|
| | | | | | | | | |
Fund Type | | Number of Funds Offered | | Total Assets | | Advisory Fee Range (1) |
| | | | ($ in millions) | | (%) |
Fixed Income | | 28 |
| | $ | 18,171.9 |
| | 1.85-0.21 |
US Equity | | 23 |
| | 11,370.6 |
| | 1.15-0.40 |
International/Global Equity | | 12 |
| | 11,250.1 |
| | 1.20-0.65 |
Alternatives | | 8 |
| | 1,393.1 |
| | 1.30-0.55 |
Asset Allocation | | 17 |
| | 891.9 |
| | 1.00-0.30 |
Total Open-End Funds | | 88 |
| | $ | 43,077.6 |
| | |
| |
(1) | Percentage of average daily net assets of each fund. The percentages listed represent the range of management advisory fees paid by the funds, from the highest to the lowest. The range indicated includes the impact of breakpoints at which management advisory fees for certain of the funds in each fund type decrease as assets in the funds increase. Subadvisory fees paid on funds managed by unaffiliated subadvisers are not reflected in the percentages listed. |
Closed-End Funds
We managed the following eightOur closed-end funds are offered in a variety of asset classes such as of December 31, 2017,equity, fixed income, multi-asset and alternatives, each of which is traded on the New York Stock Exchange, with total assetsExchange. Summary information about our closed-end funds as of $6.7 billion:
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| | | | | | | | |
Fund Type/Name | Assets | | Advisory Fee | | |
| ($ in millions) | | % | | |
Balanced | | | | | |
DNP Select Income Fund Inc. | $ | 3,824.3 |
| | 0.60-0.50 |
| | (1) |
Virtus Global Dividend & Income Fund Inc. | 439.2 |
| | 0.70 |
| | (2) |
Virtus Total Return Fund | 395.7 |
| | 0.85 |
| | (2) |
Equity | | | | | |
Duff & Phelps Global Utility Income Fund Inc. | 926.9 |
| | 1.00 |
| | (1) |
Alternatives | | | | | |
Duff & Phelps Select Energy MLP Fund | 237.8 |
| | 1.00 |
| | (2) |
Fixed Income | | | | | |
Duff & Phelps Utility and Corporate Bond Trust Inc. | 380.0 |
| | 0.50 |
| | (1) |
Virtus Global Multi-Sector Income Fund | 263.1 |
| | 0.95 |
| | (2) |
DTF Tax-Free Income Inc. | 199.2 |
| | 0.50 |
| | (1) |
Total Closed-End Funds | $ | 6,666.2 |
| | | | |
| |
(1) | Percentage of average weekly net assets. A range indicates that the fund has breakpoints at which management advisory fees decrease as assets in the fund increase. |
| |
(2) | Percentage of average daily net assets of each fund. |
Exchange Traded Funds
We managed the following 12 exchange traded funds with total assets under management of $1.0 billion at December 31, 2017:2023 was as follows: |
| | | | | | | |
Fund Name | Assets | | Advisory Fee (1) | |
| ($ in millions) | | % | |
Infracap MLP ETF | $ | 614.6 |
| | 0.075 |
| |
Virtus Newfleet Multi-Sector Unconstrained Bond ETF | 160.1 |
| | 0.700 |
| |
Virtus Newfleet Dynamic Credit ETF | 105.0 |
| | 0.550 |
| |
Virtus LifeSci Biotech Products ETF | 38.5 |
| | 0.075 |
| |
Virtus LifeSci Biotech Clinical Trials ETF | 31.2 |
| | 0.075 |
| |
Virtus Cumberland Municipal Bond ETF | 22.9 |
| | 0.490 |
| |
InfraCap REIT Preferred ETF | 17.9 |
| | 0.075 |
| |
Virtus Glovista Emerging Markets ETF | 15.0 |
| | 0.680 |
| |
iSectors Post-MPT Growth ETF | 13.6 |
| | 0.125 |
| |
Reaves Utilities ETF | 13.0 |
| | 0.075 |
| |
Virtus WMC Global Factor Opportunities ETF | 5.1 |
| | 0.550 |
| |
Virtus Enhanced Short U.S. Equity ETF | 2.3 |
| | 0.490 |
| |
| $ | 1,039.2 |
| | | |
| | | | | | | | | | | | | | | | | | | | |
Asset Class | | Number of Funds | | Total Assets (in millions) | | Advisory Fee Range % (1) |
| | | | | | |
Multi-Asset | | 5 | | $ | 7,058 | | | 1.00 - 0.50 |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
Fixed Income | | 6 | | 1,572 | | | 1.00 - 0.50 |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
Equity | | 1 | | 826 | | | 1.25 |
| | | | | | |
Alternatives | | 1 | | 570 | | | 1.00 |
| | | | | | |
Total Closed-End Funds | | 13 | | $ | 10,026 | | | |
(1)Percentage of average weekly or daily net assets. The percentages listed represent the range of management advisory fees paid by the funds, from the highest to the lowest. The range indicated includes the impact of breakpoints at which management advisory fees for certain of the funds in each fund type decrease as assets of each fund.in such funds increase. Subadvisory fees paid on funds managed by unaffiliated subadvisers are not reflected in the percentages listed.
Retail Separate Accounts
Intermediary-Sold Managed Accounts
Intermediary-sold managed accounts are individual investment accounts that are primarily contracted through intermediaries as part of investment programs offered to retail investors. At December 31, 2017, the Company had $10.3 billion of intermediary-sold managed accounts
High Net WorthPrivate Client Accounts
High net worthPrivate client accounts are investment accounts offered by our affiliate, Kayne Anderson Rudnick,certain affiliates directly to individual investors. Kayne Anderson Rudnick employs a staff of financial advisors who provideServices provided include wealth advisory and investment advisory services through both affiliated and unaffiliatedthat include third-party investment managers. Asservices.
The following table summarizes our retail separate accounts by asset class as of December 31, 2017, Kayne Anderson managed $3.7 billion2023:
| | | | | | | | | | | | | | |
| | Total Assets |
(in millions) | | Intermediary-Sold Managed Accounts | | Private Client Accounts |
Equity | | | | |
Domestic | | $ | 33,105 | | | $ | 29 | |
International equity | | 81 | | — |
Global equity | | 366 | | | — | |
Specialty equity | | 70 | | | — | |
Fixed Income | | | | |
Leveraged finance | | 1,444 | | | 2 | |
Investment grade | | 196 | | | 298 | |
Multi-Asset (1) | | 175 | | | 7,435 | |
Alternatives | | 1 | | | — | |
| | | | |
| | | | |
Total Retail Separate Accounts | | $ | 35,438 | | | $ | 7,764 | |
(1) For private client accounts, consists of assetsindividual client accounts with substantial holdings in high net worth accounts.at least two of the following asset classes: equity, fixed income, and alternatives.
Institutional Accounts
We offer a variety of equity and fixed income strategies toOur institutional clients includinginclude corporations, multi-employer retirement funds, public employee retirement systems, foundations and endowmentsendowments. We also act as well ascollateral manager for nine collateralized loan obligations ("CLOs"). In addition, we provide subadvisory services to unaffiliated mutual funds. OurSummary information about our institutional assets under management totaled $20.8 billionaccounts as of December 31, 2017.2023 was as follows:
| | | | | | | | |
Asset Class | | Total Assets (in millions) |
Equity | | |
Domestic | | $ | 23,970 | |
International | | 1,610 | |
Global | | 8,271 | |
Fixed Income | | |
Leveraged finance | | 10,303 | |
Investment grade | | 8,923 | |
Alternatives | | 8,926 | |
Multi-Asset | | 966 | |
Total Institutional Accounts | | $ | 62,969 | |
Other Fee Earning Assets
We actOther fee earning assets include assets for which we provide services for an asset-based fee but do not serve as collateral manager for structured finance products, that primarily consist of collateralized loan obligations ("CLOs"). As ofthe investment adviser. Other fee earning assets are not included in our assets under management. At December 31, 2017,2023, we managed $3.3had $2.6 billion in structured finance products.of other fee earning assets.
Our Investment Management, Administration and Shareholder Services
Our investment management, fees, administration fees and shareholder service fees earned in each of the last three years were as follows:
| | | | | | | | | | Years Ended December 31, |
(in thousands) | | (in thousands) | 2023 | | 2022 | | 2021 |
Open-end funds | |
Closed-end funds | |
Retail separate accounts | |
Institutional accounts | |
| Years Ended December 31, |
| 2017 | | 2016 | | 2015 |
($ in thousands) | | | | | |
Investment management fees | | | | | |
Open-end funds | $ | 175,260 |
| | $ | 129,542 |
| | $ | 163,243 |
|
Closed-end funds | 44,687 |
| | 43,342 |
| | 46,328 |
|
Exchange traded funds | 2,315 |
| | 1,273 |
| | 423 |
|
Retail separate accounts | 54,252 |
| | 40,155 |
| | 37,296 |
|
Institutional accounts | 46,600 |
| | 18,707 |
| | 16,643 |
|
Structured products | 6,302 |
| | 2,211 |
| | 932 |
|
Liquidity products | 1,659 |
| | — |
| | — |
|
Total investment management fees | |
| Total investment management fees | |
| Total investment management fees | 331,075 |
| | 235,230 |
| | 264,865 |
|
Administration fees | 34,413 |
| | 26,997 |
| | 33,981 |
|
Shareholder service fees | 14,583 |
| | 11,264 |
| | 14,266 |
|
Total | $ | 380,071 |
| | $ | 273,491 |
| | $ | 313,112 |
|
Investment Management Fees
We provide investment management services through our affiliated investment managers (each an "Adviser") pursuant to investment management agreements throughagreements. For our affiliated investment advisers (each an “Adviser”). With respect to oursponsored funds, the Adviser provides overall management services to a fund, subject to supervision by the fund’s board of directors, pursuant to agreements that must be approved annually by each fund’s board of directors and which may be terminated without penalty upon written notice, or automatically, in certain situations, such as a “change in control” of the Adviser. Wewe earn fees based on each fund’sfund's average daily or weekly net assets with most fee schedules providing for rate declines or “breakpoints”"breakpoints" as asset levels increase to certain thresholds. For funds managed by subadvisers, the agreement provides that the subadviser manage the day-to-day investment management of the fund’sfund's portfolio and receiveis performed by the subadviser, which receives a management fee from the Adviser based on the percentage of average daily net assets in the funds they subadvise or a percentage of the Adviser’s management fee. Each fund bears all expenses associated with its operations. In some cases, to the extent total fund expenses exceed a specified percentage of a fund’sfund's average net assets, the Adviser has agreed to reimburse the funds for suchfund's expenses in excess expenses. For certain of our exchange traded funds managed by unaffiliated subadvisers, the subadviser has agreed to pay the fund’s operating expenses.that level.
For retail separate accounts and institutional accounts, investment management fees are negotiated and based primarily on assetportfolio size portfolioand complexity, and individual client requests.requests and investment strategy capacity, as appropriate. In certain instances, institutional fees may include performance-related fees, generally earned if the returns on the portfolios exceed agreed upon periodic or cumulative return targets, primarily benchmark indices. Fees for structured finance products, for which we act as the collateral manager, consistCLOs are generally
calculated at a contractual fee rate applied against the end of the preceding quarter par value of the total collateral being managed with subordinated fees being recognized only after certain portfolio criteria are met. Incentive fees on certain of our CLOs are typically 20% of the excess cash flows available to holders of the subordinated notes, above a threshold level internal rate of return.managed.
Administration Fees
We provide various administrative fund services to our open-endU.S. retail funds, ETFs and certainthe majority of our closed-end funds. We earn fees based on each fund’sfund's average daily or weekly net assets. These services include: record keeping, preparing and filing documents required to comply with securities laws, legal administration and compliance services, customer service, supervision of the activities of the funds’funds' service providers, tax services and treasury services as well as providing office space, equipment and personnel that may be necessary for managing and administering the business affairs of the funds.
Shareholder Service Fees
We provide shareholder services to our open-end mutualU.S. retail funds. We earn fees based on each fund’sfund's average daily net assets. Shareholder services include maintaining shareholder accounts, processing shareholder transactions, preparing filings and performing necessary reporting, among other things. We engage third-party service providers to perform certain aspects of the shareholder services.
Our Distribution Services
Our products are offered through various retail and institutional distribution channels.
We distribute our open-end
Retail
Our retail distribution resources in the U.S. consist of regional sales professionals, a national account relationship group and specialized teams for retirement and ETFs. Our U.S. retail funds and ETFsretail separate accounts are distributed through financial intermediaries. We have broad distribution access in the U.S. retail market, with distribution partners that include national and regional broker-dealers, independent broker-dealers and independentregistered investment advisers, banks and insurance companies. In many of these firms, we have a number of products that are on preferred or "recommended" lists and on fee-based advisory programs. Our private client business is marketed directly to individual clients by financial advisory firms. Our sales efforts are supported by regional sales professionals, a national account relationship group, and a separate team for retirement and insurance products.
Our retail separate accounts are distributed through financial intermediaries and directly by teams at our affiliated investment managers.
Institutional
Our institutional servicesdistribution resources include affiliate-specific institutional sales teams primarily focused on the U.S. market, supported by shared consultant relations and U.S. and non-U.S. institutional sales distribution. Our institutional products are marketed through relationships with consultants as well as directly to clients. We target key market segments, including foundations and endowments, corporate,corporations, public and private pension plans, sovereign wealth funds and offer subadvisory services to unaffiliated mutual funds.relationships.
Our Broker-Dealer Services
We operate two broker-dealersa broker-dealer that areis registered under the Securities Exchange Act of 1934, as amended (the “Exchange Act”"Exchange Act"), and are membersis a member of the Financial Industry Regulatory Authority (“FINRA”("FINRA"). They serveOur broker-dealer serves as the principal underwritersunderwriter and distributorsdistributor of our open-end mutual funds, provides market advisory services to sponsors of retail separate accounts, and ETFs.is also a program manager and distributor of a qualified tuition plan under Section 529 of the Internal Revenue Code ("529 Plan"). Our broker-dealers arebroker-dealer is subject to, among others, the net capital rule of the Securities and Exchange Commission’s (“SEC”Commission (the "SEC") net capital rule, which is designed to enforce minimum standards regarding the general financial condition and liquidity of broker-dealers.
Open-end mutual fund shares and UCITS fund shares are distributed by VP Distributors, LLC ("VPD") under sales agreements with unaffiliated financial intermediaries. VPD also markets advisory services to sponsors of retail separate accounts. ETF Distributors, LLC (“ETFD”) serves as the principal underwriter and distributor of our ETFs.
Our Competition
We face significant competition from a wide variety of financial institutions, including other investment management companies, as well as from proprietary products offered by our distribution partners such as banks, broker-dealers and financial planning firms. Competition in our businesses is based on several factors, including investment performance, fees charged, access to distribution channels, and service to financial advisersadvisors and their clients. Our competitors, many of which are larger than us, often offer similar products and use similar distribution sources, and may also offer less expensive products, have greater access to key distribution channels and have greater resources than we do.
Our Regulatory Matters
We are subject to regulation by the SEC, FINRA and other federal and state agencies and self-regulatory organizations. Each affiliated manager and unaffiliated subadviser is registered with the SEC under the Investment Advisers Act. Each open-end mutual fund, closed-end fund and ETF is registered with the SEC under the Investment Company Act of 1940 (the “Investment Company Act”). Our UCITs are subject to regulation by the Central Bank of Ireland (“CBI”), and the funds and each investment manager and sub-investment manager to the UCITs are registered with the CBI.
The financial services industry is highly regulated, regulations are complex, and failure to comply with related laws and regulations can result in the revocation of registrations, the imposition of censures or fines and the suspension or expulsion of a firm and/or its employees from the industry. AllWe are subject to regulation by the SEC, other federal and state agencies, certain international regulators, as well as FINRA and other self-regulatory organizations.
Each of our U.S.-domiciled open-endaffiliated investment managers is registered directly and indirectly as an investment adviser with the SEC under the Investment Advisers Act. The Investment Advisers Act imposes numerous obligations on registered investment advisers, including fiduciary duties, compliance and disclosure obligations, and operational and recordkeeping requirements. Certain investment management affiliates are also members of the National Futures Association and are regulated by the U.S. Commodity Futures trading Commission ("CFTC") with respect to the management of funds and other products that utilize futures, swaps, or other CFTC regulated instruments.
Our affiliated investment managers also advise registered and unregistered funds in the U.S. and other jurisdictions and are subject to the regulatory requirements in the jurisdiction where those funds are sponsored or offered, including with respect to mutual funds are currently available-for-sale and are qualifiedclosed end funds in all 50 states, Washington, D.C., Puerto Rico, Guam and the U.S. Virgin Islands. Our Global Funds are sold through financial intermediaries, the Investment Company Act of 1940, as amended (the "Investment Company Act"). The Investment Company Act governs the operations of mutual funds and imposes obligations on their advisers, including investment restrictions and other governance, compliance, reporting and fiduciary obligations with respect to investors who are not citizensthe management of or residentsthose funds.
Affiliated investment managers operating outside of the United States. Most aspectsU.S. are also subject to regulation by various regulatory authorities and exchanges in the relevant jurisdiction. Some of our investment management business, including the business of the unaffiliated subadvisers,affiliates are subject to various U.S. federaldirectives and stateregulations in the European Union and other jurisdictions related to funds, such as the Undertakings for the Collective Investment of Transferable Securities ("UCITS") Directive and the Alternative Investment Fund Managers Directive ("AIFMD"), with respect to depository functions, remuneration policies and sanctions and other matters. Our global funds are registered with and subject to regulation by the Central Bank of Ireland. New regulations or interpretations of existing laws may result in enhanced disclosure obligations. Increased regulations generally increase our costs, and we could continue to experience higher costs if new laws require us to spend more time, hire additional personnel, or purchase new technology to comply effectively.
Our broker-dealer is subject to SEC and FINRA rules and regulations, including extensive regulatory requirements related to sales practices, registration of personnel, compliance and supervision and compensation and disclosure. Sales and marketing activities of investment management services are also subject to regulation by non-U.S. authorities in the jurisdictions in which investment management products and services are offered. The ability to transact business in these jurisdictions and to conduct cross-border activities, is subject to the continuing availability of regulatory authorizations and exemptions. We have distribution teams that operate offices in the United Kingdom and Singapore and are subject to regulation by the Financial Conduct Authority and Monetary Authority of Singapore, respectively.
Due to the extensive laws and regulations.regulations to which we and our investment management affiliates are subject, we and our investment management affiliates must devote substantial time, expense, and effort to remain current on, and to address, legal and regulatory compliance matters. We and our investment management affiliates have established compliance programs to address regulatory compliance and we have experienced legal and compliance professionals in place to address these requirements. We also have established legal and regulatory advisers in each of the countries where we conduct business.
Our officers, directors and employees may, from time to time, own securities that are also held by one or more of our funds. Our internal policies with respectfunds or strategies offered to personal investments are establishedclients. We have adopted a Code of Ethics pursuant to the provisions of the Investment Company Act and/orand the Investment Advisers Act. Employees, officers and directors who, inAct that require the functiondisclosure of their responsibilities to us, meet the requirements of the Investment Company Act, Investment Advisers Act and/or FINRA regulations must disclose personal securities holdings and trading activity.activity by all employees on a quarterly and annual basis. Employees officers and directors with investment discretion or access to investment decisions are subject to additional restrictions with respect to the pre-clearance of the purchase or sale of securities over which they have investment discretion or beneficial interest. OtherOur Code of Ethics also imposes restrictions are imposed upon supervised persons with respect to personal transactions in securities that are held, recently sold, or contemplated for purchase by our mutual funds. All supervised persons are required to report holdingsfunds, and transactions on an annual and quarterly basis pursuant to the provisions of the Investment Company Act and Investment Advisers Act. In addition, certain transactions are restricted so as to avoid the possibility of improper use of information relating to the management of client accounts.
Our Employees
Human Capital
As of December 31, 2017,2023, we had 543 full-time equivalent employees. Noneemployed 824 employees and operated offices throughout the U.S., and in the U.K. and Singapore. We strive to attract and retain talented individuals by creating an environment of excellence and opportunity that serves as a foundation for all employees to reach their potential and make meaningful contributions to the organization.
We offer competitive salaries and a comprehensive suite of benefits, including programs that support wellness, financial security, and professional development. As part of our offerings, we:
▪Regularly assess and benchmark our compensation and benefit practices and conduct internal and external pay comparisons to assist us in ensuring that employees are represented bycompensated fairly, equitably and competitively.
▪Offer career enhancement opportunities to maximize each employee's potential and develop leaders throughout the organization.
▪Provide an education assistance program with tuition reimbursement for employees who wish to continue their education to secure increased responsibility and growth within the organization and in their careers.
▪Offer benefits that promote financial and personal security including comprehensive medical, dental, prescription, disability and life insurance coverages as well as an employee assistance program; company match to employees' 401(k) contributions; and an employee stock purchase plan.
▪Provide wellness programs that include health screenings and wellness earned premium rebates, as well as paid time off for vacation, illness, bereavement, parental and family care leave, and volunteer activities.
We rely upon key personnel to manage our business, including senior executives, portfolio managers, securities analysts, investment advisers, sales personnel and other professionals. The retention of senior executives and key investment personnel is material to the management of our business.
Our value as a union.company derives from the talents and diversity of all employees, and we are committed to creating and maintaining an environment where every employee is treated with dignity and respect. The collective sum of employees' backgrounds, unique skills, and life experiences creates an environment where they and the company can achieve the highest levels of performance. Programs and practices - including those supporting workforce diversity, an inclusive culture, employee involvement in community activities and corporate philanthropy - are designed to help us deliver on our commitment to maintaining an organization that is diverse and inclusive for all employees.
▪As an employer, we prohibit any form of discrimination and have no tolerance for harassment in any form or any behavior that may contribute to a hostile, intimidating, unwelcoming, and/or inaccessible work environment.
▪Collaborative efforts with organizations, institutions, and referral sources support us in identifying diverse talent pools, increasing the diversity of potential candidates, and engaging with employees across the organization to raise the awareness of and advance our inclusion efforts.
▪Community engagement is ingrained into our culture. The Company and employees have supported a wide range of philanthropic activities that help to enrich and sustain the communities in which we have a business presence.
Available Information
Our annual reportsAnnual Reports on Form 10-K, quarterly reportsQuarterly Reports on Form 10-Q, current reportsCurrent Reports on Form 8-K, and all amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, as well as proxy statements, are available free of charge on our website located at www.virtus.com as soon as reasonably practicable after they are filed with, or furnished to, the SEC. You may also read and copy any document we file at the SEC’s Public Reference Room at 100 F Street N.E., Washington, D.C. 20549. Please call 1-800-SEC-0330 for further information on the operation of the Public Reference Room. Reports, proxy statements and other information regarding issuers that file electronically with the SEC, including our filings, are also available to the public on the SEC’sSEC's website at http://www.sec.gov.
A copy of our Corporate Governance Principles,Guidelines, our Code of Conduct and the charters of our Audit Committee, Compensation Committee, Governance Committee and Risk and FinanceGovernance Committee are posted under “Corporate Governance” in the Investor Relations section ofon our website www.virtus.com,at http://ir.virtus.com under "Corporate Governance" and are available in print without charge to any person who requests copies by contacting Investor Relations by email to: investor.relations@virtus.com or by mail to Virtus Investment Partners, Inc., c/o Investor Relations, 100 Pearl Street,One Financial Plaza, Hartford, CT 06103. The Company may use its website as a distribution channel of material company information. Financial and other important information regarding the Company is routinely posted on and accessible through the Company’s website at http://ir.virtus.com. In addition, you may automatically receive email alerts and other information about the Company when you enroll your email address by visiting http://ir.virtus.com. Information contained on the website is not incorporated by reference or otherwise considered part of this document.
This section describes some of the potential risks relating to our business, such as market, liquidity, operational, reputation and regulatory risks.business. The risks described below are some of the more important factors that could affect our business. You should carefully consider the risks described below, together with all of the other information included in this Annual Report on Form 10-K, in evaluating the Company and our common stock. If any of the risks described below actually occur, our business, revenues, profitability, results of operations, financial condition, cash flows, reputation and stock price could be materially adversely affected.
Risks Relating to Our Business
RISKS RELATED TO OUR INDUSTRY, BUSINESS AND OPERATIONS
We earn substantially all of our revenues based on assets under management whichthat fluctuate based on many factors, and any reduction in assets under management would reducenegatively impact our revenues and profitability. Assets under management fluctuate based on many factors including market conditions, investment performance and client withdrawals.
The majority of our revenues are generated from asset-based fees from investment management products and services to individuals and institutions. Therefore, if assets under management decline, our fee revenues would decline, reducing profitability as somecertain of our expenses are fixed.fixed or have contractual terms. Assets under management could decline due to a variety of factors including, but not limited to, the following:
▪General domestic and global economic, political and political conditionspublic health conditions. Capital, equity and credit markets can influence assets under management. experience substantial volatility.Changes in interest rates, the availability and cost of credit, inflation rates, economic uncertainty, changes in laws, trade barriers, commodity prices, currency exchange rates, and controls and national and international political circumstances (including wars, terrorist acts and security operations)conflicts, public health issues and other conditions may impact the capital, equity and credit markets which may influence our assets under management. Capital and credit markets can experience substantial volatility.markets. Employment rates, continued economic weakness and budgetary challenges in parts of the world, the prospective impact of the United Kingdom’s withdrawal from the European Union, regional turmoiluncertainty regarding governmental regulations and international trade policies, conflicts such as in Ukraine and the Middle East, concern over growth prospects in China and emerging markets, and growing debt loads for certain countries and uncertainty about the consequences of governments eventually withdrawing monetary stimulus all indicate that economic and political conditions remain unpredictable. IfThe occurrence of public health issues such as a major epidemic or pandemic that affect public health and public perception of health risk, as well as local, state and/or national government restrictive measures implemented to control such issues, could adversely affect the securityglobal financial markets, decline or experience volatility,our employees and the systems we rely on. Any of the conditions listed herein, among others, may impact our assets under management and our revenues could be negatively impacted. Changes in currency exchange rates such as an increase in the value of the U.S. dollar relative to non-U.S. currencies could result in a decrease in the U.S. dollar value of assets under management that are denominated in non-U.S. currencies. In addition, diminishing investor confidence in the markets and/or adverse market conditions could result in a decrease in investor risk tolerance. Such a decrease could prompt investors to reduce their rate of investment or to fully withdraw from markets, which could lower our overall assets under management and have an adverse effect on our revenues, earnings and growth prospects.
management.
ThePast volatility in the markets in the recent past has highlighted the interconnection of the global economies and markets and has demonstrated how the deteriorating financial condition of one institution may materially adversely impact the performance of other institutions. Our assets under management have exposure to many different industries and counterparties and may be exposed to credit, operational or other risk due to the default by a counterparty or client or in the event of a market failure or disruption. Negative, uncertain or diminishing investor confidence in the markets and/or adverse market conditions could result in a decrease in investor risk tolerance. Such a decrease could prompt investors to reduce their rate of investment or to partially or fully withdraw from markets, which could reduce our overall assets under management and have an adverse effect on our revenues, earnings and growth prospects. In the event of extreme circumstances, including economic, political or business or health crises, such as a widespread systemic failure in the global financial system, or failures of firms that have significant obligations as counterparties, political conflicts or global pandemics, we may suffer significant declines in assets under management and severe liquidity or valuation issues.
The value of assets under management can decline due to price▪Price declines in specificindividual securities, market segments or geographic areas where those assets are invested. Funds and portfoliosareas. Portfolios that we manage that are focused on certain geographic markets andor industry sectors are particularly vulnerable to political, social and economic events in those markets and sectors. If thesethose markets or industries decline or experience volatility, this could have a negative impact on our assets under management and our revenues. For example, certain non-U.S. markets, particularly emerging markets, are not as developed or as efficient as the U.S. financial markets and, as a result, may be less liquid, less regulated and significantly more volatile than the U.S. financial markets. In addition, certain industry sectors can experience significant volatility, such as the technology or oil sector. Liquidity or values in such markets or sectors may be adversely impacted by factors including political or economic events, government policies, expropriation, volume trading limits by foreign investors, and social or civil unrest.unrest, etc. These factors may negatively impact the market value of an investmenta security or our ability to dispose of it.
Any real▪Real or perceived negative absolute or relative performance could negatively impact the maintenance and growth of assets under management.performance. Sales and redemptions of our investment strategies can be affected by investment performance relative to established benchmarks or other competing investment strategies or to established benchmarks.strategies. Our investment management strategies are rated, ranked or assessed by independent third-parties, distribution partners and industry periodicals and services. These assessments often influence the investment decisions of clients. If the performance or assessment of our investment strategies is seen asperceived to be underperforming relative to peers, it could result in an increase in the withdrawal
increased withdrawals of assets by existing clients and the inability to attract additional investments from new and existing clients.
We may engage in significant transactions that may not achieve the anticipated benefits or could expose us to additional or increased risks.
We have executed several inorganic transactions over the past years and new clients. In addition, certainwe regularly evaluate potential transactions, including acquisitions, consolidations, joint ventures, strategic partnerships, or similar transactions, some of our investment strategieswhich could be significant. Our past acquisitions and strategic transactions have capacity constraints, as there isled to a limit to the number of securities available for the strategy to operate effectively. In those instances, we may choose to limit access to new or existing investors. In addition, certain mutual funds employ the use of leverage as part of their investment strategies, which willsignificant increase or decrease assets under management, and the risk associated with the investment, as the proceeds from the use of leverage are invested in accordance with the funds’ investment strategies.
Changes in interest rates can have adverse effects on our assets under management. Increases in interest rates from their historically low levels may adversely affect the net asset values of our assets under management. Furthermore, increases in interest rates may result in reduced prices in equity markets. Conversely, decreases in interest rates could lead to outflows in fixed income assets that we manage as investors seek higher yields. Any of these effects could lower our assets under management and revenuesan expansion of our product and if our revenues decline without a commensurate reductionservice offerings. We cannot provide assurance that we will continue to be successful in our expenses, would lead to a reduction in our net income.
closing on transactions or achieving anticipated financial benefits, including such things as revenue or cost synergies.
Any transaction may also involve a number of these factors could cause our assets under management to decline and have an adverse impactother risks, including additional demands on our resultsstaff, unanticipated problems regarding integration of operationsoperating facilities, technologies and financial condition. Additionallynew employees, and the existence of liabilities or contingencies not disclosed to, or otherwise unknown by, us prior to closing a transaction. In addition, any business we acquire may be unableunderperform relative to effect appropriate expense reductions in a timely manner in response to these adverse impacts.expectations or may lose customers or employees.
Our investment advisorymanagement agreements are subject to withdrawal, renegotiation or termination on short notice, which could negatively impact our business.
Our clients include theour sponsored fund investors, represented by boards of trustees or directors for our sponsored mutual funds,(the "fund boards"), managed account program sponsors, individual private clients, and institutional clients. Our investment management agreements with these clients may be terminated on short notice and without penalty. As a result, there would be little impediment for these clients to these sponsors or clients terminatingterminate our agreements. Our clients may renegotiate their investment contracts, or reduce the assets we manage for them, due to a number of reasons including, but not limited toto: poor investment performance,performance; loss of key investment personnel; a change in the client's or third-party distributors' decision makers; and reputational, regulatory or compliance issues, loss of key investment management or other personnel or a change in management of third-party distributors or others with whom we have relationships.issues. The directors of our sponsored fundsfund boards may deem it to be in the best interests of a fund’sfund's shareholders to make decisions adverse to us, such as reducing the compensation paid to us, requesting that we subsidize fund expenses over certain thresholds, or imposing restrictions on our management of the fund. Under the Investment Company Act, investment advisorymanagement agreements automatically terminate in the event of an assignment, which may occur if, among other events, the Company undergoes a change in control, such as any person acquiring 25% of the voting rights of our common stock. If an assignment were to occur, we cannot be certain that the fund’s board of directorsfunds' boards and its stockholdersshareholders would approve a new investment advisorymanagement agreement. In addition, investment advisorymanagement agreements for the separate accounts we manage may not be assigned without the consent of the client. If an assignment occurs, we cannot be certain that the Company will be able to obtain the necessary fund approvals or the necessary consents from our clients.client consents. The withdrawal, renegotiation or termination of any investment management contractagreement relating to a material portion of assets under management would have an adverse impact on our results of operations and financial condition.
AnyOur business could be harmed by any damage to our reputation could harm our business and lead to a reduction in our revenues and profitability.
Maintaining a positive reputation with existing and potential clients, the investment community and other constituencies is critical to our success. Our reputation is vulnerable to many threats that can be difficult or impossible to control, and costly or impossible to remediate even if they are without merit or satisfactorily addressed. Our reputation may be impacted by many factors including, but not limited to: poor performance; litigation; conflicts of interests; regulatory inquiries, investigations or findings; operational failures (including cyber breaches); intentional or unintentional misrepresentation of our products or services;services by us or our third-party service providers; material weaknesses in our internal controls; or employee misconduct or rumors. Any damage to our reputation could impede our ability to attract and retain clients and key personnel, adversely impact relationships with clients, third-party distributors and other business partners, and lead to a reduction in the amount of our assets under management, any of which could adversely affect our results of operations and financial condition.
Our debt agreements contain covenants, required principal repayments and other provisions that could adversely affect our financial condition or results of operations.
We incur indebtedness for a variety of business reasons, including in relation to financing acquisitions and transactions. The indebtedness we incur can take many forms including, but not limited to, term loans or revolving lines of credit that customarily contain covenants.
At December 31, 2023, we had $258.8 million of total debt outstanding under its credit agreement, excluding debt of consolidated investment products ("CIP"), and had no borrowings outstanding under our $175.0 million revolving credit facility. Under our credit agreement, we are required to use a portion of our cash flow to service interest and make required annual principal payments, which may restrict our cash flow available for other purposes. The credit agreement also contains covenants that may limit our ability to return capital to shareholders. We cannot provide assurances that at all times in the future we will satisfy all such covenants or obtain any required waiver or amendment, in which event all indebtedness could become immediately due. Any or all of the above factors could adversely affect our financial condition or results of operations.
We may need to obtain additional capital that may not be available to us in sufficient amounts or on acceptable terms, which could have an adverse impact on our business.
Our ability to meet our future cash needs is dependent upon our ability to generate or have short-term access to cash. Although we have generated sufficient cash in the past, we may not do so in the future. We had unused capacity under our revolving credit facility of $175.0 million as of December 31, 2023. Our ability to access capital markets efficiently depends on a number of factors, including the state of credit and equity markets, interest rates and credit spreads. At December 31, 2023, we had $258.8 million in debt outstanding, excluding the notes payable of our CIP for which risk of loss to the Company is limited to our $95.5 million investment in such products. (See Note 20 of our consolidated financial statements for additional information on the notes payable of the CIP). We may need to raise capital to fund new business initiatives in the future, and financing may not be available to us in sufficient amounts, on acceptable terms, or at all. If we are unable to access sufficient capital on acceptable terms, our business could be adversely impacted.
Our business relies on the ability to attract and retain key employees, and the loss of such employees could negatively affect our financial performance.
The success of our business is dependent to a large extent on our ability to attract and retain key employees, such as senior executives, portfolio managers, securities analysts and sales personnel. There is significant competition in the job market for these professionals and compensation levels in the industry are highly competitive. Our industry is also characterized by the movement of investment professionals among different firms.
If we are unable to continue to attract and retain key employees, or if compensation costs required to attract and retain key employees increase, our performance, including our competitive position, could be adversely affected. Additionally, we utilize equity awards as part of our compensation plans and as a means for recruiting and retaining key employees. Declines in our stock price would result in deterioration of the value of equity awards granted, thus lessening the effectiveness of using stock-based awards to retain key employees.
In certain circumstances, the departure of key investment personnel could cause higher redemption rates in certain strategies or the loss of certain client accounts. Any inability to retain key employees, attract qualified employees or replace key employees in a timely manner could lead to a reduction in the amount of our assets under management, which would have an adverse effect on our revenues and profitability. In addition, there could be additional costs to replace, retain or attract new talent that could result in a decrease in our profitability and have an adverse impact on our results of operations and financial condition.
We operate in a highly competitive industry that may require us to reduce our fees or increase amounts paid to financial intermediaries, which could result in a reduction of our revenues and profitability.
We face significant competition from a wide variety of financial institutions, including other investment management companies, as well as from proprietary products offered by our distribution partners such as banks, broker-dealers and financial planning firms. Competition in our businesses is based on several factors, including investment performance, fees charged, access to distribution channels and service to financial advisors. Our competitors, many of which are larger, often offer similar products, use the same distribution sources, offer less expensive products, maintain greater access to key distribution channels, and have greater resources, geographic footprints and name recognition. Additionally, certain products and asset classes that we do not currently offer, such as passive or index-based products, are popular with investors. Existing clients may withdraw their assets in order to invest in these products, and we may be unable to attract additional investments from existing and new clients, which would lead to a decline in our assets under management and market share.
Our profits are highly dependent on the fees we earn for our products and services. Competition could cause us to reduce the fees that we charge. If our clients, including our fund boards, were to view our fees as being inappropriately high relative to the market or the returns generated by our investment products, we may choose, or be required, to reduce our fee levels, or we may experience significant redemptions in our assets under management, which could have an adverse impact on our results of operations and financial condition.
We utilize unaffiliated firms to provide investment management services and any matters that adversely impact them or any change in our relationships with them could adversely affect our revenues and profitability.
We utilize unaffiliated subadvisers as investment managers for certain of our retail funds. Because we have no ownership interests in these firms, we do not control their business activities. Problems stemming from the business activities of those firms may negatively impact or disrupt their operations or expose them to disciplinary action or reputational harm. Furthermore, any such matters at these unaffiliated firms may have an adverse impact on our business or reputation or expose us to regulatory scrutiny, including with respect to our oversight of such firms.
We periodically negotiate provisions and renewals of these relationships, and we cannot provide assurance that such terms will remain acceptable to us or the unaffiliated firms. These relationships can also be terminated upon short notice without penalty. In addition, the departure of key employees at unaffiliated subadvisers could cause higher redemption rates for certain assets under management. An interruption or termination of unaffiliated firm relationships could affect our ability to market our products and result in a reduction in assets under management, which would have an adverse impact on our results of operations and financial condition.
We distribute our products through intermediaries and changes in key distribution relationships could reduce our revenues, increase our costs and adversely affect our profitability.
Our primary source of distribution for retail products is through intermediaries that include third-party financial institutions such as: major wire-houses; national, regional and independent broker-dealers and financial advisors; banks and financial planners; and registered investment advisers. We are highly dependent on access to these distribution systems to raise and maintain assets under management. These distributors are generally not contractually required to distribute our products and typically offer their clients various investment products and services, including proprietary products and services, in addition to, and in competition with, our products and services. While we compensate these intermediaries pursuant to contractual agreements, we may not be able to retain access to these channels at all or at similar pricing. Increasing competition for these distribution channels could cause our distribution costs to rise, which could have an adverse effect on our business, revenues and profitability. To the extent that existing or future intermediaries prefer to do business with our competitors, the sales of our products as well as our market share, revenues and profitability could decline.
We and our third-party service providers rely on numerous technology systems and any business interruption, security breach, or system failure could negatively impact our business and profitability.
Our technology systems, and those of third-party service providers, are critical to our operations. The ability to consistently and reliably obtain accurate securities pricing information, process client portfolio and fund shareholder transactions, and provide reports and other services to clients is an essential part of our business. Any delays or inaccuracies in obtaining pricing information, processing such transactions or reports, other breaches and errors, and any inadequacies in other client service could result in reimbursement obligations or other liabilities or alienate clients and potentially give rise to claims against us. Any failure or interruption of third-party systems, whether resulting from technology or infrastructure breakdowns, defects or external causes such as fire, natural disaster, computer viruses, acts of terrorism or power disruptions, or public health events could result in financial loss, negatively impact our reputation and negatively affect our ability to do business. Although we and our third-party service providers have disaster recovery plans in place, we may nonetheless experience interruptions if a natural or man-made disaster or prolonged power outage were to occur, which could have an adverse impact on our business and profitability.
In addition, our computer systems are regularly the target of viruses or other malicious codes, unauthorized access, cyber-attacks or other computer-related penetrations. The sophistication of cyber threats continues to increase, including through the use of "ransomware" and phishing attacks, and our controls and the preventative actions we take to reduce the risk of cyber incidents and protect our information systems may be insufficient to detect or prevent unauthorized access, cyber-attacks or other security breaches to our systems or those of third parties with whom we do business. Our third-party service providers' systems may also be affected by, or fail, as a result of, catastrophic events, such as fires, floods, hurricanes and tornadoes. A breach of our systems, or of those of third-party service providers, through cyber-attacks or failure to manage and sufficiently secure our technology environment could result in interruptions or malfunctions in the operations of our business, loss of valuable information, liability for stolen assets or information, remediation costs to repair damage caused by a breach or to recover access to our systems, additional costs to mitigate against future incidents, and litigation
costs resulting from an incident. Any of these conditions could have an adverse impact on our business and profitability.
We and certain of our third-party service providers receive and store personal information as well as non-public business information. Although we and our third-party service providers take precautions, we may still be vulnerable to hacking or other unauthorized use. A breach of the systems or hardware could result in unauthorized access to our proprietary business or client data or release of this type of data, which could subject us to legal liability or regulatory action under data protection and privacy laws, which may result in fines or penalties, the termination of existing client contracts, costly mitigation activities and harm to our reputation. The occurrence of any of these risks could have an adverse impact on our business and profitability.
We have significant capital invested in marketable securities, which exposes us to earnings volatility as the value of these investments fluctuate, as well as risk of capital loss.
We use capital to incubate new investment strategies, introduce new products or to enhance distribution access of existing products. At December 31, 2023, we had $275.6 million of such investments, comprising $180.1 million of marketable securities and $95.5 million of net investments in CLOs. These investments are in a variety of asset classes, including alternatives, fixed income and equity strategies and first-loss tranches of CLO equity. Many of these investments employ a long-term investment strategy with an optimal investment period spanning several years. Accordingly, during this investment period, the capital held in these investments may not be available for other corporate purposes without significantly diminishing our investment return. We cannot provide assurance that these investments will perform as expected. Increases or decreases in the value of these investments could increase the volatility of our earnings, and an other-than-temporary or permanent decline in the value of these investments could result in the loss of capital and have an adverse impact on our results of operations and financial condition.
LEGAL AND REGULATORY RISKS
We are subject to an extensive and complex regulatory environment and changes in regulations or failure to comply with them could adversely affect our revenues and profitability.
The investment management industry in which we operate is subject to extensive and frequently changing regulation. We are subject to regulation by the SEC, other federal and state agencies, certain international regulators, as well as FINRA and other self-regulatory organizations. Each of our affiliated investment managers and unaffiliated subadvisers is registered with the SEC under the Investment Advisers Act. There are various regulatory reform initiatives in the U.S. and other jurisdictions and new regulations or interpretations of existing laws may result in enhanced disclosure obligations which could negatively affect us or materially increase our regulatory burden. Increased regulations generally increase our costs, and we could continue to experience higher costs if new laws require us to spend more time, hire additional personnel, or purchase new technology to comply effectively.
Although we spend extensive time and resources to ensure compliance with all applicable laws and regulations, if we fail to properly adhere to our policies or modify and update our compliance procedures in a timely manner in this changing and highly complex regulatory environment, we may be subject to various legal proceedings, including civil litigation, governmental investigations and enforcement actions that could result in fines, penalties, suspensions of individual employees, or limitations on particular business activities, any of which could have an adverse impact on our revenues and profitability.
We manage client assets under agreements that have investment guidelines or other contractual requirements and any failure to comply could result in claims, losses, or regulatory sanctions, which could negatively impact our revenues and profitability.
The agreements under which we manage client assets often have established investment guidelines or other contractual requirements with which we are required to comply in providing our investment management services. Although we maintain various compliance procedures and other controls to prevent, detect and correct such errors, any failure or allegation of a failure to comply with these guidelines or other requirement could result in client claims, reputational damage, withdrawal of assets and potential regulatory sanctions, any of which could have an adverse impact on our results of operations and financial condition.
Our indebtedness contains covenants that require annual principal repayments and other provisions that could adversely affect our financial position or results of operations
We incur indebtedness for a variety of business reasons, including in relation to financing acquisitions. The indebtedness we incur can take many forms including but not limited to term loans or revolving lines of credit which customarily contain covenants. For example, under our Credit Agreement, we are required to use a portion of our cash flow to service interest and make required annual principal payments, which will restrict our cash flow available to pursue business growth opportunities. The Credit Agreement also contains covenants that limit our ability to return capital to shareholders. In addition, our indebtedness may make it more difficult for us to withstand or respond to adverse or changing business, regulatory and economic conditions.
At December 31, 2017, the Company had $259.4 million of total debt outstanding, excluding debt of consolidated investment products, and $100.0 million in unused capacity on a credit facility. On February 15, 2018, the Company amended its Credit Agreement, which resulted in the availability of $105.0 million of additional term loan financing and is expected to be drawn at the closing of our acquisition of a majority interest in Sustainable Growth Advisers LLC ("SGA"), although there can be no assurances the SGA transaction will close. The amendment to the Credit Agreement removed the previous financial maintenance covenant on the Term Loan and replaced the existing financial maintenance covenant on our credit facility with a net leverage ratio financial maintenance covenant that applies when $30.0 million or more of debt is outstanding on the credit facility. We cannot provide assurances that at all times in the future we will satisfy all such covenants or obtain any required waiver or amendment, in which event all indebtedness could become immediately due. Any or all of the above factors could materially adversely affect our financial position or results of operations.
Our business relies on the ability to attract and retain key employees, and the loss of such employees could negatively affect our financial performance.
The success of our business is dependent to a large extent on our ability to attract and retain key employees such as senior executives, portfolio managers, securities analysts and sales personnel. Competition in the job market for these professionals is generally intense, and compensation levels in the industry are highly competitive. Our industry is also characterized by the movement of investment managers among different firms.
If we are unable to continue to attract and retain key employees, or if compensation costs required to attract and retain key employees increase, our performance, including our competitive position, could be materially adversely affected. Additionally, we utilize Company equity awards as part of our compensation plans and as a means for recruiting and retaining key employees. Declines in our stock price could result in deterioration of the value of equity awards granted, thus lessening the effectiveness of using stock-based awards to retain key employees.
In certain circumstances, the departure of key employees could cause higher redemption rates in certain strategies or the loss of certain client accounts. Any inability to retain key employees, attract qualified employees, or replace key employees in a timely manner, could lead to a reduction in the amount of our assets under management, which could have a material adverse effect on our revenues and profitability. In addition, there could be additional costs to replace, retain or attract new talent that could result in a decrease in our profitability and have an adverse impact on our results of operations and financial condition.
The highly competitive nature of the asset management industry may require us to reduce our fees, or increase amounts paid to financial intermediaries, any of which could result in a reduction of our revenues and profitability.
We face significant competition from a wide variety of financial institutions, including other investment management companies, as well as from proprietary products offered by our distribution partners such as banks, broker-dealers and financial planning firms. Competition in our businesses is based on several factors including investment performance, fees charged, access to distribution channels, and service to financial advisers. Our competitors, many of which are larger than we are, often offer similar products, use similar distribution sources, offer less expensive products, have greater access to key distribution channels, and have greater resources, geographic footprints and name recognition than we do. Additionally, certain products and asset classes which we do not currently offer, such as passive or index-based products, are becoming increasingly popular
with investors. Existing clients may withdraw their assets in order to invest in these products, and we may be unable to attract additional investments from existing and new clients, which would lead to a decline in our assets under management and market share.
Our profits are highly dependent on the fee levels for our products and services. In recent years, there has been a trend in certain segments of our markets toward lower fees and lower-fee products, such as passive products. Competition could cause us to reduce the fees that we charge for our products and services. In order to maintain appropriate fee levels in a competitive environment, we must be able to continue to provide clients with investment products and services that are viewed as appropriate in relation to the fees charged. If our clients, including our fund boards, were to view our fees as being high relative to the market or the returns provided by our investment products, we may choose or be required to reduce our fee levels or we may experience significant redemptions in our assets under management, which could have an adverse impact on our results of operations and financial condition.
We are subject to an extensive and complex regulatory environment, and changes in regulations or failure to comply with regulations could adversely affect our revenues and profitability.
The investment management industry in which we operate is subject to extensive and frequently changing regulation. We are regulated by the Securities and Exchange Commission ("SEC") under the Exchange Act, the Investment Company Act and the Investment Advisers Act, and we are subject to regulation by the Commodities Futures Trading Commission under the Commodities Exchange Act. Our Global Funds and advisers are subject to regulation by the CBI. We are also regulated by FINRA, the Department of Labor under the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), as well as other federal and state laws and regulations.
The regulatory environment in which we operate changes often and has seen increased focus in recent years. For example, in fiscal 2016 the SEC adopted a new rule addressing liquidity risk management by registered open-end funds, with implementation of the rule expected in 2018. The SEC also recently proposed rules regarding the use of derivatives by registered open- and closed-end funds. If the liquidity risk management rule is implemented in its current form and the use of derivatives rules are adopted substantially as proposed, they could negatively impact the provision of investment services or limit opportunities for certain funds that we manage and increase our management and administration costs, with potential adverse effects on our revenues, expenses and results of operations.
Although we spend extensive time and resources on compliance efforts designed to ensure compliance with all applicable laws and regulations, if we or our affiliates fail to properly modify and update our compliance procedures in a timely manner in this changing and highly complex regulatory environment, we may be subject to various legal proceedings, including civil litigation, governmental investigations and enforcement actions, that could result in fines, penalties, suspensions of individual employees, or limitations on particular business activities, any of which could have an adverse impact on our results of operations and financial condition.
Changes in tax laws and unanticipated tax obligations could have an adverse impact on our financial condition, results of operations and cash flow.
We are subject to federal and state income taxes in the United States. Tax authorities may disagree with certain positions we have taken or implement changes in tax policy, which may result in the assessment of additional taxes. We regularly assess the appropriateness of our tax positions and reporting. We cannot provide assurance, however, that we will accurately predict the outcomes of audits, and the actual outcomes of these audits could be unfavorable. In addition, our ability to use net operating loss carryforwards and other tax attributes available to us will be dependent on our ability to generate taxable income.
We utilize unaffiliated firms in providing investment management services, and any matters that have an adverse impact on their business, or any change in our relationships with them, could lead to a reduction in assets under management, which would adversely affect our revenues and profitability.
We utilize unaffiliated subadvisers as investment managers for certain of our retail products, and we have licensing arrangements with unaffiliated data providers. Because we typically have no ownership interests in these unaffiliated firms, we do not control the business activities of such firms. Problems stemming from the business activities of these unaffiliated firms may negatively impact or disrupt such firms’ operations or expose them to disciplinary action or reputational harm. Furthermore, any such matters at these unaffiliated firms may have an adverse impact on our business or reputation or expose us to regulatory scrutiny, including with respect to our oversight of such firms.
We periodically negotiate provisions and renewals of these relationships, and we cannot provide assurance that such terms will remain acceptable to us or the unaffiliated firms. These relationships can also be terminated upon short notice without penalty. In addition, the departure of key employees at unaffiliated subadvisers or data providers could cause higher redemption rates for certain assets under management or the loss of certain client accounts. An interruption or termination of unaffiliated
firm relationships could affect our ability to market our products and result in a reduction in assets under management, which could have an adverse impact on our results of operations and financial condition.
We distribute through intermediaries, and changes in key distribution relationships could reduce our revenues, increase our costs and adversely affect our profitability.
Our primary source of distribution for retail products is through intermediaries that include third-party financial institutions, such as: major wire houses; national, regional and independent broker-dealers and financial advisors; banks and financial planners; and registered investment advisors. Our success is highly dependent on access to these various distribution systems. These distributors are generally not contractually required to distribute our products and typically offer their clients various investment products and services, including proprietary products and services, in addition to and in competition with our products and services. While we compensate these intermediaries for selling our products and services pursuant to contractual agreements, we may not be able to retain access to these channels at all or at similar pricing. Increasing competition for these distribution channels could cause our distribution costs to rise, which could have a material adverse effect on our business, revenues and profitability. To the extent that existing or future intermediaries prefer to do business with our competitors, the sales of our products as well as our market share, revenues and profitability could decline.
We and our third-party service providers rely on numerous technology systems, and any temporary business interruption, security breach or system failures could negatively impact our business and profitability.
Our technology systems, and those of third-party service providers are critical to our operations. The ability to consistently and reliably obtain accurate securities pricing information, process client portfolio and fund shareholder transactions, and provide reports and other customer service to fund shareholders and clients in other accounts managed by us is an essential part of our business. Any delays or inaccuracies in obtaining pricing information, processing such transactions or such reports, other breaches and errors, and any inadequacies in other customer service could result in reimbursement obligations or other liabilities or alienate customers and potentially give rise to claims against us. Our customer service capability, as well as our ability to obtain prompt and accurate securities pricing information and to process transactions and reports, is highly dependent on third-party service providers’ information systems. Any failure or interruption of those systems, whether resulting from technology or infrastructure breakdowns, defects or external causes such as fire, natural disaster, computer viruses, acts of terrorism or power disruptions, could result in financial loss, negatively impact our reputation and negatively affect our ability to do business. Although we, and our third-party service providers, have disaster recovery plans in place, we may experience temporary interruptions if a natural or man-made disaster or prolonged power outage were to occur, which could have an adverse impact on our results of operations and financial condition.
In addition, like other companies, our computer systems are regularly subject to, and expected to continue to be the target of, computer viruses or other malicious codes, unauthorized access, cyber-attacks or other computer-related penetrations. Over time, the sophistication of cyber threats continues to increase, and any controls we put in place and preventative actions we take to reduce the risk of cyber incidents and protect our information systems may be insufficient to detect or prevent unauthorized access, cyber-attacks or other security breaches to our computer systems or those of third parties with whom we do business. Breach of our technology systems, or of those of third parties with whom we do business through cyber-attacks, or failure to manage and secure our technology environment could result in interruptions or malfunctions in the operations of our business, loss of valuable information, liability for stolen assets or information, remediation costs to repair damage caused by a breach, additional costs to mitigate against future incidents, and litigation costs resulting from an incident.
We and certain of our third-party vendors receive and store personal information as well as non-public business information. Although we and our third-party vendors take precautions, we may still be vulnerable to hacking or other unauthorized use. A breach of the systems or hardware could result in an unauthorized access to our proprietary business or client data or release of this type of data, which could subject us to legal liability or regulatory action under data protection and privacy laws, which may result in fines or penalties, the termination of existing client contracts, costly mitigation activities and harm to our reputation. This could have an adverse impact on our results of operations and financial condition.
A relatively large percentage of our common stock is concentrated with a small number of shareholders, which could increase the volatility in our stock trading and affect our share price.
A large percentage of our common stock is held by a limited number of shareholders. If our larger shareholders decide to liquidate their positions, it could cause significant fluctuation in the share price of our common stock. Public companies with a relatively concentrated level of institutional shareholders, such as we have, often have difficulty generating trading volume in their stock, which may increase the volatility in the price of our common stock.
Civil litigation and government investigations or proceedings, which could adversely affect our business.
Many aspects of our business involve substantial risks of liability, and there have been substantial incidences of litigation and regulatory investigations in the financial services industry in recent years, including customer claims as well as class action suits seeking substantial damages. From time to time, we and/or our sponsored funds may be named as defendants or co-defendants in lawsuits or be involved in disputes that involve the threat of lawsuits seeking substantial
damages. We and/or our sponsored funds are also involved from time to time in governmental and self-regulatory organization investigations and proceedings. For example, in fiscal 2015, two putative class action complaints were filed against us and certain of our officers and affiliates, alleging violation of certain provisions of federal securities laws. See(See Item 3. Legal Proceedings"Legal Proceedings" for further description of these class action complaints.information.)
Any of these lawsuits, investigations or proceedings could result in reputational damage, loss of clients and assets, settlements, awards, injunctions, fines, penalties, increased costs and expenses in resolving a claim, diversion of employee resources and resultant financial losses. Predicting the outcome of such matters is inherently difficult, particularly where claims are brought on behalf of various classes of claimants or by a large number of claimants, when claimants seek substantial or unspecified damages, or when investigations or legal proceedings are at an early stage. A substantial judgment, settlement, fine or penalty could be material to our operating results or cash flows for a particular period, depending on our results for that period, or could cause us significant reputational harm, which could harm our business prospects.
We depend to a large extent on our business relationships and our reputation to attract and retain clients. As a result, allegations of improper conduct by private litigants, including investors in our funds, or regulators, whether the ultimate outcome is favorable or unfavorable to us, as well as negative publicity and press speculation about us, our investment activities or the asset management industry in general, whether or not valid, may harm our reputation, which may be more damaging to our business than to other types of businesses.reputation. We may incur substantial legal expenses in defending against proceedings commenced by a client, regulatory authority or other private litigant. Substantial legal liability levied on us could cause significant reputational harm and have an adverse impact on our results of operations and financial condition.
We have a significant portion of our assets investedare subject to multiple tax jurisdictions and any changes in marketable securities which exposes us to earnings volatility, as the value of these investments fluctuate, as well as risk of capital loss.
We use capital to seed new investment strategies and make new investments to introduce new productstax laws or enhance distribution access of existing products. At December 31, 2017, the Company had $118.4 million of seed capital investments, comprising $62.7 million of marketable securities and $55.7 million of net interests in consolidated investment products (“CIPs”), and $108.3 million of investments in CLOs that comprise $85.0 million of net interests in CIPs and $23.3 million of marketable securities. These investments are in a variety of asset classes including alternative, fixed income and equity strategies. Many of these investments employ a long-term investment strategy and entail an optimal investment period spanning several years. Accordingly, during this investment period, the Company’s capital utilized in these investments may not be available for other corporate purposes at all or without significantly diminishing our investment return. We cannot provide assurance that these investments will perform as expected. Moreover, increases or decreases in the value of these investments will increase the volatility of our earnings, and a decline in the value of these investments would result in the loss of capital andunanticipated tax obligations could have an adverse impact on our financial condition, results of operations and cash flow.
We are subject to income as well as non-income-based taxes and are subject to ongoing tax audits, in various jurisdictions in which we operate. Tax authorities may disagree with certain positions we have taken that may result in the assessment of additional taxes. We regularly assess the appropriateness of our tax positions and reporting. We cannot provide assurance that we will accurately predict the outcomes of audits and the actual outcomes of these audits could be unfavorable. Any changes to tax laws could impact our estimated effective tax rate and tax expense and could result in adjustments to our treatment of deferred taxes, including the realization or value thereof, which could have an adverse effect on our business, financial condition.condition and results of operations.
Our intended quarterly distributionsRISKS RELATED TO OWNERSHIP OF OUR COMMON STOCK
We may not be paidpay dividends as intended or at all.all.
The declaration, payment and determination of the amount of our quarterly dividends may change at any time. In making decisions regarding our quarterly dividends, we consider general economic and business conditions as well as our strategic plans and prospects, our businessesbusiness and investment opportunities, our financial condition and operating results, working capital requirements and anticipated cash needs, contractual and regulatory restrictions (including under the terms of our Credit Agreement and the Mandatory Convertible Preferred Stock that we issued on February 1, 2017) and obligations, legal, tax, regulatorycredit agreement) and other restrictionsobligations, that may have implications on the payment of distributions by us to our shareholders or by our subsidiaries to us, and such other factors as we may deem relevant. Our ability to pay or increase our dividends in excess of our current quarterly dividends ismaybe subject to restrictions under the terms of our Credit Agreement.credit agreement. We cannot make any assurances that any distributionsdividends, whether quarterly or otherwise, will continue to be paid.
We may need to raise additional capitalpaid in the future, and resources may not be available to us in sufficient amounts or on acceptable terms, which could have an adverse impact on our business.future.
Our ability to meet our future cash needs is dependent upon our ability to generate cash. Although we have successfully generated sufficient cash in the past, we may not do so in the future. As of December 31, 2017, we maintained $132.2 million in cash and cash equivalents, $118.4 million in seed capital investments and $108.3 million in other investments and had $100.0 million available under our credit facility. Also at December 31, 2017 we had $259.4 million in debt outstanding excluding the notes payable of our consolidated investment products for which risk of loss to the Company is limited to our $85.0 million investment in such products. See Footnote 18 of our consolidated financial statements for additional information on the notes payable of the consolidated investment products. Our ability to access capital markets efficiently depends on a number of factors, including the state of credit and equity markets, interest rates and credit spreads. We may need to raise capital to fund new business initiatives in the future, and financing may not be available to us in sufficient amounts, on acceptable terms, or at all. If we are unable to access sufficient capital on acceptable terms, our business could be adversely impacted.
Our common stock ranks junior to the Mandatory Convertible Preferred Stock with respect to dividends and amounts payable in the event of our liquidation and ranks junior to our indebtedness which may limit any payment or other distribution of assets to holders of our common stock in the event we are liquidated.
Our common stock ranks junior to the Mandatory Convertible Preferred Stock, with respect to the payment of dividends and amounts payable in the event of our liquidation, dissolution or winding-up. This means that, unless accumulated dividends have been paid or set aside for payment on all outstanding Mandatory Convertible Preferred Stock for all completed dividend periods, no dividends may be declared or paid on our common stock. Likewise, in the event of our voluntary or involuntary liquidation, dissolution or winding-up, no distribution of our assets may be made to holders of our common stock until we have paid to holders of the Mandatory Convertible Preferred Stock a liquidation preference equal to $100.00 per share plus accrued and unpaid dividends (whether or not declared).
Additionally, in the event of our liquidation, dissolution or winding up, our common stock would rank below all debt claims against us. As a result, holders of our common stock will not be entitled to receive any payment or other distribution of assets until after all of our obligations to our debt holders have been satisfied.
We have corporate governance provisions that may make an acquisition of us more difficult.
Certain provisions of our certificate of incorporation and bylaws could discourage, delay or prevent a merger, acquisition or other change in control that stockholders may consider favorable, including transactions inby which stockholders might otherwise receive a premium for their shares. These provisions also could limit the price that investors might be willing to pay in the future for shares of our common stock, thereby depressing the market price of our common stock. Stockholders who wish to participate in these transactions may not have the opportunity to do so. In addition, the provisions of Section 203 of the Delaware General Corporation Law also restrict certain business combinations with interested stockholders.
GENERAL RISK FACTORS
Our insurance policies may not cover all losses and costs to which we may be exposed.exposed, which could adversely impact our results of operations and financial condition.
We carry insurance in amounts and under terms that we believe are appropriate. Our insurance may not cover all liabilities and losses to which we may be exposed. Certain insurance coverage may not be available or may be prohibitively expensive in future periods. As our insurance policies come up for renewal, we may need to assume higher deductibles or pay higher premiums, which could have an adverse impact on our results of operations and financial condition.
We have goodwill and other intangible assets on our balance which could become impaired.
Our goodwill and intangible assets are subject to annual impairment reviews. We also have definite-lived intangibles assets on our balance sheet that are subject to impairment testing if indicatorscould become impaired, which could impact our results of impairment are identified. Aoperations and financial condition.
As of December 31, 2023, the Company had $829.2 million in intangible assets and goodwill. We cannot be certain that we will realize the value of such intangible assets. Our intangible assets may become impaired as a result of a variety of factors could cause such book values to become impaired, which wouldcould adversely affect our financial condition and results of operations.
We may engage in significant strategic transactions that may not achieve the expected benefits or could expose us to additional risks.
We regularly review, and from time to time have discussions on and engage in, potential significant transactions, including potential acquisitions, consolidations, joint ventures or similar transactions, some of which may be material. We cannot provide assurance that we will be successful in negotiating the required agreements or successfully close transactions after signing such agreements. In addition, in entering into such transactions, we may expect to achieve certain financial benefits, including such things as cost or revenue synergies, and we may not ultimately be able to realize such benefits.
Any strategic transaction may also involve a number of other risks, including additional demands on our staff, unanticipated problems regarding integration of operating facilities, technologies and new employees, and the existence of liabilities or contingencies not disclosed to, or otherwise unknown by, us prior to closing a transaction. In addition, any business we acquire may underperform relative to expectations or may lose customers or employees.
On February 1, 2018, for example, the Company entered into an agreement to acquire a majority interest in SGA, an investment manager specializing in U.S. and global growth equity portfolios. We cannot provide assurance that we will be successful in negotiating the required agreements or successfully close transactions after signing such agreements including the SGA acquisition or any other future strategic transactions.
SPECIAL NOTE ABOUT FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains statements that are, or may be considered to be, forward-looking statements within the meaning of The Private Securities Litigation Reform Act of 1995, as amended, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.amended (the "Exchange Act"). All statements that are not historical facts, including statements about our beliefs or expectations, are forward-looking"forward-looking statements." These statements may be identified by such forward-looking terminology as “expect,” “estimate,”"expect," "estimate," "intent," "plan," “intend,” “believe,” “anticipate,” “may,” “will,” “should,” “could,” “continue,” “project,” “opportunity,” “predict,” “would,” “potential,” “future,” “forecast,” “guarantee,” “assume,” “likely,” “target”"intend," "believe," "anticipate," "may," "will," "should," "could," "continue," "project," "opportunity," "predict," "would," "potential," "future," "forecast," "guarantee," "assume," "likely," "target" or similar statements or variations of such terms.
Our forward-looking statements are based on a series of expectations, assumptions and projections about ourthe Company and the markets in which we operate, are not guarantees of future results or performance, and involve substantial risks and uncertainty, including assumptions and projections concerning our assets under management, net asset inflows and outflows, operating cash flows, business plans and ability to borrow, for all future periods. All of our forward-looking statements contained in this Annual Report on Form 10-K are as of the date of this Annual Report on Form 10-K only.
We can give no assurance that such expectations or forward-looking statements will prove to be correct. Actual results may differ materially. We do not undertake or plan to update or revise any such forward-looking statements to reflect actual results, changes in plans, assumptions, estimates or projections, or other circumstances occurring after the date of this Annual Report on Form 10-K, even if such results, changes or circumstances make it clear that any forward-looking information will not be realized. If there are any future public statements or disclosures by us whichthat modify or impact any of the forward-looking statements contained in or accompanying this Annual Report on Form 10-K, such statements or disclosures will be deemed to modify or supersede such statements in this Annual Report on Form 10-K.
Our business and our forward-looking statements involve substantial known and unknown risks and uncertainties, including those discussed under “Risk Factors,”"Risk Factors" and “Management’s"Management's Discussion and Analysis of Financial Condition and Results of Operations”Operations" in this Annual Report on Form 10-K, as well as the following risks and uncertainties resulting from: (a)(i) any reduction in our assets under management; (b)(ii) inability to achieve the expected benefits of strategic transactions; (iii) withdrawal, renegotiation or termination of investment advisorymanagement agreements; (c)(iv) damage to our reputation; (d)(v) inability to satisfy financial debt covenants and required payments; (vi) inability to attract and retain key personnel; (vii) challenges from competition; (viii) adverse developments related to unaffiliated subadvisers; (ix) negative changes in key distribution relationships; (x) interruptions, breaches, or failures of technology systems; (xi) loss on our investments; (xii) lack of sufficient capital on satisfactory terms; (xiii) adverse regulatory and legal developments; (xiv) failure to comply with investment guidelines or other contractual requirements; (e) inability to satisfy financial covenants and payments related to our indebtedness; (f) the inability to attract and retain key personnel; (g) challenges from the competition we face in our business; (h)(xv) adverse regulatory and legal developments; (i)civil litigation, government investigations, or proceedings; (xvi) unfavorable changes in tax laws or limitations; (j) adverse developments related to unaffiliated subadvisers; (k) negative implications of changes in key distribution relationships; (l) interruptions in or failure to provide critical technological service by us or third parties; (m) volatility associated with our common and preferred stock; (n) adverse civil litigation and government investigations or proceedings; (o) the risk of loss on our investments; (p) the(xvii) inability to make quarterly common and preferred stock distributions; (q) the lack of sufficient capital on satisfactory terms; (r)dividend payments; (xviii) impediments from certain corporate governance provisions; (xix) losses or costs not covered by insurance; (u) the risk that our(xx) impairment of goodwill or other intangible assets could become impaired; (v) the inability to achieve expected acquisition-related financial benefitsassets; and other risks and uncertainties. Any occurrence of, or any material adverse change in, one or more risk factors or risks and uncertainties referred to in this Annual Report on Form 10-K orand our other periodic reports filed with the SEC could materially and adversely affect our operations, financial results, cash flows, prospects and liquidity.
Certain other factors that may impact our continuing operations, prospects, financial results and liquidity, or that may cause actual results to differ from such forward-looking statements, are discussed or included in the Company's periodic reports filed with the SEC and are available on our website at www.virtus.com under "Investor Relations." You are urged to carefully consider all such factors.
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Item 1B. | Unresolved Staff Comments. |
None.
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Item 1C. | |
Item 2. | Properties.Cybersecurity |
Cybersecurity Strategy and Risk Management
We maintain a cybersecurity and information protection program that is supported by policies and procedures designed to protect our systems and assets and the Company’s sensitive or confidential business information, including that entrusted to us by our clients and business partners. Identifying and assessing cybersecurity risk is integrated into our overall enterprise risk management (“ERM”) processes. Our ERM processes consider cybersecurity threat risks alongside other company risks as part of our overall management activities. Cybersecurity risks related to our business are identified and managed though a multi-faceted approach utilizing various systems, controls, and processes.
We maintain a layered security architecture as a key part of our infrastructure design and utilize our employees and managed third-party service providers to help ensure a secure environment and safeguard against a variety of threats including malware, systems intrusions, unauthorized access, data loss and other security risks. We have implemented various technology products and associated procedures, including, among others, the following:
▪Firewall protection, operating system security patches, and multi-factor authentication;
▪System security agent software, which includes encryption, malware protection, patches and virus definitions;
▪Monitoring of computer systems for unauthorized use of or access to sensitive information;
▪Web content filtering;
▪Web and network vulnerability assessments and penetration testing;
▪Monitoring emerging laws and regulations related to data protection and information security;
▪Hosting in-house production systems in geographically dispersed locations that are backed up to alternate locations; and
▪Employee cybersecurity awareness training that includes regular phishing simulations.
As part of the above processes, we engage various professional services firms that use external third-party tools to assess our internal cybersecurity programs and compliance with applicable practices and standards. Our use of these third parties allows us to leverage specialized knowledge, insights and industry best practices.
The Company’s processes to identify material risks from cybersecurity threats associated with our use of third-party service providers are included within our service provider management policy. The policy provides guidelines in performing cyber risk assessments on our critical and material third party service providers during onboarding and periodically thereafter.
The assessment of cybersecurity incidents are integrated as part of the Company's business continuity and disaster recovery program (“BCDR”). Our BCDR includes an incident response protocol that provides a framework for the assessment, response, and recovery phases for any business disruption, including cybersecurity incidents. It also incorporates various event, incident and response teams that comprise the Company's information security, risk management, compliance, legal and other functions as needed in response to any cybersecurity incidents. Our incident response protocol also provides for reporting mechanisms to senior management and our Board of Directors in the event of a material cybersecurity incident.
We have not had a cybersecurity incident that has materially affected, or was reasonably likely to, materially affect, our business strategy, results of operations or financial condition. There are risks from cybersecurity threats that if they were to occur could materially affect our business strategy, results of operations or financial condition which are further discussed in Item 1A. “Risk Factors—Risks Related to our Industry, Business and Operations—We and our third-party service providers rely on numerous technology systems and any business interruption, security breach, or system failure could negatively impact our business and profitability” of this Annual Report on Form 10-K, which should be read in conjunction with the information in this section.
Cybersecurity Governance
Our Board of Directors ("Board") oversees our risk management processes, including our risks from cybersecurity threats. As part of its ongoing responsibilities, the Board receives recurring reports from management on the Company’s cybersecurity risk environment and regularly meets with management to review the risk landscape and discuss the steps taken by management to monitor and mitigate cyber exposures. In addition, from time to time, our Chief Technology Officer and Chief Information Security Officer (“CISO”) brief the Board on the cyber-threat landscape, our information security program and other related information technology topics.
The Company maintains an Enterprise Risk Committee (“ERC”), comprising the Company executives who lead day-to-day risk management, and whose efforts are supplemented by specific risk-related committees or teams. The ERC is a cross-
functional committee that focuses on identifying and managing operational risk throughout the organization, including cybersecurity threats. The ERC has integrated cybersecurity into key elements of the Company’s ERM framework, including our BCDR planning program and service provider management policy, and personnel from our information security, risk management, compliance and legal groups are a part of the assessment and response team for cybersecurity incidents and the evaluation of third-party cybersecurity risk.
Our cybersecurity systems, controls and processes are overseen by our cybersecurity information technology team which is managed by our CISO. Our CISO has over 25 years of experience in the information technology and cybersecurity field and is a Certified Information Systems Security Professional.
We lease our principal offices, which are located at 100 Pearl St.,One Financial Plaza, Hartford, CT 06103. In addition, we lease office space in California, Connecticut, Florida, Georgia, Illinois, Massachusetts, New Jersey, New York, Texas, Singapore and New York.the UK.
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Item 3. | Legal Proceedings. |
The Companyinformation set forth in response to Item 103 of Regulation S-K under "Legal Proceedings" is regularly involved in litigationincorporated by reference from Part II, Item 8. "Financial Statements and arbitration as well as examinations, inquiriesSupplementary Data," Note 12 "Commitments and investigations by various regulatory bodies, including the SEC, involving its compliance with, among other things, securities laws, client investment guidelines, laws governing the activities of broker-dealers and other laws and regulations affecting its products and other activities. Legal and regulatory mattersContingencies" of this nature involve or may involve but are not limited to the Company’s activities as an employer, issuer of securities, investor, investment adviser, broker-dealer or taxpayer. In addition, in the normal course of business, the Company discusses matters with its regulators raised during regulatory examinations or is otherwise subject to their inquiry. These matters could result in censures, fines, penalties or other sanctions.Annual Report on Form 10-K.
The Company accrues for a liability when it is both probable that a liability has been incurred and the amount of the liability can be reasonably estimated. Significant judgment is required in both the determination of probability and the determination as to whether a loss is reasonably estimable. In addition, in the event the Company determines that a loss is not probable, but is reasonably possible, and it becomes possible to develop what the Company believes to be a reasonable range of possible loss, then the Company will include disclosures related to such matter as appropriate and in compliance with ASC 450, Loss Contingencies. The disclosures, accruals or estimates, if any, resulting from the foregoing analysis are reviewed at least quarterly and adjusted to reflect the impact of negotiations, settlements, rulings, advice of legal counsel and other information and events pertaining to a particular matter. Based on information currently available, available insurance coverage and established reserves, the Company believes that the outcomes of its legal and regulatory proceedings are not likely, either individually or in the aggregate, to have a material adverse effect on the Company’s results of operations, cash flows or its consolidated financial condition. However, in the event of unexpected subsequent developments and given the inherent unpredictability of these legal and regulatory matters, the Company can provide no assurance that its assessment of any claim, dispute, regulatory examination or investigation or other legal matter will reflect the ultimate outcome and an adverse outcome in certain matters could, from time to time, have a material adverse effect on the Company’s results of operations or cash flows in particular quarterly or annual periods.
In re Virtus Investment Partners, Inc. Securities Litigation; formerly Tom Cummins v. Virtus Investment Partners Inc. et al
On February 20, 2015, a putative class action complaint alleging violations of certain provisions of the federal securities laws was filed by an individual shareholder against the Company and certain of the Company’s current officers (the “defendants”) in the United States District Court for the Southern District of New York (the “Court”). On April 21, 2015, three plaintiffs, including the original plaintiff, filed motions to be appointed lead plaintiff and, on June 9, 2015, the Court appointed Arkansas Teachers Retirement System lead plaintiff. On August 21, 2015, the plaintiffs filed a Consolidated Class Action Complaint (the “Consolidated Complaint”) amending the originally filed complaint, which was purportedly filed on behalf of all purchasers of the Company’s common stock between January 25, 2013 and May 11, 2015 (the “Class Period”). The Consolidated Complaint alleges that, during the Class Period, the defendants disseminated materially false and misleading statements and concealed material adverse facts relating to certain funds formerly subadvised by F-Squared Investments Inc (“F-Squared”). The Consolidated Complaint alleges claims under Sections 10(b) and 20(a) of the Exchange Act, and Rule 10b-5. The plaintiffs seek to recover unspecified damages. A motion to dismiss the Consolidated Complaint was filed on behalf of the Company and the other defendants on October 21, 2015. On July 1, 2016, the Court entered an opinion and order granting in part, and denying in part, the motion to dismiss, narrowing plaintiffs' claims under Sections 10(b) and 20(a) of the Exchange Act and dismissing one of the defendants from the suit. The remaining defendants' Answer to the Consolidated Complaint was filed on August 5, 2016. Plaintiffs' motion for class certification was granted on May 15, 2017. Discovery has since been completed. On October 6, 2017, defendants moved for summary judgment. Briefing on the motion for summary judgment was completed on December 22, 2017, and oral argument was held on January 18, 2018, where the Court reserved decision. The Company believes that the suit is without merit, nonetheless, on February 6, 2018, it reached an agreement in principle with the plaintiffs, subject to Court approval, settling all claims in the litigation, in order to avoid the cost, distraction, disruption, and inherent litigation uncertainty. Upon approval by the Court, which the Company believes is likely, the resolution of this matter will not have a material impact on the Company’s results of operations, cash flows or its consolidated financial condition.
Mark Youngers v. Virtus Investment Partners, Inc. et al
On May 8, 2015, a putative class action complaint alleging violations of certain provisions of the federal securities laws was filed in the United States District Court for the Central District of California (the "District Court") by an individual who alleges he is a former shareholder of one of the Virtus mutual funds formerly subadvised by F-Squared and formerly known as the AlphaSector Funds. The complaint alleges claims against the Company, certain of the Company’s officers and affiliates, and certain other parties (the “defendants”). The complaint was purportedly filed on behalf of purchasers of the AlphaSector Funds between May 8, 2010 and December 22, 2014, inclusive (the “Class Period”). The complaint alleges that, during the Class Period, the defendants disseminated materially false and misleading statements and concealed or omitted material facts necessary to make the statements made not misleading. On June 7, 2015, a group of three individuals, including the original plaintiff, filed a motion to be appointed lead plaintiff, and on July 27, 2015, the District Court appointed movants as lead plaintiff. On October 1, 2015, the plaintiffs filed a First Amended Class Action Complaint which, among other things, added a derivative claim for breach of fiduciary duty on behalf of Virtus Opportunities Trust. On October 19, 2015, the District Court entered an order transferring the action to the Southern District of New York (the "Court"). On January 4, 2016, the plaintiffs filed a Second Amended Complaint. A motion to dismiss was filed on behalf of the Company and affiliated defendants on February 1, 2016. On July 1, 2016, the Court entered an opinion and order granting in part, and denying in part, the motion to dismiss. The Court dismissed four causes of action entirely and a fifth cause of action with respect to a portion of the Class Period. The Court also dismissed all claims against ten defendants named in the Complaint. The Court held that the plaintiffs may pursue certain securities claims under Sections 10(b) and 20(a) of the Exchange Act and Section 12 of the Securities Act of 1933. The remaining defendants filed an Answer to the Second Amended Complaint on August 5, 2016. A Stipulation of Voluntary Dismissal of the claim under Section 12 of the Securities Act was filed on September 15, 2016. The defendants filed a motion to certify an interlocutory appeal of the July 1, 2016 order to the Court of Appeals for the Second Circuit on August 26, 2016. The motion was denied on January 6, 2017. Plaintiffs' motion for class certification was denied on May 15, 2017. On December 4, 2017, the Court denied plaintiffs' motion seeking leave to amend their complaint to address deficiencies identified by the Court in its orders dismissing, in part, plaintiffs' Second Amended Complaint and denying class certification. On December 22, 2017, plaintiffs voluntarily dismissed all remaining claims against the Company with prejudice and waived all rights to appeal.
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Item 4. | Mine Safety Disclosures. |
Not applicable.
PART II
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Item 5. | Market for Registrant’sRegistrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. |
Our common stock is traded on the NASDAQ Global MarketNew York Stock Exchange under the trading symbol “VRTS.”"VRTS." As of February 14, 2018,9, 2024, we had 7,171,3007,087,728 shares of common stock outstanding that were held by approximately 56,51239,000 holders of record. The table below sets forth the quarterly high and low sales prices of our common stock on the NASDAQ Global Market, and the amount of dividends declared, for each quarter in the last two fiscal years.
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| Year Ended | | Year Ended |
December 31, 2017 | | December 31, 2016 |
Quarter Ended | High | | Low | | Dividends Declared per Common Share | | High | | Low | | Dividends Declared per Common Share |
First Quarter | $ | 126.60 |
| | $ | 99.85 |
| | $ | 0.45 |
| | $ | 120.09 |
| | $ | 73.33 |
| | $ | 0.45 |
|
Second Quarter | $ | 113.50 |
| | $ | 97.60 |
| | $ | 0.45 |
| | $ | 83.57 |
| | $ | 66.12 |
| | $ | 0.45 |
|
Third Quarter | $ | 118.75 |
| | $ | 103.81 |
| | $ | 0.45 |
| | $ | 104.73 |
| | $ | 69.78 |
| | $ | 0.45 |
|
Fourth Quarter | $ | 124.65 |
| | $ | 106.55 |
| | $ | 0.45 |
| | $ | 128.10 |
| | $ | 92.80 |
| | $ | 0.45 |
|
On February 14, 2018, our board of directors declared a quarterly cash dividend of $0.45 per common share to be paid on May 15, 2018 to shareholders of record at the close of business on April 30, 2018 and a $1.8125 dividend per share on our mandatory convertible preferred stock, to be paid on May 1, 2018 to shareholders of record at the close of business on April 16, 2017.
There have been no non-cash dividends on our common stock with respect to the periods presented. In making decisions regarding our quarterly dividend, we consider general economic and business conditions, our strategic plans and prospects, our businesses and investment opportunities, our financial condition and operating results, working capital requirements and anticipated cash needs, contractual restrictions and obligations, legal, tax, regulatory and other restrictions that may have implications on the payment of distributions by us to our common shareholders or by our subsidiaries to us, and such other factors as we may deem relevant. We cannot provide any assurances that any distributions, whether quarterly or otherwise, will continue to be paid.paid in the future.
Our ability
On February 21, 2024, the Company declared a quarterly cash dividend of $1.90 per common share to pay dividends in excessbe paid on May 15, 2024 to shareholders of our current quarterly dividend will be subject to restrictions underrecord at the termsclose of our Credit Agreement. See Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations for further discussion of the mandatory convertible preferred stock that we issued February 1, 2017 and the Credit Agreement entered intobusiness on June 1, 2017, as amended on February 15, 2018.April 30, 2024.
Issuer Purchases of Equity Securities
AsAn aggregate of December 31, 2017, 4,180,0455,680,045 shares of our common stock have been authorized to be repurchased under a share repurchase program since it was initially approved in 2010 by our Board of Directors, and 883,756Directors. As of December 31, 2023, 604,545 shares remainremained available for repurchase. Under the terms of the program, we may repurchase shares of our common stock from time to time at our discretion through open market repurchases, privately negotiated transactions and/or other mechanisms, depending on price, and prevailing market and business conditions.conditions, tax and other financial considerations. The program, which has no specified term, may be suspended or terminated at any time.
During the year ended December 31, 2017,2023, we repurchased a total of 66,244223,807 common shares for approximately $7.5$45.2 million. We did not make anyThe following table sets forth information regarding our share repurchases in each month during the quarter ended December 31, 2023:
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Period | | Total number of shares purchased | | Average price paid per share (1) | | Total number of shares purchased as part of publicly announced plans or programs (2) | | Maximum number of shares that may yet be purchased under the plans or programs (2) |
October 1—31, 2023 | | 2,256 | | | $ | 183.27 | | | 2,256 | | | 700,241 | |
November 1—30, 2023 | | 54,427 | | | $ | 196.51 | | | 54,427 | | | 645,814 | |
December 1—31, 2023 | | 41,269 | | | $ | 215.37 | | | 41,269 | | | 604,545 | |
Total | | 97,952 | | | | | 97,952 | | | |
(1)Average price paid per share is calculated on a settlement basis and excludes commissions and taxes.
(2)The share repurchases were completed pursuant to a program announced in the fourth quarter of fiscal 2017.2010 and most recently increased in May 2022. This repurchase program is not subject to an expiration date.
Unregistered Sales of Equity Securities
There were no unregistered sales of equity securities during the fourth quarter of fiscal 2017.2023. Shares of our common stock purchased by participants in our Employee Stock Purchase Plan were delivered to participant accounts via open market purchases at fair value by the third-party administrator under the plan. We do not reserve shares for this plan or discount the purchase price of the shares.
Stock Performance Graph
Cumulative Total Return Among Virtus, S&P 500 Index and Peer Companies
The following graph compares the cumulative total shareholder return of Virtus since its inception with the performance of the Standard & Poor’s 500 ("S&P 500") Stock Index and a peer group index that consists of several peer companies (referred to as the "Financial Peer Group") as defined below. This graph assumes an equal investment in our common stock, the S&P 500 and the Financial Peer Group on January 2, 2009, reflects reinvested dividends, and is weighted on a market capitalization basis. Each reported data point below represents the last trading day of each calendar year. The
comparisons in the graph below are based upon historical data and are not indicative of, nor intended to forecast, future performance.
Financial Peer Group: Affiliated Managers Group, Inc., AllianceBernstein Holding L.P., Artisan Partners Asset Management Inc.*, BrightSphere Investment Group Inc.*, Cohen & Steers, Inc., Federated Hermes, Inc., Franklin Resources, Inc., Invesco Ltd., Janus Henderson Group Plc*, T. Rowe Price Group, Inc. and Victory Capital Holdings, Inc.*
*Companies excluded from the cumulative total return table due to lack of comparative performance periods.
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Item 6. | Selected Financial Data. |
The following table sets forth our selected consolidated financial and other data at the dates and for the periods indicated. The selected financial data should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the notes thereto appearing elsewhere in this Annual Report on Form 10-K.
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($ in thousands, except per share data) | Years Ended December 31, |
| 2017 (1)(3) | | 2016 (1) | | 2015 (1) | | 2014 (2) | | 2013 (2) |
Results of Operations | | | | | | | | | |
Revenues | $ | 425,607 |
| | $ | 322,554 |
| | $ | 381,977 |
| | $ | 450,598 |
| | $ | 389,215 |
|
Operating expenses | 367,572 |
| | 271,740 |
| | 301,599 |
| | 319,878 |
| | 275,711 |
|
Operating income | 58,035 |
| | 50,814 |
| | 80,378 |
| | 130,720 |
| | 113,504 |
|
Income tax expense (benefit) | 40,490 |
| | 21,044 |
| | 36,972 |
| | 39,349 |
| | 44,778 |
|
Net income | 39,939 |
| | 48,763 |
| | 30,671 |
| | 96,965 |
| | 77,130 |
|
Net income (loss) attributable to common stockholders | 28,676 |
| | 48,502 |
| | 35,106 |
| | 97,700 |
| | 75,190 |
|
Earnings (loss) per share—basic | 4.09 |
| | 6.34 |
| | 3.99 |
| | 10.75 |
| | 9.18 |
|
Earnings (loss) per share—diluted | 3.96 |
| | 6.20 |
| | 3.92 |
| | 10.51 |
| | 8.92 |
|
Cash dividends declared per preferred share | 7.25 |
| | — |
| | — |
| | — |
| | — |
|
Cash dividends declared per common share | 1.80 |
| | 1.80 |
| | 1.80 |
| | 1.35 |
| | — |
|
| As of December 31, |
| 2017 (1)(3) | | 2016 (1) | | 2015 (2) | | 2014 (2) | | 2013 (2) |
Balance Sheet Data | | | | | | | | | |
Cash and cash equivalents | $ | 132,150 |
| | $ | 64,588 |
| | $ | 87,574 |
| | $ | 202,847 |
| | $ | 271,014 |
|
Investments | 108,492 |
| | 89,371 |
| | 56,738 |
| | 63,448 |
| | 37,258 |
|
Investments of consolidated investment products | 1,597,752 |
| | 489,042 |
| | 522,820 |
| | 236,652 |
| | 139,054 |
|
Goodwill and other intangible assets, net | 472,107 |
| | 45,215 |
| | 47,588 |
| | 47,043 |
| | 49,893 |
|
Total assets | 2,590,799 |
| | 824,388 |
| | 859,729 |
| | 698,773 |
| | 644,954 |
|
Accrued compensation and benefits | 86,658 |
| | 47,885 |
| | 49,617 |
| | 54,815 |
| | 53,140 |
|
Debt | 248,320 |
| | 30,000 |
| | — |
| | — |
| | — |
|
Debt of consolidated investment products | — |
| | — |
| | 152,597 |
| | — |
| | — |
|
Notes payable of consolidated investment product | 1,457,435 |
| | 328,761 |
| | — |
| | — |
| | — |
|
Total liabilities | 1,981,397 |
| | 465,449 |
| | 276,408 |
| | 112,350 |
| | 109,900 |
|
Redeemable noncontrolling interests | 4,178 |
| | 37,266 |
| | 73,864 |
| | 23,071 |
| | 42,186 |
|
Mandatory convertible preferred stock | 110,843 |
| | — |
| | — |
| | — |
| | — |
|
Total equity | 605,224 |
| | 321,673 |
| | 509,457 |
| | 563,352 |
| | 492,868 |
|
| As of December 31, |
| 2017 | | 2016 | | 2015 | | 2014 | | 2012 |
($ in millions) | | | | | | | | | |
Assets Under Management | | | | | | | | | |
Total assets under management | $ | 90,963 |
| | $ | 45,366 |
| | $ | 47,385 |
| | $ | 56,702 |
| | $ | 57,740 |
|
Total long-term assets under management | $ | 88,835 |
| | $ | 45,366 |
| | $ | 47,385 |
| | $ | 56,702 |
| | $ | 56,152 |
|
| |
(1) | Derived from audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K. |
| |
(2) | Derived from audited consolidated financial statements not included in this Annual Report on Form 10-K. |
| |
(3) | On June 1, 2017, we completed the acquisition of RidgeWorth Investments. See Item 7. | Management's Discussion and Analysis of Financial Condition and Results of Operations for further discussion of the RidgeWorth acquisition. |
|
| |
Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations. |
Overview
Our Business
We provide investment management and related services to individualsinstitutions and institutions.individuals. We use a multi-manager, multi-style approach, offering investment strategies from affiliated managers, each having its own distinct investment style, autonomous investment process and individual brand.brand, as well as from select unaffiliated managers for certain of our retail funds. By offering a broad array of products, we believe we can appeal to a greater number of investors and have offerings across market cycles and through changes in investor preferences. Our earnings are primarily driven byfrom asset-based fees charged for services relating to these various products, including investment management, fund administration, distribution, and shareholder services.
We offer investment strategies for individualinstitutional and institutionalindividual investors in different product structuresinvestment products and through multiple distribution channels. Our investment strategies are available in a diverse range of styles and disciplines, managed by a collection of differentiated investment managers. We have offerings in various asset classes (domestic and international equity,(equity, fixed income, multi-asset and alternative)alternatives), geographies (domestic, global, international and emerging), market capitalizations (large, mid and small), styles (growth, blendcore and value) and investment approaches (fundamental quantitative and thematic)quantitative). Our retailinstitutional products are offered through institutional separate accounts and commingled accounts, including structured products to a variety of institutional clients. Our products include open-end funds, and ETFs, where we also use unaffiliated managers, as well as closed-end funds and retail separate accounts. Our institutional products include a variety of equity and fixed income strategies for corporations, multi-employer retirement funds, public employee retirement systems, foundations, and endowments. We also offerprovide subadvisory services for unaffiliated mutual funds and collateral manager services for structured finance products.to other investment advisers.
We distribute our open-end funds and ETFs principally through financial intermediaries. We have broad distribution access in the retail market, with distribution partners that include national and regional broker-dealers, independent broker-dealers and registered investment advisors, banks and insurance companies. In many of these firms, we have a number of products that are on preferred “recommended” lists and on fee-based advisory programs. Our sales efforts are supported by regional sales professionals, a national account relationship group, and separate teams for ETFs and the retirement and insurance channels. Our retail separate accounts are distributed through financial intermediaries and directly by teams at an affiliated manager.
Our institutional servicesdistribution resources include affiliate-specific sales teams primarily focused on the U.S. market, supported by shared consultant relations and U.S. and non-U.S. institutional sales distribution. Our institutional products are marketed through relationships with consultants as well as directly to clients. We target key market segments, including foundations and endowments, corporate,corporations, public and private pension plans, sovereign wealth funds and subadvisory relationships.
AcquisitionOur retail distribution resources in the U.S. consist of RidgeWorth
On June 1, 2017,regional sales professionals, a national account relationship group and specialized teams for retirement and ETFs. Our U.S. retail funds and retail separate accounts are distributed through financial intermediaries. We have broad distribution access in the U.S. retail market, with distribution partners that include national and regional broker-dealers, independent broker-dealers and registered investment advisers, banks and insurance companies. In many of these firms, we acquired RidgeWorth Investments (the "Acquisition"),have a multi-boutique investment management firm that managed approximately $40.1 billion in assets as of June 1, 2017, including $35.7 billion in long term assets under management and $4.4 billion in liquidity strategies. The Acquisition significantly increased our assets under management, expanded the number of products that are on preferred "recommended" lists and on fee-based advisory programs. Our private client business is marketed directly to individual clients by financial advisory teams at our affiliated managers and provided a wider range of strategies for institutional and individual investors and broader distribution and client service resources.investment managers.
Total consideration for the Acquisition was $547.1 million, comprising $485.2 million for the business and $61.9 million for certain balance sheet investments. At closing, we paid $471.4 million in cash, issued 213,669 shares of our common stock with a value of $21.7 million, and recorded $2.3 million in deferred cash consideration and $51.7 million in contingent consideration, which was paid in the fourth quarter of 2017 after all transaction contingencies were met.
Market Developments
The U.S. and global equity markets increased in value in 2017, as evidenced by increases in major indices. The MSCI World Index ended the year at 2,103, up 20.0% from 1,753 at the start of the year. The Dow Jones Industrial Average ended at 24,719, up 25.1% from 19,763 at the beginning of the year, and the Standard & Poor’s 500 Index ended the year at 2,674, up 19.4% from 2,239. The major U.S. bond index, the Barclays U.S. Aggregate Bond Index, increased 3.5% in 2017 ending the year at 2,046 compared to 1,976 at the beginning of the year.
The financial markets have had - and are likely to continue to have - a significant impact on the value of our assets under management and on the level of our sales and net flows. The capital and financial markets could experience fluctuation, volatility and declines, as they have in the past, which could impact investment returns and asset flows amongof our investment productsofferings as
well as in investor choices and preferences among investment products. The changes in our assets under management may also be affected by the factors discussed in Item 1A1A. "Risk Factors" of this Annual Report on Form 10-K “Risk Factors.”10-K.
The U.S. and global equity markets increased in value in 2023, as evidenced by increases in major indices as noted in the following table:
| | | | | | | | | | | | | | | | | | | | |
| | December 31, | | As of Change |
Index | | 2023 | | 2022 | | % |
MSCI World Index | | 3,169 | | | 2,603 | | | 21.7 | % |
Standard & Poor's 500 Index | | 4,770 | | | 3,840 | | | 24.2 | % |
Russell 2000 Index | | 2,027 | | | 1,761 | | | 15.1 | % |
| | | | | | |
| | | | | | |
Morningstar / LSTA Leveraged Loan Index | | 2,721 | | | 2,406 | | | 13.1 | % |
Financial Highlights
▪Net income per diluted share was $3.96$17.71 in 2017, down $2.242023, an increase of $2.21, or 36.1% from $6.20 per diluted share in 2016. Net14.3%, compared to net income per diluted share includes $13.1 million of income tax expense related to new tax legislation and $26.3 million of acquisition and integration costs.
$15.50 in 2022.▪Total sales (inflows) were $15.4$25.9 billion in 2017 compared with $10.92023, a decrease of $4.4 billion, or 14.6%, from $30.3 billion in 2016.2022. Net outflowsflows were $0.2$(7.2) billion in 20172023 compared with $4.7to $(13.4) billion in 2016.2022.
▪Assets under management were $91.0$172.3 billion at December 31, 2017 compared with $45.42023, an increase of $22.9 billion, or 15.3%, from $149.4 billion at December 31, 2016.2022.
AlphaSimplex
On April 1, 2023, the Company completed the acquisition of AlphaSimplex Group, LLC ("AlphaSimplex") for $113.4 million in cash at closing, including $50.0 million drawn from the Company's revolving credit facility, that was repaid as of December 31, 2023.
Assets Under Management
At December 31, 2017,2023, total assets under management were $91.0$172.3 billion, representing an increase of $45.6$22.9 billion, or 100.5%15.3%, from December 31, 2016.2022. The increase was primarily due to the Acquisition, which added $40.1 billion as of June 1, 2017, as well as market appreciation of $9.0 billion, which offset net outflows of $0.2 billion. Long-term assets under management, which exclude liquidity strategies, were $88.8 billion at December 31, 2017, up 95.6% from $45.4 billion at the end of the prior year.
Average long-term assets under management, which exclude assetschange in liquidity strategies and represent our fee-earning assets, were $72.3 billion for the twelve months ended December 31, 2017, an increase of $27.0 billion, or 59.5%, from $45.3 billion for the twelve months ended December 31, 2016. The one-year increase in long-term average assets under management was primarily due to the Acquisition and the cumulative impact of market appreciation.
Certain mutual funds employ the use of leverage as part of their investment strategies. The addition or reduction of leverage will increase or decrease our assets under management, as the proceeds from the use of leverage are invested in accordance with the funds' investment strategies. For the periods ended December 31, 2017, 2016 and 2015, we hadtotal assets under management from the use of leverage of $1.9 billion, $1.9 billion and $1.6 billion, respectively, which represented 2.0%, 4.1% and 3.5% of our total assets under management, respectively.
Investment Performance - Open End Funds
The following table presents our open end funds' three-year average return and the corresponding three-year benchmark index return as of December 31, 2017. Also presented with each fund is its Lipper Peer Group2022 included $24.8 billion from positive market performance and its three-year ranking within that peer group.
|
| | | | |
| | | Three-Year: | Three-Year |
| | Benchmark Index | Average Return (1) | Benchmark Index |
Fund Type/Name | Assets | Lipper Peer Group | Peer Group Ranking (2) | Return (3) |
Retail Funds | ($ in millions) | | (%) | (%) |
Alternatives | | | | |
Virtus Duff & Phelps Real Estate Securities Fund | $874.3 | FTSE NAREIT Equity REITs Index | 5.12 | 5.62 |
| | Real Estate Funds | 41 | |
Virtus Duff & Phelps Global Real Estate Securities Fund | 202.6 | FTSE EPRA NAREIT Developed Rental Index | 6.28 | 4.44 |
| | Global Real Estate Funds | 12 | |
Virtus Duff & Phelps Global Infrastructure Fund | 118.6 | Global Infrastructure Linked Benchmark (4) | 5.87 | 4.79 |
| | Global Infrastructure Funds | 35 | |
Virtus Duff & Phelps International Real Estate Securities Fund | 26.6 | FTSE EPRA/NAREIT Developed Rental ex US Index (net) | 7.11 | 5.38 |
| | International Real Estate Funds | 26 | |
Asset Allocation | | | | |
Virtus Strategic Allocation Fund | 477.9 | Strategic Allocation Fund Linked Benchmark (5) | 4.91 | 8.34 |
| | Mixed-Asset Target Allocation Moderate Funds | 79 | |
Virtus Tactical Allocation Fund | 145.7 | Tactical Allocation Fund Linked Benchmark (6) | 5.1 | 8.23 |
| | Mixed-Asset Target Allocation Moderate Funds | 73 | |
Virtus Rampart Multi-Asset Trend Fund | 85.1 | Dow Jones Global Moderate Portfolio Index | 1.41 | 6.99 |
| | Flexible Portfolio Funds | 91 | |
Virtus Herzfeld Fund | 67.7 | 60% MSCI AC World Index (net) / 40% Bloomberg Barclays U.S. Aggregate | 8.75 | 6.57 |
| | Aggregate | 4 | |
Equity | | | | |
Virtus Ceredex Mid-Cap Value Equity Fund | 2,955.3 | Russell Midcap Value Index | 8.05 | 9.00 |
| | Multi-Cap Value Funds | 54 | |
Virtus Ceredex Large-Cap Value Equity Fund | 1,992.1 | Russell 1000 Value Index | 8.57 | 8.65 |
| | Large-Cap Value Funds | 47 | |
Virtus KAR Small-Cap Growth Fund | 1,814.0 | Russell 2000 Growth Index | 20.04 | 10.28 |
| | Small-Cap Growth Funds | 1 | |
Virtus KAR Small-Cap Core Fund | 830.2 | Russell 2000(R) Index | 16.99 | 9.96 |
| | Small-Cap Growth Funds | 2 | |
Virtus Ceredex Small-Cap Value Equity Fund | 814.3 | Russell 2000(R) Value Index | 10.28 | 9.55 |
| | Small-Cap Core Funds | 29 | |
Virtus Rampart Equity Trend Fund | 519.7 | S&P 500(R) Index | 2.21 | 11.41 |
| | Large-Cap Core Funds | 99 | |
Virtus KAR Capital Growth Fund | 495.6 | Russell 1000(R) Growth Index | 13.31 | 13.79 |
| | Large-Cap Growth Funds | 22 | |
Virtus KAR Small-Cap Value Fund | 474.1 | Russell 2000 Value Index | 13.47 | 9.55 |
| | Small-Cap Growth Funds | 12 | |
|
| | | | |
| | | Three-Year: | Three-Year |
| | Benchmark Index | Average Return (1) | Benchmark Index |
Fund Type/Name | Assets | Lipper Peer Group | Peer Group Ranking (2) | Return (3) |
Retail Funds | ($ in millions) | | (%) | (%) |
Equity (continued) | | | | |
Virtus Rampart Sector Trend Fund | 271.0 | S&P 500(R) Index | 2.73 | 11.41 |
| | Large-Cap Core Funds | 100 | |
Virtus Rampart Enhanced Core Equity Fund | 193.5 | S&P 500(R) Index | 12.19 | 11.41 |
| | Large-Cap Core Funds | 8 | |
Virtus KAR Mid-Cap Core Fund | 129.3 | Russell Midcap(R) Index | 12.5 | 9.58 |
| | Mid-Cap Growth Funds | 8 | |
Virtus Silvant Large-Cap Growth Stock Fund | 125.2 | Russell 1000(R) Growth Index | 9.64 | 13.79 |
| | Large-Cap Growth Funds | 87 | |
Virtus KAR Mid-Cap Growth Fund | 97.5 | Russell Midcap(R) Growth Index | 11.75 | 10.30 |
| | Mid-Cap Growth Funds | 17 | |
Virtus Horizon Wealth Masters Fund | 73.3 | S&P 500(R) Index | 8.18 | 9.58 |
| | Mid-Cap Core Funds | 58 | |
Virtus Silvant Small-Cap Growth Stock Fund | 29.9 | Russell 2000(R) Growth Index | 6.59 | 10.28 |
| | Small-Cap Growth Funds | 85 | |
Virtus Zevenbergen Innovative Growth Stock Fund | 23.1 | Russell 3000(R) Growth Index | 12.05 | 13.51 |
| | Multi-Cap Growth Funds | 31 | |
Fixed Income | | | | |
Virtus Newfleet Multi-Sector Short Term Bond Fund | 7,333.1 | BofA Merrill Lynch 1-3 Year A-BBB Corporate Index | 3.21 | 1.86 |
| | Short-Intermediate Investment Grade Debt Funds | 2 | |
Virtus Seix Floating Rate High Income Fund | 5,979.7 | Credit Suisse Leveraged Loan Index | 4.49 | 4.50 |
| | Loan Participation Funds | 22 | |
Virtus Seix Total Return Bond Fund | 870.0 | Bloomberg Barclays U.S. Aggregate Bond Index | 1.97 | 2.24 |
| | Core Bond Funds | 63 | |
Virtus Newfleet Senior Floating Rate Fund | 537.1 | S&P/LSTA Leveraged Loan Index | 3.84 | 4.44 |
| | Loan Participation Funds | 49 | |
Virtus Seix Investment Grade Tax-Exempt Bond Fund | 476.9 | Bloomberg Barclays Municipal 1-15 Yr Blend (1-17) Index | 2.06 | 2.37 |
| | Intermediate Municipal Debt Funds | 53 | |
Virtus Seix High Yield Fund | 452.1 | ICE BofAML US High Yield BB-B Constrained Index | 4.85 | 6.06 |
| | High Yield Funds | 60 | |
|
| | | | |
| | | Three-Year: | Three-Year |
| | Benchmark Index | Average Return (1) | Benchmark Index |
Fund Type/Name | Assets | Lipper Peer Group | Peer Group Ranking (2) | Return (3) |
Retail Funds | ($ in millions) | | (%) | (%) |
Fixed Income (continued) | | | | |
Virtus Seix High Income Fund | 441.4 | Bloomberg Barclays U.S. Corporate High Yield Bond Index | 5.84 | 6.35 |
| | High Yield Funds | 22 | |
Virtus Newfleet Multi-Sector Intermediate Bond Fund | 377.5 | Bloomberg Barclays U.S. Aggregate Bond Index | 5.29 | 2.24 |
| | Multi-Sector Income Funds | 13 | |
Virtus Newfleet Low Duration Income | 372.6 | Bloomberg Barclays U.S. Intermediate Government/Credit Bond Index | 2.15 | 1.49 |
| | Short Investment Grade Debt Funds | 12 | |
Virtus Seix Core Bond Fund | 201.1 | Bloomberg Barclays U.S. Aggregate Bond Index | 2.05 | 2.24 |
| | Core Bond Funds | 58 | |
Virtus Newfleet Tax Exempt Bond Fund | 160.8 | Virtus Tax-Exempt Bond Fund Linked Benchmark (7) | 2.37 | 2.60 |
| | General & Insured Municipal Debt Funds | 69 | |
Virtus Contrarian Value Fund | 146.5 | Russell Midcap(R) Value Index | 2.83 | 9.00 |
| | Multi-Cap Value Funds | 98 | |
Virtus Seix Georgia Tax-Exempt Bond Fund | 89.0 | Bloomberg Barclays Municipal Bond Index | 2.57 | 2.98 |
| | Other States Municipal Debt Funds | 24 | |
Virtus Newfleet Credit Opportunities Fund | 87.6 | 50% Bloomberg Barclays U.S. High-Yield Bond Index/ 50% Credit Suisse Leveraged Loan Index | N/A | N/A |
| | High Yield Funds | N/A | |
Virtus Seix High Grade Municipal Bond Fund | 83.7 | Bloomberg Barclays Municipal Bond Index | 3.1 | 2.98 |
| | General & Insured Municipal Debt Funds | 34 | |
Virtus Newfleet Bond Fund | 72.4 | Bloomberg Barclays U.S. Aggregate Bond Index | 3.28 | 2.40 |
| | Core Plus Bond Funds | 20 | |
Virtus Newfleet High Yield Fund | 69.4 | Bloomberg Barclays U.S. High-Yield 2% Issuer Capped Bond Index | 5.27 | 6.36 |
| | High Yield Funds | 42 | |
Virtus Seix Virginia Intermediate Muni-Bond Fund | 41.0 | Bloomberg Barclays Municipal 1-15 Yr Blend (1-17) Index | 2.34 | 2.37 |
| | Other States Intermediate Muni Debt Funds | 8 | |
Virtus Seix Short-Term Municipal Bond Fund | 33.0 | Bloomberg Barclays Municipal 1-5 Yr Index | 0.58 | 0.96 |
| | Short Municipal Debt Funds | 47 | |
|
| | | | |
| | | Three-Year: | Three-Year |
| | Benchmark Index | Average Return (1) | Benchmark Index |
Fund Type/Name | Assets | Lipper Peer Group | Peer Group Ranking (2) | Return (3) |
Retail Funds | ($ in millions) | | (%) | (%) |
Fixed Income (continued) | | | | |
Virtus Newfleet CA Tax-Exempt Bond Fund | 27.0 | Bloomberg Barclays California Municipal Bond Index | 2.94 | 2.97 |
| | California Municipal Debt Funds | 60 | |
Virtus Seix U.S. Mortgage Fund | 25.2 | Bloomberg Barclays U.S. Mortgage Backed Securities Index | 1.73 | 1.88 |
| | U. S. Mortgage Funds | 56 | |
Virtus Seix North Carolina Tax-Exempt Bond Fund | 22.4 | Bloomberg Barclays Municipal Bond Index | 2.5 | 2.98 |
| | Other States Municipal Debt Funds | 26 | |
Virtus Seix Corporate Bond Fund | 15.1 | Bloomberg Barclays U.S. Corporate Investment Grade Bond Index | 4.46 | 3.90 |
| | Corporate Debt Funds BBB-Rated | 19 | |
Virtus Seix Short-Term Bond Fund | 11.3 | Bloomberg Barclays 1-3 Yr U.S. Government/Credit Bond Index | 0.59 | 0.93 |
| | Short Investment Grade Debt Funds | 87 | |
International/Global | | | | |
Virtus Vontobel Emerging Markets Opportunities Fund | 8,785.5 | MSCI Emerging Markets Index (net) | 7.65 | 9.10 |
| | Emerging Market Funds | 64 | |
Virtus Vontobel Foreign Opportunities Fund | 1,524.9 | MSCI EAFE(R) Index (net) | 9.53 | 7.80 |
| | International Large-Cap Growth | 14 | |
Virtus KAR International Small-Cap Fund | 318.2 | MSCI AC World Ex U.S. Small Cap Index (net) | 15.52 | 11.96 |
| | International Small/Mid-Cap Growth | 9 | |
Virtus Vontobel Global Opportunities Fund | 234.6 | MSCI AC World Index (net) | 12.12 | 9.30 |
| | Global Large-Cap Growth | 16 | |
Virtus WCM International Equity Fund | 98.2 | MSCI EAFE(R) Index (net) | 10.68 | 7.83 |
| | International Large-Cap Growth | 14 | |
Virtus KAR Global Quality Dividend Fund | 55.6 | Russell Developed Large Cap Index | 6.11 | 10.78 |
| | Global Equity Income Funds | 66 | |
Virtus KAR Emerging Markets Small-Cap Fund | 14.1 | MSCI Emerging Markets Small Cap Index (net) | 8.3 | 8.44 |
| | Emerging Markets Funds | 55 | |
Virtus Rampart Global Equity Trend Fund | 13.7 | MSCI AC World Index (net) | 2.41 | 9.30 |
| | Global Multi-Cap Growth | 99 | |
Virtus Vontobel Greater European Opportunities Fund | 11.6 | MSCI Europe Index (net) | 8.12 | 6.69 |
| | European Region Funds | 29 | |
|
| | | | |
| | | Three-Year: | Three-Year |
| | Benchmark Index | Average Return (1) | Benchmark Index |
Fund Type/Name | Assets | Lipper Peer Group | Peer Group Ranking (2) | Return (3) |
Retail Funds | ($ in millions) | | (%) | (%) |
Global Funds | | | | |
Virtus G.F. Multi-Sector Short Duration Bond Fund | 82.6 | Bloomberg Barclays U.S. Intermediate Aggregate Bond Index | 2.06 | 1.82 |
| | N/A | 43 | |
Virtus G.F. U.S. Small Cap Focus Fund | 14.7 | Russell 2000(R) Index | 16.34 | 9.96 |
| | N/A | 1 | |
Variable Insurance Funds | | | | |
Virtus KAR Capital Growth Series | 224.3 | Russell 1000(R) Growth Index | 13.8 | 13.79 |
| | Multi-Cap Growth Funds | 9 | |
Virtus Duff & Phelps International Series | 183.5 | MSCI EAFE(R) Index (net) | 0.71 | 7.80 |
| | International Large-Cap Growth | 97 | |
Virtus Newfleet Multi-Sector Intermediate Bond Series | 131.7 | Bloomberg Barclays U.S. Aggregate Bond Index | 4.82 | 2.24 |
| | General Bond Funds | 10 | |
Virtus Rampart Enhanced Core Equity Series | 111.5 | S&P 500(R) Index | 7.01 | 11.41 |
| | Multi-Cap Core Funds | 93 | |
Virtus Strategic Allocation Series | 96.7 | Strategic Allocation Series Linked Benchmark | 4.31 | 8.34 |
| | Mixed-Asset Target Allocation Moderate Funds | 92 | |
Virtus KAR Small-Cap Value Series | 94.6 | Russell 2000(R) Value Index | 14.46 | 9.55 |
| | Small-Cap Growth Funds | 7 | |
Virtus KAR Small-Cap Growth Series | 81.6 | Russell 2000(R) Growth Index | 21.34 | 10.28 |
| | Small-Cap Growth Funds | 3 | |
Virtus Duff & Phelps Real Estate Securities Series | 77.8 | FTSE NAREIT Equity REITs Index | 5.04 | 5.62 |
| | Real Estate Funds | 40 | |
Other Funds (8) | 159.7 | | | |
| $43,077.6 | | | |
| |
(1) | Represents the average annual total return performance of the largest share class as measured by net assets for which performance data is available. Performance shown does not include the effect of applicable sales charges, if any. Had any applicable sales charges been reflected, performance would be lower than shown above. |
| |
(2) | Represents the peer ranking of the fund’s average annual total return according to Lipper. Fund returns are reported net of fees. |
| |
(3) | Represents the average annual total return of the benchmark index. Benchmark indices are unmanaged, their returns do not reflect any fees, expenses or sales charges, and they are not available for direct investment. |
| |
(4) | The Global Infrastructure Linked Benchmark consists of the FTSE Developed Core Infrastructure 50/50 Index (net). The Global Infrastructure Linked Benchmark prior to October 1, 2016 consisted of the MSCI World Infrastructure Sector Capped Index. |
| |
(5) | The Strategic Allocation Fund Linked Benchmark consists of 45% Russell 1000(R) Growth Index, 15% MSCI EAFE(R) Index and 40% Barclays U.S. Aggregate Bond Index. The Strategic Allocation Fund Linked Benchmark prior to September 7, 2016 consisted of 60% S&P 500(R) Index and 40% Barclays U.S. Aggregate Bond Index.
|
| |
(6) | The Tactical Allocation Fund Linked Benchmark consists of 45% Russell 1000(R) Growth Index, 15% MSCI EAFE(R) Index and 40% Barclays U.S. Aggregate Bond Index. The Tactical Allocation Fund Linked Benchmark prior to September 7, 2016 consisted of 50% S&P 500(R) Index and 50% Barclays U.S. Aggregate Bond Index.
|
| |
(7) | The Virtus Tax-Exempt Bond Linked Benchmark consists of the Bank of America Merrill Lynch 1-22 Year U.S. Municipal Securities Index, a subset of the Bank of America Merrill Lynch U.S. Municipal Securities Index. |
| |
(8) | Represents all funds that do not yet have a three-year average return based on their inception date, or funds with assets of less than $10.0 million. |
Past performance does not guarantee future results. Investment return and principal value will fluctuate so that shares, when redeemed, may be worth more or less than their original cost.
Operating Results
In 2017, total revenues increased 31.9% or $103.1 million to $425.6 million$7.8 billion from $322.6 million in 2016 primarily due to $77.1 millionthe acquisition of additional revenues as a result of the Acquisition. Operating income increased by 14.2% or $7.2 million to $58.0 million in 2017 from $50.8 million in 2016, primarily due to increased revenue from new affiliated managers as a result of the Acquisition and the impact from market appreciation,AlphaSimplex, partially offset by increased amortization$7.2 billion of intangible assets and operating expenses of $11.4 million and $26.3 million, respectively, related to acquisition and integration costs.net outflows.
Assets Under Management by Product
The following table summarizes our assets under management by product:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| As of December 31, | | | | As of Change | | | | |
(in millions) | 2023 | | 2022 | | | | 2023 vs. 2022 | | % | | | | |
Open-End Funds (1) | $ | 56,062 | | | $ | 53,000 | | | | | $ | 3,062 | | | 5.8 | % | | | | |
Closed-End Funds | 10,026 | | | 10,361 | | | | | (335) | | | (3.2) | % | | | | |
Retail Separate Accounts | 43,202 | | | 35,352 | | | | | 7,850 | | | 22.2 | % | | | | |
Institutional Accounts (2) | 62,969 | | | 50,663 | | | | | 12,306 | | | 24.3 | % | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Total | $ | 172,259 | | | $ | 149,376 | | | | | $ | 22,883 | | | 15.3 | % | | | | |
| | | | | | | | | | | | | |
Average Assets Under Management (3) | $ | 161,482 | | | $ | 166,795 | | | | | $ | (5,313) | | | (3.2) | % | | | | |
(1)Represents assets under management of U.S. retail funds, global funds, ETFs and variable insurance funds. |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| As of December 31, | | Change |
| 2017 | | 2016 | | 2015 | | 2017 vs. 2016 | | % | | 2016 vs. 2015 | | % |
($ in millions) | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Fund assets | | | | | | | | | | | | | |
Open-End Funds (1) | $ | 43,077.6 |
| | $ | 23,432.8 |
| | $ | 28,882.1 |
| | $ | 19,644.8 |
| | 83.8 | % | | $ | (5,449.3 | ) | | (18.9 | )% |
Closed-End Funds | 6,666.2 |
| | 6,757.4 |
| | 6,222.3 |
| | (91.2 | ) | | (1.3 | )% | | 535.1 |
| | 8.6 | % |
Exchange Traded Funds | 1,039.2 |
| | 596.8 |
| | 340.8 |
| | 442.4 |
| | 74.1 | % | | 256.0 |
| | 75.1 | % |
Retail Separate Accounts | 13,936.8 |
| | 8,473.5 |
| | 6,784.4 |
| | 5,463.3 |
| | 64.5 | % | | 1,689.1 |
| | 24.9 | % |
Institutional Accounts | 20,815.9 |
| | 5,492.7 |
| | 4,799.7 |
| | 15,323.2 |
| | 279.0 | % | | 693.0 |
| | 14.4 | % |
Structured Products | 3,298.8 |
| | 613.1 |
| | 356.0 |
| | 2,685.7 |
| | 438.1 | % | | 257.1 |
| | 72.2 | % |
Total Long-Term | 88,834.5 |
| | 45,366.3 |
| | 47,385.3 |
| | 43,468.2 |
| | 95.8 | % | | (2,019.0 | ) | | (4.3 | )% |
Liquidity (3) | 2,128.7 |
| | — |
| | — |
| | 2,128.7 |
| | n/m |
| | — |
| | n/m |
|
Total Assets Under Management | $ | 90,963.2 |
| | $ | 45,366.3 |
| | $ | 47,385.3 |
| | $ | 45,596.9 |
| | 100.5 | % | | $ | (2,019.0 | ) | | (4.3 | )% |
Average Assets Under Management (2) | $ | 70,212.4 |
| | $ | 45,325.2 |
| | $ | 52,310.5 |
| | $ | 24,887.2 |
| | 54.9 | % | | $ | (6,985.3 | ) | | (13.4 | )% |
Average Long-Term Assets Under Management (2) | $ | 72,286.1 |
| | $ | 45,325.2 |
| | $ | 52,310.5 |
| | $ | 26,960.9 |
| | 59.5 | % | | $ | (6,985.3 | ) | | (13.4 | )% |
(2)Represents assets under management of institutional separate and commingled accounts including structured products.
| |
(1) | Represents assets under management of U.S. 1940 Act mutual funds and UCITS |
(2) (3)Averages are calculated as follows:
- –Funds - average daily or weekly balances
- –Retail Separate Accounts - prior quarterprior-quarter ending balance or average of month-end balances in quarter
- –Institutional Accounts - average of month-end balances in quarter
(3) Represents assets under management in liquidity strategies, including open-end funds and institutional accounts
Asset Flows by Product
The following table summarizes asset flows by product:
| | | | | | | | | | | | | |
| Years Ended December 31, |
(in millions) | 2023 | | 2022 | | |
Open-End Funds (1) | | | | | |
Beginning balance | $ | 53,000 | | | $ | 78,706 | | | |
Inflows | 11,188 | | | 13,985 | | | |
Outflows | (18,526) | | | (28,549) | | | |
Net flows | (7,338) | | | (14,564) | | | |
Market performance | 8,160 | | | (15,113) | | | |
Other (2) | 2,240 | | | 3,971 | | | |
Ending balance | $ | 56,062 | | | $ | 53,000 | | | |
Closed-End Funds | | | | | |
Beginning balance | $ | 10,361 | | | $ | 12,068 | | | |
Inflows | 24 | | | 191 | | | |
Outflows | — | | | — | | | |
Net flows | 24 | | | 191 | | | |
Market performance | 453 | | | (1,346) | | | |
Other (2) | (812) | | | (552) | | | |
Ending balance | $ | 10,026 | | | $ | 10,361 | | | |
Retail Separate Accounts | | | | | |
Beginning balance | $ | 35,352 | | | $ | 44,538 | | | |
Inflows | 6,680 | | | 5,710 | | | |
Outflows | (5,972) | | | (6,440) | | | |
Net flows | 708 | | | (730) | | | |
Market performance | 7,141 | | | (8,456) | | | |
Other (2) | 1 | | | — | | | |
Ending balance | $ | 43,202 | | | $ | 35,352 | | | |
Institutional Accounts (3) | | | | | |
Beginning balance | $ | 50,663 | | | $ | 51,874 | | | |
Inflows | 7,965 | | | 10,407 | | | |
Outflows | (8,579) | | | (8,747) | | | |
Net flows | (614) | | | 1,660 | | | |
Market performance | 9,077 | | | (12,168) | | | |
Other (2) | 3,843 | | | 9,297 | | | |
Ending balance | $ | 62,969 | | | $ | 50,663 | | | |
Total | | | | | |
Beginning balance | $ | 149,376 | | | $ | 187,186 | | | |
Inflows | 25,857 | | | 30,293 | | | |
Outflows | (33,077) | | | (43,736) | | | |
Net flows | (7,220) | | | (13,443) | | | |
Market performance | 24,831 | | | (37,083) | | | |
Other (2) | 5,272 | | | 12,716 | | | |
Ending balance | $ | 172,259 | | | $ | 149,376 | | | |
(1)Represents assets under management of U.S. retail funds, global funds, ETFs and variable insurance funds.
(2)Represents open-end and closed-end fund distributions net of reinvestments, the net change in assets from cash management strategies, and the impact of non-sales related activities such as asset acquisitions/(dispositions), seed capital investments/(withdrawals), current income or capital returned by structured products and the use of leverage.
(3)Represents assets under management of institutional separate and commingled accounts including structured products.
|
| | | | | | | | | | | |
Asset Flows by Product | | | | | |
| | | | | |
($ in millions) | Years Ended December 31, |
| 2017 | | 2016 | | 2015 |
Open-End Funds (1) | | | | | |
Beginning balance | $ | 23,432.8 |
| | $ | 28,882.1 |
| | $ | 37,514.2 |
|
Inflows | 9,776.9 |
| | 7,070.1 |
| | 10,046.8 |
|
Outflows | (10,561.0 | ) | | (13,117.7 | ) | | (17,010.5 | ) |
Net flows | (784.1 | ) | | (6,047.6 | ) | | (6,963.7 | ) |
Market performance | 5,107.0 |
| | 898.7 |
| | (1,511.5 | ) |
Other (2) | 15,321.9 |
| | (300.4 | ) | | (156.9 | ) |
Ending balance | $ | 43,077.6 |
| | $ | 23,432.8 |
| | $ | 28,882.1 |
|
Closed-End Funds | | | | | |
Beginning balance | $ | 6,757.4 |
| | $ | 6,222.3 |
| | $ | 7,581.4 |
|
Inflows | — |
| | — |
| | — |
|
Outflows | (112.8 | ) | | (103.3 | ) | | — |
|
Net flows | (112.8 | ) | | (103.3 | ) | | — |
|
Market performance | 444.4 |
| | 794.9 |
| | (811.9 | ) |
Other (2) | (422.8 | ) | | (156.5 | ) | | (547.2 | ) |
Ending balance | $ | 6,666.2 |
| | $ | 6,757.4 |
| | $ | 6,222.3 |
|
Exchange Traded Funds | | | | | |
Beginning balance | $ | 596.8 |
| | $ | 340.8 |
| | $ | — |
|
Inflows | 732.6 |
| | 382.8 |
| | 342.8 |
|
Outflows | (152.6 | ) | | (124.8 | ) | | (49.0 | ) |
Net flows | 580.0 |
| | 258.0 |
| | 293.8 |
|
Market performance | 21.5 |
| | 20.3 |
| | (27.9 | ) |
Other (2) | (159.1 | ) | | (22.3 | ) | | 74.9 |
|
Ending balance | $ | 1,039.2 |
| | $ | 596.8 |
| | $ | 340.8 |
|
Retail Separate Accounts | | | | | |
Beginning balance | $ | 8,473.5 |
| | $ | 6,784.4 |
| | $ | 6,884.8 |
|
Inflows | 2,730.3 |
| | 1,825.5 |
| | 1,291.9 |
|
Outflows | (1,746.2 | ) | | (1,156.9 | ) | | (1,428.6 | ) |
Net flows | 984.1 |
| | 668.6 |
| | (136.7 | ) |
Market performance | 1,996.1 |
| | 1,023.5 |
| | 70.7 |
|
Other (2) | 2,483.1 |
| | (3.0 | ) | | (34.4 | ) |
Ending balance | $ | 13,936.8 |
| | $ | 8,473.5 |
| | $ | 6,784.4 |
|
Institutional Accounts | | | | | |
Beginning balance | $ | 5,492.7 |
| | $ | 4,799.7 |
| | $ | 4,296.5 |
|
Inflows | 1,684.4 |
| | 1,345.3 |
| | 1,008.3 |
|
Outflows | (2,698.1 | ) | | (1,039.3 | ) | | (526.1 | ) |
Net flows | (1,013.7 | ) | | 306.0 |
| | 482.2 |
|
Market performance | 1,339.4 |
| | 412.6 |
| | 46.2 |
|
Other (2) | 14,997.5 |
| | (25.6 | ) | | (25.2 | ) |
Ending balance | $ | 20,815.9 |
| | $ | 5,492.7 |
| | $ | 4,799.7 |
|
Structured Products | | | | | |
Beginning balance | $ | 613.1 |
| | $ | 356.0 |
| | $ | 425.5 |
|
Inflows | 474.3 |
| | 316.3 |
| | — |
|
Outflows | (345.8 | ) | | (70.3 | ) | | — |
|
Net flows | 128.5 |
| | 246.0 |
| | 425.5 |
|
Market performance | 65.7 |
| | 20.1 |
| | — |
|
Other (2) | 2,491.5 |
| | (9.0 | ) | | (69.5 | ) |
Ending balance | $ | 3,298.8 |
| | $ | 613.1 |
| | $ | 356.0 |
|
Assets Under Management by Asset Class
|
| | | | | | | | | | | |
Total Long-Term | | | | | |
Beginning balance | $ | 45,366.3 |
| | $ | 47,385.3 |
| | $ | 56,702.4 |
|
Inflows | 15,398.5 |
| | 10,940.0 |
| | 12,689.8 |
|
Outflows | (15,616.5 | ) | | (15,612.3 | ) | | (19,014.2 | ) |
Net flows | (218.0 | ) | | (4,672.3 | ) | | (6,324.4 | ) |
Market performance | 8,974.1 |
| | 3,170.1 |
| | (2,234.4 | ) |
Other (2) | 34,712.1 |
| | (516.8 | ) | | (758.3 | ) |
Ending balance | $ | 88,834.5 |
| | $ | 45,366.3 |
| | $ | 47,385.3 |
|
Liquidity | | | | | |
Beginning balance | $ | — |
| | $ | — |
| | $ | — |
|
Other (2) | 2,128.7 |
| | — |
| | — |
|
Ending balance | $ | 2,128.7 |
| | $ | — |
| | $ | — |
|
Total | | | | | |
Beginning balance | $ | 45,366.3 |
| | $ | 47,385.3 |
| | $ | 56,702.4 |
|
Inflows | 15,398.5 |
| | 10,940.0 |
| | 12,689.8 |
|
Outflows | (15,616.5 | ) | | (15,612.3 | ) | | (19,014.2 | ) |
Net flows | (218.0 | ) | | (4,672.3 | ) | | (6,324.4 | ) |
Market performance | 8,974.1 |
| | 3,170.1 |
| | (2,234.4 | ) |
Other (2) | 36,840.8 |
| | (516.8 | ) | | (758.3 | ) |
Ending balance | $ | 90,963.2 |
| | $ | 45,366.3 |
| | $ | 47,385.3 |
|
| |
(1) | Represents assets under management of U.S. 1940 Act mutual funds and UCITS |
| |
(2) | Represents open-end and closed-end mutual fund distributions, net of reinvestments, net flows from non-sales related activities such as asset acquisitions/(dispositions), marketable securities investments/(withdrawals), the impact on assets from the use of leverage and the net change in assets for liquidity strategies |
The following table summarizes our assets under management by asset class:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, | | | | Change | | % of Total |
(in millions) | 2023 | | 2022 | | | | 2023 vs. 2022 | | % | | 2023 | | 2022 |
Asset Class | | | | | | | | | | | | | |
Equity | $ | 96,703 | | | $ | 81,894 | | | | | $ | 14,809 | | | 18.1 | % | | 56.2 | % | | 54.9 | % |
Fixed Income | 37,192 | | | 36,903 | | | | | 289 | | | 0.8 | % | | 21.6 | % | | 24.7 | % |
Multi-Asset (1) | 21,411 | | | 19,937 | | | | | 1,474 | | | 7.4 | % | | 12.4 | % | | 13.3 | % |
Alternatives (2) | 16,953 | | | 10,642 | | | | | 6,311 | | | 59.3 | % | | 9.8 | % | | 7.1 | % |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Total | $ | 172,259 | | | $ | 149,376 | | | | | $ | 22,883 | | | 15.3 | % | | 100.0 | % | | 100.0 | % |
(1)Consists of strategies and client accounts with substantial holdings in at least two of the following asset classes: equity, fixed income, and alternatives. |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, | | Change |
| 2017 | | 2016 | | 2015 | | 2017 vs. 2016 | | % | | 2016 vs. 2015 | | % |
($ in millions) | | | | | | | | | | | | | |
Asset Class | | | | | | | | | | | | | |
Equity | $ | 45,779.8 |
| | $ | 25,822.3 |
| | $ | 28,314.9 |
| | $ | 19,957.5 |
| | 77.3 | % | | $ | (2,492.6 | ) | | (8.8 | )% |
Fixed income | 38,740.0 |
| | 15,523.6 |
| | 15,115.6 |
| | 23,216.4 |
| | 149.6 | % | | 408.0 |
| | 2.7 | % |
Alternatives (1) | 4,314.7 |
| | 4,020.4 |
| | 3,954.8 |
| | 294.3 |
| | 7.3 | % | | 65.6 |
| | 1.7 | % |
Liquidity (2) | 2,128.7 |
| | — |
| | — |
| | 2,128.7 |
| | N/M |
| | — |
| | N/M |
|
Total | $ | 90,963.2 |
| | $ | 45,366.3 |
| | $ | 47,385.3 |
| | $ | 45,596.9 |
| | 100.5 | % | | $ | (2,019.0 | ) | | (4.3 | )% |
(2)Consists of managed futures, event-driven, real estate securities, infrastructure, long/short, and other strategies. | |
(1) | Consists of real estate securities, master-limited partnerships, option strategies and other |
| |
(2) | Represents assets under management in liquidity strategies, including open-end funds and institutional accounts |
Average Assets Under Management and Average Fees Earned
The following table summarizes the average management fees earned in basis points and average assets under management:
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Years Ended December 31, | | |
| Average Fee Earned (expressed in basis points) | | | | Average Assets Under Management (in millions) (3) | | |
| 2023 | | 2022 | | | | 2023 | | 2022 | | |
Products | | | | | | | | | | | |
Open-End Funds (1) | 49.5 | | 46.6 | | | | $ | 55,226 | | | $ | 64,046 | | | |
Closed-End Funds | 57.8 | | 57.4 | | | | 10,060 | | | 11,132 | | | |
Retail Separate Accounts | 43.7 | | 42.8 | | | | 37,601 | | | 38,498 | | | |
Institutional Accounts (2) | 31.7 | | 31.4 | | | | 58,595 | | | 53,119 | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
All Products | 42.2 | | 41.6 | | | | $ | 161,482 | | | $ | 166,795 | | | |
|
| | | | | | | | | | | | | | | | | | | | |
| December 31, |
($ in millions, except average fee earned data which is in basis points) | Average Fee Earned (expressed in basis points) | | Average Assets Under Management ($ in millions) (2) |
| 2017 | | 2016 | | 2015 | | 2017 | | 2016 | | 2015 |
Products | | | | | | | | | | | |
Open-End Funds (1) | 49.7 |
| | 49.3 |
| | 48.2 |
| | $ | 34,932.6 |
| | $ | 25,551.7 |
| | $ | 33,290.1 |
|
Closed-End Funds | 66.0 |
| | 65.8 |
| | 66.7 |
| | 6,770.0 |
| | 6,583.6 |
| | 6,946.3 |
|
Exchange Traded Funds | 25.0 |
| | 31.4 |
| | 23.6 |
| | 890.8 |
| | 406.3 |
| | 179.3 |
|
Retail Separate Accounts | 48.6 |
| | 54.3 |
| | 54.1 |
| | 11,001.2 |
| | 7,273.9 |
| | 6,863.8 |
|
Institutional Accounts | 32.1 |
| | 37.3 |
| | 35.9 |
| | 14,515.0 |
| | 5,009.4 |
| | 4,634.6 |
|
Structured Products | 40.8 |
| | 44.2 |
| | 23.5 |
| | 2,102.8 |
| | 500.3 |
| | 396.4 |
|
All Long-Term Products | 46.9 |
| | 50.9 |
| | 50.1 |
| | 70,212.4 |
| | 45,325.2 |
| | 52,310.5 |
|
Liquidity (3) | 8.0 |
| | — |
| | — |
| | 2,073.7 |
| | — |
| | — |
|
All Products | 45.8 |
| | 50.9 |
| | 50.1 |
| | $ | 72,286.1 |
| | $ | 45,325.2 |
| | $ | 52,310.5 |
|
(1)Represents assets under management of U.S. retail funds, global funds, ETFs and variable insurance funds.(2)Represents assets under management of institutional separate and commingled accounts including structured products.
| |
(1) | Represents assets under management of U.S. 1940 Act mutual funds and UCITS |
(2) (3)Averages are calculated as follows:
- –Funds - average daily or weekly balances
- –Retail Separate Accounts - prior quarterprior-quarter ending balance or average of month-end balances in quarter
- –Institutional Accounts - average of month-end balances in quarter
(3) Represents assets under management in liquidity strategies, including open-end funds and institutional accounts
Average fees earned represent investment management fees, net of fees paid to third-party service providers for investment management related services and investment management fees earned from consolidated investment products,revenue-related adjustments, divided by average net assets. Open-end mutual fund, closed-end fundassets, excluding the impact of consolidated investment products ("CIP"). Revenue-related adjustments are based on specific agreements and exchange traded fundreflect the portion of investment management fees passed-through to third-party client intermediaries for services to investors in sponsored investment products. Fund fees are calculated based on average daily or weekly net assets. Retail separate account fees are calculated based on the end of the preceding or current quarter’s asset values or on an average of month-end balances. Institutional account fees are calculated based on an average of month-end balances, oran average of current quarter’s asset values. Structured product fees are calculated basedvalues or on a combination of the underlying cash flows and the principal value of the product. Average fees earned will vary based on several factors, including the asset mix and expense reimbursements to the funds.
Year ended December 31, 2017 compared to year ended December 31, 2016. The average fee rate earned on all products for 2017 decreased2023 increased by 5.10.6 basis points compared to the same period in the prior year primarily due to the impactaddition of the lower blendedalternative strategies with higher fee rate of the assetsrates from the Acquisition. AlphaSimplex acquisition.
Investment Performance
The product categories most impacted were institutional accounts and retail separate accounts, wherefollowing table presents a summary of investment performance by asset class measured by the additionalpercentage of assets were primarily in fixed income strategies. The 0.4 basis point increase in average fees earned on open-end funds was primarily attributable to market appreciation and positive net flows in higher fee equity products.
Year endedunder management exceeding their relevant benchmarks as of December 31, 20162023:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Percentage of Assets Under Management Beating Benchmark (2) |
Asset Class (1) | | | | 3-Year | | | | 5-Year | | | | 10-Year |
Equity | | | | 42% | | | | 70% | | | | 69% |
Fixed Income | | | | 61% | | | | 77% | | | | 71% |
| | | | | | | | | | | | |
Alternatives | | | | 59% | | | | 94% | | | | 98% |
(1)Excludes closed-end funds, private client accounts, structured products and certain other multi-asset strategies.
(2)Percentage beating benchmark is reported as the percentage of assets under management that have outperformed benchmarks across the indicated periods and does not include assets without benchmarks. Performance is presented on an average annual total return basis for products with a three-, five-, and/or ten-year track record, is net of fees and is measured on a consistent basis relative to the most appropriate benchmarks. Benchmark indices are unmanaged, their returns do not reflect any fees, expenses or sales charges, and they are not available for direct investment. Past performance is not indicative of future results.
As of December 31, 2023, 38 of 77, or 49%, of our rated U.S. retail funds received an overall rating of 4 or 5 stars representing 70% of our total U.S. retail fund assets under management (1). By comparison, 32.5% of Morningstar's fund population is given a 4- or 5-star rating (2).
(1)Assets under management excludes non-rated funds. Based on institutional-class shares, except for funds without I shares, for which shares were used, or if A share rating is higher than I shares. Past performance is not indicative of future results.
(2)Morningstar ratings are based on risk-adjusted returns. Strong ratings are not indicative of positive fund performance.
Results of Operations - December 31, 2023 compared to December 31, 2022
A discussion of our results of operations for the year ended December 31, 2015. The average fee rate earned for 2016 increased 0.8 basis points as2022 compared to the prior year primarily related to a 1.1 basis point increaseended December 31, 2021 may be found in the open-end fund average fee rate. The increase in the open-end fund average fee rate was primarily attributable to a negative $13.3 million variable incentive fee from one mutual fund during 2015. The average fee rate increase in institutional accounts in 2016 compared to 2015 was primarily due to net flows into higher fee products"Management's Discussion and incentive fees earned in 2016 on a structured product that was redeemed during the second halfAnalysis of 2016. Excluding the variable incentive fee, the open-end fund fee rate would have decreased to 50.0 basis points in 2016 from 52.2 in 2015 primarily due to higher level of fund reimbursements in 2016.
Summary Financial Data
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Years Ended December 31, | | | | Change | | | | |
(in thousands) | 2023 | | 2022 | | | | 2023 vs. 2022 | | % | | | | |
Investment management fees | $ | 711,475 | | | $ | 728,339 | | | | | $ | (16,864) | | | (2.3) | % | | | | |
Other revenue | 133,793 | | | 158,040 | | | | | (24,247) | | | (15.3) | % | | | | |
Total revenues | 845,268 | | | 886,379 | | | | | (41,111) | | | (4.6) | % | | | | |
Total operating expenses | 693,784 | | | 688,919 | | | | | 4,865 | | | 0.7 | % | | | | |
Operating income (loss) | 151,484 | | | 197,460 | | | | | (45,976) | | | (23.3) | % | | | | |
Other income (expense), net | 3,681 | | | (51,938) | | | | | 55,619 | | | (107.1) | % | | | | |
Interest income (expense), net | 31,399 | | | 18,366 | | | | | 13,033 | | | 71.0 | % | | | | |
Income (loss) before income taxes | 186,564 | | | 163,888 | | | | | 22,676 | | | 13.8 | % | | | | |
Income tax expense (benefit) | 45,088 | | | 57,260 | | | | | (12,172) | | | (21.3) | % | | | | |
Net income (loss) | 141,476 | | | 106,628 | | | | | 34,848 | | | 32.7 | % | | | | |
Noncontrolling interests | (10,855) | | | 10,913 | | | | | (21,768) | | | (199.5) | % | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Net Income (Loss) Attributable to Virtus Investment Partners, Inc. | $ | 130,621 | | | $ | 117,541 | | | | | $ | 13,080 | | | 11.1 | % | | | | |
Earnings (loss) per share-diluted | $ | 17.71 | | | $ | 15.50 | | | | | $ | 2.21 | | | 14.3 | % | | | | |
In 2023, total revenues decreased $41.1 million, or 4.6%, to $845.3 million from $886.4 million in 2022, and operating income decreased by $46.0 million, or 23.3%, to $151.5 million in 2023 from $197.5 million in 2022, primarily as a result of lower average assets under management.
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Years Ended December 31, | | Change |
| 2017 | | 2016 | | 2015 | | 2017 vs. 2016 | | % | | 2016 vs. 2015 | | % |
($ in thousands) | | | | | | | | | | | | | |
Investment management fees | $ | 331,075 |
| | $ | 235,230 |
| | $ | 264,865 |
| | $ | 95,845 |
| | 40.7 | % | | $ | (29,635 | ) | | (11.2 | )% |
Other revenue | 94,532 |
| | 87,324 |
| | 117,112 |
| | 7,208 |
| | 8.3 | % | | (29,788 | ) | | (25.4 | )% |
Total revenues | 425,607 |
| | 322,554 |
| | 381,977 |
| | 103,053 |
| | 31.9 | % | | (59,423 | ) | | (15.6 | )% |
Total operating expenses | 367,572 |
| | 271,740 |
| | 301,599 |
| | 95,832 |
| | 35.3 | % | | (29,859 | ) | | (9.9 | )% |
Operating income (loss) | 58,035 |
| | 50,814 |
| | 80,378 |
| | 7,221 |
| | 14.2 | % | | (29,564 | ) | | (36.8 | )% |
Other income (expense), net | 18,161 |
| | 8,819 |
| | (26,650 | ) | | 9,342 |
| | 105.9 | % | | 35,469 |
| | (133.1 | )% |
Interest income (expense), net | 4,233 |
| | 10,174 |
| | 13,915 |
| | (5,941 | ) | | (58.4 | )% | | (3,741 | ) | | (26.9 | )% |
Income (loss) before income taxes | 80,429 |
| | 69,807 |
| | 67,643 |
| | 10,622 |
| | 15.2 | % | | 2,164 |
| | 3.2 | % |
Income tax expense (benefit) | 40,490 |
| | 21,044 |
| | 36,972 |
| | 19,446 |
| | 92.4 | % | | (15,928 | ) | | (43.1 | )% |
Net income (loss) | 39,939 |
| | 48,763 |
| | 30,671 |
| | (8,824 | ) | | (18.1 | )% | | 18,092 |
| | 59.0 | % |
Noncontrolling interests | (2,927 | ) | | (261 | ) | | 4,435 |
| | (2,666 | ) | | 1,021.5 | % | | (4,696 | ) | | (105.9 | )% |
Net income (loss) attributable to stockholders | $ | 37,012 |
| | $ | 48,502 |
| | $ | 35,106 |
| | $ | (11,490 | ) | | (23.7 | )% | | $ | 13,396 |
| | 38.2 | % |
Preferred stockholder dividends | (8,336 | ) | | — |
| | — |
| | (8,336 | ) | | N/M |
| | $ | — |
| | N/M |
|
Net Income (Loss) Attributable to Common Stockholders | 28,676 |
| | 48,502 |
| | 35,106 |
| | (19,826 | ) | | (40.9 | )% | | $ | 13,396 |
| | 38.2 | % |
Earnings (loss) per share - diluted | $ | 3.96 |
| | $ | 6.20 |
| | $ | 3.92 |
| | $ | (2.24 | ) | | (36.1 | )% | | $ | 2.28 |
| | 58.2 | % |
Revenues
Revenues by source were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Years Ended December 31, | | | | Change | | | | |
(in thousands) | 2023 | | 2022 | | | | 2023 vs. 2022 | | % | | | | |
Investment management fees | | | | | | | | | | | | | |
Open-end funds | $ | 305,238 | | | $ | 335,585 | | | | | $ | (30,347) | | | (9.0) | % | | | | |
Closed-end funds | 58,136 | | | 63,841 | | | | | (5,705) | | | (8.9) | % | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Retail separate accounts | 171,357 | | | 171,509 | | | | | (152) | | | (0.1) | % | | | | |
Institutional accounts | 176,744 | | | 157,404 | | | | | 19,340 | | | 12.3 | % | | | | |
Total investment management fees | 711,475 | | | 728,339 | | | | | (16,864) | | | (2.3) | % | | | | |
Distribution and service fees | 56,153 | | | 67,518 | | | | | (11,365) | | | (16.8) | % | | | | |
Administration and shareholder service fees | 73,857 | | | 85,862 | | | | | (12,005) | | | (14.0) | % | | | | |
Other income and fees | 3,783 | | | 4,660 | | | | | (877) | | | (18.8) | % | | | | |
Total Revenues | $ | 845,268 | | | $ | 886,379 | | | | | $ | (41,111) | | | (4.6) | % | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Years Ended December 31, | | Change |
($ in thousands) | 2017 | | 2016 | | 2015 | | 2017 vs. 2016 | | % | | 2016 vs. 2015 | | % |
Investment management fees | | | | | | | | | | | | | |
Open-end funds | $ | 175,260 |
| | $ | 129,542 |
| | $ | 163,243 |
| | $ | 45,718 |
| | 35.3 | % | | $ | (33,701 | ) | | (20.6 | )% |
Closed-end funds | 44,687 |
| | 43,342 |
| | 46,328 |
| | 1,345 |
| | 3.1 | % | | (2,986 | ) | | (6.4 | )% |
Exchange traded funds | 2,315 |
| | 1,273 |
| | 423 |
| | 1,042 |
| | 81.9 | % | | 850 |
| | 200.9 | % |
Retail separate accounts | 54,252 |
| | 40,155 |
| | 37,296 |
| | 14,097 |
| | 35.1 | % | | 2,859 |
| | 7.7 | % |
Institutional accounts | 46,600 |
| | 18,707 |
| | 16,643 |
| | 27,893 |
| | 149.1 | % | | 2,064 |
| | 12.4 | % |
Structured products | 6,302 |
| | 2,211 |
| | 932 |
| | 4,091 |
| | 185.0 | % | | 1,279 |
| | 137.2 | % |
Liquidity products | 1,659 |
| | — |
| | — |
| | 1,659 |
| | 100.0 | % | | — |
| | — | % |
Total investment management fees | 331,075 |
| | 235,230 |
| | 264,865 |
| | 95,845 |
| | 40.7 | % | | (29,635 | ) | | (11.2 | )% |
Distribution and service fees | 44,322 |
| | 48,250 |
| | 67,066 |
| | (3,928 | ) | | (8.1 | )% | | (18,816 | ) | | (28.1 | )% |
Administration and shareholder service fees | 48,996 |
| | 38,261 |
| | 48,247 |
| | 10,735 |
| | 28.1 | % | | (9,986 | ) | | (20.7 | )% |
Other income and fees | 1,214 |
| | 813 |
| | 1,799 |
| | 401 |
| | 49.3 | % | | (986 | ) | | (54.8 | )% |
Total revenues | $ | 425,607 |
| | $ | 322,554 |
| | $ | 381,977 |
| | $ | 103,053 |
| | 31.9 | % | | $ | (59,423 | ) | | (15.6 | )% |
Investment Management Fees
Investment management fees are earned based on a percentage of assets under management and are paid pursuant to the terms of the respective investment management contracts,agreements, which generally require monthly or quarterly payments.
Year ended December 31, 2017 compared to year ended December 31, 2016. Investment management fees increaseddecreased by $95.8$16.9 million, or 40.7%2.3%, for the year ended December 31, 20172023 compared to the prior year, primarily due to a 59.5%, or $27.0 billion increase inlower average assets under management, primarily as a result of the Acquisition as well as positive market performance for the year. The year ended December 31, 2017 included approximately $77.1 million of investment management fee revenues from the additional assets from the Acquisition.
Year ended December 31, 2016 compared to year ended December 31, 2015. Investment management fees decreased by $29.6 million or 11.2% for the year ended December 31, 2016 due to a 13.4% decrease in average assets under management. The decrease in average assets under management for the year ended December 31, 2016 was due primarily to net outflows in our open-end funds partially offset by market appreciation.the addition of AlphaSimplex.
Distribution and Service Fees
Distribution and service fees are sales- and asset-based fees earned from open-end funds for marketing and distribution services.
Year ended December 31, 2017 compared to year ended December 31, 2016. Distribution and service fees decreased by $3.9$11.4 million, or 8.1%16.8%, for the year ended December 31, 20172023 compared to the prior year, primarily due to lower average assets for open-end assets under managementfunds in share classes that have sales- and asset-based distribution and service fees.
Year ended December 31, 2016 compared to year ended December 31, 2015. Distribution and service fees decreased by $18.8 million or 28.1% for the year ended December 31, 2016 due to lower average open-end assets under management in share classes that have distribution and service fees.
Administration and Shareholder ServicingService Fees
Administration and shareholder servicingservice fees represent fees earned for fund administration and shareholder services from our open-end mutualU.S. retail funds, ETFs and certain of our closed-end funds.
Year ended December 31, 2017 compared to year ended December 31, 2016. Fund administration and shareholder servicingservice fees increased $10.7decreased by $12.0 million, or 28.1%14.0%, for the year ended December 31, 20172023 compared to the prior year, primarily due to $9.8 millionthe decrease in additional administration and transfer agent feesaverage assets under management in open-end funds during the period as a result of the additional assetsmarket performance and funds from the Acquisition which more than offset higher fund expense reimbursements included in net investment management fees.outflows.
Year ended December 31, 2016 compared to year ended December 31, 2015. Fund administration and shareholder servicing fees decreased $10.0 million or 20.7% for the year ended December 31, 2016 primarily due to lower average assets under management.
Other Income and Fees
Other income and fees primarily represent fees related to other fee-earning assets and contingent sales charges earned from investor redemptions of certain shares sold without a front-end sales charge.
Year ended December 31, 2017 compared to year ended December 31, 2016. Other income and fees increased $0.4 million or 49.3% primarily due to a $0.5 million increase in other income related to the recovery of costs from a third-party service provider during the first quarter of 2017.
Year ended December 31, 2016 compared to year ended December 31, 2015. Other income and fees decreased $1.0$0.9 million, or 54.8%18.8%, for the year ended December 31, 2023 compared to the prior year, primarily due to a decreaselower redemption income as well as the decline in contingent sales charges paid as a resultaverage other fee-earning assets in the current year.
Operating Expenses
Operating expenses by category were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Years Ended December 31, | | | | Change | | | | |
(in thousands) | 2023 | | 2022 | | | | 2023 vs. 2022 | | % | | | | |
Operating expenses | | | | | | | | | | | | | |
Employment expenses | $ | 404,742 | | | $ | 371,259 | | | | | $ | 33,483 | | | 9.0 | % | | | | |
Distribution and other asset-based expenses | 96,802 | | | 112,612 | | | | | (15,810) | | | (14.0) | % | | | | |
Other operating expenses | 125,871 | | | 126,178 | | | | | (307) | | | (0.2) | % | | | | |
Other operating expenses of CIP | 4,224 | | | 4,408 | | | | | (184) | | | (4.2) | % | | | | |
Change in fair value of contingent consideration | (5,510) | | | 8,020 | | | | | (13,530) | | | (168.7) | % | | | | |
Restructuring expense | 824 | | | 4,015 | | | | | (3,191) | | | (79.5) | % | | | | |
Depreciation expense | 5,804 | | | 3,923 | | | | | 1,881 | | | 47.9 | % | | | | |
Amortization expense | 61,027 | | | 58,504 | | | | | 2,523 | | | 4.3 | % | | | | |
Total operating expenses | $ | 693,784 | | | $ | 688,919 | | | | | $ | 4,865 | | | 0.7 | % | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Years Ended December 31, | | Change |
| 2017 | | 2016 | | 2015 | | 2017 vs. 2016 | | % | | 2016 vs. 2015 | | % |
($ in thousands) | | | | | | | | | | | | | |
Operating expenses | | | | | | | | | | | | | |
Employment expenses | $ | 191,394 |
| | $ | 135,641 |
| | $ | 137,095 |
| | $ | 55,753 |
| | 41.1 | % | | $ | (1,454 | ) | | (1.1 | )% |
Distribution and other asset-based expenses | 71,987 |
| | 69,049 |
| | 89,731 |
| | 2,938 |
| | 4.3 | % | | (20,682 | ) | | (23.0 | )% |
Other operating expenses | 77,941 |
| | 57,227 |
| | 68,035 |
| | 20,714 |
| | 36.2 | % | | (10,808 | ) | | (15.9 | )% |
Restructuring and severance | 10,580 |
| | 4,270 |
| | — |
| | 6,310 |
| | 147.8 | % | | 4,270 |
| | 100.0 | % |
Depreciation and amortization expense | 15,670 |
| | 5,553 |
| | 6,738 |
| | 10,117 |
| | 182.2 | % | | (1,185 | ) | | (17.6 | )% |
Total operating expenses | $ | 367,572 |
| | $ | 271,740 |
| | $ | 301,599 |
| | $ | 95,832 |
| | 35.3 | % | | $ | (29,859 | ) | | (9.9 | )% |
Employment Expenses
Employment expenses primarily consist of fixed and variable compensation and related employee benefit costs.
Year ended December 31, 2017 compared to year ended December 31, 2016. Employment expenses of $191.4$404.7 million increased $55.8$33.5 million, or 41.1%9.0%, from the prior year ended December 31, 2016. The increase reflected $30.9 million of employment expenses as a result of the June 1, 2017 addition of employees from the Acquisition, higher sales-based and profit-based compensation, due to a 40.7% increase in total sales and increased profits at our affiliates.
Year ended December 31, 2016 compared to year ended December 31, 2015. Employment expenses of $135.6 million decreased $1.5 million or 1.1% primarily due to a reduction in variable profit and sales-based compensation.the addition of AlphaSimplex, which included retention payments to employees incurred as part of the transaction consideration that were classified as employment expense.
Distribution and Other Asset-Based Expenses
Distribution and other asset-based expenses consist primarily of payments to third-party distribution partnersclient intermediaries for providing services to investors in our funds and payments to third-party service providers forsponsored investment management-related services.products. These payments are primarily based on percentages of assets under management or revenues. Thesemanagement. Distribution and other asset-based expenses also include the amortization of deferred sales commissions related to up-front commissions on shares sold without a front-end sales charge to shareholders. The deferred sales commissions are amortized on a straight linestraight-line basis over the periods over whichperiod commissions are generally recovered from distribution fee revenues and contingent sales charges received from shareholders of the funds upon redemption of their shares.
Year ended December 31, 2017 compared to year ended December 31, 2016. Distribution and other asset-based expenses increased $2.9decreased $15.8 million, or 4.3% in14.0%, compared to the prior year ended December 31, 2017 primarily due to increased asset-based shareholder service fees to financial intermediaries related to mutual funds from the Acquisition.
Year ended December 31, 2016 compared to year ended December 31, 2015. Distribution and administrative expenses decreased $20.7 million or 23.0%a decrease in the year ended December 31, 2016 primarily due to lower average open-end fund assets under management and a lower percentage of assets under management in share classes where we paythat have asset-based distribution and other asset-based expenses.
Other Operating Expenses
Other operating expenses primarily consist of investment research and technology costs, professional fees, travel and distribution relateddistribution-related costs, rent and occupancy expenses, operating expenses of our consolidated investment products and other miscellaneousbusiness costs.
Year ended December 31, 2017 compared to year ended December 31, 2016. Other operating expenses increased $20.7decreased modestly by $0.3 million, or 36.2% to $77.9 million0.2%, for the year ended December 31, 2017 from the prior year primarily due to $9.7 million of acquisition and integration expenses, primarily from professional fees and other operating expenses relating to the Acquisition. Other operating expenses for the year ended December 31, 2017 also included $1.5 million in higher operating expenses of our
consolidated investment products, primarily attributable to the addition of four consolidated investment products2023 as a result of the Acquisition.
Year ended December 31, 2016 compared to year ended December 31, 2015. Other operating expenses decreased $10.8 million, or 15.9%, to $57.2 million for the year ended December 31, 2016 from the prior year primarily due to a $16.5 million loss contingency settled and paiddecrease in 2015,other third-party support costs partially offset by $3.3 millionthe addition of expenses incurred in 2016 related to the Acquisition. AlphaSimplex.
Other Operating Expenses of CIP
Other operating expenses of consolidated investment productsCIP remained consistent during the year ended December 31, 2023 compared to the prior year.
Change in Fair Value of Contingent Consideration
Contingent consideration related to the Company's acquisitions are fair valued on each reporting date incorporating changes in various estimates, including underlying performance estimates, discount rates and amount of time until the conditions of the contingent payments are achieved. The change in fair value is recorded in the current period as a gain or loss. The $13.5 million change in fair value of contingent consideration for the year ended December 31, 2016 increased by $2.8 million over2023 as compared to the prior year was primarily dueattributable to expenses associated with the issuance of a CLO.changes in underlying performance estimates and discount rates.
Restructuring and Severance
Year ended December 31, 2017 compared to year ended December 31, 2016. During the year ended December 31, 2017, we incurred $10.6 million in restructuring and severance costs primarily related to the Acquisition, which resulted in $9.6 million in severance costs related to staff reductions and $1.0 million in restructuring costs related to future lease obligations and leasehold improvement write-offs. We incurred $4.3 million, in restructuring and severance costs for the year ended December 31, 2016. Approximately $3.9 million was related to severance costs associated with staff reductions, primarily in business support areas and $0.4 million related to future lease obligations and leasehold improvements for vacated office space.
Year ended December 31, 2016 compared to year ended December 31, 2015. We incurred $4.3 million primarily related to severance costs for the year ended December 31, 2016. Approximately $3.9 million was related to severance costs associated with staff reductions, primarily in business support areas and $0.4 million related to future lease obligations and leasehold improvements for vacated office space.
Depreciation and Amortization Expense
Depreciation and amortization expense consists primarily of the straight-line depreciation of furniture, equipment and leasehold improvementsimprovements.Depreciation expense increased $1.9 million, or 47.9%, for the year ended December 31, 2023 compared to the prior year primarily due to the addition of AlphaSimplex, as well as leasehold improvements and equipment purchases made in the current year.
Amortization Expense
Amortization expense consists of the amortization of definite-lived intangible assets both over their estimated useful lives.
Year ended December 31, 2017 compared to year ended December 31, 2016. Depreciation and amortizationAmortization expense increased $10.1$2.5 million, or 182.2% to $15.7 million4.3%, for the year ended December 31, 20172023 compared to the prior year, primarily due to an increase in definite lived intangible assets as a resultthe addition of the Acquisition.AlphaSimplex.
Year ended December 31, 2016 compared to year ended December 31, 2015. Depreciation and amortization expense decreased $1.2 million or 17.6% to $5.6 million for the year ended December 31, 2016 primarily due to certain intangible assets becoming fully amortized.
Other Income (Expense), net
Other Income (Expense), net by category were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Years Ended December 31, | | | | Change |
(in thousands) | 2023 | | 2022 | | | | 2023 vs. 2022 | | % | | | | |
Other Income (Expense) | | | | | | | | | | | | | |
Realized and unrealized gain (loss) on investments, net | $ | 6,525 | | | $ | (12,489) | | | | | $ | 19,014 | | | (152.2) | % | | | | |
Realized and unrealized gain (loss) of CIP, net | (2,404) | | | (39,296) | | | | | 36,892 | | | (93.9) | % | | | | |
Other income (expense), net | (440) | | | (153) | | | | | (287) | | | 187.6 | % | | | | |
Total Other Income (Expense), net | $ | 3,681 | | | $ | (51,938) | | | | | $ | 55,619 | | | (107.1) | % | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Years Ended December 31, | Change |
| 2017 | | 2016 | | 2015 | | 2017 vs. 2016 | | % | | 2016 vs. 2015 | | % |
($ in thousands) | | | | | | | | | | | | | |
Other Income (Expense) | | | | | | | | | | | | | |
Realized and unrealized gain (loss) on investments, net | $ | 2,973 |
| | $ | 4,982 |
| | $ | (862 | ) | | $ | (2,009 | ) | | (40.3 | )% | | $ | 5,844 |
| | 678.0 | % |
Realized and unrealized gain (loss) on investments of consolidated investment products, net | 13,553 |
| | 2,748 |
| | (26,686 | ) | | 10,805 |
| | 393.2 | % | | 29,434 |
| | 110.3 | % |
Other income (expense), net | 1,635 |
| | 1,089 |
| | 898 |
| | 546 |
| | 50.1 | % | | 191 |
| | 21.3 | % |
Total Other Income (Expense), net | $ | 18,161 |
| | $ | 8,819 |
| | $ | (26,650 | ) | | $ | 9,342 |
| | 105.9 | % | | $ | 35,469 |
| | 133.1 | % |
Realized and Unrealized Gain (Loss) on Investments, net
Realized and unrealized gain (loss) on investments, net
Year ended December 31, 2017 compared to year ended December 31, 2016. Realized and unrealized gain (loss) on investments, net decreased for changed during the year ended December 31, 20172023 by $2.0$19.0 million fromas compared to the prior year. The realized and unrealized gains on investments,and losses reflect changes in overall market conditions for the year.
Realized and Unrealized Gain (Loss) of CIP, net
Realized and unrealized gain (loss) of CIP, net changed $36.9 million compared to the prior year. The change for the current year consisted primarily of net realized and unrealized gains of $145.8 million primarily due to changes in market values of leveraged loans, partially offset by changes in net realized and unrealized losses of $108.9 million related to the value of the notes payable.
Other Income (Expense), net
Other income (expense), net changed by $0.3 million during the year ended December 31, 2017 were primarily attributable to unrealized gains on our domestic equity strategies. The realized and unrealized gains on investments, net during the year ended December 31,
2016 primarily consisted of a realized gain of approximately $2.9 million on the sale of one of our equity method investments and unrealized gains of $1.3 million from small cap and emerging market equity strategies.
Year ended December 31, 2016 compared to year ended December 31, 2015. Realized and unrealized gain (loss) on investments, net increased for the year ended December 31, 2016 by $5.8 million2023 compared to the prior year primarily due to unrealizedchanges in the gains of $1.3 million from small cap and emerging market equity strategies and a realized gain of approximately $2.9 millionlosses on the sale of one of our equity method investments during 2016 as compared to $5.0 million in unrealized losses in the prior year, which was primarily related to our marketable securities in emerging market and international strategies.investments.
Realized and unrealized gain (loss) on investments of consolidated investment products, net
Year ended December 31, 2017 compared to year ended December 31, 2016. Realized and unrealized gains, net on investments of consolidated investment products increased to $13.6 million for the year ended December 31, 2017 from $2.7 million in the prior year. The increase primarily consisted of $15.3 million in changes on the note payable as a result of applying the measurement alternative of ASU 2014-13, partially offset by unrealized losses of $1.8 million on the investments of our CIPs.
Year ended December 31, 2016 compared to year ended December 31, 2015. Realized and unrealized gains, net on investments of consolidated investment products were $2.7 million for the year ended December 31, 2016 compared with $26.7 million in the prior year. The realized and unrealized gains for the year ended December 31, 2016 were primarily attributable to unrealized gains related to emerging markets debt and target date retirement strategies and a master limited partnership fund. The realized and unrealized loss for the year ended December 31, 2015 was primarily attributable to unrealized losses on alternative and emerging markets debt strategies.
Interest Income (Expense), net
Interest Income (Expense), net by category were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Years Ended December 31, | | | | Change |
(in thousands) | 2023 | | 2022 | | | | 2023 vs. 2022 | | % | | | | |
Interest Income (Expense) | | | | | | | | | | | | | |
Interest expense | $ | (23,431) | | | $ | (13,173) | | | | | $ | (10,258) | | | 77.9 | % | | | | |
Interest and dividend income | 12,458 | | | 4,448 | | | | | 8,010 | | | 180.1 | % | | | | |
Interest and dividend income of investments of CIP | 197,707 | | | 107,325 | | | | | 90,382 | | | 84.2 | % | | | | |
Interest expense of CIP | (155,335) | | | (80,234) | | | | | (75,101) | | | 93.6 | % | | | | |
Total Interest Income (Expense), net | $ | 31,399 | | | $ | 18,366 | | | | | $ | 13,033 | | | 71.0 | % | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Years Ended December 31, | | Change |
| 2017 | | 2016 | | 2015 | | 2017 vs. 2016 | | % | | 2016 vs. 2015 | | % |
($ in thousands) | | | | | | | | | | | | | |
Interest Income (Expense) | | | | | | | | | | | | | |
Interest expense | $ | (12,007 | ) | | $ | (679 | ) | | $ | (523 | ) | | $ | (11,328 | ) | | 1,668.3 | % | | $ | (156 | ) | | (29.8 | )% |
Interest and dividend income | 2,160 |
| | 1,743 |
| | $ | 1,261 |
| | 417 |
| | 23.9 | % | | 482 |
| | 38.2 | % |
Interest and dividend income of investments of consolidated investment products | 49,323 |
| | 20,402 |
| | $ | 13,661 |
| | 28,921 |
| | 141.8 | % | | 6,741 |
| | 49.3 | % |
Interest expense of consolidated investment products | (35,243 | ) | | (11,292 | ) | | (484 | ) | | (23,951 | ) | | 212.1 | % | | (10,808 | ) | | 2,233.1 | % |
Total Interest Income, net | $ | 4,233 |
| | $ | 10,174 |
| | $ | 13,915 |
| | $ | (5,941 | ) | | (58.4 | )% | | $ | (3,741 | ) | | (26.9 | )% |
Interest expenseExpense
Year ended December 31, 2017 compared to year ended December 31, 2016. Interest expense increased $11.3$10.3 million, or 77.9%, for the year ended December 31, 2017 compared to the prior year due to the write-off of $1.1 million in unamortized deferred financing costs as a result of the termination of a prior credit facility and, $1.2 million in delayed draw fees associated with our new credit agreement and a higher average level of debt outstanding compared to the same period in the prior year.
Year ended December 31, 2016 compared to year ended December 31, 2015. Interest expense increased $0.2 million for the year ended December 31, 2016 compared to the prior year due to a higher average level of debt outstanding.
Interest and dividend income
Interest and dividend income consists of interest and dividend income earned on cash equivalents and our marketable securities.
Year ended December 31, 2017 compared to year ended December 31, 2016. Interest and dividend income increased $0.4 million or 23.9% in 2017 compared to the prior year primarily due to a higher concentration of dividend paying marketable securities during 2017 compared to the prior year.
Year ended December 31, 2016 compared to year ended December 31, 2015. Interest and dividend income increased $0.5 million or 38.2% in 2016 compared to the prior year primarily due to an increase in our marketable securities.
Interest and Dividend Income of Investments of Consolidated Investment Products
Year ended December 31, 2017 compared to year ended December 31, 2016. Interest and dividend income of consolidated investment products increased $28.9 million or 141.8% compared to the prior year primarily due a higher balance of investments of our consolidated investment products compared to prior year.
Year ended December 31, 2016 compared to year ended December 31, 2015. Interest and dividend income of consolidated investment products increased $6.7 million or 49.3% compared to the prior year primarily due to the full year of interest on investments of the consolidated investment product compared to a partial year in 2015, and the higher balance of investments of the consolidated investment product in 2016 as the CLO ramped up its portfolio size at issuance.
Interest Expense of Consolidated Investment Products ("CIPs")
Year ended December 31, 2017 compared to year ended December 31, 2016. Interest expense increased by $24.0 million, or 212.1%2023, compared to the prior year primarily due to higher average interest rates and higher average debt balances forduring the current year.
Interest and Dividend Income
Interest and dividend income is earned on cash equivalents and our CIPs.
Year ended December 31, 2016marketable securities.Interest and dividend income increased $8.0 million, or 180.1%, compared to the prior year ended December 31, 2015. due to higher average investment balances and higher
interest rates during the current year compared to the prior year.
Interest and Dividend Income of Investments of CIP
Interest and dividend income of investments of CIP increased $90.4 million, or 84.2%, compared to the prior year primarily attributable to higher interest earned on cash balances.
Interest Expense of CIP
Interest expense of CIPsCIP represents interest expense on the notes payable of CIP. Interest expense of CIP increased by $10.8$75.1 million, or 2,233.1%93.6%, compared to the prior year primarily due to higher average debt balances for our CIPs.interest rates and the addition of a CLO during the third quarter of 2023 and fourth quarter of 2022.
Income Tax Expense (Benefit)
Year ended December 31, 2017 compared to year ended December 31, 2016.The provision for income taxes reflected U.S. federal, state and local taxes at an estimated effective tax rate of 50.3%24.2% and 30.1%34.9% for 20172023 and 2016,2022, respectively. On December 22, 2017, the Tax Cuts and Jobs Act (the Tax Act) was enacted, which among other items reduced the federal corporate tax rate to 21% effective January 1, 2018. The Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin No. 118, which specifies, among other things, that reasonable estimates of the income tax effects of the Tax Act should be used, if determinable. Accordingly, financial results for 2017 included an increase in income tax expense of $13.1 million resulting primarily from the revaluation of deferred tax assets to reflect the new federal corporate tax rate.
Year ended December 31, 2016 compared to year ended December 31, 2015.The provision for income taxes reflected U.S. federal, state and local taxes at anlower estimated effective tax rate of 30.1%for 2023 was primarily due to excess tax benefits associated with stock-based compensation and 54.6% for 2016 and 2015, respectively. The decreasethe change in valuation allowances in the 2016current year related to the tax effects of unrealized gains on certain of our investments.The higher effective tax rate as compared to 2015 was primarily attributable to a $5.1 million reduction in the prior year was due to valuation allowanceallowances recorded for the tax effects of unrealized losses on deferred tax assets related tocertain of our investment portfolio.investments.
Effects of Inflation
Inflationary pressures can result in increases to our cost structure,costs, especially to the extent that large expense components such as compensation are impacted. To the degree that these expense increases are not recoverable or cannot be counterbalanced through pricing increases due to the competitive environment, our profitability could be negatively impacted. In addition, the value of the assets that we manage may be negatively impacted if inflationary expectations result in a rising interest rate environment. Declines in the values of these assets under management could lead to reduced revenues as management fees are generally earned as a percentpercentage of assets under management.
Liquidity and Capital Resources
Certain Financial Data
The following tables summarize certain financial data relating to our liquidity and capital resources:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, | | | | Change | | | | |
(in thousands) | 2023 | | 2022 | | | | 2023 vs. 2022 | | % | | | | |
Balance Sheet Data | | | | | | | | | | | | | |
Cash and cash equivalents | $ | 239,602 | | | $ | 338,234 | | | | | $ | (98,632) | | | (29.2) | % | | | | |
Investments | 132,696 | | | 100,330 | | | | | 32,366 | | | 32.3 | % | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Contingent consideration | 90,938 | | | 128,400 | | | | | (37,462) | | | (29.2) | % | | | | |
Debt | 253,412 | | | 255,025 | | | | | (1,613) | | | (0.6) | % | | | | |
Redeemable noncontrolling interests | 104,869 | | | 113,718 | | | | | (8,849) | | | (7.8) | % | | | | |
Total equity | 868,289 | | | 822,936 | | | | | 45,353 | | | 5.5 | % | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, | | Change |
($ in thousands) | 2017 | | 2016 | | 2015 | | 2017 vs. 2016 | | % | | 2016 vs. 2015 | | % |
Balance Sheet Data | | | | | | | | | | | | | |
Cash and cash equivalents | $ | 132,150 |
| | $ | 64,588 |
| | $ | 87,574 |
| | $ | 67,562 |
| | 104.6 | % | | $ | (22,986 | ) | | (26.2 | )% |
Investments | 108,492 |
| | 89,371 |
| | 56,738 |
| | 19,121 |
| | 21.4 | % | | 32,633 |
| | 57.5 | % |
Deferred taxes, net | 32,428 |
| | 47,535 |
| | 54,143 |
| | (15,107 | ) | | (31.8 | )% | | (6,608 | ) | | (12.2 | )% |
Debt | 248,320 |
| | 30,000 |
| | — |
| | 218,320 |
| | 727.7 | % | | 30,000 |
| | 100.0 | % |
Total equity | 605,224 |
| | 321,673 |
| | 509,457 |
| | 283,551 |
| | 88.1 | % | | (187,784 | ) | | (36.9 | )% |
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Years Ended December 31, | | Change |
($ in thousands) | 2017 | | 2016 | | 2015 | | 2017 vs. 2016 | | % | | 2016 vs. 2015 | | % |
Cash Flow Data | | | | | | | | | | | | | |
Provided by (used in) | | | | | | | | | | | | | |
Operating activities | $ | (182,692 | ) | | $ | 30,522 |
| | $ | (209,430 | ) | | $ | (213,214 | ) | | (698.6 | )% | | $ | 239,952 |
| | 114.6 | % |
Investing activities | (416,994 | ) | | 3,079 |
| | (6,438 | ) | | (420,073 | ) | | (13,643.2 | )% | | 9,517 |
| | 147.8 | % |
Financing activities | 750,464 |
| | (48,298 | ) | | 109,948 |
| | 798,762 |
| | (1,653.8 | )% | | (158,246 | ) | | (143.9 | )% |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Years Ended December 31, | | | | Change | | | | |
(in thousands) | 2023 | | 2022 | | | | 2023 vs. 2022 | | % | | | | |
Cash Flow Data | | | | | | | | | | | | | |
Provided by (used in) | | | | | | | | | | | | | |
Operating activities | $ | 237,157 | | | $ | 132,670 | | | | | $ | 104,487 | | | 78.8 | % | | | | |
Investing activities | (129,732) | | | (27,467) | | | | | (102,265) | | | 372.3 | % | | | | |
Financing activities | (356,113) | | | (102,057) | | | | | (254,056) | | | 248.9 | % | | | | |
Overview
At December 31, 2017,2023, we had $132.2$239.6 million of cash and cash equivalents and $66.4$132.7 million of investments, in marketablewhich included $97.3 million of investment securities, compared to $64.6$338.2 million of cash and cash equivalents and $74.9$100.3 million of investments, in marketablewhich included $77.0 million of investment securities, at December 31, 2016. At December 31, 2017, with respect to our credit agreement (“Credit Agreement”), we had $259.4 million outstanding under our seven-year term debt ("Term Loan") and no outstanding borrowings under our $100.0 million revolving credit facility (the "Credit Facility"). On February 15, 2018, we amended our Credit Agreement that resulted in $105.0 million of additional Term Loan commitments to fund, in part, the proposed acquisition of SGA. The $105.0 million will be drawn at the closing of the SGA acquisition and subject to a delayed draw fee. In addition, the amended Credit Agreement removed the financial maintenance covenant on the Term Loan and replaced the existing financial maintenance covenant on the $100.0 million Credit Facility with a net leverage ratio covenant, defined as net debt divided by EBITDA, set at 2.5 to 1, that is in place when $30.0 million or more has been drawn down on the revolving credit facility. As of December 31, 2017, we had $127.2 million of net debt, which resulted in a net leverage ratio of 0.74:1.0 as of December 31, 2017.2022.
In February 2017, we issued 1,046,500 shares of common stock and 1,150,000 shares of 7.25% mandatory convertible preferred stock in a public offering, including over-allotments, for net proceeds of $220.5 million, after underwriting discounts, commissions and other offering expenses. We used the net proceeds of these offerings, together with cash on hand, 213,699 shares of our common stock, proceeds from the sale of investments and net borrowings of approximately $244.1 million from the new credit agreement, as described below, to finance the Acquisition and pay related fees and expenses.
Uses of Capital
Our main usesoperating expenses consist of capitalemployee compensation and related to operating activities include payments of annual incentive compensation, interest payments on our indebtedness, income tax,benefit costs and, other operating expenses, which primarily consist of investment research, and technology costs, professional fees, distribution and occupancy costs.costs, as well as interest on our indebtedness and income taxes. Annual incentive compensation, which is one of the largest annual operating cash expenditures,expenditure, is paid in the first quarter of the year. In the first quarter of 20172023 and 2016,2022, we paid approximately $39.7$142.1 million and $42.5$151.6 million, respectively, in incentive compensation earned during the years ended December 31, 20162022 and 2015,2021, respectively.
In addition to operating activities, other uses of cash could include: (i) investments in organic growth, including seeding or will include (i) integration costs, including severance, relatedlaunching new products and expanding distribution; (ii) debt principal payments through scheduled amortization, excess cash flow payment requirements or additional paydowns; (iii) dividend payments to potential acquisitions, if any; (ii)common stockholders; (iv) repurchases of our common stock, or withholding obligations for the net settlement of employee share transactions; (v) investments in our organic growth, including our distribution efforts and launches of new products; (iii) seeding or investing in new products, including seeding funds or sponsoring CLO issuances; (iv) principal payments on debt outstanding; (v) dividend payments to preferred and common stockholders;infrastructure; (vi) investments in our
infrastructure; and (vii) investments in inorganic growth opportunities as they arise. Although we continuously monitor working capitalthat may require upfront and/or future payments; (vii) integration costs, including restructuring and severance, related to ensure adequate resources are available for near-term liquidity requirements, our liquidity could be impacted by certain contingencies, including any legal or regulatory matters as described in Note 10acquisitions, if any; and (viii) purchases of our consolidated financial statements.affiliate equity interests.
Capital and Reserve Requirements
We operate twoan SEC-registered broker-dealer subsidiaries registered with the SECsubsidiary that areis subject to certain rules regarding minimum net capital. The broker-dealers are required to maintain a ratio of “aggregate indebtedness” to “net capital,” as defined, which may not exceed 15 to 1, and must also maintain a minimum amount of net capital. Failure to meet these requirements could result in adverse consequences to us, including additional reporting requirements, a lower required ratio of aggregate indebtedness to net capital or interruption of our business. At December 31, 2017 and 2016, the ratio of aggregate indebtedness to net capital of2023, our broker-dealers was below the maximum allowed, andbroker-dealer net capital was significantly greater than the required minimum.
Balance Sheet
Cash and cash equivalents consist of cash in banks and money market fund investments. Investments consist primarily
of investments in our affiliated mutualsponsored funds. Consolidated investment products primarilyCIP represent investment products tofor which we provide investment management services and where we have either a controlling financial interest or we are considered the primary beneficiary of an investment product that is a considered a variable interest entity.
Operating Cash Flow
Net cash used in operating activities of $182.7 million for 2017 decreased by $213.2 million from net cash provided by operating activities of $30.5 million in 2016. The decrease was primarily due to an increase in net purchases of investments of our consolidated investment products.
Net cash provided by operating activities of $30.5$237.2 million for 20162023 increased by $240.0$104.5 million from net cash used in operating activities of $209.4 million in 2015. The increase in net cashflows provided by operating activities wasof $132.7 million in 2022 primarily due to increased sales,a decrease of $117.4 million in net of purchases of investments of consolidated sponsored investment products and lower purchases, net of sales, of investments of the consolidated investment product partially offset by higher realized and unrealized gains of consolidated sponsored investment products. Net cash from operating activities includes the operating activities of our consolidated sponsored investment products and the consolidated investment product. These cash flows from the portion of the products we do not own do not directly impact the cash flow related to our shareholders.CIP.
Investing Cash Flow
Cash flows from investing activities consist primarily of capital expenditures and other investing activities related to our business operations. Net cash used in investing activities of $417.0was $129.7 million for 2017 decreased by $420.1 million from net cash provided by investing activities of $3.1 million in 2016. The primary investing activities for the year ended December 31, 2017 were $393.4 million of net cash used for the Acquisition and $21.4 million for the purchase of available for sale securities.
Net cash provided by investing activities of $3.1 million for 2016 increased by $9.5 million from2023 compared to net cash used in investing activities of $6.4$27.5 million in 2015.2022. The primaryincrease in cash used in investing activities in 2016 were cash inflows of $8.6 million relatedduring 2023 compared to the sale of an equity method investment, offset by outflows of $2.0 millionprior year was primarily due to capital expenditures and contributions to equity method investmentsthe cash used for the acquisition of $2.5 million.AlphaSimplex.
Financing Cash Flow
Cash flows provided byfrom financing activities consist primarily of the issuance of common and preferred stock, return of capital through repurchases of common shares, dividends, withholding obligations for the net share settlement of employee share transactions and contributions to noncontrolling interests related to our consolidated investment products.common shares, issuance and repayment of debt by us and CIP, payments of contingent consideration and purchases and sales of noncontrolling interests. Net cash provided by financing activities increased $798.8 million to $750.5 million in 2017 compared to net cash used in financing activities of $48.3increased by $254.1 million to $356.1 million in 2023 from $102.1 million in the prior year. The primary reason for the increase was due to cash raised of $220.5 million related to the issuance of preferred stock and common stock, net of issuance costs paid, $244.1 million in term loan borrowings, net of issuance costs paid, and $369.0 million in net borrowings of our consolidated investment products. These financing cash inflows were partially offset by the repayments of $30.0 million on our terminated credit facility.
Net cash used in financing activities decreased $158.2 million to $48.3 million in 2016during 2023 compared to net cash provided by financing activities of $109.9 million in the prior year. The decreaseyear was primarily due to cash outflows related to the repaymentan increase of debt of the CLO of $152.6$315.1 million and increasedin net borrowings by CIP, partially offset by a $45.0 million decrease in common share repurchases of $153.8 million, offset by cash inflows of $316.3 million related toduring the issuance of notes payable by the CLO and borrowings on our Credit Facility of $30.0 million.
Credit Agreement
On June 1, 2017, in a connection with the Acquisition, the Company entered into a new credit agreement ("Credit Agreement") comprising a $260.0 million of seven-year term debt ("Term Loan") and a $100.0 million five-year revolving credit facility ("Credit Facility"). The Company's previous revolving credit facility and debt financing commitment were terminated. As a result, the Company expensed approximately $1.1 million of unamortized deferred financing costs related to the previous senior unsecured revolving credit facility. The Company borrowed the full $260.0 million under the Term Loan on June 1, 2017 to fund a portion of the purchase price of the Acquisition, and at December 31, 2017, $259.4 million was outstanding.
Amounts outstanding under the Credit Agreement for the Term Loan and the Credit Facility bear interest at an annual rate equal to, at the option of the Company, either (i) LIBOR (adjusted for reserves) for interest periods of one, two, three or six months (or, solely in the case of the Credit Facility, if agreed to by each relevant Lender, twelve months or periods less than one month), subject to a “floor” of 0% for the Credit Facility and 0.75% for the Term Loan; or (ii) an alternate base rate, in either case plus an applicable margin. The applicable margins are set initially at 3.75%, in the case of LIBOR-based loans, and 2.75%, in the case of alternate base rate loans, and will range from 3.50% to 3.75%, in the case of LIBOR-based loans, and 2.50% to 2.75%, in the case of alternate base rate loans, based on the secured net leverage ratio of the Company as of the last day of the preceding fiscal quarter. Interest is payable on the last day of each interest period with respect to LIBOR-based loans, but at least at three-month intervals, and quarterly in arrears with respect to alternate base rate loans (but, in the case of LIBOR-based loans with an interest period of more than three months).
The obligations of the Company under the Credit Agreement are guaranteed by certain of its subsidiaries (the “Guarantors”) and secured by substantially all of the assets of the Company and the Guarantors, subject to customary exceptions. The Credit Agreement contains customary affirmative and negative covenants, including covenants that affect, among other things, the ability of the Company and its subsidiaries to incur additional indebtedness, create liens, merge or dissolve, make investments, dispose of assets, engage in sale and leaseback transactions, purchase shares of our common stock, make distributions and dividends and pre-payments of junior indebtedness, engage in transactions with affiliates, enter into restrictive agreements, amend documentation governing junior indebtedness, modify its fiscal year, or modify its organizational documents, subject to customary exceptions, thresholds, qualifications and “baskets.” In addition, the Credit Agreement contains a financial maintenance covenant requiring a maximum leverage ratio as of the last day of each of the trailing four fiscal quarter periods, of no greater than the levels set forth in the Credit Agreement.
At any time, upon timely notice, the Company may terminate the Credit Agreement in full, reduce the commitment under the Credit Facility in minimum specified increments, or prepay the Term Loan in whole or in part, subject to the payment of breakage fees with respect to LIBOR-based loans.
On February 15, 2018, the Company amended its Credit Agreement to increase the Term Loan by $105.0 million to fund, in part, the proposed acquisition of SGA. The $105.0 million will be drawn at the closing of the SGA acquisition and subject to a delayed draw fee. In addition, the amended Credit Agreement removed the financial maintenance covenant on the Term Loan and replaced the existing financial maintenance covenant on the $100.0 million Credit Facility with a net leverage ratio covenant, defined as net debt divided by EBTIDA, set at 2:5 to 1, that is in place when $30.0 million or more is outstanding on the Credit Facility.
Term Loan
The Term Loan, which was priced on March 2, 2017, had a delayed draw fee of $1.2 million between March 2, 2017 and the closing date of June 1, 2017. The Term Loan amortizes at the rate of 1.00% per annum payable in equal quarterly installments and will be mandatorily repaid with: (i) 50% of the Company’s excess cash flow on an annual basis, beginning with the fiscal year ended December 31, 2018, stepping down2023 as compared to 25% if the Company’s secured net leverage ratio declines below 1.0, and further stepping down to 0% if the Company’s secured net leverage ratio declines below 0.5; (ii) the net proceeds of certain asset sales, casualty or condemnation events, subject to customary reinvestment rights; and (iii) the proceeds of any indebtedness incurred other than indebtedness permitted to be incurred by the Credit Agreement.prior year.
Credit FacilityAgreement
The Company's credit agreement (the "Credit Agreement"), most recently amended on June 20, 2023 to change the base interest rate from LIBOR to SOFR, comprises (i) a $275.0 million term loan with a seven-year term (the "Term Loan") expiring in September 2028, and (ii) a $175.0 million revolving credit facility with a five-year term expiring in September 2026. On April 3, 2023, the Company borrowed $50.0 million under the revolving credit facility to partially finance its acquisition of
AlphaSimplex (see Note 4 for further information) and repaid the entire outstanding balance prior to December 31, 2023. In addition, the Company repaid $2.8 million outstanding under the Term Loan. At December 31, 2017, no amounts were2023, $258.8 million was outstanding under the Credit Facility. The Company hasTerm Loan. In accordance with ASC 835, Interest, the right, subject to customary conditions specified in the Credit Agreement, to request additional revolving credit facility commitments and additional term loans to be madeamounts outstanding under the Credit Agreement up to an aggregate amount equal to the sum of $75.0 million and an amount subject to a pro forma secured net leverage ratio of the Company of no greater than 1.75 to 1.00. Under the terms of the Credit Agreement, the Company is required to pay a quarterly commitment feeCompany's Term Loan are presented on the average unused amountConsolidated Balance Sheet net of the Credit Facility,related debt issuance costs, which fee is initially set at 0.50% and will, following the first delivery of certain financial reports required under the Credit Agreement, range from 0.375% to 0.50%, based on the secured net leverage ratio of the Company as of the last day of the preceding fiscal quarter, as reflected in such financial reports.
Contractual Obligations
The following table summarizes our contractual obligationswere $5.4 million as of December 31, 2017:2023.
|
| | | | | | | | | | | | | | | | | | | |
| Payments Due |
($ in millions) | Total | | Less Than 1 Year | | 1-3 Years | | 3-5 Years | | More Than 5 Years |
Lease obligations | $ | 24.4 |
| | $ | 6.8 |
| | $ | 12.3 |
| | $ | 3.2 |
| | $ | 2.1 |
|
Term Loan (1) | 340.0 |
| | 13.2 |
| | 37.7 |
| | 289.1 |
| | — |
|
Credit Facility, including commitment fee (1) | 2.2 |
| | 0.5 |
| | 1.5 |
| | 0.2 |
| | — |
|
Notes payable of consolidated investment products, including interest (2) | 1,975.6 |
| | 50.5 |
| | 151.4 |
| | 101.0 |
| | 1,672.7 |
|
Minimum payments on service contracts (3) | 4.4 |
| | 3.3 |
| | 1.1 |
| | — |
| | — |
|
Total | $ | 2,346.6 |
| | $ | 74.3 |
| | $ | 204.0 |
| | $ | 393.5 |
| | $ | 1,674.8 |
|
| |
(1) | At December 31, 2017, we had $259.4 million outstanding under our Term Loan and no amount outstanding under our Credit Facility which has a variable interest rate. Payments due are estimated based on the variable interest rate and commitment fee rate in effect on December 31, 2017. |
| |
(2) | At December 31, 2017, notes payable of $1.5 billion were outstanding related to our CIPs. The CIPs have note obligations that bear interest at variable rates based on LIBOR plus a pre-defined spread ranging from 1.0% to 8.75%. The principal amounts outstanding on the note obligations issued by the CIPs mature ranging from April 2018 to January 2029, depending on the CIP. The investors in the CIPs have no recourse to our general assets for the debt issued by the CIPs. Therefore, this debt is not our obligation. |
| |
(3) | Service contracts include contractual amounts that will be due to purchase goods and services to be used in our operations and may be canceled at earlier times than those indicated under certain conditions that may include termination fees. |
Impact of NewRecently Issued Accounting Standards
Pronouncements
For a discussion of accounting standards, see Part II, Item 8, "Financial Statements and Supplementary Data," Note 2 to our consolidated financial statements."Summary of Significant Accounting Policies."
Off-Balance Sheet Arrangements
We do not invest in any off-balance sheet vehicles that provide liquidity, capital resources, market or credit risk support nor do we engage in any leasing activities that expose us to any liability that is not reflected in our consolidated financial statements.
Critical Accounting Policies and Estimates
Our consolidated financial statements and the accompanying notes are prepared in accordance with Generally Accepted Accounting Principles,accounting principles generally accepted in the United States of America, which requires the use of estimates. Actual results maywill vary from these estimates. Management believes the following critical accounting policies are important to understanding our results of operations and financial position.
Consolidation
The consolidated financial statements include the Company's accounts including ourof the Company, its subsidiaries and investment products that are consolidated. Voting interest entities ("VOEs") are consolidated when we are considered to have a controlling financial interest, which is typically present when we own a majority of the voting interest in an entity or otherwise have the power to govern the financial and operating policies of the entity.
We evaluate any variable interest entities ("VIEs") in which we have a variable interest for consolidation. A VIE is an entity in which either (a)(i) the equity investment at risk is not sufficient to permit the entity to finance its own activities without additional financial support or (b)(ii) where as a group, the holders of the equity investment at risk do not possess: (i)(x) the power through voting or similar rights to direct the activities that most significantly impact the entity’sentity's economic performance, (ii)performance; (y) the obligation to absorb expected losses or the right to receive expected residual returns of the entity,entity; or (iii)(z) proportionate voting and economic interests and where substantially all of the entity’sentity's activities either involve or are conducted on behalf of an investor with disproportionately fewer voting rights. If an entity has any of these characteristics, it is considered a VIE and is required to be consolidated by its primary beneficiary. The primary beneficiary, which is the entity that has both the power to direct the activities that most significantly impact the VIE’sVIE's economic performance and has the obligation to absorb losses of, or the right to receive benefits from, the VIE that could potentially be significant to the VIE.
Consolidated investment products includeCIP includes both VOEs, made up primarily consisting of open-end funds in which the Company holdswe hold a controlling financial interest, and VIEs, which primarily consist of CLOs of which the Company iswe are considered the primary beneficiary. The consolidation and deconsolidation of these investment products have no impact on net income (loss) attributable to stockholders. The Company’sOur risk with respect to these investment products is limited to itsour beneficial interests in these products. The Company hasWe have no right to the benefits from, and doesdo not bear the risks associated with, these investment products beyond the Company’sour investments in, and fees generated from, these products.
Fair Value Measurements and Fair Value of Financial InstrumentsNoncontrolling Interests
Noncontrolling interests - CIP
The Financial Accounting Standards Board (“FASB”) defines fair value as the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date. Accounting Standards Codification (“ASC”) 820, Fair Value Measurements and Disclosures, establishes a framework for measuring fair value and a valuation hierarchy based upon the transparency of inputs usedNoncontrolling interests - CIP represent third-party investments in the valuationCompany's CIP and are classified as redeemable noncontrolling interests on the Consolidated Balance Sheets because investors in those products are able to request withdrawal at any time.
Noncontrolling interests - Affiliate
Noncontrolling interests - affiliate represent minority interests held in a consolidated affiliate. Minority interests held in the affiliate are subject to holder put rights and Company call rights at established multiples of an assetearnings before interest, taxes, depreciation and amortization and, as such, are considered redeemable at other than fair value. The rights are exercisable at pre-established intervals or liability. Classification within the hierarchy is based upon the lowest level of input that is significant to the fair value measurement.certain conditions, such as retirement. The valuation hierarchy contains three levels as follows:
Level 1 – Quoted prices for identical instruments in active markets. Level 1 assetsput and liabilities may include debt securities and equity securities that are traded in an active exchange market.
Level 2 – Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets thatcall rights are not active;legally detachable or separately exercisable and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets. Level 2 inputs may include observable market data such as closing market prices provided by independent pricing services after considering factors such as the yields or prices of comparable investments of comparable quality, coupon, maturity, call rights and other potential prepayments, terms and type, reported transactions, indications as to values from dealers and general market conditions. In addition, pricing services may determine the fair value of equity securities traded principally in foreign markets when it has been determined that there has been a significant trend in the U.S. equity markets or in index futures trading. Level 2 assets and liabilities may include debt and equity securities, purchased loans and over-the-counter derivative contracts whose fair value is determined using a pricing model without significant unobservable market data inputs.
Level 3 – Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable in active exchange markets.
The following is a discussion of the valuation methodologies used for the Company’s assets measured at fair value:
Sponsored funds represent investments in open-end and closed-end funds for which we act as the investment manager. The fair value of open-end funds is determined based on their published net asset values and are categorized as Level 1. The fair value of closed-end funds is determined based on the official closing price on the exchange on which they are traded and are categorized as Level 1.
Equity securities include securities traded on active markets and are valued at the official closing price (typically last sale or bid) on the exchange on which the securities are primarily traded and are categorized as Level 1.
Investments in collateralized loan obligations represent investments in CLOs for which the Company provides investment management services. The investments in collateralized loan obligations are measured at fair value based on independent third party valuations and are categorized as Level 2 or Level 3.
Nonqualified retirement plan assets represent mutual funds within a nonqualified retirement plan whose fair value is determined based on their published net asset value and are categorized as Level 1.
Investments of consolidated investment products represent the underlying debt and equity securities held in sponsored products which we consolidate. Equity securities are valued at the official closing price on the exchange on which the securities are traded and are categorized within Level 1. Level 2 investments include certain equity securities for which closing prices are not readily available or are deemed to not reflect readily available market prices and are valued using an independent pricing service, as well as most debt securities which are valued based on quotations received from independent pricing services or from dealers who make markets in such securities. Pricing services do not provide pricing for all securities, and therefore indicative bids from dealers are utilized, which are based on pricing models used by market makersbe embedded in the securityrelated noncontrolling interests. The Company, in purchasing affiliate equity, has the option to settle in cash or shares of the Company's common stock and are also included within Level 2. Level 3 investments include debt securities that are not widely traded, are illiquid and are priced by dealers based on pricing models used by market makersis entitled to the cash flow associated with any purchased equity. These minority interests in the security. In certain instances, fairaffiliate are recorded at estimated redemption value has been determined utilizing discounted cash flow analyses or single broker non-binding quotes. Dependingwithin redeemable noncontrolling interests on the nature ofCompany's Consolidated Balance Sheets, and any changes in the inputs, these assetsestimated redemption value are classified as Level 1, 2 or 3 within the fair value measurement hierarchy.
Notes payable of consolidated investment product represents notes issued by the CLO and are measured using the measurement alternative in ASU 2014-13. Accordingly, the fair value of CLO liabilities was measured as the fair value of CLO assets less the sum of (i) the fair value of the beneficial interests held by the Company and (ii) the carrying value of any beneficial interests that represent compensation for services.
Cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities equal or approximate fair value basedrecorded on the short-term natureConsolidated Statements of these instruments. Marketable securities are reflected in the consolidated financial statements at fair value based upon publicly quoted market prices.Operations within noncontrolling
interests.
Goodwill
As of December 31, 2017,2023, the carrying value of goodwill was $170.2$397.1 million. Goodwill represents the excess of the acquisition purchase price of acquisitions over the fair value of identified net assets and liabilities acquired. We perform goodwill impairment tests annually, or more frequently should circumstances change, which could reduce the fair value below its carrying value. We have determined that we have only one reporting unit for purposes of assessing the carrying value of goodwill. Goodwill impairment testing is performed at least annually or whenever events or changes in circumstances indicatedindicate that the carrying amount may not be recoverable. If we determine that the carrying value of the reporting unit is less than the fair value, thea second step of the goodwill impairment test will beis performed to measure the amount of impairment loss, if any. We completed our annual goodwill impairment assessment as of October 31, 2017,2023, and no impairment was identified. For purposes of this assessment, we considered various qualitative factors including, but not limited to, certain indicators of fair value (i.e.(e.g., market capitalization and market multiplies for asset management businesses),managers) and we determined that it was more likely than not that the fair value of our reporting unit was greater than its carrying value. Only a significant decline in the fair value of our reporting unit would indicate that an impairment may exist.
Indefinite-Lived Intangible Assets
As of December 31, 2017,2023, the carrying value of indefinite-lived intangible assets was $43.5$42.3 million. Indefinite-lived intangible assets comprise trade names and acquired closed-end and exchange tradedcertain fund investment advisory contracts.management agreements and trade names. We perform indefinite-lived intangible asset impairment tests annually, or more frequently, should circumstances change, which could reduce the fair value of indefinite-lived intangible assets below their carrying value. We completed our annual indefinite-lived intangible asset impairment assessment of these assets as of October 31, 2017,2023, and no impairments were identified. For purposes of this assessment, we considered various qualitative factors for the investment advisory contracts related to the indefinite-livedmanagement agreement intangible assets including, but not limited to, (i) the growthchanges in our(i) assets under management, (ii) the positive operating margins, and (iii) the positivenet cash flows generated, and we determined that it was more likely than not that the fair value of indefinite-lived intangible assets goodwill was greater than their carrying value. Only a significant decline in the fair value of ourthe indefinite-lived intangible assets would indicate that an impairment may exist.
Definite-Lived Intangible Assets
As of December 31, 2017,2023, the carrying value of definite-lived intangible assets was $258.4$389.8 million. Definite-lived intangible assets comprise acquiredcertain investment advisory contracts.management agreements, trade names and non-competition agreements. We monitor the useful lives of definite-lived intangible assets and revise the useful lives, if necessary, based on the circumstances. Significant judgment is required in estimating the period that these assets will contribute to our cash flows and the pattern over which these assets will be consumed. A change in the remaining useful life of any of these assets could have a significant impact on our amortization expense. All amortization expense is calculated on a straight-line basis. For definite-lived intangible assets, impairmentImpairment testing is performed whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If we were to determine that the carrying value of the definite-lived intangible assets iswas less than the sum of the undiscounted cash flows expected to result from the asset, we willwould quantify the impairment using a discounted cash flow model.
Revenue Recognition
Our revenues are recognized when a performance obligation is satisfied, which occurs when control of the services is transferred to customers. Investment management fees, distribution and service fees, and administration and shareholder service fees are recordedgenerally calculated as revenues during the period in which services are performed. Investment management fees are earned based upon a percentage of average net assets underof the investment portfolios managed. The net asset values from which these fees are calculated are variable in nature and subject to factors outside of the Company's control, such as additional investments, withdrawals and market performance. Because of this, these fees are considered constrained until the end of the contractual measurement period (monthly or quarterly), which is when asset values are generally determinable.
Investment Management Fees
We provide investment management services pursuant to investment management agreements through our investment advisers (each an "Adviser"). Investment management services represent a series of distinct daily services that are performed over time. Fees earned on funds are based on each fund's average daily or weekly net assets and are paid pursuant to the terms of the respectivegenerally calculated and received on a monthly basis. For funds managed by unaffiliated subadvisers, we record investment management contracts, which generally require monthly or quarterly payment. We account for investment management fees in accordance with ASC 605, Revenue Recognition, and have recorded our management fees net of the subadvisory fees paid to unaffiliated subadvisers. We consider the nature of our contractual arrangements in determining whether to recognize revenue based on the gross amount billed or net amount retained. We have evaluated the factors in ASC 605-45 in determining whether to record revenue on a gross or net basis with significant weight placed on: (i) ifsince we are deemed to be an agent of the primary obligor infund as it relates to the arrangement;services they perform, with our performance obligation being to arrange for the provision of that service and (ii) if we have latitude in establishing price.not control the specified service before it is performed. Amounts paid to unaffiliated subadvisers for the years ended December 31, 2017, 20162023, 2022 and 20152021 were $46.7$54.7 million, $47.2$77.0 million and $76.4$115.5 million, respectively.
InvestmentRetail separate account fees are generally earned based on the end of the preceding or current quarter's asset values. Institutional account fees are generally earned based on an average of month-end balances. In certain instances,
institutional fees may include performance related fees that are based on investment returns relative to benchmarks. Fees for structured finance products consist of senior, subordinated and, in certain instances, incentive management fees. Senior and subordinated management fees are calculated based on the end of the preceding quarter par value of the collateral managed with subordinated fees being earned only after certain portfolio criteria are met. Incentive fees on CLOs are typically a percentage of the excess cash flows available to holders of subordinated notes, above a threshold level internal rate of return.
We rely on service providers to provide information for the pricing of the underlying investment securities for the asset values that drive our investment management fees and our assets under management. We rely on data provided to us byOur service providers to our funds for the pricing of assets under management. Our funds, and the service providers to the funds, have formal valuation policies and procedures over the valuation of investments. As of December 31, 2017, our total assets under management by fair value hierarchy level, as defined by ASC 820, Fair Value Measurements
Distribution and Disclosures, were approximately 56.9% Level 1, 42.7% Level 2 and 0.4% Level 3.
Service Fees
Distribution and service fees are sales- and asset-based fees earned from open-end funds for marketing and distribution services. These fees primarily consist of an asset-based fee that is paid by the fund over a period of years to cover allowable sales and marketing expenses for the fund or front-end sales charges that are based on a percentage of assets under managementthe offering price. Asset-based distribution and service fees are primarily based on percentages of the average daily net asset value and are paid monthly pursuant to the terms of the respective distribution and service fee contracts.
Distribution and service fees represent two performance obligations comprised of distribution and related shareholder servicing activities. Distribution services are generally satisfied upon the sale of a fund share. Shareholder servicing activities are generally services satisfied over time.
We distribute our open-end funds through third-party financial intermediaries that comprise national, regional and independent broker-dealers. These third-party financial intermediaries provide distribution and shareholder service activities on our behalf. We pay related distribution and service fees to these third-party financial intermediaries for these services as we consider ourselves the principal in these arrangements since we have control of the services prior to the services being transferred to the customer. These payments are classified within distribution and other asset-based expenses.
Administration & Shareholder Service Fees
We provide administrative fund services to our U.S. retail funds, ETFs and the majority of our closed-end funds and shareholder services to our U.S. retail funds. Administration and shareholder servicingservices are performed over time. We earn fees consist of fund administration, shareholder servicingfor these services, which are calculated and fiduciary fees. Fund administration fees are earnedpaid monthly, based on theeach fund's average daily assets inor weekly net assets. Administrative fund services include: record keeping, preparing and filing documents required to comply with securities laws, legal administration and compliance services, customer service, supervision of the activities of the funds' service providers, tax services and treasury services. We also provide office space, equipment and personnel that may be necessary for managing and administering the business affairs of the funds. Shareholder service fees are earned based on the average daily assets in the funds. Fiduciary fees are recorded monthly based on the number of 401(k) accounts. We utilize outside service providers to perform some of the functions related to fund administrationservices include maintaining shareholder accounts, processing shareholder transactions, preparing filings and shareholder services.performing necessary reporting.
Other Income and Fees
Other income and fees consist primarily of redemption income on the early redemptionrepresent fees related to other fee-earning assets and contingent sales charges earned from investor redemptions of certain share classes of mutual funds and brokerage commissions and fees earned for the distribution of nonaffiliated products. Commissions earned (and related expenses) are recorded onshares sold without a trade date basis and are computed based upon contractual agreements.front-end sales charge.
Accounting for Income Taxes
We account for income taxes in accordance with ASC 740,Income Taxes, which requires recognition of the amount of taxes payable or refundable for the current year, as well as deferred tax assets and liabilities and assets for the future tax consequences of events that have been included in our financial statements or tax returns. Deferred tax liabilities and assets result fromtemporary differences between the book value and tax basis of our assets and liabilities and carry-forwards, such as net operating losses or tax credits.the reported amounts on the Consolidated Financial Statements. We recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. We record interest and penalties related to income taxes as a component of income tax expense.
Significant judgment is required in determining the provision for income taxes and, in particular, any valuation allowance that is recorded against our deferred tax assets. OurThe methodology for determining the realizability of deferred tax assets includes consideration of taxable income in prior carryback year(s), if carryback is permitted under the tax law, as well as consideration of the reversal of deferred tax liabilities that are in the same period and jurisdiction and are of the same character as the temporary differences that gave rise to the deferred tax assets. Our methodology also includes estimates of future taxable
income from our operations, as well as the expiration dates and amounts of carryforwards related to net operating losses and capital losses. These estimates are projected through the life of the related deferred tax assets based on
assumptions that we believe to be reasonable and consistent with demonstrated operating results. Changes in future operating results not currently forecasted may have a significant impact on the realization of deferred tax assets. Valuation allowances are provided when it is determined that it is more likely than not that the benefit of deferred tax assets will not be realized.
Contingent Consideration
We periodically enter into contingent payment arrangements in connection with our business combinations or asset purchases. In contingent payment arrangements, we agree to pay additional transaction consideration to the seller based on future performance. We estimate the value of future payments of these potential future obligations at the time a business combination or asset purchase is consummated. Liabilities under contingent payment arrangements are recorded within contingent consideration on the Consolidated Balance Sheets.
Contingent payment obligations related to business combinations are remeasured at fair value each reporting date using a simulation model with the assistance of an independent valuation firm (level 3 fair value measurement). The change in fair value is recorded in the current period as a gain or loss. Gains and losses resulting from changes in the fair value of contingent payment obligations are reflected within change in fair value of contingent consideration on the Consolidated Statements of Operations.
Contingent payment obligations related to our asset purchases, if estimable and probable of payment, are initially recorded at their estimated value and reviewed every reporting period for changes. Any changes to the estimated value are recorded as an update of the initial acquisition cost of the asset with a corresponding change to the estimated contingent payment obligation on the Consolidated Balance Sheets.
Loss Contingencies
The likelihood that a loss contingency exists is evaluated using the criteria of ASC 450, Loss Contingencies, and an accrued liability is recorded if the likelihood of a loss is considered both probable and reasonably estimable at the date of the consolidated financial statements.
We believe that we have considered relevant circumstances that we may be currently subject to, and the consolidated financial statements accurately reflect our reasonable estimate of the results of our operations, financial condition and cash flows for the years presented.
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Item 7A. | Quantitative and Qualitative Disclosures About Market Risk. |
Market Risk
Substantially all of our revenues are derived from investment management, distribution and service, and administration and shareholder servicingservice fees, which are based on the market value of assets under management. Accordingly, a decline in the market value of securities would cause our revenues and income to decline due to a decrease in the value of the assets under management. In addition, a decline in security prices could cause our clients to withdraw their investments in favor of other investments offering higher returns or lower risk, whichmanagement would cause our revenues and income to decline.
We are also subject to market risk due to a decline in the market value of our investments, which consist of marketable securities and our net interests in consolidated investment products.CIP. The following table summarizes the impact of a 10% increase or decrease in the fair values of these financial instruments:
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| December 31, 2023 |
(in thousands) | Fair Value | | 10% Change |
Investment securities - fair value (1) | $ | 97,304 | | | $ | 9,730 | |
Our net interest in CIP (2) | 179,588 | | | 17,959 | |
Total Investments subject to Market Risk | $ | 276,892 | | | $ | 27,689 | |
(1)If a 10% increase or decrease in fair values were to occur, it would result in a corresponding increase or decrease in our pre-tax earnings.
(2)These represent our direct investments in investment products that are consolidated. Upon consolidation, these direct investments are eliminated, and the assets and liabilities of CIP are consolidated on the Consolidated Balance Sheet, together with a noncontrolling interest balance representing the portion of the CIP owned by third parties. If a 10% increase or decrease in the fair values of our direct investments in CIP were to occur, it would result in a corresponding increase or decrease in our pre-tax earnings.
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| December 31, 2017 |
$ in thousands | Fair Value | | 10% Change |
| | | |
Marketable Securities - Available for Sale (a) | $ | 3,765 |
| | $ | 376.5 |
|
Marketable Securities - Trading (b) | 62,659 |
| | 6,265.9 |
|
Other Investments (b) | 23,339 |
| | 2,333.9 |
|
Our net interest in Consolidated Investment Products (c) | 142,136 |
| | 14,213.6 |
|
Total Investments subject to Market Risk | $ | 231,899 |
| | $ | 23,189.9 |
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(a) | Any gains or losses arising from changes in the fair value of available-for-sale investments are recognized in accumulated other comprehensive income, net of tax, until the investment is sold or otherwise disposed of or, if the investment is determined to be other-than-temporarily impaired, at which time the cumulative gain or loss previously reported in equity is included in income. The Company evaluates the carrying value of investments for impairment on a quarterly basis. In its impairment analysis, the Company takes into consideration numerous criteria, including the duration and extent of any decline in fair value and the intent and ability of the Company to hold the security for a period of time sufficient for a recovery in value. If the decline in value is determined to be other-than-temporary, the carrying value of the security is generally written down to fair value through the Consolidated Statement of Operations. If such a 10% increase or decrease in fair value were to occur, it would not result in an other-than-temporary impairment charge that would be material to the Company's pre-tax earnings. |
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(b) | If such a 10% increase or decrease in fair values were to occur, the change of these investments would result in a corresponding increase or decrease in our pre-tax earnings. |
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(c) | These represent the Company's direct investments in investment products that are consolidated. Upon consolidation, these direct investments are eliminated, and the assets and liabilities of consolidated investment products are consolidated in the Consolidated Balance Sheet, together with a non-controlling interest balance representing the portion of the consolidated investment products owned by third parties. If a 10% increase or decrease in the fair values of the Company's direct investments in consolidated investment products were to occur, it would result in a corresponding increase or decrease in the Company's pre-tax earnings. |
Interest Rate Risk
Interest rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market interest rates. At December 31, 2017,2023, we were exposed to interest rate risk as a result of approximately $189.2$184.0 million of investments in investments we have in fixedfixed- and floating ratefloating-rate income products, in which we have invested and which includesinclude our net interests in consolidated investment products.CIP. We considered a hypothetical 100 basis point change in interest rates and determined that the fair value of our fixed income investments could change by an estimated $2.0$2.5 million.
At December 31, 2017,2023, we had $259.4$258.8 million outstanding under our Term Loan and noLoan. The applicable margin on amounts outstanding under our Credit Facility. Amounts outstanding under the Credit Agreement bear interest at an annual rate equal to, at the option of the Company, either LIBOR (adjusted for reserves) for interest periods of one, two, three or six months (or, solely in the case of the Credit Facility, if agreed to by each relevant Lender, twelve months or periods less than one month) (subject to a “floor” of 0% in the case of the Credit Facility and 0.75% in the case of the Term Loan) or an alternate base rate, in either case plus an
applicable margin. The applicable margins are initially set at 3.75%is 2.25%, in the case of LIBOR-basedSOFR-based loans, and 2.75%1.25%, in the case of an alternate base rate loans and will, following the first delivery of certain financial reports required under the Credit Agreement, range from 3.50% to 3.75%,loan. Given our borrowings are floating rate, we considered a hypothetical 100 basis point change in the casebase rate of LIBOR-based loans,our outstanding borrowings and 2.50% to 2.75%,determined that annual interest expense would change by an estimated $2.6 million, either an increase or decrease, depending on the direction of the change in the case of alternate base rate loans, based on the secured net leverage ratio of the Company as of the last day of the preceding fiscal quarter, as reflected in such financial reports.rate.
At December 31, 2017, we had $1.5 billion outstanding of notes payable of our consolidated investment products. The notes bear interest at annual rates equal to the average LIBOR rate for interest periods of three months and six months plus, in each case, an applicable margin, that ranges from 1.00% to 8.75%.
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Item 8. | Financial Statements and Supplementary Data. |
The audited Consolidated Financial Statements,consolidated financial statements, including the Report of Independent Registered Public Accounting Firm and the required supplementary quarterly information, required by this item are presented under Item 15 "Exhibits and Financial Statement Schedules" beginning on page F-1.F-1 of this Annual Report on Form 10-K.
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Item 9. | Changes in and Disagreements Withwith Accountants on Accounting and Financial Disclosure. |
None.
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Item 9A. | Controls and Procedures. |
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures designed to ensure that information required to be disclosed in reports filed or submitted 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 SEC's rules and forms and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.
Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of the end of the period covered by this Annual Report on Form 10-K. Consistent with guidance issued by the Securities and Exchange Commission that an assessment of internal controls over financial reporting of a recently acquired business may be omitted from management's evaluation of disclosure controls and procedures, management is excluding an assessment of such internal controls of RidgeWorth Investments acquired by the Company on June 1, 2017, from its evaluation of the effectiveness of the Company's disclosure controls and procedures. The acquisition represented approximately 18.1% of the Company's consolidated total revenues for the fiscal year ended December 31, 2017. Based on their evaluation, our Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective at the reasonable assurance level as of December 31, 2017,2023, the end of the period covered by this Annual Report on Form 10-K.
Changes in Internal ControlControls over Financial Reporting
There have been no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) or 15d-15(f) under the Exchange Act) that occurred during the fourth quarter of fiscal 20172023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
As mentioned above, the Company acquired RidgeWorth Investments on June 1, 2017. The Company is in the process of reviewing its internal control structure as a result of the acquisition and, if necessary, will make appropriate changes to its overall internal control over financial reporting process.
Management’sManagement's Report on Internal Control over Financial Reporting
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) or 15d-15(f) of the Exchange Act. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policy or procedures may deteriorate. Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we have conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 20172023 based upon the Internal Control-Integrated Framework (2013) framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Consistent with guidance issued by the Securities and Exchange Commission that an assessment of a recently acquired business may be omitted from management's report on internal control over financial reporting in the year of acquisition, management excluded an assessment of the effectiveness of the Company's internal control over financial reporting related to RidgeWorth Investments as described above. The acquisition represented approximately 18.1% of the Company's consolidated total revenues for the fiscal year ended December 31, 2017. Based on this evaluation, management, including our Chief Executive Officer and Chief Financial Officer, has concluded that our internal control over financial reporting was effective as of December 31, 2017.2023.
The effectiveness of our internal control over financial reporting as of December 31, 20172023 has been audited by PricewaterhouseCoopersDeloitte & Touche LLP, our independent registered public accounting firm, as stated in their report, which is included in Item 15 "Exhibits and Financial Statement Schedules" of this Annual Report on Form 10-K.
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Item 9B. | Other Information. |
During the three months ended December 31, 2023, none of the Company's directors or officers (as defined in Rule 16a-1(f) of the Securities Exchange Act of 1934, as amended), adopted, terminated or modified a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement (as such terms are defined in Item 408 of Regulation S-K of the Securities Act of 1933, as amended).
None.
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Item 9C. | Disclosure Regarding Foreign Jurisdictions that Prevent Inspections. |
Not applicable.
PART III
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Item 10. | Directors, Executive Officers and Corporate Governance. |
The information concerning the Company’s directors and nominees under the caption “Item 1—Election of Directors,” information concerning the Audit Committee and the “audit committee financial expert” under the caption “Corporate Governance—Audit Committee,” information concerning the Company’s executive officers under the caption “Executive Officers,” and the information under the caption “Section 16(a) Beneficial Ownership Reporting Compliance” in the Company’s Proxy Statement for the Company’s 2018 Annual Meeting of Shareholders, are incorporated hereinInformation required by reference.
The Company has adopted a Code of Conduct that applies to the Company’s Chief Executive Officer, senior financial officers and all other Company employees, officers and Board members. The Code of Conduct is available in the Corporate Governance section of the Company’s Investor Relations website, http://ir.virtus.com, and is available in print to any person who requests it. Any substantive amendment to the Code of Conduct and any waiver in favor of a Board member or an executive officer may only be granted by the Board of Directors and will be publicly disclosed in the Corporate Governance section of the Company’s Investor Relations website, http://ir.virtus.com.
The information concerning procedures by which shareholders may recommend director nominees set forth under the caption “Corporate Governance—Governance Committee—Director Nomination Process” in the Company’s Proxy Statement for the Company’s 2018 Annual Meeting of Shareholders is incorporated herein by reference.
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Item 11. | Executive Compensation. |
The information relating to executive compensation and the Company’s policies and practices as they relate to the Company’s risk management is set forth under the captions “Executive Compensation,” “Director Compensation,” “Corporate Governance—Compensation Committee—Risks Related to Compensation Policies and Practices” and “Corporate Governance—Compensation Committee—Compensation Committee Interlocks and Insider Participation” in the Company’s Proxy Statement for the Company’s 2018 Annual Meeting of Shareholders and is incorporated herein by reference. The information included under the caption “Executive Compensation—Report of the Compensation Committee” in the Company’s Proxy Statement for the Company’s 2018 Annual Meeting of Shareholdersthis Item 10 is incorporated herein by reference but shall be deemed “furnished” (and not “filed”) with this report.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The information set forth under the caption “Security Ownership by Certain Beneficial Owners and Management” in the Company’s Proxy Statementto our definitive proxy statement for the Company’s 2018our 2024 Annual Meeting of Shareholders to be filed pursuant to Regulation 14A under the Exchange Act (the "2024 Proxy Statement").
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Item 11. | Executive Compensation. |
Information required by this Item 11 is incorporated herein by reference.reference to the 2024 Proxy Statement.
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Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. |
Information required by Item 403 of Regulation S-K is incorporated herein by reference to the 2024 Proxy Statement.
The following table sets forth information as of December 31, 20172023 with respect to compensation plans under which shares of our common stock may be issued:
EQUITY COMPENSATION PLAN INFORMATION
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Plan Category | Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) | | Weighted-average exercise price of outstanding options, warrants and rights (b) (1) | | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c) |
Equity compensation plans approved by security holders (2) | 592,829 |
| | $ | 16.44 |
| | 481,948 |
|
Equity compensation plans not approved by security holders | — |
| | — |
| | — |
|
Total | 592,829 |
| | $ | 16.44 |
| | 481,948 |
|
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| (a) | | (b) | | (c) |
Plan Category | Number of securities to be issued upon exercise of outstanding options, warrants and rights | | Weighted-average exercise price of outstanding options, warrants and rights (1) | | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) |
Equity compensation plans approved by security holders (2) | 344,717 | | | $ | — | | | 478,216 | |
Equity compensation plans not approved by security holders | — | | | — | | | — | |
Total | 344,717 | | | $ | — | | | 478,216 | |
| |
(1) | The weighted-average exercise price set forth in this column is calculated excluding outstanding restricted stock unit awards (“RSUs”) since recipients of such awards are not required to pay an exercise price to receive the shares subject to these awards. |
| |
(2) | Represents 109,808 shares of common stock issuable upon the exercise of stock options and 483,021 shares of our common stock issuable upon the vesting of RSUs outstanding under the Company’s Omnibus Incentive and Equity Plan (the “Omnibus Plan”). Of the 2,400,000 maximum number of shares of our common stock authorized for issuance under the Omnibus Plan, 94,666 shares of common stock have been issued on a cumulative basis in the form of direct grants to directors. |
(1)The weighted-average exercise price set forth in this column is calculated excluding outstanding restricted stock unit awards ("RSUs") since recipients of such awards are not required to pay an exercise price to receive the shares subject to these awards.
(2)Represents shares of our common stock issuable upon the vesting of RSUs outstanding under the Company's Omnibus Incentive and Equity Plan (the "Omnibus Plan"). Of the 3,370,000 maximum number of shares of our common stock authorized for issuance under the Omnibus Plan, 128,990 shares of common stock have been issued on a cumulative basis in the form of direct grants to directors.
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Item 13. | Certain Relationships and Related Transactions, and Director Independence. |
The information set forth under the captions “Corporate Governance—Transactions with Related Persons” and “Corporate Governance—Director Independence” in the Company’s Proxy Statement for the Company’s 2018 Annual Meeting of ShareholdersInformation required by this Item 13 is incorporated herein by reference.reference to the 2024 Proxy Statement.
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Item 14. | Principal AccountingAccountant Fees and Services. |
The information regarding auditors fees and services and the Company’s pre-approval policies and procedures for audit and non-audit services to be providedInformation required by the Company’s independent registered public accounting firm set forth under the caption “Item 2—Ratification of the Appointment of the Independent Registered Public Accounting Firm” in the Company’s Proxy Statement for the 2018 Annual Meeting of Shareholdersthis Item 14 is incorporated herein by reference.reference to the 2024 Proxy Statement.
PART IV
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Item 15. | Exhibits and Financial Statement Schedules. |
| | | | | | | | |
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| (a)(1) | Financial Statements: The following Report of Independent Registered Public Accounting Firm and Consolidated Financial Statements of Virtus are included in this Annual Report:
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| (a)(2) | (a)(2) | Financial Statement Schedules:
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All financial statement schedules have been omitted because the required information is either presented inon the consolidated financial statements or the notes thereto or is not applicable or required.
The following exhibits are filed herewith or incorporated herein by reference:
| | | | | | | | |
Exhibit Number | | Exhibit Description |
(2) | | |
Exhibit
Number
| | Exhibit Description |
| |
(2) | | Plan of Acquisition, Reorganization, Arrangement, Liquidation or Succession |
2.1 | | SeparationMembership Interest Purchase Agreement Plan of Reorganization and Distribution by and between The Phoenix Companies, Inc.among the Registrant, Westchester Capital Management, LLC, Westchester Capital Partners, LLC, LPC Westchester, LP, MTSWCM Holdings, LLC, RDBWCM Holdings, LLC, and the Registrant,Individual Equityholders (as defined therein), dated as of December 18, 2008February 1, 2021 (incorporated by reference to Exhibit 2.12.4 of the Registrant’s Amendment No. 4 to Form 10, filed December 19, 2008). |
2.2 | | Agreement and Plan of Merger dated as of December 16, 2016 among the Registrant, 100 Pearl Street 2, LLC, Lightyear Fund III, AIV-2, L.P., and RidgeWorth Holdings LLC (incorporated by reference to Exhibit 2.1 to the Registrant’s CurrentAnnual Report on Form 8-K10-K, filed December 22, 2016)February 26, 2021).
|
2.3(3) | | |
(3) | | Articles of Incorporation and Bylaws |
3.1 | | |
3.2 | | |
3.3 | | |
3.4 | | |
3.5 | | |
3.6 | |
|
(4) | | Instruments Defining the Rights of Security Holders including Indentures |
4.1 | | |
(10) | | Material Contracts |
10.110.1* | | |
10.2 | | |
10.3 | | |
10.4 | | |
|
| | |
*10.5 | | |
*10.610.2* | | |
*10.710.3* | | |
*10.810.4* | | |
*10.910.5* | | |
10.6* | | |
*10.1010.7* | | |
*10.1110.8* | | |
*10.12 | | |
*10.13 | | |
*10.14 | | |
10.15 | | |
10.16 | | |
10.17 | | |
10.18 | | |
*10.19 | | |
10.9* | | |
10.10* | | |
10.11* | | |
| | | | | | | | |
Exhibit Number | | Exhibit Description |
10.12* | | |
10.13 | | |
10.14 | | Amendment No. 1, dated June 20, 2023, to the Amended and Restated Credit Agreement, dated as of September 28, 2021, by and among Virtus Investment Partners, Inc. as borrower, Morgan Stanley Senior Funding, Inc. as administrative agent, and the Lenders party thereto (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q filed May 8, 2017)August 9, 2023). |
| | | | | | | | |
(21) | | |
(21) | | Subsidiaries of the Registrant |
21.1 | | |
| | | | | | | | |
(23) | | |
(23) | | Consents of Experts and Counsel |
| | Consent of Independent Registered Public Accounting Firm. |
| | Certifications of Registrant’sRegistrant's Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| | Certifications of Registrant’sRegistrant's Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| | Certifications of Registrant’sRegistrant's Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
101 | | Incentive Compensation Clawback Policy |
101 | | The following information is formatted in XBRL (ExtensibleiXBRL (Inline Extensible Business Reporting Language): (i) Consolidated Balance Sheets as of December 31, 20172023 and December 31, 2016,2022, (ii) Consolidated Statements of Operations for the years ended December 31, 2017, 20162023, 2022 and 2015,2021, (iii) Consolidated Statements of Comprehensive Income for the years ended December 31, 2017, 20162023, 2022 and 2015,2021, (iv) Consolidated Statements of Cash Flows for the years ended December 31, 2017, 20162023, 2022 and 2015,2021, (v) Consolidated Statements of Changes in Stockholders’Stockholders' Equity for the years ended December 31, 2017, 20162023, 2022 and 20152021 and (iv)(vi) Notes to Consolidated Financial Statements. |
|
104 | |
* | Management contract, compensatory plan or arrangement.Cover page Interactive Data File (embedded within the Inline XBRL document and included in Exhibit 101) |
* Management contract, compensatory plan or arrangement.
The agreements and other documents filed as exhibits to this report are not intended to provide factual information or other disclosure other than the terms of the agreements or other documents themselves, and you should not rely on them for that purpose. In particular, any representations and warranties made by the Company in these agreements or other documents were made solely within the specific context of the relevant agreement or document and may not describe the actual state of affairs at the date they were made or at any other time.
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Item 16. | Form 10-K Summary. |
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Dated: February 26, 201828, 2024
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Virtus Investment Partners, Inc. |
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By: | | /S/ MICHAEL A. ANGERTHAL |
| | | Michael A. Angerthal |
| | | Executive Vice President Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated as of February 26, 2018.28, 2024.
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/S/ MARK C. TREANOR TIMOTHY A. HOLT | | /S/ GEORGE R. AYLWARD |
Mark C. Treanor
Timothy A. Holt Director and Non-Executive Chairman | | George R. Aylward President, Chief Executive Officer and Director
(Principal Executive Officer)
|
| |
/S/ JAMES R. BAIOPETER L. BAIN | | /S/ SUSAN S. FLEMING |
James R. Baio
Peter L. Bain Director | | Susan S. Fleming, Ph.D. Director |
| |
/S/ TIMOTHY A. HOLTPAUL G. GREIG | | /S/ SHEILA HOODA |
Timothy A. Holt
Director
| | Sheila Hooda
Director
|
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/S/ MELODY L. JONES |
Paul G. Greig Director | | Melody L. Jones Director |
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/S/ W. HOWARD MORRIS | | /S/ STEPHEN T. ZARRILLI |
Melody L. Jones
W. Howard Morris Director | | Stephen T. Zarrilli
Director |
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/S/ MICHAEL A. ANGERTHAL | | |
Michael A. Angerthal Chief Financial Officer
(Principal Financial Officer and Principal Accounting Officer)
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
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Report of Independent Registered Public Accounting Firm | | |
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Audited Consolidated Financial Statements | | |
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ReportREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Independent Registered Public Accounting FirmDirectors of Virtus Investment Partners, Inc.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Virtus Investment Partners, Inc. and its subsidiaries (the "Company") as of December 31, 20172023 and 2016,and2022, the related consolidatedstatements of operations, comprehensive income, changes in stockholders’ equity, and cash flowsflow, for each of the three years in the period ended December 31, 2017, including2023, and the related notes (collectively referred to as the “consolidated financial statements”"financial statements").We also have audited the Company'sCompany’s internal control over financial reporting as of December 31, 2017,2023, based on criteria established in Internal Control -— Integrated Framework(2013)issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidatedfinancial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 20172023 and 2016, 2022, and the results of theirits operations and theirits cash flows for each of the three years in the period ended December 31, 20172023, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017,2023, based on criteria established in Internal Control -— Integrated Framework(2013)issued by the COSO.
Basis for Opinions
The Company'sCompany’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinionsan opinion on these financial statements and an opinion on the Company’s consolidatedfinancial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB")(PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidatedfinancial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidatedfinancial statements included performing procedures to assess the risks of material misstatement of the consolidatedfinancial statements, whether due to error or fraud, and performing procedures thatto respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidatedfinancial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidatedfinancial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
As described in Management’s Report on Internal Control over Financial Reporting, management has excluded RidgeWorth Investmentsfrom its assessment of internal control over financial reporting as of December 31, 2017 because it was acquired by the Company in a purchase business combination during 2017. We have also excluded RidgeWorth Investments from our audit of internal control over financial reporting. RidgeWorth Investments is a wholly-owned subsidiary whose total revenues excluded from management’s assessment and our audit of internal control over financial reporting represent 18.1% of the related consolidated financial statement amount for the year ended December 31, 2017.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i)(1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii)(2) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii)(3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Valuation of Assets Acquired – Refer to Note 4 to the financial statements
Critical Audit Matter Description
During the year, the Company acquired AlphaSimplex Group, LLC (“ASG”), which was accounted for as a business combination. Management estimated the fair value of the assets acquired using (1) a discounted cash flow method for the investment management agreements and (2) a royalty savings method for the trade names. The determination required management to make significant estimates and assumptions related to future cash flows and the selection of the discount rates and long-term growth rates for these assets.
The inputs used in estimating the fair value are in most cases unobservable and reflect management’s own judgments about the assumptions market participants would use in pricing the assets. Auditing the valuations of the assets acquired involved a high degree of judgment and an increased extent of effort, including involving our internal fair value specialists in evaluating management’s judgments especially as it relates to management’s assumptions of future cash flows, discount rates, and long-term growth rates.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the valuation of assets acquired for ASG included the following, among others:
•We tested the design and operating effectiveness of controls over valuation of the assets acquired including controls over management’s projections of future cash flows, discount rates, and long-term growth rates.
•We evaluated the reasonableness of significant business assumptions related to future cash flows by comparing the projections to historical results and certain peer companies. We also held various discussions with accounting personnel and management regarding the business assumptions utilized in the valuation models and obtained audit evidence to substantiate the assumptions therein.
•With the assistance of our internal fair value specialists we evaluated certain valuation assumptions, including discount rates and long-term growth rates.
–We evaluated the reasonableness of the valuation methodologies used by management to determine whether they were consistent with generally accepted accounting policies.
–We evaluated the discount rates used by management to determine whether management's discount rate estimates were within our independent range.
–We performed an analysis of inflation, economic, and industry growth statistics to determine whether management's long-term growth rate used in the income approach fell within a reasonable range of the market data.
–We evaluated the appropriateness of management’s selection of guideline public companies used in developing the discount rates.
•We evaluated whether the assumptions used were consistent with evidence obtained in other areas of the audit.
Valuation of Contingent Consideration – Refer to Notes 2 and 7 to the financial statements
Critical Audit Matter Description
The Company periodically enters into contingent payment arrangements in connection with its business combinations or asset acquisitions.
Contingent payment obligations related to business combinations are recorded at fair value upon acquisition and are remeasured at fair value each reporting date. During the year, the contingent payment obligations associated with the 2021 acquisitions of NFJ Investment Group (“NFJ”) and Westchester Capital Management (“Westchester”) were valued to reflect remeasurement and payments made, if applicable, and changes were recorded in the current period as a change in fair value of contingent consideration on the consolidated statement of operations. Management uses simulation models to determine the fair value of the Company's estimated contingent liability given the variable nature of the arrangements and the significant management judgments in estimating revenue projections,market rate assumptions, discount rates, and risk volatility assumptions.
Contingent payment obligations related to asset acquisitions, if estimable and probable of payment, are initially recorded at their estimated value and reviewed every reporting period for changes. During the year, the contingent payment obligations associated with the 2021 asset acquisition as part of the strategic partnership with Allianz Global Investors (“AllianzGI”) was valued to reflect remeasurement and payments made, if applicable, and changes were recorded in the current period as adjustments to the initial acquisition cost, recorded as intangible assets, on the consolidated balance sheet.
The valuations of the AllianzGI, NFJ and Westchester contingent payment obligations use unobservable inputs and reflect management’s own judgments about the assumptions market participants would use in pricing the liabilities. Auditing the estimates involved a high degree of auditor judgment and an increased extent of effort. With the assistance of our internal fair value specialists, for the fair value of the business combination contingent consideration, we evaluated management’s judgments utilized within the simulation model related to revenue growth rates, discount rates, and market price of risk adjustment.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the valuation of the contingent consideration liability for the AllianzGI, NFJ and Westchester acquisitions included the following, among others:
•We tested the design and operating effectiveness of controls over management’s valuation of the contingent consideration liability.
•We held discussions with accounting personnel and management regarding the revenue projections utilized in the valuation models. We evaluated whether the business assumptions used were appropriate and reasonable and confirmed that the products included in the revenue projections utilized in the valuation models agreed to those within the respective acquisition agreements.
•For the AllianzGI acquisition, we evaluated the methodology used to calculate the estimated value of the contingent payment obligations to confirm it was appropriate for an asset acquisition and confirmed that the amounts recorded were based on the revenue projections and the contractual payment rate. We further evaluated whether the business assumptions used were appropriate and reasonable.
•With the assistance of our internal fair value specialists, we performed the below procedures related to the NFJ and Westchester contingent consideration liability:
–We evaluated the valuation methodology used by management to determine whether they were consistent with generally accepted accounting policies.
–We estimated the fair value of the contingent liability through the preparation of independent simulation models developed from the underlying acquisition agreements and using independently sourced input data. We compared the fair value estimate produced by our independent model to the model prepared by management.
–We evaluated the appropriateness of management’s selection of guideline public companies used for market rate and risk volatility assumptions and the discount rates used by management in the simulation model.
•We evaluated whether the assumptions used were consistent with evidence obtained in other areas of the audit.
Consolidation — Consolidation of Investment Products – Refer to Notes 2 and 20 to the financial statements
Critical Audit Matter Description
The Company is required to consolidate investment products to which it provides investment management services when it (1) has a majority voting interest in an investment product that is a voting interest entity (VOE) or otherwise has the power to govern the financial and operating policies of the entity; or (2) it is considered the primary beneficiary of an investment product that is a variable interest entity (VIE). Management is required to evaluate whether an investment product is a VOE or a VIE upon its initial involvement with the investment product, or the occurrence of a reconsideration event. This assessment involves management’s judgment and is determined based on a variety of factors including the capital structure of the investment product, the investment product’s activities, the equity investment at risk, and the proportionate voting and economic interests of the investors in the investment product including the Company.
For each investment product that is considered a VIE, management performs a primary beneficiary analysis to determine if it holds a controlling financial interest in the investment product. A controlling financial interest is defined as (a) the power to direct the activities of a VIE that most significantly impact the VIE's economic performance and (b) the obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE. Management’s evaluation of these two criteria involves judgments to analyze the governing documents of the investment product. The level of judgment required may vary in significance based on the complexity of the voting rights and structure economic interests of the investment product and the facts and circumstances of the Company’s investment. This required a high degree of auditor judgment and an increased extent of effort to evaluate management’s conclusions related to the power criterion and the economics criterion, including characterizing rights as protective or participating and evaluating all variable interests for the potential significance of economic exposure in the entity.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to testing the consolidation assessment of VIEs included the following, among others:
•We tested the design and operating effectiveness of controls over management’s review of the consolidation analysis of new or modified investment products during the year.
•We read and analyzed the governing documents (including the collateral management agreement, preference share subscription agreement and credit agreement, if applicable) of each investment product to assess management’s conclusions. Our procedures included evaluating the following:
–Key facts included in management’s consolidation analysis are consistent with the governing documents and the Company’s interests in the investment products;
–Relevant terms impacting the consolidation analysis under GAAP were considered including the evaluation of whether the investment product is a VOE or VIE;
–Judgments made by management based on the capital structure of the investment product, the investment product’s activities, the equity investment at risk, and the proportionate voting and economic interests of the investors in the investment product including the Company were appropriate;
–The determined primary beneficiary of those investment products possesses both (1) the power to direct activities of the VIE and (2) the obligation to absorb losses or the right to receive benefits from the VIE.
/s/ PricewaterhouseCoopersDELOITTE & TOUCHE LLP
Hartford, CTConnecticut
February 26, 201828, 2024
We have served as the Company’sCompany's auditor since at least 1995. We have not determined the specific year we began serving as auditor2018.
Virtus Investment Partners, Inc.
Consolidated Balance Sheets
| | ($ in thousands, except per share data)
| | December 31, 2017 | | December 31, 2016 |
(in thousands, except share data) | | (in thousands, except share data) | | December 31, 2023 | | December 31, 2022 |
Assets: | | | | |
Cash and cash equivalents | |
Cash and cash equivalents | |
Cash and cash equivalents | | $ | 132,150 |
| | $ | 64,588 |
|
Investments | | 108,492 |
| | 89,371 |
|
Accounts receivable, net | | 65,648 |
| | 35,879 |
|
Assets of consolidated investment products ("CIP") | |
| |
|
Cash and cash equivalents of CIP | | 101,315 |
| | 18,099 |
|
Cash and cash equivalents of CIP | |
Cash and cash equivalents of CIP | |
Cash pledged or on deposit of CIP | | 817 |
| | 984 |
|
Investments of CIP | | 1,597,752 |
| | 489,042 |
|
Other assets of CIP | | 33,486 |
| | 9,158 |
|
Furniture, equipment, and leasehold improvements, net | | 10,833 |
| | 7,728 |
|
Furniture, equipment and leasehold improvements, net | |
Intangible assets, net | | 301,954 |
| | 38,427 |
|
Goodwill | | 170,153 |
| | 6,788 |
|
Deferred taxes, net | | 32,428 |
| | 47,535 |
|
Other assets | | 35,771 |
| | 16,789 |
|
Total assets | | $ | 2,590,799 |
| | $ | 824,388 |
|
Liabilities and Equity | |
| | |
Liabilities: | |
| | |
Liabilities: | |
Liabilities: | |
Accrued compensation and benefits | |
Accrued compensation and benefits | |
Accrued compensation and benefits | | $ | 86,658 |
| | $ | 47,885 |
|
Accounts payable and accrued liabilities | | 29,607 |
| | 25,176 |
|
Dividends payable | | 6,528 |
| | 3,479 |
|
Contingent consideration | |
Debt | | 248,320 |
| | 30,000 |
|
Other liabilities | | 39,895 |
| | 13,505 |
|
Liabilities of CIP | |
| |
|
Notes payable of CIP | | 1,457,435 |
| | 328,761 |
|
Notes payable of CIP | |
Notes payable of CIP | |
Securities purchased payable and other liabilities of CIP | | 112,954 |
| | 16,643 |
|
Total liabilities | | 1,981,397 |
| | 465,449 |
|
Commitments and Contingencies (Note 10) | |
| |
|
Commitments and Contingencies (Note 12) | | Commitments and Contingencies (Note 12) | | |
Redeemable noncontrolling interests | | 4,178 |
| | 37,266 |
|
Equity: | |
| |
|
Equity attributable to stockholders: | |
| |
|
Series D mandatory convertible preferred stock, $0.01 par value, 1,150,000 shares authorized; 1,150,000 and 0 shares issued and outstanding at December 31, 2017 and December 31, 2016, respectively | | 110,843 |
| | — |
|
Common stock, $0.01 par value, 1,000,000,000 shares authorized; 10,455,934 shares issued and 7,159,645 shares outstanding at December 31, 2017 and 9,119,058 shares issued and 5,889,013 shares outstanding at December 31, 2016 | | 105 |
| | 91 |
|
Equity attributable to Virtus Investment Partners, Inc.: | |
Equity attributable to Virtus Investment Partners, Inc.: | |
Equity attributable to Virtus Investment Partners, Inc.: | |
| Common stock, $0.01 par value, 1,000,000,000 shares authorized; 12,163,228 shares issued and 7,087,728 shares outstanding at December 31, 2023 and 12,033,247 shares issued and 7,181,554 shares outstanding at December 31, 2022 | |
| Common stock, $0.01 par value, 1,000,000,000 shares authorized; 12,163,228 shares issued and 7,087,728 shares outstanding at December 31, 2023 and 12,033,247 shares issued and 7,181,554 shares outstanding at December 31, 2022 | |
| Common stock, $0.01 par value, 1,000,000,000 shares authorized; 12,163,228 shares issued and 7,087,728 shares outstanding at December 31, 2023 and 12,033,247 shares issued and 7,181,554 shares outstanding at December 31, 2022 | |
Additional paid-in capital | | 1,216,173 |
| | 1,090,331 |
|
Accumulated deficit | | (386,216 | ) | | (424,279 | ) |
Retained earnings (accumulated deficit) | |
Accumulated other comprehensive income (loss) | | (600 | ) | | (224 | ) |
Treasury stock, at cost, 3,296,289 and 3,230,045 shares at December 31, 2017 and December 31, 2016, respectively | | (351,748 | ) | | (344,246 | ) |
Total equity attributable to stockholders | | 588,557 |
| | 321,673 |
|
Treasury stock, at cost, 5,075,500 and 4,851,693 shares at December 31, 2023 and December 31, 2022, respectively | |
Total equity attributable to Virtus Investment Partners, Inc. | |
Noncontrolling interests | | 16,667 |
| | — |
|
Total equity | | 605,224 |
| | 321,673 |
|
Total liabilities and equity | | $ | 2,590,799 |
| | $ | 824,388 |
|
The accompanying notes are an integral part of these consolidated financial statements.
Virtus Investment Partners, Inc.
Consolidated Statements of Operations
| | | Years Ended December 31, |
($ in thousands, except per share data) | 2017 | | 2016 | | 2015 |
| Years Ended December 31, | | | Years Ended December 31, |
(in thousands, except per share data) | | (in thousands, except per share data) | 2023 | | 2022 | | 2021 |
Revenues | | | | | |
Investment management fees | |
Investment management fees | |
Investment management fees | $ | 331,075 |
| | $ | 235,230 |
| | $ | 264,865 |
|
Distribution and service fees | 44,322 |
| | 48,250 |
| | 67,066 |
|
Administration and shareholder service fees | 48,996 |
| | 38,261 |
| | 48,247 |
|
Other income and fees | 1,214 |
| | 813 |
| | 1,799 |
|
Total revenues | 425,607 |
| | 322,554 |
| | 381,977 |
|
Operating Expenses |
| | | | |
Employment expenses | 191,394 |
| | 135,641 |
| | 137,095 |
|
Employment expenses | |
Employment expenses | |
Distribution and other asset-based expenses | 71,987 |
| | 69,049 |
| | 89,731 |
|
Other operating expenses | 69,410 |
| | 50,274 |
| | 63,901 |
|
Other operating expenses of consolidated investment products | 8,531 |
| | 6,953 |
| | 4,134 |
|
Restructuring and severance | 10,580 |
| | 4,270 |
| | — |
|
Depreciation and other amortization | 3,497 |
| | 3,092 |
| | 3,443 |
|
Other operating expenses of consolidated investment products ("CIP") | |
Change in fair value of contingent consideration | |
Restructuring expense | |
Depreciation expense | |
Amortization expense | 12,173 |
| | 2,461 |
| | 3,295 |
|
Total operating expenses | 367,572 |
| | 271,740 |
| | 301,599 |
|
Operating Income (Loss) | 58,035 |
| | 50,814 |
| | 80,378 |
|
Other Income (Expense) |
| | | | |
Realized and unrealized gain (loss) on investments, net | 2,973 |
| | 4,982 |
| | (862 | ) |
Realized and unrealized gain (loss) of consolidated investment products, net | 13,553 |
| | 2,748 |
| | (26,686 | ) |
Realized and unrealized gain (loss) on investments, net | |
Realized and unrealized gain (loss) on investments, net | |
Realized and unrealized gain (loss) of CIP, net | |
Other income (expense), net | 1,635 |
| | 1,089 |
| | 898 |
|
Total other income (expense), net | 18,161 |
| | 8,819 |
| | (26,650 | ) |
Interest Income (Expense) |
| | | | |
Interest expense | (12,007 | ) | | (679 | ) | | (523 | ) |
Interest expense | |
Interest expense | |
Interest and dividend income | 2,160 |
| | 1,743 |
| | 1,261 |
|
Interest and dividend income of investments of consolidated investment products | 49,323 |
| | 20,402 |
| | 13,661 |
|
Interest expense of consolidated investment products | (35,243 | ) | | (11,292 | ) | | (484 | ) |
Interest and dividend income of investments of CIP | |
Interest expense of CIP | |
Total interest income (expense), net | 4,233 |
| | 10,174 |
| | 13,915 |
|
Income (Loss) Before Income Taxes | 80,429 |
| | 69,807 |
| | 67,643 |
|
Income tax expense (benefit) | 40,490 |
| | 21,044 |
| | 36,972 |
|
Net Income (Loss) | 39,939 |
| | 48,763 |
| | 30,671 |
|
Noncontrolling interests | (2,927 | ) | | (261 | ) | | 4,435 |
|
Net Income (Loss) Attributable to Stockholders | $ | 37,012 |
| | $ | 48,502 |
| | $ | 35,106 |
|
Preferred stockholder dividends | (8,336 | ) | | $ | — |
| | $ | — |
|
Net Income (Loss) Attributable to Common Stockholders | $ | 28,676 |
| | $ | 48,502 |
| | $ | 35,106 |
|
| Net Income (Loss) Attributable to Virtus Investment Partners, Inc. | |
| Net Income (Loss) Attributable to Virtus Investment Partners, Inc. | |
| Net Income (Loss) Attributable to Virtus Investment Partners, Inc. | |
Earnings (Loss) per Share-Basic | $ | 4.09 |
| | $ | 6.34 |
| | $ | 3.99 |
|
Earnings (Loss) per Share-Diluted | $ | 3.96 |
| | $ | 6.20 |
| | $ | 3.92 |
|
Cash Dividends Declared per Preferred Share | $ | 7.25 |
| | $ | — |
| | $ | — |
|
Cash Dividends Declared per Common Share | $ | 1.80 |
| | $ | 1.80 |
| | $ | 1.80 |
|
Weighted Average Shares Outstanding-Basic (in thousands) | 7,013 |
| | 7,648 |
| | 8,797 |
|
Weighted Average Shares Outstanding-Diluted (in thousands) | 7,247 |
| | 7,822 |
| | 8,960 |
|
| Weighted Average Shares Outstanding-Basic | |
| Weighted Average Shares Outstanding-Basic | |
| Weighted Average Shares Outstanding-Basic | |
Weighted Average Shares Outstanding-Diluted | |
The accompanying notes are an integral part of these consolidated financial statements.
Virtus Investment Partners, Inc.
The accompanying notes are an integral part of these consolidated financial statements.
Virtus Investment Partners, Inc.
The accompanying notes are an integral part of these consolidated financial statements.
Virtus Investment Partners, Inc.
The accompanying notes are an integral part of these consolidated financial statements.
Virtus Investment Partners, Inc. (the “Company,” “we,” “us,” “our”"Company," "we," "us," "our" or “Virtus”"Virtus"), a Delaware corporation, operates in the investment management industry through its subsidiaries.
The preparation of the consolidated financial statements requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosures of contingent assets and liabilities at the dates of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Management believes the estimates used in preparing the consolidated financial statements are reasonable and prudent. Actual results could differ from those estimates.
Cash and cash equivalents consist of cash in banks and money market fund investments.
value of a reporting unit is less than its carrying amount. If, after assessing the totality of events or circumstances, an entity determinesit is determined that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the two-step impairment test is unnecessary. The Company’s 2017Company's 2023 and 20162022 annual goodwill impairment analysis did not result in any impairment charges.
Treasury stock is accounted for under the cost method and is included as a deduction from equity inon the Stockholders’Stockholders' Equity section of the Consolidated Balance Sheets. Upon any subsequent resale, the treasury stock account is reduced by the cost of such stock.
dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock, including: (1)including shares issuable upon the vesting of RSUs and common stock option exercises using the treasury stock method; and (2) shares issuable upon the conversion of the Company's mandatory convertible preferred stock ("MCPS"),method, as determined under the if-converted method. For purposes of calculating diluted EPS, preferred stock dividends have been subtracted from net income (loss) in periods in which utilizing the if-converted method would be anti-dilutive.
Level 1—Unadjusted quoted prices for identical instruments in active markets. Level 1 assets and liabilities may include debt securities and equity securities that are traded in an active exchange market.
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 in which all significant inputs and significant value drivers are observable in active markets. Level 2 inputs may include observable market data such as closing market prices provided by independent pricing services after considering factors such as the yields or prices of comparable investments of comparable quality, coupon, maturity, call rights and other potential prepayments, terms and type, reported transactions, indications as to values from dealers and general market conditions. In addition, pricing services may determine the fair value of equity securities traded principally in foreign markets when it has been determined that there has been a significant trend in the U.S. equity markets or in index futures trading. Level 2 assets and liabilities may include debt and equity securities, purchased loans and over-the-counter derivative contracts whose fair value is determined using a pricing model without significant unobservable market data inputs.
Level 3—Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable in active exchange markets.