AMG: A Strategic Buy in the Asset Management Sector's Recovery

The asset management sector has faced significant headwinds in recent years, from volatile equity markets to shifting investor preferences. Yet, amid this turbulence, Affiliated Managers Group (AMG) has positioned itself as a leader in navigating the transition to high-growth alternatives. With Goldman Sachs recently upgrading its rating to Buy and setting a $218 price target, AMG's strategic shift toward private markets and liquid alternatives offers investors a compelling opportunity to capitalize on sector recovery. This analysis explores why AMG is a standout play in the asset management space, despite near-term challenges.

Goldman Sachs' Bullish Case: A Pivot to Alternatives Pays Off

Goldman Sachs' upgraded outlook for AMG hinges on its strategic pivot to alternatives, which now account for 50% of its earnings—up from 30% just a few years ago. This shift has reduced AMG's reliance on volatile equity markets, which saw $14 billion in net outflows in Q1 2025. Instead, the firm is capitalizing on the $15 trillion global alternatives market, growing at three times the pace of traditional assets.

The $218 price target assumes a 7.5x EV/EBITDA multiple—in line with AMG's historical valuation—while analysts project 7% annual core EBITDA growth through 2027. This growth is underpinned by organic fee streams from alternative strategies and a capital-light expansion model, exemplified by AMG's recent acquisition of a minority stake in Verition Fund Management. This deal added $12.6 billion in AUM and exposes AMG to multi-strategy alternatives, a high-margin segment.

Organic Fee Growth: A Steady Engine

AMG's organic growth is driven by two key pillars:
1. AQR's Institutional Momentum: AQR's quantitative equity strategies continue to attract institutional capital, contributing to stable performance fees.
2. Liquid Alternatives Surge: Q1 2025 saw $10 billion in net inflows into liquid alternatives—a historic high—while private markets raised $3 billion, signaling investor confidence in AMG's operational execution.

Despite these positives, AMG's Q1 2025 adjusted EBITDA fell 12% YoY to $228 million, pressured by lower performance fees and the absence of a one-time private market catch-up fee. However, Goldman views these as transitory hurdles, forecasting Q2 EBITDA of $210–$225 million before a rebound in 2026.

Private Markets: The Next Growth Frontier

AMG's private markets exposure is its crown jewel. The firm has committed $700 million to partnerships with firms like NorthBridge and Qualitas Energy, expanding into real estate, infrastructure, and energy—sectors with long-term secular tailwinds. For context, global private equity distributions to limited partners (LPs) exceeded capital contributions for the first time since 2015 in 2024, signaling improved liquidity and investor confidence.

Meanwhile, AMG's leadership continuity—Thomas Wojcik's promotion to President reinforces focus on high-margin alternatives—aligns with $400 million in annual buybacks, further supporting shareholder value.

Valuation: Undervalued Relative to Peers

AMG trades at a 7.5x EV/EBITDA multiple, in line with its historical average. However, peers like Blackstone (BX) and KKR (KKR) trade at 8–10x multiples, suggesting AMG has upside potential if its multiple expands to match sector averages. The consensus “Moderate Buy” rating reflects this undervaluation, with an average target of $197.80—11% below Goldman's $218 target.

Near-Term Risks: EBITDA Pressures and Equity Headwinds

• Short-Term EBITDA Challenges: Q1's 12% decline and Q2's projected weakness stem from seasonal performance fee lulls and equity outflows.
• Valuation Skepticism: TD Cowen's “Hold” rating argues the stock has already priced in positive news.

Yet, AMG's 100% historical earnings beat rate and institutional inflows into alternatives (e.g., $14 billion in Q1) suggest these headwinds are temporary.

Investment Thesis: A Buy with a Long-Term Horizon

Why Buy AMG?
1. Alternatives Dominance: Its 50% earnings contribution from alternatives positions it to outperform peers in a low-growth environment.
2. Valuation Upside: A multiple expansion to 8.0–8.5x could unlock 20–25% upside.
3. Resilient Earnings: AMG's partnerships-first strategy and leadership continuity ensure execution on growth initiatives.

Risk Management: Investors should view dips below $190 as buying opportunities, given AMG's track record of earnings consistency and alternative tailwinds.

Final Analysis

AMG is a strategic buy for investors seeking exposure to the asset management sector's recovery. Its transition to alternatives, fueled by institutional demand and strategic partnerships, offers a durable earnings base. While near-term EBITDA pressures exist, they are outweighed by long-term catalysts like Verition's integration and the private markets' structural growth. At current levels, AMG is undervalued and poised to deliver outsized returns as alternatives continue to dominate the investment landscape.

Recommendation: Buy, with a $218 price target.

Disclosure: This analysis is for informational purposes only and should not be construed as personalized investment advice.