On Tuesday Affiliated Managers Group [profile] reported earnings for Q4 and the full year [see AMG's Q4 earnings report].

For the quarter ended December 31, 2012, the Boston, Massachusetts-based acquirer of asset managers earned $136.5 million or $2.55 per share, up from $92.5 million and $1.76 per share in Q4 2011. That $2.55 per share surpassed analysts' estimates of $2.43, the Associated Press reported. Yet Q4 2012 revenue of $491 million, up from $402.4 million in Q4 2011, fell short of analysts' expectations of $528.8 million.

AMG's assets under management on December 31, 2012 was $431.767 billion, up 3.8 percent from September 30, 2012 and 31.9 percent from December 31, 2011. Investors poured a net $5.07 billion into AMG's investments in Q4 2012 and $30.142 billion for the full year. Of its AUM on December 31, 2012, $121.874 billion was in mutual funds.

Dow Jones, Investor's Business Daily, Pensions & Investments and Zacks.com also covered AMG's results.

Citigroup and UBS both lowered their AMG ratings to neutral after the earnings report. Yet Bank of America reaffirmed its neutral rating of AMG, and Jefferies Group stood by its buy rating for AMG.

If you look at AMG's earnings report and the Seeking Alpha transcript of the earnings call on Tuesday, as well as the coverage of the results, you'll notice three takeaways.

POINT #1: The Worm Will Turn Against Fixed Income, and AMG's Ready

POINT #2: The Relentless Advance of Passive Investing is a Good Thing For AMG … Even Though AMG's Shops Aren't Passive Managers

POINT #3: Healey's Still Hungry For Deals

Now to elaborate on those points:

POINT #1: The Worm Will Turn Against Fixed Income, and AMG's Ready
AMG chairman and CEO Sean Healey have made alternatives, emerging markets equity and global equity big foci for the acquirer. And that, Healey told analysts on the call, will come in handy when fixed income falls out of favor.

We continue to benefit from our affiliates outstanding investment performance and our strategic focus on global and emerging markets equity and alternative products … We anticipate and are seeing early signs of broad based reallocation to return oriented products by both retail and institutional investors.

We believe that the outsized flows into fixed income products over the past several years will inevitably reverse. And when that occurs, AMG will not be impacted by the decline of assets from fixed income outflows or the depreciation and value of fixed income products …

... We think that a broad based reallocation from fixed income into risk assets is inevitable. Whether we're seeing it now is uncertain. Certainly, there is anecdotal information in the industry trends broadly, and we have seen anecdotally some evidence that this is occurring.

POINT #2: The Relentless Advance of Passive Investing is a Good Thing For AMG … Even Though AMG's Shops Aren't Passive Managers
AMG's boutiques focus on generating alpha, not on passive investing. Healey and his team aren't investing in the next Vanguard. And yet his president and chief operating officer, Nathaniel Dalton, told analysts on the call that the growth of index investing will help AMG:

Now, one point regarding the significant growth in passive allocations, generally, we believe that this is ultimately very good for truly differentiated return oriented managers, as clients are dividing their portfolios between passive exposures and alpha, which I would define broadly as including all the ways clients are taking risks to their actual return.

These so called barbell approaches clearly benefit providers of passive market data, but they also benefit the better providers of this extra return. Now, we view this as a long-term trend and believe that funds such as our performance oriented affiliates will continue to attract strong flows, as they have, even as passive product grow.

POINT #3: Healey's Still Hungry For Deals
AMG is famously acquisitive, and 2013 may continue that trend. Jay Horgen, chief financial officer for AMG, talked up the deal environment and AMG's deal pipeline. He specifically pointing to the succession-planning demographic forces (i.e. aging boutique asset manager chiefs) and rising, relatively stable markets as key lubricants for more dealmaking this year:

As we look forward into 2013, I think it will be a very strong year for the industry, and I think it will be a very strong year for AMG. We entered the year with a very good pipeline. And if you sort of look forward and think about the broad trends and this will be 2013 and beyond. The first and most important when we're talking about boutique firms, we have demographic issues, demographically driven success in transactions or to some extent inevitable. They may not all go to AMG, but every boutique firm have to at some point have a solution to their demographically driven transition issues.

And what's important to understand is the base of firms that face these issues has expanded globally among traditional firms, but also includes an increasing number of alternative firms, also includes for us, wealth management firms.

Second thing to understand is that when you have a period of rising markets and relative stability, then those are the essential ingredients for an acceleration and activity. And it seems as if, certainly the year is beginning in that way. Obviously, if we have some event, which with renewed market volatility, that would have a chilling effect on transactions.

But it's important to understand, there has been a big build up of these potential transaction across the industry, and of course, for us as well. And so we're quite optimistic as we look forward.

Horgen also dismissed questions about private equity bidders for asset managers, arguing that AMG doesn't end up competing much with them.

For more information, turn to AMG's earnings report and the Seeking Alpha transcript of the earnings call. 

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