectively account for more than one-third of our EBITDA and are becoming a more significant contributor to our overall growth profile. Our fundamental equity and liquid alternative strategies are better positioned today, given their improved track records, increased performance fee opportunities and enhanced potential to generate organic growth. In addition to the building momentum of our existing Affiliates, the incremental earnings contribution of our 2020 new investments will be fully realized in our 2021 results, given the timing of these investments over the course of the year. And finally, given our substantial liquidity and cash flow generation, we expect to continue to deploy significant capital in 2021, across both our new investment pipeline and additional share repurchases. For all of these reasons, as we enter this year, we are confident in AMG’s forward prospects and our ability to generate meaningful growth and economic earnings per share. As you know, AMG is a leader in partnering with independent asset management firms. We have continued to evolve our approach to meet the ongoing needs of our Affiliates as they grow their businesses over time. Today, we offer a uniquely broad set of partnership solutions for independent firms, including growth capital, distribution support, minority investments, and long-term succession planning. Our differentiated approach continues to resonate with the highest-quality independent firms as evidenced by our new investments over the course of 2020, which included Comvest Partners, a premier middle-market private equity and private credit firm that is in an area of high client demand and increasing allocation. Jackson Square Partners, a leader in global equities with an outstanding reputation and track record for managing high-conviction portfolios. And Boston Common Asset Management, a women-owned innovator in global, sustainable and impact investing, which has significant organic growth prospects given their long record of success in ESG investing. Together, these new investments evidence the power and breadth of AMG’s solution set. And all three firms have joined our global distribution platform to expand their client reach across channels and geographies. Individually, each new partnership underscores AMG's focus on investing in high-quality growing businesses at disciplined valuations through customized structures designed to deliver returns across a range of outcomes. With our unique competitive position and proprietary relationships, our new investment activity remains high. Across a broader universe of firms around the world, prospective Affiliates are increasingly engaging with us. Notably, Boston Common is our second partnership with a specialist in sustainable investing following Inclusive Capital last year. Client appetite for responsible and impact investing is steadily increasing, and this is an important moment in time for the asset management industry to address long-term sustainability through capital allocation. We and our Affiliates are increasingly focused on this imperative. We are closely collaborating to support Affiliates' increased engagement and participation in responsible capitalism, particularly with respect to their product offerings. For example, we are providing capital resources to Artemis as they launch a dedicated sustainable global equity strategy. And similarly, we supported GW&K in building out a suite of sustainable fixed income strategies which AMG is now distributing. More broadly, our global sales teams are bringing client insight to other Affiliates with respect to integrating ESG into investment processes. Ultimately, we believe that independent active managers are best positioned to generate investment alpha as clients grow their allocations to ESG investing, and our Affiliates are increasingly participating in this growth area. In its most fundamental way, sustainability, from the perspective of long-termism and the preservation of a firm's ability to build and create value over time, has been at the very heart of AMG's business purpose since our inception in 1993. AMG's foundational principles support and enhance the long-term duration of independent firms through succession planning. We help partner-owned firms to manage their greatest asset and their greatest risk, human capital; and to preserve and enhance partner alignment with their most important stakeholder, their clients. In addition to human capital, AMG also offers capabilities to assist Affiliates in addressing other long-term risks, including operational, regulatory and reputational support. In helping our Affiliates to manage long-term risk and enhance their ability to grow over time, AMG has focused on sustainability of independent partner-owned firms for nearly 30 years. And as we build upon our three decades of successful partnerships and position ourselves for the future, the impact of the strategic and growth investments that we have made over the past two years are beginning to materialize in our results as they did in the fourth quarter and will more fully manifest in the years ahead. Over this period, we have invested in four new Affiliates. We have invested in the growth of our existing Affiliates. We broadened our partnership solution offerings. We enhanced our strategic capabilities. We realigned our distribution platforms with the greatest opportunities, and we significantly enhanced our capital position. We have achieved all of this while reinvigorating AMG's entrepreneurial culture and reestablishing an ownership mindset across the entire organization. Looking ahead to 2021, we have significant momentum in our business and heightened conviction in our strategy. As we continue to generate increasing levels of free cash flow, and we invest that capital into our growth initiatives while returning excess capital through share repurchases, AMG's long-term opportunity to compound earnings is clear and positions us to deliver significant shareholder value over time. With that, I'll turn it over to Tom to review the details of the quarter.

Tom Wojcik, Chief Financial Officer

Thank you, and good morning, everyone. As Jay discussed, strategic changes taking place in our industry are creating significant disruption, and that disruption is highlighting AMG's longstanding belief in the value proposition of independent partner-owned firms and their unique alignment with their clients. At the same time, focused execution against our strategy is producing results in both our quarterly earnings and our expectations for future growth. We enter 2021 with significant momentum across our business, increasing earnings power and a stronger and more flexible balance sheet to execute on the considerable opportunities ahead of us to generate shareholder value. Turning to the quarter. Adjusted EBITDA of $255 million grew 27% year-over-year driven by strength in both management and performance fees, and economic earnings per share of $4.22 benefited from an enhanced level of share repurchase activity. AMG delivered strong earnings growth despite net client cash outflows of $15.8 billion that were driven by certain quantitative strategies and seasonal client redemptions. Quantitative strategies accounted for 95% of outflows in the quarter while contributing approximately 3% of run rate EBITDA. Away from quant and taking into account seasonality, our underlying organic growth trends continued to improve, and client flows were positive in the quarter. Strong investment performance and an increasingly attractive environment for allocating to active managers drove further stabilization in fundamental equities. And Affiliate strategies across illiquid alternatives, wealth management, and specialty fixed income generated significant positive net flows and continue to contribute an increasing proportion of our earnings. Turning to our asset class breakdown and excluding challenged quantitative strategies. In alternatives, we reported net inflows of $700 million in the fourth quarter, reflecting ongoing momentum across our illiquid alternative Affiliates. Strength in private markets was partially offset by $2 billion in seasonal redemptions and certain liquid alternative strategies with fourth quarter liquidity windows. Fundraising remains strong at Pantheon, Baring, EIG and Comvest as clients continue to steadily increase private market allocations globally. Performance in this category has been excellent as our Affiliates have been deploying dry powder into attractive return opportunities, including across Asia private equity, global secondaries, co-investments and credit funds. Overall, our private markets book remains a significant source of earnings growth, accounting for nearly 20% of management fee EBITDA and continues to build future carried interest potential. Within liquid alternatives, our Affiliates continue to post strong performance across relative value fixed income and concentrated long-only strategies, which collectively generated the majority of our performance fees in 2020. Garda and ValueAct, among others, produced very strong returns in 2020, and our liquid alternative strategies enter 2021 well positioned to deliver for clients. Moving to fundamental equities, we reported net outflows of $2.3 billion in global equities and $1.1 billion in U.S. equities, partly due to the impact of retail seasonality. We continue to generate positive organic growth in areas where client demand for active converges with top quartile performance, including at Harding Loevner, Veritas and GW&K. Our investment performance across our fundamental equity strategies continues to be very strong with approximately 80% of fundamental equity AUM above benchmark for the 5-year period, significantly outpacing the 62% level of two years ago. And with that strong performance, coupled with a more favorable macro environment for active investing, we are well positioned for future organic growth. In particular, we are seeing increasing momentum in client conversations regarding value strategies, where overall industry dynamics have improved and our Affiliates continue to deliver strong relative investment performance. Multi-asset and fixed income strategies posted another strong quarter of organic growth, generating $1.9 billion of net inflows driven by muni bond strategies and broader wealth solutions at GW&K and Baker Street. This area of our business continues to deliver steady, long duration inflows, and we anticipate ongoing client demand trends to support future growth. In aggregate, AMG is well positioned to generate positive flows over time given our Affiliates' participation in areas supported by long-term client demand trends and their differentiated ability to deliver superior outcomes for clients. Now turning to financials. For the fourth quarter, adjusted EBITDA of $255 million grew 27% year-over-year driven by strong investment performance, higher markets, lower corporate expenses and the impact of growth investments in both existing and new Affiliates, including Affiliate equity purchases. Adjusted EBITDA included $60 million of performance fees, driven by strong investment performance across a broad array of alpha-oriented strategies. Economic earnings per share of $4.22 further benefited from an elevated level of share repurchase activity, which I'll expand on in a moment. For the full year, performance fees of $86 million represented approximately 11% of our earnings. With a diverse and growing performance fee opportunity, we are entering 2021 well positioned for continued strength in this area. Now moving to specific modeling items for the first quarter. We expect adjusted EBITDA to be in the range of $240 million to $250 million based on current AUM levels, reflecting our market blend, which was up 2.5% as of Friday. Our estimate includes a performance fee range of $35 million to $45 million, reflecting normal seasonality and strong performance at our liquid alternative managers. Our share of interest expense was $27 million for the fourth quarter, reflecting the impact of our hybrid debt offering. We expect interest expense to remain at a similar level for the first quarter. Controlling interest depreciation was $2 million in the fourth quarter, and we expect a consistent level for the first quarter. Our share of reported amortization and impairments was $87 million for the fourth quarter. In the first quarter, we expect this line item to be approximately $40 million. Our effective GAAP and cash tax rates were 24% and 25% for the fourth quarter. For modeling purposes, we expect our GAAP and cash tax rates to be approximately 25% and 19%, respectively, for the first quarter. Intangible-related deferred taxes were negative $3 million in the fourth quarter, and we expect intangible-related deferred taxes to be $9 million in the first quarter. Other economic items were negative $8 million and included the mark-to-market impact on GP and seed capital investments. In the first quarter, for modeling purposes, we expect other economic items, excluding any mark-to-market impact on GP and seed to be $1 million. Our adjusted weighted average share count for the fourth quarter was 45.3 million, and we expect share count to be approximately 43 million for the first quarter. Turning to the balance sheet and capital allocation. Over the course of 2020, we continued to position the company for growth, taking advantage of the historically attractive financing environment to enhance our capital position by building additional liquidity and flexibility. We doubled the duration of our debt to 15 years while keeping our cost of debt unchanged, enhanced our capital flexibility by issuing junior hybrid debt and significantly improved our liquidity position, including the repurposing of our dividend in favor of share repurchases. As a result of these actions, our balance sheet is in excellent position heading into 2021. And together with the flexibility provided by our significant discretionary free cash flow, we feel confident in our ability to invest for growth and simultaneously return significant excess cash to shareholders. In 2020, we allocated the cash flow generated by our business toward a combination of growth investments and capital return to shareholders primarily through share repurchases. We invested approximately $400 million of capital into growth investments across four new Affiliate partnerships, an elevated level of Affiliate equity purchases and seed and GP capital commitments. In addition, we repurchased 430 million of shares during the year, repurchasing 10% of our shares outstanding. In the fourth quarter, we repurchased $226 million of shares versus our guidance of at least $100 million. The additional $126 million of repurchases in the quarter reflect strong business performance in the second half of 2020 and significant incremental cash generated from performance fees and tax benefits. Looking ahead, through the combination of higher run rate cash generation, a more normalized level of Affiliate repurchases and our strong liquidity position, we have the flexibility to continue to increase discretionary capital allocation to both growth investments and capital return. In the first quarter, we expect to repurchase approximately $200 million of shares, which is elevated by $100 million as a function of our strong year-end cash position and first quarter performance fee expectations. Finally, turning to full year guidance. While we haven't given full year guidance in some time, given the sharp move in equity markets, the increased earnings power of the business on both a management fee and performance fee basis, our strong liquidity position and heightened share repurchase activity, we are providing earnings guidance for 2021. We expect economic earnings per share to be in the range of $15.50 to $17, reflecting an adjusted EBITDA range of $875 million to $940 million. The midpoint of that range includes a market performance through last Friday and 2% quarterly market growth starting in the second quarter, performance fee contribution of approximately 10% of earnings and a weighted average share count for the year of approximately 41.5 million, which reflects $500 million of excess capital returned through share repurchases. I would note that while we are not including the impact of new investments in earnings guidance, given timing uncertainty, new investment activity is incorporated into our capital planning and would provide incremental upside to this earnings guidance. Both our first quarter and full year guidance are subject to forward prospects for new investments and market conditions. As Jay discussed, 2020 was a year of unprecedented events and change, and we remained focused on establishing new partnerships, supporting growth initiatives at our existing Affiliates, positioning our balance sheet for future growth and returning excess capital to shareholders through repurchases. We come into 2021 with even more conviction in our strategy and our ability to deploy capital to compound long-term earnings growth and create value for our shareholders. Now we're happy to take your questions.

Operator, Operator

Our first question comes from Craig Siegenthaler with Credit Suisse.

Craig Siegenthaler, Analyst

So as we look at your pipeline of potential transactions, can you talk about the composition of both majority investments and also minority investments or some of these new growth capital type transactions that you guys have been pivoting into?

Jay Horgen, President and CEO

Thank you for the question, Craig. I appreciate it. To start, our model is showing strong results, as demonstrated by our four new investments made since mid-2019. Each of these businesses is of high quality, which is crucial to our investment strategy, as we prioritize identifying leading independent, partner-owned firms. We believe we have successfully identified that with our latest four investments. Each of these companies presents unique growth opportunities for various reasons for collaborating with us. For instance, Comvest particularly focused on growth capital. We provide support throughout the entire life cycle of an Affiliate's needs. Our current solutions include succession planning for majority investments, minority investments primarily for liquidity, growth capital, and distribution support. In the context of our recent four investments, all of them have utilized our distribution support at the onset of their engagements with us, joining our global distribution platform. Each instance has involved minority stakes, with the companies approaching us for different reasons, which presented us with the opportunity. The difference between majority and minority stakes largely hinges on the specific needs of the Affiliates or prospects. Looking at our current pipeline, we have a mix of both types of investments and anticipate pursuing both in the medium term. As I consider the pipeline, I expect significant new investments to materialize over time, including in the near future. We've allocated more resources to this initiative and, as I mentioned, our broad solutions are attracting a wider range of prospects, particularly those seeking strategic capital or distribution assistance. We have established strong proprietary relationships, and the virtual environment has proven advantageous for us, as we have maintained long-term connections with numerous prospects. Our internal metrics indicate increasing engagement, with the highest activity levels in nearly a decade. Additionally, our outreach efforts are concentrated on sectors experiencing secular growth, such as private markets, specialty fixed income, ESG, global equities, and multi-asset solutions. These sectors are all positioned favorably, where active management can be beneficial. As noted in previous calls, we are maintaining discipline in designing structures and pricing that align with our interests and facilitate a variety of outcomes. Our model is structured to allow us to execute multiple transactions simultaneously or many deals within a year without the integration costs typically associated, as we aim to keep independent firms as such while enhancing their partnership alignment and extending their operational duration.

Operator, Operator

Our next question comes from the line of Dan Fannon with Jefferies.

Dan Fannon, Analyst

I have a couple of questions regarding the outlook. First, in the fourth quarter, were there any impairments or write-downs, or any one-off items affecting your addbacks? Additionally, I would like to understand the difference between the strength from 2020 and the ongoing performance that your business and your Affiliates can control. Could you highlight the key areas of organic growth opportunities that you believe will contribute the most to improvements when comparing 2021 to the past year?

Jay Horgen, President and CEO

Yes. I'm going to let Tom address the first part of your question, and then I will return to it, Dan. Thank you for your question.

Tom Wojcik, Chief Financial Officer

Sure. Thanks, Dan. So on the impairment question, look, there wasn't really anything meaningful in the quarter, kind of a couple of little things here and there, and you saw our guidance for the first quarter going back to the $40 million level, so not much to speak of there. In terms of kind of overall growth opportunities, you touched specifically on organic growth, and I'll share a couple of things, and I'm sure Jay will give some more color. But remember, for us, it's really going to be a combination of organic growth, performance and performance fees being driven by that great performance in our business, the ability to make new investments in growing areas both from an earnings growth perspective and an organic growth perspective and then allocating our capital repurchases and the ability to drive our share count, and ultimately, earnings compounding through that as well. So I think there are a number of areas beyond beta, frankly, where we're able to translate strong market performance through our capital allocation into long-term growth in a variety of areas in our business. In terms of those areas where we are seeing significant momentum, both Jay and I touched on in our prepared remarks the number of areas where we see strong secular growth opportunities, private markets and illiquid alternatives, where businesses like Pantheon, Baring Asia, EIG and Comvest have seen very strong flows over the course of the past couple of years, continue to be in the market actively with new funds virtually at all times, given the diversity of those businesses. And we anticipate those businesses to continue to grow at double-digit rates organically collectively into the future. Specialty fixed income and traditional fixed income. We have a number of Affiliates who have very unique, high-performing products in those areas. Garda had an excellent year, Capula. GW&K on the muni side, again, very strong; and then in wealth management, where, again, we continue to see sticky, long duration flows coming in. So those areas have been strong over the last couple of years. We anticipate them being strong into the future. And as I mentioned in my prepared remarks, and Jay spoke to as well, given the very strong and improving performance that we're seeing in our fundamental active equities book, where more than 80% of our assets are above benchmark over the 5-year period, we are starting to see some really nice trends in terms of core organic growth once you strip out quant and seasonality. That number was positive overall for the business this quarter. And as you think about kind of the environment for active today, coupled with the strong performance that we have, we do believe that we have very good tailwinds behind us in terms of flow opportunities in the future with respect to our active equities book.

Jay Horgen, President and CEO

Yes, that was a solid summary. I would like to add a few points here, Dan. First, I understand that our top-line flows require deeper analysis of the business's underlying growth. We recognize this and aim to assist you in reaching that understanding. Tom mentioned that while there was some seasonality affecting quantitative flows, we expect and have observed that the rest of our business is performing positively. However, it’s essential to note that we hold varying amounts of different Affiliates, each with distinct structures, and some also provide performance fees. To share some insights, our AUM levels are approaching medium-term highs, leading to considerable management fees. Our non-quantitative flows turned positive in the fourth quarter, excluding seasonality. We made new investments in 2020, but the complete impact won't be realized until 2021, which is reflected in our guidance. We are projecting around a 10% performance fee, though, considering high watermarks and the growth in some of our alternative products, it could exceed that. When looking at where Tom placed you regarding EBITDA in the 920 range and approximately $16.25 in economic earnings per share, those figures stem from relatively conservative performance fee expectations which align with our typical management fee patterns, the carryover effect of new investments, and a moderate level of capital deployment. If we secure new investments through share purchases or see increased performance fees, we could reach the upper end of projections. I believe we have significant organic growth potential; however, its visibility is limited due to the minimal AUM of the quantitative managers obscuring the underlying business growth.

Operator, Operator

Our next question comes from the line of Bill Katz with Citi.

Bill Katz, Analyst

Maybe just go the other way. As you look at your platform and trying to help investors sort of get to sort of fundamental value of the company, seeing some of the other deals that happened in 2020, maybe a 2-part question. One is, what's the concept of potentially selling some underperforming Affiliates? And then can you talk to pricing a little bit, just given some of the strategic deals that have happened last year as well as the sort of the enclosing by SPACs into the business as well?

Jay Horgen, President and CEO

Thank you, Bill, and good morning. We are confident in our strategy to be the preferred partner for independent partner-owned firms. This is where we believe active management excels, and clients will see better performance globally. We are noticing a shift in flows moving from passive to active management. We believe the potential for growth in our business remains strong as we continue to execute our strategy by investing in existing and new Affiliates. Over the past two years, we have worked with several Affiliates facing challenges, and that process is largely completed now. It led to different strategic outcomes, driven by our partnerships rather than AMG alone. This has freed up capital and resources for growth opportunities, which are already reflected in our current results and will continue to appear in 2021. Our Affiliates demonstrate great diversity, as seen in our recovery over the past few years. We adopt a permanent partnership model, which is why Affiliates choose to work with us. This uniqueness in the market is expected to drive value for our shareholders.

Operator, Operator

Our next question comes from the line of Patrick Davitt with Autonomous Research.

Patrick Davitt, Analyst

So you have a fair amount of new investments plugging into global distribution. Could you maybe help us frame based on past experience of doing that, maybe what the kind of timeline is for seeing incremental flows from the new investment being made, getting plugged into the global distribution and then seeing new mandates result from that?

Jay Horgen, President and CEO

Thank you, Patrick, and good morning. The distribution to AMG is the result of both the strong sales efforts from our individual Affiliates and the tailored offerings we've developed at AMG to assist those Affiliates in scaling. We initiated our centralized distribution 10 to 15 years ago and have raised over $100 billion for our Affiliates across various products and client segments. As new Affiliates come on board, we've already begun raising assets for Garda and Comvest. While it takes some time and 2020's COVID impacted our pace, we are securing assets and mandates. Jackson Square and Boston Common have both joined our retail platform, and we will support their retail initiatives. We anticipate generating flows for all four Affiliates fairly soon. Over the coming months to a year, we expect incremental flows from our efforts at AMG for each of them. This expectation is bolstered by several adjustments we've made in the past two years. In addition to collaborating with some of our Affiliates facing challenges, we've refined our platform and strategies, focusing on growth areas while reallocating resources away from stagnant ones. For instance, in the institutional space, we've enhanced our private market resources and expanded our alternative offerings. With Boston Common, we will also introduce an ESG product. We are continuously exploring new regions for expansion and are actively seeking additional resources in promising areas. We are committing more efforts to growth initiatives, which reinforces our confidence in supporting these four Affiliates alongside our existing ones. In the U.S. retail and wealth sector, we've partnered with iCapital to bolster our alternatives, and we're enhancing resources in technology and office support to integrate more effectively with wirehouses, which operate mainly through institutional sales. We view the U.S. retail channel as a significant opportunity and plan to continue advancing in this area. You will hear more from us on this, and as we make progress, we'll share further details. To return to your initial question, I do see flows for each of these Affiliates in the near term.

Operator, Operator

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

Alex Blostein, Analyst

I would like to further discuss the organic growth and, considering the strong momentum in the business, could you provide insight into the expected organic EBITDA growth for AMG in 2021, excluding the effects of market performance and any acquisitions of new or existing Affiliates? Additionally, as investors assess the long-term growth trajectory of the company, could you share your aspirations for organic EBITDA growth over the next several years, even if it's challenging to focus on a single year?

Jay Horgen, President and CEO

So thanks, Alex. I'm going to let Tom answer that. Very nuanced and complicated question to answer, but Tom, I'll let you give it a shot.

Tom Wojcik, Chief Financial Officer

Sure. Thanks for your question, Alex. So look, the comp organic EBITDA growth is obviously an important one. There's a lot that goes into that, particularly for a business like ours, where we do have a sizable performance fee component to a lot of these businesses. And also, frankly, we have a variety of different ownership and structural stakes in our underlying Affiliates. So it's not a stat that we've disclosed, but I think it's something that as you think about the overall mix of our business, you can probably get some visibility into. If you think about where we stand today, obviously, the majority of the outflows we're seeing continue to be on the quant side. And while 95% of our outflows this quarter came in quant strategies, again, just to restate, that was only 3% of our EBITDA on a run-rate basis. I'd also note that it is worth pointing out that challenged quant AUM peaked in early 2018 and has basically been cut in half since then, meaning that any flow activity from here is coming off of a much smaller base. And I'd also note that we've seen some pretty strong performance the last couple of months there. So hopefully, we can build on that going forward. If you then kind of look more broadly at the shape of our overall Affiliate base, across illiquids, wealth management and specialty fixed income, I think we've noted in the past, that's about a third of our EBITDA today. It continues to grow as a percentage of our overall business. And then similarly, as you look to areas like liquid alternatives, ESG, global and emerging market equities, where we have very strong performance track records and also where active management continues to provide a very strong value proposition to clients, we look at all of those areas as being places where we can see strong growth into the future. And then similarly, I know you sort of asked to exclude this, but I really don't think you can think about the AMG thesis without including the impact of new investments, both in terms of the earnings that they bring to our platform, but just as importantly, the fact that we're proactively investing in businesses and partnering with businesses that are delivering leading organic growth trends, given the secular areas that we're prosecuting when we really think about partnerships. So when you put all those things together and you look at the overall shape of our business, I think we feel very strongly that over the intermediate to long-term, kind of the footprint, if you will, of where our Affiliates operate, the client demand trends in those areas and their investment performance should be in a position to drive organic AUM, EBITDA growth, et cetera, over the long-term.

Jay Horgen, President and CEO

Yes. And look, I even think we're well positioned in the short-term as well because three-quarters of our fundamental equities and alternatives are beating benchmarks on a 5-year basis, similar kind of strong on a 3-year. They distinguished themselves in 2020 in periods of volatility. So they're really well positioned to take in organic growth. Of course, we also mentioned that our private markets, specialty fixed income, and wealth businesses have been strong for some time now. And so it is just a mix question of when does the mix turn in favor, and it looks like it turned in the fourth quarter, actually, on an EBITDA basis. On a headline flow number, it didn't, obviously, but on an EBITDA basis, it's pretty close. And I think that's the reason for the optimism here, which is you could see it, it could be the first quarter. It could be this year.

Operator, Operator

Our next question comes from the line of Robert Lee with KBW.

Robert Lee, Analyst

Jay, I'm curious about your differentiation in the marketplace with permanent solutions. Some of your competitors have been established for quite some time and have made several acquisitions. Are you noticing at all that some managers who sell revenue shares to those other funds are beginning to realize they need a more permanent solution? It's been a while since those initial arrangements. Do you see this as a potential source of investment moving forward?

Jay Horgen, President and CEO

Thank you for your question, Rob. Let me address it. I realize I need to include structure and pricing as well, which I neglected to mention earlier. It's important to consider the overall universe of transactions in asset management, especially since there is significant activity in our industry right now. Some firms are divesting, while others are consolidating. Our focus remains on independent partner-owned firms, as we aim to invest and align with them throughout their entire life cycle. However, this represents only a portion of the transactions happening in the market. Our affiliates are not looking for consolidation; they chose us specifically to avoid that. Therefore, I want to clarify that we don't engage in transactions where independent firms seek to hand over control to others. Now, focusing on the segment of independent firms that wish to remain independent, we face various competitors, which I can divide into illiquid managers and everyone else. If I concentrate on everything else, our competitive landscape is quite favorable, as we face minimal competition. Many of our traditional competitors have been acquired, consolidated, or chosen to sell their businesses or assets. Thus, on the non-illiquid side of the market, we are distinctly positioned with very little competition. Our structure and pricing are favorable, and we are witnessing that. In the illiquid sector, which is rapidly growing, there are several stake buyers, some of whom you mentioned. They typically adopt a term sheet approach to acquiring a 20% stake and tend to be passive. This can be appealing for general partners in the illiquid space seeking financial returns. In contrast, we provide support throughout all stages of our partners' growth. We are chosen by partnerships that require more than just liquidity for a small portion of the general partner. To directly answer your question, it is indeed possible that these stake buyer portfolio companies may turn to us for different stages of their life cycle. We maintain a disciplined approach and do not pursue high valuations in this area. When selected, as with Comvest, EIG, Baring Asia, or Pantheon, it is for reasons beyond just price. We view our offering as differentiated compared to those stake buyers. Overall, because our industry is still fragmented, there is a significant opportunity for us. As I mentioned, we are investing more resources, offering broader solutions, and nurturing proprietary relationships. Consequently, we anticipate this growth will become an increasingly important driver of our EBITDA in 2021 and beyond.

Operator, Operator

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

Brian Bedell, Analyst

Most of my questions have been asked and answered. I have just one regarding the core EBITDA fee rate, Tom. It has improved over the last three quarters, rising from about 10 basis points to over 11 basis points as we look forward to 2021. What is your confidence that it might further improve from the 11 basis points? I recognize we are experiencing a positive mix shift due to the quantitative outflows at a very low EBITDA fee rate. Additionally, you mentioned lower corporate expenses in the fourth quarter. I'm trying to get a sense of that. Also, for Jackson Square, how much AUM did they add in the fourth quarter? I'm unsure if there were any developments in the first quarter related to that.

Tom Wojcik, Chief Financial Officer

Great. Thanks, Brian. Let me try and hit a few of those. We have seen some positive trends in terms of that overall fee rate, if you will, a lot of that being driven by strength in some of those core secular growth areas like illiquids and relative value fixed income. Also, frankly, the strength in markets and outperformance at some of our active equity Affiliates like Harding Loevner and Veritas, also, I think, continue to be quite positive for us. And I think you mentioned the point around our management of expenses. As we talked about a number of times in the past, I think we've taken a very hard look at the business. And we're really running, I think, very lean today in terms of making sure that all of our resources are put up against the best and highest use, and we're driving toward growth. So I think those trends all feel like they are moving in the right direction. And I think, hopefully, we should continue to see that same type of impact as the business moves forward. In terms of Jackson Square, about $10 billion came through our AUM. That was the only thing that was running through in the quarter. And again, that business continues to perform incredibly well, and we're very excited about that partnership.

Operator, Operator

Our next question comes from the line of Mike Carrier with Bank of America.

Mike Carrier, Analyst

Just given the strong performance fees in 4Q and in your guidance, 1Q and '21, so can you provide a bit more color on the base growth? And maybe some color around organic revenue growth versus the organic asset growth, whether for full year '20 or 4Q heading into '21, just given some of the fee rate nuances that you guys see?

Jay Horgen, President and CEO

Yes. So yes, Tom, why don't you take that? I would just also mention the perspective we have in the first quarter just given some of our Affiliate timing of reporting to just when you incorporate all of that into the question.

Tom Wojcik, Chief Financial Officer

Sure. So maybe just a couple of words on performance fees to start. We do have a very diverse base of performance fee generative Affiliates. They generally tend to contribute somewhere in the neighborhood of 10% of economic net income, and we were a little bit ahead of that last year at 11%. And we've noted sort of a midpoint of the range in our guidance at around 10%, and again, we think with some upside from here. You can think about performance fees really kind of in three buckets: concentrated long-only, which will be impacted by a combination of security selection and markets; absolute return strategies, which include a variety of businesses like Garda, Capula, Systematica, who have been performing very well amidst recent volatility; and then illiquids, where we continue to build a carried interest bank that will be an excellent longer-term opportunity for us. That diverse book from year-to-year, different Affiliates tend to contribute. But over the long-term, right, we believe we have a very diverse base that's differentiated in terms of its ability to both deliver performance, and then, ultimately, performance fees. And as we come into this year, we did give you guidance for a very strong first quarter. We've got pretty good visibility into a couple of Affiliates on the liquid alternative side who have put up very strong performance, and we'll see some crystallizations. And again, similar to our strong fourth quarter performance this year, we do have that seasonality where the first quarter and the fourth quarter tend to be our biggest performance fee generative times of the year. In terms of your other questions, in underlying growth, I think we touched on a lot of it, both in our prepared remarks and in some of the Q&A today. But really, you've got to think about a combination of things that are happening in our business, right? One, we saw, obviously, very strong market performance in the back half of the year. We've experienced some of that in our results today. Much of it will continue to come through into the first quarter, and obviously, into the run rate for the full year. On top of that, we've seen very strong outperformance from a number of our active managers above and beyond what markets have provided. And we're seeing the benefit of that in both AUM as well as things like performance fees. You're seeing the impact also of the overall allocation of our capital partially toward new investments, where Jay noted the transactions that we entered into last year. A couple of those happened sort of towards the back end of the year in Jackson Square, in the very beginning of this year with Boston Common. So we're going to see the impact of those continue to flow through over the full year. And then obviously, the impact of our share repurchases on an economic earnings per share basis will be a continued tailwind. So you heard both Jay and I reference sort of the power of compounding our earnings in our prepared remarks, and I think that's really exactly what you're seeing. And you're seeing it from a combination of the strength in our Affiliates’ businesses, our ability to translate both that strength as well as the benefits of strong beta into capital allocation that can drive future growth. And then as I referenced in one of the previous questions, we are seeing very strong organic growth across a number of areas in our business as well as the potential for organic growth in a number of other areas that have been stable and are trending more and more positively. So overall, I think we are very bullish in terms of our earnings run rate and momentum coming into the year, and perhaps, just as importantly, our significant cash flow generation momentum coming into the year as well.

Jay Horgen, President and CEO

Yes. We made considerable improvements to our balance sheet last year, doubling its duration and adding equity content. Through some repositioning, we achieved significant tax savings that boosted our economic earnings and contributed to our cash flow in the latter part of the year. This allowed us to increase our share buybacks in the fourth quarter, which was beneficial as it coincided with strong performance. We're indicating plans for around $200 million in share repurchases, possibly even more. Currently, our balance sheet shows $1 billion in cash and equivalents, although it's important to note that only about half of that is our own. This is a substantial amount as we move into the first half of the year. As Tom mentioned, we aim to increase our growth investments this year, which we have accounted for in our budget, but it's not reflected in our current numbers. We're expecting around $500 million in elevated performance for the first quarter, but there is the potential for even better results given our ongoing business momentum.

Operator, Operator

Our final question this morning comes from the line of Chris Shutler with William Blair.

Chris Shutler, Analyst

It's been a while since you did a deal in the wealth management space, and I know valuations there can be tricky right now given all the competition. But are you seeing any opportunities there? Or alternatively, are there ways to distinguish yourself from other buyers in that space? And then another quick one, just on the guidance. I just wanted to get the market blend they're using for the first quarter.

Jay Horgen, President and CEO

So let me take the first one, Tom, maybe you can follow up on that, on the market one. So yes, Chris, thanks for your question. We still are very active looking at wealth businesses. We actually continue to have an investment in Wealth Capital Partners, a minority investment. They are very active in acquiring. And so we've actually benefited from their growth as well. We have had some in our pipeline. We continue to have some in our pipeline. You're right, valuations are tricky. What's interesting, though, is that for some of the larger scale ones, the needs are different than kind of high price and in part being part of kind of a roll-up strategy. So we are competing well there. And while I would say that sort of the concentration is maybe lower than other areas that we are focused on like illiquids and ESG, we do have some in our pipeline. And I would say that we do offer a differentiated solution because the permanent partnership for businesses that are already scaled and they're looking to either extend or they're going through succession planning, that is where we differentiate ourselves. Tom?

Tom Wojcik, Chief Financial Officer

And just a quick answer on your other question, we're assuming 2.5% in terms of our market blend as of Friday.

Operator, Operator

Ladies and gentlemen, that concludes our question-and-answer session. I'll turn the floor back to Mr. Horgen for any final comments.

Jay Horgen, President and CEO

Thank you all again for joining us this morning. AMG had a strong finish to 2020. But as discussed, the earnings power of our business has increased considerably, and we remain focused on the significant growth opportunities ahead of us. I hope everyone remains safe and healthy, and we look forward to speaking with you next quarter. Thank you.

Operator, Operator

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