Edgar Filing: AFFILIATED MANAGERS GROUP INC

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 10-Q


(Mark One)
ý		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2010
OR
o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to

Commission File Number 001-13459

Affiliated Managers Group, Inc.
(Exact name of registrant as specified in its charter)


Delaware		04-3218510
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification Number)

600 Hale Street, Prides Crossing, Massachusetts 01965
(Address of principal executive offices)

(617) 747-3300
(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.


Large accelerated filer ý		Accelerated filer o		Non-accelerated filer o (Do not check if a smaller reporting company)		Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No ý

There were 51,571,828 shares of the registrant's common stock outstanding on November 5, 2010.

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

AFFILIATED MANAGERS GROUP, INC.

CONSOLIDATED STATEMENTS OF INCOME

(dollars in thousands, except per share data)

(unaudited)

		For the Three Months Ended September 30,						For the Nine Months Ended September 30,

		2009			2010			2009			2010
Revenue		$	217,461		$	354,372		$	597,182		$	937,474
Operating expenses:
	Compensation and related expenses		105,237			151,533			292,770			413,501
	Selling, general and administrative		26,864			73,378			89,276			190,743
	Amortization of intangible assets		8,293			20,517			24,430			39,045
	Depreciation and other amortization		3,167			3,716			9,649			10,117
	Other operating expenses		10,865			9,638			21,351			24,109

			154,426			258,782			437,476			677,515

Operating income			63,035			95,590			159,706			259,959

Non-operating (income) and expenses:
	Investment and other income		(6,614	)		(11,384	)		(13,564	)		(14,929	)
	Income from equity method investments		(8,203	)		(9,536	)		(21,970	)		(28,543	)
	Investment (income) loss from investments in partnerships		(14,914	)		—			(26,065	)		4,493
	Interest expense		16,151			16,322			48,555			48,750
	Imputed interest expense		3,389			7,191			10,126			17,303

			(10,191	)		2,593			(2,918	)		27,074

Income before income taxes			73,226			92,997			162,624			232,885
Income taxes			5,366			23,968			15,275			52,878

Net income			67,860			69,029			147,349			180,007
Net income (non-controlling interests)			(35,459	)		(35,074	)		(87,008	)		(107,770	)
Net (income) loss (non-controlling interests in partnerships)			(14,632	)		—			(25,468	)		4,385

Net Income (controlling interest)		$	17,769		$	33,955		$	34,873		$	76,622

Average shares outstanding—basic			41,854,249			51,154,863			41,115,819			46,054,042
Average shares outstanding—diluted			44,267,107			51,895,871			42,835,258			48,741,873
Earnings per share—basic		$	0.42		$	0.66		$	0.85		$	1.66
Earnings per share—diluted		$	0.40		$	0.65		$	0.82		$	1.57
Supplemental disclosure of total comprehensive income:
Net income		$	67,860		$	69,029		$	147,349		$	180,007
Other comprehensive income			25,792			23,812			40,596			25,015

Comprehensive income			93,652			92,841			187,945			205,022
Comprehensive income (non-controlling interests)			(50,091	)		(35,074	)		(112,476	)		(103,385	)

Comprehensive income (controlling interest)		$	43,561		$	57,767		$	75,469		$	101,637

The accompanying notes are an integral part of the Consolidated Financial Statements.

AFFILIATED MANAGERS GROUP, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands)

(unaudited)

			December 31, 2009			September 30, 2010

Assets
Current assets:
	Cash and cash equivalents		$	259,487		$	255,452
	Investment advisory fees receivable			140,118			183,988
	Investments in partnerships			93,809			—
	Investments in marketable securities			56,690			84,945
	Unsettled fund share receivables			—			57,046
	Prepaid expenses and other current assets			35,478			58,756

		Total current assets		585,582			640,187
Fixed assets, net				62,402			66,789
Equity investments in Affiliates				658,332			630,996
Acquired client relationships, net				571,573			1,400,806
Goodwill				1,413,217			1,995,756
Other assets				99,800			216,408

		Total assets	$	3,390,906		$	4,950,942

Liabilities and Stockholders' Equity
Current liabilities:
	Accounts payable and accrued liabilities		$	117,227		$	240,796
	Unsettled fund share payables			—			54,302
	Payables to related party			109,888			100,176

		Total current liabilities		227,115			395,274
Senior debt				—			371,000
Senior convertible securities				456,976			418,987
Junior convertible trust preferred securities				507,358			509,222
Deferred income taxes				322,671			471,571
Other long-term liabilities				26,066			188,905

		Total liabilities		1,540,186			2,354,959
Redeemable non-controlling interests				368,999			386,183
Equity:
	Common stock			458			539
	Additional paid-in capital			612,091			1,016,318
	Accumulated other comprehensive income			45,958			70,973
	Retained earnings			873,137			949,759

				1,531,644			2,037,589
	Less: treasury stock, at cost			(421,954	)		(325,521	)

		Total stockholders' equity		1,109,690			1,712,068
	Non-controlling interests			281,946			497,732
	Non-controlling interests in partnerships			90,085			—

		Total equity		1,481,721			2,209,800

		Total liabilities and equity	$	3,390,906		$	4,950,942

The accompanying notes are an integral part of the Consolidated Financial Statements.

AFFILIATED MANAGERS GROUP, INC.

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

(dollars in thousands)

(unaudited)

	Total Stockholders' Equity

	Common Stock		Additional Paid-In Capital			Accumulated Other Comprehensive Income		Retained Earnings		Treasury Shares at Cost			Non- controlling interests			Non- controlling interests in partnerships			Total Equity
December 31, 2009	$	458	$	612,091		$	45,958	$	873,137	$	(421,954	)	$	281,946		$	90,085		$	1,481,721
Stock issued under option and other incentive plans		—		(61,381	)		—		—		96,424			—			—			35,043
Tax benefit of option exercises		—		10,143			—		—		—			—			—			10,143
Issuance costs		—		(330	)		—		—		—			—			—			(330	)
Settlement of forward equity sale agreement		55		294,601			—		—		—			—			—			294,656
Share-based payment arrangements		—		16,370			—		—		—			—			—			16,370
Changes in Affiliate equity value		—		(49,513	)		—		—		—			8,542			—			(40,971	)
Conversion of zero coupon convertible notes		9		47,449			—		—		9			—			—			47,467
Distributions to non-controlling interests		—		—			—		—		—			(98,068	)		—			(98,068	)
Investments in Affiliates		17		146,888			—		—		—			197,542			—			344,447
Net Income		—		—			—		76,622		—			107,770			(4,385	)		180,007
Other changes in non-controlling interests in partnerships		—		—			—		—		—			—			(85,700	)		(85,700	)
Other comprehensive income		—		—			25,015		—		—			—			—			25,015

September 30, 2010	$	539	$	1,016,318		$	70,973	$	949,759	$	(325,521	)	$	497,732		$	—		$	2,209,800

The accompanying notes are an integral part of the Consolidated Financial Statements.

AFFILIATED MANAGERS GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

			For the Three Months Ended September 30,						For the Nine Months Ended September 30,

			2009			2010			2009			2010
Cash flow from operating activities:
	Net Income		$	67,860		$	69,029		$	147,349		$	180,007
Adjustments to reconcile Net Income to net cash flow from operating activities:
	Amortization of intangible assets			8,293			20,517			24,430			39,045
	Amortization of issuance costs			1,843			1,959			5,479			5,653
	Depreciation and other amortization			3,167			3,716			9,649			10,117
	Deferred income tax provision			3,873			6,643			20,701			24,298
	Imputed Interest Expense			3,389			7,191			10,126			17,303
	Income from equity method investments, net of amortization			(8,203	)		(9,536	)		(21,970	)		(28,543	)
	Distributions received from equity method investments			13,725			14,656			42,545			51,420
	Tax benefit from exercise of stock options			1,715			1,402			3,174			3,478
	Stock option expense			2,560			3,608			5,695			10,410
	Affiliate equity expense			3,150			3,511			9,869			10,312
	Other adjustments			(14,545	)		(530	)		(33,125	)		9,022
Changes in assets and liabilities:
	(Increase) decrease in investment advisory fees receivable			(17,051	)		13,277			845			(12,052	)
	(Increase) decrease in investments in partnerships			—			—			331			(503	)
	(Increase) decrease in prepaids and other current assets			(811	)		(20,280	)		(10,024	)		(512	)
	(Increase) decrease in other assets			(46	)		(1,654	)		2,869			(9,779	)
	(Increase) decrease in unsettled fund shares receivable			—			1,651			—			(573	)
	Increase in unsettled fund shares payable			—			1,253			—			3,519
	Increase (decrease) in accounts payable, accrued liabilities and other long-term liabilities			11,243			51,956			(49,876	)		38,858

		Cash flow from operating activities		80,162			168,369			168,067			351,480

Cash flow used in investing activities:
	Investments in Affiliates			(137,860	)		(10,980	)		(139,271	)		(804,017	)
	Purchase of fixed assets			(438	)		(2,209	)		(1,653	)		(5,316	)
	Purchase of investment securities			—			(12,801	)		(11,746	)		(43,203	)
	Sale of investment securities			1,584			—			7,303			11,784

		Cash flow used in investing activities		(136,714	)		(25,990	)		(145,367	)		(840,752	)

Cash flow from (used in) financing activities:
	Borrowings of senior bank debt			—			5,000			—			1,022,500
	Repayments of senior bank debt			—			(293,500	)		(233,514	)		(651,500	)
	Issuance of common stock			18,139			10,641			29,760			36,055
	Issuance costs			(288	)		(102	)		(1,209	)		(330	)
	Excess tax benefit from exercise of stock options			2,750			1,946			3,836			6,664
	Settlement of forward equity sale agreement			—			194,653			144,258			294,657
	Note payments			7,196			(5,893	)		2,718			(31,784	)
	Distributions to non-controlling interests			(14,962	)		(16,754	)		(102,087	)		(77,446	)
	Affiliate equity issuances and repurchases			(7,502	)		(6,591	)		(40,308	)		(116,123	)
	Subscriptions (redemptions) of non-controlling interests in partnerships			—			—			(471	)		503

		Cash flow from (used in) financing activities		5,333			(110,600	)		(197,017	)		483,196

Effect of foreign exchange rate changes on cash and cash equivalents				2,100			3,130			3,136			2,041
Net increase (decrease) in cash and cash equivalents				(49,119	)		34,909			(171,181	)		(4,035	)
Cash and cash equivalents at beginning of period				274,369			220,543			396,431			259,487

Cash and cash equivalents at end of period			$	225,250		$	255,452		$	225,250		$	255,452

Supplemental disclosure of non-cash activities:
	Notes received for Affiliate equity sales		$	357		$	5,656		$	4,417		$	13,298
	Payables recorded for Affiliate equity purchases			26,021			19,224			26,692			34,508
	Stock issued for conversion of zero coupon senior convertible note			—			—			—			47,467
	Stock issued for Investments in Affiliates			—			—			—			146,906
	Stock issued for settlement of forward equity sale agreement			—			—			—			44,450
	Payables recorded under contingent payment arrangements			34,600			—			34,600			64,250

The accompanying notes are an integral part of the Consolidated Financial Statements.

AFFILIATED MANAGERS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of Presentation

The consolidated financial statements of Affiliated Managers Group, Inc. ("AMG" or the "Company") have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. The year-end condensed balance sheet data was derived from audited financial statements, but does not include all of the disclosures required by accounting principles generally accepted in the United States of America. In the opinion of management, all adjustments considered necessary for a fair statement of the results have been included. All intercompany balances and transactions have been eliminated. All dollar amounts in these notes (except information that is presented on a per share, per security, per note or per contract basis) are stated in thousands, unless otherwise indicated. Certain reclassifications have been made to the prior period's financial statements to conform to the current period's presentation. Operating results for interim periods are not necessarily indicative of the results that may be expected for any other period or for the full year. The Company's Annual Report on Form 10-K (as amended, the "Annual Report on Form 10-K") for the fiscal year ended December 31, 2009 includes additional information about AMG, its operations, its financial position and its accounting policies, and should be read in conjunction with this Quarterly Report on Form 10-Q.

2. Senior Bank Debt

The Company has a $770,000 revolving credit facility (the "Revolver") and pays interest on any outstanding obligations at specified rates (based either on the Eurodollar rate or the prime rate as in effect from time to time) that vary depending on the Company's credit rating. Subject to the agreement of lenders to provide additional commitments, the Company has the option to increase the Revolver by up to an additional $175,000.

The Revolver, which will mature in February 2012, contains financial covenants with respect to leverage and interest coverage. The Revolver also contains customary affirmative and negative covenants, including limitations on indebtedness, liens, cash dividends and fundamental corporate changes. Borrowings under the Revolver are collateralized by pledges of the substantial majority of capital stock or other equity interests owned by the Company. At September 30, 2010, the Company had $371,000 of outstanding borrowings under the Revolver.

As further described in Note 15, the Company has entered into interest rate swap contracts to exchange a fixed rate for the variable rate on $50 million of its variable rate debt. For the period October 1, 2010 through October 1, 2015, the Company will pay a weighted average fixed rate of 1.66% on the notional amount plus any applicable spread payable under variable rate debt agreements.

AFFILIATED MANAGERS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

3. Senior Convertible Securities

The carrying values of the senior convertible securities are as follows:

	December 31, 2009				September 30, 2010

	Carrying Value		Principal amount at maturity		Carrying Value		Principal amount at maturity
2008 senior convertible notes	$	409,594	$	460,000	$	418,987	$	460,000
Zero coupon senior convertible notes		47,382		50,135		—		—

Total senior convertible securities	$	456,976	$	510,135	$	418,987	$	460,000

2008 Senior Convertible Notes

In August 2008, the Company issued $460,000 of senior convertible notes due 2038 ("2008 senior convertible notes"). The 2008 senior convertible notes bear interest at 3.95%, payable semi-annually in cash. The Company is accreting the carrying value to the principal amount at maturity using an interest rate of 7.4% (over its expected life of five years). Each security is convertible into 7.959 shares of the Company's common stock (at an initial conversion price of $125.65) upon the occurrence of certain events, as follows: (i) during any fiscal quarter, if the closing price of the Company's common stock, as measured over a specified time period during the preceding fiscal quarter, is equal to or greater than 130% of the conversion price of the notes on the last day of such preceding fiscal quarter; (ii) during a certain window of time, if the trading price per $1,000 principal amount of the notes for each day during a specified period is less than 98% of the product of the last reported sale price of the Company's common stock and the conversion rate of the notes on such day; (iii) upon the occurrence of specified corporate transactions; (iv) after the notes have been called for redemption; and (v) anytime after February 15, 2038. Upon conversion, the Company may elect to pay cash, deliver shares of its common stock, or a combination thereof. The holders of the 2008 senior convertible notes may require the Company to repurchase the notes in August of 2013, 2018, 2023, 2028 and 2033. The Company may redeem the notes for cash (subject to the holders' right to convert) at any time on or after August 15, 2013.

The 2008 senior convertible notes are considered contingent payment debt instruments under federal income tax regulations. These regulations require the Company to deduct interest in an amount greater than its reported interest expense, which will result in annual deferred tax liabilities of approximately $11,200. These deferred tax liabilities will be reclassified directly to stockholders' equity if the Company's common stock is trading above certain thresholds at the time of the conversion of the notes.

Zero Coupon Senior Convertible Notes

In the second quarter of 2010, the Company called the zero coupon senior convertible notes for redemption. In lieu of redemption, all of the holders elected to convert their notes into shares of the Company's common stock. The Company issued 873,626 shares of common stock to settle these conversions. All of the Company's zero coupon senior convertible notes have been cancelled and retired.

AFFILIATED MANAGERS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

4. Junior Convertible Trust Preferred Securities

The carrying values of the Company's junior convertible trust preferred securities are as follows:

	December 31, 2009				September 30, 2010

	Carrying Value		Principal amount at maturity		Carrying Value		Principal amount at maturity
2006 junior convertible trust preferred securities	$	212,466	$	300,000	$	213,292	$	300,000
2007 junior convertible trust preferred securities		294,892		430,820		295,930		430,820

Total junior convertible securities	$	507,358	$	730,820	$	509,222	$	730,820

In 2006, the Company issued $300,000 of junior subordinated convertible debentures due 2036 to a wholly-owned trust simultaneous with the issuance, by the trust, of $291,000 of convertible trust preferred securities to investors. The junior subordinated convertible debentures and convertible trust preferred securities (together, the "2006 junior convertible trust preferred securities") have substantially the same terms.

The 2006 junior convertible trust preferred securities bear interest at a rate of 5.1% per annum, payable quarterly in cash. The Company is accreting the carrying value to the principal amount at maturity using an interest rate of 7.5% (over its expected life of 30 years). Each $50 security is convertible, at any time, into 0.333 shares of the Company's common stock, which represents a conversion price of $150 per share (or a 48% premium to the then prevailing share price of $101.45). Upon conversion, holders will receive cash or shares of the Company's common stock (or a combination of cash and common stock) at the election of the Company. The 2006 junior convertible trust preferred securities may not be redeemed by the Company prior to April 15, 2011. On or after April 15, 2011, they may be redeemed if the closing price of the Company's common stock exceeds $195 per share for a specified period of time. The trust's only assets are the junior convertible subordinated debentures. To the extent that the trust has available funds, the Company is obligated to ensure that holders of the 2006 junior convertible trust preferred securities receive all payments due from the trust.

In October 2007, the Company issued an additional $500,000 of junior subordinated convertible debentures which are due 2037 to a wholly-owned trust simultaneous with the issuance, by the trust, of $500,000 of convertible trust preferred securities to investors. The junior subordinated convertible debentures and convertible trust preferred securities (together, the "2007 junior convertible trust preferred securities") have substantially the same terms.

The 2007 junior convertible trust preferred securities bear interest at 5.15% per annum, payable quarterly in cash. The Company is accreting the discounted amount to the principal amount at maturity using an interest rate of 8.0% (over its expected life of 30 years). Each $50 security is convertible, at any time, into 0.25 shares of the Company's common stock, which represents a conversion price of $200 per share (or a 53% premium to the then prevailing share price of $130.77). Upon conversion, holders will receive cash or shares of the Company's common stock (or a combination of cash and common stock) at the election of the Company. The 2007 junior convertible trust preferred securities may not be redeemed by the Company prior to October 15, 2012. On or after October 15, 2012, they may be redeemed if the closing price of the Company's common stock exceeds $260 per share for a specified period of time. The trust's only assets are the 2007 junior convertible subordinated debentures. To the

AFFILIATED MANAGERS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

extent that the trust has available funds, the Company is obligated to ensure that holders of the 2007 junior convertible trust preferred securities receive all payments due from the trust.

The 2006 and 2007 junior convertible trust preferred securities are considered contingent payment debt instruments under federal income tax regulations. These regulations require the Company to deduct interest in an amount greater than its reported interest expense, which will result in annual deferred tax liabilities of approximately $9,500. These deferred tax liabilities will be reclassified directly to stockholders' equity if the Company's common stock is trading above certain thresholds at the time of the conversion of the notes.

5. Forward Equity Sale Agreements

During 2009, the Company entered into a forward equity sale agreement with a major securities firm to sell shares of its common stock. As of September 30, 2010, no forward equity sales are outstanding and the Company may sell up to an additional $103,500 under this agreement.

6. Income Taxes

The consolidated income tax provision includes taxes attributable to controlling interests and, to a lesser extent, taxes attributable to non-controlling interests as follows:

			For the Three Months Ended September 30,						For the Nine Months Ended September 30,

			2009			2010			2009			2010
Controlling Interests:
	Current Tax		$	63		$	7,931		$	(9,108	)	$	15,783
	Intangible related deferred taxes			6,181			9,820			25,296			34,870
	Other Deferred Taxes			(2,308	)		(1,423	)		(4,595	)		(8,357	)

		Total Controlling Interests		3,936			16,328			11,593			42,296

Non-Controlling Interests:
	Current Tax		$	1,430		$	9,394		$	3,682		$	12,796
	Deferred Taxes			—			(1,754	)		—			(2,214	)

		Total Non-Controlling Interests		1,430			7,640			3,682			10,582

Provision for income taxes			$	5,366		$	23,968		$	15,275		$	52,878

Income before income taxes (controlling interest)			$	21,705		$	50,283		$	46,466		$	118,918

Effective Tax rate attributable to controlling interests⁽¹⁾				18.1	%		32.5	%		24.9	%		35.6	%

(1): Taxes attributable to controlling interests divided by Income before income taxes (controlling interest).

AFFILIATED MANAGERS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

A summary of the consolidated provision for income taxes is as follows:

		For the Three Months Ended September 30,						For the Nine Months Ended September 30,

		2009			2010			2009			2010
Current:
	Federal	$	(3,418	)	$	185		$	(18,043	)	$	(19	)
	State		2,289			1,862			6,216			5,315
	Foreign		2,622			15,278			6,401			23,284

Total Current			1,493			17,325			(5,426	)		28,580

Deferred:
	Federal		3,948			12,877			22,404			29,257
	State		451			(51	)		(440	)		2,792
	Foreign		(526	)		(6,183	)		(1,263	)		(7,751	)

Total Deferred			3,873			6,643			20,701			24,298

Provision for Income Taxes		$	5,366		$	23,968		$	15,275		$	52,878

During the quarter ended September 30, 2010, the Company realized a deferred tax benefit of $4,065 from the revaluation of its deferred taxes as a result of a reduction of corporate tax rates in the United Kingdom.

The components of deferred tax assets and liabilities are as follows:

		December 31, 2009			September 30, 2010

Deferred Tax Assets
	State net operating loss carryforwards	$	28,694		$	29,774
	Foreign tax credit carryforwards		9,442			21,094
	Capital loss carryforwards		1,808			1,472
	Other		14,297			16,223

Total deferred tax assets			54,241			68,563
Valuation allowance			(25,294	)		(26,454	)

Deferred tax assets, net of valuation allowance		$	28,947		$	42,109

Deferred Tax Liabilities
	Intangible asset amortization	$	(188,872	)	$	(200,788	)
	Convertible securities interest		(139,279	)		(150,558	)
	Non-deductible intangible amortization		(19,745	)		(147,811	)
	Other		(3,722	)		(14,523	)

Total deferred tax liabilities			(351,618	)		(513,680	)

	Net deferred tax liability	$	(322,671	)	$	(471,571	)

Deferred tax liabilities are primarily the result of tax deductions for the Company's intangible assets and convertible securities. The Company amortizes most of its intangible assets for tax purposes only, reducing its tax basis below its carrying value for financial statement purposes and generating deferred taxes each reporting period. The Company's junior convertible trust preferred securities and

AFFILIATED MANAGERS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2008 senior convertible notes also generate deferred taxes because the Company's tax deductions are higher than the interest expense recorded for financial statement purposes.

In 2010, in connection with the closing of investments in Artemis, Pantheon and Aston (discussed further in Note 18), the Company recorded deferred tax liabilities of approximately $132,000 for acquired intangible assets that were not deductible for tax purposes in foreign jurisdictions or the United States.

At September 30, 2010, the Company had state net operating loss carryforwards that expire over a 15-year period beginning in 2010. The Company also has foreign tax credit carryforwards that expire over a 10-year period beginning in 2010. The valuation allowances at December 31, 2009 and September 30, 2010 were principally related to the uncertainty of the realization of the foreign tax credits and the state net operating loss carryforwards, which realization depends upon the Company's generation of sufficient taxable income prior to their expiration.

At September 30, 2010, the Company's liability for uncertain tax positions was $23,062, including interest and related charges of $3,731. The Company does not anticipate that this liability will change significantly over the next twelve months.

7. Earnings Per Share

The calculation of basic earnings per share is based on the weighted average number of shares of the Company's common stock outstanding during the period. Diluted earnings per share is similar to basic earnings per share, but adjusts for the dilutive effect of the potential issuance of incremental shares of the Company's common stock. The following is a reconciliation of the numerator and denominator used in the calculation of basic and diluted earnings per share available to common stockholders. Unlike all other dollar amounts in these Notes, the amounts in the numerator reconciliation are not presented in thousands.

		For the Three Months Ended September 30,				For the Nine Months Ended September 30,

		2009		2010		2009		2010
Numerator:
Net Income (controlling interest)		$	17,769,000	$	33,955,000	$	34,873,000	$	76,622,000
Interest expense on convertible securities, net of taxes			36,000		—		108,000		53,000

Net Income (controlling interest), as adjusted		$	17,805,000	$	33,955,000	$	34,981,000	$	76,675,000

Denominator:
Average shares outstanding—basic			41,854,249		51,154,863		41,115,819		46,054,042
Effect of dilutive instruments:
	Stock options		791,078		739,367		496,711		866,912
	Forward sale		747,977		1,641		348,925		1,306,158
	Senior convertible securities		873,803		—		873,803		514,761

Average shares outstanding—diluted			44,267,107		51,895,871		42,835,258		48,741,873

As more fully discussed in Notes 3 and 4, the Company had certain convertible securities outstanding during the periods presented and is required to apply the if-converted method to these securities in its calculation of diluted earnings per share. Under the if-converted method, shares that are issuable upon conversion are deemed outstanding, regardless of whether the securities are

AFFILIATED MANAGERS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

contractually convertible into the Company's common stock at that time. For this calculation, the interest expense (net of tax) attributable to these dilutive securities is added back to Net Income (controlling interest) reflecting the assumption that the securities have been converted. Issuable shares for these securities and related interest expense are excluded from the calculation if an assumed conversion would be anti-dilutive to diluted earnings per share.

The calculation of diluted earnings per share for the three months ended September 30, 2009 and 2010 excludes the potential exercise of options to purchase 0.9 million and 1.8 million common shares, respectively, because the effect would be anti-dilutive. The calculation of diluted earnings per share for the nine months ended September 30, 2009 and 2010 excludes the potential exercise of options to purchase 2.6 million and 1.8 million common shares, respectively, because the effect would be anti-dilutive.

As discussed further in Note 20, the Company may settle portions of its Affiliate equity purchases in shares of its common stock. Because it is the Company's intent to settle these potential repurchases in cash, the calculation of diluted earnings per share excludes any potential dilutive effect from possible share settlements.

8. Commitments and Contingencies

The Company and its Affiliates are subject to claims, legal proceedings and other contingencies in the ordinary course of their business activities. Each of these matters is subject to various uncertainties, and it is possible that some of these matters may be resolved in a manner unfavorable to the Company or its Affiliates. The Company and its Affiliates establish accruals for matters for which the outcome is probable and can be reasonably estimated. Management believes that any liability in excess of these accruals upon the ultimate resolution of these matters will not have a material adverse effect on the consolidated financial condition or results of operations of the Company.

Certain Affiliates operate under regulatory authorities which require that they maintain minimum financial or capital requirements. Management is not aware of any violations of such financial requirements occurring during the period.

In connection with its Pantheon investment, the Company has committed to co-invest in certain Pantheon investment partnerships where it serves as the general partner. As of September 30, 2010, these commitments totaled approximately $97,964 and may be called in future periods. Russell Investments (Pantheon's former owner) is contractually obligated to reimburse the Company for $72,703 of these commitments when they are called.

9. Investments in Partnerships

As of December 31, 2009 and September 30, 2010, the Affiliates' investments in partnerships that are not consolidated were $17,631 and $108,318, respectively. These assets are reported within Prepaid expenses and other current assets and Other assets in the Consolidated Balance Sheets. The income or loss related to these investments is classified within "Investment and other income" in the Consolidated Statements of Income.

During the third quarter of 2010, the Company modified the governance provisions of certain investment partnerships that were previously consolidated. As a result, the Company deconsolidated these partnerships, which were previously reported as Investments in partnerships.

AFFILIATED MANAGERS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

10. Investments in Marketable Securities

The cost of investments in marketable securities, gross unrealized gains and losses were as follows:

	December 31, 2009			September 30, 2010

Cost of investments in marketable securities	$	50,631		$	65,911
Gross unrealized gains		6,108			19,104
Gross unrealized losses		(49	)		(70	)

11. Unsettled Fund Share Receivables and Payables

Unsettled fund share receivables and payables are created by the normal settlement periods on transactions initiated by certain clients of Affiliate funds domiciled in the United Kingdom. The gross presentation of the receivable ($57,046) and offsetting payable ($54,302) reflects the legal relationship between the underlying investor and the Company.

12. Fair Value Measurements

The Company determines the fair value of certain investment securities and other financial and nonfinancial assets and liabilities. Fair value is determined based on the price that would be received for an asset or paid to transfer a liability in the most advantageous market, utilizing a hierarchy of three different valuation techniques:

Level 1—Unadjusted quoted market prices for identical instruments in active markets;

Level 2—Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs, or significant value drivers, are observable; and

Level 3—Prices reflecting the Company's own assumptions concerning unobservable inputs to the valuation model.

The following table summarizes the Company's assets and liabilities that are measured at fair value on a quarterly basis.

			Fair Value Measurements

	December 31, 2009		Fair Value Measurements
	December 31, 2009		Level 1		Level 2		Level 3
Financial Assets
Investments in partnerships	$	111,440	$	93,066	$	14,365	$	4,009
Investments in marketable securities		56,690		54,480		2,210		—
Financial Liabilities
Contingent payment obligations	$	27,074	$	—	$	—	$	27,074
Obligations to related parties		78,653		—		—		78,653

AFFILIATED MANAGERS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

During the three and nine months ended September 30, 2010, there were no significant transfers of financial assets between Level 1 and Level 2. During the nine months ended September 30, 2010, financial assets valued at $3,709 transferred from Level 3 to Level 2. The fair value of Level 2 assets was determined using quoted prices for similar instruments in active markets, by model-derived valuations in which all significant inputs were observable in active markets or by using net asset value as a practical expedient. The fair value of Level 3 assets was determined using net asset value one quarter in arrears (adjusted for current period calls and distributions) for certain of the Company's investments accounted for under the equity method. The fair value of Level 3 liabilities was determined using an income approach with assumptions made about future cash flows and discount rates.

The following table presents the changes in Level 3 assets and liabilities for the three and nine months ended September 30, 2009 and 2010:

The carrying amount of the Company's cash, cash equivalents and short-term investments approximates fair value because of the short-term nature of these instruments. The carrying value of notes receivable approximates fair value because interest rates and other terms are at market rates. The carrying value of notes payable approximates fair value principally because of the short-term nature of the notes. The carrying value of senior bank debt approximates fair value because the debt is a credit facility with variable interest based on selected short-term rates. The fair market value of the 2008 senior convertible notes, and the 2006 and 2007 junior convertible trust preferred securities at September 30, 2010 was $469,775 and $572,341, respectively.

The Company periodically records amounts receivable and payable to Affiliate partners in connection with the transfer of Affiliate equity interests. As of December 31, 2009 and September 30, 2010, the total receivable (reported in "Other assets") was $45,253 and $44,588, respectively. The total payable as of December 31, 2009 was $109,888, which is included in current liabilities. The total payable as of September 30, 2010 was $115,913, of which $100,176 is included in current liabilities.

In certain cases, Affiliate management owners and Company officers may serve as trustees or directors of certain mutual funds from which the Affiliate earns advisory fee revenue.

The following summarizes the transactions of the Company's stock option and incentive plans for the nine months ended September 30, 2010:

The Company's Net Income (controlling interest) for the three and nine months ended September 30, 2010 includes compensation expense of $2,219 and $6,402, respectively (net of income tax benefits of $1,389 and $4,008, respectively, related to the Company's share-based compensation arrangements). As of September 30, 2010, the deferred compensation expense related to share-based compensation arrangements was $47,382 which is expected to be recognized over a weighted average period of approximately four years (assuming no forfeitures). As of September 30, 2010, 0.2 million options have expiration dates prior to the end of 2010.

The Company periodically uses derivative contracts to manage interest rate exposure associated with its variable interest rate debt. In September 2010, the Company entered into forward starting interest rate swap agreements with notional amounts totaling $50,000, which became effective October 1, 2010 and expire on October 1, 2015. The Company receives payments based on LIBOR and makes payments based on a weighted average annual fixed rate of 1.66% on the notional amount. Certain of the Company's derivative contracts contain provisions that require the Company or the counterparties to post collateral based upon the current fair value of the derivative contracts. As of September 30, 2010, the Company had posted collateral of $600.

The Company records all derivatives on the balance sheet at fair value. As cash flow hedges, the effective portion of the unrealized gain or loss on the derivative instruments is recorded in accumulated other comprehensive income as a separate component of stockholders' equity. Hedge effectiveness is measured by comparing the present value of the cumulative change in the expected future variable cash flows of the hedged contract with the present value of the cumulative change in the expected future variable cash flows of the hedged item. To the extent that the critical terms of the hedged item and the derivative are not identical, hedge ineffectiveness would be reported in earnings as interest expense. Hedge ineffectiveness was not material in any periods presented. As of September 30, 2010, the unrealized loss (before taxes) on the derivative instruments was $566, and the Company does not expect to reclassify any portion of the unrealized loss into earnings in the next twelve months. The fair value of the derivative instruments has been presented within other long-term liabilities.

The Company does not hold or issue derivative financial instruments for trading purposes. Interest rate swaps are intended to enable the Company to achieve a level of variable-rate and fixed-rate debt that is acceptable to management and to limit interest rate exposure.

Management has assessed and determined that the Company operates in three business segments representing the Company's three principal distribution channels: Mutual Fund, Institutional and High Net Worth, each of which has different client relationships.

Revenue in the Mutual Fund distribution channel is earned from advisory and sub-advisory relationships with all domestically-registered investment products as well as non-institutional investment products that are registered abroad. Revenue in the Institutional distribution channel is earned from relationships with foundations and endowments, defined benefit and defined contribution plans and Taft-Hartley plans. Revenue in the High Net Worth distribution channel is earned from relationships with high net worth individuals, family trusts and managed account programs.

Revenue earned from client relationships managed by Affiliates accounted for under the equity method is not consolidated with the Company's reported revenue but instead is included (net of operating expenses, including amortization) in "Income from equity method investments," and reported in the distribution channel in which the Affiliate operates. Income tax attributable to the profits of the Company's equity-method Affiliates is reported within the Company's consolidated income tax provision.

In firms with revenue sharing arrangements, a certain percentage of revenue is allocated for use by management of an Affiliate in paying operating expenses of that Affiliate, including salaries and bonuses, and is called an "Operating Allocation." In reporting segment operating expenses, Affiliate expenses are allocated to a particular segment on a pro rata basis with respect to the revenue generated by that Affiliate in such segment. Generally, as revenue increases, additional compensation is typically paid to Affiliate management partners from the Operating Allocation. As a result, the contractual expense allocation pursuant to a revenue sharing arrangement may result in the characterization of any growth in profit margin beyond the Company's Owners' Allocation as an operating expense. All other operating expenses (excluding intangible amortization) and interest expense have been allocated to segments based on the proportion of cash flow distributions reported by Affiliates in each segment.

The following table presents the change in goodwill during the nine months ended September 30, 2010:

The Company performed its annual goodwill assessment as of September 30, 2010 and no impairments were identified.

The following table reflects the components of intangible assets of the Company's Affiliates that are consolidated as of December 31, 2009 and September 30, 2010:

During the quarter ended September 30, 2010, the Company purchased the investment advisory and administrative servicing contracts for four mutual funds from Allianz Global Investors Capital LLC. The purchase price was allocated to non-amortized acquired client relationships.

For the Company's Affiliates that are consolidated, definite-lived acquired client relationships are amortized over their expected useful lives. As of September 30, 2010, these relationships were being amortized over a weighted average life of approximately 10 years. The Company estimates that its consolidated annual amortization expense will be approximately $82,000 for the next five years, assuming no additional investments in new or existing Affiliates.

The definite-lived acquired client relationships attributable to the Company's equity method investments are amortized over their expected useful lives. As of September 30, 2010, these relationships were being amortized over approximately seven years. Amortization expense for these relationships was $24,119 for the nine months ended September 30, 2010. The Company estimates that the annual amortization expense attributable to its current equity-method Affiliates will be approximately $32,000 for the next five years assuming no additional investments in new or existing Affiliates.

The Company periodically makes new investments in asset management firms and acquires interests from, makes additional purchase payments to and transfers interests to Affiliate management partners. The Company reported $10,597 and $545 of acquisition-related costs as selling, general and

administrative expenses during the nine months ended September 30, 2010 and September 30, 2009, respectively.

Unaudited pro forma financial results are set forth below, giving consideration to the Company's investments in Artemis Investment Management ("Artemis), Pantheon Ventures Inc., Pantheon Holdings Limited and Pantheon Capital (Asia) Limited (collectively, "Pantheon") and Aston Asset Management LLC ("Aston"), as if such transactions occurred as of the beginning of 2009, assuming the revenue sharing arrangement had been in effect for the entire period and after making certain other pro forma adjustments.

New Affiliate investments during the nine months ended September 30, 2010, contributed $178,936 and $20,752 to the Company's revenue and earnings, respectively, for the nine months ended September 30, 2010.

During the first quarter of 2010, the Company adopted a new standard that requires an enterprise to perform a qualitative analysis to determine whether its variable interests give it a controlling financial interest in a variable interest entity ("VIE"). Under the standard, an enterprise has a controlling financial interest when it has (a) the power to direct the activities of a VIE that most significantly impact the entity's economic performance and (b) the obligation to absorb losses of the entity or the right to receive benefits from the entity that could potentially be significant to the VIE. An enterprise that holds a controlling financial interest is deemed to be the primary beneficiary and is required to consolidate the VIE. This new standard has been deferred for certain entities that utilize the specialized accounting guidance for investment companies or that have the attributes of investment companies. The adoption of the portions of this new standard that were not deferred did not have a material impact on the Company's Consolidated Financial Statements.

During the first quarter of 2010, the Company adopted a new standard that eliminated the concept of a qualifying special-purpose entity ("QSPE"), changed the requirements for derecognizing financial assets, and required additional disclosures to enhance information reported to users of financial statements by providing greater transparency about transfers of financial assets, including an entity's continuing involvement in and exposure to the risks related to transferred financial assets. The standard also clarified the requirements for isolation and limitations on portions of financial assets that are eligible for sale accounting. The adoption of this new standard did not have a material impact on the Company's Consolidated Financial Statements.

Many of the Company's operating agreements provide Affiliate managers a conditional right to require the Company to purchase their retained equity interests at certain intervals. Certain agreements also provide the Company a conditional right to require Affiliate managers to sell their retained equity

interests to the Company upon their death, permanent incapacity or termination of employment and provide Affiliate managers a conditional right to require the Company to purchase such retained equity interests upon the occurrence of specified events. The purchase price of these conditional purchases are generally calculated based upon a multiple of the Affiliate's cash flow distributions, which is intended to represent fair value. Affiliate management partners are also permitted to sell their equity interests to other individuals or entities in certain cases, subject to the Company's approval or other restrictions.

The Company may pay for Affiliate equity purchases in cash, shares of its common stock or other forms of consideration and can consent to the transfer of these interests to other individuals or entities. The Company's cumulative redemption obligation for these interests has been presented as "Redeemable non-controlling interests" on the Company's Consolidated Balance Sheets. Changes in the value of the Company's cumulative redemption obligation are recorded to Additional paid-in capital. The following table presents the changes in Redeemable non-controlling interests during the period:

Although the timing and amounts of these purchases are difficult to predict, the Company expects to repurchase approximately $100,000 of Affiliate equity during the next twelve months, and, in such event, will own the cash flow associated with any equity repurchased.

During the three and nine months ended September 30, 2009 and 2010, the Company acquired interests from and transferred interests to Affiliate management partners. The following schedule discloses the effect of changes in the Company's ownership interest in its Affiliates on the controlling interest's equity:

The components of accumulated other comprehensive income, net of applicable taxes, are as follows:

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

When used in this Quarterly Report on Form 10-Q, in our other filings with the United States Securities and Exchange Commission, in our press releases and in oral statements made with the approval of an executive officer, the words or phrases "will likely result," "are expected to," "will continue," "is anticipated," "may," "intends," "believes," "estimate," "project" or similar expressions are intended to identify "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are subject to certain risks and uncertainties, including, among others, the following:

These factors (among others) could affect our financial performance and cause actual results to differ materially from historical earnings and those presently anticipated and projected. We will not undertake and we specifically disclaim any obligation to release publicly the result of any revisions which may be made to any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of events, whether or not anticipated. In that respect, we wish to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made.

We are a global asset management company with equity investments in a diverse group of boutique investment management firms (our "Affiliates"). We pursue a growth strategy designed to generate shareholder value through the internal growth of our existing business, additional investments in investment management firms and strategic transactions and relationships structured to enhance our Affiliates' businesses and growth prospects.

As of September 30, 2010, we manage approximately $280 billion in assets through our Affiliates in more than 350 investment products across a broad range of asset classes and investment styles in three principal distribution channels: Mutual Fund, Institutional and High Net Worth. We believe that our diversification across asset classes, investment styles and distribution channels helps to mitigate our exposure to the risks created by changing market environments. The following summarizes our operations in our three principal distribution channels.

In September 2010, we announced an agreement to acquire a majority interest in Trilogy Global Advisors, LLC ("Trilogy"). Trilogy manages assets for institutional and retail clients specializing in emerging and global market strategies. As of September 30, Trilogy had approximately $14 billion in assets under management.

On June 30, 2010, we completed our investment in Pantheon Ventures Inc., Pantheon Holdings Limited and Pantheon Capital (Asia) Limited (collectively, "Pantheon"). Pantheon manages regional funds-of-funds in Europe, the United States and Asia, as well as global secondary funds-of-funds, global infrastructure fund-of-funds and customized separate account programs.

On April 15, 2010, we completed our investment in Aston Asset Management LLC ("Aston") through the acquisition of Highbury Financial Inc., Aston's parent company. Based in Chicago, Aston offers sub-advised investment products to the mutual fund and managed accounts markets. Aston is the principal advisor to the Aston Funds, a fund family of 24 sub-advised, no-load mutual funds.

On March 15, 2010, we completed our investment in Artemis Investment Management Ltd ("Artemis") in combination with the management team of Artemis. Artemis specializes in active investment management for retail and institutional investors in the UK, as well as Europe and the Middle East, across a range of mutual funds and segregated institutional accounts.

We operate our business through our Affiliates in our three principal distribution channels, maintaining each Affiliate's distinct entrepreneurial culture and independence through our investment structure. In making investments in boutique investment management firms, we seek to partner with the highest quality firms in the industry, with outstanding management teams, strong long-term performance records and a demonstrated commitment to continued growth and success. Fundamental to our investment approach is the belief that Affiliate management equity ownership (along with AMG's ownership) aligns our interests and provides Affiliate managers with a powerful incentive to continue to grow their business. Our investment structure provides a degree of liquidity and diversification to principal owners of boutique investment management firms, while at the same time expanding equity ownership opportunities among the firm's management and allowing management to continue to participate in the firm's future growth. Our partnership approach also ensures that

Affiliates maintain operational autonomy in managing their business, thereby preserving their firm's entrepreneurial culture and independence.

Although the specific structure of each investment is highly tailored to meet the needs of a particular Affiliate, in all cases, AMG establishes a meaningful equity interest in the firm, with the remaining equity interests retained by the management of the Affiliate. Each Affiliate is organized as a separate firm, and its operating or shareholder agreement is structured to provide appropriate incentives for Affiliate management owners and to address the Affiliate's particular characteristics while also enabling us to protect our interests, including through arrangements such as long-term employment agreements with key members of the firm's management team.

In most cases, we own a majority of the equity interests of a firm and structure a revenue sharing arrangement, in which a percentage of revenue is allocated for use by management of that Affiliate in paying operating expenses of the Affiliate, including salaries and bonuses. We call this the "Operating Allocation." The portion of the Affiliate's revenue that is allocated to the owners of that Affiliate (including us) is called the "Owners' Allocation." Each Affiliate allocates its Owners' Allocation to its managers and to us generally in proportion to their and our respective ownership interests in that Affiliate. However, should actual operating expenses exceed the Operating Allocation, the excess expenses first reduce the portion of the Owners' Allocation allocated to the Affiliate's managers until that portion is eliminated, before reducing the portion allocated to us. Any such reduction in our portion of the Owners' Allocation is required to be paid back to us out of the portion of future Owners' Allocation allocated to the Affiliate's managers.

One of the purposes of our revenue sharing arrangements is to provide ongoing incentives for Affiliate managers by allowing them to participate in the growth of their firm's revenue, which may increase their compensation from both the Operating Allocation and the Owners' Allocation. These arrangements also provide incentives to control operating expenses, thereby increasing the portion of the Operating Allocation that is available for growth initiatives and compensation.

An Affiliate's Operating Allocation is structured to cover its operating expenses. However, should actual operating expenses exceed the Operating Allocation, our contractual share of cash under the Owners' Allocation generally has priority over the allocations and distributions to the Affiliate's managers. As a result, the excess expenses first reduce the portion of the Owners' Allocation allocated to the Affiliate's managers until that portion is eliminated, before reducing the portion allocated to us. Any such reduction in our portion of the Owners' Allocation is required to be paid back to us out of the portion of future Owners' Allocation allocated to the Affiliate's managers.

Our minority investments are also structured to align our interests with those of the Affiliate's management through shared equity ownership, as well as to preserve the Affiliate's entrepreneurial culture and independence by maintaining the Affiliate's operational autonomy. In cases where we hold a minority investment, the revenue sharing arrangement generally allocates a percentage of the Affiliate's revenue to us. The remaining revenue is used to pay operating expenses and profit distributions to the other owners.

Certain of our Affiliates operate under profit-based arrangements through which we own a majority of the equity in the firm and receive a share of profits as cash flow, rather than a percentage of revenue through a typical revenue sharing agreement. As a result, we participate fully in any increase or decrease in the revenue or expenses of such firms. In these cases, we participate in a budgeting process and generally provide incentives to management through compensation arrangements based on the performance of the Affiliate.

We are focused on establishing and maintaining long-term partnerships with our Affiliates. Our shared equity ownership gives both AMG and our Affiliate partners meaningful incentives to manage

their businesses for strong future growth. From time to time, we may consider changes to the structure of our relationship with an Affiliate in order to better support the firm's growth strategy.

Through our affiliated investment management firms, we derive most of our revenue from the provision of investment management services. Investment management fees ("asset-based fees") are usually determined as a percentage fee charged on periodic values of a client's assets under management; most asset-based advisory fees are billed by our Affiliates quarterly. Certain clients are billed for all or a portion of their accounts based upon assets under management valued at the beginning of a billing period ("in advance"). Other clients are billed for all or a portion of their accounts based upon assets under management valued at the end of the billing period ("in arrears"). Most client accounts in the High Net Worth distribution channel are billed in advance, and most client accounts in the Institutional distribution channel are billed in arrears. Clients in the Mutual Fund distribution channel are billed based upon average daily assets under management. Advisory fees billed in advance will not reflect subsequent changes in the market value of assets under management for that period but may reflect changes due to client withdrawals. Conversely, advisory fees billed in arrears will reflect changes in the market value of assets under management for that period.

In addition, over 50 Affiliate alternative investment and equity products, representing approximately $33 billion of assets under management (as of September 30, 2010), also bill on the basis of absolute or relative investment performance ("performance fees"). These products, which are primarily in the Institutional distribution channel, are often structured to have returns that are not directly correlated to changes in broader equity indices and, if earned, the performance fee component is typically billed less frequently than an asset-based fee. Although performance fees inherently depend on investment results and will vary from period to period, we anticipate performance fees to be a recurring component of our revenue. We also anticipate that, within any calendar year, the majority of any performance fees will typically be realized in the fourth quarter.

For certain of our Affiliates, generally where we own a non-controlling interest, we are required to use the equity method of accounting. Consistent with this method, we have not consolidated the operating results of these firms (including their revenue) in our Consolidated Statements of Income. Our share of these firms' profits (net of intangible amortization) is reported in "Income from equity method investments," and is therefore reflected in our Net Income (controlling interest) and EBITDA. As a consequence, increases or decreases in these firms' assets under management (which totaled $64.9 billion as of September 30, 2010) will not affect reported revenue in the same manner as changes in assets under management at our other Affiliates.

Our Net Income attributable to controlling interest reflects the revenue of our consolidated Affiliates and our share of income from Affiliates which we account for under the equity method, reduced by:

As discussed above, for consolidated Affiliates with revenue sharing arrangements, the operating expenses of the Affiliate as well as its managers' non-controlling interest generally increase (or decrease) as the Affiliate's revenue increases (or decreases) because of the direct relationship established in many of our agreements between the Affiliate's revenue and its Operating Allocation and Owners' Allocation. At our consolidated profit-based Affiliates, expenses may or may not correspond to increases or decreases in the Affiliates' revenues.

The following table provides information regarding the composition of our assets under management:

Our assets under management increased significantly during the nine months ended September 30, 2010 as a result of new Affiliate investments in Artemis, Aston and Pantheon. Our investments in Pantheon and Artemis (in the second and first quarters of 2010, respectively) further diversified our business by increasing our exposure to alternative product offerings that we anticipate will be uncorrelated to equity markets (in the case of Pantheon) and global/international product offerings (in the case of Pantheon and Artemis). Our investment in Pantheon also provides a stable revenue stream because Pantheon charges management fees on the capital committed to its funds, not the value of the funds. Our investment in Aston, which closed in the second quarter of 2010, increased our domestic equity product offerings. In addition, during the nine months ended September 30, 2010, positive net client cash flows increased assets under management in our alternative and fixed income asset classes and all asset classes benefited from positive investment returns.

The following table presents our Affiliates' reported assets under management by operating segment (which are also referred to as distribution channels in this Quarterly Report on Form 10-Q).

As shown in the assets under management table above, client cash inflows totaled $41.1 billion while client cash outflows totaled $36.4 billion for the nine months ended September 30, 2010. The net flows for the nine months ended September 30, 2010 occurred across a broad range of product offerings in each of our distribution channels, with no individual cash inflow or outflow having a material impact on our revenue or expenses.

The operating segment analysis presented in the following table is based on average assets under management. For the Mutual Fund distribution channel, average assets under management represent an average of the daily net assets under management. For the Institutional and High Net Worth distribution channels, average assets under management takes into consideration the billing patterns of particular client accounts. For example, assets under management for an account that bills in advance is included in the table using beginning of period assets under management while an account that bills in arrears uses end of period assets under management. We believe that this analysis more closely correlates to the billing cycle of each distribution channel and, as such, provides a more meaningful relationship to revenue.

Our revenue is generally determined by the level of our assets under management, the portion of our assets across our products and three operating segments, which realize different fee rates, and the recognition of any performance fees. As described in the "Overview" section above, performance fees are generally measured on absolute or relative investment performance against a benchmark. As a result, the level of performance fees earned can vary significantly from period to period and these fees may not necessarily be correlated to changes in total assets under management.

Our total revenue increased $136.9 million (or 63%) in the three months ended September 30, 2010, as compared to the three months ended September 30, 2009, primarily from a 44% increase in average assets under management. This increase in average assets under management resulted principally from our new Affiliate investments and investment performance. Performance fees were not a significant component of revenue in either the three months ended September 30, 2010 or the three months ended September 30, 2009 (approximately 2% of revenue for both time periods).

Our total revenue increased $340.3 million (or 57%) in the nine months ended September 30, 2010, as compared to the nine months ended September 30, 2009, primarily from a 37% increase in average assets under management. This increase in average assets under management resulted principally from our new Affiliate investments and investment performance. Unrelated to the change in assets under management, performance fees increased $23.1 million to $39.2 million (or 144%) in the nine months ended September 30, 2010, as compared to the nine months ended September 30, 2009.

Our revenue in the Mutual Fund distribution channel increased $71.1 million (or 88%) in the three months ended September 30, 2010 as compared to the three months ended September 30, 2009, while average assets under management increased 80%, and revenue increased $176.3 million (or 80%) in the nine months ended September 30, 2010 as compared to the nine months ended September 30, 2009, while average assets under management increased 72%. These increases in average assets under management resulted principally from investment performance and our 2010 investments in new Affiliates.

Our revenue in the Institutional distribution channel increased $61.1 million (or 56%) in the three months ended September 30, 2010 as compared to the three months ended September 30, 2009, while average assets under management increased 40%, and revenue increased $151.5 million (or 52%) in the nine months ended September 30, 2010 as compared to the nine months ended September 30, 2009, while average assets under management increased 31%. These increases in average assets under management resulted principally from investment performance and our 2010 investments in new Affiliates. Unrelated to the change in assets under management, performance fees increased $23.7 million (or 154%) in the nine months ended September 30, 2010, as compared to the nine months ended September 30, 2009. The increase in revenue was proportionately greater than the

increase in average assets under management as a result of an increase in assets under management at Affiliates that realize comparatively higher fee rates.

Our revenue in the High Net Worth distribution channel increased $4.7 million (or 17%) in the three months ended September 30, 2010 as compared to the three months ended September 30, 2009, while average assets under management increased 13%, and revenue increased $12.5 million (or 15%) in the nine months ended September 30, 2010 as compared to the nine months ended September 30, 2009, while average assets under management increased 16%. These increases in average assets under management resulted principally from investment performance.

The substantial portion of our operating expenses is incurred by our Affiliates, the majority of which is incurred by Affiliates with revenue sharing arrangements. For Affiliates with revenue sharing arrangements, an Affiliate's Operating Allocation percentage generally determines its operating expenses. Accordingly, our compensation expense is impacted by increases or decreases in each Affiliate's revenue and the corresponding increases or decreases in each Affiliate's respective Operating Allocation. During the three and nine months ended September 30, 2010, approximately $79.4 million and $205.0 million (or 52% and 50%), respectively, of our consolidated compensation expense was attributable to our Affiliate management partners. The percentage of revenue allocated to operating expenses varies from one Affiliate to another and may also vary within an Affiliate depending on the source or amount of revenue. As a result, changes in our aggregate revenue may not impact our consolidated operating expenses to the same degree.

Compensation and related expenses increased 44% and 41% in the three and nine months ended September 30, 2010, as compared to the three and nine months ended September 30, 2009, respectively, primarily as a result of the relationship between revenue and operating expenses at extant Affiliates, which experienced increases in revenue, and accordingly, reported higher compensation expenses. These increases were also attributable to increases in aggregate Affiliate expenses of $29.8 million and $44.4 million in the three and nine months ended September 30, 2010 from new Affiliate investments, as compared to the three and nine months ended September 30, 2009, respectively, as well as increases in holding company incentive and stock-based compensation of $5.2 million and $15.3 million in the three and nine months ended September 30, 2010, as compared to the three and nine months ended September 30, 2009, respectively.

Selling, general and administrative expenses increased 174% and 114% in the three and nine months ended September 30, 2010, as compared to the three and nine months ended September 30, 2009, respectively. These increases resulted principally from increases in aggregate Affiliate expenses of $36.6 million and $77.6 million from new Affiliate investments in the three and nine months ended September 30, 2010, as compared to the three and nine months ended September 30, 2009, respectively. These increases also resulted from a $6.0 million insurance recovery in the three and nine months ended September 30, 2009, which did not recur in the three and nine months ended September 30, 2010. The increase in the nine months ended September 30, 2010 as compared to the nine months ended September 30, 2009, also resulted from increases in professional fees principally related to recent investment closings of $9.8 million.

Amortization of intangible assets increased 147% and 60% in the three and nine months ended September 30, 2010, as compared to the three and nine months ended September 30, 2009, respectively. These increases were principally attributable to increases in definite-lived intangible assets resulting from new Affiliate investments.

Depreciation and other amortization increased 16% and 5% in the three and nine months ended September 30, 2010, as compared to the three and nine months ended September 30, 2009, principally attributable to increases in aggregate Affiliate expenses from new Affiliate investments of $0.8 million and $1.3 million in the three and nine months ended September 30, 2010, as compared to the three and nine months ended September 30, 2009, respectively. These increases were partially offset by decreases in spending on depreciable assets in recent periods.

Other operating expenses decreased 12% in the three months ended September 30, 2010, as compared to the three months ended September 30, 2009, principally attributable to a loss realized on the transfer of Affiliate interests in the three months ended September 30, 2009, which did not recur in the three months ended September 30, 2010. This decrease was partially offset by a $4.1 million increase in aggregate Affiliate expenses from new Affiliate investments. Other operating expenses increased 13% in the nine months ended September 30, 2010, as compared to the nine months ended September 30, 2009, principally attributable to a $5.3 million increase in aggregate Affiliate expenses from new Affiliate investments, partially offset by a decrease in losses realized on transfers of Affiliate interests in the nine months ended September 30, 2010, as compared to the nine months ended September 30, 2009.

Income from equity method investments consists of our share of income from Affiliates that are accounted for under the equity method of accounting, net of any related intangible amortization. Income from equity method investments increased 16% and 30% in the three and nine months ended September 30, 2010, as compared to the three and nine months ended September 30, 2009,

respectively, principally as a result of increases in assets under management at Affiliates that we account for under the equity method of accounting.

Investment and other income increased 73% in the three months ended September 30, 2010, as compared to the three months ended September 30, 2009, principally as a result of an increase in Affiliate investment earnings and foreign exchange gains, including a $2.5 million increase in aggregate Affiliate income from new Affiliate investments. Investment and other income increased 10% in the nine months ended September 30, 2010, as compared to the nine months ended September 30, 2009, principally as a result of a $2.8 million increase in investment and other income from new Affiliates, partially offset by a decrease in extant Affiliate investment income.

Investment income (loss) from Affiliate investments in partnerships relates to the consolidation of certain investment partnerships in which our Affiliates are the general partner. In the third quarter of 2010, we deconsolidated these partnerships. For the three months ended September 30, 2009, the income from Affiliate investments in partnerships was $14.9 million. For the nine months ended September 30, 2009 and 2010, the income (loss) from Affiliate investments in partnerships was $26.1 million and $(4.5) million, respectively. This income (loss) was principally attributable to investors who are unrelated to us.

Interest expense increased slightly in the three and nine months ended September 30, 2010, as compared to the three and nine months ended September 30, 2009, principally as a result of increased borrowings under the Revolver.

Imputed interest expense consists of interest accretion on our senior convertible securities and our junior convertible trust preferred securities as well as the accretion of our projected contingent payment arrangements. Imputed interest expense increased 112% and 71% in the three and nine months ended September 30, 2010, as compared to the three and nine months ended September 30, 2009, respectively, principally as a result of increases in accretion related to our contingent payment arrangements of $4.9 million and $8.4 million in the three and nine months ended September 30, 2010, as compared to the three and nine months ended September 30, 2009, respectively.

Income taxes increased 344% and 246% in the three and nine months ended September 30, 2010 as compared to the three and nine months ended September 30, 2009, respectively, as the result of increases in Income before income taxes and approximately $6.0 million of taxes attributable to non-controlling interests from our 2010 new Affiliate investments. In 2009, we reported a $3 million benefit from a reduction in valuation allowances on state net operating losses, and in the third quarter of 2010, we reported a $4.1 million benefit from a change in corporate tax rates in the United Kingdom.

Net income attributable to non-controlling interests was flat in the three months ended September 30, 2010, as compared to the three months ended September 30, 2009, principally as a result of the previously discussed changes in revenue, which were offset by the increases in tax expenses

attributable to non-controlling interests. Net income attributable to non-controlling interests increased 24% in the nine months ended September 30, 2010, as compared to the nine months ended September 30, 2009, principally as a result of the previously discussed changes in revenue partially offset by the previously discussed increases in tax expenses.

Net income (loss) (non-controlling interest in partnerships) relates to the consolidation of certain investment partnerships in which our Affiliates are the general partner. In the third quarter of 2010, we deconsolidated these partnerships. For the three months ended September 30, 2009, the net income from Affiliate investment partnerships attributable to the non-controlling interests was $14.6 million. For the nine months ended September 30, 2009 and 2010, the net income (loss) from Affiliate investment partnerships attributable to the non-controlling interests was $25.5 million and $(4.4) million, respectively.

Net Income (controlling interest) increased 91% and 119% in the three and nine months ended September 30, 2010, as compared to the three and nine months ended September 30, 2009, respectively, as a result of the previously discussed increases in revenue, partially offset by increases in reported operating and income tax expenses.

In reporting our financial and operating results during the second quarter of 2010, we renamed our non-GAAP performance measures to Economic Net Income and Economic earnings per share (formerly known as Cash Net Income and Cash earnings per share). We consider Economic Net Income an important measure of our financial performance, as we believe it best represents our operating performance before non-cash expenses relating to our acquisition of interests in our investment management firms. Economic Net Income and Economic earnings per share are used by our management and Board of Directors as our principal performance benchmarks, including as measures for aligning executive compensation with stockholder value. These measures are provided in addition to, but not as a substitute for, Net Income (controlling interest) and Earnings per share. Economic Net Income and Economic earnings per share are not liquidity measures and should not be used in place of any liquidity measure calculated under GAAP. These measures facilitate comparisons to other asset management firms that have not engaged in significant acquisitions or issued convertible debt.

Under our Economic Net Income definition, we add to Net Income (controlling interest) amortization (including equity method amortization), deferred taxes related to intangible assets, Affiliate depreciation and Affiliate equity expense, and exclude the non-cash effect of APB 14-1 (principally imputed interest on convertible securities) and non-cash expenses related to contingent payment arrangements. We add back amortization attributable to acquired client relationships because this expense does not correspond to the changes in value of these assets, which do not diminish predictably over time. The portion of deferred taxes generally attributable to intangible assets (including goodwill) that we no longer amortize but which continues to generate tax deductions is added back, because we believe it is unlikely these accruals will be used to settle material tax obligations. Since our acquired assets do not generally depreciate or require replacement by us, and since they generate deferred tax expenses that are unlikely to reverse, we add back these non-cash expenses to Net Income to measure operating performance. We add back non-cash expenses relating to certain transfers of equity between Affiliate management partners, when these transfers have no dilutive effect to our shareholders. We add back the portion of consolidated depreciation expense incurred by our Affiliates because under our Affiliates' operating agreements we are generally not required to replenish these depreciating assets.

Economic earnings per share represents Economic Net Income divided by the adjusted diluted average shares outstanding, which measures the potential share issuance from our senior convertible

securities and junior convertible securities (each further described in Liquidity and Capital Resources) using a "treasury stock" method. Under this method, only the net number of shares of common stock equal to the value of these securities in excess of par, if any, are deemed to be outstanding. We believe the inclusion of net shares under a treasury stock method best reflects the benefit of the increase in available capital resources (which could be used to repurchase shares of common stock) that occurs when these securities are converted and we are relieved of our debt obligation. This method does not take into account any increase or decrease in our cost of capital in an assumed conversion.

In connection with recent investments in Affiliates, in the first quarter of 2010 we modified our Economic Net Income definition to exclude non-cash imputed interest and revaluation adjustments related to contingent payment arrangements from Net Income (controlling interest). The modification of the Economic Net Income definition did not have an impact on the prior periods reported.

The following table provides a reconciliation of Net Income (controlling interest) to Economic Net Income:

Economic Net Income increased 71% and 53% in the three and nine months ended September 30, 2010 as compared to the three and nine months ended September 30, 2009, primarily as a result of the previously-described factors that caused an increase in Net Income as well as increases in amortization and intangible-related deferred tax expenses.

The following table summarizes certain key financial data relating to our liquidity and capital resources:

We view our ratio of debt to EBITDA (our "internal leverage ratio") as an important gauge of our ability to service debt, make new investments and access additional capital. Consistent with industry practice, we do not consider junior trust preferred securities as debt for the purpose of determining our internal leverage ratio. We also view our leverage on a "net debt" basis by deducting from our debt balance holding company cash. At September 30, 2010, our internal leverage ratio was 1.7:1.

Under the terms of our credit facility we are required to meet two financial ratio covenants. The first of these covenants is a maximum ratio of debt to EBITDA (the "bank leverage ratio") of 3.5. The calculation of our bank leverage ratio is generally consistent with our internal leverage ratio approach. The second covenant is a minimum EBITDA to cash interest expense ratio of 3.0 (our "bank interest coverage ratio"). For the purposes of calculating these ratios, share-based compensation expense is added back to EBITDA. As of September 30, 2010, our actual bank leverage and bank interest coverage ratios were 2.0 and 6.3, respectively, and we were in full compliance with all terms of our credit facility. We have $399 million of remaining capacity under our $770 million credit facility and we could borrow the entire amount and remain in compliance with our credit agreement.

We are rated BBB- by Standard & Poor's. With the exception of a modest increase in the borrowing rate under our Revolver (30 basis points), a downgrade of our credit rating would have no financial effect on any of our agreements or securities (or otherwise trigger a default).

As supplemental information in this Quarterly Report on Form 10-Q, we have provided information regarding our EBITDA, a non-GAAP liquidity measure. This measure is provided in addition to, but not as a substitute for, cash flow from operations. EBITDA represents earnings before interest expense, income taxes, depreciation and amortization. EBITDA, as calculated by us, may not be consistent with computations of EBITDA by other companies. As a measure of liquidity, we believe that EBITDA is useful as an indicator of our ability to service debt, make new investments and meet working capital requirements. We further believe that many investors use this information when analyzing the financial position of companies in the investment management industry.

The following table provides a reconciliation of cash flow from operations to EBITDA:

In the nine months ended September 30, 2010, we met our cash requirements primarily through cash generated by operating activities and borrowings of senior bank debt. Our principal uses of cash in the three and nine months ended September 30, 2010 were to make investments in new and existing Affiliates, make distributions to Affiliate managers and repay our senior bank debt. We expect that our principal uses of cash for the foreseeable future will be for investments in new and existing Affiliates, distributions to Affiliate managers, payment of interest on outstanding debt, the repurchase of debt securities, and the repurchase of shares of our common stock and for working capital purposes.

The following table summarizes the principal amount due at maturity of our debt obligations and convertible securities as of September 30, 2010:

We have a $770 million revolving credit facility (the "Revolver") under which we pay interest at specified rates (based either on the LIBOR rate or the prime rate as in effect from time to time) that vary depending on our credit rating. Subject to the agreement of lenders to provide additional commitments, we have the option to increase the Revolver by up to $175 million. The Revolver contains financial covenants with respect to leverage and interest coverage and customary affirmative and negative covenants, including limitations on indebtedness, liens, cash dividends and fundamental corporate changes. Borrowings under the Revolver are collateralized by pledges of the substantial majority of our capital stock or other equity interests owned by us. As of September 30, 2010, we had $371 million outstanding under the Revolver.

We have entered into interest rate swap contracts to exchange a fixed rate for the variable rate on $50 million of our variable rate debt. For the period October 1, 2010 through October 1, 2015, we will pay a weighted average fixed rate of 1.66% on the notional amount plus any applicable spread payable under variable rate debt agreements. Certain of our derivative contracts contain provisions that require us or the counterparties to post collateral based upon the current fair value of the derivative contracts. As of September 30, 2010, we had posted collateral of $0.6 million related to our derivative contracts.

We have one senior convertible security outstanding at September 30, 2010. The principal terms of these notes are summarized below.

The 2008 convertible notes are convertible into a defined number of shares of our common stock upon the occurrence of certain events. Upon conversion, we may elect to pay or deliver cash, shares of common stock, or some combination thereof. The holders of the 2008 convertible notes may put these securities to us in August of 2013, 2018, 2023, 2028 and 2033. We may call the notes for cash at any time on or after August 15, 2013.

In the second quarter of 2010, we called our Zero Coupon Senior Convertible Notes due May 7, 2021 ("zero coupon senior convertible notes") for redemption at their principal amount plus any original issue discount accrued thereon. In lieu of redemption, all of the holders elected to convert their zero coupon senior convertible notes into shares of our common stock. We issued 873,626 shares of common stock to settle these conversions. All of our zero coupon senior convertible notes have been cancelled and retired as of June 14, 2010.

We have two junior convertible trust preferred securities outstanding at September 30, 2010, one issued in 2006 (the "2006 junior convertible trust preferred securities") and a second issued in 2007

(the "2007 junior convertible trust preferred securities".) The principal terms of these securities are summarized below.

Both the 2006 and 2007 junior convertible trust preferred securities are convertible, at any time, into a defined number of shares. Upon conversion, holders will receive cash or shares of our common stock, or a combination thereof. We can call the 2006 junior convertible trust preferred securities on or after April 2011 if the closing price of our common stock exceeds $195 per share for a specified period of time.

We can call the 2007 junior convertible trust preferred securities on or after October 2012 if the closing price of our common stock exceeds $260 per share for a specified period of time. Holders of the 2006 and 2007 junior trust preferred securities have no rights to put these securities to us.

During 2009, we entered into a forward equity sale agreement with a major securities firm to sell shares of our common stock. As of September 30, 2010, no forward equity sales are outstanding and we may sell up to an additional $103.5 million under this agreement.

In the third quarter of 2010, we did not purchase any shares of common stock under our share repurchase programs. In July 2010, our Board of Directors authorized an additional 500,000 shares of common stock for repurchase under our share repurchase programs. There are currently 1,584,706 shares that could be purchased under our share repurchase program.

Many of our operating agreements provide Affiliate managers a conditional right to require us to purchase their retained equity interests at certain intervals. Certain agreements also provide us a conditional right to require Affiliate managers to sell their retained equity interests to us upon their

death, permanent incapacity or termination of employment and provide Affiliate managers a conditional right to require us to purchase such retained equity interests upon the occurrence of specified events. The purchase price of these conditional purchases are generally calculated based upon a multiple of the Affiliate's cash flow distributions, which is intended to represent fair value. Affiliate management partners are also permitted to sell their equity interests to other individuals or entities in certain cases, subject to our approval or other restrictions.

We may pay for Affiliate equity purchases in cash, shares of our common stock or other forms of consideration and can consent to the transfer of these interests to other individuals or entities. Our cumulative redemption obligation for these interests has been presented as "Redeemable non-controlling interests" on our Consolidated Balance Sheets. Although the timing and amounts of these purchases are difficult to predict, we expect to repurchase approximately $100 million of Affiliate equity during the next twelve months, and, in such event, will own the cash flow associated with any equity repurchased.

Cash flow from operations generally represents Net Income plus non-cash charges for amortization, deferred taxes, equity-based compensation and depreciation, as well as increases and decreases in our consolidated working capital.

The increase in cash flows from operations for the nine months ended September 30, 2010 as compared to the nine months ended September 30, 2009, resulted principally from increased Net Income of $32.7 million, a decrease in settlements of accounts payable and accrued liabilities of $88.7 million and a decrease in purchases of prepaids and other current assets of $9.5 million, partially offset by a decrease in collections of investment advisory fees receivable of $12.9 million and an increase in other assets of $12.6 million.

The net cash flow used in investing activities increased $695.4 million for the nine months ended September 30, 2010 as compared to the nine months ended September 30, 2009. This was primarily the result of a $664.7 million increase relating to our new Affiliate investments in 2010.

Net cash flows from financing activities increased $680.2 million for the nine months ended September 30, 2010, as compared to the nine months ended September 30, 2009. This was primarily a result of an increase in net borrowings of senior bank debt of $604.5 million, partially offset by an increase in repurchases of Affiliate equity of $75.8 million. In addition, we received $144.3 million and $294.7 million of proceeds from the settlement of forward equity sales in the nine months ended September 30, 2009 and September 30, 2010, respectively.

Our investment in Artemis was financed through borrowings under our Revolver, and our investment in Aston was financed through the issuance of approximately 1.7 million shares of our common stock. Our investment in Pantheon was financed with borrowings under our Revolver and proceeds from the partial settlement of forward equity sales. We plan to finance our investment in Trilogy with available cash and borrowings from the Revolver.

Under past acquisition agreements, we are contingently liable, upon achievement of specified financial targets, to make payments of up to $609 million through 2015. In the remainder of 2010, we do not expect to make any significant payments to settle portions of these contingent obligations.

Proceeds available under our Revolver are sufficient to support our cash flow needs for the foreseeable future.

The following table summarizes our contractual obligations as of September 30, 2010:

From time to time, we seek to offset our exposure to changing interest rates under our debt financing arrangements by entering into interest rate hedging contracts. As of September 30, 2010, we were a party, with major commercial banks as counterparties, to $50 million notional amount interest rate swap contracts which fix the interest rate on the notional amount to a weighted average interest rate of approximately 1.66% for the period from October 2010 to October 2015. The unrealized loss on these interest rate swap contracts as of September 30, 2010 was $0.6 million.

During the first quarter of 2010, we adopted a new standard that requires an enterprise to perform a qualitative analysis to determine whether its variable interests give it a controlling financial interest in a variable interest entity ("VIE"). Under the standard, an enterprise has a controlling financial interest when it has (a) the power to direct the activities of a VIE that most significantly impact the entity's economic performance and (b) the obligation to absorb losses of the entity or the right to receive benefits from the entity that could potentially be significant to the VIE. An enterprise that holds a controlling financial interest is deemed to be the primary beneficiary and is required to consolidate the

VIE. This new standard has been deferred for certain entities that utilize the specialized accounting guidance for investment companies or that have the attributes of investment companies. The adoption of the portions of this new standard that were not deferred did not have a material impact on our Consolidated Financial Statements.

During the first quarter of 2010, we adopted a new standard that eliminated the concept of a qualifying special-purpose entity ("QSPE"), changed the requirements for derecognizing financial assets, and required additional disclosures to enhance information reported to users of financial statements by providing greater transparency about transfers of financial assets, including an entity's continuing involvement in and exposure to the risks related to transferred financial assets. The standard also clarified the requirements for isolation and limitations on portions of financial assets that are eligible for sale accounting. The adoption of this new standard did not have a material impact on our Consolidated Financial Statements.

As of September 30, 2010, the carrying value of goodwill was $1,995.8 million. Goodwill represents the excess of the purchase price of acquisitions over the fair value of identified assets and liabilities. Our goodwill impairment tests are performed annually during the third quarter at the reporting unit level (in our case, our three operating segments), or more frequently, should circumstances suggest fair value has declined below the related carrying amount. We completed our annual goodwill impairment test during the third quarter and no impairments were identified. For purposes of our test, the fair value of each reporting unit was measured by applying a multiple to the estimated cash flow of the reporting unit, including cash flows attributable to non-controlling interests. The fair value of each of our reporting units substantially exceeds their respective carrying values and only a material decline in the value of any of our reporting units would indicate that an impairment may exist. Management believes that the valuation inputs used to determine fair value of our reporting units are reasonable.

There have been no significant changes to our Quantitative and Qualitative Disclosures About Market Risk in the three and nine months ended September 30, 2010. Please refer to Item 7A in our 2009 Annual Report on Form 10-K.

We carried out an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures during the quarter covered by this Quarterly Report on Form 10-Q. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the quarter covered by this Quarterly Report on Form 10-Q, our disclosure controls and procedures are effective in ensuring that (i) the information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934, as amended (the "Exchange Act") is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and (ii) such information is accumulated and communicated to our management, including our principal executive officer and principal financial officers as appropriate to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, we recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and our management necessarily was required to apply its judgment in evaluating and implementing possible controls and procedures. Our disclosure controls and procedures were designed to provide reasonable assurance of achieving their stated objectives and our principal executive officer and principal financial officers concluded that our

disclosure controls and procedures are effective at the reasonable assurance level. We review on an ongoing basis and document our disclosure controls and procedures, and our internal control over financial reporting, and we may from time to time make changes in an effort to enhance their effectiveness and ensure that our systems evolve with our business.

No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the quarter covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

The exhibits are listed on the Exhibit Index and are included elsewhere in this Quarterly Report on Form 10-Q.

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	Financial Assets

	Three Months Ended September 30, 2009		Three Months Ended September 30, 2010			Nine Months Ended September 30, 2009		Nine Months Ended September 30, 2010
Balance, beginning of period	$	4,185	$	68,372		$	4,185	$	4,009
Realized and unrealized gains (losses) included in net income		—		2,215			—		2,215
Realized and unrealized gains (losses) included in other comprehensive income		—		—			—		—
New Investments		—		—			—		68,072
Purchases		—		5,768			—		5,768
Sales		—		(996	)		—		(996	)
Other		—		(300	)		—		(300	)
Transfers in and/or out of Level 3		—		—			—		(3,709	)

Balance, end of period	$	4,185	$	75,059		$	4,185	$	75,059

Amount of total gains (losses) included in net income attributable to unrealized gains (losses) from assets still held at end of period	$	—	$	2,215		$	—	$	2,215
Amount of total gains (losses) included in other comprehensive income	$	—	$	—		$	—	$	—

		Financial Liabilities

		Three Months Ended September 30, 2009			Three Months Ended September 30, 2010			Nine Months Ended September 30, 2009			Nine Months Ended September 30, 2010
Balance, beginning of period		$	1,315		$	117,648		$	27,764		$	105,727
Realized and unrealized (gains) losses
	included in net income		107			4,090			(125	)		6,545
Realized and unrealized (gains) losses included in other comprehensive income			—			3,611			—			2,842
New Investments			34,600			—			34,600			100,513
Additions			26,021			22,256			26,693			37,540
Settlements			(1,216	)		(5,962	)		(28,105	)		(111,524	)
Transfers in and/or out of Level 3			—			—			—			—

Balance, end of period		$	60,827		$	141,643		$	60,827		$	141,643

Amount of total gains (losses) included in net income attributable to unrealized gains (losses) from unsettled liabilities at end of period		$	—		$	4,090		$	—		$	6,545
Amount of total gains (losses) included in other comprehensive income		$	—		$	3,611		$	—		$	2,842

				Weighted Average Exercise Price

Unexercised options outstanding—January 1, 2010		5,166,344		$	54.29
	Options granted	554,064			62.96
	Options exercised	(859,299	)		42.19
	Options forfeited	(4,128	)		65.29

Unexercised options outstanding—September 30, 2010		4,856,981			57.41	4.9

Exercisable at September 30, 2010		2,462,108			54.84	4.6

		For the Three Months Ended September 30, 2009

		Mutual Fund			Institutional			High Net Worth			Total
Revenue		$	80,682		$	109,918		$	26,861		$	217,461
Operating expenses:
	Depreciation and other amortization		1,132			7,669			2,659			11,460
	Other operating expenses		55,901			68,945			18,120			142,966

			57,033			76,614			20,779			154,426

Operating income			23,649			33,304			6,082			63,035

Non-operating (income) and expenses:
	Investment and other income		(4,501	)		(1,514	)		(599	)		(6,614	)
	Income from equity method investments		(217	)		(7,397	)		(589	)		(8,203	)
	Investment income from investments in partnerships		(183	)		(606	)		(14,125	)		(14,914	)
	Interest expense		4,685			12,341			2,514			19,540

			(216	)		2,824			(12,799	)		(10,191	)

Income before income taxes			23,865			30,480			18,881			73,226
Income taxes			369			4,335			662			5,366

Net income			23,496			26,145			18,219			67,860
	Net income (non-controlling interests)		(14,372	)		(17,940	)		(3,147	)		(35,459	)
	Net income (non-controlling interests in partnerships)		(181	)		(605	)		(13,846	)		(14,632	)

Net Income (controlling interest)		$	8,943		$	7,600		$	1,226		$	17,769

		For the Three Months Ended September 30, 2010

		Mutual Fund			Institutional			High Net Worth			Total
Revenue		$	151,817		$	170,990		$	31,565		$	354,372
Operating expenses:
	Depreciation and other amortization		3,664			18,567			2,002			24,233
	Other operating expenses		105,977			108,917			19,655			234,549

			109,641			127,485			21,656			258,782

Operating income			42,176			43,505			9,909			95,590

Non-operating (income) and expenses:
	Investment and other income		(5,377	)		(5,156	)		(851	)		(11,384	)
	Income from equity method investments		(418	)		(8,245	)		(873	)		(9,536	)
	Investment (income) loss from investments in partnerships		—			—			—			—
	Interest expense		8,781			12,705			2,027			23,513

			2,986			(696	)		303			2,593

Income before income taxes			39,190			44,201			9,606			92,997
Income taxes			11,734			10,364			1,870			23,968

Net income			27,456			33,837			7,736			69,029
	Net income (non-controlling interests)		(13,923	)		(17,033	)		(4,118	)		(35,074	)
	Net loss (non-controlling interests in partnerships)		—			—			—			—

Net Income (controlling interest)		$	13,533		$	16,804		$	3,618		$	33,955

	Mutual Fund		Institutional		High Net Worth		Total

Balance, as of December 31, 2009	$	561,753	$	602,962	$	248,502	$	1,413,217
Goodwill acquired, net		210,383		358,110		4,757		573,250
Foreign currency translation		4,144		3,049		2,096		9,289

Balance, as of September 30, 2010	$	776,280	$	964,121	$	255,355	$	1,995,756

		December 31, 2009				September 30, 2010

		Carrying Amount		Accumulated Amortization		Carrying Amount		Accumulated Amortization
Amortized intangible assets:
	Acquired client relationships	$	389,312	$	168,538	$	929,999	$	207,584
Non-amortized intangible assets:
	Acquired client relationships-mutual fund management contracts		350,799		—		678,391		—
	Goodwill		1,413,217		—		1,995,756		—


Balance as of January 1, 2010	$	368,999
Issuance of Redeemable non-controlling interest		18,804
Repurchase of Redeemable non-controlling interest		(70,520	)
Changes in redemption value		68,900

Balance as of September 30, 2010	$	386,183

	December 31, 2009		September 30, 2010

Foreign currency translation adjustments	$	43,055	$	58,253
Unrealized gain on investment securities		2,903		12,720

Accumulated other comprehensive income	$	45,958	$	70,973

		December 31, 2009					September 30, 2010

(in billions)		Assets under Management		Percentage of Total			Assets under Management		Percentage of Total
Asset Class:
Equity⁽¹⁾		$	153.2		74	%	$	184.6		66	%
Alternative⁽²⁾			31.3		15	%		63.0		23	%
Fixed Income			23.5		11	%		32.1		11	%

	Total	$	208.0		100	%	$	279.7		100	%

Geography:⁽³⁾
Domestic		$	89.7		43	%	$	100.0		36	%
Global/International			93.2		45	%		148.7		53	%
Emerging Markets			25.1		12	%		31.0		11	%

	Total	$	208.0		100	%	$	279.7		100	%

Statement of Changes-Quarter to Date (in billions)			Mutual Fund			Institutional			High Net Worth			Total

Assets under management, June 30, 2010			$	64.3		$	155.2		$	29.5		$	249.0
	Client cash inflows			6.4			8.5			1.4			16.3
	Client cash outflows			(5.3	)		(4.3	)		(1.2	)		(10.8	)

		Net client cash flows		1.1			4.2			0.2			5.5

	Investment performance			7.9			15.2			2.7			25.8
	Other⁽²⁾			1.6			(2.2	)		—			(0.6	)

Assets under management, September 30, 2010			$	74.9		$	172.4		$	32.4		$	279.7

Statement of Changes-Year to Date (in billions)			Mutual Fund			Institutional			High Net Worth			Total

Assets under management, December 31, 2009			$	44.5		$	133.9		$	29.6		$	208.0
	New Investments⁽¹⁾			22.9			26.0			0.5			49.4

Adjusted Assets under management, December 31, 2009				67.4			159.9			30.1			257.4

	Client cash inflows			15.3			20.8			5.0			41.1
	Client cash outflows			(13.2	)		(18.5	)		(4.7	)		(36.4	)

		Net client cash flows		2.1			2.3			0.3			4.7

	Investment performance			3.8			12.5			2.0			18.3
	Other⁽²⁾			1.6			(2.3	)		—			(0.7	)

Assets under management, September 30, 2010			$	74.9		$	172.4		$	32.4		$	279.7

		For the Three Months Ended September 30,							For the Nine Months Ended September 30,

(dollars in millions, except as noted)		2009		2010		% Change			2009		2010		% Change
Average assets under management (in billions)⁽¹⁾
Mutual Fund		$	39.0	$	70.3		80	%	$	35.2	$	60.4		72	%
Institutional			119.5		167.0		40	%		111.6		146.5		31	%
High Net Worth			27.7		31.2		13	%		26.2		30.4		16	%

	Total	$	186.2	$	268.5		44	%	$	173.0	$	237.3		37	%

Revenue
Mutual Fund		$	80.7	$	151.8		88	%	$	221.4	$	397.7		80	%
Institutional			109.9		171.0		56	%		293.6		445.1		52	%
High Net Worth			26.9		31.6		17	%		82.2		94.7		15	%

	Total	$	217.5	$	354.4		63	%	$	597.2	$	937.5		57	%

Net Income
Mutual Fund		$	9.0	$	13.5		40	%	$	19.5	$	31.3		41	%
Institutional			7.6		16.8		49	%		13.1		36.8		48	%
High Net Worth			1.2		3.7		11	%		2.3		8.5		11	%

	Total	$	17.8	$	34.0		91	%	$	34.9	$	76.6		119	%

EBITDA⁽²⁾
Mutual Fund		$	14.5	$	31.3		116	%	$	43.8	$	79.2		81	%
Institutional			38.2		61.1		60	%		97.3		144.9		49	%
High Net Worth			7.8		9.9		27	%		21.8		28.1		29	%

	Total	$	60.5	$	102.3		69	%	$	162.9	$	252.2		55	%

	For the Three Months Ended September 30,							For the Nine Months Ended September 30,

(dollars in millions)	2009		2010		% Change			2009		2010		% Change
Compensation and related expenses	$	105.2	$	151.5		44	%	$	292.8	$	413.5		41	%
Selling, general and administrative		26.8		73.4		174	%		89.3		190.8		114	%
Amortization of intangible assets		8.3		20.5		147	%		24.4		39.0		60	%
Depreciation and other amortization		3.2		3.7		16	%		9.6		10.1		5	%
Other operating expenses		10.9		9.6		(12	)%		21.4		24.1		13	%

Total operating expenses	$	154.4	$	258.7		68	%	$	437.5	$	677.5		55	%

		For the Three Months Ended September 30,				For the Nine Months Ended September 30,

(in millions, except shares and per share data)		2009		2010		2009		2010
Net Income (controlling interest)		$	17.8	$	34.0	$	34.9	$	76.6
	Intangible amortization⁽¹⁾⁽²⁾		16.1		26.0		48.1		59.7
	Intangible-related deferred taxes		6.2		9.8		25.3		34.9
	Imputed interest and contingent payment adjustments⁽³⁾		2.0		3.7		6.2		9.2
	Affiliate equity expense		1.6		1.8		5.5		5.3
	Affiliate depreciation		1.9		2.6		5.8		6.8

Economic Net Income		$	45.6	$	77.9	$	125.8	$	192.5

(in millions)	December 31, 2009		September 30, 2010

Balance Sheet Data
Cash and cash equivalents	$	259.5	$	255.5
Senior bank debt		—		371.0
2008 senior convertible notes		409.6		419.0
Zero coupon convertible notes		47.4		—
Junior convertible trust preferred securities		507.4		509.2

		For the Three Months Ended September 30,						For the Nine Months Ended September 30,

(in millions)		2009			2010			2009			2010
Cash flow from operations		$	80.2		$	168.4		$	168.1		$	351.5
	Interest expense, net of non-cash items⁽¹⁾		14.2			14.4			42.9			43.0
	Current tax provision		0.1			7.9			(9.1	)		15.8
	Income from equity method investments, net of distributions⁽²⁾		2.5			2.9			3.3			1.2
	Changes in assets and liabilities and other adjustments⁽³⁾		(36.5	)		(91.3	)		(42.3	)		(159.3	)

EBITDA		$	60.5		$	102.3		$	162.9		$	252.2

(in millions)	Amount			Form of Repayment

Senior Bank Debt	$	371.0	2012	⁽¹⁾
2008 Senior Convertibles Notes		460.0	2038	⁽²⁾
Junior Convertible Trust Preferred Securities		730.8	2036/2037	⁽³⁾



Issue Date	August 2008
Maturity Date	August 2038
Par Value	$460.0
Carrying Value	419.0	⁽¹⁾
Note Denomination	1,000
Current Conversion Rate	7.959
Current Conversion Price	125.65
Stated Coupon	3.95	%
Tax Deduction Rate	9.38	%⁽²⁾



Issue Date	April 2006		October 2007
Maturity Date	April 2036		October 2037
Par Value	$300.0		$430.8
Carrying Value	213.3	⁽¹⁾	295.9	⁽²⁾
Note Denomination	50		50
Current Conversion Rate	0.333		0.250
Current Conversion Price	150.00		200.00
Stated Coupon	5.10	%	5.15	%
Tax Deduction Rate	7.50	%⁽³⁾	8.00	%⁽³⁾

			Payments Due

Contractual Obligations	Total		Remainder of 2010		2011-2012		2013-2014		Thereafter
(in millions)
Senior bank debt	$	371.0	$	—	$	371.0	$	—	$	—
Senior convertible securities⁽¹⁾		968.7		—		36.3		36.3		896.1
Junior convertible trust preferred securities⁽²⁾		1,708.7		9.3		74.1		74.1		1,551.2
Leases		91.5		5.8		38.3		28.3		19.1
Other liabilities⁽³⁾		164.1		34.2		129.9		—		—

Total Contractual Obligations	$	3,304.0	$	49.3	$	649.6	$	138.7	$	2,466.4

Contingent Obligations
Contingent payment obligations⁽⁴⁾		111.5		1.4		83.8		24.2		2.1


		AFFILIATED MANAGERS GROUP, INC. (Registrant)
November 9, 2010		/s/ DARRELL W. CRATE Darrell W. Crate on behalf of the Registrant as Executive Vice President, Chief Financial Officer and Treasurer (and also as Principal Financial and Principal Accounting Officer)

Exhibit No.			Description

	3.1		Second Amended and Restated By-laws.
	31.1		Certification of Registrant's Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	31.2		Certification of Registrant's Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	32.1		Certification of Registrant's Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
	32.2		Certification of Registrant's Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
	101		The following financial statements from the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2010 are furnished herewith, formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Statements of Income for the three and nine month periods ended September 30, 2010 and 2009, (ii) the Consolidated Balance Sheets at September 30, 2010 and December 31, 2009, (iii) the Consolidated Statement of Equity for the nine month period ended September 30, 2010, (iv) the Consolidated Statements of Cash Flows for the three and nine month periods ended September 30, 2010 and 2009, and (v) the Notes to the Consolidated Financial Statements.