AMG, which has been pushing hard into alternative assets like hedge funds and into foreign markets in the last years, also said it has millions on hand to keep making acquisitions.
Investors celebrated the news by sending AMG's stock price up more than 9 percent in trading on the New York Stock Exchange.
AMG would pay $775 million to Russell Investments, a unit of Northwestern Mutual Life Insurance Co NMLIC.UL, to acquire the private equity fund of funds group, which allocates investors assets to a portfolio of private equity funds.
London-based Pantheon oversees roughly $22 billion in assets for pension funds, endowments and governments and will raise Beverly Farms, Massachusetts-based AMG's $231 billion in assets.
AMG's moves come at a time when the money management industry is expected to consolidate even more as some banks are trying to unload their investment management arms.
We continue to see opportunities in boutique firms around the world, AMG CEO Sean Healey told Reuters. We would not hesitate to make additional investments of this size or larger.
The company said it has roughly $300 million available for future purchases and could quickly raise cash if it saw an extremely attractive but more expensive deal on the horizon.
Only two weeks ago, AMG announced plans to make an investment in British fund firm Artemis Investment Management Ltd. In December it announced an investment in Aston Asset Management LLC. In November it said it would take a stake in Value Partners Group Ltd, extending its push into Asia and into hedge funds. And in July it completed its investments in Harding Loevner.
It already owns stakes in investment manager Third Avenue Management, hedge fund firm AQR Capital Management, and other entities.
AMG said the Pantheon deal would help grow revenue this year, allowing the company to raise its earnings forecast for 2010 to $5.75 a share to $6.50 a share from $5.25 to $6.00.
Revenue from Pantheon funds is expected to be strong since investors' cash will be locked up over a dozen years, Healey and other AMG executives told analysts on a conference call.
They also expect that Pantheon will likely see fresh interest from investors in the months ahead, especially in Asia, where many institutional investors have not had big private equity investments.
But as pension funds are forced to quickly make up losses in their portfolios, their appetites for hedge and private equity investments are growing, analysts have said.
AMG said Pantheon management would own a meaningful stake in the business and remain in charge of day-to-day operations, and 21 Pantheon management partners would enter into long-term employment contracts.
AMG said it would use cash and an existing credit facility to fund the purchase. The purchase price may increase, depending on how large Pantheon's business becomes, the company added. It expects to close the transaction in the second quarter.
AMG shares were up 8.79 percent at $67.94 in early afternoon on the New York Stock Exchange.
(Reporting by Svea Herbst and Ross Kerber in Boston and Jonathan Stempel in New York, editing by Maureen Bavdek and Lisa Von Ahn)