Affiliated Managers Group (AMG) has spent the last few years deliberately transforming its business, shifting away from traditional long-only strategies and diving headfirst into the surging world of alternatives. This shift has been well documented, with analysts and investors alike noting the company's increasing exposure to private markets and liquid alternatives. But hidden within AMG's Q1 2024 earnings transcript lies a subtle, potentially game-changing trend that seems to have slipped under the radar: a quiet resurgence of active management.

While everyone is fixated on AMG's alternative success story – and it is a compelling story, with alternatives now accounting for half of the company's EBITDA – the long-only segment is showing signs of life. And these aren't just fleeting flickers; AMG's leadership is expressing a newfound optimism about the long-term viability and potential for growth in this supposedly outdated approach.

What makes this even more intriguing is AMG's laser-like focus on independent partner-owned firms. This unique model, honed over 30 years, grants AMG's affiliates a level of autonomy rarely found in the financial world, allowing them to flourish with their distinctive investment styles and long-term track records. This independence, combined with an increasingly volatile and fragmented market, seems to be playing right into the hands of active managers.

"Jay Horgen, AMG's CEO, even addressed the elephant in the room during the Q1 earnings call, stating, "The long-only active investing is not going away." He went on to express confidence that "the delivery of active management is going to improve and therefore be successful in client portfolios.""

This statement might raise a few eyebrows. After all, passive investing has dominated the narrative for years, with active management often dismissed as a relic of a bygone era. But consider this: the current market environment, characterized by heightened uncertainty and increased asset dispersion, might be exactly what active managers need to prove their mettle. And AMG's partner-owned firms, with their entrepreneurial spirit and investment-centric cultures, are well-equipped to navigate these choppy waters.

"Tom Wojcik, AMG's newly appointed COO, echoes this sentiment, noting that "we're also entering into an environment where we think the opportunity for active management continues to improve." He further emphasizes the company's belief that the highest-quality franchises, like AMG's Affiliates, have the best opportunity to drive growth in the long-only segment over the long term."

But is this just optimistic rhetoric, or is there data to support this potential active management comeback? Let's delve into the numbers:

Improved Net Flows: While private markets fundraising is undoubtedly driving AMG's strong alternative inflows, the long-only segment is seeing a decrease in outflows, contributing to an overall improvement in net client cash flows. Market Conditions: The current market, far from being the steady upward climb of the post-GFC decade, is marked by volatility and increased dispersion, conditions that historically favor skilled active managers. Performance: While not explicitly stated in the transcript, it's likely that AMG's differentiated long-only strategies are delivering strong performance in this environment. After all, why else would leadership be expressing such confidence in the segment's future?

EBITDA Contribution by Strategy

The following pie chart depicts the current breakdown of AMG's EBITDA, highlighting the significant contribution from both private markets and liquid alternatives.

This doesn't mean AMG is abandoning its alternatives strategy. Far from it. The company is aiming to further its alternative footprint, predicting alternatives to constitute two-thirds of its business within the next five years. But the intriguing takeaway from the Q1 transcript is the potential for a parallel narrative, one where active management, within AMG's unique ecosystem of independent firms, not only survives, but thrives.

This isn't just a business evolution; it's a potential shift in the investment landscape. Could AMG, with its unwavering belief in active management and its powerful platform for independent firms, be at the forefront of a quiet revolution in the industry? Only time will tell. But one thing is certain: the death of active management has been greatly exaggerated.

"Fun Fact: AMG's partnership model has its roots in the 1990s, a period when independent investment firms were facing increasing pressure to consolidate. AMG's founders saw an opportunity to create a platform that would allow these firms to maintain their independence while benefiting from shared resources and scale. This innovative approach has proven to be highly successful over the past three decades."