Important disclosures appear on the last page of this report.

Recommendation: BUY April 13, 2017

Affiliated Managers Group, Inc. (NYSE: AMG)

Krause Fund Research Spring 2017 Financials

Analysts Zixin Li zixin-li@uiowa.edu

Yiyang Chen yiyang-chen@uiowa.edu

Affiliated Managers Group, Inc. (NYSE: AMG) is a global asset management company with equity investments in a large group of boutique investment management firms. For over 24 years, AMG has offered a wide range of financial products and generated revenue by its affiliate partners. It provides over 500 investment products across different product categories. Drivers:

• AMG has its unique corporate strategy. It buys equity ownership of its partners and provides their products to its investors. This structure provides AMG a safety protection that even if one of its Affiliates is underperforming, the rest would not be affected.

• We expect AMG generates an increasing amount of cash that they can use to invest in affiliation in the next five year. By investing on new Affiliates, AMG could expand its business and increase its revenue as a result.

• We predict AMG’s revenue is going to have a CV growth of 5.80%. This number is driven by the high growth of 15% in high net worth distribution channel.

Risks:

• According to the latest report analyzing market trends, the large amount of assets tend to be moved to passive funds. AMG may either lower its service fees or come up with other strategies to remain competitive.1

• Global/Int’l equities account for 24%, which is the largest part, of its product area. Hence, AMG is subject to bear the foreign risks such as regulatory requirements, economic and currency risks.

Stock Performance Highlights 52 week High $179.85 52 week Low $130.48 Beta Value 1.58 Average Daily Volume 513.56k Share Highlights Market Capitalization $9.23 b Shares Outstanding 56.58 m Book Value per share $63.84 EPS $8.57 P/E Ratio 19.05 Dividend Yield 0.5% Dividend Payout Ratio 0.11% Company Performance Highlights ROA 5.34% ROE 15.59% Sales $2.19 b Financial Ratios Current Ratio 1.8 Debt to Equity 123.11% One Year Stock Performance

Blue = AMG; Red = S&P 500 (Source: MarketWatch)

Investment Thesis

Key Statistics Company Overview

Current Price $161.28 Target Price $180 - $190

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Economic Summary

Executive Summary

We give a buy recommendation for AMG stock. As we predict the present value of $181.26 in our DCF and EP models, the current price of $161.28 is undervalued. An additional valuation outcome about comparing AMG’s forward PE of 9.3 to the industry average of 15.4 also support our suggestion. Moreover, the unique business strategy helps AMG regain their lost by adding more new Affiliates.

Overall, we think the revenue in the future will have a continuous growth driven by our high-quality Affiliates and optimistic outlook of the future market.

Real Gross Domestic Product (GDP) According to the report released (March 30, 2017) by the Bureau of Economic Analysis (BEA), the real GDP growth rate increased 1.6 percent in 2016. The fourth quarter of Real GDP in U.S. grew at a rate of 2.1 percent, and the annual growth rate in U.S. averaged 3.20 percent from 1948 to 2016, reaching an all-time high of 13.40 percent in the fourth quarter of 1950.

The increase in real GDP in the fourth quarter is contributed by the increased personal consumption expenditures (PCE), expansion of both private and residential investment, and the acceleration of the state and local government spending.

However, comparing to the 3.5 percent increase in the third quarter; the fourth quarter real GDP is encumbered by the downturn in exports and the deceleration of the federal spending.6

Although the increase in personal income in the fourth quarter has slightly declined, the consumers still have a strong confident and buying power, which continues to boost the consumer spending to increase.

Financial and insurance group plays an influential role in the expansion of the real GDP. According to the BEA reports, the real value that financial sector has added to real GDP has increased 9.0 percent in the third quarter of 2016.

This helps us predict consumer’s consumption of financial sector. Looking at historical quarterly data, people had tended to spend more money on financials services and insurance, and the number of spending has reached to 978,993 million in Q4, 2016.7

Source: Bureau of Economic Analysis

Interest Rate Since the United State's influence is so powerful, U.S. Interest rate affects the U.S. economy and world economy in many ways since interest rate relates to the borrowing costs. The Fed raised the interest rate by 0.25% to 0.75% right now, the second high in seven years since the financial crisis.

Relating to financials industry, the higher interest rate will make money more expensive to borrow, leading to decrease in margins and slower growth for businesses while bringing great profits to banks which generate growth from interest incomes. Also, banks borrow at maturities of 0 to 5 years and make loans maturity up to 30 years. This durations drive their performance compared to other industries. On the other hand, the lower interest rate will encourage more people and businesses to borrow money for their improvement such as buying houses with the mortgage or expanding their business. If people think rates will rise, they may also rush out to borrow. Therefore, for financials sector, the interest rate is one of the key economic variables.

Inflation Rate Since inflation means itself that the level of the price increase following the lower value of currency, the government can increase the dollar supply. The increase of inflation rate also indicates an increase of CPI which represents the purchasing power of the consumer.

The inflation rates continuously decrease at the period 2012 to 2016. However, it shows a 1.9% increase after 2016. We believe that the inflation rate of United States

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Industry Summary

will grow up steadily in the next four years (which we can predict with the policy of new government). The rate is predicted to increase in 2017 through 2020 and inflation will increase around 2% to 2.5%.

Source: The United States Inflation Rate Consider the effect of bond and tax policy; we expect that inflation rate will increase 2.4% in upcoming 6 months which is a little higher than experts' forecast and the rate in next 2-3 years stays at 2.4% to 2.6%, due to adjustment of the policies. As inflation rate goes up, the bond price will go on an opposite direction. That is because the cost of inflation is higher than the bonds’ yield and less investors are interested in those bonds and the bond price drops eventually. Foreign Currency Exchange Rate The US dollar (USD) reached to a 14-year high in January 2017 but seemed to offset those gains during the rest of Q1. However, USD is believed to return to high position since the Federal Reserve insists its gradual policy normalization and the US economic environment is positively moving forward18. US yields are suggestively higher than those of the USD’s main peers (Canadian dollar, Euro, Yen etc.) with a USD index (DXY) of 100.28, which is estimated to be undervalued than where it should be traded at. Advanced yield premiums will attract more strategic investors but pricier to sell for corporate and institutional hedgers18. The DXY’s outlook seems to be optimistic from now to 2020 with the dollar increase from 100.28 to 115. Under financials sector, there are many companies perform international business, which means they are sensitive to foreign currency exchange rate. If DXY increases, it is more valuable for US based companies to trade with clients using USD. On the contrary, if DXY decreases, US corporates may choose to trade at local currency of the clients. The risk of currency exchange is unavoidable.

Source: Trading Economics

Asset management, also known as investment management, is the business of advising people to invest their money into a wide range of investing options. An asset management company (AMC) invests it clients’ pooled funds into securities that match their declared financial objectives8.The industry stands on the “buy side” of the broader financial industry. Current Product Lines Asset management companies provide a large range of investing selection and services for their client. The main current product lines are mutual funds, hedge funds, private equity funds, pension plans, and venture capital funds. Revenue Streams According to the report published by the Boston Consulting Group (BCG), the global value of asset under management (AuM) in the industry has increased to $71.4 trillion in 2015. Although growth has been slowed down due to the volatility of the global market, the total value of AuM still performed a stable growing of 1% in 2015. Also, the profits of AuM remained stable as well. The total profits of 2015 had a 1% growth to reach $100 billion9. Combining the overall performance of the market and the regulatory development trends of the future, we can expect that the profits and total value of AuM will have a stable growth of 1% to 2% in the coming years.

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Source: BCG global asset management 2016 New Initiatives Recently, there were several changes toward the industry products. Index funds are becoming more popular due to its low fee and low chance of portfolio turnover. Also, there are growing demands for the Exchange Traded Fund (ETFs) because it provides diversification for the portfolio.

Source: BCG global asset management 2016 Latest Industry Trends The demographic and regulator trends will have a large impact on the industry. The amount of investment into pension plans will start to increase due to the aging of the generation. Also, the regulator requirement will become more complicated, which will lead to a higher degree of transparency requirement and the potential change of higher cost. For example, the new Fiduciary Rule demands that asset managers should act in the best interests of their clients. Technology will play a more important role in the industry since investors have become more concentrate on the effectiveness and transparency of their investment. This new development will have a large impact on building the good customer relationships. According to the McKinsey report “Thriving in the New Abnormal”, the thirty years of exceptional investment return of the asset management might be at the end. The large amount of assets may be moving to passive funds

(McKinsey 2016). Some of the investment companies might lose profit from this trend10. Asset managers continue to look for new opportunity to enhance their business, including discovering the international market, and starting to provide customization of their product in order to meet investors’ preferences9. Current Market Climate & Competitive Landscape The demand of the asset management market is driven by several factors such as demographic and market trends development. Asset managers profit from the commission fee through their services and AMC is profited by the volume and performance of the asset they are managing. Large companies have the ability and approach to provide a wide range of product service and they also have larger influence due to their brand name. While the large companies take in charge of the large profitability of the industry, small companies in the industry tend to focus on a single product line and attracting investor with a lower commission fee. However, both large and small firms are facing the same threats toward the underlying trends of higher cost and lower fees in the upcoming years. Major Players Ameriprise Financial (AMP) BlackRock Inc. (BLK) Vanguard Asset Management J.P. Morgan Asset Management State Street Corporation (STT) Prudential Financial (PRU) Competitive Forces Competitive rivalry in asset management industry is considered to be medium. There are approximately 90 public trade AMCs in the industry. However, about half of the industry profits are generated by the leading companies within the industry. Threat of new entrants is considered to be low. An AMC can’t start up in just a short period of time because asset management is not only about skill and profession but also highly relative to customer relationship and reputation. Substitutes are considered to be medium within the industry. Although there are numbers of companies provide services to the investor, those who have larger range of products services and more effective brand marketing will better win out the consumer’s choice. Both bargaining power of suppliers and buyers are reversely high. Asset management is complicated and it needs to perform by profession. Also, investors are starting to raise concern towards the fee sensitivity and

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transparency of asset managers, which could lead to future lower fee and stronger competition. Best Positioned In the Industry BlackRock Inc. (BLK), State Street Corporation (STT), Ameriprise Financial (AMP) etc. The large-cap asset management companies are in the best position within the industry. They stand in a large portion of the industry market shares. They provide a complex and wide range of investment vehicles and they have strong reputation and solid consumer bases. What’s more, they have the ability to develop counter plan to cope with the upcoming trends that are a threat to their profits. Industry leaders Ameriprise Financial, Inc (AMP) BlackRock, Inc (BLK) Franklin Resources, Inc (BEN) Industry followers Ashford, Inc (AINC) Calamos Asset Management, Inc (CLMS) Hennessy Advisors, Inc (HNNA) Source: MarketWatch We believe that the P/B and P/E ratio can best help in shaping our investment analysis. Both ratios give an insight look about the stock’s current valuation. We are targeting at the stock that has relatively lower P/B, which indicated that the market price is potentially being undervalued. Also, asset management industry is already in the stable and mature life cycle. Therefore, the general P/E ratio is relatively lower compared to the new pioneer industry. Based on all the consideration, we believe that PRU and STT are best positioned within the going forward given economic. PRU has a P/B ratio of 0.87 and a P/E ratio of 8.72. STT has a P/B ratio of 1.65 and a P/E ratio of 15.16.

STT 1yr stock price performance11

PRU 1yr stock price performance12

Source: MarketWatch Catalysts for Industry Growth/Change Government The capital markets industry continues to face uncertainties and increased regulations that have reduced the risk-taking behavior of corporate clients and investors13. Structural changes have evolved from the financial crisis, with public policy reshaping key industries in the financial sector. According to S&P Global Market Intelligence’s survey, public policy has less effect on the asset management sub-industry13. Social changes The older population, according to the latest data available in 2014, accounted for 14.5% of U.S. population. By 2040, the number is expected to go up to 21.7%14. Older people gain their wealth in the past and would prefer to spend on fixed-income products, which have lower fees and expense ratios with high secured by regulation. As U.S. is going into aging society, growing number of seniors can be taken as part of our customer basis. Currency influences Global economics are expected to become more upside in 2017. Meanwhile, the US Dollar (USD) is going to outperform in 2017 as well. There are more currency-hedged strategies available on markets compare to the past. Those products give investors the tools to potentially minimize the additional currency risk existing within their international portfolios15. As USD gains more value than before, we believe investors would like to seek for international products which would benefit more on their portfolios. Key Investment Positives and Negatives Due to concerns about the strength of the global economy, and lower long-term U.S. interest rates, the S&P Asset

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Management & Custody Banks Index rose 12.4% year-to-date through December 16, trailing a 13.8% increase for the S&P 1500 Index13. In the U.S., baby boomers have entered retirement age and many qualify for "catch up" contributions to IRAs13. Hence, we believe that investments on safe retirement funds products will increase and there will be more new retirement investments available for investors’ portfolio. On the negative side, we think uncertainties will bring up risk for equities and bonds, impacting on soft global economic environment. The equity business has been under pressure for many years, since investors tend to choose passive investments and bonds with lower fees. From our view, though mutual funds and exchange-traded funds (ETFs) may experience a positive growth in 2017, they may be beat by market again. As investors hold high allocation of fixed-income products with relatively low yields, we expect that interest rates will go up in order to balance the risk of the inclined market.

Affiliated Managers Group, Inc. is a global asset management company with equity investments in leading boutique investment management firms2. With different requirements and demands for various types of products, AMG offers different investment services to satisfy investors’ needs. Corporate Strategy Unlike other traditional asset management firm in the industry, AMG runs its business in a unique structure, which is buying ownership stakes in small to mid-cap investment companies and generating profit through the internal growth earning from their affiliate partners. AMG renders their affiliate partners to keep their autonomous right and in return, these affiliate investment managers will share a revenue contract with AMG3. For the upcoming years, AMG is looking for more investment plans to buy equity stakes in new Affiliates so that it could generate more growth and build up a larger affiliate partner group. It has main target to the investment firms that are foreign-based because the company has continued to focus its managed assets on global position.

Products and Markets AMG provides a wide range of diverse products through its affiliate partners. It has over 500 investment products across different product categories. 60% of its markets are focus on traditional products such as global/Int’l and U.S. equities, emerging market equities and multi-asset, while the other 40% of its markets are concentrate on alternative such as private equity and real asset, systematic diversified and fixed income.2 Every affiliate partners of AMG have their own market focus and this gives AMG the opportunity to participate into every sector within the industry products. Moreover, this advantage gives AMG the ability to cope with any climacteric change or disadvantage trend toward the market. AMG structure a revenue sharing contract with its affiliate partners. In this contract, the Affiliates’ revenue will be separated into three parts: the affiliate manager’s compensation, the operation expense and the rest will contribute to the AMG’s revenue. By apply this contract, as for 2016, AMG had generated an aggregate asset under management (AuM) of 727 billion.2 Since AMG has provided diverse range of products target different market, its customer base is also diversified from institutional investor to retail investor.

Analysis of Recent Earnings Releases According to AMG’s 2016 10-K, the economic net income was 703.6 million, an increase of 2% from the prior year. The total revenue was 2.19 billion, a slightly declined from the prior year.5 For 2016, AMG has an EPS of 8.73, which indicated that the company is profitable and it has more profit to distribute to its shareholders. Also, although the industry has a large amount of outflow for the last year, AMG has

Company Summary

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continued to post a net inflow. Their AuM has grown at a 5-year (2012–2016) CAGR of 12.4%.5 According to Nasdaq, AMG has a forecast 12 month forward PEG ratio of 0.89, which indicated that the market value of the company’s stocks may being undervalued and it has large potential to grow in the future.4 Distribution Channel2 Institutional distribution channel- in this channel, AMG offers approximately 200 investment products across a wide range of investment styles and asset classes. Also, it offers asset management for foundations and endowments as well as benefit and contribution plans for corporation and municipalities. Mutual fund distribution channel- in this channel, AMG provides advisory or sub-advisory services to approximately 200 mutual funds. These funds are distributed to clients by asset managers in AMG’s Affiliates or by intermediaries such as dealers and independent investment advisors. High net worth distribution channel- in this channel, AMG has two main group of client. First group has built up a direct relationship with high net worth individual and families and charitable foundations. And the other group builds up contact with high tech clients through intermediaries.

Source: Affiliated Manager Group, Inc. Competition The competitive environment for AMG is relatively strong due to the recent trend within the industry. For example, the moving investment flows towards the passive funds and the reform of regulator. Both of the trends will bring disadvantage effects toward AMG. AMG is facing a strong competition with the industry leaders such as Ameriprise Financial, BlackRock, and Franklin Resources. Those companies stand a large portion of profit within the industry. However, AMG has its own advantages to differentiate itself from other firms. One of the main differences is their unique business

structure. By acquiring Affiliates partner, AMG has built up an efficient corporate strategy that could provide diversified products and services that aim at different class of investors. Also, this structure provides AMG a safety protection that even if one of its affiliate is underperform, the rest of others Affiliates will not be affected. The Affiliates partners are in strong competition with each other as well. Due to the contract, instead of getting synergies by AMG, they have to generate all their growth by their own performance. Therefore, these companies need to have strong performance to drive their organic growth and attract investors.3 Catalyst for Company Growth/Change Company structure As mentioned above, AMG is running in a unique structure by buying mid-sized companies’ ownerships and generate their revenue from that. AMG is keeping seeking out for potential undervalue small or mid-sized asset management companies based on the performance of current companies. If a current company crushes, they have other options to fill out the gap. This strategy raises the competition between companies in same categories of current companies and further attracts new companies that would like to join in. Currency influence Global economics are expected to become more upside in 2017. Meanwhile, the US Dollar (USD) is going to perform better in 2017. According to AMG’s products distribution, 24% are global and international equities. Individuals and companies can choose the best product which is suitable for their own conditions. 24% of AMG’s products are global equities, which put AMG at a position that have to bear with currency burdens. Key Investment Pros and Cons AMG shows on their fourth-quarter report that they overcame the tough condition in 2016. Though the revenue down by 7%, the net income increased by around 8%, which drives the adjusted EPS to $3.80. This is largely because of the regulatory change which backtracks the revenue. Meanwhile, they reduced the expenses on Selling, general and administrative expenses and consolidated their net income to grow. During the past year, investors were under anxiety of the performance of the whole industry. Managers in AMG made a great effort on investor expectation as well as the negative impact on their products resulted by the economics.

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Valuation Model

Part of AMG’s success came from better cost containment17. They had a roughly 4% decline in overall operating expenses yet earn a big increase on income tax liability weighted on net income. We expect a high customer interest on passive products. As senior population increases, customer basis for those passive investments also increases. A stock buyback program to 4 million shares seems to drive up investors’ confidence as the stock price increased probably 2% in morning trading after the announcement17. We expect AMG outperform the peers and keep growing upward. On the down side, the company cut its earnings projections by $0.25 per share, projecting between $13.75 and $15.75 per share in economic earnings for 201717. They slightly increase the share count and lower the assets. This result may be under investors’ expectation, but the EPS still remain at a high level. Asset management market changes as the regulatory changes. With increasing transactions in asset management activities, the risk also increases if the company cannot deal with the uncertainties appropriately.

Valuation Summary By analyzing the outcomes upon our valuation models and our nature outlook for the future economic environment, we decided to recommend a “Buy” rating for Affiliated Managers Group, Inc. The asset management industry is going to face the challenge of the stricter regulatory and investor’s preference towards the passive funds in the upcoming years and AMG may not be immune to all these issues. However, looking at the past performance of AMG, we believe that the company will continuing to expand and going to be outperform based on its unique business structure and variety provision of investment products. After evaluating our discounted cash flow (DCF) and economic profit (EP) models and the dividend discount model (DDM), we had come up the projection that the target price for AMG will have a 12% to 18% increase and hit between $180 to $190. Revenue decomposition

The revenue for AMG is breaking down into three distribution channels: Institutional, Mutual fund and High net worth. According to the recently released 10-K, in 2016, the company had a 12% decline in its revenue, which was due to the decrease in the consolidated average AuM at the existing affiliates. The reduction in AuM was a result of the declination in the asset based fees caused by the regulatory change. However, even though there was a downturn in 2016, we still believe that the revenue of AMG will have an upside growing in 2017 and afterwards. Since the company is planning to continue invest in new equity method affiliates, the continuing expenditure of affiliate partners can help the company’s operating structure to become more solid. Moreover, comparing to the Institutional and Mutual fund distribution channels, we believe that the AuM under High net worth will have a significant increase in the following years. The asset managers within the industry are all facing the risk of cutting fees over the next few years and as a result assets under High net worth will start to have higher demand since it realizes comparatively lower fee rates. Based on the situation, we projected that the CV growth for AMG in the next five years to be 5.8% consistently and the average AuM growth rate for High net worth to a strong increase of 23%. WACC Cost of Equity We performed the CAPM approach to calculate our cost of equity. We took the yield on 30-year US Treasury bond as our risk- free rate and we choose the historical average implied risk premium of 4.29% to be our expected market premium. Beta was found by using Bloomberg terminal. Cost of Debt Since we couldn't directly find the debt rating on the Bloomberg terminal for AMG, we used the default spread between the yield to maturity of the 2025 AMG bonds and the risk-free rate of 7-year US Treasury. Then we calculated the cost of debt by adding the default spread to our project risk-free rate. DCF and EP Models To determine the intrinsic value of AMG, we applied both Discount cash flow model and Economic profit model. The free cash flow that we used in DCF model is calculated by subtracting the change in capital expenditure from NOPLAT and the economic profit to discount in EP model is calculated by multiplying the beginning invested capital of last year and the current year ROIC. Both methods are discount to present value by using the power of WACC. The two valuation models give us the same target price of $181.26, which is 12% higher than the current share price of AMG. And based on the outcome of

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Important Disclaimer

our valuation, we believe that the stock price of AMG is currently undervalued. DDM The dividend discount model came up with an intrinsic value of $169.39, which is lower than the price that we computed from the DCF and EP models. We decided to not choose the DDM model price as our target price for AMG since the company only paid out one time dividend for over the ten years and DDM is built on the assumption of a theoretical payout. Relative Valuation Model We built up a relative model based on the average project P/E ratio of the peer competitors within the asset management industry. The average P/E ratio for 2017 that we came up was 15.4, which is relativity higher than the P/E ratio that AMG projected. The implied value that we got from the model for 2017 was $265.33. However, we decided to not take this price as consideration as well because of the uniqueness of AMG’s operation structure and the complexity of the products within financial industry. Sensitivity analysis CV growth to Beta As we mentioned before, we used 2025 bond yield, 7-year Treasury rate and 30-year default spread to compute our cost of debt, we did not use beta as it is normally used to calculate the WACC. That is the reason why the table only go with the changes of CV growth rate. Apparently, the prices adjust positively with the increase of growth rate. As we predict AMG will earn revenue at constant growth rate, the price will go upward. CV growth to WACC Both variables in this table are assumptions that we used to calculate in the DCF model to determine the intrinsic value of the company. As shown in the table, the higher CV growth rate, which indicate that the company’s growing rate of its continuing value of profit in the future is higher, will lead to a higher price of the stock. On the contrary, the higher the WACC is the lower the price is. WACC is used to measure out a single expected cost of capital figure based upon all different sources of financing of the company. A higher WACC typically represent a higher risk associated with the company’s operation. Therefore, the value of the stock will be more sensitive to the change in WACC. From the result of the test, we could see that when holding the WACC as constant at 7.69%, 0.3% increase (5.65% to 5.95%) in CV growth will increase the price to $222.37. However, the price will be dragged down to $179.41 when a 0.4% increase in WACC is implied.

WACC to CV ROIC Both variables in this table are assumptions that we used to analyze in the EP model to determine the intrinsic value of AMG. According to this table, an increase in WACC will result in a growing price when ROIC remains constant. Since we normally compare WACC and ROIC to see whether the firm is adding value to shareholders’ capital in that year, we could notice that our ROIC is overwhelming than WACC. At 2021 CV year, though the normal cash we predict is higher than before, other current assets decrease slightly and cause the invested capital declines. Meanwhile, NOPLAT is going upward as AMG generates more revenue while slightly increase its S&A expenses. Based on our prediction on invested capital and NOPLAT, the ROIC will keep on the same level or to some extent higher, which means as long as WACC remain the same or less than the current cost level, the price will continuously mounting. Cost of Equity to CV ROE CV ROE is applied to calculate the amount of returned as a percentage of the shareholder’s equity in the future. And Cost of equity is the rate of return that the company would pay for the equity investors to compensate their risk to invest. Both assumptions are used to calculate the intrinsic value in the DDM model. From the result of the table we can tell that the CV ROE and cost of equity are leading the price to grow on an opposite direction. As the CV ROE grows up, the price of the stock goes up as well. Meanwhile, the price will get dragged down due to the increase of the cost of equity. AMG has more weight in debt than in equity within its capital structure. Therefore, price will be relatively less sensitive to the changing in equity valuation. A 0.3% increase in CV ROE will only cause the price to increase $8.38.

This report was created by students enrolled in the Security Analysis (6F:112) class at the University of Iowa. The report was originally created to offer an internal investment recommendation for the University of Iowa Krause Fund and its advisory board. The report also provides potential employers and other interested parties an example of the students’ skills, knowledge and abilities. Members of the Krause Fund are not registered investment advisors, brokers or officially licensed financial professionals. The investment advice contained in this report does not represent an offer or solicitation to buy or sell any of the securities mentioned. Unless

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otherwise noted, facts and figures included in this report are from publicly available sources. This report is not a complete compilation of data, and its accuracy is not guaranteed. From time to time, the University of Iowa, its faculty, staff, students, or the Krause Fund may hold a financial interest in the companies mentioned in this report.

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1. McKinsey. Thriving in the New Abnormal (November 2, 2016). Retrieved February 7, 2017 from http://www.businessinsider.com/mckinsey-report-on-changes-in-asset-management-industry-2016-11

2. Affiliated Managers Group Inc. (2017). Retrieved February 14, 2017, from http://www.amg.com/Home/

3. Wikinvest. Affiliated Managers Group Inc. (2017,February 14). Retrieved February 14, 2017, from http://www.wikinvest.com/stock/Affiliated_Managers_Group_(AMG)#AMG.27s_Affiliates

4. Nasdaq. Affiliated Managers Group Inc. (2017, February 14). Retrieved February 14, 2017, from http://www.nasdaq.com/symbol/amg/peg-ratio

5. Zacks. Affiliated Managers Group Inc. Equity Research Report. (2017, February 14). Retrieved February 14, 2017, from https://www.zacks.com/zer/report/AMG?t=AMG&ticker=AMG

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7. US Department of Commerce, BEA, Bureau of Economic Analysis. (n.d.). Bureau of Economic Analysis. Retrieved April 13, 2017, from https://www.bea.gov/iTable/iTable.cfm?reqid=12&step=1&acrdn=2#reqid=12&step=3&isuri=1&1203=2013

8. Investopedia. Asset Management Definition. Retrieved February 7,2017, from http://www.investopedia.com/terms/a/assetmanagement.asp

9. The Boston Consulting Group (BCG). Global Asset Management 2016 Doubling Down on Data (2016). Retrieved February 7, 2017 from http://www.agefi.fr/sites/agefi.fr/files/fichiers/2016/07/bcg-doubling-down-on-data-july-2016_tcm80-2113701.pdf

10. Robeco The investment Engineers. The future of asset management (April 2016). Retrieved February 7, 2017 from https://www.robeco.com/images/201604-the-future-of-asset-management.pdf

11. State Street Corp.(2017, February 7). Retrieved February 7, 2017, from http://www.marketwatch.com/investing/stock/stt

12. Prudential Financial Inc.(2017, February 7). Retrieved February 7, 2017, from http://www.marketwatch.com/investing/stock/pru

13. Leon, K. (2016). Industry Surveys - Capital Markets (2016, September 21). S&P Global Market Intelligence. Retrieved February 8, 2017, from http://www.netadvantage.standardandpoors.com/NASApp/NetAdvantage/showIndustrySurveyPDF.do?loadIndSurFromMenu=pdf

14. Data & Evaluations. (n.d.). Retrieved February 08, 2017, from https://acl.gov/Data_Outcomes/Index.aspx#Data_and_Statistics

15. How much currency risk lurks inside your international portfolio? (n.d.). Retrieved February 08, 2017, from https://fundsus.deutscheam.com/EN/products/currency-risk.jsp#

16. How much currency risk lurks inside your international portfolio? (n.d.). Retrieved February 14, 2017, from https://fundsus.deutscheam.com/EN/products/currency-risk.jsp#

17. Caplinger, D. (2017, January 30). Affiliated Managers Group Finishes 2016 Strong, Sets First Dividend. Retrieved February 13, 2017, from https://www.fool.com/investing/2017/01/30/affiliated-managers-group-finishes-2016-strong-set.aspx

18. Foreign Exchange CAUTIOUSLY OPTIMISTIC ON THE US DOLLAR. (2017, April 4). Retrieved April 13, 2017, from http://www.gbm.scotiabank.com/English/bns_econ/fxout.pdf

19. Currency | Forecast | 2016-2020.Trading Economics. Retrieved April 13, 2017, from http://www.tradingeconomics.com/forecast/currency

References

Affiliated Managers Group, Inc.Revenue Decomposition

Fiscal Years Ending Dec. 31 2014 2015 2016 2017E 2018E 2019E 2020E 2021CVScale Billions Billions Billions Billions Billions Billions Billions BillionsAssets under ManagementInstitutional 188.6 186.4 173.7 180.3 187.1 194.2 201.6 209.3Mutual fund 141.7 143.2 123 136.7 151.8 168.7 187.5 208.3High net worth 57.5 66.8 76.7 94.3 116.0 142.6 175.4 215.7Total 387.8 396.4 373.4 406.0 441.4 479.9 521.8 567.4Revenue Institutional 1.023 0.979 0.879 0.889 0.900 0.910 0.921 0.932Mutual fund 1.243 1.238 1.036 1.127 1.226 1.333 1.450 1.577High net worth 0.246 0.267 0.28 0.322 0.371 0.428 0.493 0.567Total 2.511 2.485 2.195 2.323 2.458 2.602 2.753 2.914Expense Ratio Institutional 0.54% 0.53% 0.51% 0.49% 0.48% 0.47% 0.46% 0.45%Mutual fund 0.88% 0.86% 0.84% 0.82% 0.81% 0.79% 0.77% 0.76%High net worth 0.43% 0.40% 0.37% 0.34% 0.32% 0.30% 0.28% 0.26%Total 0.65% 0.63% 0.59% 0.57% 0.56% 0.54% 0.53% 0.51%Revenue Growth rateInstitutional 7.8% -4.3% -10.2% 1.2% 1.2% 1.2% 1.2% 1.2%Mutual fund 21.5% -0.4% -16.3% 8.8% 8.8% 8.8% 8.8% 8.8%High net worth 13.4% 8.5% 4.9% 15.2% 15.2% 15.2% 15.2% 15.2%Total 14.7% -1.0% -11.7% 5.8% 5.8% 5.8% 5.8% 5.8%

Affiliated Managers Group, Inc.Income Statement

Fiscal Years Ending Dec. 31 2014 2015 2016 2017E 2018E 2019E 2020E 2021CVScale Millions Millions Millions Millions Millions Millions Millions MillionsRevenue 2510.9 2484.5 2194.6 2321.9 2456.6 2599.0 2749.8 2909.3Compensation & related expenses 1030.5 1027.7 932.4 982.8 1039.8 1100.1 1163.9 1231.4Selling, general & administrative expenses 485.5 443.8 398.1 442.0 467.6 494.7 523.4 553.8Intangible amortization & impairments 122.2 115.4 110.2 109.2 108.2 107.2 106.2 105.2Depreciation & other amortization 16.9 18.8 19.5 17.4 18.4 19.4 20.6 21.8Other operating expenses 40.6 43.8 29.1 40.0 42.3 44.8 47.4 50.1Total operating expenses 1695.7 1649.5 1489.3 1591.4 1676.3 1766.3 1861.5 1962.4Operating income (loss) 815.2 835.0 705.3 730.5 780.2 832.8 888.3 946.9Income (loss) from equity method investments 281.7 288.9 328.8 654.0 654.2 633.2 633.6 634.0Investment & other income (loss) 23.3 15.3 -33.8 10.8 11.5 12.1 12.8 13.6Interest expense 76.6 88.9 29.4 108.48 108.48 108.48 108.48 108.48Imputed interest expense & contingent payment arrangements 30.1 -40.3 3.9 3.9 3.9 3.9 3.9 3.9Other non-operating income & (expenses) 83.4 33.3 - - - - - -Income (loss) before income taxes 1013.5 1090.6 974.6 1283.0 1333.5 1365.7 1422.3 1482.1Income taxes 227.9 256.9 235.6 310.2 322.4 330.1 343.8 358.3Net income (loss) 785.6 833.7 739.0 972.9 1011.2 1035.6 1078.5 1123.8Net income (loss) (non-controlling interests) -333.5 -317.7 -266.2 -304.0 -321.7 -340.3 -360.1 -380.9Net income (loss) (controlling interest) 452.1 516.0 472.8 501.0 531.0 562.7 596.3 631.9Weighted average shares outstanding - basic 55.0 54.3 54.2 54.2 54.2 54.2 54.2 54.2Net earnings (loss) per share - basic 8.22 9.49 8.73 17.3 18.1 18.6 19.6 20.7Total share outstanding (day before 10K) 54.9 54 56.7 56.3 56.0 55.7 55.0 54.4

Affiliated Managers Group, Inc.Balance Sheet

Fiscal Years Ending Dec. 31 2014 2015 2016 2017E 2018E 2019E 2020E 2021CVScale Millions Millions Millions Millions Millions Millions Millions Millions

Cash & cash equivalents 550.6 563.8 430.8 1446.7 2769.2 4016.3 5335.2 6732.8Receivables 425.9 391.2 383.3 387.5 385.7 382.1 376.7 369.5Investments in partnerships - - - - - - - -Investments in marketable securities 172.6 199.9 122.4 125.5 128.6 131.9 135.8 139.8Other investments 167.2 149.3 147.5 151.0 154.7 158.4 162.2 166.1Total current assets 1316.5 1304.4 1084.0 2110.7 3438.2 4688.6 6009.9 7408.1Fixed assets, net 95.4 114.1 110.1 112.2 93.9 91.8 89.6 87.3Goodwill 2652.8 2668.4 2628.1 2628.1 2628.1 2628.1 2628.1 2628.1Acquired client relationships, net 1778.4 1686.4 1497.4 1388.2 1280.0 1172.8 1066.6 961.4Equity investments in affiliates 1783.5 1937.1 3368.3 3369.3 3261.1 3263.1 3265.1 3267.1Other assets 71.7 59.2 61.2 70.6 74.7 79.1 83.6 88.5Total assets 7698.1 7769.4 8749.1 9679 10776.1 11923.5 13143.0 14440.4Accounts payable & accrued liabilities 808.3 729.4 729.3 632.9 669.6 708.4 749.5 793.0Payables to related parties - - - - - - - -Total current liabilities 808.3 729.4 729.3 633.1 669.6 708.4 749.5 793.0Senior bank debt 855.0 645.0 868.6 868.6 868.6 868.6 868.6 868.6Senior notes 736.8 944.6 939.4 939.4 939.4 939.4 939.4 939.4Convertible securities 303.1 305.2 301.6 301.6 301.6 301.6 301.6 301.6Deferred income taxes 491.7 565.7 660.8 766.1 888.1 1029.6 1193.7 1383.9Other liabilities 214.5 213.3 149.4 185.9 196.7 208.1 220.1 232.9Total liabilities 3409.4 3403.2 3649.1 3694.7 3864.0 4055.7 4272.9 4519.3Redeemable non-controlling interests 645.5 612.5 673.5 685.6 698.0 710.6 723.4 736.4Paid in capital 672.8 597.8 1074.1 1074.1 1074.1 1074.1 1074.1 1074.1Accumulated other comprehensive income (loss) 31.8 -18.1 -122.9 -122.9 -122.9 -122.9 -122.9 -122.9Retained earnings (accumulated deficit) 2163.3 2679.3 3054.4 3983.9 4951.7 5943.9 6979.0 8059.5Less: treasury stock, at cost 240.9 421.9 386.0 386.0 386.0 386.0 386.0 386.0Total stockholders' equity 2627.0 2837.1 3619.6 5234.7 6214.9 7219.7 8267.6 9361.1Non-controlling interests 1016.2 932.0 806.9 750.1 697.2 648.1 602.4 560.0Total equity 3643.2 3769.1 4426.5 5984.8 6912.1 7867.8 8870.1 9921.1Total liabilities and equities 7052.6 7172.3 8075.6 9679 10776.1 11923.5 13143.0 14440.4

Affiliated Managers Group, Inc.Cash Flow Statement

Fiscal Years Ending Dec. 31 2014 2015 2016Scale Millions Millions MillionsNet income (loss) 785.6 833.7 739.0Amortization of intangible assets - - -Intangible amortization & impairments 122.2 115.4 110.2Amortization of issuance costs - 8.1 4.8Depreciation & other amortization 16.9 18.8 19.5Deferred income tax provision (benefit) 62.8 94.7 59.3Accretion of interest - - -Imputed interest expense & contingent payment arrangements 30.1 -40.3 3.9Loss (income) from equity method investments, net of amortization -281.7 -288.9 -328.8Distributions received from equity method investments 366.9 346.1 346.4Tax benefit from exercise of stock options - - -Stock option expense - - -Share-based & affiliate equity compensation 113.7 102.7 80.4Other non-cash items 11.4 -5.8 -24.8Receivables 26.5 56.1 -58.2Affiliate investments in partnerships - - -Prepaids & other current assets - - -Other assets -7.1 6.2 6.1Unsettled fund shares receivable - - -Unsettled fund shares payable - - -Accounts payable, accrued liabilities & other long-term liabilities 144.9 -42.0 -31.0Minority interest - - -Purchases of trading securies by Affiliated sponsored consolidated products -1.9 -4.6 -86.2Sales of trading securites by Affiliated sponsored consolidated products 1.3 4.1 82.8Net cash flows from operating activities 1436.9 1208.4 1027.6Investments in affiliates -1245.0 -297.7 -1361.3Purchase of fixed assets -19.2 -38.2 -20.2Purchase of investments securities -21.2 -13.5 -16.0Sale of investments securities 17.3 24.9 65.3Net cash flows from investing activities -1268.1 -324.5 -1332.2Borrowings of senior bank debt 1746.5 1253.3 1350.0Repayment of senior debt & convertible securities -1020.6 -1256.0 -1125.0Issuance of senior convertible notes - - -Settlement of convertible securities - - -Issuance of junior convertible trust preferred securities - - -Repurchase of junior convertible trust preferred securities - - -Issuance of common stock 41.4 57.8 465.8Repurchase of common stock -190.8 -413.7 -33.4Note & contingent payments 14.4 20.5 4.9Issuance costs - - -Excess tax benefit from exercise of stock options - - -Cost of call spread option agreements - - -Settlement of derivative contracts - - -Settlement of treasury lock - - -Settlement of forward equity sale agreement -45.0 0.1 -Note payments - - -Distributions to non-controlling interests -569.4 -431.4 -354.1Affiliate equity issuances & repurchases -65.7 -120.6 -104.0Repayments of notes payable & other liabilities - - -Subscriptions (redemptions) of non-controlling interests in partnerships - - -Excess tax benefit from share-based compensation 61.5 44.5 -Other financing items -5.2 -8.6 -3.3Net cash flows from financing activities -32.9 -854.1 200.9Effect of foreign exchange rate changes on cash & cash equivalents -10.2 -13.0 -27.2Net increase (decrease) in cash & cash equivalents 81.0 13.2 -130.9Cash & cash equivalents at beginning of year 469.6 550.6 563.8Cash & cash equivalents at end of year 550.6 563.8 430.8

Affiliated Managers Group, Inc.Cash Flow Statement

Fiscal Years Ending Dec. 31 2017E 2018E 2019E 2020E 2021CVScale Millions Millions Millions Millions MillionsCash flows from operating activitiesNet Income 972.9 1011.2 1035.6 1078.5 1123.8Add: Depreciation and amortization 17.4 18.4 19.4 20.6 21.8Changes in working capital accounts:Increase in reiceivables -4.2 1.8 3.6 5.3 7.2Increase in payables and accrued liabilities -96.4 36.7 38.8 41.1 43.5Increase(decrease) in deferred income taxes 105.3 122.1 141.5 164.0 190.2Increase(decrease) in other liabilities 36.5 10.8 11.4 12.1 12.8Net cash flows from operating activities 1031.4 1200.9 1250.4 1321.6 1399.2(Increase) decrease in other investments -6.6 -6.8 -7.0 -7.7 -7.9(Increase) decrease in other assets -9.4 -4.1 -4.3 -4.6 -4.9(Increase) decrease in client relationships 109.2 108.2 107.2 106.2 105.2capital expenditures -19.5 0.0 -17.4 -18.4 -19.4Investments in affiliates -1.0 108.2 -2.0 -2.0 -2.0Net cash flows from investing activities 72.6 205.5 76.5 73.6 71.1Proceeds from issuance of notes payable & long-term debt 0.0 0.0 0.0 0.0 0.0Payment of dividend -43.4 -43.4 -43.4 -43.4 -43.4Change in non-controlling interests -44.7 -40.5 -36.5 -32.8 -29.4Proceeds of issuance of common stock 0.0 0.0 0.0 0.0 0.0Net cash flows from financing activities -88.1 -83.8 -79.9 -76.2 -72.8Net change in cash flows 1015.9 1322.5 1247.0 1319.0 1397.6CASH, BEGINNING OF YEAR 430.8 1446.7 2769.2 4016.3 5335.2CASH, END OF YEAR 1446.7 2769.2 4016.3 5335.2 6732.8

Affiliated Managers Group, Inc.Key Management Ratios

Fiscal Years Ending Dec. 31 2014 2015 2016 2017E 2018E 2019E 2020E 2021CV

Liquidity RatiosOperating Cash Flow Ratio (Operating CF/Current Liabilities) 1.78 1.66 1.41 1.27 1.41 1.36 1.33 1.30Cash Ratio (Cash&Equivalents/Current Liabilities) 0.68 0.77 0.59 2.29 4.14 5.67 7.12 8.49Current Ratio (Current Asset/Current Liabilities) 1.63 1.79 1.49 3.09 4.66 5.87 6.99 8.04

Activity or Asset-Management RatiosTotal Asset Turnover (Sales/Avg. Total Assets) 0.36 X 0.32 X 0.27 X 0.26 X 0.25 X 0.24 X 0.24 X 0.23 X

Financial Leverage RatiosDebt to Equity (Total Debt/Total Shareholder's Equity) 0.94 0.90 0.82 0.62 0.57 0.52 0.48 0.45Debt to Asset (Total Debt/Total Assets) 0.44 0.44 0.42 0.38 0.36 0.34 0.32 0.31Equity to Asset (Total Shareholder's Equity/Total Assets) 0.47 0.49 0.51 0.62 0.64 0.66 0.68 0.69

Profitability RatiosNet Profit Margin (Net Income/Sales) 31.3% 33.6% 33.7% 35.0% 34.0% 32.4% 31.7% 30.9%Return on Equity (Net Income/Avg. Shareholer's Equity) 23.1% 22.5% 18.0% 15.9% 13.5% 12.1% 11.3% 10.5%Return on Assets (Net Income/Avg. Total Assets) 11.2% 10.8% 8.9% 8.9% 8.5% 7.9% 7.5% 7.2%Cash Flow Margin (Operating CF/Total Assets) 18.7% 15.6% 11.7% 10.7% 11.1% 10.5% 10.1% 9.7%Payout Policy RatiosDividend Payout Ratio (Dividend/Net Income) - - 0.11% 4.46% 4.29% 4.19% 4.02% 3.86%

Affiliated Managers Group, Inc.Common Size Income Statement(%Sales)Fiscal Years Ending Dec. 31 2014 2015 2016 2017E 2018E 2019E 2020E 2021CVRevenue 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%Compensation & related expenses 41.04% 41.36% 42.49% 42.33% 42.33% 42.33% 42.33% 42.33%Selling, general & administrative expenses 19.34% 17.86% 18.14% 19.04% 19.04% 19.04% 19.04% 19.04%Intangible amortization & impairments 4.87% 4.64% 5.02% 6.29% 6.29% 6.29% 6.29% 6.29%Depreciation & other amortization 0.67% 0.76% 0.89% 0.75% 0.75% 0.75% 0.75% 0.75%Other operating expenses 1.62% 1.76% 1.33% 1.72% 1.72% 1.72% 1.72% 1.72%Total operating expenses 67.53% 66.39% 67.86% 70.13% 70.13% 70.13% 70.13% 70.13%Operating income (loss) 32.47% 33.61% 32.14% 29.87% 29.87% 29.87% 29.87% 29.87%Income (loss) from equity method investments 11.22% 11.63% 14.98% 28.17% 26.34% 23.74% 22.32% 20.97%Interest expense 3.05% 3.58% 1.34% 4.67% 4.42% 4.17% 3.95% 3.73%Imputed interest expense & contingent payment arrangements 1.20% -1.62% 0.18% - - - - -Other non-operating income & (expenses) 3.32% 1.34% - - - - - -Income (loss) before income taxes 40.36% 43.90% 44.41% 53.83% 56.68% 54.08% 52.65% 51.31%Income taxes 9.08% 10.34% 10.74% 18.84% 19.84% 18.93% 18.43% 17.96%Net income (loss) 31.29% 33.56% 33.67% 34.99% 36.84% 35.15% 34.23% 33.35%Net income (loss) (non-controlling interests) -13.28% -12.79% -12.13% -13.09% -13.09% -13.09% -13.09% -13.09%Net income (loss) (controlling interest) 18.01% 20.77% 21.54% 17.29% 17.29% 17.29% 17.29% 17.29%Weighted average shares outstanding - basic 2.19% 2.19% 2.47% 2.33% 2.21% 2.09% 1.97% 1.86%

Affiliated Managers Group, Inc.Common Size Balance Sheet

Fiscal Years Ending Dec. 31 2014 2015 2016 2017E 2018E 2019E 2020E 2021CVCash & cash equivalents 21.93% 22.69% 19.63% 55.74% 99.82% 134.09% 166.05% 195.85%Receivables 16.96% 15.75% 17.47% 16.69% 15.70% 14.70% 13.70% 12.70%Investments in partnerships - - - - - - - -Investments in marketable securities 6.87% 8.05% 5.58% 5.40% 5.24% 5.07% 4.94% 4.80%Other investments 6.66% 6.01% 6.72% 6.51% 6.30% 6.09% 5.90% 5.71%Total current assets 52.43% 52.50% 49.39% 84.33% 127.06% 159.96% 190.58% 219.06%Fixed assets, net 3.80% 4.59% 5.02% 4.83% 3.82% 3.53% 3.26% 3.00%Goodwill 105.65% 107.40% 119.75% 113.19% 106.98% 101.12% 95.57% 90.34%Acquired client relationships, net 70.83% 67.88% 68.23% 58.20% 48.71% 39.75% 31.28% 23.27%Equity investments in affiliates 71.03% 77.97% 153.48% 143.52% 129.36% 121.60% 114.26% 107.32%Other assets 2.86% 2.38% 2.79% 3.04% 3.04% 3.04% 3.04% 3.04%Total assets 306.59% 312.71% 398.66% 407.11% 418.97% 428.99% 437.99% 446.03%Accounts payable & accrued liabilities 32.19% 29.36% 33.23% 27.26% 27.26% 27.26% 27.26% 27.26%Payables to related parties - - - - - - - -Total current liabilities 32.19% 29.36% 33.23% 27.27% 27.26% 27.26% 27.26% 27.26%Senior bank debt 34.05% 25.96% 39.58% 37.41% 35.36% 33.42% 31.59% 29.86%Senior notes 29.34% 38.02% 42.81% 40.46% 38.24% 36.14% 34.16% 32.29%Convertible securities 12.07% 12.28% 13.74% 12.99% 12.28% 11.60% 10.97% 10.37%Deferred income taxes 19.58% 22.77% 30.11% 30.15% 30.18% 30.22% 30.25% 30.29%Other liabilities 8.54% 8.59% 6.81% 8.01% 8.01% 8.01% 8.01% 8.01%Total liabilities 135.78% 136.98% 166.28% 156.28% 151.32% 146.65% 142.23% 138.07%Redeemable non-controlling interests 25.71% 24.65% 30.69% 29.53% 28.41% 27.34% 26.31% 25.31%Paid in capital 26.80% 24.06% 48.94% 46.26% 43.72% 41.33% 39.06% 36.92%Accumulated other comprehensive income (loss) 1.27% -0.73% -5.60% -5.29% -5.00% -4.73% -4.47% -4.22%Retained earnings (accumulated deficit) 86.16% 107.84% 139.18% 164.67% 187.85% 208.32% 226.99% 243.98%Less: treasury stock, at cost 9.59% 16.98% 17.59% 16.62% 15.71% 14.85% 14.04% 13.27%Total stockholders' equity 104.62% 114.19% 164.93% 218.54% 239.27% 257.41% 273.85% 288.72%Non-controlling interests 40.47% 37.51% 36.77% 32.30% 28.38% 24.94% 21.91% 19.25%Total equity 145.10% 151.70% 201.70% 250.85% 267.65% 282.35% 295.76% 307.97%Total liabilities and equities 280.88% 288.68% 367.98% 407.13% 418.97% 428.99% 437.99% 446.03%

Affiliated Managers Group, Inc.Common Size Balance Sheet(%asset)Fiscal Years Ending Dec. 31 2014 2015 2016 2017E 2018E 2019E 2020E 2021CVCash & cash equivalents 7.15% 7.26% 4.92% 13.69% 23.83% 31.26% 37.91% 43.91%Receivables 5.53% 5.04% 4.38% 4.10% 3.75% 3.43% 3.13% 2.85%Investments in partnerships - - - - - - - -Investments in marketable securities 2.24% 2.57% 1.40% 1.33% 1.25% 1.18% 1.13% 1.08%Other investments 2.17% 1.92% 1.69% 1.60% 1.50% 1.42% 1.35% 1.28%Total current assets 17.10% 16.79% 12.39% 20.71% 30.33% 37.29% 43.51% 49.11%Fixed assets, net 1.24% 1.47% 1.26% 1.19% 0.91% 0.82% 0.74% 0.67%Goodwill 34.46% 34.34% 30.04% 27.80% 25.53% 23.57% 21.82% 20.25%Acquired client relationships, net 23.10% 21.71% 17.11% 14.30% 11.63% 9.27% 7.14% 5.22%Equity investments in affiliates 23.17% 24.93% 38.50% 35.25% 30.88% 28.34% 26.09% 24.06%Other assets 0.93% 0.76% 0.70% 0.75% 0.73% 0.71% 0.69% 0.68%Total assets 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%Accounts payable & accrued liabilities 10.50% 9.39% 8.34% 6.69% 6.51% 6.35% 6.22% 6.11%Payables to related parties - - - - - - - -Total current liabilities 10.50% 9.39% 8.34% 6.70% 6.51% 6.35% 6.22% 6.11%Senior bank debt 11.11% 8.30% 9.93% 9.19% 8.44% 7.79% 7.21% 6.69%Senior notes 9.57% 12.16% 10.74% 9.94% 9.13% 8.43% 7.80% 7.24%Convertible securities 3.94% 3.93% 3.45% 3.19% 2.93% 2.71% 2.50% 2.32%Deferred income taxes 6.39% 7.28% 7.55% 7.40% 7.20% 7.04% 6.91% 6.79%Other liabilities 2.79% 2.75% 1.71% 1.97% 1.91% 1.87% 1.83% 1.79%Total liabilities 44.29% 43.80% 41.71% 38.39% 36.12% 34.18% 32.47% 30.95%Redeemable non-controlling interests 8.39% 7.88% 7.70% 7.25% 6.78% 6.37% 6.01% 5.68%Paid in capital 8.74% 7.69% 12.28% 11.36% 10.44% 9.63% 8.92% 8.28%Accumulated other comprehensive income (loss) 0.41% -0.23% -1.40% -1.30% -1.19% -1.10% -1.02% -0.95%Retained earnings (accumulated deficit) 28.10% 34.49% 34.91% 40.45% 44.84% 48.56% 51.82% 54.70%Less: treasury stock, at cost 3.13% 5.43% 4.41% 4.08% 3.75% 3.46% 3.20% 2.97%Total stockholders' equity 34.13% 36.52% 41.37% 53.68% 57.11% 60.00% 62.52% 64.73%Non-controlling interests 13.20% 12.00% 9.22% 7.93% 6.77% 5.81% 5.00% 4.32%Total equity 47.33% 48.51% 50.59% 61.62% 63.88% 65.82% 67.53% 69.05%Total liabilities and equities 91.61% 92.31% 92.30% 100.00% 100.00% 100.00% 100.00% 100.00%

Affiliated Managers Group, Inc.Value Driver Estimation

Fiscal Years Ending Dec. 31 2014 2015 2016 2017E 2018E 2019E 2020E 2021CVScale Thousands Thousands Thousands Thousand Thousand Thousand Thousand ThousandNOPLAT EBITANet Sales 2510900 2484500 2194600 2321887 2456556 2599036 2749781 2909268-Compensation & related expenses 1030500 1027700 932400 982817 1039820 1100130 1163937 1231446-Selling, general & administrative expenses 485500 443800 398100 441981 467616 494738 523433 553792-Intangible amortization & impairments 122200 115400 110200 109188 108185 107192 106207 105232-Depreciation & other amortization 16900 18800 19500 17362 18369 19435 20562 21755-Other operating expenses 40600 43800 29100 40006 42327 44782 47379 50127 + Implied interest on operatin leases 9088 9528 10591 10591 10591 10591 10591 10591EBITA 824288 844528 715891 741123 790830 843352 898853 957508Adjust TaxesProvision for income taxes 227900 256900 235600 310154 322370 330150 343830 358282+ Tax Shield on interest expense 26810 31115 10290 37968 37968 37968 37968 37968-Tax on any non-operating income (losses) -29190 -11655 - - - - - -+ Tax shield on implied lease interest 3181 3335 3707 3707 3707 3707 3707 3707+ Tax on Intangible amortization & impairments 42770 40390 38570 38216 37865 37517 37172 36831Adjusted Taxes 271471 320085 288167 390045 401910 409341 422678 436788Change in Deferred Tax LiabilitiesDT Liabilities -563800 -624100 -660800 -766080 -888134 -1029633 -1193677 -1383856-DT total Assets 72100 58400 58400 58400 58400 58400 58400 58400Net DT Liabilities -491700 -565700 -602400 -707680 -829734 -971233 -1135277 -1325456Net change in DT Liabilities -34800 -74000 -36700 -105280 -122054 -141499 -164043 -190179NOPLAT 518017 450443 391024 245798 266866 292511 312132 330541

Invested Capital Operating Current AssetsNormal Cash (lesser of actual or %) 50218 49690 18330 46438 49131 51981 54996 58185A/R 425900 391200 148850 387476 385679 382058 376720 369477Fixed asset, net 95400 114100 50592 112238 93868 91796 89603 87283Acquired client relationship, net 1778400 1686400 483692 1388212 1280027 1172835 1066628 961397Prepaid assets - - 35115 - - - - -Operating Current Assets 2349918 2241390 736579 1934364 1808705 1698670 1587947 1476342Operating Current LiabilitiesA/P 808300 729400 176711 632855 669561 708395 749482 792952Payables to related parties - - 14127 - - - - -Operating Current Liabilities 808300 729400 190838 632855 669561 708395 749482 792952Net Operating Working Capital 1541618 1511990 545741 1301509 1139145 990275 838465 683390+ PV of Operating Leases 158808 176516 86470 176500 176500 176500 176500 176500+ Other Oper. Assets 71700 59200 61200 70622 74718 79051 83636 88487- Other Oper Liabilities -214500 -213300 -149400 -185880 -196661 -208067 -220135 -232903Invested Capital 1557626 1534406 544011 1362750 1193702 1037759 878466 715474

ROIC1 (NOPLAT1/IC0) 33.09% 28.92% 25.48% 45.18% 19.58% 24.50% 30.08% 37.63%EP 393556 326612 269039 202549 158528 197612 229630 260702FCF 525942 473663 1381419 -572941 435915 448453 471425 493532

Affiliated Managers Group, Inc.

Weighted Average Cost of Capital (WACC) Estimation

(In millions)

Risk free rate 3.06%

Expected market premium 4.29%

Beta 1.58

Stock price 161.28$

Cost of debt(A3 rating) 4.57800%Cost of equity 9.84%

# share outstanding 56.7MV of equity 9,144.58$ MV of debt 3,501.80$ Total value 12,646.38$

WACC 7.94%

Affiliated Managers Group, Inc.Discounted Cash Flow (DCF) and Economic Profit (EP) Valuation Models

Key Inputs: CV Growth 5.80% Share Outstanding 56700 CV ROIC 37.63% WACC 7.94% Cost of Equity 9.84% Beta 1.58Fiscal Years Ending Dec. 31 2016 2017E 2018E 2019E 2020E 2021CV

t=0 t=1 t=2 t=3 t=4 t=5DCF ModelNOPLAT 245798 266866 292511 312132 330541Free Cash Flow -572941 435915 448453 471425Continuing Value 13064930Periods to Discount 1 2 3 4 4PV of FCF -530796 374143 356591 347283 9624483

Value of Operating Assets 10171703+ Marketable Securities 122400- PV Operating Leases -176516- ESOP -96119Value of Equity 10021469Share Outstanding 56700Intrinsic Value (per share) 176.75$ Discounted Date 12/31/2016Today 4/13/2017End Date of this year 12/31/2017PV 181.26$

EP Modelt=0 t=1 t=2 t=3 t=4 t=5

Invested Capital 544011 1362750 1193702 1037759 878466 715474ROIC 45.18% 19.58% 24.50% 30.08% 37.63%Economic Profit to Discount 202603 158664 197731 229734 260790Continuing Value (CV) 12186464PV of FCF Discounted by WACC 187700 136180 157227 169237 8977348

PV (Economic Profit) 9627692+ Beg. IC (t=0) 544011Value of Operating Assets 10171703+ Marketable Securities 122400- PV Operating Leases -176515.639- ESOP -96118.94936Value of Equity 10021469Share Outstanding 56700Intrinsic Value (per share) 176.75$ Discounted Date 12/31/2016Today 4/13/2017End Date of this year 12/31/2017PV 181.26$

Affiliated Managers Group, Inc.Dividend Discount Model (DDM) or Fundamental P/E Valuation Model

Fiscal Years Ending Dec. 31 2017E 2018E 2019E 2020E 2021E

EPS 17.28$ 18.05$ 18.60$ 19.61$ 20.66$

Key Assumptions CV EPS growth 5.37% CV ROE 10.53% Cost of Equity 9.84%

Future Cash Flows P/E Multiple (CV Year) 1.40 x EPS (CV Year) 20.66$ Future Stock Price Dividends Per Share 0.77$ 0.77$ 0.78$ 0.79$ 0.80$

Continuing Value 226.44$ Discounted Cash Flows 0.71$ 0.66$ 0.62$ 0.58$ 166.81$

Intrinsic Value 169.39$

Affiliated Managers Group, Inc.Relative Valuation Models

EPS EPS Est. 5yrTicker Company Price 2017E 2018E P/E 17 P/E 18 EPS gr. PEG 17 PEG 18AMP Ameriprise Financial $129.68 $7.81 $12.05 16.6 10.8 10.4 1.60 1.04 BLK BlackRock Inc. $383.51 $19.04 $24.16 20.1 15.9 9.0 2.24 1.76 JPM J.P. Morgan Asset Management $87.84 $6.19 $7.55 14.2 11.6 5.8 2.47 2.02 STT State Street Corporation $79.61 $4.97 $6.50 16.0 12.2 4.3 3.73 2.85 PRU Prudential Financial $106.68 $9.69 $11.09 11.0 9.6 6.1 1.80 1.58 BEN Franklin Resources, Inc $42.14 $2.97 $2.67 14.2 15.8 0.4 31.81 35.39

Average 15.4 12.7 7.3 7.4

AMG Affiliated Managers Group, Inc. $161.28 $17.28 $18.05 9.3 8.9 4.78 2.0 1.9

Implied Value: Relative P/E (EPS17) $ 265.33 Relative P/E (EPS18) 228.45$ PEG Ratio (EPS17) 6.01$ PEG Ratio (EPS18) 6.42$

Beta181.26$ 1.41 1.46 1.51 1.56 1.61 1.66 1.71

5.65% $170.62 $170.62 $170.62 $170.62 $170.62 $170.62 $170.625.70% $174.01 $174.01 $174.01 $174.01 $174.01 $174.01 $174.015.75% $177.55 $177.55 $177.55 $177.55 $177.55 $177.55 $177.55

CV growth rate 5.80% $181.26 $181.26 $181.26 $181.26 $181.26 $181.26 $181.265.85% $185.14 $185.14 $185.14 $185.14 $185.14 $185.14 $185.145.90% $189.22 $189.22 $189.22 $189.22 $189.22 $189.22 $189.225.95% $193.50 $193.50 $193.50 $193.50 $193.50 $193.50 $193.50

WACC181.26$ 7.69% 7.74% 7.79% 7.94% 7.99% 8.04% 8.09%

5.65% $192.48 $187.69 $183.12 $170.62 $166.81 $163.16 $159.665.70% $196.83 $191.82 $187.05 $174.01 $170.04 $166.25 $162.615.75% $201.41 $196.16 $191.17 $177.55 $173.42 $169.47 $165.68

CV Growth rate 5.80% $206.24 $200.73 $195.49 $181.26 $176.95 $172.83 $168.895.85% $211.32 $205.53 $200.04 $185.14 $180.64 $176.35 $172.245.90% $216.69 $210.60 $204.83 $189.22 $184.51 $180.03 $175.755.95% $222.37 $215.95 $209.88 $193.50 $188.57 $183.88 $179.41

ROIC181.26$ 36.13% 36.63% 37.13% 37.63% 38.13% 38.63% 39.13%

6.44% $618.82 $620.41 $621.97 $623.48 $624.95 $626.38 $627.786.94% $344.25 $345.13 $345.99 $346.82 $347.63 $348.42 $349.197.44% $237.07 $237.67 $238.25 $238.82 $239.37 $239.91 $240.44

WACC 7.94% $179.95 $180.40 $180.84 $181.26 $181.68 $182.08 $182.488.44% $144.44 $144.80 $145.15 $145.49 $145.82 $146.14 $146.458.94% $120.22 $120.52 $120.81 $121.09 $121.36 $121.63 $121.899.44% $102.64 $102.90 $103.14 $103.38 $103.61 $103.83 $104.05

CV Reurn on Equity169.39$ 10.38% 10.43% 10.48% 10.53% 10.58% 10.63% 10.68%

9.69% $172.65 $173.52 $174.39 $175.25 $176.10 $176.94 $177.779.74% $170.70 $171.56 $172.41 $173.26 $174.10 $174.93 $175.769.79% $168.78 $169.64 $170.48 $171.32 $172.15 $172.97 $173.79

Cost of Equity 9.84% $166.92 $167.76 $168.60 $169.39 $170.25 $171.06 $171.869.89% $165.09 $165.92 $166.75 $167.57 $168.38 $169.19 $169.989.94% $163.30 $164.13 $164.95 $165.76 $166.56 $167.35 $168.149.99% $161.55 $162.37 $163.18 $163.98 $164.77 $165.56 $166.34

Present Value of Operating Lease Obligations (2016) Present Value of Operating Lease Obligations (2015) Present Value of Operating Lease Obligations (2014) Present Value of Operating Lease Obligations (2013)

Operating Operating Operating OperatingFiscal Years Ending Dec. 31 Leases Fiscal Years Ending Leases Fiscal Years Ending Dec. 31 Leases Fiscal Years Ending Leases2017 37.7 2016 36 2015 33.8 2014 30.12018 34.7 2017 33.7 2016 28.8 2015 29.22019 31.7 2018 31 2017 25.2 2016 23.52020 30 2019 29.5 2018 22.8 2017 21.42021 27.4 2020 28.4 2019 21.6 2018 19.8Thereafter 57.4 Thereafter 82.1 Thereafter 69.4 Thereafter 69.5Total Minimum Payments 218.9 Total Minimum Payments 240.7 Total Minimum Payments 201.6 Total Minimum Payments 193.5Less: Interest 42 Less: Interest 51 Less: Interest 43 Less: Interest 42PV of Minimum Payments 177 PV of Minimum Payments 189 PV of Minimum Payments 159 PV of Minimum Payments 151

Capitalization of Operating Leases Capitalization of Operating Leases Capitalization of Operating Leases Capitalization of Operating Leases

Pre-Tax Cost of Debt 6.00% Pre-Tax Cost of Debt 6.00% Pre-Tax Cost of Debt 6.00% Pre-Tax Cost of Debt 6.00%Number Years Implied by Year 6 Payment 2.1 Number Years Implied by Year 6 Payment 2.9 Number Years Implied by Year 6 Payment 3.2 Number Years Implied by Year 6 Payment 3.5

Lease PV Lease Lease PV Lease Lease PV Lease Lease PV LeaseYear Commitment Payment Year Commitment Payment Year Commitment Payment Year Commitment Payment1 37.7 35.6 1 36 34.0 1 33.8 31.9 1 30.1 28.42 34.7 30.9 2 33.7 30.0 2 28.8 25.6 2 29.2 26.03 31.7 26.6 3 31 26.0 3 25.2 21.2 3 23.5 19.74 30 23.8 4 29.5 23.4 4 22.8 18.1 4 21.4 17.05 27.4 20.5 5 28.4 21.2 5 21.6 16.1 5 19.8 14.86 & beyond 27.4 39.2 6 & beyond 28.4 54.8 6 & beyond 21.6 45.9 6 & beyond 19.8 45.6PV of Minimum Payments 176.5156 PV of Minimum Payments 189.4044 PV of Minimum Payments 158.8076 PV of Minimum Payments 151.4743

Effects of ESOP Exercise and Share Repurchases on Common Stock Balance Sheet Account and Number of Shares Outstanding

Number of Options Outstanding (shares): 1.4Average Time to Maturity (years): 2.8Expected Annual Number of Options Exercised: 0.5

Current Average Strike Price: $167.90Cost of Equity: 9.84%Current Stock Price: $161.28

2017E 2018E 2019E 2020E 2021CVIncrease in Shares Outstanding: 0.50 0.50 0.40 0.00 0.00Average Strike Price: 167.90$ 167.90$ 167.90$ 167.90$ 167.90$ Increase in Common Stock Account: 84 84 67 - -

Change in Treasury Stock 142.92 142.92 142.92 142.92 142.92Expected Price of Repurchased Shares: 161.28$ 177.15$ 194.58$ 213.73$ 234.76$ Number of Shares Repurchased: 0.89 0.81 0.73 0.67 0.61

Shares Outstanding (beginning of the year) 56.7 56.3 56.0 55.7 55.0Plus: Shares Issued Through ESOP 0.50 0.50 0.40 0.00 0.00Less: Shares Repurchased in Treasury 0.89 0.81 0.73 0.67 0.61 Shares Outstanding (end of the year) 56.3 56.0 55.7 55.0 54.4

VALUATION OF OPTIONS GRANTED IN ESOP

Ticker Symbol AMGCurrent Stock Price $167.90Risk Free Rate 3.06%Current Dividend Yield 0.48%Annualized St. Dev. of Stock Returns 24.34%

Average Average B-S ValueRange of Number Exercise Remaining Option of OptionsOutstanding Options of Shares Price Life (yrs) Price GrantedRange 1 1.40 108.53 2.80 68.66 96.12Total 1.40 108.53 2.80 70.73 96.12