Affiliated Managers Group, Inc. (AMG) Earnings Call Transcript & Summary

Good morning, everyone. Let's get started. This is Craig Siegenthaler from Bank of America, and it's my pleasure to introduce Tom Wojcik, AMG's CFO. Tom joined AMG in 2019 from BlackRock, where he held a variety of strategic leadership positions after spending the early part of his career as an investor in the private equity and hedge fund world. Tom, thank you for joining us.

Thank you, Craig. It's great to see you.

So I'm going to provide a little background on AMG before we get started. AMG is a leading partner to independent investment management firms globally. The firm holds equity investments in more than 35 independent asset and wealth managers. And AMG provides its affiliates with growth capital, distribution and other strategic advisory capabilities, including succession planning.

Now let me turn it over to Tom to kick it off. Tom, maybe you can talk about what's new at AMG?

Of course. First, thanks, Craig, for the introduction and for hosting us today. We really appreciate it. And it's great to have you back in the swing of things at Bank of America. So look, as we highlighted on our earnings call last week, growth really continues to be the primary theme at AMG. And that growth is really a function of the strategy that Jay and the team have put into place over the last couple of years to evolve our business toward key client demand trends. And that's really driving the growth of the industry right now. Today, we feel like we're in a better place to generate growth really versus at any point over the course of the past several years, and there are 3 primary drivers for that. First, we've worked our way through a number of historical headwinds. Our quant strategies, some of our value equity strategies, these are much smaller parts of our business today on a relative basis. And as we look at them, they really represent real asymmetric upside from here, particularly with respect to earnings power. Second, we proactively repositioned a number of our affiliates and our business in favor of growth. And in doing so, we've been able to unlock substantial capital to invest in more attractive areas of the industry. And third, and this is definitely the most significant, and I know we'll talk a lot about this over the course of our time today, we've really aggressively been investing in growth primarily through new investments. And that's meaningfully pivoted our business more toward areas that we expect to deliver strong flows and earnings growth over time, things like private markets, ESG and Asia. And I think you're seeing in our most recent quarterly results with all of our core earnings drivers really contributing to deliver strong growth in earnings compounding, affiliate investment performance, organic growth, affiliate investments and share repurchases, all sort of being a big part of the story for us, Craig.

So Tom, let's continue with new investments. AMG has been active in new investments over the past 2 years by adding 8 new affiliates. Can you talk about what is driving that increased activity?

Yes. So look, there's really no bigger part of our growth strategy than new investments. It's a really unique competitive advantage that we have relative to others in the industry. And it's one of the primary ways we're looking to continue to reshape our business mix toward those high-demand areas that I just talked about and also bring relevant products to the market to meet client needs through our distribution. Thus far in 2021, we've added 4 new affiliates. And they're all in strong secular growth areas, 2 in private markets and 2 dedicated to sustainable investing. And there are a handful of things that I'd point to that are really driving AMG's momentum and activity in new investments: first, a favorable transaction environment; second, our strong competitive position; and lastly, increasing demand for our broadened set of partnership solutions. So on the environment, we're really seeing a heightened level of M&A activity in the industry, as you know, and also many more discussions around partnerships, interest in minority investments, really across both traditional and alternative firms. Everyone is sort of thinking about their strategy and trying to figure out what the right way to prosecute growth in the future is. And a lot of people are coming to the conclusion that doing that with a partner really can help to accelerate and de-risk their future plans. That includes a lot of interest from private markets managers who are looking for both growth capital as well as long-term incentive alignment and succession planning solutions. And in particular, that's an area that AMG is very well known for, and we have a very distinct advantage. Secondly, and I know we'll talk more about competition, but there are just far fewer competitors today that offer this independent hands-off model in the market and even fewer who have a long and demonstrated track record of success in doing so. The primary competition we see out there is really at the 2 different ends of the investment spectrum, including consolidation transactions on the one hand and then really pure financial-oriented minority stakes on the other. But that true partnership area in the middle where AMG is operating, that's where we're really differentiated. And we offer a strategic and permanent solution for independent partner-owned firms who want to remain autonomous, and no one really does that other than us. And then lastly, we've been very intentional about sort of extending our partnership solution. We think that's resonating in the market with a broader and more diverse array of firms. As firms grow and evolve, we're able to offer access to strategic support and capital. And we have the ability to partner with firms at the right time in their growth trajectory. So for example, we can offer growth capital to seed funds or lift out teams. We can offer distribution support to help augment marketing efforts. We can offer a broader engagement around business strategy, succession planning, equity alignment and transition, all depending on what stage of development a firm is in at a given time they're looking for a partner. So that flexibility and the ability to provide a broad spectrum of solutions, we think, really differentiates us as well.

Tom, you mentioned the competitive environment. Can you isolate your commentary in the context of alternative investment firms?

Sure. So I think the value proposition that AMG offers today and really the breadth and flexibility of our offering to meet needs across that growth trajectory that I just talked about makes us the best choice for high-quality independent partner-owned firms who are seeking that permanent partner. And that's being more and more recognized by alternatives businesses today, particularly on the private market side. And it's the uniqueness of our model that I think really sets us apart. We approach every discussion with a blank sheet of paper. We build a customized partnership solution that meets the unique needs of the prospective affiliate, their individual partners. And we have a lot of experience creating these tailored solutions versus the off-the-rack approach that I think a lot of others in the sort of minority state buying world take. Then we offer permanent capital off of our balance sheet in these new affiliate partnerships. And that's very different from sort of making investments through a fund structure. We don't really think about making investments. We think about entering into permanent partnerships, and it's just a completely different cultural philosophy. And I think it really resonates with our partner firms. And when you take those 2 things together, that sort of true partnership approach puts us in a position to really intentionally build strategic capabilities that accrue to the benefit of our affiliates. Remember, right, the only reason we exist is for our affiliates. We never compete with them. And what we offer them in terms of incremental resources and support is really purpose-built and evolves over time to meet their changing needs. So I think those differences are really being recognized, and I'll give you a few examples in the private market space over the course of the last couple of years. So Comvest, middle market, private equity and private lending business, they were looking for a primary capital solution, sort of put capital on their balance sheet to fund growth and distribution to accelerate the growth of their business. And we can provide that in a very unique way. OCP Asia, Asia-based specialty credit business, was really interested in financial diversification for the team, distribution, broader strategic engagement and cultural alignment with a partner. So a different situation where, again, AMG could really provide something unique. And then Abacus, the most recent transaction and partnership that we entered into in the multifamily real estate space here in the U.S., they were very focused on long-term succession planning and incentives and sort of transitioning over many years to the next generation, which again is sort of right in the wheelhouse of what AMG is really good at. So overall, I think, Craig, it's that value proposition that we offer that tends to make us the best choice for high-quality independent terms. And I think it's starting to resonate in a real meaningful way in the private market space as those firms think about the longevity of their businesses and how they want to prosecute their strategies going forward.

Tom, I was curious, it looks like you were able to transact with Parnassus and Abacus at attractive multiples. How are you able to achieve such attractive pricing, given the competitive backdrop?

Yes. So look, it all kind of comes down to differentiation versus commoditization, right? If you offer a true differentiated solution, you can often get to a pricing structure that make a lot of sense. And if you're incredibly commoditized, oftentimes, price is the only thing you're competing on. We really think about all of our partnerships in terms of alignment and structure and then getting to the right risk return characteristics for both our affiliates and for our shareholders. And pricing kind of tends to be more of an output of those elements than our primary focus. We don't go in thinking we have to pay this multiple. We go in thinking how do we get to the right alignment? How do we get to the right incentives and the right outcomes over time for the business and for our shareholders? We also spend a lot of time thinking about the prioritization and opportunity cost of our capital. So every investment that we make, we're challenging ourselves on how it fits with our strategy and whether it's the best risk-adjusted return we can earn on that capital. So we have a lot of discipline when we think about the way that we structure these things. And really then our model, our reputation and our solution set puts us in a position to get to a structure that works. So use Parnassus as an example. It's a really unique set of facts. And if you went Affiliate by Affiliate, an Affiliate at AMG, I think this would be a theme. There's a lot of really unique sets of facts that play into why the AMG value proposition makes sense. At Parnassus, we had a decade-long relationship with the senior leadership team. And they had some very specific goals when they ultimately decided to transition to the next generation. Their founder had retired and had fully stepped away from the business. And the next-generation management team was really focused on a partner who could deliver independence and autonomy. And I can't understate that. There are a lot of people out there who make promises about independence and autonomy. We have a 30-year history of delivering on independence and autonomy. And for businesses who value that, it's incredibly important. They were also looking for strategic support and for a structure that created strong alignment. And they chose AMG for all of these reasons, but in particular was that commitment to independence, our permanent partnership approach and then also our long-term succession planning expertise that was really important to them. And as one of the very few institutional partners out there today who is able to transact across the growth trajectory of businesses, we have a clear competitive advantage in being able to partner with excellent firms who know us, where we have cultural alignment and where the long-term value proposition makes sense. And we see that continuing, Craig. I think a lot of our conversations, we're obviously looking to deliver fair value for these businesses to their founders. But we're able to do so in a way that makes sense for the business, makes sense for the long-term growth and durability of the business and makes sense for our shareholders.

Tom, I have one last question on M&A. What should we expect to see going forward in terms of new investment activity, types of firm sizing and structure?

Sure. So as we've talked a little bit about, everything we're doing in new investments is sort of core and aligned with our strategy. So that focus is going to continue to be squarely on pivoting more towards growth areas, private markets, wealth management, Asia, solutions, ESG. Those are the areas we're spending the most time on. Not surprisingly, those are the areas you've seen us be the most active in, in the past couple of years. And that's the area that you should probably expect to continue to see us be the most active in going forward. I'll continue to sort of debunk the size myth for a moment, which is size of these businesses when we make the investment is really much less relevant. It's not about trying to do things in big chunks, right? It's about really thoughtfully allocating capital to great businesses that are growing and that are earning returns. If you think about many of our most successful partnerships over the course of time, there were businesses that were $2 billion, $3 billion, $5 billion, $7 billion, $10 billion when we made the investment and doubled, tripled, quadrupled or in some cases, grew more than 10x. So it's not about finding the biggest business today and putting the most capital into it. It's about finding the best businesses today and finding a way to work with them over time to continue to grow. And we see a lot of opportunities to invest. And we have a lot of free cash flow and capital flexibility to do it. So we think you should expect us to continue to be very active over the course of the next several years.

Tom, let's migrate over to capital management for a moment. What is your capacity to do new investments?

So look, we have a lot of momentum in the business. And that translates into a significant and growing free cash flow stream. So if you just kind of put some numbers around it and look at our economic net income, where The Street is for the year, we'll generate, call it, $750 million, maybe $800 million of economic net income. And that corresponds reasonably closely to the amount of cash that we generate annually. We also just extended our $1.25 billion undrawn revolver as well as our term loan. We issued a hybrid bond a couple of months ago shortly after the Parnassus transaction. And we have ample balance sheet resources at our disposal in addition to the cash flow that we generate. Also, when we're making new investments, remember, we sort of get embedded leverage. We get the benefit of taking in that new EBITDA and then putting our capital structure on it. So that further allows us to deploy even more capital than that annual cash flow number might suggest while keeping our leverage levels consistent. So when I look into 2022 and beyond, overall, we feel very well positioned, strong earnings power, very strong balance sheet in terms of liquidity and flexibility where we can both make investments in high-growth areas and also be in a position where we can continue to return a lot of capital to our shareholders through repurchases.

Tom, what are the priorities in terms of the capital you're investing for growth?

So Craig, we've talked about some of them already, right? Obviously, new investments are going to be a big part of it, but they're only part of the story. We're still -- every investment we make, right, the first thing we think about is, is it evolving our business more towards secular growth areas? And there are really 3 areas that we think about when we're investing our capital. Obviously, it's new affiliates. It's investing in our existing affiliates to try and continue to enhance their businesses. And then it's investing in our centralized capabilities to try and further facilitate growth in our Affiliate businesses. So we strongly believe new investments are the best and highest use of capital. They're going to have the greatest magnitude. They're going to drive both organic growth and EBITDA growth. And we think that's a big competitive advantage for us. We've also been, frankly, really successful. It's proving itself out over the course of the last couple of years. The investments that we've made are driving very strong organic growth. They're driving very strong EBITDA growth. So these couple of vintages that you've now seen this new leadership team put in play are sort of working exactly as we hope. And we are excited to continue to execute against that piece of our strategy. We're also very active investing alongside our existing affiliates. And I'll give you a couple of examples there. We supported Pantheon earlier this year in lifting out our real estate team, also listing and infrastructure vehicle. We supported PFM with the launch of a private growth fund in the health care and biotech space. We supported Artemis in lifting out an ESG team and then seeding that team to launch a new strategy. And we've got lots and lots of examples where we're doing that around the organization. And frankly, it's a real proactive push for us to really look at our affiliates, look at the market and say, "Where do we have great platforms that can expand and that can grow and kind of meet these client needs?" And of course, we also continue to invest really thoughtfully in our own central capabilities, including distribution, where we have a really unique value proposition for our affiliates. So again, the growth investments that actually do hit our bar, and it's a very high bar, we're excited to make. But we also feel really good about the fact that if we don't find enough growth investments that hit our bar, we can continue to return capital to shareholders. And we're on pace to do another $500 million of repurchases this year even in addition to the significant growth investments we made. So I think you get the best of both worlds, and that's a function of just how much cash we generate, frankly.

So Tom, you just kind of hit on it. So maybe it's a little repetitive. But how are you thinking about share repurchases now, particularly given your current stock valuation?

Yes. Let me talk about 2 things: repurchases and also why we're so bullish on the earnings power of the business, which obviously is one of the things that's driving our appetite for repurchases. Repurchases for us, as we just talked about, are really much more of an output than an input. Our philosophy on allocating capital is, first, invest for growth, new affiliates, existing affiliates, capabilities and then return capital through repurchases. At these levels, we're very comfortable and bullish in terms of repurchasing shares. Ultimately, we believe that over the long term, the market is going to reward strong and consistent earnings compounding. And that's exactly what our strategy is focused on. And we think we have a really unique set of attributes to allow us to accomplish that compounding. And I think you're seeing it right now in our results. There are really 4 ways that we drive earnings growth and shareholder value: the investment performance of our affiliates, organic growth across our affiliates, the capital that we deploy into new investments and into existing affiliates to drive growth and then the capital that we've returned through repurchases. If you think about the investments we've made as we execute our strategy, I talked about this a little bit upfront. But today, we're in a much stronger position than we were over the last couple of years in terms of our overall mix of business as well as the trajectory of our business and our confidence in future growth. And if you sort of look 3 to 5 years down the road, if we continue to execute well against our strategy, you can see a clear path towards further meaningful mix shift in our business toward these secular growth areas, which will continue to further add to our ability to deliver strong flows and deliver strong earnings growth. So you stack all of those different unique aspects of our model, we feel very strongly about our ability to compound earnings growth and generate shareholder value. So therefore, we feel really good about buying back our stock at these levels in addition to continuing to invest for growth.

Let's move on to organic growth for a moment. You reported positive net flows in the third quarter. It was really good to see that. What is driving that strength? And more importantly, do you think it's sustainable?

Yes. So it's very sustainable in the context of our overall long-term strategy, right? I know I keep repeating this, but it's just important to almost hammer it home. Everything we do is about evolving our business toward this secular growth mix that we're excited about, and I think you're seeing that manifest itself. There's a lot of ongoing client demand for private market strategies. We've seen double-digit organic growth in our private market areas over the course of the last 3 years. That's now more than $100 billion AUM business for us. We expect the momentum to continue, and it's a strong area of our prospecting in terms of new investments and also a strong focus for us on distribution. Liquid alternatives are really doing well. We're seeing increasing client demand for these differentiated sources of alpha as the world continues to get a little bit more volatile out there. Our affiliates have had excellent performance, including ValueAct, Systematica, Capula and Garda. And as we talked about on the call, they're all contributing to very, very strong performance fees this year and really just the consistency of performance fees that we've seen now over the course of the past several years and we expect to see into the future. And then in active equities, with the addition of Parnassus, our growing ESG presence and with very strong near- and long-term performance track records, we feel like we're really well positioned. The other thing I note is I think it's important to think about the quality of the flows that were sort of our private markets business, and our liquid alternative exposure continues to grow. We think about the value of every dollar of inflows coming in is also increasing. A lot of these assets, most of them tend to be long locked up duration assets, experienced management fees for an extended period of time. And that duration is very valuable to us. Additionally, the business continues to generate substantial and consistent performance fees. And we're continuing to feed that bucket of AUM that can produce future performance fees as well. So to sum up, look, for us, flows are absolutely an output of executing our strategy successfully. And our improving organic growth profile does reflect the successful execution of our strategy over the last couple of years, investing in new affiliates, investing in existing affiliates and then augmenting that growth through our strategic support and distribution.

Tom, I wanted to focus the flow commentary on ESG for a moment. Can you talk about what your affiliates offer today in terms of ESG strategies and also your outlook on being a growth driver going forward?

Yes. Look, it's a huge theme. It's one of the fast and growing segments in the industry. We think that's here to stay. And we think importantly, active management is really going to lead the way in ESG. We think it will continue to be an area of focus for us. It will continue to be an area of focus for our clients. And it's an area of focus also for our existing affiliates who are not pure-play ESG managers as they think about the appropriate ways to kind of play within that theme as well. And it's a place that we're absolutely looking to deploy even more capital and resources. Today, we have 3 affiliates who are wholly dedicated to sustainable investing and are very well-known names in the space: Parnassus, Boston Common, each of which were new investments this year, and then Inclusive Capital Partners. And we have over $80 billion in AUM in true ESG dedicated strategies. And in addition, we have many other affiliates that are launching ESG products and integrating ESG into their investment processes. And it's not only something our affiliates are focused on, but it's something at the center at AMG that we're really focused on trying to bring resources and knowledge and education to bear to be helpful as those businesses think about their own ESG strategies. I fully expect our ESG presence is going to be significantly larger over time and a strong contributor to both our organic and earnings growth as both existing affiliates and new affiliates that we invest in continue to play into that theme.

Sticking with ESG, there's been increased scrubbing on greenwashing. How concerned are you that this will impact your affiliates?

Look, ESG is still -- in many ways, it's been around forever, but the focus on it is relatively new. And therefore, it's very front and center for clients. And that combination of being somewhat new and also front and center for clients, not surprisingly, is leading to it also being front and center for regulators. That's a theme that I think we often see in the industry. We fully support transparent disclosure regarding ESG investment strategies. As you can imagine, we and our affiliates are monitoring the ongoing rule-making in this area at the SEC and elsewhere as well as developments in ESG reporting standards set by various private sector organizations. In an ideal world, we would love to see a very clear set of rules and consistency. We think that a level playing field is important to delivering the best outcome for clients and really allowing the strength of our affiliates to shine through.

Great. Tom, let's move on to distribution. You've mentioned your distribution offering quite a few times today. Can you just remind us what has been done with respect to your distribution capabilities?

Yes. So I'm really excited about distribution, Craig. It's something that I spend a lot of time on and that the entire leadership team is very focused on. It's really one of the key value-add strategic areas that we think we can deliver to our affiliates. So you should think about distribution at AMG in 2 ways. We have an institutional component of our distribution, and then we have a U.S. wealth component of our distribution. And they're actually very different in a lot of ways. On the institutional side, it's all about extending the reach of our affiliates to geographies and client types that small and midsized independent firms often don't reach on their own. So a lot of times, when we make an investment in a new Affiliate, obviously, they've been very successful in terms of delivering investment performance and in raising capital. But oftentimes, they have 1 or 2 client types, 1 or 2 geographies that they've been very successful in. And one of the value propositions they get very excited about is their business continues to grow in scale. And they think about their own strategic road map over the course of the next 5 and 10 years. It's very difficult for most of those businesses to see senior hire in Australia, senior hire in Korea, senior hire in the Middle East. It's just hard for them to get that bang for their buck as a stand-alone. But we have the ability to put seasoned distribution people into those geographies and effectively amortize the cost and the knowledge of those individuals across our entire Affiliate base on an opt-in basis. So what it does is it sort of acts as a magnifier or an extension, if you will, of each of those individual businesses when you have an AMG individual carrying an AMG business card, representing the highest quality independent partner-owned firms in the world in all of these different geographies. So it's a great tool to help affiliates expand their reach without having to build massive infrastructure. The retail side is a little bit different. Retail, we really have a fully vertically integrated business. I kind of think about it as plug-and-play, right? We can help you build the wrapper. We can do the fund admin. We could run the fund board process. And then we have all of the different selling capabilities that are needed to put you into the market, coverage at the national office level and relationships at all the wires, RIAs, independents, marketing department that can help sort of tell the story. And then importantly, wholesalers, both internal and external who are out in the field, actually doing kind of the hand-to-hand combat and selling products. So we have a lot of firms who weren't in the retail space when they came to AMG, who we helped to develop those types of opportunities. And then importantly, look, everything is opt in, right? We don't force our affiliates to do anything. It's a big part of our value proposition. So we're kind of incented, right, to constantly evolve as our affiliates and client demand trends change. It's not a stagnant offering, right? It has to change over time because our affiliates need to want it, and it needs to add value. So really, we think that enhanced focus is paying dividends. We think it's contributing to our existing affiliates. We think it's really helpful in our conversations in terms of attracting new affiliates. And we think it's -- look, it's a good driver of flows for us today, but we think it's really going to be an increasing part of the story going forward as well.

Great. Tom, at this point, I just want to remind the participants that you're all able to ask questions. If you want to write in, there's a box below the videos on your screen. So please remember that. But I do have another one here on the retail. Tom, can you talk more about your retail alternative initiatives? Clearly, this is an area of growth for the industry. And what progress have you made in launching alternative investments to retail investors?

Yes. So it feels like it's sort of the most talked about theme in the industry right now over the course of the last few months and for good reason. I'll throw a couple of stats out that I'm sure most people on this call know, but the U.S. wealth market is arguably the largest single investment market in the world. It's a $30 trillion market, and it's massively underpenetrated in terms of its allocation to private markets in particular, but alternatives overall relative to any other institutional type of asset allocation model. And we view it and I think many alternative firms view it as the single largest growth opportunity in the world for private markets over the course of the next decade. But it's also complicated. It's a complicated landscape. It requires significant resources and commitment. And it's not easy for a small or midsized firm to enter into the retail space. You can't kind of leg into it with a single person, right, in the same way that you can think about institutional sales. So to win in U.S. wealth, you need a handful of things. You need great product. You need excellent performance. You need an appropriate wrapper or a series of wrappers for your product. You need to be able to get on to the right buy lists, so you need access to national offices and platforms. And then you need sales in the field to go out and educate the FA and the RIA and actually drive the product. And if you think about what AMG has when I just talked about our retail offering, we have all of those things. So we think we're really uniquely positioned to be able to provide this, especially to our existing and new affiliates on the private market side. The Affiliate obviously brings the product and the performance. We can help them identify what the right wrapper is and what the right subchannels are to target, oftentimes in partnership with iCapital where we have a strategic relationship and investment that's been really helpful to facilitate that process. And then we can provide a combination of the back office and underlying support, national office coverage, the marketing and the wholesalers in the field. But many of our affiliates are already tapping into the retail market, some with us and some in legacy versions in their own way, Pantheon, Comvest, EIG. We expect to see that presence grow over time. And I'll give you one example, which is we've worked alongside Pantheon now to raise more than $1 billion in the private wealth segment in the U.S. That started a number of years ago, helping them to seed an interval fund, which is now north of $600 million. And we've also been active with them in terms of private fundraises in the channel. So we think that there is a really unique value proposition that AMG brings to bear for independent partner-owned firms. It's a huge market and a huge opportunity. And we think we're pretty uniquely differentiated to be able to go out and attack that on behalf of our affiliates.

Great. Tom, we have a question here. With all the volatility, how do you view the opportunities in the Asian market today for AMG?

So look, we look at Asia as a tremendous long-term opportunity. You're seeing demographic change. You're seeing a change in the way that wealth is generated and managed. And you're seeing increasing globalization in terms of the way that many parts of that region of the world are thinking about their investments. So we, obviously, are a major player in Asia today. Baring Private Equity Asia is the largest independent Asian private equity real estate firm in the industry, incredibly successful. We just recently made a new investment in OCP Asia, which provides really unique credit solutions. And we continue to be focused on 2 parts of that market. One, where can we find excellent investment expertise that can play into this long cycle? Look, volatility is, obviously, a little bit scary in the short term, but it's a great opportunity for active management over the long term. So I think we're very comfortable with that, and we sort of factor that in as we think about risk-adjusted returns when we're investing in the region. But there are great opportunities to generate alpha in a variety of different ways in Asia. And then secondly, we think about how do we tap into the Asian client base over time. We just talked about our global distribution as an example. We're very active in the region. We think we'll be even more active in the region in the future because we just see so much opportunity as that market continues to grow and change. So it's an exciting area for us. It's relatively small today, but we think over time, it can be a big opportunity.

Great. Tom, we have another one here on performance fees. How should we think about the contribution of earnings from performance fees over time?

I think you should think about them, frankly, as a very core part of our business. The discussion and debate around performance fee volatility is one that you spend a lot of time on, and I think the industry spends a lot of time on. And I think AMG is just different. If you look at our performance fee generation over the course of any rolling 3-year period, 5-year period, it's the consistency of that performance fee generation that really sort of stands out relative to really any other asset management business that I'm aware of. We have 3 major buckets when we think about performance fee-generative assets. We have a bucket of sort of beta-oriented kind of long-only performance fee-type businesses, so a ValueAct-type business. Those businesses obviously tend to be correlated with markets, but we've seen significant outperformance in those businesses as well. We then have a big bucket of absolute return-type performance fee-generative businesses, some of our quant businesses, some of our relative value fixed-income businesses like Capula and Garda and a lot of variety across those businesses. And then lastly, we have our private markets businesses. And we're still relatively early in our harvest cycle, if you will, given the timing of when we've made those investments, but we continue to have a building book of carry that we will realize over time. And what's unique is when you think about that across a dozen affiliates working through a dozen different investment styles, many of whom have several different products that are performance fee-eligible, you end up with this very diverse group of performance fee-generative assets that all fire sort of at different times and in different environments. So long story short, when you put all of that together, I feel like you can pretty much capitalize 10% of our earnings every year coming from performance fees. That's what we've seen and what we've experienced. And frankly, when it isn't 10%, the asymmetry there tends to be to the upside, where we overshoot because we've had a particularly good year as we're having in 2021, which really influenced a lot of the earnings guidance upward revision that we gave on the most recent quarterly call.

Great. And it looks like we are out of questions. So Tom, I'm out of questions. We're out of questions. So I just wanted to give you a big thanks on behalf of everyone here at Bank of America, and we hope to see you next year in person when the conference is back at the St. Regis. Tom, thank you very much.

I appreciate it, Craig. And thanks, everyone, for listening in. And obviously, please feel free to reach out if anyone has further questions. Thank you very much.