Greetings. Welcome to the AMG First Quarter 2018 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Ms. Anjali Aggarwal, Vice President, Investor Relations for AMG. Thank you. You may begin.
Thank you for joining AMG to discuss your results for the first quarter of 2018. In this conference call, certain matters discussed will constitute forward-looking statements. Actual results could differ materially from those projected due to a number of factors, including but not limited to those referenced in the company's Form 10-K and other filings we make with the SEC from time to time. We assume no obligation to update any forward-looking statements made during the call. AMG will provide on the investor relations section of its website at www.amg.com a replay of the call and a copy of our announcement of our results for the quarter, as well as a reconciliation of any non-GAAP financial measures to the most directly comparable GAAP financial measures, including a reconciliation of any estimates of the company's Economic earnings per share for future periods that are announced on this call.
With us on the line to discuss the company's results for the quarter are Sean Healey, Chairman and Chief Executive Officer, Nathaniel Dalton, President and Chief Operating Officer, and Jay Horgen, Chief Financial Officer. With that, I'll turn the call over to Sean Healey.
Thanks, Anjali. Good morning, everyone. AMG had a strong start to 2018, with year-over-year growth of 22% in Economic earnings per share. Our results reflect the strength of our strategic position and our affiliates' track records of alpha generation. Looking ahead, with multiple avenues of growth created by the scale and breadth of our business, including a strong pipeline of new affiliate investments, we are confident in our prospects for significant additional earnings growth ahead. During the quarter, our affiliates' alternative products continued to generate strong positive net client cash flows as clients expand allocations to the highest quality uncorrelated return streams. These inflows were offset by net equity outflows, reflecting client risk aversion amidst market volatility, including two large emerging market equity rebalancings.
As Nate will discuss, our affiliates generated very strong performance across a range of global equity strategies during the quarter, building on their excellent long-term track records. We continue to see substantial opportunity to organic growth across our alpha-oriented product set. With outstanding high conviction active equity products alongside a wide array of uncorrelated alternatives, AMG is positioned to grow in rising equity market environments while also producing stable and resilient earnings in periods of market dislocation. As global clients increasingly concentrate their alpha-oriented relationships with a more limited number of managers, the breadth and quality of our performance-oriented product range continues to be a clear competitive advantage. AMG's global distribution platform offers investors access to a broad array of best-in-class, performance-oriented boutique firms with the scale, resources, and risk management of a global asset management partner.
As we continue to build strategic cross-product and cross-affiliate relationships with large clients and intermediaries, we see increasing opportunities to gain market share and leverage our scale on our affiliates' behalf in markets around the world. Later this year, we will open an office in Japan, where we have a growing array of relationships, including mandates that have been won and are in the process of funding with some of the largest and most important clients in Japan. As these institutions expand allocations to both global equities and alternatives, we see tremendous secular growth opportunities in this very large market. Turning to new investments, we have a very strong and growing pipeline of prospective affiliates as we increasingly realize the benefits of the relationships we have built with outstanding independent firms across two decades.
Given AMG's unparalleled competitive position, including our track record as the partner of choice to many of the world's most highly regarded firms, we have a unique opportunity to generate meaningful earnings accretion through investments in additional outstanding affiliates. Given the scale of our recurring free cash flow generation, we are able to execute our growth strategy while also consistently returning capital to shareholders with a cash dividend this quarter, which will be 50% higher than last year's level, along with ongoing and increasing share repurchases as our earnings grow. Looking ahead, we are very confident in our ability to continue to enhance the scale, diversity, and earnings power of our business and generate outstanding long-term shareholder value. With that, I'll turn to Nate to discuss our affiliates' results in more detail.
Thanks. Good morning, everyone. As Sean said, in the first quarter, our affiliates produced excellent investment returns across a broad range of strategies. As we all know, while the year started with equity markets generally moving upward in January, that trend broke down in February and March as volatility increased, as did dispersion across and within those markets. In this environment, the best active managers were able to outperform, and many of our affiliates generated meaningful alpha. I'll cover performance in more detail in a moment. First, let me provide some context to our flow profile for the quarter and look ahead to what we expect for the rest of the year. In terms of the quarter, there were several underlying themes.
Consistent with trends for some time now, we continue to see very good demand for a large number of alternative products across our distribution channels, as well as very consistent, solid growth within our multi-asset product set. In the first quarter, however, these positives were offset by continued weakness within U.S. equities, consistent with industry trends, and by global and emerging markets equities, where our institutional business was impacted by two large rebalances as clients took gains from accounts that had significantly appreciated. Conversely, our retail channel saw good continued flows in both global and emerging markets equities. Looking ahead, we're very optimistic about the potential for strong organic growth in 2018 and the longer-term opportunity we're executing against. From a short-term standpoint, performance is good, and there are some very large pieces of institutional business in the pipeline.
Here, I'll observe that some of these large mandates are quite complex and are taking a bit longer to close than we initially anticipated. Outside of the institutional pipeline, we see continued strong momentum within our retail channels, with good contributions across all of our key product categories. In addition, we continue to have a strong and expanding fundraising pipeline for our illiquid strategies, including private equity, infrastructure, real assets, credit, and co-investment products. Getting beyond the short-term dynamics, we feel quite good about how our differentiated strategy is working. Our focused affiliates are continuing to perform well, and they're extending their product capabilities into new areas where they can add significant value. Product development is working well.
In addition, we and our affiliates continue to make good progress, including with some of these newer product capabilities, at building and diversifying relationships with many of the largest pools of capital, including both clients and intermediaries. Returning to a discussion of the first quarter and starting with our alternative strategies, which account for 40% of our business by assets. Within private equity and real assets, our affiliates, including Baring Asia, EIG, and Pantheon, continue their strong long-term track records across their platforms in categories such as global and regional private equity, infrastructure, including energy, co-investments, credit, real assets, and real estate. Each of these affiliates continues to execute on their growth initiatives across their business, and the increased breadth of these franchises, both flagship strategies and scalable new products and asset class extensions, has created an enduring organic growth opportunity.
We're also working closely with these firms to extend our distribution reach across new geographies and client types, both institutional and retail. We believe these businesses will make a substantial contribution to what is an enhanced growth profile for AMG. In addition, we believe the investments we're making in distribution for these illiquid strategies not only creates leverage for other affiliates extending into illiquid assets, but also will make us a more attractive partner to additional affiliates with similar strategies. Turning to fixed income and equity relative value, most major indices were slightly positive for the quarter, as these strategies were able to add value through security selection on both the long and short sides. The HFRI Relative Value Index posted a 0.3% return, and the HFRI Equity Hedge Index returned 0.6%. The HFRI Activist Index was an outlier with a loss of 2%.
In terms of our affiliates, performance in the category was good, as flagship products at Capula, BlueMountain, and PFM all posted gains and outperformed benchmarks in the quarter. ValueAct, in particular, had a very strong quarter, generating positive returns at a time when both its peer group and benchmark were negative. Within our multi-strategy and other category, our primary index, the HFRI Fund Weighted Composite, returned 0.1% for the quarter. Against that backdrop, our performance in the category was mixed. While AQR's Style Premia Alternative Fund and Absolute Return Fund outperformed in the quarter, many of our other significant products in the category underperformed as many risk asset betas declined. All of these strategies continue to maintain strong longer-term track records. In our systematic diversified category, industry returns were challenged in the quarter, with the SG Trend Index falling by 3.9%.
After capitalizing on strong upward equity market trend signals in January, February's increased volatility negated a fast start for most products. While our affiliates have not been immune to the headwinds of this market environment and absolute returns were negative, all of our significant products in the category outperformed the index in the first quarter. Now, turning to flows in our alternatives category. We had a very good quarter of organic growth across both institutional and retail clients. We recorded net inflows of $5.6 billion behind solid activity across our liquid strategies and additional funding from the illiquid space. Looking at the quarter on a subcategory basis, consistent with recent trends, we continue to see good flows in multi-strategy, as well as a return to positive net flows in fixed income and equity relative value.
Systematic diversified continued to be in net redemptions, but that flow profile has continued to improve, not only from a reduced redemption standpoint, but through a pickup in sales activity as well. Finally, we also had another solid quarter in our private equity and more illiquid product set as we had interim fund closings and separate account wins across a broad array of strategies. Looking ahead, we see very good momentum in both our liquid and illiquid pipelines and expect outstanding continued growth across our product set. Turning next to our global equities category, which accounts for approximately 35% of our business by assets. As I said earlier, while January started off very positively, increased investor concerns about the macro and geopolitical environments led to heightened volatility for global markets in February and March, resulting in the MSCI World Index ending down 1.2% for the quarter.
Against that backdrop, our affiliates generated strong relative returns in the quarter with flagship strategies at Tweedy, Browne, AQR, Harding Loevner, Artemis and TimesSquare outperforming their benchmarks, while Veritas underperformed in the quarter, but continues to maintain very strong returns over longer time periods. Emerging Markets outperformed nearly all broad market indices, with the MSCI Emerging Markets Index ending up 1.5% for the quarter. Among our affiliates, AQR and Harding Loevner outperformed the index, while Genesis was roughly in line and Trilogy underperformed the index. Each of these firms maintained strong long-term performance track records. Moving to global equity flows, we had net outflows of $4.8 billion. On one hand, we saw very good sales activity levels and overall net flows within our retail and high net worth channels as we participate in a broad-based trend in which retail investors are shifting away from home country bias.
On the other hand, institutional flows were disappointing in the quarter as we had below trend sales activity given heightened risk aversion and a slowdown in pipeline conversion. In terms of net flows for the quarter, however, the biggest impact was significant rebalancing activity in the two very large emerging markets accounts I mentioned earlier. I would note that in each case, the client maintains a significant funding level with the affiliate and each of the underlying products has performed well. Looking ahead, we continue to be excited about the retail opportunity set and see the institutional pipeline conversion rate significantly improving in coming quarters. We remain well positioned with flagship products from AQR, Artemis, Harding Loevner, Veritas, and Tweedy, Browne continuing their success and supplemented by a number of newer products and strategies gaining momentum or coming online.
Turning next to U.S. equities, which accounts for 13% of our business by assets, markets ended the quarter slightly negative after the strong January start, with small caps outperforming large caps and growth outperforming value by a significant margin. For the quarter, the S&P 500 lost 0.8%, while the Russell 2000 Index fell 0.1%. We had very good relative performance in a number of small cap strategies, an area where many of our affiliates, including TimesSquare, Frontier, and River Road, outperformed across their flagship products. Performance across our larger capitalization products was more mixed as Yacktman and Frontier underperformed, while TimesSquare and AQR outperformed in the quarter. Within U.S. equities, we saw $3 billion in net outflows as institutional search activity and retail demand for actively managed U.S. strategies remains relatively muted across the industry.
We expect this dynamic to continue. We do see pockets of demand and sales opportunities as a number of our affiliates are in conversations for replacement mandates and trends in redemption activity improve. Finally, moving to the multi-asset and other category, which accounts for 12% of our business by assets and encompasses multi-asset and balanced mandates at our wealth management affiliates, as well as a number of specialty fixed income and multi-asset products. We had another good quarter producing net inflows of $325 million as we continue to see strong sales activity from a number of in-demand tax-oriented and systematic fixed income products coming online. Performance for most of the products in this category remains good, and the customized portfolios of our wealth management affiliates, broadly speaking, continue to perform well across their ultra-high net worth client bases.
Looking ahead, AMG is very well positioned for meaningful long-term growth across market environments. Through our unique business model, we're able to offer the focused excellence of alpha-oriented managers alongside the scope and scale of a global asset manager. Our partnership approach and entrepreneurial culture has enabled us to grow into one of the largest and most diverse providers of alpha-oriented strategies in the world. Together with our affiliates, we continue to strategically evolve our product mix to meet the needs of clients and intermediaries for the alpha portions of their portfolios, as well as expand our distribution capabilities in order to deliver these products on a global basis. As Sean mentioned, the progress we're making in Japan is a good example of these evolutions. The products that are proving most attractive in Japan are, in many cases, products our affiliates were not offering five years ago.
Our ability to invest alongside our affiliates in product development and expansion, combined with our ability to invest together in packaging and distribution resources, is critical. We believe there are significant opportunities to bring our affiliates products to new clients and new markets while continuing to increase our market position within existing markets and specifically with pools of capital we're just beginning to work with. As we execute on this, we further enhance our position as the partner of choice to the best boutiques in the world, and the virtuous circle we've talked about continues. With that, let me turn it over to Jay to discuss our financials.
Thank you, Nate. As Sean discussed, our first quarter results reflect strong year-over-year growth across our key performance metrics, including 22% growth in Economic earnings per share. Given the strength and diversity of our affiliates, together with the substantial cash generated by our business, we continue to produce stable and growing earnings across market environments. As you saw in the release, we reported Economic earnings per share of $3.92 for the first quarter, which included net performance fees of $0.40. On a GAAP basis, we reported earnings per share of $2.77. Turning to our performance metrics. For the first quarter, Aggregate Fees, which was previously referred to as Aggregate Revenue, grew 21% to $1.6 billion from a year ago, driven by positive markets, organic growth in alternatives, and a higher level of performance fees.
The ratio of Aggregate Fees to average assets under management increased year-over-year from 73 basis points to 79 basis points, reflecting an increase in performance fees. Adjusted EBITDA grew 18% to $286.5 million from a year ago, reflecting our ownership mix between consolidated and Equity Method affiliates. Economic Net Income grew 18% to $215.2 million from a year ago, while Economic earnings per share grew 22% to $3.92, reflecting a lower year-over-year share count due to repurchase activity. Turning to more specific modeling items for the first quarter, the ratio of Adjusted EBITDA to average assets under management was 13.6 basis points or 12.2 basis points excluding performance fees. Looking ahead, we expect Adjusted EBITDA to average assets under management to be approximately 12.1 basis points in the second quarter, reflecting a performance fee contribution between $0.05 and $0.15 per share.
Our share of interest expense was $21.6 million for the first quarter. In the second quarter, we expect our share of interest expense to be approximately $21 million. Our share of reported amortization and impairments was $47.6 million for the first quarter, including $30 million from affiliates accounted for under the Equity Method. Going forward, we expect our share of reported amortization to average approximately $41 million per quarter for the rest of the year. Turning to taxes. With regard to our tax rate in the first quarter, our effective GAAP tax rate was 28.4%, and our cash tax rate was 22.3%, as we realized performance fees from affiliates that report on a quarter lag, and those performance fees were taxed at the higher 2017 U.S. tax rate of 35% compared to 21%.
Given the impact of the higher effective tax rate in the first quarter, we now expect the full year GAAP tax rate to be approximately 26% and the cash tax rate to be approximately 21%. Intangible related deferred taxes were $13.2 million in the first quarter, and in the second quarter, we expect intangible related deferred taxes to be $12 million. Other economic items were $1.4 million for the quarter. For modeling purposes, we expect other economic items to be approximately $2 million per quarter. Our adjusted weighted average share count for the first quarter was 54.8 million, and we expect it to be approximately 54.4 million for the second quarter, reflecting continued repurchases. In addition, given the impact of the first quarter repurchases, we now expect our weighted average share count for the full year to be 54.2 million. Turning to our balance sheet.
In the first quarter, we paid a $0.30 per share dividend, which was an increase of 50% year-over-year. We repurchased $151 million in shares in the quarter. In the second quarter, we expect repurchases of approximately $150 million. Looking ahead, given our scale, we anticipate continued share repurchases even as we execute new investments. Finally, we refinanced our $385 million term loan in the quarter to lower our cost of capital and extend its maturity. Looking ahead with run rate EBITDA of approximately $1.2 billion, given the significant scale of our business, we are confident in our ability to continue to generate meaningful earnings growth through accretive new investments while also consistently returning capital to shareholders. We'll be happy to answer your questions.
Thank you. At this time, we'll be conducting a question and answer session. If you'd like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate you're aligned within the question queue. You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. In the interest of time, we ask that you limit yourselves to one question and invite you to rejoin the queue. Our first question comes from the line of Chris Shutler with William Blair. Please proceed with your question.
Hey, guys. Good morning.
Good morning.
Maybe just on the deal pipeline, Sean, you sounded a little bit more positive there, I'd say. Is that a fair read thinking out over the next several quarters? How should we be thinking about asset classes, geographies, and scale of potential investments?
Sure. The short answer is yes. We are seeing a definite increase in new investment activity. I would say it's broadly by firm type and geography. While some opportunities are in auction settings, most have come from the relationships we've built over time. In these situations, we know the firms well, and they us, and the transactions occur in a negotiated form, really custom-tailored to the firm's circumstances. We feel very good about the pipeline. I would say, as always, the pacing of transactions, especially negotiated transactions, is hard to gauge. We definitely feel that we're entering a period of elevated activity. I would say, finally, we remain highly selective, of course, but also committed to continuing to repurchase our stock, especially at current valuation levels.
Thank you. Our next question comes from the line of Bill Katz with Citi. Please proceed with your question.
Okay. Thank you very much for taking the question this morning. Maybe one for Nate. Excuse me. Nate, you called out a couple of EM rebalances. I was wondering, it's a two-part question. Can you sort of size that? You used some very strong descriptive language to talk about the pipelines looking to second half of this year. Could you give us a sense of how big that pipeline might be today versus where we were three or six months ago?
Sure. Let me take those in order. On the two EM rebalances that we touched on in the prepared remarks, let me just say a couple things here. Two different affiliates, as I said, in the institutional channel, and these were both kind of very long-tenured investments that had sort of significantly appreciated. Performance was good, and partial redemptions/rebalances is what happened. Each of them was roughly in the kind of billion and a half kind of size range. That's just to size them. That's sort of roughly where they were. In terms of the pipeline's really continue to improve, and I would say significantly improve.
Some of it is, and I touched on this a little bit in the prepared remarks as well, to be clear, some of it is some of these very large mandates that are quite complex and are just honestly taking a little longer to close. Even beyond that, the pipeline is really building, as we said, coming from alternatives, liquids into liquids, as well as in global equities. Global meaning global developed as well as emerging. Yeah, the pipeline's really building well.
Thank you. Our next question comes from the line of Brian Bedell with Deutsche Bank. Please proceed with your question.
Great. Thanks. Good morning. Thanks for the realization disclosures. That's also helpful. Just going back to a couple of maybe different way on the pipeline for global equities. Maybe if you can describe, Nate, your comments on the complexity of that and just the timing of that. I may have written this down wrong, but I thought you said the environment was backed up a little bit slower for global equity. It looked like the actual sales gross number looked actually pretty good. Just trying to get a better flavor of that global equity category going forward, and whether Japan is also part of that or what's the nature of the Japan pipeline.
Yeah. A bunch of questions there. Let me try to make sure I get all of them. On global equity gross sales in the quarter, the gross sale number was good. What I was speaking to there was relative to our expectation given what's in the pipeline, right? Some things did slow down in the quarter. Again, some of that might've been risk aversion, as we said, but some of it is certainly what I'd described as this complexity point. It's manifesting itself in a couple different ways, but I would put them all under the category of there are conversations that are quite large. Some of them are multi-strategy, it's making sure those pieces fit together. Some of them are multi-geography, it's making sure all of the regulatory and legal structuring and stuff all fits together.
There are things building in the pipeline to sort of also address a little bit the last question, there are things building in the pipeline that are quite large and just taking a bit longer to come in. To the Japan question, I think the product set that we're seeing lots of traction with and is moving us forward in the execution phase. We've always talked about having to understand, we have a large number of marketplaces that we're looking at. We talk about the way we think about them top-down in terms of opportunities for focus boutiques and evolutions, bottoms up when we match our product set against them and the traction. We also talk about the pull, where we're being pulled into markets.
We've been having some really increasing success in Japan, some of which is starting to come through, and some of that's a little bit public, but some of it's starting to come through. A lot of it is also building, the product set that we're working with there is really reflective of the product set more broadly, which is it's coming through in the global equities product set, as well as very significantly in alternatives, liquid, and certainly illiquid as well. I hope that I tried to cover most.
Thank you. Our next question comes from the line of Craig Siegenthaler with Credit Suisse. Please proceed with your question.
Hey, good morning.
Good morning, Craig.
My question is on active equities, and maybe it's more of a Nate question, but many of your peers are starting to see an improvement in their active equity flows, and it's not necessarily positive, but really just less bad. I know we didn't see that in your results this quarter, but a quarter is only 90 days. What is your internal view across your 40 affiliates on if we could see better active equity flows, really given the better performance over the last year versus benchmarks?
Yeah. First, I think you hit on just the key point there at the end, which is investment performance. As we described in our prepared remarks, the performance really across the affiliate set, if you look at the placement against benchmarks and peers, the performance, again, it's not every single product and all that, but the performance in the main was really good this quarter. One dimension to it is, as you say, it's just a quarter. One dimension to it is also we may be going through, and we've talked about this for a little while, we may be going through a bit of a regime change here from a monetary policy perspective, which may be making it an environment where active managers can really outperform. I think those things are certainly part of it.
When you look at our flow profile, one way to look at this would be to look at the retail flow. Again, it's just a quarter, but one way to look at this would be to look at the retail flow profile, which really was pretty good. On the institutional side, I think, again, I think the really good progress we're making was impacted by really the two dynamics we mentioned, without which the net number would've been good. The response to an earlier question, the global equity flows from a growth sales standpoint weren't actually that bad, notwithstanding the fact that we see things on the large end building up. This quarter, I think that that number was really just impacted by the two things we highlighted.
Yeah, I would add, Craig, just in a different way, distinguishing us from our peers, we have a much bigger position in alternatives. Deliberately, we've increased over the past five years our asset and earnings contribution from alternatives from 25% to 40%, I would say. We collectively, and certainly some individual affiliates, notably AQR, are real leaders in retail alternative. If you look at the breadth and depth of our alternative product set, we are at the very top of the industry, and we're seeing the benefit of that in some of these large strategic distribution conversations that we've referenced. I think perspectively it will be increasingly important to focus on alternatives as a major category and not just active equities, where obviously we have a strong position, especially in global.
Thank you. Our next question comes from the line of Robert Lee with KBW. Please proceed with your question.
Great. Thanks. Thanks, guys. Thanks for taking my question. Let me talk a little bit about global distribution. I guess one of the things. There are two parts to this. Number one, as you've continued to expand your global distribution, I guess it's been about almost a decade now. Are you starting to see, number one, or maybe keep track of clients that, to what extent have they actually been expanding the number of affiliates that they do business with through your global distribution? I mean, maybe someone started with one and now they're up to three. Maybe, Nate, this goes to some of the more complex multi-asset strategies. Are you guys at a point where you're actually seeing or able to put together mandates that may span multiple affiliates with one big mandate?
Yep. Thanks. Yeah, it's actually been over a decade now. The answer to the first part of the question is absolutely, right? That's always been part of the way we've thought about global distribution, which is, again, working with our affiliates that have their own excellent distribution themselves and building things that knit alongside them. We talk about it, I think I've talked about it on prior calls, is sort of building these exponential growth curves in where we go to a geography and begin building. On the back of that, getting the first mandates and then getting diversity into the mandates, both within a single affiliate that has multi-product capability as well as across affiliates. Absolutely that's happening and happening sort of all over.
While we say, "Hey, we've been doing it for more than a decade," we really did build a kind of step function geography by geography, and the first couple of years in each geography are really quite modest in terms of flows, generally. I think Japan is an exception given the traction we've already got there. Absolutely it's happening, and we're seeing it happen literally everywhere we're working. Some of that is with intermediaries. Some of those intermediaries are themselves global, you're getting that leverage not just within a geography but across geographies as you build relationships with multi-geography intermediaries. On the first part of the question, absolutely. On the second, it's a really interesting topic and I think a source of potential significant future growth.
Although, to date, it's much more of a coordination role rather than us really combining multi-affiliate capabilities into a single product that we then deliver. It is something we have done in very small ways as we learn and grow with that capability, it's not something that we're really doing in scale yet. It is definitely something that could be done.
I would just add that, as we've discussed, and I think our peers mentioned this as well, it's another aspect where scale and breadth of product is becoming increasingly important in the industry, and it plays very much to our strength.
Thank you. Our next question comes from the line of Daniel Fannon with Jefferies. Please proceed with your question.
Thanks. Good morning. I guess, Nate, just another one on institutional and just looking at redemption trends. I get this quarter, the couple of mandates you called out, and obviously redemption trends are also difficult to predict. We're looking at a couple, this is the third quarter in a row of elevated redemptions, and you mentioned risk aversion is something that clients are talking about. I guess just looking ahead, how we should think about redemptions, caveated with the pipeline, all the good things you've been talking about.
Yep. You're right. I do think institutional redemptions did improve quarter-over-quarter, even including the rebalances that I described. I think if you normalize for them, I think it was actually a trend quarter on rebalances, I guess. I'd think about that a little more. Let me caveat it with one other thing, which is I think we obviously have much more visibility on the gross sale side, right, than we do on the rebalances or redemption side. With those caveats, again, I'd come back to the performance point again, which is performance is really good.
That stands to reason that that would improve the redemption trends over time, or maybe even in the short run, to the extent there's something that's close. I would go back to that and say, look, I think the redemption trends, except for those two rebalances, I think were actually not that bad. I think with the really good performance, I would say that should only stand to reason that that would improve.
Thank you. Our next question comes from the line of Michael Carrier with Bank of America Merrill Lynch. Please proceed with your question.
All right. Thanks, guys. Hey, Jay, I know it's early in the year, just given some of the volatility that we saw in the quarter, when you look across all the affiliates' performance, what drives the performance fees? Are we still in the average environment, meaning nothing really got taken down or is really not going to cover up calls relative to where we're typically thinking of expectations for an average year?
Yeah. Thanks, Michael. Well, let me get to performance fees. I'll just give you one other element first, which is just the AUM and sort of tracking that since our last call. You're right, it's been a volatile kind of quarter and year-to-date period. We started the year at $836 billion. When we gave an update on January 29th, which is the time of our last call, we were about $870 billion. Since that call, we finished the quarter at $831 billion, as you can see in the table, which was a decline of about 5% in AUM balances or 1% decrease from the beginning of the year. It wasn't much from the beginning of the year, but it was from the time we gave our last call. Looking into this quarter, though, we're already up about a half a percent as of Friday.
Remarking it up about a half a percent is right. To your performance fee question, I'll hit capital as well. Those are the two other main assumptions that go into models that affect economic earnings per share. You heard Nate say performance and alternative strategies was mixed. In some places, first of all, our affiliates' performance was quite good. The indices themselves were mixed. Some were modestly positive, a few were, or at least the CTAs was down a bit, about 4%. It's still early in the year. We had originally thought we'd be in the low to mid-teens on an average basis for performance fees. We might be slightly below that, kind of 10% to 12%-ish now of percentage of earnings, but not much, but a little bit lower, mainly because of the CTA segment.
Lastly, on capital, as you heard both Sean and I say on the call, or both of us say, we do anticipate repurchasing throughout the year, even in an environment with new investments, and $150 million is expected in the second quarter.
Thank you. Our next question comes from the line of Alex Blostein with Goldman Sachs. Please proceed with your question.
Hey, good morning, guys. Jay, just to follow up, I guess, on your last point around the buybacks. It looks like you guys pulled back a little bit heavier in the beginning of the year versus the second part of the quarter. I guess not to get too specific, but you guys clearly generate a lot of free cash flow. Why not step up the buyback given where the valuation of the stock is?
Just to play all the comments together. We elevated share purchases in the first quarter. They were averaging middle of the quarter, just did a little bit throughout the quarter. That $150 was higher than last year. We still expect to stay at that elevated level in this quarter. As you heard Sean say, we have a good pipeline, a building pipeline, and a strong one. We are mindful of new investments, but we do expect to do both this year as we look to the second half of the year. Finally, we are mindful of our valuation. As Sean said, we are also interested in buying back our shares at this level. $150 million is a reasonable level for us. Can it go higher? Yes. Will we consider it? Yes.
Thank you. Our next question comes from the line of Chris Shutler with William Blair. Please proceed with your question.
Hey, thanks for taking the follow-up. For Jay, on the realizations, you gave the number in the quarter. Can you give us the realization number for calendar 2017 so we can get a better sense of how to think about that? Then global equities have seen, I think, significant outflows, two of the last three quarters. Are those the same clients, same strategies? Just trying to think about risk from here, how many more assets those clients or strategies may still have.
Yes. This is Nate. Let me take the second half of that question. The short answer is no. In terms of the things we called out this quarter on the two EM rebalances, it had no relationship to anything in the prior quarter.
Big clients who have ongoing mandates with those firms and with other affiliates.
Yeah.
On the AUM reporting, just maybe taking a step back because this is new disclosure, it's worth just talking about it a bit. We continue to make incremental improvements in our disclosure. We have over the last several years. We typically try to do that at the beginning of the year just so we can roll it out throughout the year. You do see that we have broken out realizations and distributions net of reinvestments. We've put all three of those in the same line item. I want to make sure that's clear. It has been requested by analysts and investors, and I think some of our peers have broken it out separately. We have pulled that out. This new line item provides transparency into movements that are hardwired as a result of the product features, and they're not client decisions.
That's why we pulled it out. We're not going to do pro forma work on our historical numbers, but it wasn't material to our 2017 numbers. Going forward, we will see a modest amount of realizations and distributions net of reinvestments in those second and third quarter with some seasonality in the fourth quarter.
Thank you. Mr. Healey, there are no further questions at this time. I'll turn the floor back to you for any final comments.
Well, thank you again for joining us this morning. We're pleased with our results for the quarter, confident in our ability to continue to create long-term shareholder value. We look forward to speaking with you in July.
Thank you. This concludes the teleconference. You may disconnect your lines at this time. Thank you for your participation.