AMG (AMG, Financial) (-8%, -0.46%), the asset management holding company, was the top detractor as the company reported net outflows for the quarter. Over 95% the net outflows came from quantitative strategies, which represent only approximately one quarter of AMG's total AUM and less than 5% of proportionate EBITDA, meaning that the majority of the company's affiliates and earning power did not shrink organically. Market appreciation helped AMG's AUM grow 6%, and our appraisal of the value increased 10% due to the higher recurring fee revenues and substantial FCF in the period. The stock trades at a 5x FCF multiple, which would suggest a permanently impaired, shrinking business. Yet AMG's alternatives managers, particularly its private equity firms, reported an encouraging $3bn of net inflows with long lock-ups. CEO Jay Horgen intelligently repurchased discounted shares at a 6% annualized pace, while borrowing 2030 bonds at a 3.3% coupon and 2060 bonds at a remarkable 4.75%. The encouraging performance from most affiliates and the extreme spread between the stock's 20% earnings yield and low cost of long-term debt suggest a substantial mispricing of the equity.
From Mason Hawkins (Trades, Portfolio)' Longleaf Partners Fund third-quarter 2020 commentary.
