Feb 4, 2014
Executives
Alexandra Lynn Sean M. Healey - Chairman and Chief Executive Officer Nathaniel Dalton - President and Chief Operating Officer Jay C.
Horgen - Chief Financial Officer, Principal Accounting Officer and Treasurer
Analysts
Craig Siegenthaler - Crédit Suisse AG, Research Division Michael S. Kim - Sandler O'Neill + Partners, L.P., Research Division Robert Lee - Keefe, Bruyette, & Woods, Inc., Research Division Daniel Thomas Fannon - Jefferies LLC, Research Division Christopher Shutler - William Blair & Company L.L.C., Research Division William R.
Katz - Citigroup Inc, Research Division
Operator
Greetings, and welcome to the Affiliated Managers Group Fourth Quarter 2013 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded.
I would now like to turn the conference over to your host, Alexandra Lynn. Thank you.
You may begin.
Alexandra Lynn
Thank you for joining Affiliated Managers Group to discuss our results for the fourth quarter and full year of 2013. In this conference call, certain matters discussed will constitute forward-looking statements.
Actual results could differ materially from those projected due to a number of factors, including, but not limited, to those referenced in the company's Form 10-K and other filings we make with the SEC from time to time. We assume no obligation to update any forward-looking statements made during the call.
AMG will provide on its website, at www.amg.com, a replay of the call and a copy of our announcement of our results for the quarter, as well as the reconciliation of any non-GAAP financial measures to the most directly comparable GAAP financial measures. With us on the line to discuss the company's results for the quarter are Sean Healey, Chairman and Chief Executive Officer; Nate Dalton, President and Chief Operating Officer; and Jay Horgen, Chief Financial Officer.
With that, I'll turn the call over to Sean Healey.
Sean M. Healey
Thanks, Ally, and good morning, everyone. We were pleased to report record earnings for both the quarter and full year with economic earnings per share of $3.66 for the fourth quarter and $10.31 for the year, an increase of 34% over 2012, and assets under management of over $540 billion, an increase of approximately 25% year-over-year.
Our results for the quarter and the year reflect excellent execution across our business, including the ongoing success of our distribution strategy, the addition of 2 highly regarded new Affiliates and above all, the continued strong investment performance of our Affiliates, including the outstanding results of our alternative managers, which in turn generated exceptional performance fees. We continue to benefit from our strategic focus on alpha-generating equity and alternative products as global clients increasingly seek return-oriented strategies for the alpha portions of their portfolios to complement their passive beta exposure.
And unlike in more scale-oriented product categories such as fixed income or passive equity, sophisticated clients around the world use specialist firms as having a competitive advantage in alpha generation. In U.S., global and emerging market equities, Affiliates such as Tweedy, Browne, Harding Loevner, Genesis, Artemis and Yacktman, are recognized as among the best managers globally.
While Affiliates such as ValueAct, AQR, First Quadrant and BlueMountain are for a broad array of the most highly regarded alternative strategies in the industry. On this note, we were very pleased to see that AQR was recently named Morningstar's alternative Fund Manager of the Year.
With the outstanding investment performance of our Affiliates and the ongoing success of our global distribution strategy, we continue to generate industry-leading organic growth from net client cash flows with $5.5 billion in net flows during the fourth quarter and over $40 billion for the full year, and now 15 consecutive quarters of strong positive net flows. Given the opportunities we see for our Affiliates to gather new business around the world, we are continuing to build out our global distribution platform by expanding the breadth and depth of our capabilities with additional coverage and personnel in key markets and channels worldwide.
As Nate will describe further, in 2013, we made senior hires in several major institutional markets, and we're continuing to enhance our position in U.S. retail, which is an increasingly important strategic priority for us.
The investments we've been making in our global distribution platform continue to yield excellent results as evidenced by new mandates generated in every institutional coverage region with net client cash flows broadly spread across all product areas and distribution channels during the year. Turning to new investments.
During the quarter, we were pleased to announce an investment in SouthernSun, an exceptional small- and mid-cap equity manager, and looking ahead the deal environment is very favorable to AMG. Our opportunity set is extremely strong and our 20-year track record of successful partnerships, combined with the strength of our distribution capabilities, gives us a unique competitive advantage.
We've entered 2014 with a substantial transaction pipeline, which includes a diverse array of traditional and alternative firms around the world, and we continue to be very optimistic about our prospects for making additional investments in outstanding new Affiliates. Looking back on 2013, I'm very pleased with what we accomplished.
Through the successful execution of our growth strategy, including the organic growth of our existing Affiliates, as well as partnering with new Affiliates, we have continued to broaden the scale, diversity and earnings power of our business. Going forward, we are uniquely positioned on a global basis.
We have a remarkable group of performance-oriented Affiliates, which are recognized as industry leaders in highly attractive product areas. We are effectively executing our global distribution strategy across an increasing number of markets and channels, and our new investment opportunity is better than ever.
As always, we know the future success requires an ongoing focus on excellent execution across our business, and we look forward to continuing to create outstanding long-term shareholder value in the years to come. With that, I'll turn it to Nate to discuss our Affiliates results in greater detail.
Nathaniel Dalton
Thanks. Good morning, everyone.
As Sean said, 2013 was a great year for AMG with strong organic growth and excellent investment performance. Our Affiliates' outstanding long-term investment track record combined with our robust global distribution strategy and resources resulted in another year of exceptional net client cash flows.
During the year, we continued to build out our very successful global institutional platforms while at the same time, we have been increasing our focus on retail distribution channels, especially in the U.S. We believe we have a unique opportunity to bring an unmatched array of boutique firms with a exceptional long-term track records into retail markets by leveraging scale and distribution.
We recently announced several steps towards building upon a scale we've already achieved and in particular, to leverage the AMG brand into our retail business. Now I'll talk more about those specific steps in a moment.
But first, turning to investment performance and starting with the global developed markets category. Against the backdrop of generally rising equity market last quarter, our Affiliates generated good investment performance.
Highlights included strong performance from significant products at AQR, Artemis and Third Avenue; Tweedy, Browne with its deep value strategy not surprisingly lagged in such a sharply rising market but the long-term track records remain outstanding and relative performance so far in 2014 has improved. In the emerging markets category, we continue to have generally strong performance as all of the major products managed by Genesis and Harding Loevner are well ahead of their respective benchmarks for the quarter 1-, 3- and 5-year periods.
Looking at the performance of various emerging and frontier markets recently, it seems very clear that this is the time for active management in the end, generally. And we expect that sophisticated clients will continue to maintain and even increase their allocations to our Affiliates' emerging markets products.
Turning to our alternatives product category, where, as Sean noted, we offer a broad suite of strategies. For the quarter and full year, many of our Affiliates' most significant products performed very well, including high-quality products at BlueMountain, First Quadrant, ValueAct, Pantheon and AQR.
In addition to the strong performance of our alternative managers, Affiliates which offer both alternative and traditional strategies with incentive fee structures, delivered exceptional performance fees in 2013 and the year ended well for a number of our products. Also, during the fourth quarter, several large clients with multiyear performance fee contracts decided to recommit their assets under new long-term contracts.
Obviously, a very positive endorsement, which resulted in the realization of the fees and then earned on the contract through 2013. Turning to our U.S.
equity products. We had a mixed quarter end year on the performance side, where Yacktman, like Tweedy, lagged in such a sharply rising market as you'd expect.
Although relative performance so far in 2014 has improved and the long-term records are outstanding. TimesSquare, Systematic, and GW&K finished a very strong year delivering outstanding performance across their respective suites of equity products.
As Sean noted, we are also very pleased to welcome SouthernSun Asset Management to our Affiliate group. SouthernSun offers industry-leading U.S.
small- and mid-cap strategies with top-rated investment products to the trailing 1-, 3-, 5- and 10-year periods. Now turning to flows for the quarter.
As I said, we had another good quarter with $5.5 billion in positive net client cash flows. As we emphasize on every call, flows, especially in the institutional and sub-advisory channels, are inherently lumpy.
However, overall flow momentum continues to be strong. Turning to the channel review and starting with the institutional channel.
We had positive net flows of approximately $2 billion. These flows came primarily in global and emerging markets products and alternative strategies, including notable contributions from Pantheon, Harding Loevner, AQR, BlueMountain and Artemis.
Similar to previous quarters, we had a number of high-quality wins coming from leading institutions located around the world. Moving to the Mutual Fund channel.
We had positive flows of $3.6 billion. From a product category standpoint, we had strong flows into U.S.
and global equities and alternative strategies. The breakdown of flows in those channels also very broad as we had a number of Affiliates make significant contributions including AQR, Artemis, Harding Loevner, Tweedy, Browne, Beutel Goodman, TimesSquare and Yacktman.
In our high net worth channel, flows were essentially flat for the quarter as rebalancing outflows from some products with annual liquidity features offset inflows principally in U.S. and global developed markets products.
Now turning to an update of our distribution platforms, which complement our Affiliates' dedicated marketing sales efforts. We continue to generate strong flows among a diverse set of products and across geographies and remain very pleased with the success of the global distribution business to date.
As Sean noted, during the year, we generated significant new business in each of our coverage regions including Australia, Europe, the Middle East and Asia with 2013 being a real breakthrough for us in Asia. As you know, we opened our Hong Kong office just over 3 years ago.
In addition, we made several investments in our European team over the last year with a new office in Zürich, notable senior hires for the Benelux, German and Swiss markets and the new head of Europe, who brings with her a significant additional U.K. expertise and relationships.
In the U.S., as you saw, we recently announced several initiatives related to the increased strategic focus on our retail distribution business. While this business is already generating good flows for a number of our Affiliates, we see significant additional opportunities.
It is clear that over time, retail investors, just like global institutions, will need to increased their allocations to return a range [ph] of products to achieve their investment goals. With our wide array of outstanding boutique Affiliates, we are very well positioned to capture additional market share as we increasingly leverage our scale and brand.
Now as we announced 2 weeks ago, part of the strategy includes bringing Aston Asset Management into the AMG retail platform, enhancing our scale. Next, leveraging the success we've achieved building the AMG brand in global institutional channels both with end clients, as well as intermediaries, we also announced 2 weeks ago, that in the spring, we'll begin to use the AMG brand for our U.S.
retail distribution business. Through this process, the approximately 40 mutual funds available as manager's funds will be rebranded as AMG funds, and we will be able to leverage our brand across channels and geographies.
The combined AMG funds business will service over $70 billion of mutual fund SMA and sub-advised products. Finally, 2014 is off to a good start as we continue to see increasing demand for return-oriented products managed by leading boutique firms, we are confident we can continue to generate strong organic growth.
And with that, I'll turn it to Jay.
Jay C. Horgen
Thank you, Nate. As Sean and Nate discussed, our exceptional fourth quarter results completed an excellent year of earnings driven by organic growth from net client cash flows and continued outperformance by our Affiliates.
As you saw on the release for 2013, we reported economic earnings per share of $10.31. For the fourth quarter, we reported economic earnings per share of $3.66, which included net performance fees of $1.41.
These performance fees reflect the upside earnings potential in this element of our business, which we normally expect to contribute between 5% and 10% of our economic earnings in a typical year, but which always have the embedded asymmetric upside opportunity to generate a larger earnings contribution. In addition, we continue to take a conservative approach to the recognition of performance fees, which are included in our earnings only in the quarter in which they are realized as cash.
Finally, on a GAAP basis, we reported earnings of $2.79 for the quarter. Turning to more specific modeling items.
The ratio of our EBITDA contribution to end of period assets under management was approximately 25 basis points in the quarter reflecting the exceptional contribution from performance fees. We expect this ratio to be approximately 15.5 basis points in the first quarter of 2014, and for the full year we expect it to be approximately 16.7 basis points which includes a normalized assumption for performance fees.
Holding company expenses were approximately $33 million in the fourth quarter reflecting final year-end expenses, and we expect them to return to approximately $27 million in the first quarter for 2014. With regard to our taxes, our effective GAAP tax rate for the quarter was 34.5% and our cash tax rate was 32.9%.
For modeling purposes, we expect our GAAP tax rate to be approximately 35% and our cash tax rate to be approximately 25%. Intangible-related deferred taxes for the fourth quarter were $8.6 million.
We expect this number to return to approximately $17 million per quarter in 2014. Our share of reported amortization for the quarter was $23.7 million and together with $10.5 million of amortization from Affiliates accounted for under the equity method, AMG's controlling interest portion of amortization was $34.2 million.
We expect AMG's amortization to decline to approximately $27 million per quarter in 2014. Our interest expense for the fourth quarter was $24.1 million and for the first quarter of 2014, we expect it to decrease to approximately $22 million.
Turning to our balance sheet. With the increasing scale of our annual free cash flow and our $1.25 billion bank revolver, we have ample capacity to execute on our new investment pipeline, and we continue to consider opportunistic access to the capital markets as part of our ongoing effort to lower our cost of capital and simplify our capital structure while maintaining a liquid and flexible balance sheet.
Now turning to guidance. We continue to expect our 2014 economic earnings per share to be in the range of $10.50 to $11.70.
Our guidance assumes our normal convention of actual market performance through yesterday for the current quarter and 2% quarterly market growth beginning in the second quarter of 2014. We also assume a weighted average share count of approximately $55.5 million for the year.
The lower end of our guidance range includes a modest incremental contribution from performance fees and organic growth, while the upper end of the range assumes a more robust contribution from performance fees and net client cash flows. As always, these assumptions do not include earnings from future new investments and are based on our current expectation Affiliate growth rates, performance and the mix of Affiliate contribution to our earnings.
Of course, substantial changes in markets and earnings contributions of our Affiliates would impact these expectations. Now we will be happy to answer your questions.
Operator
[Operator Instructions] And our first question comes from the line of Craig Siegenthaler with Crédit Suisse.
Craig Siegenthaler - Crédit Suisse AG, Research Division
So I'm just wondering, have you spent any time looking at nonbank, noninterest SIFI regulations and other regulations that could impact the industry? And I'm what I'm getting at is, it looks like certain regulations may attack at the product level, which could have a greater impact on smaller asset managers that don't have the same infrastructure like a larger asset manager has.
So I'm wondering, do you have any thoughts on kind of longer-term consolidation and sort of the benefits you can provide on the compliance back-office risk management side? And do you think this will sort of be a bigger trend going forward?
Sean M. Healey
Wow, that's a big question. I think the answer is, of course, we think about all of those regulatory initiatives and the breadth and increasing complexity of regulation across jurisdictions.
And I guess what I would say is it is increasingly evident to us, not only in our own business but, of course, we have global scale and for us it's just part of doing business. But for boutique firms, who are considering in the mix of criteria to decide whether they want to seek a strategic partner and which strategic partner would be best for them, increasingly they are thinking about the breadth and complexity and expense of global compliance.
And we have a business that, obviously, has global scale we're effectively marketing and distributing together with our Affiliates' products in a large number of jurisdictions, I think, over 40 different jurisdictions, over 50 regulators, all of which have ongoing transition and change in increased complexity. And so the ability for us to offer our Affiliates and perspective Affiliates the opportunity to connect not just to our marketing and distribution platform but also to our global compliance platform is becoming increasingly important and is a real strategic advantage for us going forward.
Craig Siegenthaler - Crédit Suisse AG, Research Division
And then, I just have one follow-up to Nate. And sort of a more shorter-term focus question but we know fourth quarter seasonality tends to be a little weak on the institutional side.
But I'm wondering were there any large institutional decisions that were sort of pushed off into January? Or maybe pushed forward into September, which caused sort of a kind of below trend fourth quarter flow quarter for the institutional channel?
Nathaniel Dalton
So look, of course there's always a sort of pipeline one but not funded and, of course, there are aways, again, given the scale of business, there are always some things that are slipping from one quarter to the next. So I'm not going to say there wasn't that there.
I don't think -- I think if you were going to sort of say, "Look what was the seasonality, if any, right, this last quarter?" That's probably not what I would -- not specifically what I would focus on.
Although again, there's, of course, some of that. I think the thing I would focus you on is there were some rebalance decisions.
There were a number of rebalance decisions, which again is not sort of surprising given the real run in especially U.S. equity, but U.S.
and developed markets equities with some Affiliates who have done very, very well obviously in the relative basis as well, and so there was some rebalance both in the institutional. And then I'd also say in the U.S.
sub-advisory space, there were some rebalance decisions that impacted the net number by impacting the growth out for a number.
Craig Siegenthaler - Crédit Suisse AG, Research Division
Nate, were the rebalances from a specific investor like corporate defined-benefit plans or sovereign wealth funds, insurance companies?
Nathaniel Dalton
Yes. No, I think it really was less the -- I understand this part of the question.
I think it's less the type of investor kind of thing. And I think -- again, if I were -- again, it's anecdotal and authentic and all that but if I were drawing a conclusion, I really would say, I would bring it back to the just to the movement and just the performance in the product category.
The other thing that I'd say, looking ahead, the momentum in the channels, including for U.S. equity product, remains really, really strong and so it's less a decision, say, about U.S.
equity interest. I think is just a set of different investors who'd had really good performance and who are rebalancing back to sort of long-term objectives.
So the pipeline, including the pipeline for U.S. equities, still remains really good both here in the U.S.
and throughout the whole distribution platforms.
Operator
And the next question comes from the line of Michael Kim with Sandler O'Neill.
Michael S. Kim - Sandler O'Neill + Partners, L.P., Research Division
First, just a broad question as you and your Affiliates have discussions with existing and potential clients. Are you getting a sense that there's been a broad-based pick-up in demand for smaller boutique firms, particularly those managing high value-added strategies?
And then, within that trend, it seems like boutiques continue to put up strong performance. So just wondering to what extent those factors may be driving market share gains and sort of the outlook for the gains going forward?
Sean M. Healey
Thanks, Michael. I think there's no question that you're right and we have been seeing for a while, I mean, as I said, 15 straight quarters of strong positive flows, much of that outside the U.S.
but increasingly I think we're seeing U.S. institutional and retail investors rerisk.
We think that if you're focused on the alpha-generating side of your asset allocation, you're thinking in active equities, specialist equity categories and certainly in alternative strategies. If you're thinking of the client, you think of the best firms in the world as being very largely the very best boutique firms in the world.
And if you can, if you're a client outside the U.S., if you can get the best of the focus-performance oriented boutique firms in, let's say, a given alternative strategy but yet all of the benefits of a global scale asset management company when it comes to end market client service and distribution support but also global compliance, that's really the ideal. I mean, Nate, would you add anything to that?
Nathaniel Dalton
No, I think that captures exactly right. I think we agree with the broad trends, performances, the ticket.
You need to obviously have performance and then, as Sean said, I think it's both -- it's our ability to combine access, right, because people do have limited time and bandwidth and you have to understand the end users and find effectively to partner with them. And then, it's providing comfort to other parts of the same organizations, but providing comfort with the operational compliance and infrastructure support.
And so I think we can sort of do all of those things, be big where big is helpful, right, and then and get out of the way with respect to the thing, as you say, that they think they're really looking for which is the performance of the -- ultimately, the performance of the boutique.
Michael S. Kim - Sandler O'Neill + Partners, L.P., Research Division
Okay, that's helpful. And then, can you maybe talk about potential step-up and flows related to opening up access to SouthernSun's funds by sort of plugging them into your distribution platform?
And then, any color on sales trends for Yacktman more recently just given the recent fund closures?
Nathaniel Dalton
Okay. So SouthernSun, you're understanding it exactly right.
I mean, I think we are adding into the platform. I think they have very good short-, medium- and long-term track records and we certainly think there's opportunity to leverage our distribution and relationship and add distribution appropriately where it's a good match for them, as we've done with Yacktman and others.
So I think you understand that piece exactly right. On the Yacktman flows, I'd say 2 things, right, so one, obviously, the soft close had an impact, of course.
But it was a soft close. The performance has been -- had been, if you sort of look back up last year, had been softer and I'm sure that's had an impact as well and I know that's had an impact to us as well in part as they built up cash and all the rest of it.
I think if you look at their recent performance, the recent performance this year-to-date so far has been very, very good. So I think looking ahead, the question will be -- again, if you remember back to when they closed, the close wasn't a really a capacity-problem close.
It was a -- they were building up cash and they needed to find places to put it work. And I don't know the answer.
I'm not speaking for them, but maybe they'll find some opportunities to do some of that. So I think that's -- those are the factors there.
Sean M. Healey
But I think it's a great question and important to underscore an element of our strategy, which has a real virtuous circle. In other words, we've been generating very strong organic growth from net client cash flows among the existing Affiliates.
And you've seen that, as we said, very consistently and really, industry-leading, especially among return-oriented products. And then you think separately about the new investment opportunity and I think, historically, we view the investment opportunity as certainly very accretive,b But accretive on a standalone basis.
And what we're really seeing and we've executed this, if you look at recent new investments and where we've been asked by Affiliate partners to help with distribution, whether it's retail distribution in the case of Yacktman or global distribution in the case of, let's say, some of the alternative firms or emerging market equity firms, global equity firms, and as we look forward, we know that an increasingly important element of the decision-making by perspective Affiliates is the strength of our distribution capabilities. In turn, as we think about adding new Affiliates, we see an opportunity to enhance our organic growth because we're bringing and building into an existing distribution pipeline, a whole set of very attractive products that in some cases are being offered and a new and different way into the channel or into the geography.
So it's a great opportunity for us and as we look forward, we think all elements of our growth strategy will come into play as we make incremental new Affiliate investments.
Michael S. Kim - Sandler O'Neill + Partners, L.P., Research Division
Okay. And then, maybe just one for Jay.
Nice to see you maintain the guidance range despite the rough start to the year. So just wondering where you're maybe seeing a bit better-than-expected trends to sort of offset the quarter-to-date market losses?
Or is it just really a function of being so early in the year?
Jay C. Horgen
Thank you, Michael. Just a reminder of the convention first.
We do assume 2% per quarter and the last time we gave guidance was November 5. And clearly, most recently markets are down but since that third quarter call, we're off about 1.5% on the market blend basis, so we are down.
It's not significantly down. But it is relative to 2% convention, we're down 3.5% relative to the model.
So notwithstanding markets and notwithstanding that, we continue to see our earnings net range of $10.50 to $11.70 and this guidance really reflects the scale and the stability of our business, including the run rate carryover effect of the 2013 organic growth, as well as the expected closing of SouthernSun and the accretion associated with that, which really hadn't changed materially. So that's what is reflected in the current guidance.
I mean just to also remind people on performance fees, we're going to, again, assume a typical year and expect our performance fee opportunity being at 5% to 10% of the number that we just gave.
Sean M. Healey
So, obviously, if we -- as we showed in 2013, there is this asymmetric upside and there are opportunities, which, starting this year, I'm just as optimistic as I was last year about the prospects for having a tremendously strong earnings contribution from performance fees.
Operator
And our next question comes from the line of Robert Lee with KBW.
Robert Lee - Keefe, Bruyette, & Woods, Inc., Research Division
Sean, I have a question for you [indiscernible] to every quarter. And I guess every quarter, we try to leave of comments around the pipeline and whatnot, and I guess, at least my take on maybe tea leaves is that you feel a little bit better about the deal pipeline heading into this year, whether it's the scope of it or how far down into the pipeline things may be.
So can you maybe -- if that's the case, could you maybe give us a sense of what do you think has kind of evolved or changed maybe over the past year and if I'm reading it right that maybe makes you feel a little bit better about things?
Sean M. Healey
Sure. Well, I've been feeling very good about AMG's prospects in the medium- to long-term for a while.
And I see that in the strength of our competitive position, including, as I said, the distribution capabilities and the track record of success in terms of helping our Affiliates, the track record of success in terms of being a good partner following the financial crisis and so in our systematic, now, 20-year calling effort where we build relationships with the very best boutique firms around the world. And we know that, inevitably, whether they're traditional or alternative, inevitably, in almost all cases, the firm's principals are going to seek some kind of solution to their succession and transition needs.
And the demographic reality of senior partners getting older and needing to think more about that than perhaps they ever have before is -- it is clear. And we have a very compelling story to tell around that.
And so, as you have seen in, of course, strong equity markets, not in every category, but generally strong equity markets, generally good performance and very good -- as we were discussing earlier, very good client-demand trends in active equities and alternative products, generally, so strong business momentum certainly for the very best of these boutique firms. You're seeing more and more of these principles thinking about doing a transaction, and so we see that in our calling efforts and relationship building.
If you sort of say, why now? Well, to some extent, it's hard to gauge.
Waves of M&A activity are very common in this industry and more broadly and I think I said last quarter we're in the midst of a wave, I think, of activity in the industry broadly. And you'll see some of those transactions.
Certainly, you'll transactions that may be great for some other business but don't make any sense for AMG. And so keep those in mind.
But with respect to investments in outstanding boutique asset management firms that have or seeking to continue to build and create enduring franchises and where we've -- you've got a great multigenerational partner group, we see some from transactions that are in the industry, banker-led transactions, but especially in our, what I'll call, relationship-driven investment opportunities, we see a lot of activity. And as I said, we have a very strong pipeline.
We have this firm policy that we don't announce deals until we announce them. So I can't really say more than that.
But there is a strong level of underlying optimism and I think, of course, if there's a severe bear market, that is going to dampen activity. But I think if it's a sort of a typical correction, which I think it seems to us is more likely, that's not really going to do anything to activity.
I could even argue that it might accelerate activity. So we continue to feel very optimistic about our new investment strategy.
Robert Lee - Keefe, Bruyette, & Woods, Inc., Research Division
Okay, great. And maybe just one last question for Nate, if that's okay.
I'm just curious if the -- with the refocus or increased focus maybe on the retail channel, are there any particular segments within that, that you feel offer a particular opportunity, whether it's made to the DCIO channel or the RIAA channel, I mean, when you're looking at attacking that in these specific pockets of more opportunity or -- than others?
Nathaniel Dalton
Yes. And I think I will answer it in a couple of ways.
One, I think some of it is driven of where we are today, right? So if you look at our business today, the managers business is relatively stronger in the sort of BD [ph] kind of channels.
The Aston business is good in the BD [ph] channels, but also relatively strong in RIAA [ph] channel. And I think we have a big opportunity ahead of us in the DC markets, I think in general, right?
So I think that's -- but that's partly driven by macro things; it's partly driven by where are we today relative to the opportunity sets we see, right? That's the first thing I'll say.
And the second thing I'll say is we do see a really large opportunity for us if you sort of look at us from a product mix standpoint, because again, good global and emerging markets, I think, there's some things we can do on both of those and certainly in the emerging market side. But also if you look at the mix of alternative products that we have across our Affiliate group, I think there were some really strong -- there's really interesting opportunities to sort of bring those products out there in a couple of those channels, maybe in all those channels.
And so I think those are -- maybe that's a different way to dimension it, but I think that's another way of that we're thinking about it.
Operator
And our next question comes from the line of Dan Fannon with Jefferies.
Daniel Thomas Fannon - Jefferies LLC, Research Division
I guess, Nate, just thinking about the backlog and your outlook for 2014 in terms of demand for certain products and/or Affiliates, is it -- would you characterize it as very similar to how you ended a year ago or in recent quarters just in terms of puts and takes around demand in various regions?
Nathaniel Dalton
You have to look at it -- at a very high level, I'd said the long-term trends remain intact. I do think, look, it's very early in the year and, obviously, there will be things that affect it.
I think, for example, looking backwards, and I think I said this in my prepared remarks, this was the year for us where our distribution in Asia really came on, right? And so I think another way to think about the distribution opportunity for us is looking at the increased scope and scale of the resources we're bringing to bear.
And a lot of it is not necessarily right after we bring things on, but it's over time. And so we're having a really good set of conversations in the Nordics, bringing stuff along that's been there for a few years.
We're pretty early in Germany and Switzerland, but those are growing faster, right? We had with good European coverage, we just increased our debt.
So I think you're seeing more resources coming on and so I do think that from that perspective, the opportunity set at the big end is growing. Now again, how long it takes to really translate that to wins, that's obviously something we're working hard at.
But -- so at a very high level, I think the opportunity set and all that looks reasonably similar. But we are bringing more and more resources online and that was institutionalized both, too.
And obviously, on the retail side, we think there's a big opportunity there and we need to get ourselves organized to go execute on that, too. And I think that's a big potential opportunity.
And also I'd say, so far we've really been talking about U.S. retail, right?
There's also an opportunity in retail outside the U.S. And one other thing we're working on is in geographies where we built very strong sort high-end institutional business, we're also looking at how do we extend that into sub-advisory and more platform-driven sales and retail, as well.
Sean M. Healey
And this is all in a backdrop of real secular trends favoring alpha-generating active management, favoring alternative strategies that generate alpha. And so for us, we see broad industry trends, institutional and retail, U.S., non-U.S.
all coming increasingly in our favor. And for us, we feel that notwithstanding the very strong organic growth that we put up, that were buried [ph] in very early days in some very large markets and in very large channels.
So for us, there's lots of optimism and I think we're in the early innings of executing this opportunity.
Daniel Thomas Fannon - Jefferies LLC, Research Division
Great. And then, just a follow-up, I think you mentioned that some of the performance fee crystallization in the quarter was a result of some clients reupping some longer-term agreements.
Maybe if you could discuss -- is it similar terms that they reupped? And then also just the performance fee contribution in general, just kind of the breakdown of number of Affiliates or number of funds or a little more granularity on that would be helpful.
Nathaniel Dalton
Sure. So broadly speaking, it was some large institution reupping which, again, very positive endorsement and into sort of similar kinds of products and structures.
So I think that's to the first part of your question. And then, in terms of the performance fees in the quarter, I think it was -- there was a number of Affiliates that contributed.
It was a, I'd sort of say, especially the sort of the more alternative firms, so AQR, BlueMountain, ValueAct all had very strong years and very, very strong quarters in some of their sort of significant performance fee products. And -- but there were a wide set of other ones that contributed as well.
And I think that's -- I think I covered most of them.
Sean M. Healey
And Jay mentioned this, Dan, I know you know this, but it's worth emphasizing relative to other firms that have alternative products. We're -- we always have a very conservative approach to the guidance that we give around performance fee contribution.
And it starts with a very conservative approach to the way we account for and talk about performance fee opportunity. So we have, right now, we have every quarter -- I'm knocking on wood here a little bit, but we have a broad business with some really excellent firms that have outstanding products and they generate a lot of performance fees and there's a level of earned alpha that we don't talk about.
We don't talk about performance fees until we realize amounts cash. And so you'll see some lumpiness because of that and -- but it's important to understand it's a real asymmetric opportunity.
We guide at a very, very conservative base level, but there will be years -- we just had one and we could have another one, will have another one, I'm confident, whether it's this year or the next, et cetera. But we have a terrific upside opportunity in the way that our business is structured and positioned.
Operator
Our next question comes from the line of Chris Shutler with William Blair.
Christopher Shutler - William Blair & Company L.L.C., Research Division
So in emerging markets, you continue to see strong investment performance. I know, I think, that you saw inflows in Q4.
So maybe just talk about the tone around DM [ph]. I know it's a relatively small piece of the business today, but the tone and any movement that you're seeing of clients from passive strategies into more actively-managed strategies?
Sean M. Healey
Yes. No, I appreciate the question.
I would say that in the main global institutional investors have long-term strategic asset allocation models and they very much, in our experience, favor emerging markets. They recognize that there's inherent volatility and they view opportunities like the current environment as periods where, certainly, they will maintain and, indeed, in our experience we've seen them even enhance their and increase their allocations to emerging markets.
I think if you step back and you sort of say, "How are we positioned?" I think we have a meaningful position on a relative basis.
We have a number of Affiliates that are recognized as among the best of emerging market equity managers in the world. And given the period of volatility that we're in, it is very clear, and I think clients recognize this and will increasingly recognize this, it's a period which favors the very best active managers.
It's a period where stock selection is more important than ever. It's a period where country selection is more important than ever.
And so a lot of the competition is sort of index-hugging or is passive and those kinds of products, I think, are in for a really difficult period. And for us, you have to sort of live through the volatility, but we think it's, I mean, we think there are big, big silver linings to the period of volatility that we're going through.
And we remain very optimistic about our long-term opportunity in emerging market equities.
Christopher Shutler - William Blair & Company L.L.C., Research Division
All right, great. And then, just one more on the retail platform.
Obviously, you guys announced the rebranding. So just thinking about the retail opportunity.
What should we really expect to change over the next couple of years beyond the name that's on the funds? And do you expect the new deal pipeline to be tilted to a little bit more towards retail firms?
Or are you focusing more on retail-oriented firms going forward?
Nathaniel Dalton
Okay. So in terms of what should you expect going forward, I guess I'd kind of focus you on 2 or 3 just big themes, right?
So the first theme is, and I know I've touched on these before, I think the first theme is just scale, right? So you're going to see -- we think this is absolute scale business and so you'll see us adding additional scale to this from a sales marketing client service standpoint.
Certainly from a product packaging standpoint and you'll see us doing some things there so we can be a better partner to sort of the big intermediaries, both U.S. and global, right?
So I think you'll see -- so scale's definitely a theme and you'll see us doing things there. We think brand is absolutely a theme and you'll see us be able to invest more in the brand because we'll have a consistent brand across geographies and channels.
And so what I mean by this is we're already interacting with some of the largest global platforms, but we're interacting with them in different ways in different places. And now and this will allow us to bring all of those things together.
So I think those are 2 things I'd focus you on. The first thing I'd say, look, it's already a successful platform.
It is driving good flows and so this is building strength on top of that strength. And then, maybe just one last thing on the question of -- and again, on what product this means, I think there's certainly the opportunity to add other sort of retail-oriented or more retail-oriented firms, a SouthernSun or what have you, to it and to accelerate their growth, expose them to additional opportunities and all that.
But there's also this real opportunity that we talked about to bring much more institutionally-focused firms, historically institutionally-focused firms, especially alternative firms through this platform as it's building out. And so I think there's a lot of opportunities this will work out for us.
Sean M. Healey
Yes, I think that's exactly right. I mean just to add a little bit to that.
First, there's this virtuous circle component where as we add new products, new Affiliates and new products, we're an even more attractive than helpful partner to the large distributors. And so we're aware of that, we've seen that institutionally and I am certain we're going to increasingly see that in retail, both U.S.
retail and then non-U.S. And I think there's no question that for retail-oriented firms but I think Nate said it well, also, institutional firms the agree to which our distribution capability, both in terms of the number of people and the number of funds in all of that and offices but most importantly, and I think this is where we really distinguish ourselves from other entities in the market, the track record of success.
I mean we are generating very strong flows on behalf of our Affiliates when they ask us to. And I think there's no question that as we build up U.S.
retail, which is already large and very successful, I mean, we'd be happy to put our U.S. retail organic growth against anyone's on a base of now $70 billion so it's not small.
But we think there's lots of opportunities and our capability, as it expands and broadens, is increasingly compelling to Affiliates as they -- perspective Affiliates, as they think about what they're looking for in a partner. But with respect to who were looking for, we're going to continue to look for the very best firms all around the world, whether they're traditional, alternative, U.S., non-U.S., and that's our focus.
And then, we will find ways, whether it's U.S. retail or global distribution, to serve those Affiliates and enhance our overall growth as a business.
Operator
Our next question comes from the line of Bill Katz with Citigroup.
William R. Katz - Citigroup Inc, Research Division
And I apologize that you may have covered this and I might have missed it. But in terms of rebalancing, I'm sort of curious, where is the product going?
And then, if you could maybe more specifically quantify how the pipeline looks versus either the third quarter or perhaps year-on-year to get some perspective about the opportunity to the new year?
Nathaniel Dalton
Sure. So in terms of the rebalancing side, I think -- well, the thing I can speak to, the rebalancing was largely out of U.S.
equity. Again, sort of institutional and also sub-advisory were both places we saw that.
So it was largely out of U.S. equity.
Again, exactly where it went, probably hard for us to specifically say. And then, to sort of the question of year-over-year, yes, I think I would describe it -- I think I did describe in sort of 2 ways.
One is at a very high level, I think the broad long-term trends remain the same, right? So if you sort of look at where our conversations are happening, sort of our fees and finals and one but not funded, those kind of things that we track, the long-term kind of looks about the same as sort of where it was at -- I'm sorry, not long-term.
High-level kind of looks about the same as where it was a year ago. But again, as I said, the thing that is different is I do think we entered the year with additional resources both at Affiliates, but also at AMG that are coming online.
And so there's just not the same kind of year-over-year kind of comparison is coming online. And so there's -- there, it's just not the same kind of year-over-year kind of comparison is coming online.
Now is it this year or next or whatever? I -- that kind of stuff is hard to tell.
William R. Katz - Citigroup Inc, Research Division
Okay. And then, maybe Sean or Jay or whoever wants to take it.
But in the past, you sort of gone through the pipeline a little bit parsing it between sort of early stage versus late-stage discussions putting the market aside. How does that look today?
It seems that the variable is a little strong or less being equal compares to the last quarter. I'm just trying to gauge sort of that pipeline opportunity.
Sean M. Healey
I think I'll let what I've already said stand by itself. I think we've said what we can say about the pipeline.
We feel extremely optimistic about our new investment prospects.
Operator
Thank you. It seems we have no further questions at this time.
I would like to turn the floor back over to Sean Healey for closing comments.
Sean M. Healey
Thank you again for joining us this morning. As you've heard, we're pleased with our results for the quarter and the year, and we're confident in our prospects for continued strong growth ahead.
We look forward to speaking with you next quarter.
Operator
Thank you. Ladies and gentlemen, that does conclude today's teleconference.
You may disconnect your lines at this time and thank you for your participation.