Jay Horgen: Yes, thanks, Brian, for your question. I’ll let Tom start.
Thomas Wojcik: Thanks, Brian. In a way, I think the story has been very consistent in the way that we’re thinking about alternatives and in the results that we’ve put up in terms of alternative performance and flows, really now over the course of the last couple of years. In terms of our confidence in private markets on the sales side there are a number of things that are really driving that confidence, and they’re core to the strategy that we’re employing at AMG, really across the board. The first is that, we continue to look to add affiliates to that group. We have eight private markets affiliates today now managing $120 billion in AUM. We added two last year, and as Jay said in his answer to a prior question, that continues to be a real area of focus.
And that focus is linked, I think, in a lot of ways to the success that we’re having with our existing affiliates in terms of helping them with product development, with fundraising, and with accessing the U.S. wealth channel with some of these limited liquidity products, as well as the opportunity to bring their flagship drawdown funds to the channel in a way that I think is extremely compelling given the sales resources that we have and our ability to penetrate advisors in the channel. So if we think about what’s happening overall in terms of private markets, one, we’re just attracting high-quality businesses, and two, once those businesses are at AMG, we have the ability to help accelerate, move them into different channels, move them into different products, and that can have a multiplier effect over time.
The other thing that I’d mention is that, the businesses that we’ve invested in in private markets have been and will continue to be intentional. We really focused on businesses where independent firms have a clear comparative advantage, oftentimes specialty products, products that are really alpha-oriented and alpha-driven. And we’ve avoided some of the more commoditized, larger cap parts of the market where you’ve seen the big denominator effect impact hit fundraising over the course of the last couple of years. And then lastly on liquid also, I think I hit a fair amount of this in my answer to a prior question, but again, now that we’re staring down track records that in most cases across three years, and really when you look across five and 10 year track records as well, you have very strong overall investment performance aligned with very strong brands, and our ability oftentimes to help in terms of product development and entering new channels.
We think we’re well positioned in liquid alternatives as well, both on the gross sales side, but also frankly on the redemption side, given that these products do continue to perform the way that they’re supposed to and are driving a lot of upside in client portfolios.
Jay Horgen: Yes, and let me just try to bring some of all these questions together, because we talked about capital allocation and we’ve talked about where we see growth. In the three areas that our affiliates operate, private markets, liquid alternatives, and differentiated long-only strategies, I would say that we are and have been seeing, really, over the last five years, a mixed shift at AMG. So today we have over $125 billion in private markets, over $200 billion in liquid alts and the balance in differentiated long-only. We continue to see that our capital is going into the alternative segment, both in and alongside the affiliates, but also in new affiliates. We have some excellent, very strong differentiated long-only strategies.
We just — we’ve had a historical balance to having a greater percentage in that area. We see that balance between the three segments being more balanced in the future. So for 50% today in alternatives, we would expect that to be 60%, maybe even two-thirds at some point in the next five years. That is where we think our business is going. And that reflects not only where the flows are coming from, where the growth is coming from, and frankly, where our capital is going to.
Operator: Thank you. The next question is coming from Patrick Davitt of Autonomous Research. Please go ahead.
Patrick Davitt: Hey, good morning, everyone and congratulations on your new roles. I have a quick follow up on the transaction activity commentary. You mentioned it’s competitive and we continue to see fairly high deal volume for smaller alternative managers. I think you mentioned you chose not to follow through with some. Could you maybe expand on the pricing dynamics there and to what extent pricing is keeping you out of the flow? Are there any signs that the pricing has topped out and could maybe get more attractive for you. Thank you.
Jay Horgen: Yes, thanks, Patrick. Good morning. Yes, so I will follow up on the prior comment, maybe just starting with the statement that the activity has actually picked up. And the activity that we’re seeing is pretty significant. When you look at just, if you were to look at deal sheets of all the players in the investment management industry, you would see pretty significant volume. So I think there is transactions that are happening. There have been other times that you’ve been covering us or others have covered us where it has been slower. So we definitely see there’s supply of new businesses out there. I will say that the needs of independent firms today are very different than they were 10 years ago or 20 years ago.
They are very much looking for a strategic partner. I think we fit that category, especially when you put it against the context that we’ve been operating in this business model for 30 years and we know how to engage with independent firms. There is an art to that and it is important to know that you have a partner who knows how to engage with independent firms. So that, I think, we’ve proven. We are seeing growth at our affiliates, especially where we engage, and we’re very excited about that. I think the key differentiator for us is that, we also actively preserve independence, and that’s through equity ownership, succession planning, and frankly even just advice around human capital in a lot of places. So just to kind of carve out where we compete effectively is where people want a strategic partner, but they also want to preserve their independence.
And I think in that category, we have a lot less competition than we’ve ever had. As you know, a lot of the traditional multi-boutiques have gone away. And what’s left is, state buyers who only will buy a 15% to 20% stake. So really where we seem to be most competitive is when we are more flexible in our approach by both being strategic and our ownership model is such that we can own anywhere from 20% all the way up to 70% of a business. The other thing that is notable about AMG is that we have plenty of liquidity. And so we can write checks that are 250 up to 500. Those are significant cash checks for any independent firm. And so, we’re very competitive on that side as well. So when you look at AMG’s competitiveness, we’re in the category of probably as good as we’ve been in really any of the recent history.
I think we’re very front-footed in our origination. We’re out calling on those firms. And we’re out developing relationships well before transactions happen, because having a relationship before a transaction is really — in the market is the most important aspect of both our due diligence as well as beginning that very important independent relationship that you have with these firms. As it relates to pricing, which was I think part of your question, pricing for growth is still pretty extreme. It has been for some time. So where you see private markets businesses, in particular, that have grown really fast, you’ve seen pricing very high. I think we tend to look at transactions that are more in our context and fitting with us where we can actually help affiliates grow.
I think that allows us to put a little structure in to allow for some risk sharing between us and the new potential affiliate. I would say we don’t chase deals for pricing purposes. In fact, in most cases, when pricing gets extreme, we decide that it’s better for us to repurchase our shares, frankly, just given where our stock has traded over time. So in the category of meeting our returns, we do look for mid to high teens on a new investment. And when we aren’t able to find that and we can’t see more product for affiliates, then we will look to return that capital, and we’ve been able to do that, and we’ve actually been able to make low to mid-teens on our repurchases as well. So that’s kind of the, I think, the summary of where we see both our competitiveness in the market, but also where we see pricing.
Operator: Thank you. The next question is coming from Alex Blostein of Goldman Sachs. Please go ahead.
Alex Blostein: Hey, good morning, everybody. Thanks for the question. I wanted to zone in again on the wealth channel and the progress you guys are making with respect to existing semi-liquid products and the new ones you’re going to be rolling out. I guess one, maybe help us frame how much these products contribute to the firm’s EBITDA today. I understand it’s not a huge number, but it sounds like it’s grown nicely and there’s a plan for that to expand further. And then secondly, as you think about going to market with these strategies, can you talk a little bit about the competitive dynamics and what AMG brings to the table relative to other offerings, including how are you thinking about payment for distribution? Thanks.
Jay Horgen: Yep, great. So Tom, why don’t you take that one?
Thomas Wojcik: Thanks for your question, Alex. On the first part, as you referenced, it’s a relatively small contribution today, but one that’s been growing rapidly, and I think we have a very clear strategy to get to scale. Clearly the biggest contributor that we have in the U.S. wealth space today and alternatives is the AMG Pantheon Fund, which has been a fantastic success story in the industry thus far, and we expect to continue building on from here with that fund now above $3 billion. There are also a number of other products that we have in the U.S. wealth market, as well as internationally. So there’s several billion under management today that we’re building a base from and that we expect to continue to push going forward.
Let me spend maybe a minute on exactly what we’re doing in U.S. wealth, and that can play into some of the competitive dynamics and why we think we’re positioned well to be successful. We offer a vertically integrated solution in the U.S. wealth market. And it’s based on the fact that for really the last 30 years, we have a business that has been in that channel today at about $40 billion in terms of the overall size of the platform, in the channel covering the largest wirehouses, the most sophisticated RIAs in a number of ways. First, we’re able to actually cover the home offices and the key decision makers and gatekeepers helping to get our products on the buy lists and better understand kind of the key demand drivers at the top of the house.
And then second with a wholesaling force in the field, one specifically covering RIAs and two specifically covering the wirehouses in order to actually be in the field with advisors helping to educate, as well as helping to explain why these products make so much sense in client portfolios. So as we pivoted our strategy over the course of the last 18 months or so to capitalize on the alternative opportunity, one, we’re doing so from a position of strength given what we’ve been able to accomplish with the AMG Pantheon Fund in partnership with Pantheon and the excellent work done by the teams there. And two, we’re able to capitalize on the existing relationships where that $40 billion of independent partner-owned product already exists at these large allocators.
So we’re really building into that. In terms of competitive dynamics, if you think about the way that clients ultimately allocate, of course, some of the leaders in the limited liquidity space thus far in the industry have been some of the biggest brand names in private markets, and those firms are always going to end up with a good sized allocation. Importantly though, clients also want access to independent partner owned firms, and that creates a bit of a conundrum in the market, because those firms may have excellent underlying alpha characteristics and ability to create outcomes in client portfolios, but often they don’t have the resources to have those conversations at the top of the house with the buying centers. And in particular, they don’t have the resources to go out and be able to cover the field and educate advisors and ultimately sell through product.
So AMG employs a generalist specialist model where we have the generalist sales force in the market that can speak to the quality of independent partner owned firms, really understands alternatives and then has the ability to bring in specialists from a Pantheon or from a Comvest or from a Systematica over time to get down to that next level of depth in really understanding the product. So when you take that combination of we know there’s tremendous demand in the market for independent partner owned private markets and overall alternative solutions and there are very few firms that can actually provide the resource to cover the channel, that’s something very special that we have at AMG. And I think you’ll see over the course of the coming years that we’re going to put a lot of effort and energy through seed capital and through investing in our business, as well as through continuing to work with our existing affiliates and make new investments to bring a variety of high quality products and also to become in a lot of ways what we’ve been historically on the traditional long-only side, which is the leading solutions provider in alternatives amongst independent partner-owned firms to the U.S. wealth Channel.
