And I think year-to-date, our results really sort of speak to that story. We’re continuing to benefit from both the diversity and the depth of our private markets affiliates, and we’re seeing fundraising across a number of well-positioned strategies: credit, infrastructure, secondaries, energy transition, real estate. And these flows are very valuable to us. They’re long term in nature. The fee rates are strong. We have the ability to generate potential carried interest over time. So we’re really focused on that area. And Jay also mentioned that increasingly, we’re really focused on businesses that are aligned with these global economic megatrends where we’re going to see long-term client demand. And he spoke to pepper try with data proliferation and Forbion and biotech and health care, are partners and decarbonization.
These are decade, quarter century type trends, and I think we’re getting in front of them really early on, and we’re going to see strong demand for a long time there. In terms of your specific question around liquid alternatives, most importantly, we’re seeing excellent performance really across all time periods over the last several years. And we’re having a more active dialogue with clients in terms of portfolio construction, in terms of the value of uncorrelated and diversifying return sources. And we think all of that positions us well in terms of forward flow opportunities. This quarter, we did see positive flows in liquid alternatives. We also saw modest positive flows in certain liquid alternatives, where now you’ve got 2, 3 years of track record after a tougher time, going back 4 or 5 years ago, and you’re starting to see clients return to some of those strategies as they continue to put up very strong numbers and provide the benefits to portfolios that I just mentioned.
So I think overall, we feel really good about private markets. We feel really good about where we are in liquid alternatives. And each of those offers real differentiation from independent specialized firms where clients are focused on building portfolios that can benefit from these types of exposures.
Thomas Wojcik: Yes. Let me — I’m going to — thanks, Tom, and I’m going to actually just tie this back to kind of the market environment itself. So we — Tom talked about the mega trends. Clearly, that’s where we’re investing our new capital, both in existing and new affiliates, and you can see that in our new affiliate transactions. But you can also see it in some of the efforts that we are working with our affiliates in collaboration, for example, the AMG Pantheon Credit Solutions Fund, which was filed a couple of weeks ago, and that is the first of its kind in the wealth for credit secondaries. So that’s going to be something that we’re really going to try to get our efforts behind both people, capital and work with Pantheon.
That’s just an example. But when you look at the way we’re positioned today, which, from an earnings perspective or an EBITDA perspective, roughly 30% is in liquid alternatives, 20% in private markets and the rest being in long-only equities I think this environment that we’re in or we have been in or we’re really going to be in for a while, higher rates, macro volatility return to more fundamental investing. That’s generally constructive for us. And so not only I think are we leaning into the megatrends, but I also think this environment is going to be very good for AMG, in particular, in liquid alternatives. And so to kind of nail your question down, I think the good news about liquid alternatives is we’ve got great performance. As Tom said, after some more difficult years, we’ve got a lot of business momentum at places like AQR and systematic.
AQR had 2 good years now. Systematica has been firing on all cylinders for some time. Those are 2 large affiliates in that space for us. And we think that not only will there be additional client allocations, but the benefit of that market segment is significant performance fees over time, which is a capital generative thing where we can reinvest in our growth strategy, but also return capital to shareholders. We generate a significant amount of performance fees last year and over the last 5 years, and we see that again this year in the guidance that Tom gave. So the combination of liquid alternatives, the combination of that with private markets locked up capital. And the combination of that with differentiated active equities just makes us unique in the market.
I think we truly are unique, and we’re excited about how we’re going to see this business perform over the next 5 and 10 years. Operator Our next question comes from the line of Craig Siegenthaler with Bank of America.
Craig Siegenthaler: Tom, I hope you’re doing well. For our first question, we just want to dive a little deeper into the institutional channel flow dynamics. So first, what do you view as the key drivers in the $3 billion sequential increase in net flows? And do you view it as sustainable? And then secondly, historically, the industry has had some redemption challenges in 4Q and December months, partly driven by seasonality and year-end decisions. At this point, are you expecting any onetime outflows in 4Q?
Jay Horgen: Craig will follow the same pattern here. I’m going to let Tom start and then I’ll add to it, I think.
Thomas Wojcik: Yes. So Craig, thanks for your question. I think a lot of this probably drives with the answer we gave to the previous question. Our business is changing. And if you look at the makeup of our business today versus where it was 5 or 6 years ago, in some ways, the answer to your question would be quite different. Given the concentration that we have now in private markets and liquid alternatives, I do think a lot of the institutional client dynamics in those areas are quite different from the client dynamics that AMG perhaps dealt with historically around more long-only equity strategies. So first, in terms of strength in this quarter and where we go from here, I think a lot of the strength we’re seeing continues to be in those 2 areas, liquid alternatives and private markets.
When you think about the way that institutional clients are buying in those areas, they’re not looking for commoditized product. They’re really looking for where managers have a demonstrated ability to add value in a unique and meaningful way. So maybe just to use private markets for a moment. Obviously, the 2023 fundraising environment has been incredibly challenging, very well documented in terms of denominator effect and the like. Many of our affiliates, while still experiencing the difficulty of that environment are really bucking that trend. And it goes to the comments that Jay and I have both made around both megatrends, but also around what’s already in the portfolios of clients. Many have already put lots of regular-way private equity and sort of sponsor back lending into their portfolios over the course of the past 10 years, but perhaps haven’t yet filled out their allocation on industrial decarbonization or data and cell towers or other areas of real estate, infrastructure, private credit, nonsponsor-backed direct middle market lending like we have at Comvest.
So there — as they’re continuing to think about the scarce capital that they have to put to work, we really think they’re looking to managers like many of our affiliates who can do something unique in differently. And very similar, and Jay mentioned this in the last answer on the liquid alternative side, firms like Garda, Capula, systematic AQR, they just do things that are quite different. So I think we’re seeing a lot of momentum there. In terms of our expectations for the fourth quarter, there always is year-end cleanup in housekeeping in terms of the way that institutions want to go into 2024, I think we’re still seeing lots of uncertainty in the market, particularly with respect to equities and particularly with respect to global equities, there’s a lot going on in the world.
And I think it’s incredibly challenging for institutions to manage their exposures there. So I don’t think we see anything outsized on the institutional side in terms of our expectations other than continued uncertainty and really waiting for the market to develop a bit. We do see some modest seasonality in a couple of our products, but I wouldn’t speak to anything outsized in terms of our expectations for the fourth quarter.
