Earnings Call Transcript - AMG Q2 2020

Operator, Operator

Greetings, and welcome to the AMG Second 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 second 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, CEO

Thanks, Anjali, and good morning, everyone. Before I discuss this quarter's results, I want to take a moment to speak about my friend and mentor for 27 years, Sean Healey. Sean passed in May following a two-year battle with ALS. And I know I'm not alone in feeling his loss. Many of you have sent your thoughts and condolences, and I wanted to, again, express my appreciation on behalf of everyone at AMG. Sean was a pioneer in our industry. He transformed AMG from a nascent startup over 25 years ago to the global business it is today. While it has been a difficult time for all of us at AMG, we are proud to carry on the shared vision Sean passionately shaped through entrepreneurialism, relentlessness, and excellence in execution. While Sean will be greatly missed, AMG is fortunate to have a tremendously talented, energized, and motivated next-generation leadership team that is well aligned with the long-term interest of our shareholders. And in a rapidly evolving market environment, I feel strongly that across the organization, we have the right combination of history, experience, and fresh perspectives to adapt our business and create shareholder value over time. Since transitioning to a remote work environment more than four months ago, we and our affiliates have remained fully operational and highly effective in continuing to serve our clients and key stakeholders. While COVID-19 has necessitated changes to our approach, it has not meaningfully slowed progress against our strategic agenda. Our existing relationships have proven to be extraordinarily valuable during this period, both our proprietary relationships with new investment prospects as well as our longstanding distribution relationships. We have seen a recent pickup in activity and dialogue across both these areas as clients and prospects worldwide are reengaging. And during this challenging period, the ability to leverage AMG's local sales teams around the world has become even more valuable to affiliates as they focus on remaining closely connected with our clients. We continue to believe that partner-owned active managers are most successful in generating alpha over time, particularly in volatile periods. A number of our affiliates have generated strong performance year-to-date having capitalized on market volatility and increased asset dispersion, in particular, those managing specialty fixed income, global macro, and fundamental equity strategies. And as market uncertainty and the recovery further play out, we anticipate additional opportunities for our affiliates to distinguish themselves. Throughout the pandemic, a number of investment themes have remained intact, including the ongoing demand for illiquids. While other trends have accelerated, such as the increasing appetite for responsible and impact investing, all against the backdrop of an improving environment for active management. While client allocation decisions will take time to play out, we are already seeing investors increasingly recognize the value and role of active management in their portfolios. Now turning to our results for the quarter. AMG reported economic earnings per share of $2.74. Consistent with recent quarters, elevated net outflows were driven almost entirely by redemptions and quantitative strategies. As we have previously discussed, these strategies currently account for more than 25% of our AUM, but less than 5% of our EBITDA. As performance challenges persist across these strategies in part due to underperformance and value, we anticipate outflows in the category to continue in the near-term. Excluding these quantitative strategies, our net flows were broadly stable as illiquid fundraisings and specialty fixed income inflows continued to meaningfully contribute to our results. Stepping back, as you know, over the past year, we have taken strategic action across a number of areas to actively position our business for long-term growth and continue to differentiate and enhance AMG's position in the market. We reshaped our resources and footprint to reallocate capital to areas of growth, collaborated with certain affiliates to reposition their businesses, invested alongside affiliates and in AMG capabilities to support growth opportunities, and enhanced our capital position. With these initiatives now largely complete, we are better positioned today to fully focus on executing and advancing our growth strategy. Turning to growth. Garda and Comvest, our two most recent new investments are good examples of the successful execution of our strategy, which focuses on identifying high-quality entrepreneurial firms positioned to benefit from secular trends and providing strategic support in the form of distribution resources and growth capital as needed. Since our investment in 2019, Garda has nearly doubled its earnings, benefiting from secular demand for its strategies and its outstanding investment track record. In the case of Comvest, AMG provided growth capital along with global engagement by our sales team, which together have enhanced the firm's fundraising activity as evidenced by Comvest's significant inflows in the second quarter. More broadly, our new affiliate investments, given the strength of our existing proprietary relationships with outstanding firms, our new investment activity has rebounded, and we continue to be focused on firms operating in areas of secular growth and client demand. Over time and by evolving to meet the needs of partner-owned firms, we have expanded our partnership approach to include growth capital and resources for new affiliates such as Comvest, as well as existing affiliates such as Pantheon to support a wide variety of growth initiatives. For example, prior to recent favorable regulatory developments on private equity funds for retail investors, AMG's distribution team had been working with Pantheon to build out their access to wealth and retirement channels, and we invested strategic capital and resources to accelerate this initiative. Today, Pantheon is well positioned for significant growth opportunities in these channels due to our collective efforts. Our recent strategic partnership with iCapital further enhances client access to Pantheon's products in this market. While we continue to evolve, succession planning solutions are a core component of AMG's partnership approach. Generational succession and transition is inevitable for partner-owned firms, and our long-term success and expertise in collaborating with affiliates to develop and execute management transition plans and align incentives across generations of affiliate partners remain a significant differentiating factor as firms select AMG as their institutional partner. Today, having worked with affiliates on these matters for 27 years, our expertise in succession planning is itself creating new opportunities. For example, during the quarter, we announced a new partnership with Inclusive Capital Partners, which was enabled by the successful completion of generational transition at our long-time affiliate, ValueAct. With AMG's partnership, ValueAct's founding generation executed its plan over the course of 13 years and has now been succeeded by a truly outstanding next-generation group of partners led by Mason Morfit. Mason is an exceptional investor, who has demonstrated exemplary leadership over the years, and I'm confident that he will guide the next generation of ValueAct to continued success. This transition enabled ValueAct's founder to retire and launch Inclusive Capital Partners. AMG's partnership with In-Cap represents our first investment in a business wholly dedicated to responsible capitalism. This is a particularly important moment in time for asset managers to address long-term sustainability through the allocation of capital. Client demand for new and more inclusive ways of allocating capital is intensifying, and we are focused on meeting client needs by investing AMG's capital and resources accordingly across existing affiliates and in considering new affiliate partnerships. The ongoing success of ValueAct and our continued relationship with our partners at In-Cap are testament to the strength of our affiliate relationships, the attractiveness of our model to entrepreneurial investment teams, and the flexibility and evolution of our investment approach. Looking ahead, we are highly confident in our growth strategy and are focused on executing on opportunities, including those which may arise from ongoing market and economic uncertainty. We believe that in this environment, active management, particularly when executed by independent partner-owned firms is more important than ever, and AMG's approach to investing in these firms is unparalleled. Our ability to execute on the opportunities before us is enhanced by our financial flexibility, further enabled by our strong corporate culture with its hallmarks of entrepreneurialism, a partnership orientation, and a significant focus on corporate citizenship. With that, I'll turn it over to Tom to review the details for the quarter.

Tom Wojcik, CFO

Thank you, Jay, and good morning, everyone. With the combination of AMG's distinctive partner-owned affiliates, our unique ability to generate both earnings and organic growth accretion through the execution of our new investment strategy, and our stable cash flow profile and flexible balance sheet, we are well positioned to generate long-term earnings growth and shareholder value. As Anjali noted earlier, we have posted a new investor presentation to our website, which reflects the evolution of our strategy and more fully describes the unique elements of AMG's value proposition. Now turning to the quarter and beginning with flows. We reported elevated net client cash outflows of $18.2 billion this quarter. More than 95% of those outflows were driven by ongoing performance challenges in certain quantitative strategies that contribute less than 5% of EBITDA on a run rate basis. Before I turn to flows by asset class, I'll provide a breakdown of the impact of quantitative strategies and then go through our customary flow discussion by asset class, excluding quant, so that I can provide a bit more texture on what's happening in those areas where we generate the majority of our profitability. Outflows in quantitative strategies totaled $17.3 billion, including $10 billion within liquid alternatives, $5 billion in global equities, and $2 billion in U.S equities. As performance challenges across these strategies persist, particularly due to value factors lagging growth, we anticipate near-term outflows will remain elevated. In contrast, we continue to see positive momentum in secular growth areas of the business, including private markets, wealth management, and fixed income, as well as relative stability across our fundamental active equity strategies. Turning to flows by asset class and excluding quantitative strategies, we saw total net client cash outflows of less than $1 billion and inflows into illiquid alternatives and multi-asset and fixed income were offset by outflows in certain equity strategies. In alternatives, we reported net inflows of $3 billion driven by strong continued demand at our private markets affiliates, particularly at Pantheon, where we saw significant fundraising momentum and infrastructure and regional primary strategies, EIG, which completed capital raising for its 5th private debt fund; and Comvest in non-sponsor-backed direct lending, where our distribution team is playing a key role in fundraising. The significant dry powder from recent capital raises across each of our illiquid managers will enable them to continue to put money to work at attractive return levels in the current environment. We also continue to see strong client demand and corresponding inflows in relative value fixed income strategies at Capula and Garda as a result of their strong near and long-term track records and in light of recent opportunities to capitalize on market dislocation. And we are seeing client interest in thematic investments, as well as volatility-focused strategies, including currency and global macro. Moving to global equities, we reported outflows of $3.7 billion driven primarily by global developed strategies as clients continue to grapple with market uncertainty and adjust risk levels in their portfolios. Several of our largest affiliates in this area, including Harding Loevner, Genesis, and Veritas continue to generate strong performance across a number of global and emerging market strategies. U.S equities showed stability in the quarter, with net outflows of $500 million. Our investment performance in this category has significantly improved over time and today 70% of assets under management are outperforming benchmarks on a 5-year basis. Several of our fundamental managers, including Yacktman and River Road are building new business momentum, given their strong and improving long-term performance track records. Finally, in multi-asset and fixed income, we generated $400 million of net inflows in the quarter driven by continued positive momentum in fixed income products at GW&K and Artemis. This area of our business continues to drive steady recurring growth and remains well positioned for the future. Now turning to financials. For the second quarter, adjusted EBITDA of $162 million included $4 million of performance fees and declined year-over-year as a result of the pandemic's impact on average AUM levels. In addition, the shape of our flows and the impact of the resulting mix shift on revenue, lower performance fees, and accelerated share-based compensation also contributed to the change versus a year-ago. Economic net income of $130 million benefited modestly from lower cash taxes, and economic earnings per share of $2.74 reflect ongoing share repurchase activity. Now moving to specific modeling items. We expect adjusted EBITDA in the third quarter to be in the range of $170 million to $175 million based on current AUM levels, reflecting our market blend, which was up 2.5% as of Friday and seasonally lower performance fees of $1 million to $5 million. Our share of interest expense was $22 million for the second quarter, and we expect third quarter interest expense to be approximately $23 million. Our share of reported amortization and impairments was $86 million for the second quarter. In the third quarter, we expect this line item to be approximately $50 million. Our effective GAAP and cash tax rates of 3% and 13%, respectively, were lower in the second quarter, primarily as a result of one-time tax benefits. For modeling purposes, we expect our GAAP and cash tax rates to be approximately 25% and 18%, respectively going forward. Intangible-related deferred taxes were negative $3 million in the second quarter, primarily given the impact of amortization and impairments, and we expect intangible-related deferred taxes to return to more normalized levels in the third quarter at approximately $6 million. Other economic items were negative $16 million and included mark-to-market impact on GP and seed capital investments. In the third quarter, for modeling purposes, we expect other economic items excluding any mark-to-market impact to be $1 million. Our adjusted weighted average share count for the second quarter was 47.3 million and we expect share count to be approximately 46.5 million for the third quarter. Finally, turning to the balance sheet and capital allocation. Over the past several months, given market uncertainty, we've remained prudent by building liquidity, extending duration, and enhancing flexibility to position the company for future growth. During the quarter, we took advantage of the strong investment-grade market to issue $350 million of senior notes at a 3.3% coupon rate, the lowest financing cost in AMG's history on a leverage-neutral basis. We continue to have access to substantial liquidity, including the free cash flow generated by our business, our $1.25 billion revolver and proven access to capital markets to fund growth investments going forward. We repurchased $50 million of shares during the quarter and expect to repurchase at similar levels in the third quarter, subject to forward prospects for new investments and market conditions. We remain highly selective and disciplined in our approach to capital allocation, evaluating all investment decisions under a common framework, whether that be assessing a new investment prospect, accelerating growth in an existing affiliate, adding resources to support our centralized services, or repurchasing shares. We remain focused on capitalizing on our core differentiators and competitive advantages as we execute against our strategy to drive long-term earnings growth and shareholder value creation. Now, we are happy to take your questions.

Operator, Operator

Thank you. Our first question comes from Robert Lee with KBW. Please go ahead with your question.

Robert Lee, Analyst

Thank you. Good morning, everyone. I appreciate the insight on the flow mix. If we consider this in terms of cash flow contribution, are we expecting a positive EBITDA contribution from the flow mix, especially since the majority of the outflows represent only 5% of EBITDA? This indicates that, on an EBITDA basis, we are experiencing positive organic growth.

Tom Wojcik, CFO

So thanks for the question, Rob. It's a little hard to hear you there, but I think I got all of it. Let me try and answer it from a couple of different angles. One, I'll just give you a little bit of color on flows and then try and kind of come right at it directly. But maybe just to start overall on flows, consistent with what we've seen in past quarters, as I said in my prepared remarks, about 95% of those outflows were driven by quantitative strategies now contributing less than 5% of our EBITDA on a run-rate basis. Obviously, that EBITDA contribution number has come down quite a bit over the course of the last couple of years. As Jay noted in his prepared remarks, given the fact that these strategies do represent 25% of our AUM, we expect to see a continued flow pattern on the asset side that is fundamentally disconnected from the overall impact on earnings. To answer your question more directly in terms of kind of what's happening beneath the surface, I think the impact of what you've suggested with respect to quant is the right way to think about it. Certainly, the asset flows that we're seeing in quant are not having nearly the impact on EBITDA that the quantum of those asset flows would suggest. With respect to the rest of the business, there are a few positives and then there are also a few, I guess, what I'd call mix-oriented headwinds that we're experiencing. On the positive side, certainly the inflows we're seeing on illiquid alternatives, private markets, relative value fixed income are very positive in terms of their contribution to EBITDA over time. In this quarter, in particular, you did see a little bit of an elevated number around global equity outflows. And as I think in the global equity space, those do tend to be some of our consolidated affiliates where we have a larger ownership percentage. So we do have a little bit of mix working against us there. Just in terms of businesses, we own a larger percentage of it, relatively high fee rates where we've seen some outflows. So I think, overall, certainly the picture in terms of the organic base fee impact or the organic EBITDA impact is significantly better than what we're seeing on the asset side, but there are a number of moving parts that are kind of happening beneath the surface. With respect to kind of the forward look, I would say that we continue to believe that this is a time when independent active managers can really help clients to navigate market uncertainty and deliver significant alpha that we believe should translate to flows across a number of areas of our business over time. And when you look at the overall shape of our affiliate base, performance track records, as well as our ability to add new and growing affiliates through new investments over time, we're very confident that we're positioned to deliver strong organic growth in the future, both on an asset basis as well as on an EBITDA basis, obviously once we can work through some of these quant headwinds.

Operator, Operator

Thank you. Our next question comes from the line of Chris Shutler with William Blair. Please proceed with your question.

Chris Shutler, Analyst

Hey, guys. Good morning. I want to follow up on the point there about the global equity bucket, maybe just provide a little more detail there, talk about the reasons for the elevated outflows and what the outlook as you look at the pipeline appears to be?

Jay Horgen, CEO

Hey, Tom, do you want to give it a little bit more detail and then I'll speak more broadly.

Tom Wojcik, CFO

Sure. Thanks for your question, Chris. So, a couple of things happening here. First, I'd say overall, the gross flow picture in global equities has been relatively consistent. What we've seen, particularly this quarter was really more on the redemption side, and in particular, a bit of a pickup on the retail side where we had a couple of idiosyncratic outflows, one related to a change in a model allocation that didn't really have any performance impact and things of that nature. At a high level, we do have a number of managers who are delivering very strong performance across a number of different strategies both in terms of global and emerging markets. We feel good about the long-term prospects there. We feel good about the overall environment for active and the quality of some of the client conversations that we're having. We kind of just did see on the fundamental side, as I said, a couple of idiosyncratic things there that were happening this quarter.

Jay Horgen, CEO

Yes, Tom began to touch on my point, Chris, and thank you for your question. We have excellent 3- and 5-year performance metrics from a diverse range of global managers, including Harding Loevner, Genesis, Veritas, and Tweedy, Browne. Performance is solid. This quarter has been quite unusual due to the global pandemic slowdown, but we have noticed an increase in dialogue and activity. We are very optimistic about our global products and the brands we represent in the global market. As investors increasingly seek guidance from active managers in this environment, we recognize that our global offerings play a crucial role in our cash flows and future success.

Operator, Operator

Thank you. Our next question comes from the line of Dan Fannon with Jeffries. Please proceed with your question.

Dan Fannon, Analyst

Thanks. Good morning. So just to follow up on that, I was wondering if you could talk about shorter term performance, as slide 7 gives us 3- and 5-year numbers. Can you talk about the 1-year performance for either global equity or U.S equity?

Jay Horgen, CEO

Thanks, Dan. I'll address that. Tom, feel free to add anything afterward. Our performance, particularly in U.S. equities, has seen significant improvement, both in the short term and over the last 3 to 5 years. I would specifically mention Yacktman, River Road, and Beutel as highlights. Over the past 5 to 7 years, we encountered challenges with U.S. equities flow, primarily due to mixed performance. However, our recent performance in U.S. equities has greatly improved, which is promising for our future positioning. As many know, we tend to have a slightly higher concentration in value, and this has been our longer-term narrative for 5 to 7 years. In this recent time frame, many of our affiliates have excelled. The increased volatility has favored active management, particularly for several of our affiliates, and this is reflected in the results. Our year-to-date performance shows strong differentiation not only in U.S. equities but also in global equities and alternatives. Garda and Capula have delivered impressive year-to-date results, and PFM also reported very strong numbers in the first quarter. Overall, a significant number of our affiliates have distinguished themselves this year.

Operator, Operator

Thank you. Our next question comes from the line of Alex Blostein with Goldman Sachs. Please proceed with your question.

Alex Blostein, Analyst

Hi, good morning. Thanks for taking the question. Quick follow-up on the quant business. I appreciate all the incremental color on both flows and EBITDA contribution. I believe AQR is the only profit share affiliate you guys have at this point. So maybe can you walk us through what profitability there looks like EBITDA margins or anything like that? And with risks of continued outflows there, how would you potentially navigate and maybe shield the holding company from EBITDA pressure there, if it does slip into negative?

Jay Horgen, CEO

Thanks for your question, Alex. We've discussed AQR quite a bit recently. I want to emphasize that Cliff, John, David, and the other partners are very focused and aligned. We do have a profit interest there. As mentioned earlier, the contribution of all our quant strategies is less than 5% of our EBITDA. If you estimate AQR to be a significant portion of that, around 3% to 4%, it translates to approximately $30 million to $40 million in profit. Furthermore, our affiliate diversification and structural model ensure that distributions to all partners occur after business expenses but before any other partner distributions. Each of our affiliates operates under unique partnership structures, so we've already felt the decline of AQR’s contribution in our numbers.

Operator, Operator

Thank you. Our next question comes from the line of Brian Bedell with Deutsche Bank. Please proceed with your question.

Brian Bedell, Analyst

Thank you very much. Good morning. I would like to revisit the quantitative aspect. I appreciate the insights regarding the current position of 25% of assets under management from quantitative strategies. Could you share your thoughts on the remaining contributions to assets under management and EBITDA from strategies that you believe are most at risk in the near term? This would help clarify the trajectory we are looking at. Additionally, as you consider investment strategies for the future, have you decided to fully commit to quantitative strategies, or do you still see attractive opportunities in other quantitative approaches in the market that you might pursue later on?

Jay Horgen, CEO

Yes, thanks, Brian. So I'm not sure there's anything more to say. I think we've covered it very well, both from the prepared remarks and the Q&A. Contribution is in that 3% to 5% range. And I think that's the key metric to stay focused on in terms of that exposure. The other 95% to 97% of our EBITDA contribution, there's a lot of good things going on in that contribution. We've got a pretty strong orientation towards illiquids with Pantheon, EIG, Baring Asia, as well as most recently Comvest. As you heard in the quarter, we have been successful through our own succession planning at ValueAct to partner with a new entity In-Cap, which is focused on impact investing. I would like to just mention that area is an area of focus for us. This is our first investment in a business wholly dedicated to responsible capitalism. We do believe that this is an important time in the asset management industry as capital allocation to support long-term environmental, social, and governance considerations is going to be a key sustainable theme over the next decade. So this is momentous for us in our development. More broadly, we see a number of our affiliates being leaders in sustainable investing, most notably Pantheon is a leader in responsible investing in the illiquid space. And then more broadly, you'll see that we have a number of affiliates that have started or are continuing to develop products in this space, including EIG who has a renewable energy product as well as a number of our other affiliates where we have actually seeded a product. So we see that as a sustainable theme. Fixed income alternative products, as Tom mentioned, have been a highlight for us. Garda and Capula have both significant flows, but away from those businesses, you'll see that we've had flows in GW&K fixed income products, and more broadly at AQR in their fixed income products. So, when you look at the 95% of the EBITDA contribution, there's a lot of growth there. And as we transition from a mixed perspective away from quant, you'll see the growth driving through the numbers over time.

Operator, Operator

Thank you. Our next question comes from the line of Bill Katz with Citi. Please proceed with your question.

Bill Katz, Analyst

Okay. Thank you very much for taking the questions. Good morning and just passing along my condolences again to the AMG family. Just a question, maybe moving away from some of the flow stuff. Just in terms of capital, maybe a little bit more around the debt raise now. And then as you think about acquisition opportunities, one or maybe the one or two areas you particularly focused on as you look ahead? Thank you.

Jay Horgen, CEO

Tom, why don’t you take the capital first and I'll come back on the investments.

Tom Wojcik, CFO

Sure. So thanks for your question, Bill. Why don’t I give you a little bit on the bond issuance, and then maybe also just more broadly around capital. So I put the bond offering itself sort of squarely in the camp of us having a constant focus on enhancing our balance sheet, improving our long-term capital flexibility. We had a good opportunity to extend duration at a very attractive time in the market by issuing a 10-year bond. We use those proceeds to pay down our outstanding revolver balance and a portion of our term loan while also enabling us to hold some excess cash on the balance sheet at a bit of a more challenging time in terms of overall market uncertainty, and also where we see opportunity. If you kind of put that in the context of our overall capital allocation framework, we're highly focused on allocating our resources to the areas of highest growth in our business. We continue to believe that new investments when priced and structured appropriately represent the best use of our capital, and I know Jay will talk a bit more about that. All of our capital allocation decisions are running through a common framework to ensure that we're earning an appropriate risk-adjusted return for our shareholders and making the best long-term decisions for our business. In the current period, we are operating with a bit more caution just as we see the significant amount of uncertainty that exists in the market, as well as based on our past experience that taught us that these periods of market dislocation can create unique opportunities. And we want to ensure that we're in a position to be front-footed when those opportunities present themselves. And so we are holding a little bit of extra cash to ensure we're prepared for that. So, Jay?

Jay Horgen, CEO

Yes, I'd like to discuss the new investment side and share three key points: the market environment, market opportunities, and our focus on secular growth trends, as well as our pricing discipline. First, regarding the market environment, we are in a period of uncertainty, but we have experienced similar situations before. Recently, there has been a noticeable rebound in the market environment over the past 45 days, which has positively affected our prospecting pipeline. We remain cautious, recognizing that this year has been quite unusual, but we anticipate opportunities arising from this volatility, based on our past experiences. We are closely monitoring potential opportunities as we move forward. Second, we are concentrating on areas of secular opportunities, as we mentioned in relation to our existing affiliates. This focus also extends to new investments. We continue to seek out illiquid managers, as global clients are increasing their allocations in the illiquid space, particularly in fixed income alternatives. It's crucial to highlight the concept of alternatives given the current low rate environment. Finding value in relative opportunities is a significant focus area, along with ESG considerations and high-quality active managers as additional sectors of interest. These represent the secular opportunities and individual characteristics we seek in independent partner-owned firms. Lastly, in light of our recent transactions, we have sharpened our focus on structuring. Pricing often grabs attention when discussing investments, such as how much we paid compared to opportunity costs. However, structuring is a crucial aspect that isn't frequently discussed. We aim to structure for outcomes that provide an appropriate risk-reward framework, and we have improved our discipline around this. Our approach in the last two transactions has proven beneficial, as both Garda and Comvest are performing above our expectations and our structuring has positioned us well for success.

Operator, Operator

Thank you. Our next question comes from the line of Patrick Davitt with Autonomous Research. Please proceed with your question.

Patrick Davitt, Analyst

Good morning. Thanks for taking my question. It sounds like you've hinted a couple of times about the potential for increased interest in kind of traditional active strategies. But we aren't really seeing that in kind of the broader industry mutual fund flow data. So do you think this is a trend that's going to be more on the institutional side coming out of the recent volatility, so a net benefit to those managers with a bigger institutional mix? And through that lens, could you maybe broadly frame the one, but unfunded pipeline you're seeing relative to last quarter or last year?

Jay Horgen, CEO

Thank you, Patrick, for your question. I do believe that the statements we've seen are focused more on institutional investors than on retail ones. Retail investors tend to respond more to market fluctuations and past performance. We're observing that discussions are shifting towards the importance of active management in institutional portfolios moving forward. However, predicting this is challenging, as the work-from-home situation has slowed down due diligence processes and contract signings due to everything becoming virtual. This makes forecasting more difficult than it would be under normal circumstances. Nevertheless, we identify a trend where active management is crucial in portfolios during times of extreme volatility. Regarding our own pipeline, we have noticed an increase in activity over the past 30 to 45 days, particularly after a slowdown during the first part of the quarter. For instance, in illiquid assets, which require a longer due diligence process, we've seen significant closings right at the end of the quarter, which is promising for the remainder of the year.

Operator, Operator

Thank you. Our next question comes from the line of Mike Carrier with Bank of America. Please proceed with your question.

Mike Carrier, Analyst

Good morning. Thanks for taking the question. Just a clean up on the flows. So any significant fundraising on the horizon in some of your illiquid affiliates? And then just on the deal front, just wanted to get an update on what you're seeing in terms of sellers' willingness to transact and maybe pricing in this uncertain backdrop? Thanks a lot.

Jay Horgen, CEO

Thank you for the questions. Regarding illiquid fundraising, we need to be cautious due to some regulations surrounding discussions on this topic. We currently have several affiliates engaged in active fundraising throughout this period and into the rest of the year, and I can report that these efforts are performing well, even exceeding expectations in some instances. Although there was a slight slowdown for a couple of months, we are observing robust fundraising activity. Looking towards the end of this year and early next year, we expect several new campaigns to launch, leading to additional fundraising that will continue well into 2021. Overall, the outlook for our illiquid fundraisings remains strong, particularly with some of our key products in infrastructure and private credit with Comvest. Now, on the new investment side, as I mentioned earlier, we have seen an increase in discussions. We have several potential partner-owned firms in our pipeline, benefiting from long-standing proprietary relationships. In this current environment, these relationships are crucial for both new investments and distribution. We are continuing our conversations and are prepared to transact in a work-from-home setting, which might be an advantage for us. This presents a unique opportunity. Regarding buyers and sellers, while the current volatility introduces uncertainty, it also sparks fresh perspectives, creating opportunities for collaboration. It's important to ensure that pricing aligns with the right returns for our stakeholders, including our shareholders. We are maintaining discipline on pricing and structuring deals to achieve appropriate returns across different outcomes. This approach is generally well-received by sellers, and we remain optimistic about continuing our successful pace with Garda, Comvest, and others going forward.

Tom Wojcik, CFO

And maybe I can just add actually a point to each of the things that Jay just went through. On the first around our private markets franchises, remember that each of those businesses into themselves are pretty diverse businesses with a number of different product lines in areas. And then when you think across the totality of those businesses, it looks like a very diverse overall business. So it's not an area where we're dependent on one single fundraise in any given year that kind of drives our year. It really is a pretty consistent having products in the market, long-term client relationships and the like. Everything that Jay said around the environment I think is relevant there. Secondly, just with respect to the new investment opportunity, I bifurcate a little bit also that there are a lot of firms who are in the market today who see opportunity in this environment and are actually more focused on looking for growth capital today. So, Jay, I don't know if maybe you want to spend just a moment talking a little bit about growth capital and the way we're pivoting there as well.

Jay Horgen, CEO

Yes, that's a great point, Tom, thank you for bringing it up. As Tom noted, our discussions with potential new investments are expanding beyond just succession and liquidity-driven transactions. This development is important for the long-term aspect of any partnership and is a consistent factor in all of our collaborations, particularly our capabilities in succession planning and liquidity planning. As Tom pointed out, we are identifying opportunities to deploy strategic capital into new investments, in addition to our existing affiliates that we've mentioned, while primarily focusing on new investments. This involves investing in a business that aims to accelerate its growth by adding capital directly to its balance sheet. These investments are not liquidity-driven but rather intended to enhance growth, with AMG investing for its ownership stake on the balance sheet, allowing our partners to use that capital to advance either new product development or scaling existing products. A good example of this is Comvest, which represents a significant part of our current new investment pipeline. When considering our methods to foster growth for affiliates, we can assist at the point of a new investment or when affiliates present opportunities within their existing businesses. For instance, we invested strategic capital in Pantheon four years ago to launch their 40 Act fund, their CIT, and to support their initiatives in the wealth and individual channel and private equity. We've since received a return on that capital as those products have scaled. The recent DOL letter, although limited in scope, marks a significant milestone, hinting at a shift in attitudes and access to illiquid assets in the individual retirement and wealth channel. This was a case where we utilized our strategic capital to enhance an existing affiliate's opportunities. We anticipate that this approach will be seen in both new and existing affiliates, and I expect some of our new transactions will involve this type of strategic capital.

Operator, Operator

Thank you. Ladies and gentlemen, that concludes our time allowed for questions. I'll turn the floor back to Mr. Horgen for any final comments.

Jay Horgen, CEO

Thank you all again for joining us this morning. As discussed, we are excited about the compelling opportunities ahead, and we will continue to leverage our core strength to further enhance our competitive position and create shareholder value over time. I hope everyone remains safe and healthy. 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.