☒ Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

☐ Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. Yes ☐ No ☐

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

As of ~~November 5, 2021,~~August 3, 2022, there were ~~17,441,912~~16,736,459 outstanding shares of the registrant’s Class A common stock, par value $0.01 per share.

As of ~~November 5, 2021,~~August 3, 2022, there were ~~54,729,578~~56,980,825 outstanding shares of the registrant’s Class B common stock, par value $0.000001 per share.

This Quarterly Report on Form 10-Q contains forward-looking statements. Forward-looking statements provide our current expectations, or forecasts, of future events. Forward-looking statements include statements about our expectations, beliefs, plans, objectives, intentions, assumptions and other statements that are not historical facts. Words or phrases such as “anticipate,” “believe,” “continue,” “ongoing,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project” or similar words or phrases, or the negatives of those words or phrases, may identify forward-looking statements, but the absence of these words does not necessarily mean that a statement is not forward-looking.

Forward-looking statements are subject to known and unknown risks and uncertainties and are based on our views, plans, estimates, and expectations. Potentially inaccurate assumptions could cause actual results to differ materially from those expected or implied by the forward-looking statements. Our actual results could differ materially from those anticipated in forward-looking statements for many reasons, including the factors described in Item 1A, “Risk Factors” in Part I of our Annual Report on Form 10-K for our fiscal year ended December 31, ~~2020.~~2021. Accordingly, you should not unduly rely on these forward-looking statements, which speak only as of the date they are made. We undertake no obligation to publicly revise any forward-looking statements included in this Quarterly Report to reflect circumstances or events after the date of this Quarterly Report, or to reflect the occurrence of unanticipated events. You should, however, review the factors and risks we describe in the reports we will file from time to time with the Securities and Exchange Commission ("SEC"), after the date of this Quarterly Report on Form 10-Q.

The reports that we file with the SEC, accessible on the SEC’s website at www.sec.gov, identify additional factors that can affect forward-looking statements. ~~The impact of COVID-19 may also exacerbate these risks, any of which could have a material effect on us.~~


	Shares of Class A Common Stock			Shares of Class B Common Stock			Class A Common Stock			Additional Paid-In Capital			Accumulated Other Comprehensive Income			Retained Earnings			Non-Controlling Interests			Total Equity			Shares of Class A Common Stock			Shares of Class B Common Stock			Class A Common Stock			Additional Paid-In Capital			Accumulated Other Comprehensive Loss			Retained Earnings			Non-Controlling Interests			Total Equity
Balance at December 31, 2020		17,328,899			54,313,620		$	173		$	5,190		$	132		$	25,611		$	77,849		$	108,955
Balance at December 31, 2021																										17,306,455			55,203,277		$	172		$	3,989		$	7		$	38,420		$	135,466		$	178,054
Amortization of Non-Cash Compensation		14,201			320,495			—			462			—			—			1,683			2,145			15,539			310,369			—			431			—			—			1,648			2,079
Issuance of Shares under Equity Incentive Plan		12,353			805,987			—			872			—			—			2,950			3,822			—			1,084,675			—			1,528			—			—			5,259			6,787
Sale of Shares under Equity Incentive Plan		—			26,097			—			36			—			—			131			167			18,057			138,238			—			151			—			—			578			729
Directors' Share Grants		12,338			—			—			53			—			—			194			247			29,713			—			—			91			—			—			345			436
Net Income		—			—			—			—			—			4,187			20,842			25,029			—			—			—			—			—			2,815			15,667			18,482
Foreign Currency Translation Adjustments		—			—			—			—			(5	)		—			(7	)		(12	)		—			—			—			—			(2	)		—			(132	)		(134	)
Repurchase and Retirement of Class A Common Stock		(275,218	)		—			(3	)		(516	)		—			—			(1,871	)		(2,390	)		(263,362	)		—			(1	)		(491	)		—			—			(1,873	)		(2,365	)
Repurchase and Retirement of Class B Units		—			(18,476	)		—			(20	)		—			—			(70	)		(90	)		—			(9,819	)		—			(13	)		—			—			(51	)		(64	)
Class A Cash Dividends Declared and Paid ($0.25 per share)		—			—			—			—			—			(4,302	)		—			(4,302	)		—			—			—			—			—			(9,209	)		—			(9,209	)
Tax Impact of Transactions with Non-Controlling Shareholders		—			—			—			(494	)		—			—			—			(494	)		—			—			—			(829	)		—			—			—			(829	)
Effect of Deconsolidation																										—			—			—			—			—			—			(26,755	)		(26,755	)
Contributions from Non-Controlling Interests		—			—			—			—			—			—			303			303			—			—			—			—			—			—			11,838			11,838
Distributions to Non-Controlling Interests		—			—			—			—			—			—			(29,725	)		(29,725	)		—			—			—			—			—			—			(47,005	)		(47,005	)
Other		—			—			—			(541	)		—			—			541			—			—			—			—			254			—			—			(254	)		—
Balance at March 31, 2021		17,092,573			55,447,723		$	170		$	5,042		$	127		$	25,496		$	72,820		$	103,655
Unit Conversion		760,000			(760,000	)		8			1,326			—			—			(1,069	)		265
Amortization of Non-Cash Compensation	—			—			—				479		—			—				1,736			2,215
Sale of Shares under Equity Incentive Plan	—				7,882		—				12		—			—				43			55
Directors' Share Grants		1,268		—			—				30		—			—				109			139
Net Income	—			—			—			—			—				4,603			22,474			27,077
Foreign Currency Translation Adjustments	—			—			—			—				(13	)	—				(104	)		(117	)
Options Exercised		—			6,465			—			—			—			—			—			—
Repurchase and Retirement of Class A Common Stock		(97,656	)	—				(1	)		(227	)	—			—				(819	)		(1,047	)
Repurchase and Retirement of Class B Units		—			(2,790	)		—			(7	)		—			—			(25	)		(32	)
Class A Cash Dividends Declared and Paid ($0.03 per share)	—			—			—			—			—				(513	)	—				(513	)
Tax Impact of Transactions with Non-Controlling Shareholders	—			—			—				(132	)	—			—			—				(132	)
Contributions from Non-Controlling Interests	—			—			—			—			—			—				13,835			13,835
Distributions to Non-Controlling Interests	—			—			—			—			—			—				(13,931	)		(13,931	)
Other	—			—			—				(890	)	—			—				890			—
Balance at June 30, 2021		17,756,185			54,699,280		$	177		$	5,633		$	114		$	29,586		$	95,959		$	131,469
Balance at March 31, 2022																										17,106,402			56,726,740		$	171		$	5,111		$	5		$	32,026		$	94,731		$	132,044
Amortization of Non-Cash Compensation	—			—			—				517		—			—				1,812			2,329		—			—			—				423		—			—				1,657			2,080
Sale of Shares under Equity Incentive Plan	—				4,897		—				7		—			—				26			33			9,483			242,963		—				223		—			—				820			1,043
Directors' Share Grants		1,268		—			—				29		—			—				101			130			1,253		—			—				27		—			—				105			132
Net Income	—			—			—			—			—				5,068			23,635			28,703		—			—			—			—			—				2,523			11,916			14,439
Foreign Currency Translation Adjustments	—			—			—			—				(67	)	—				(592	)		(659	)	—			—			—			—				(193	)	—				(682	)		(875	)
Repurchase and Retirement of Class A Common Stock		(233,931	)	—				(2	)		(561	)	—			—				(1,964	)		(2,527	)		(394,957	)	—				(4	)		(562	)	—			—				(2,195	)		(2,761	)
Class A Cash Dividends Declared and Paid ($0.03 per share)	—			—			—			—			—				(531	)	—				(531	)	—			—			—			—			—				(509	)	—				(509	)
Tax Impact of Transactions with Non-Controlling Shareholders	—			—			—				(394	)	—			—			—				(394	)	—			—			—				(1,085	)	—			—			—				(1,085	)
Effect of Deconsolidation																										—			—			—			—			—			—			(7,182	)		(7,182	)
Contributions from Non-Controlling Interests	—			—			—			—			—			—				9,589			9,589		—			—			—			—			—			—				12,592			12,592
Distributions to Non-Controlling Interests	—			—			—			—			—			—				(19,052	)		(19,052	)	—			—			—			—			—			—				(11,961	)		(11,961	)
Other	—			—			—				(480	)	—			—				480			—		—			—			—				(749	)	—			—				749			—
Balance at September 30, 2021		17,523,522			54,704,177		$	175		$	4,751		$	47		$	34,123		$	109,994		$	149,090
Balance at June 30, 2022																										16,722,181			56,969,703		$	167		$	3,388		$	(188	)	$	34,040		$	100,550		$	137,957

Note 2—Significant Accounting Policies

Basis of Presentation:

The consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and related Securities and Exchange Commission (“SEC”) rules and regulations.

Principles of Consolidation:

The Company’s policy is to consolidate those entities in which it has a direct or indirect controlling financial interest. The consolidation guidance requires an analysis to determine if an entity should be evaluated for consolidation using the voting interest entity (“VOE”) model or the variable interest entity (“VIE”) model. Under the VOE model, controlling financial interest is generally defined as a majority ownership of voting interests. Under the VIE model, controlling financial interest is established if the entity is determined to be the primary beneficiary, which is defined as (i) the power to direct activities that most significantly impact the economic performance of the entity and (ii) the right to receive potentially significant benefits or the obligation to absorb potentially significant losses.

Table of Contents

Pursuant to the Consolidation Topic of the FASB Accounting Standards Codification (“FASB ASC”), for legal entities evaluated for consolidation, the Company determines whether interests it holds and fees paid to the entity qualify as a variable interest. If it is determined that the Company does not have a variable interest in the entity or a voting interest in the entity, no further analysis is required and the Company does not consolidate the entity. If it is determined that the Company has a variable interest, it considers its direct interests and the proportionate indirect interests through related parties to determine if it is the primary beneficiary of the VIE.

For equity investments where the Company does not control the investee, and where it is not the primary beneficiary of a VIE, but can exert significant influence over the financial and operating policies of the investee, the Company follows the equity method of accounting. The evaluation of whether the Company exerts control or significant influence over the financial and operating policies of the investee requires significant judgment based on the facts and circumstances surrounding each investment. Factors considered in these evaluations may include the type of investment, the legal structure of the investee, the terms of the investment agreement, or other agreements with the investee.

The Company analyzes entities structured as series funds which comply with the requirements included in the Investment Company Act of 1940 for registered mutual funds as voting interest entities because the shareholders are deemed to have the ability to direct the activities of the fund that most significantly impact the fund's economic performance.

Consolidated Entities

The Company consolidates the financial results of the operating company and records in its own equity its pro-rata share of transactions that impact the operating company’s net equity, including unit and option issuances, repurchases, and retirements. The operating company’s pro-rata share of such transactions are recorded as an adjustment to additional paid-in capital or non-controlling interests, as applicable, on the consolidated statements of financial condition.

The majority-owned subsidiaries in which the Company, through its interest in the operating company, has a controlling financial interest and the VIEs for which the Company is deemed to be the primary beneficiary are collectively referred to as “consolidated subsidiaries.” Non-controlling interests recorded on the consolidated financial statements of the Company include the non-controlling interests of the outside investors in each of these entities, as well as those of the operating company. All significant inter-company transactions and balances have been eliminated through consolidation.

During ~~June~~April of ~~2021,~~2022, the Company ~~provided the initial cash investment for the launch of a Pzena mutual fund,~~deconsolidated the Pzena ~~International~~Emerging Markets Select Value ~~Fund. Due to its series fund structure, registration, and compliance with the requirements of the Investment Company Act of 1940, the~~Fund, a sub-fund through Pzena Value Funds plc. The fund is analyzed for consolidation under the voting interest model. As a result of additional subscriptions during the three months ended June 30, 2022, the Company's ~~initial interests, it consolidated~~interest in the ~~Pzena International Value Fund through September 17, 2021. During September of 2021, due to additional subscriptions into the Pzena International Value Fund, the Company's ownership~~fund decreased below the threshold for ~~consolidation under~~consolidation. At June 30, 2022, the ~~voting interest model. As~~Company's investment in the ~~Company~~Emerging Markets Select Value Fund was ~~no longer deemed to control the fund, it deconsolidated the entity and removed the related assets, liabilities and non-controlling interest from~~$9.2 million, which is included in the Company’s ~~consolidated statements~~Consolidated Statements of ~~financial condition and classified the Company's remaining investment~~Financial Condition as an equity method investment.

During ~~September~~June of 2021, the Company redeemed its investment in Pzena Investment Management Special Situations, LLC. As the Company was no longer deemed the primary beneficiary of this entity, it deconsolidated the entity and removed the related assets, liabilities and non-controlling interest from the Company’s consolidated statements of financial condition.

On January 1, 2020, the Company redeemed its investment in the Pzena International Value Service (a series of Pzena Investment Management International, LLC). As the Company was no longer deemed the primary beneficiary of this entity, it deconsolidated the entity and removed the related assets, liabilities and non-controlling interest from the Company’s consolidated statements of financial condition.

~~During 2020,~~2022, the Company provided the initial ~~cash investment~~seed capital for ~~a Pzena-branded Australian Registered Investment Scheme,~~the Pzena ~~Global Focused Value~~320 Fund, LP, in an effort to generate an investment performance track record to attract third-party investors. Pzena 320 Fund, LP was launched for the purpose of trading and holding high yield debt securities. The fund is analyzed for consolidation under the variable interest model. The Company is considered the primary beneficiary of this entity. At ~~September~~June 30, ~~2021,~~2022, Pzena ~~Global Focused Value Fund’s~~320 Fund, LP had $~~20.1~~24.7 million in net assets, ~~were~~which are included in the Company’s ~~consolidated statements~~Consolidated Statements of ~~financial condition.~~Financial Condition.

~~These~~Certain consolidated investment partnerships are investment companies and apply specialized industry accounting for investment companies. The Company has retained this specialized accounting for these investment partnerships pursuant to U.S. GAAP.

~~Table of Contents~~

Non-Consolidated Variable Interest Entities

VIEs that are not consolidated receive investment management services from the operating company and are generally private investment partnerships sponsored by the operating company. The total net assets of these VIEs was approximately $~~239.6~~194.7 million and $~~265.9~~234.7 million at ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively.

As of ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, the operating company had $~~4.1~~1.2 million and $~~3.2~~1.8 million, respectively, in investments in certain of these firm-sponsored vehicles, the majority of which are primarily held to satisfy certain of the Company’s obligations under its deferred compensation programs, for which the Company was not deemed to be the primary beneficiary. The Company's exposure to risk of loss in the non-consolidated VIEs is generally limited to any equity investment and any uncollected management fees. As of ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, the Company's maximum exposure to loss as a result of its involvement with the non-consolidated VIEs was $~~4.2~~1.5 million and $~~3.6~~2.2 million, respectively.

~~Accounting Pronouncements Adopted in 2021:~~9

Table of Contents

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The amendments simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also improve consistent application of and simplify US GAAP for other areas of Topic 740 by clarifying and amending the existing guidance. We adopted this standard prospectively on January 1, 2021. The adoption of this standard did not have a material impact on the Company’s consolidated financial condition or results of operations.

Management’s Use of Estimates:

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses for the period. Actual results could materially differ from those estimates.

Revenue Recognition:

Revenue, comprised of advisory fee income, is recognized over the period in which advisory services are provided. Advisory fee income includes management fees that are calculated based on percentages of assets under management (“AUM”), generally billed quarterly, either in arrears or advance, depending on the applicable contractual terms. Advisory fee income also includes performance fees that may be earned by the Company depending on the investment return of the AUM, as well as fulcrum fee arrangements. Performance fee arrangements generally entitle the Company to participate, on a fixed-percentage basis, in any returns generated in excess of an agreed-upon benchmark. The Company’s participation percentage in such return differentials is then multiplied by AUM to determine the performance fees earned. In general, returns are calculated on an annualized basis over the contract’s measurement period, which usually extends to three years. Performance fees are generally payable annually or quarterly. Fulcrum fee arrangements require a reduction in the base fee or allow for an increase in the base fee if the relevant investment strategy underperforms or outperforms, respectively, the agreed-upon benchmark over the contract's measurement period, which extends to three years. Fulcrum fees are generally payable quarterly. Following the Revenue Recognition Topic of the FASB ASC, performance fee income is recorded at the conclusion of the contractual performance period, when it is probable that significant reversal of the performance fee will not occur. Advisory fee income also includes fund expense cap reimbursements which are required to be presented net against revenue rather than as a component of general and administrative expense in the consolidated statements of operations.

~~Table of Contents~~

Revenue from advisory fees is disaggregated into categories based on the composition of the Company's client base and advisory fee structure for the three and ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020:~~2021:


	For the Three Months Ended September 30,						For the Nine Months Ended September 30,						For the Three Months Ended June 30,						For the Six Months Ended June 30,
Revenue	2021			2020			2021			2020			2022			2021			2022			2021
	(in thousands)												(in thousands)
Separately Managed Accounts
Asset-Based Fees	$	26,016		$	18,457		$	77,088		$	53,891		$	23,756		$	26,525		$	49,940		$	51,072
Total Separately Managed Fees		26,016			18,457			77,088			53,891			23,756			26,525			49,940			51,072

Sub-Advised Accounts
Asset-Based Fees	$	21,737		$	12,884		$	59,710		$	37,880		$	19,819		$	20,350		$	41,285		$	37,973
Impact of Fulcrum Fees1		(970	)		(1,004	)		(2,923	)		(3,029	)		0			(958	)		(20	)		(1,953	)
Performance-Based Fees		19			—			27			0			738			8			1,231			8
Total Sub-Advised Fees		20,786			11,880			56,814			34,851			20,557			19,400			42,496			36,028

Pzena Funds
Asset-Based Fees	$	5,024		$	3,808		$	15,133		$	10,886		$	4,606		$	5,157		$	9,419		$	10,109
Expense Cap Reimbursements		(204	)		(197	)		(665	)		(870	)		(222	)		(205	)		(446	)		(461	)
Performance-Based Fees		—		—				—		0				0		—				48		—
Total Pzena Funds Fees		4,820			3,611			14,468			10,016			4,384			4,952			9,021			9,648
Total	$	51,622		$	33,948		$	148,370		$	98,758		$	48,697		$	50,877		$	101,457		$	96,748

Represents the net impact of fulcrum fee arrangements which require a reduction in the base fee or allow for an increase in the base fee if the relevant investment strategy underperforms or outperforms, respectively, the agreed-upon benchmark over the contract's measurement period.

Table of Contents

Cash and Cash Equivalents:

At ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, Cash and Cash Equivalents was $~~70.0~~49.4 million and $~~65.5~~81.1 million, respectively. The Company considers all money market funds and highly-liquid debt instruments with an original maturity of three months or less at the time of purchase to be cash equivalents. The Company maintains its cash in bank deposits, other accounts whose balances often exceed federally insured limits and treasury money market funds. Cash is stated at cost, which approximates fair value.

Interest on cash and cash equivalents is recorded as Interest Income on an accrual basis in the consolidated statements of operations.

Restricted Cash:

At ~~both September~~June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, the Company had $2.2 million and $1.1 million, respectively, of compensating balances recorded in Restricted Cash in the consolidated statements of financial condition. These balances reflect a letter of credit issued by a third party in lieu of a cash security deposit, as required by the Company’s lease for its corporate headquarters.

The following table reconciles cash, cash equivalents, and restricted cash per the consolidated statements of cash flows to the consolidated statements of financial condition.

September
30,
2021

June 30,
2021

December 31, 2020

September
30,
2020

June 30,
2020

December 31, 2019

(in thousands)

Cash and Cash Equivalents

$
69,951

$
53,463

$
65,534

$
49,235

$
33,131

$
52,480

Restricted Cash

1,055

1,054

1,050

1,047

1,043

1,036

Total

$
71,006

$
54,517

$
66,584

$
50,282

$
34,174

$
53,516


	June 30, 2022		March 31, 2022		December 31, 2021		June 30, 2021		March 31, 2021		December 31, 2020
	(in thousands)
Cash and Cash Equivalents	$	49,412	$	35,576	$	81,133	$	53,463	$	29,650	$	65,534
Restricted Cash		2,215		2,214		1,056		1,054		1,054		1,050
Total	$	51,627	$	37,790	$	82,189	$	54,517	$	30,704	$	66,584

~~Table of Contents~~

Due to/from Broker:

Due to/from Broker consists primarily of amounts payable/receivable for unsettled securities transactions held/initiated at the clearing brokers of the Company and its consolidated subsidiaries.

Non-Cash Compensation:

All non-cash compensation awards granted have varying vesting schedules and are issued at prices equal to the assessed fair market value at the time of issuance. Expenses associated with these awards are recognized over the period during which employees are required to provide service. The Company accounts for forfeitures as they occur.

Investments:

Investments, at Fair Value

Investments, and Trading Securities, at Fair Value consist of equity and debt securities at fair value held by the Company and its consolidated subsidiaries, as well as investments in open-ended registered mutual funds. Management determines the appropriate classification of its investments at the time of purchase and re-evaluates such determination on an ongoing basis. Dividends and interest income associated with the Company's investments and the investments of the Company's consolidated subsidiaries are recognized as Dividend Income on an ex-dividend basis and Interest Income, respectively, in the consolidated statements of operations.

Securities Sold Short represents securities sold short at fair value, not yet purchased by the Company. Dividend expense associated with these investments is recognized in Other Income/ (Expense) on an ex-dividend basis in the consolidated statements of operations.

All such investments are recorded at fair value, with net realized and unrealized gains and losses recognized as a component of Net Realized and Unrealized Gains/ (Losses) from Investments in the consolidated statements of operations.

Table of Contents

Investments in equity method investees

The Company accounts for its investments in certain private investment partnerships and mutual funds, in which the Company has non-controlling interests and exercises significant influence, using the equity method. These investments are included in Investments in the Company's consolidated statements of financial condition. The carrying value of these investments is recorded at the amount of capital reported by the private investment partnership or mutual fund. The capital account for each entity reflects any contributions paid to, distributions received from, and equity earnings of, the relevant entity. The earnings of these investments are recognized as Equity in Earnings/ (Losses) of Affiliates in the consolidated statements of operations.

Investments in equity method investees are evaluated for impairment as events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. If the carrying amounts of the assets exceed their respective fair values, additional impairment tests are performed to measure the amounts of impairment losses, if any. During the three and ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, 0 impairment losses were recognized.

Securities Valuation:

Investments in equity securities, debt securities, and securities sold short for which market quotations are available are valued at the last reported price or closing price on the primary market or exchange on which they trade. If no reported equity sales occurred on the valuation date, equity investments are valued at the bid price. Investments in registered mutual funds are carried at fair value at their respective net asset values as of the valuation date. Otherwise, fair values for investment securities are based on Level 2 or Level 3 inputs detailed in Note 9. Transactions are recorded on a trade date basis.

The net realized gain or loss on sales of equity securities, debt securities, and securities sold short is determined on a specific identification basis and is included in Net Realized and Unrealized Gains/ (Losses) from Investments in the consolidated statements of operations.

Concentrations of Credit Risk:

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents, amounts due from brokers, and advisory fees receivable. The Company maintains its cash in bank deposits and other accounts whose balances often exceed federally insured limits.

~~Table of Contents~~

The concentration of credit risk with respect to advisory fees receivable is generally limited due to the short payment terms extended to clients by the Company. On a periodic basis, the Company evaluates its advisory fees receivable and establishes an allowance for doubtful accounts, if necessary, based on a history of past write-offs, collections, and current credit conditions. At both ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, there was 0 allowance for doubtful accounts.

Property and Equipment:

Property and equipment is carried at cost, less accumulated depreciation and amortization. Depreciation is provided on a straight-line basis over the estimated useful lives of the respective assets, except for leasehold improvements, which range from three to seven years. Leasehold improvements are amortized on a straight-line basis over the shorter of the useful life of the improvements or the remaining lease term. Capitalized internal-use software development costs are amortized on a straight-line basis over three years from the date of implementation.

Leases:

The Company determines if an arrangement is a lease at inception. Operating leases are included as a component of Right-of-use (“ROU”) Assets and Lease Liabilities on the consolidated statements of financial condition. ROU assets represent the right to use an underlying asset for the lease term and lease liabilities represent the obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. The lease terms may include options to extend or terminate the lease. These options to extend or terminate are assessed on a lease-by-lease basis, and the ROU assets and lease liabilities are adjusted when it is reasonably certain that an option will be exercised. If a lease arrangement does not provide an implicit rate, the Company uses an incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. Lease expense for lease payments is recognized on a straight-line basis over the lease term.

Lease expense associated with leases that have a term of 12 months or less as of the commencement date are recognized as a component of general and administrative expenses on a straight-line basis over the lease term.

Table of Contents

Share Repurchases:

Share repurchases may be made from time-to-time in open market transactions or through privately negotiated transactions under the authorization approved by the Board of Directors. The Company charges the entire excess of cost over par to additional paid-in capital. If the Company’s additional paid-in capital balance is reduced to zero, any additional amounts are recognized in retained earnings.

Business Segments:

The Company views its operations as comprising 1 operating segment.

Income Taxes:

The Company is organized as a “C” corporation under the Internal Revenue Code, and thus liable for federal, state, and local taxes on the income derived from its economic interest in its operating company. The operating company is a limited liability company that has elected to be treated as a partnership for tax purposes. It has not made a provision for federal or state income taxes because it is the individual responsibility of each of the operating company’s members (including the Company) to separately report their proportionate share of the operating company’s taxable income or loss. The operating company has made a provision for New York City Unincorporated Business Tax (“UBT”) and its consolidated subsidiary Pzena Investment Management, LTD has made a provision for U.K. income taxes. The effective tax rate for interim periods represents the Company’s best estimate of the effective tax rate expected to be applied to the full fiscal year, adjusted for discrete items recognized during the quarter.

Judgment is required in evaluating the Company's uncertain tax positions and determining its provision for income taxes. The Company establishes liabilities for tax-related uncertainties based on estimates of whether, and the extent to which, additional taxes will be due. These liabilities are established when the Company believes that certain positions might be challenged despite its belief that its tax return positions are in accordance with applicable tax laws. The Company adjusts these liabilities in light of changing facts and circumstances, such as the closing of a tax audit, new tax legislation or the change of an estimate. To the extent that the final tax outcome of these matters is different than the amounts recorded, such differences will affect the provision for income taxes in the period in which such determination is made. The provision for income taxes includes the effect of reserve provisions and changes to reserves that are considered appropriate. It is also the Company’s

~~Table of Contents~~

policy to recognize accrued interest, and penalties associated with uncertain tax positions in Income Tax Expense on the consolidated statements of operations.

The Company and its consolidated subsidiaries account for all U.S. federal, state, local, and U.K. taxation pursuant to the asset and liability method, which requires deferred income tax assets and liabilities to be recorded for temporary differences between the carrying amount and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future, based on enacted tax laws and rates applicable to the periods in which the temporary differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount more-likely-than-not to be realized. At both ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, the Company did 0t have a valuation allowance recorded against its deferred tax assets.

The income tax expense, or benefit, is the tax payable or refundable for the period, plus or minus the change during the period in deferred tax assets and liabilities. The Company records its deferred tax liabilities as a component of other liabilities in the consolidated statements of financial condition. All excess tax benefits or tax deficiencies related to stock- and unit-transactions are reflected in the consolidated statements of operations as a component of the provision for income taxes.

Table of Contents

Tax Receivable Agreement:

The Company’s purchase of membership units of the operating company concurrent with its initial public offering, and the subsequent and future exchanges by holders of Class B units of the operating company for shares of the Company’s Class A common stock (pursuant to the exchange rights provided for in the operating company’s operating agreement), have resulted in, and are expected to continue to result in, increases in the Company’s share of the tax basis of the tangible and intangible assets of the operating company, which will increase the tax depreciation and amortization deductions that otherwise would not have been available to the Company. These increases in tax basis and tax depreciation and amortization are each deductible for tax purposes over a period of 15 years and have reduced, and are expected to continue to reduce, the amount of cash taxes that the Company would otherwise be required to pay in the future. The Company has entered into a tax receivable agreement with past, current, and future members of the operating company that requires the Company to pay to any member involved in any exchange transaction 85% of the amount of cash tax savings, if any, in U.S. federal, state and local income tax or foreign or franchise tax that it realizes as a result of these increases in tax basis and, in limited cases, transfers or prior increases in tax basis. The Company expects to benefit from the remaining 15% of cash tax savings, if any, in income tax it realizes. Payments under the tax receivable agreement will be based on the tax reporting positions that the Company will determine. The Company will not be reimbursed for any payments previously made under the tax receivable agreement if a tax basis increase is successfully challenged by the Internal Revenue Service.

The Company records an increase in deferred tax assets for the estimated income tax effects of the increases in tax basis based on enacted federal and state tax rates at the date of the exchange. The Company records 85% of the estimated realizable tax benefit (which is the recorded deferred tax asset less any recorded valuation allowance) as an increase to the liability due under the tax receivable agreement, which is reflected as the liability to selling and converting shareholders in the accompanying consolidated financial statements. The remaining 15% of the estimated realizable tax benefit is initially recorded as an increase to the Company’s additional paid-in capital. All of the effects to the deferred tax asset of changes in any of the estimates after the tax year of the exchange will be reflected in the provision for income taxes. Similarly, the effect of subsequent changes in the enacted tax rates will be reflected in the provision for income taxes.

If the Company exercises its right to terminate the tax receivable agreement early, the Company will be obligated to make an early termination payment to the selling and converting shareholders, based upon the net present value (based upon certain assumptions and deemed events set forth in the tax receivable agreement) of all payments that would be required to be paid by the Company under the tax receivable agreement. If certain change of control events were to occur, the Company would be obligated to make an early termination payment.

Table of Contents

Foreign Currency:

The functional and reporting currency of the Company is the U.S. Dollar. Assets and liabilities of foreign operations whose functional currency is not the U.S. Dollar are translated at the exchange rate in effect at the applicable reporting date, and the consolidated statements of operations are translated at the average exchange rates in effect during the applicable period. A charge or credit is recorded to other comprehensive income to reflect the translation of these amounts to the extent the non-U.S. currency is designated the functional currency of the subsidiary. Non-functional currency related transaction gains and losses are immediately recorded in other income on the consolidated statements of operations. For ~~each of~~ the three and ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, the Company recorded $~~0.7~~0.9 million and $~~0.8~~1.0 million ~~respectively,~~ of other comprehensive

~~Table of Contents~~

loss associated with foreign currency translation ~~adjustments.~~adjustments, respectively. For the three and ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, the Company recorded $~~0.3~~ ~~million and~~less than $0.1 million ~~respectively,~~ of other comprehensive ~~income~~loss associated with foreign currency translation adjustments.

Investment securities and other assets and liabilities denominated in foreign currencies are remeasured into U.S. Dollar amounts at the date of valuation. Purchases and sales of investment securities, and income and expense items denominated in foreign currencies, are remeasured into U.S. Dollar amounts on the respective dates of such transactions.

The Company does not isolate the portion of the results of its operations resulting from the impact of fluctuations in foreign exchange rates on its non-U.S. investments. Such fluctuations are included in Net Realized and Unrealized Gains/ (Losses) from Investments in the consolidated statements of operations.

Reported net realized foreign exchange gains or losses arise from sales of foreign currencies, currency gains or losses realized between the trade and settlement dates on securities transactions, and the difference between the amounts of dividends, interest, foreign withholding taxes, and other receivables and payables recorded on the Company’s consolidated statements of financial condition and the U.S. Dollar equivalent of the amounts actually received or paid. Net unrealized foreign exchange gains and losses arise from changes in the fair values of assets and liabilities resulting from changes in exchange rates.

Note 8—Investments

The following is a summary of Investments:


	As of				As of
	September 30, 2021		December 31, 2020		June 30, 2022		December 31, 2021
	(in thousands)				(in thousands)
Equity Investments, at Fair Value
Equity Securities	$	50,976	$	18,739	$	46,785	$	82,900
Mutual Funds		7,326		7,314		0		7,319
Total Equity Investments, at Fair Value		58,302		26,053		46,785		90,219
Trading Securities, at Fair Value
Leveraged Loans						19,635		0
Corporate Bonds						1,007		0
Total Trading Securities, at Fair Value						20,642		0
Investments in Equity Method Investees		9,297		8,051		13,335		5,287
Total	$	67,599	$	34,104	$	80,762	$	95,506

Investment, at Fair Value

Investments, at Fair Value consisted of the following at ~~September~~June 30, ~~2021:~~2022:


	Cost		Unrealized Gain/(Loss)		Fair Value		Cost		Unrealized Gain/(Loss)			Fair Value
	(in thousands)						(in thousands)
Equity Securities	$	47,926	$	3,050	$	50,976	$	54,432	$	(7,647	)	$	46,785
Mutual Funds		7,320		6		7,326		0		0			0
Total Equity Investments, at Fair Value	$	55,246	$	3,056	$	58,302	$	54,432	$	(7,647	)	$	46,785

2021

Table of Contents

Trading Securities, at Fair Value consisted of the following at June 30, 2022:


	Cost		Unrealized Gain/(Loss)			Fair Value
	(in thousands)
Leveraged Loans	$	19,944	$	(309	)	$	19,635
Corporate Bonds		1,010		(3	)		1,007
Total Trading Securities, at Fair Value	$	20,954	$	(312	)	$	20,642

Securities Sold Short, at Fair Value consisted of the following at ~~September~~June 30, ~~2021:~~2022:


	Proceeds		Unrealized (Gain)/Loss			Fair Value		Proceeds		Unrealized (Gain)/Loss			Fair Value
	(in thousands)							(in thousands)
Equity Securities	$	956	$	(50	)	$	906	$	311	$	(70	)	$	241
Total Securities Sold Short, at Fair Value	$	956	$	(50	)	$	906	$	311	$	(70	)	$	241

Investments, at Fair Value consisted of the following at December 31, ~~2020:~~2021:


	Cost		Unrealized Gain/(Loss)		Fair Value		Cost		Unrealized Gain/(Loss)			Fair Value
	(in thousands)						(in thousands)
Equity Securities	$	16,521	$	2,218	$	18,739	$	80,480	$	2,420		$	82,900
Mutual Funds		7,293		21		7,314		7,328		(9	)		7,319
Total Equity Investments, at Fair Value	$	23,814	$	2,239	$	26,053	$	87,808	$	2,411		$	90,219

Securities Sold Short, at Fair Value consisted of the following at December 31, ~~2020:~~2021:


	Proceeds		Unrealized (Gain)/Loss		Fair Value		Proceeds		Unrealized (Gain)/Loss			Fair Value
	(in thousands)						(in thousands)
Equity Securities	$	620	$	94	$	714	$	259	$	(22	)	$	237
Total Securities Sold Short, at Fair Value	$	620	$	94	$	714	$	259	$	(22	)	$	237

The Company did 0t hold trading securities as of December 31, 2021.

Equity Investments, at Fair Value

Equity investments, at fair value consist of equity securities held by the Company’s consolidated subsidiaries and individual investments held directly by the Company primarily for the purpose of satisfying certain of the Company’s obligations under its deferred compensation program. Equity investments, at fair value also includes investments in open-ended registered mutual funds for which the Company has neither control nor the ability to exercise significant influence. Equity investments are measured at fair value based on quoted market prices or published net asset values.

Trading Securities

Trading securities consists of fixed income investments held directly by the Company. Fixed income investments are carried at fair value based on quoted market prices or market prices obtained from independent pricing services engaged by management.

Table of Contents

Investments in Equity Method Investees

The operating company sponsors and provides investment management services to certain private investment partnerships and Pzena mutual funds through which it offers its investment strategies. The Company has made investments in certain of these private investment partnerships and mutual funds to satisfy its obligations under the Company's deferred compensation program and provide the initial cash investment in our mutual funds. The Company holds a non-controlling interest and exercises significant influence in these entities, and accounts for its investments as equity method investments which are included in Equity Method Investments on the consolidated statements of financial condition. As of ~~September~~June 30, ~~2021,~~2022, the Company's investments range between 10% and 1643% of the capital of these entities and have an aggregate carrying value of $~~9.3~~13.3 million.

Note 9—Fair Value Measurements

The Fair Value Measurements and Disclosures Topic of the FASB ASC 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. The Fair Value Measurements and Disclosures Topic of the FASB ASC also establishes a framework for measuring fair value and a valuation hierarchy based upon the observability of inputs used in the valuation of an asset or liability.

~~Table of Contents~~

Classification within the hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The valuation hierarchy contains three levels: (i) valuation inputs are unadjusted quoted market prices for identical assets or liabilities in active markets (Level 1); (ii) valuation inputs are quoted prices for identical assets or liabilities in markets that are not active, quoted market prices for similar assets and liabilities in active markets, and other observable inputs directly or indirectly related to the asset or liability being measured (Level 2); and (iii) valuation inputs are unobservable and significant to the fair value measurement (Level 3).

Level 1 assets consist primarily of cash equivalents, equity investments at fair value, and securities sold short at fair value. Cash equivalent investments in actively traded money market funds are measured at amortized cost that approximates fair value. Equity securities and securities sold short are exchange-traded securities with quoted prices in active markets. The fair value of investments in mutual funds are based on a published net asset values.

Level 2 assets consist of debt securities for which the fair values are determined using independent third-party broker or dealer price quotes. ~~U.S. Treasury bills~~Leveraged loans are valued upon quoted market prices for similar assets in active markets, quoted prices for identical or similar assets that are not active and inputs other than quoted prices that are observable or corroborated by observable market data. The fair value of corporate bonds is measured using various techniques, which consider recently executed transactions in securities of the issuer or comparable issuers, market price quotations (where observable), bond spreads and fundamental data relating to the issuer.

Also included in equity investments, at fair value, in the Company's consolidated statements of financial condition are investments in American Depositary Receipts (“ADRs”) and Global Depositary Receipts (“GDRs”). Certain of the Company’s ADRs and GDRs may not be listed on a public exchange and may be valued using an evaluated price based on a compilation of observable market information. Inputs used include currency factors, depositary receipt ratios, exchange prices of underlying and common stock of the same issuer, and adjustments for corporate actions. ADRs and GDRs valued using an evaluated price have been classified as Level 2.

The investments in equity method investees are held at their carrying value.

Table of Contents

The following table presents these instruments’ fair value at ~~September~~June 30, ~~2021:~~2022:


	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Assets	(in thousands)								(in thousands)
Cash Equivalents:
Money Market Funds	$	8	$	—	$	—	$	8	$	10	$	—	$	—	$	10
Equity Investments, at Fair Value:
Equity Securities		50,316		660		—		50,976		46,459		326		—		46,785
Mutual Funds		7,326		—		—		7,326		—		—		—		—
Trading Securities, at Fair Value:
Leveraged Loans										—		19,635		—		19,635
Corporate Bonds										—		1,007		—		1,007
Total Assets	$	57,650	$	660	$	—	$	58,310	$	46,469	$	20,968	$	—	$	67,437

Liabilities
Securities Sold Short	$	906		—		—	$	906	$	241		—		—	$	241
Total Liabilities	$	906	$	—	$	—	$	906	$	241	$	—	$	—	$	241

The following table presents these instruments’ fair value at December 31, ~~2020:~~2021:


	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Assets	(in thousands)								(in thousands)
Cash Equivalents:
Money Market Funds	$	8	$	—	$	—	$	8	$	8	$	—	$	—	$	8
Equity Investments, at Fair Value:
Equity Securities		18,006		733		—		18,739		82,163		737		—		82,900
Mutual Funds		7,314		—		—		7,314		7,319		—		—		7,319
Total Assets	$	25,328	$	733	$	—	$	26,061	$	89,490	$	737	$	—	$	90,227

Liabilities
Securities Sold Short		714		—		—		714		237		—		—		237
Total Liabilities	$	714	$	—	$	—	$	714	$	237	$	—	$	—	$	237

~~Table of Contents~~

Transfers among levels, if any, are recorded as of the beginning of the reporting period. For each of the three and ~~nine~~six months ended ~~September 30, 2021~~June 30, 2022 and ~~2020,~~2021, there were 0 transfers between levels. In addition, the Company did 0t hold any Level 3 securities during the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 or during the year ended December 31, ~~2020.~~2021.

Note 10—Property and Equipment

Property and Equipment, Net of Accumulated Depreciation is comprised of the following:


	As of						As of
	September 30, 2021			December 31, 2020			June 30, 2022			December 31, 2021
	(in thousands)						(in thousands)
Leasehold Improvements	$	6,929		$	6,929		$	8,253		$	6,967
Furniture and Fixtures		1,591			1,591			1,591			1,591
Computer Hardware		729			745			1,223			880
Computer Software		879			879			912			879
Office Equipment		212			212			218			211
Capitalized Internal-Use Software Development Costs								426			245
Total		10,340			10,356			12,623			10,773
Less: Accumulated Depreciation and Amortization		(6,793	)		(5,980	)		(7,633	)		(7,086	)
Total	$	3,547		$	4,376		$	4,990		$	3,687

Table of Contents

Depreciation is included in general and administrative expense and totaled approximately $0.3 million and $~~0.9~~0.6 million, respectively, for each of the three and ~~nine~~six months ended ~~September~~June 30, 2022 and 2021.

During the three and six months ended June 30, 2022, the Company capitalized $0.1 million and $0.2 million of internal-use software development costs, respectively. During each of the three and six months ended June 30, 2022, the Company recognized less than $0.1 million in amortization expense related to capitalized internal-use software costs. As of and for the three and six months ended June 30, 2021, ~~and 2020.~~the Company did 0t have capitalized internal-use software development costs.

Note 11—Related Party Transactions

For each of the three months ended ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, the Company earned $0.3 million ~~and $0.1~~ ~~million, respectively,~~ in investment advisory fees, net of expense reimbursements from unconsolidated VIEs that receive investment management services from the Company. For each of the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, the Company earned $~~0.9~~0.6 million ~~and $0.4~~ ~~million, respectively,~~ in such fees.

The Company offers loans to employees, excluding executive officers, for the purpose of financing tax obligations associated with compensatory stock and unit vesting. Loans are generally written for a seven-year period, at an interest rate equivalent to the Applicable Federal Rate, payable in annual installments, and collateralized by shares and units held by the employee. ~~As of September 30, 2021~~These loans are full recourse in nature and ~~December 31, 2020, the Company had approximately~~totaled $~~3.3~~4.7 million and $~~2.6~~3.6 million ~~respectively, of such loans outstanding.~~at June 30, 2022 and December 31, 2021, respectively.

The operating company, as investment adviser for certain Pzena branded SEC-registered mutual funds, private placement funds, and non-U.S. funds, has contractually agreed to waive a portion or all of its management fees and pay fund expenses to ensure that the annual operating expenses of the funds stay below certain established total expense ratio thresholds. For the three and ~~nine~~six months ended ~~September~~June 30, ~~2021, the Company recognized $0.4~~ ~~million and $0.9~~ ~~million, respectively, in such expenses. For the three and nine months ended September 30, 2020,~~2022, the Company recognized $0.2 million and $~~0.8~~0.5 million, respectively, in such expenses. For each of the three and six months ended June 30, 2021, the Company recognized $0.2 million and $0.6 million, respectively, in such expenses.

~~Table of Contents~~

The operating company manages personal funds of certain of the Company’s employees, including the CEO, and its two Presidents. The operating company also manages accounts beneficially owned by a private fund in which certain of the Company’s executive officers invest. Investments by employees in individual accounts are permitted only at the discretion of the executive committee of the operating company, but are generally not subject to the same minimum investment levels that are required of outside investors. The operating company also manages personal funds of some of its employees’ family members. Pursuant to the respective investment management agreements, the operating company waives or reduces its regular advisory fees for these accounts and personal funds. In addition, the operating company pays custody and administrative fees for certain of these accounts and personal funds in order to incubate products or preserve performance history. The aggregate value of the fees that the Company waived related to the Company’s executive officers, other employees, and family members, was approximately $0.3 million and $~~1.0~~0.6 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, respectively. For the three and ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, the Company waived $0.2 million and $~~0.6~~0.4 million, respectively, in such fees.

On December 17, 2021, the Company entered into a revolving line of credit agreement with the operating company, in which, the Company agrees to make loans to the operating company on a revolving basis from time to time in such amounts as the operating company may request for such purposes as it may require in the ordinary course of its business. The credit facility includes a $15.0 million line of credit with a five-year term, maturing on December 17, 2026. Principal amounts outstanding under the facility accrue interest at the variable Secured Overnight Financing Rate (SOFR) plus 1.10%. As of June 30, 2022, there were total borrowings of $10.0 million under the credit facility. As intercompany accounts and transactions are eliminated upon consolidation, there is no corresponding balance presented or included on the Consolidated Statements of Financial Condition.

Note 12—Commitments and Contingencies

In the normal course of business, the Company enters into agreements that include indemnities in favor of third parties, such as engagement letters with advisers and consultants. In certain cases, the Company may have recourse against third parties with respect to these indemnities. The Company maintains insurance policies that may provide coverage against certain claims under these indemnities. The Company has had 0 claims or payments pursuant to these agreements, and it believes the likelihood of a claim being made is remote. Utilizing the methodology in the Guarantees Topic of the FASB ASC, the Company’s estimate of the value of such guarantees is de minimis, therefore, 0 accrual has been made in the consolidated financial statements.

Table of Contents

The Company leases office space for its headquarters under a non-cancelable operating lease agreement, which ~~expires~~originally expired on December 31, 2025. ~~The~~During January 2022, the Company ~~recognizes minimum~~signed a non-cancellable amendment to the corporate headquarters lease ~~expense for its headquarters on a straight-line basis over~~extending the lease ~~term.~~ term of the current space through October 31, 2036. In accordance with ASC 842, Leases, the Company has remeasured the related Right-of-use Asset and Lease Liability on the consolidated statements of financial condition from the commencement date of January 21, 2022. As part of the non-cancellable amendment signed in January 2022, the Company expanded its corporate headquarters during May 2022. The commencement date of the lease expansion was May 1, 2022, with a lease term extending through October 31, 2036. In accordance with ASC 842, Leases, the Company has measured the related Right-of-use Asset and Lease Liability on the consolidated statements of financial condition from the commencement date of May 1, 2022.

The Company entered into a~~four-year~~ ~~sublease agreement commencing on October 1, 2016, which terminated on January 31, 2019. The Company entered into a new~~ sublease agreement commencing on February 1, 2019, that expires on December 31, 2025. During October of 2020, the Company executed an amendment to the sublease agreement. The sublease agreement is cancelable by either the Company or sublessee upon at least six months prior written notice. On November 29, 2021, the Company gave written notice exercising its right to terminate the sublease effective June 1, 2022. Sublease income will ~~continue to~~ decrease annual lease expense by approximately $~~0.3~~0.2 million ~~per~~this year.

~~During December 2018, the Company signed a non-cancellable amendment to the corporate headquarters lease to obtain additional space that expires on December 31, 2025. In accordance with ASC 842,~~ ~~Leases, the lease term commenced on February 1, 2019 and the Company recorded a Right-of-use Asset and Lease Liability on the consolidated statements of financial condition associated with the new lease.~~

During June 2019, the Company signed a non-cancellable lease to the business development and client service office in London to obtain additional space that expires on October 31, 2021. In accordance with ASC 842, Leases, the lease term commenced on November 1, 2019 and the Company recorded a Right-of-use Asset and Lease Liability on the consolidated statements of financial condition associated with the new lease. During July 2021, the Company signed an extension of the non-cancellable lease to the business development and client service office in London which commences on November 1, 2021 and expires on October 31, 2023.

During ~~each~~September 2021, the Company signed a non-cancellable lease for the business development and client service office in Ireland to obtain office space that expires on August 31, 2023. In accordance with ASC 842, Leases, the lease term commenced on September 1, 2021 and the Company recorded a Right-of-use Asset and Lease Liability on the consolidated statements of financial condition associated with the new lease.

During the three and ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, lease expenses of $~~0.8~~1.4 million and $~~2.2~~2.4 million, respectively, are included in general and administrative expense. During the three and ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, lease expenses were $~~0.8~~0.7 million and $~~2.2~~1.5 million, respectively. This lease expense includes short-term lease expenses associated with the Company's office space in Australia. Short-term lease expense was less than $0.1 million ~~and $0.3~~ ~~million, respectively,~~ for both the three and ~~nine~~six months ended ~~September~~June 30, ~~2021.~~2022. Lease expenses for each of the three months ended ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, were net of $0.1 million ~~of sublease income. Lease expenses for the nine months ended September 30, 2021~~ and ~~2020, were net of~~ $0.2 ~~million and $0.3~~ million of sublease income, respectively.

~~Table of Contents~~

The following table presents the components of operating lease expense, as well as supplemental cash flow information, related to the Company’s leases:


	For the Three Months Ended September 30,		For the Nine Months Ended September 30,		For the Three Months Ended June 30,		For the Six Months Ended June 30,
	2021				2022
	(in thousands)				(in thousands)
Operating lease expense1	$	605	$	1,792	$	896	$	1,587
Supplemental cash flow information:
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	617	$	1,828	$	342	$	816
Right-of-use assets obtained in exchange for lease obligations	$	—	$	—	$	23,691	$	46,885

Amounts have not been reduced by sublease income of $0.1 million and $0.2 million, respectively, recognized during the three and ~~nine~~six months ended ~~September~~June 30, ~~2021.~~2022.

Table of Contents

The following table presents information regarding the Company’s operating leases:


	As of			As of
	September 30, 2021			June 30, 2022
	(in thousands)			(in thousands)
Operating lease right-of-use assets	$	9,786		$	55,311
Operating lease liabilities	$	10,077		$	65,396
Weighted-average remaining lease term (in years)		4.2			14.2
Weighted-average discount rate		4.3	%		3.7	%

The maturities of lease liabilities are as follows (in thousands):


Year Ending December 31,	Operating Leases			Operating Leases
2021 (excluding the nine months ended September 30, 2021)	$	672
2022		2,574
2022 (excluding the six months ended June 30, 2022)				$	1,496
2023		2,596			4,139
2024		2,607			5,087
2025		2,607			5,087
2026 and thereafter		-
2026					3,885
2027 and thereafter					66,889
Total undiscounted lease payments	$	11,056		$	86,583
Less discount		(979	)		(21,187	)
Total lease liabilities	$	10,077		$	65,396

Note 13—Income Taxes

~~Table of Contents~~

The Income Taxes Topic of the FASB ASC establishes the minimum threshold for recognizing, and a system for measuring, the benefits of tax return positions in financial statements.

As of ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, the Company had $~~7.7~~15.5 million and $~~7.6~~8.3 million, respectively, in unrecognized tax benefits that, if recognized, would affect the provision for income taxes. As of ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, the Company had interest related to unrecognized tax benefits of $~~1.1~~2.4 million and $1.2 million, respectively. As of ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, 0 penalty accruals were recorded.

~~During the three months ended September 30, 2021 and 2020, the Company recognized intermittent net discrete tax benefits of $2.5~~ ~~million and $1.6~~ ~~million, respectively, associated with the remeasurement of reserves and related interest in connection with the lapse of the statute of limitations in certain tax jurisdictions.~~

As of ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, the net values of all deferred tax assets were approximately $~~26.9~~22.0 million and $~~29.8~~25.9 million, respectively. These deferred tax assets primarily reflect the future tax benefits associated with the Company's initial public offering, and the subsequent and future exchanges by holders of Class B units of the operating company for shares of Class A common stock. At ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, the Company did 0t have a valuation allowance recorded against its deferred tax assets.

Table of Contents

Note 14—Subsequent Events

On ~~October 19, 2021~~July 26, 2022, the Company announced that the Board of Directors approved and declared a quarterly dividend of $0.03 per share of its Class A common stock that will be paid on ~~November~~August 19, ~~2021~~2022 to holders of record on~~October 29, 2021~~ August 5, 2022.

On ~~October 19, 2021, at~~July 26, 2022, the ~~recommendation~~Company announced that it has entered into an agreement to become a private company through a transaction in which holders of Class A common stock will receive $9.60 per share in cash. Under the terms of the definitive agreement, the Company will merge with and into a newly formed subsidiary of its ~~Nominating~~operating company in an all-cash transaction that implies an enterprise value for the Company of approximately $795 million. The $9.60 per share price represents a premium of 49% to the Company's closing stock price on July 26, 2022, and ~~Corporate Governance Committee,~~a premium of approximately 46% over the ~~Board~~90-calendar day volume weighted average price. In connection with entering into the definitive agreement, the operating company obtained debt financing via a debt commitment letter, dated as of ~~Directors voted~~July 26, 2022, with JPMorgan Chase Bank, N.A. to ~~increase~~provide the ~~size~~operating company with a term loan facility in an aggregate principal amount of $200 million, on the terms and subject to the conditions set forth in the commitment letter. The proceeds of the ~~Board by one seat and appointed Ms. Chenyu Caroline Cai~~term loan will be used, among other things, to ~~fill the vacancy on the Board resulting from such increase in the size~~finance payment of the ~~Board.~~consideration payable in connection with the definitive agreement, pay fees and expenses in connection with the transactions related thereto and for working capital and other general corporate purposes. The consummation of the definitive agreement is not conditioned upon the term loan.

No other subsequent events necessitated disclosures and/or adjustments.

2628

Table of Contents

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

Overview

We are an investment management firm that utilizes a classic value investment approach across all of our investment strategies. We currently manage assets in a variety of value-oriented investment strategies across a wide range of market capitalizations in both U.S. and non-U.S. capital markets. At ~~September~~June 30, ~~2021,~~2022, our assets under management, or AUM, was ~~$50.8~~$45.0 billion. We manage separate accounts on behalf of institutions, act as sub-investment adviser for a variety of SEC-registered mutual funds and non-U.S. funds, and act as investment adviser for the Pzena mutual funds, private placement funds and non-U.S. funds.

We function as the sole managing member of our operating company, Pzena Investment Management, LLC (the “operating company”). As a result, we: (i) consolidate the financial results of our operating company with our own, and reflect the membership interest in it that we do not own as a non-controlling interest in our consolidated financial statements; and (ii) recognize income generated from our economic interest in our operating company’s net income. The percentages presented below are subject to continued changes, including but not limited to, the price of Class A common stock, issuance of awards, and exercise of options. Based on the closing price of the Company’s Class A common stock as of ~~September~~June 30, ~~2021,~~2022, the holders of Class A common stock (through the Company), the holders of Class B units of the operating company, and Class B-1 units of the operating company held approximately ~~23.8%~~22.7%, ~~74.3%~~77.3%, and ~~1.9%~~0.0% respectively, of the economic interest in the ~~September~~June 30, ~~2021~~2022 value of the operating company. As of ~~September~~June 30, ~~2021,~~2022, the holders of our Class A common stock and the holders of Class B and Class B-1 units of our operating company held approximately ~~22.0%~~20.1%, ~~68.9%~~68.4%, and ~~9.1%~~11.5%, respectively, of the future income and distributions.

The Company also serves as the general partner of Pzena Investment Management, LP, a partnership formed with the objective of aggregating employee ownership in one entity.

Our founders and certain of our employees have interests in Pzena Investment Management, LP and certain estate planning vehicles through which they indirectly own Class B and B-1 units of our operating company. Based on the closing price of the Company’s Class A common stock as of ~~September~~June 30, ~~2021,~~2022, through direct and indirect interests, our three founders, 5256 other employee members, and certain other members of our operating company, including one of our directors, his related entities, and certain former employees, collectively held ~~48.4%~~49.6%, ~~8.7%~~8.6%, and 19.1% of the economic interests in our operating company, respectively. As of ~~September~~June 30, ~~2021,~~2022, through direct and indirect interests, our three founders, 5256 other employee members, and certain former employees, collectively held ~~44.9%~~43.8%, ~~15.4%~~19.2%, and ~~17.7%~~16.9% of the future income and distributions of our operating company.

As announced on July 26, 2022, Pzena Investment Management, Inc. entered into a transaction whereby all of the outstanding public shares (known as Class A shares) of the Company would be converted into the right to receive $9.60 per share at the closing of the transaction. We believe that being a public company creates meaningful unnecessary expenses on our business, both in hard costs and in extra time for key members of our team. Further, as a well-established company at this stage, we believe we can effectively handle the issuance of equity to new employee partners within a private structure. And, our shares have very little liquidity, making it difficult for partners to transact in the market with almost any volume of shares. As an investment manager that relies on talented investment professionals, it is important for us to compensate our next generation with equity which creates dilution and can conflict with the market’s focus on short-term metrics. We expect the transaction to close in the fourth quarter of 2022.

Net Income

Diluted net income and diluted earnings per share were ~~$22.7~~$12.8 million and ~~$0.27,~~$0.15, respectively, for the three months ended ~~September~~June 30, ~~2021,~~2022, and ~~$12.4~~$21.2 million and ~~$0.16,~~$0.25, respectively, for the three months ended ~~September~~June 30, ~~2020.~~2021. Diluted net income and diluted earnings per share were ~~$63.6~~$26.2 million and ~~$0.76,~~$0.31, respectively, for the ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, and ~~$23.1~~$40.9 million and ~~$0.28,~~$0.49, respectively, for the ~~nine~~six months ended ~~September~~June 30, 2020. For the nine months ended September 30, 2020, the calculation of diluted earnings per share resulted in an increase in earnings per share. Therefore, diluted earnings per share for such period is assumed to be equal to earnings per share.2021.

In evaluating our financial condition and results of operations, we also review non-GAAP measures of earnings, which are adjusted to exclude accounting adjustments related to our deferred tax asset generated by the Company's initial public offering and subsequent Class B unit conversions, as well as our tax receivable agreement and the associated liability to our selling and converting shareholders. No such adjustments were made to the GAAP results for the three and ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020.~~2021.

Net income for diluted earnings per share generally assumes all operating company membership units are converted into Company stock at the beginning of the reporting period, and the resulting change to our net income associated with our increased

Table of Contents

interest in the operating company is taxed at our historical effective tax rate, exclusive of the adjustments related to changes in the valuation allowance recorded against the deferred tax asset and other discrete and permanently non-deductible items. Our resulting effective tax rate was ~~24.8%~~27.4% and ~~25.0%~~ 27.7%for the three and ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, and ~~24.3%~~25.4% and ~~25.0%~~25.1% for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020, respectively.~~2021. See “Operating Results - Income Tax Expense” below.

~~Table of Contents~~

Revenue

We generate revenue primarily from management fees and performance fees, which we collectively refer to as our advisory fees, by managing assets on behalf of our separately managed and sub-advised accounts, as well as our Pzena funds. Our advisory fee income is primarily based on our AUM, as discussed below, and recognized over the period in which investment management services are provided. In accordance with the Revenue Recognition Topic of the Financial Accounting Standards Board Accounting Standards Codification (“FASB ASC”), income from performance fees is recorded at the conclusion of the contractual performance period, when it is probable that significant reversal of the performance fee will not occur. Advisory fee income also includes fund expense cap reimbursements which are required to be presented net against revenue rather than as a component of general and administrative expense.

Our advisory fees are primarily driven by the level of our AUM. Our AUM increases or decreases with the net inflows or outflows of funds into our various investment strategies and with the investment performance thereof. In order to increase our AUM and expand our business, we must develop and market investment strategies that suit the investment needs of our target clients, and provide attractive returns over the long term. The value and composition of our AUM, and our ability to continue to attract clients depends on a variety of factors as described in "Item 1 — Risk Factors — Risks Related to Our Business — Our primary source of revenue is derived from management fees, which are directly tied to the levels of our assets under management. Fluctuations in AUM therefore will directly impact our revenue" of our Annual Report on Form 10-K for the year ended December 31, ~~2020.~~2021.

For our separately managed accounts, we are paid fees according to a schedule, which varies by investment strategy. The substantial majority of these accounts pay us management fees pursuant to a schedule by which the rate we earn on the AUM declines as the amount of AUM increases.

Pursuant to our sub-investment advisory agreements, we are generally paid a management fee according to a schedule in which the rate we earn on the AUM declines as the amount of AUM increases. Certain of these funds pay us fixed-rate management fees. Due to the substantially larger account size of certain of these accounts, the average advisory fees we earn on them, as a percentage of AUM, are lower than the advisory fees we earn on our separately managed accounts.

Advisory fees we earn on separately managed accounts are generally based on the value of AUM at a specific date on a quarterly basis. Certain of our separately managed accounts, and all of our sub-advised accounts, are calculated based on the average of the monthly or daily market value. Advisory fees are also generally adjusted for any cash flows into or out of a portfolio, where the cash flow represents greater than 10% of the value of the portfolio. While a specific group of accounts may use the same fee rate, the calculation methodology may differ as described above.

Certain of our clients pay us performance fees according to the performance of their accounts relative to certain agreed-upon benchmarks, which results in a lower base fee, but allows for us to earn higher fees if the relevant investment strategy outperforms the agreed-upon benchmark. Some performance-based fee arrangements include high-water mark provisions, which generally provide that if a client account underperforms relative to its performance target, it must gain back such underperformance before we can collect future performance-based fees. Fulcrum fee arrangements require a reduction in the base fee, or allow for a performance fee if the relevant investment strategy underperforms or outperforms, respectively, the agreed-upon benchmark.

Our advisory fees may fluctuate based on a number of factors, including the following:

•

changes in AUM due to appreciation or depreciation of our investment portfolios, and the levels of the contribution and withdrawal of assets by new and existing clients;

•

distribution of AUM among our investment strategies, which have differing fee schedules;

•

distribution of AUM between separately managed accounts and sub-advised accounts, for which we generally earn lower overall advisory fees; and

•

the level of our performance with respect to accounts on which we are paid performance fees or have fulcrum fee arrangements.

2830

Table of Contents

Expenses

Our expenses consist primarily of Compensation and Benefits Expense, as well as General and Administrative Expense. Our largest expense is Compensation and Benefits, which includes the salaries, bonuses, equity-based compensation, and related benefits and payroll costs attributable to our employee members and employees. Compensation and benefits packages are benchmarked against relevant industry and geographic peer groups in order to attract and retain qualified personnel. General and Administrative Expense includes lease expenses, professional and outside services fees, depreciation, the costs associated with operating and maintaining our research, trading and portfolio accounting systems, the costs associated with being a public company, and other expenses. Our occupancy-related costs and professional services expenses, in particular, generally increase or decrease in relative proportion to the overall size and scale of our business operations.

Our expenses may fluctuate due to a number of factors, including the following:

•

variations in the level of total compensation expense due to, among other things, bonuses, awards of equity to our employees and employee members of our operating company, changes in our employee count and mix, and competitive factors; and

•

general and administrative expenses, such as rent, professional service fees and data-related costs, incurred, as necessary, to run our business.

Other Income/ (Expense)

Other Income/ (Expense) is derived primarily from investment income or loss arising from our consolidated subsidiaries, income or loss generated by our investments, and interest income generated on our cash balances. Other Income/ (Expense) is also affected by changes in our estimates of the liability due to our selling and converting shareholders associated with payments owed to them under the tax receivable agreement, which was executed in connection with our reorganization and initial public offering on October 30, 2007. As discussed further below under “Tax Receivable Agreement,” this liability represents 85% of the amount of cash savings, if any, in U.S. federal, state, and local income tax that we realize as a result of the amortization of the increases in tax basis generated from our acquisitions of our operating company’s units from our selling and converting shareholders. We expect the interest and investment components of Other Income/ (Expense), in the aggregate, to fluctuate based on market conditions and the performance of our consolidated entities and other investments.

Non-Controlling Interests

We are the sole managing member of our operating company and control its business and affairs and, therefore, consolidate its financial results with ours. In light of our employees’ and outside investors’ direct and indirect interests in our operating company, we have reflected their membership interests as non-controlling interest in our consolidated financial statements. As of ~~September~~June 30, ~~2021,~~2022, the holders of Class A common stock of the Company and the holders of Class B units and Class B-1 units of the operating company held approximately ~~23.8%~~22.7%, ~~74.3%~~77.3%, and ~~1.9%~~0.0% respectively, of the economic interests in the operations of the business. In addition, our operating company consolidates the results of operations of the private investment partnerships over which we exercise a controlling influence. Non-controlling interests recorded in our consolidated financial statements include the non-controlling interests of the outside investors in these consolidated subsidiaries.

Operating Results

General

Our earnings and cash flows are heavily dependent upon prevailing financial market conditions. Significant increases or decreases in the various securities markets, particularly equities markets, can have a material impact on our results of operations, financial condition and cash flows.

The global effects of COVID-19 on the securities market caused a significant reduction in our AUM. While many businesses have re-opened, vaccinations are underway (particularly in the U.S., the U.K. and Israel) and leading economic indicators are showing signs of improvement, the overall extent and duration of COVID-19's impact on businesses and economic activity generally remains uncertain. The economic impact of COVID-19 and any additional declines in the financial markets could have a significant adverse effect on our AUM and revenues, particularly if economic activity does not continue to recover. Although countries throughout the world continue to grapple with re-opening their economies, this will continue to

~~Table of Contents~~

be a gradual process, and there is a significant risk that the opening process may be further interrupted if infection rates increase, as a result of the emergence of new variants of COVID-19 or otherwise.

~~We continue to consider, and in some cases are methodically implementing, return to office programs for our U.S., U.K., and Australian offices. During the third quarter~~31

Table of 2021, we gradually began to bring our workforce back into the office and we will continue to do so during the fourth quarter of 2021. However, we continue to monitor the daily evolution of the pandemic and communications from the World Health Organization and the U.S. Centers for Disease Control and Prevention in order to ensure the health and safety of our employees, which remains our top priority. We will modify our return to office plans, as needed, to ensure the safety of our employees and to ensure that the highest safety and cleanliness protocols are followed. We believe that our business continuity plan and technology platform will continue to support the effectiveness of our employees working remotely.Contents

~~As most of our workforce continues working remotely, we are mindful of increased risk related to cybersecurity, which could significantly disrupt our business functions.~~

Assets Under Management and Flows

As of ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, our AUM of approximately ~~$50.8~~$45.0 billion and ~~$33.3~~$53.1 billion, respectively, was invested in a variety of value-oriented investment strategies, representing distinct market capitalization segments of U.S. and non-U.S. equity markets. The assets under management and performance of our largest investment strategies as of ~~September~~June 30, ~~2021~~2022 are further described below. We follow the same investment process for each of these strategies. Our investment strategies are distinguished by the market capitalization ranges from which we select securities for their portfolios, which we refer to as each strategy’s investment universe, as well as the regions in which we invest and the degree to which we concentrate on a limited number of holdings. While our investment process includes ongoing review of companies in the investment universes described below, our actual investments may include companies outside of the relevant market capitalization range at the time of our investment. In addition, the number of holdings typically found in the portfolios of each of our investment strategies may vary, as described below.

The following tables describe the allocation of our AUM among our investment strategies and the domicile of our accounts, as of ~~September~~June 30, ~~2021~~2022 and ~~2020:~~2021:


	AUM at September 30,				AUM at June 30,
Strategy	2021		2020		2022		2021
	(in billions)				(in billions)
U.S. Value Strategies
Large Cap Value	$	11.2	$	7.2	$	9.7	$	11.1
Mid Cap Value		2.9		2.3		2.5		3.1
Small Cap Value		2.5		1.4		2.2		2.5
Value		0.7		0.4		0.6		0.8
Other U.S. Strategies		0.2		0.2		0.2		0.2
Total U.S. Value Strategies		17.5		11.5		15.2		17.7

Global and Non-U.S. Value Strategies
Global Value		14.8		8.4		14.0		15.3
International Value		7.8		5.9		6.7		9.0
Emerging Markets Value		7.2		5.1		5.8		7.5
European Value		3.0		2.1		2.4		3.1
Other Global and Non-U.S. Strategies		0.5		0.3		0.9		0.5
Total Global and Non-U.S. Value Strategies		33.3		21.8		29.8		35.4
Total	$	50.8	$	33.3	$	45.0	$	53.1


	AUM at June 30,
Account Domicile	2022		2021
	(in billions)
U.S.	$	26.9	$	32.0
Non-U.S.		18.1		21.1
Total	$	45.0	$	53.1

Table of Contents

AUM at September 30,

Account Domicile

2021

2020

(in billions)

U.S.

$
31.2

$
21.1

Non-U.S.

19.6

12.2

Total

$
50.8

$
33.3

~~Table of Contents~~

The following table indicates the annualized returns, gross and net (which represents annualized returns prior to, and after, payment of advisory fees, respectively), of our largest investment strategies from their inception to ~~September~~June 30, ~~2021,~~2022, and in the five-year, three-year, and one-year periods ended ~~September~~June 30, ~~2021,~~2022, as well as the performance of the market index which is most commonly used by our clients to compare the performance of the relevant investment strategy.


	Period Ended September 30, 20211												Period Ended June 30, 20221
Investment Strategy (Inception Date)	Since Inception			5 Years			3 Years			1 Year			Since Inception			5 Years			3 Years			1 Year
Large Cap Value (July 2012)
Annualized Gross Returns		12.8	%		11.4	%		8.6	%		58.1	%		11.3	%		7.0	%		8.0	%		-4.8	%
Annualized Net Returns		12.6	%		11.2	%		8.5	%		57.9	%		11.2	%		6.8	%		7.9	%		-4.9	%
Russell 1000® Value Index		12.2	%		10.9	%		10.1	%		35.0	%		10.5	%		7.2	%		6.9	%		-6.8	%
International Value (November 2008)
Annualized Gross Returns		10.0	%		9.5	%		7.0	%		40.5	%		8.1	%		2.6	%		3.7	%		-16.3	%
Annualized Net Returns		9.6	%		9.1	%		6.6	%		40.1	%		7.8	%		2.3	%		3.4	%		-16.6	%
MSCI EAFE® Index—Net/U.S.$2		7.8	%		8.8	%		7.6	%		25.7	%		5.9	%		2.2	%		1.1	%		-17.8	%
Global Value (January 2010)
Annualized Gross Returns		9.2	%		11.0	%		9.0	%		52.1	%		7.8	%		5.4	%		7.1	%		-10.1	%
Annualized Net Returns		8.8	%		10.6	%		8.6	%		51.6	%		7.4	%		5.0	%		6.7	%		-10.4	%
MSCI® World Index – Net/U.S.$2		10.5	%		13.7	%		13.1	%		28.8	%		8.5	%		7.7	%		7.0	%		-14.3	%
Emerging Markets Focused Value (January 2008)
Annualized Gross Returns		4.5	%		10.8	%		8.5	%		42.4	%		3.4	%		3.9	%		4.2	%		-14.6	%
Annualized Net Returns		3.7	%		9.9	%		7.7	%		41.4	%		2.6	%		3.1	%		3.4	%		-15.3	%
MSCI® Emerging Markets Index—Net/U.S.$2		2.5	%		9.2	%		8.6	%		18.2	%		0.9	%		2.2	%		0.6	%		-25.3	%
Large Cap Focused Value (October 2000)
Annualized Gross Returns		7.8	%		11.3	%		8.6	%		67.2	%		7.3	%		6.5	%		8.0	%		-5.6	%
Annualized Net Returns		7.4	%		11.0	%		8.3	%		66.6	%		6.8	%		6.1	%		7.7	%		-5.9	%
Russell 1000® Value Index		7.4	%		10.9	%		10.1	%		35.0	%		6.9	%		7.2	%		6.9	%		-6.8	%
European Focused Value (August 2008)
Annualized Gross Returns		5.6	%		8.4	%		4.9	%		53.2	%		4.0	%		0.9	%		1.8	%		-16.1	%
Annualized Net Returns		5.3	%		8.0	%		4.5	%		52.7	%		3.7	%		0.5	%		1.4	%		-16.4	%
MSCI® Europe Index – Net/U.S.$2		3.8	%		8.8	%		7.8	%		27.3	%		2.3	%		2.2	%		1.2	%		-17.6	%
Global Focused Value (January 2004)
Annualized Gross Returns		6.5	%		11.0	%		8.7	%		56.7	%		5.6	%		4.8	%		6.7	%		-11.0	%
Annualized Net Returns		5.8	%		10.4	%		8.1	%		56.1	%		4.9	%		4.2	%		6.2	%		-11.4	%
MSCI® All Country World Index – Net/U.S.$2		8.2	%		13.2	%		12.6	%		27.4	%		6.9	%		7.0	%		6.2	%		-15.8	%
Mid Cap Value (April 2014)
Annualized Gross Returns		9.0	%		10.3	%		9.0	%		63.9	%		7.5	%		6.0	%		9.6	%		-7.3	%
Annualized Net Returns		8.7	%		10.1	%		8.8	%		63.7	%		7.2	%		5.7	%		9.4	%		-7.5	%
Russell Mid Cap® Value Index		9.3	%		10.6	%		10.3	%		42.4	%		7.2	%		6.3	%		6.7	%		-10.0	%
Small Cap Focused Value (January 1996)
Annualized Gross Returns		13.4	%		11.3	%		8.6	%		73.3	%		12.5	%		6.1	%		7.7	%		-10.1	%
Annualized Net Returns		12.2	%		10.3	%		7.6	%		71.9	%		11.3	%		5.1	%		6.8	%		-11.0	%
Russell 2000® Value Index		9.9	%		11.0	%		8.6	%		63.9	%		9.0	%		4.9	%		6.2	%		-16.3	%
Focused Value (January 1996)
Annualized Gross Returns		10.5	%		10.2	%		7.9	%		64.2	%		9.9	%		5.1	%		6.7	%		-8.2	%
Annualized Net Returns		9.8	%		9.6	%		7.3	%		63.2	%		9.2	%		4.6	%		6.0	%		-8.7	%
Russell 1000® Value Index		9.1	%		10.9	%		10.1	%		35.0	%		8.6	%		7.2	%		6.9	%		-6.8	%
International Focused Value (January 2004)
Annualized Gross Returns		7.0	%		10.2	%		7.4	%		45.1	%		5.7	%		2.6	%		3.5	%		-17.6	%
Annualized Net Returns		6.2	%		9.7	%		6.8	%		44.3	%		4.9	%		2.1	%		3.0	%		-18.1	%
MSCI® All Country World ex-U.S. Index – Net/U.S.$2		6.5	%		8.9	%		8.0	%		23.9	%		5.2	%		2.5	%		1.4	%		-19.4	%
Mid Cap Focused Value (September 1998)
Annualized Gross Returns		12.7	%		12.2	%		11.4	%		70.2	%		12.0	%		7.8	%		11.9	%		-6.4	%
Annualized Net Returns		11.9	%		11.5	%		10.7	%		69.1	%		11.3	%		7.1	%		11.2	%		-7.1	%
Russell Mid Cap® Value Index		10.5	%		10.6	%		10.3	%		42.4	%		9.7	%		6.3	%		6.7	%		-10.0	%

The historical returns of these investment strategies are not necessarily indicative of their future performance, or the future performance of any of our other current or future investment strategies.

Net of applicable withholding taxes and presented in U.S. Dollars

3233

Table of Contents

Large Cap Value. This strategy reflects a portfolio composed of approximately 50 to 80 stocks drawn from a universe of 500 of the largest U.S. listed companies, based on market capitalization. This strategy was launched in July 2012. At ~~September~~June 30, ~~2021,~~2022, the Large Cap Value strategy generated a one-year annualized gross return of ~~58.1%~~(4.8)%, outperforming its benchmark. The top contributing sectors included the ~~industrials,~~energy, information technology, and telecommunications sectors, partially offset by underperformance of the consumer discretionary and ~~financial services sectors.~~industrials sector.

International Value. This strategy reflects a portfolio composed of approximately 60 to 80 stocks drawn from a universe of 1,500 of the largest companies across the world excluding the United States, based on market capitalization. This strategy was launched in November 2008. At ~~September~~June 30, ~~2021,~~2022, the International Value strategy generated a one-year annualized gross return of ~~40.5%~~(16.3)%, outperforming its benchmark. The top contributing sectors included the financials, information technology, and industrials sectors, partially offset by underperformance of the materials, utilities, and ~~consumer staples~~health care sectors.

Global Value. This strategy reflects a portfolio composed of approximately 60 to 95 stocks drawn from a universe of 2,000 of the largest companies across the world, based on market capitalization. This strategy was launched in January 2010. At ~~September~~June 30, ~~2021,~~2022, the Global Value strategy generated a one-year annualized gross return of ~~52.1%~~(10.1)%, outperforming its benchmark. The top contributing sectors included the ~~financial services, industrials, materials,~~information technology, telecommunications, and energy sectors, partially offset by underperformance of the consumer discretionary and materials sectors.

Emerging Markets Focused Value. This strategy reflects a portfolio composed of approximately 40 to 80 stocks drawn from a universe of 1,500 of the largest emerging market companies, based on market capitalization. This strategy was launched in January 2008. At ~~September~~June 30, ~~2021,~~2022, the Emerging Markets Focused Value strategy generated a one-year annualized gross return of ~~42.4%~~(14.6)%, outperforming its benchmark. The top contributing sectors included the ~~consumer discretionary,~~utilities, information technology, financial services, and ~~industrials sectors.~~real estate sectors, partially offset by underperformance of the energy sector.

Large Cap Focused Value. This strategy reflects a portfolio composed of approximately 30 to 40 stocks drawn from a universe of 500 of the largest U.S. listed companies, based on market capitalization. This strategy was launched in October 2000. At ~~September~~June 30, ~~2021,~~2022, the Large Cap Focused Value strategy generated a one-year annualized gross return of ~~67.2%~~(5.6)%, outperforming its benchmark. The top contributing sectors included the energy and technology sectors, partially offset by underperformance of the health care, industrials, ~~financial services,~~ and consumer discretionary sectors.

European Focused Value. This strategy reflects a portfolio composed of approximately 40 to 50 stocks drawn from a universe of 750 of the largest European companies, based on market capitalization. This strategy was launched in August 2008. At ~~September~~June 30, ~~2021,~~2022, the European Focused Value strategy generated a one-year annualized gross return of ~~53.2%~~(16.1)%, outperforming its benchmark. The top contributing sectors included ~~the materials,~~information technology and financial services sectors, partially offset by underperformance of the health care and ~~consumer staples~~materials sectors.

Global Focused Value. This strategy reflects a portfolio composed of approximately 40 to 60 stocks drawn from a universe of 2,000 of the largest companies across the world, based on market capitalization. This strategy was launched in January 2004. At ~~September~~June 30, ~~2021,~~2022, the Global Focused Value strategy generated a one-year annualized gross return of ~~56.7%~~(11.0)%, outperforming its benchmark. The top ~~contributing~~detracting sectors included the consumer discretionary, materials, and financial services ~~industrials,~~sectors, partially offset by outperformance of the energy, information technology, and ~~consumer discretionary~~telecommunication sectors.

Mid Cap Value. This strategy reflects a portfolio composed of approximately 50 to 80 stocks drawn from a universe of U.S. listed companies ranked from the 201st to 1,200th largest, based on market capitalization. This strategy was launched in April 2014. At ~~September~~June 30, ~~2021,~~2022, the Mid Cap Value strategy generated a one-year annualized gross return of ~~63.9%~~(7.3)%, outperforming its benchmark. The top contributing sectors included the ~~industrials, consumer discretionary, and~~energy, financial services, ~~sectors.~~and technology sectors, partially offset by underperformance of the industrials sector.

Small Cap Focused Value. This strategy reflects a portfolio composed of approximately 40 to 50 stocks drawn from a universe of U.S. listed companies ranked from the 1,001st to 3,000th largest, based on market capitalization. This strategy was launched in January 1996. At ~~September~~June 30, ~~2021,~~2022, the Small Cap Focused Value strategy generated a one-year annualized gross return of ~~73.3%~~(10.1)%, outperforming its benchmark. The top contributing sectors included the health care, ~~materials,~~financial services, and ~~industrials~~technology sectors, partially offset by the underperformance of the ~~technology sector.~~utilities and industrials sectors.

Focused Value. This strategy reflects a portfolio composed of a portfolio of approximately 30 to 40 stocks drawn from a universe of 1,000 of the largest U.S. listed companies, based on market capitalization. This strategy was launched in January 1996. At ~~September~~June 30, ~~2021,~~2022, the Focused Value strategy generated a one-year annualized gross return of ~~64.2%~~(8.2)%, ~~outperforming~~underperforming its benchmark. The top ~~contributing~~detracting sectors included the ~~industrials, financial services, and~~ consumer discretionary and industrials sectors, partially offset by the outperformance of the energy and technology sectors.

3334

Table of Contents

International Focused Value. This strategy reflects a portfolio composed of approximately 30 to 50 stocks drawn from a universe of 1,500 of the largest companies across the world excluding the United States, based on market capitalization. This strategy was launched in January 2004. At ~~September~~June 30, ~~2021,~~2022, the International Focused Value strategy generated a one-year annualized gross return of ~~45.1%~~(17.6)%, outperforming its benchmark. The top contributing sectors included the consumer discretionary, information technology, and financial services ~~consumer discretionary, and industrials sectors.~~sectors, offset by the underperformance of the materials sector.

Mid Cap Focused Value. This strategy reflects a portfolio composed of approximately 30 to 40 stocks drawn from a universe of U.S. listed companies ranked from the 201st to 1,200th largest, based on market capitalization. This strategy was launched in September 1998. At ~~September~~June 30, ~~2021,~~2022, the Mid Cap Focused Value strategy generated a one-year annualized gross return of ~~70.2%~~(6.4)%, outperforming its benchmark. The top contributing sectors included the ~~industrials, consumer discretionary,~~energy, technology, and financial services sectors, partially offset by the underperformance of the industrials and consumer discretionary sectors.

Our earnings and cash flows are heavily dependent upon prevailing financial market conditions. Significant increases or decreases in the various securities markets, particularly the equities markets, can have a material impact on our results of operations, financial condition, and cash flows.

Table of Contents

The change in AUM in our separately managed accounts, sub-advised accounts, and Pzena funds for the three and ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020~~2021 is described below. Inflows are composed of the investment of new or additional assets by new or existing clients. Outflows consist of redemptions of assets by existing clients.


Assets Under Management
($ billions)
	For the Three Months Ended September 30,						For the Nine Months Ended September 30,						For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2021			2020			2021			2020			2022			2021			2022			2021
Separately Managed Accounts
Assets
Beginning of Period	$	20.0		$	13.0		$	17.3		$	16.4		$	19.4		$	19.4		$	19.4		$	17.3
Inflows		0.2			0.2			1.6			1.2			0.1			0.7			0.4			1.4
Outflows		(1.1	)		(0.3	)		(2.8	)		(1.0	)		(0.7	)		(0.7	)		(1.0	)		(1.7	)
Net Flows		(0.9	)		(0.1	)		(1.2	)		0.2			(0.6	)		—			(0.6	)		(0.3	)
Market Appreciation/(Depreciation)		(0.1	)		0.1			3.1			(3.4	)		(1.8	)		0.5			(1.7	)		3.2
Foreign Exchange1		(0.2	)		0.3			(0.4	)		0.1			(0.6	)		0.1			(0.7	)		(0.2	)
End of Period	$	18.8		$	13.3		$	18.8		$	13.3		$	16.4		$	20.0		$	16.4		$	20.0

Sub-Advised Accounts
Assets
Beginning of Period	$	30.2		$	16.4		$	23.3		$	22.4		$	30.7		$	26.9		$	30.5		$	23.3
Inflows		1.3			2.5			5.9			4.0			0.7			3.1			1.9			4.6
Outflows		(1.7	)		(1.2	)		(3.9	)		(3.4	)		(1.4	)		(0.9	)		(2.7	)		(2.2	)
Net Flows		(0.4	)		1.3			2.0			0.6			(0.7	)		2.2			(0.8	)		2.4
Market Appreciation/(Depreciation)		(0.3	)		0.2			4.3			(5.1	)		(3.3	)		1.0			(2.8	)		4.6
Foreign Exchange1		(0.2	)		0.1			(0.3	)		0.1			(0.6	)		0.1			(0.8	)		(0.1	)
End of Period	$	29.3		$	18.0		$	29.3		$	18.0		$	26.1		$	30.2		$	26.1		$	30.2

Pzena Funds
Assets
Beginning of Period	$	2.9		$	2.1		$	2.7		$	2.4		$	2.7		$	2.9		$	2.6		$	2.7
Inflows		0.1			0.1			0.5			0.4			0.3			0.2			0.5			0.4
Outflows		(0.2	)		(0.2	)		(0.7	)		(0.4	)		(0.1	)		(0.2	)		(0.2	)		(0.5	)
Net Flows		(0.1	)		(0.1	)		(0.2	)		-			0.2			—			0.3			(0.1	)
Market Appreciation/(Depreciation)		—			—			0.4			(0.4	)		(0.2	)		—			(0.2	)		0.4
Foreign Exchange1		(0.1	)		—			(0.2	)		—			(0.2	)		—			(0.2	)		(0.1	)
End of Period	$	2.7		$	2.0		$	2.7		$	2.0		$	2.5		$	2.9		$	2.5		$	2.9

Total
Assets
Beginning of Period	$	53.1		$	31.5		$	43.3		$	41.2		$	52.8		$	49.2		$	52.5		$	43.3
Inflows		1.6			2.8			8.0			5.6			1.1			4.0			2.8			6.4
Outflows		(3.0	)		(1.7	)		(7.4	)		(4.8	)		(2.2	)		(1.8	)		(3.9	)		(4.4	)
Net Flows		(1.4	)		1.1			0.6			0.8			(1.1	)		2.2			(1.1	)		2.0
Market Appreciation/(Depreciation)		(0.4	)		0.3			7.8			(8.9	)		(5.3	)		1.5			(4.7	)		8.2
Foreign Exchange1		(0.5	)		0.4			(0.9	)		0.2			(1.4	)		0.2			(1.7	)		(0.4	)
End of Period	$	50.8		$	33.3		$	50.8		$	33.3		$	45.0		$	53.1		$	45.0		$	53.1

Foreign exchange reflects the impact of translating non-U.S. dollar denominated AUM into U.S. dollars for reporting purposes.

3536

Table of Contents

Three Months Ended ~~September~~June 30, ~~2021~~2022 and ~~September~~June 30, ~~2020~~2021

At ~~September~~June 30, ~~2021,~~2022, we managed ~~$18.8~~$16.4 billion in separately managed accounts, ~~$29.3~~$26.1 billion in sub-advised accounts, and ~~$2.7~~$2.5 billion in Pzena funds, for a total of ~~$50.8~~$45.0 billion in assets under management. For the three months ended ~~September~~June 30, ~~2021,~~2022, we experienced total gross outflows of ~~$3.0~~$2.2 billion, market depreciation of ~~$0.4~~$5.3 billion, and a decrease associated with foreign exchange movements of ~~$0.5~~$1.4 billion, partially offset by total gross inflows of ~~$1.6~~$1.1 billion. Assets in separately managed accounts decreased by ~~$1.2~~$3.0 billion, or ~~6.0%~~15.5%, from ~~$20.0~~$19.4 billion at ~~June 30, 2021,~~March 31, 2022, due to ~~$1.1~~$0.7 billion in gross outflows, $1.8 billion in market depreciation, and a $0.6 billion decrease associated with foreign exchange movements, offset by $0.1 billion in gross inflows. Assets in sub-advised accounts decreased by $4.6 billion, or 15.0%, from $30.7 billion at March 31, 2022, due to $1.4 billion in gross outflows, $3.3 billion in market depreciation, and a $0.6 billion decrease associated with foreign exchange movements, partially offset by $0.7 billion in gross inflows. Assets in Pzena funds decreased by $0.2 billion, or 7.4%, from $2.7 billion at March 31, 2022, due to $0.1 billion in gross outflows, $0.2 billion in market depreciation, and a $0.2 billion decrease associated with foreign exchange movements, partially offset by $0.3 billion in gross inflows.

At June 30, 2021, we managed $20.0 billion in separately managed accounts, $30.2 billion in sub-advised accounts, and $2.9 billion in Pzena funds, for a total of $53.1 billion in assets under management. For the three months ended June 30, 2021, we experienced total gross inflows of $4.0 billion, market appreciation of $1.5 billion, and an increase associated with foreign exchange movements of $0.2 billion, partially offset by total gross outflows of $1.8 billion. Assets in separately managed accounts increased by $0.6 billion, or 3.1%, from $19.4 billion at March 31, 2021, due to $0.7 billion in gross inflows, $0.5 billion in market appreciation, and a $0.1 billion increase associated with foreign exchange movements, partially offset by $0.7 billion in gross outflows. Assets in sub-advised accounts increased by $3.3 billion, or 12.3%, from $26.9 billion at March 31, 2021, due to $3.1 billion in gross inflows, $1.0 billion in market appreciation, and a $0.1 billion increase associated with foreign exchange movements, partially offset by $0.9 billion in gross outflows. Assets in Pzena funds remained flat from $2.9 billion at March 31, 2021, due to $0.2 billion in gross inflows, offset by $0.2 billion in gross outflows.

Six Months Ended June 30, 2022 and June 30, 2021

For the six months ended June 30, 2022, we experienced market depreciation of $4.7 billion, total gross outflows of $3.9 billion, and a $1.7 billion decrease associated with foreign exchange movements, which were partially offset by total gross inflows of $2.8 billion. Assets in separately managed accounts decreased by $3.0 billion, or 15.5%, from $19.4 billion at December 31, 2021, due to $1.7 billion in market depreciation, $1.0 billion in gross outflows, and a $0.7 billion decrease associated with foreign exchange movements, partially offset by $0.4 billion in gross inflows . Assets in sub-advised accounts decreased by $4.4 billion, or 14.4%, from $30.5 billion at December 31, 2021 due to $2.8 billion in market depreciation, $2.7 billion in gross outflows, and a $0.8 billion decrease associated with foreign exchange movements, partially offset by $1.9 billion in gross inflows. Assets in ~~sub-advised accounts~~Pzena funds decreased by ~~$0.9~~$0.1 billion, or ~~3.0%~~3.8%, from ~~$30.2~~$2.6 billion at ~~June 30,~~December 31, 2021 due to ~~$1.7~~$0.2 billion in market depreciation, $0.2 billion in gross outflows, ~~$0.3 billion in market depreciation,~~ and a $0.2 billion decrease associated with foreign exchange movements, partially offset by $1.3 billion in gross inflows. Assets in Pzena funds decreased by $0.2 billion, or 6.9%, from $2.9 billion at June 30, 2021, due to $0.2 billion in gross outflows and $0.1 billion decrease associated with foreign exchange movements , partially offset by $0.1$0.5 billion in gross inflows.

At September 30, 2020, we managed $13.3 billion in separately managed accounts, $18.0 billion in sub-advised accounts, and $2.0 billion in Pzena funds, for a total of $33.3 billion in assets under management. For the three months ended September 30, 2020, we experienced market appreciation of $0.3 billion, an increase associated with foreign exchange movements of $0.4 billion, and total gross inflows of $2.8 billion, partially offset by total gross outflows of $1.7 billion. Assets in separately managed accounts increased by $0.3 billion, or 2.3%, from $13.0 billion at June 30, 2020, due to $0.1 billion in market appreciation, a $0.3 billion decrease associated with foreign exchange movements, and $0.2 billion in gross inflows, partially offset by $0.3 billion in gross outflows. Assets in sub-advised accounts increased by $1.6 billion, or 9.8%, from $16.4 billion at June 30, 2020, due to $0.2 billion in market appreciation, a $0.1 billion increase associated with foreign exchange movements, and $2.5 billion in gross inflows, partially offset by $1.2 billion in gross outflows. Assets in Pzena funds decreased by $0.1 billion, or 4.8%, from $2.1 billion at June 30, 2020, due to $0.2 billion in gross outflows, partially offset by $0.1 billion in gross inflows.

~~Nine Months Ended September 30, 2021 and September 30, 2020~~

For the ~~nine~~six months ended ~~September~~June 30, 2021, we experienced market appreciation of ~~$7.8~~$8.2 billion and total gross inflows of ~~$8.0~~$6.4 billion, which were partially offset by total gross outflows of ~~$7.4~~$4.4 billion and a ~~$0.9~~$0.4 billion decrease associated with foreign exchange movements. Assets in separately managed accounts increased by ~~$1.5~~$2.7 billion, or ~~8.7%~~15.6%, from $17.3 billion at December 31, 2020, due to ~~$3.1~~$3.2 billion in market appreciation and ~~$1.6~~$1.4 billion in gross inflows, partially offset by ~~$2.8~~$1.7 billion in gross outflows and ~~$0.4~~$0.2 billion decrease associated with foreign exchange movements. Assets in sub-advised accounts increased by ~~$6.0~~$6.9 billion, or ~~25.8%~~29.6%, from $23.3 billion at December 31, 2020 due to ~~$4.3~~$4.6 billion in market appreciation and ~~$5.9~~$4.6 billion in gross inflows, partially offset by ~~$3.9~~$2.2 billion in gross outflows and ~~$0.3~~$0.1 billion decrease associated with foreign exchange movements. Assets in Pzena funds ~~remained flat~~increased by $0.2 billion, or 7.4%, from $2.7 billion at December 31, 2020 due to $0.4 billion in market appreciation and ~~$0.5~~$0.4 billion in gross inflows, partially offset by ~~$0.7~~$0.5 billion in gross outflows and ~~$0.2~~$0.1 billion decrease associated with foreign exchange movements.

For the nine months ended September 30, 2020, we experienced market depreciation of $8.9 billion and total gross outflows of $4.8 billion, which were partially offset by total gross inflows of $5.6 billion and $0.2 billion increase associated with foreign exchange movements. Assets in separately managed accounts decreased by $3.1 billion, or 18.9%, from $16.4 billion at December 31, 2019 due to $3.4 billion in market depreciation and $1.0 billion in gross outflows, partially offset by $1.2 billion in gross inflows and $0.1 billion increase associated with foreign exchange movements. Assets in sub-advised accounts decreased by $4.4 billion, or 19.6%, from $22.4 billion at December 31, 2019 due to $5.1 billion in market depreciation and $3.4 billion in gross outflows, partially offset by $4.0 billion in gross inflows and $0.1 billion increase associated with foreign exchange movements. Assets in Pzena funds decreased by $0.4 billion, or 16.7%, from $2.4 billion at December 31, 2019 due to $0.4 billion in market depreciation and $0.4 billion in gross outflows, partially offset by $0.4 billion in gross inflows.

3637

Table of Contents

Revenue

Our revenue from advisory fees earned on our separately managed accounts, sub-advised accounts, and Pzena funds for the three and ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020~~2021 is described below:


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,				For the Three Months Ended June 30,				For the Six Months Ended June 30,
Revenue	2021		2020		2021		2020		2022		2021		2022		2021
	(in thousands)								(in thousands)
Separately Managed Accounts	$	26,016	$	18,457	$	77,088	$	53,891	$	23,756	$	26,525	$	49,940	$	51,072
Sub-Advised Accounts		20,786		11,880		56,814		34,851		20,557		19,400		42,496		36,028
Pzena Funds		4,820		3,611		14,468		10,016		4,384		4,952		9,021		9,648
Total	$	51,622	$	33,948	$	148,370	$	98,758	$	48,697	$	50,877	$	101,457	$	96,748

Three Months Ended ~~September~~June 30, ~~2021~~2022 and ~~September~~June 30, ~~2020~~2021

Our total revenue ~~increased~~decreased by ~~$17.7~~$2.2 million, or ~~52.1%~~4.3%, to ~~$51.6~~$48.7 million for the three months ended ~~September~~June 30, ~~2021,~~2022, from ~~$33.9~~$50.9 million for the three months ended ~~September~~June 30, ~~2020.~~2021. This change was driven primarily by ~~an increase~~a decrease in our average AUM due to market ~~appreciation~~depreciation during the ~~first and~~ second ~~quarters~~quarter of ~~2021.~~2022. Average AUM ~~increased 58.1%~~decreased 3.9% to ~~$52.4~~$49.5 billion from ~~$33.1~~$51.5 billion for the three months ended ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, respectively. We recognized performance fees of $0.7 million during the three months ended June 30, 2022, compared to performance fees of less than $0.1 million ~~during the three months ended September 30, 2021, compared to no performance fees~~ recognized during the three months ended ~~September~~June 30, ~~2020.~~2021.

Our weighted average fees were ~~0.394%~~0.393% and ~~0.410%~~0.395% for the three months ended ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, respectively.

Average assets in separately managed accounts ~~increased 45.5%~~decreased 8.5% to ~~$19.5~~$18.2 billion for the three months ended ~~September~~June 30, ~~2021,~~2022, from ~~$13.4~~$19.9 billion for the three months ended ~~September~~June 30, ~~2020,~~2021, and had weighted average fees of ~~0.534%~~0.523% and ~~0.549%~~0.533% for the three months ended ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, respectively. The decrease ~~in average fees when compared to~~from the ~~third~~second quarter of ~~2020~~2021 primarily reflects ~~that when there is an increase~~a shift in assets ~~due~~ to ~~market appreciation, the rates we earn in the majority of our~~certain strategies that typically carry lower fee ~~schedules decline as the assets increase.~~rates.

Average assets in sub-advised accounts ~~increased 71.0% to $30.1~~remained flat at $28.7 billion for the three months ended ~~September~~June 30, ~~2021, from $17.6~~2022, compared to $28.7 billion for the three months ended ~~September~~June 30, ~~2020,~~2021, and had weighted average fees of ~~0.276%~~0.286% and 0.270% for the three months ended ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, respectively. The increase in sub-advised weighted average fee rates reflects ~~a shift~~an increase in ~~assets to strategies that typically carry higher fee rates.~~performance fees recognized during the second quarter of 2022. Certain accounts related to one retail client relationship have fulcrum fee arrangements. These fee arrangements require a reduction in the base fee or allow for an increase in the base fee if the relevant investment strategy underperforms or outperforms, respectively, the agreed-upon benchmark over the contract's measurement period, which extends to three years. During ~~each of~~ the three months ended ~~September~~June 30, 2022, the Company recognized $0.7 million of performance fees related to this client relationship. During the three months ended June 30, 2021, ~~and 2020, we~~the Company recognized a $1.0 million reduction in base fees related to this client relationship. To the extent the three-year performance record of these accounts fluctuates relative to its relevant benchmark, the amount of base fees recognized may vary.

Average assets in Pzena funds ~~increased 33.3%~~decreased to ~~$2.8~~$2.6 billion for the three months ended ~~September~~June 30, ~~2021, from $2.1~~2022, compared to $2.9 billion for the three months ended ~~September~~June 30, ~~2020,~~2021, and had weighted average fees of ~~0.690%~~0.672% and ~~0.687%~~0.681% for the three months ended ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, respectively. The ~~increase in weighted average fee rate for Pzena funds~~decrease from the second quarter of 2021 primarily reflects ~~a reduction~~an increase in expense reimbursements.

Six Months Ended June 30, 2022 and June 30, 2021

~~Nine Months Ended September 30, 2021 and September 30, 2020~~

Our total revenue increased by ~~$49.6~~$4.7 million, or ~~50.2%~~4.9%, to ~~$148.4~~$101.5 million for the ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, from ~~$98.8~~$96.7 million for the ~~nine~~six months ended ~~September~~June 30, ~~2020.~~2021. This increase was driven primarily by increases in our average AUM.

Our weighted average fees were ~~0.399%~~0.397% and ~~0.393%~~0.400% for the ~~nine~~six months ended ~~September~~June 30, 2022 and 2021, respectively.

Average assets in separately managed accounts decreased $0.1 billion to $18.8 billion for the six months ended June 30, 2022, from $18.9 billion for the six months ended June 30, 2021, and ~~2020,~~had weighted average fees of 0.530% and 0.540% for the six months ended June 30, 2022 and 2021, respectively. The decrease from the second quarter of 2021 primarily reflects a shift in assets to certain strategies that typically carry lower fee rates.

3738

Table of Contents

Average assets in separately managed accounts increased $5.5 billion to $19.0 billion for the nine months ended September 30, 2021, from $13.5 billion for the nine months ended September 30, 2020, and had weighted average fees of 0.540% and 0.531% for the nine months ended September 30, 2021 and 2020, respectively. The increase in separately managed weighted average fee rates reflects the addition of assets to certain strategies that typically carry higher fee rates.

Average assets in sub-advised accounts increased ~~$9.8~~$3.0 billion to ~~$27.7~~$29.7 billion for the ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, from ~~$17.9~~$26.7 billion for the ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, and had weighted average fees of ~~0.274%~~0.287% and ~~0.259%~~0.270% for the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, respectively. The increase in sub-advised weighted average fee rates ~~primarily~~ reflects ~~a shift~~an increase in ~~assets to strategies that typically carry higher fee rates. Certain~~performance fees recognized during the first and second quarter of 2022. In addition, certain accounts related to one retail client relationship have fulcrum fee arrangements. These fee arrangements require a reduction in the base fee or allow for a performance fee if the relevant investment strategy underperforms or outperforms, respectively, the agreed-upon benchmark over the contract's measurement period, which extends to three years. During ~~each of~~ the ~~nine~~six months ended ~~September~~June 30, 2022, we recognized $1.2 million of performance fees related to this client relationship. During the six months ended June 30, 2021, ~~and 2020,~~ we recognized a ~~$3.0~~$2.0 million reduction in base fees related to this client relationship. To the extent the three-year performance records of these accounts fluctuate relative to their relevant benchmarks, the amount of base fees recognized may vary.

Average assets in Pzena funds ~~increased $0.7~~decreased $0.2 billion to $2.6 billion for the six months ended June 30, 2022, from $2.8 billion for the ~~nine~~six months ended ~~September~~June 30, 2021, ~~from $2.1 billion for the nine months ended September 30, 2020,~~ and had weighted average fees of 0.686% and ~~0.646%~~0.682% for the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, respectively. The increase in weighted average fee rate for Pzena funds reflects ~~a decrease~~an increase in ~~fund expense cap reimbursements~~performance fees recognized during the ~~nine~~six months ended ~~September~~June 30, ~~2021, which are presented net against revenue.~~2022.

Expenses

Our operating expenses are driven primarily by our compensation and benefits costs. The table below describes the components of our operating expenses for the three and ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020.~~2021.


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,				For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2021		2020		2021		2020		2022		2021		2022		2021
	(in thousands)								(in thousands)
Cash Compensation and Other Benefits	$	14,946	$	12,768	$	45,365	$	41,483	$	14,808	$	15,073	$	31,849	$	30,419
Other Non-Cash Compensation		3,975		3,040		11,726		9,043		3,618		3,962		7,763		7,751
Total Compensation and Benefits Expense		18,921		15,808		57,091		50,526		18,426		19,035		39,612		38,170
General and Administrative Expense		4,304		3,183		11,920		11,180		5,718		3,920		10,663		7,616
Total Operating Expenses	$	23,225	$	18,991	$	69,011	$	61,706	$	24,144	$	22,955	$	50,275	$	45,786

Three Months Ended ~~September~~June 30, ~~2021~~2022 and ~~September~~June 30, ~~2020~~2021

Total operating expenses increased by ~~$4.2~~$1.2 million, or ~~22.3%~~5.2%, to ~~$23.2~~$24.1 million for the three months ended ~~September~~June 30, ~~2021,~~2022, from $23.0 million for the three months ended June 30, 2021. This increase was attributable to an increase in general and administrative expense offset by a decrease in compensation and benefits expense.

Compensation and benefits expense decreased by $0.6 million, or 3.2%, to $18.4 million for the three months ended June 30, 2022, from $19.0 million for the three months ended ~~September~~June 30, ~~2020. This increase reflects increases in both compensation and benefits expense and general and administrative expenses.~~

~~Compensation and benefits expense increased by $3.1 million, or 19.7%, to $18.9 million for the three months ended September 30, 2021, from $15.8 million for the three months ended September 30, 2020.~~2021. The ~~increase~~decrease in compensation and benefits expense ~~is driven by an increase~~reflects a decrease in compensation and in the market performance of strategies tied to the Company’s deferred compensation obligation.

General and administrative expense increased by ~~$1.1~~$1.8 million, or ~~35.2%~~45.9%, to ~~$4.3~~$5.7 million for the three months ended ~~September~~June 30, ~~2021,~~2022, from ~~$3.2~~$3.9 million for the three months ended ~~September~~June 30, ~~2020.~~2021. The increase in general and administrative expenses primarily reflects an increase in professional fees and ~~data and systems expense.~~occupancy costs.

Six Months Ended June 30, 2022 and June 30, 2021

~~Nine Months Ended September 30, 2021 and September 30, 2020~~

Total operating expenses increased by ~~$7.3~~$4.5 million, or ~~11.8%~~9.8%, to ~~$69.0~~$50.3 million for the ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, from ~~$61.7~~$45.8 million for the ~~nine~~six months ended ~~September~~June 30, ~~2020.~~2021. This increase ~~reflects~~was attributable to increases in both our compensation and benefits expense and general and administrative ~~expenses.~~expense.

~~Table of Contents~~

Compensation and benefits expense increased by approximately ~~$6.6~~$1.4 million, or ~~13.0%~~3.8%, to ~~$57.1~~$39.6 million six months ended June 30, 2022, from $38.2 million for the ~~nine~~six months ended ~~September~~June 30, ~~2021, from $50.5 million for the nine months ended September 30, 2020.~~2021. The increase is driven by an increase in ~~compensation~~headcount and ~~in the market performance~~compensation.

Table of ~~strategies tied to the Company’s deferred compensation obligation.~~Contents

General and administrative expense increased ~~$0.7~~by $3.0 million, or ~~6.6%~~40.0%, to ~~$11.9~~$10.7 million for the ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, from ~~$11.2~~$7.6 million for ~~nine~~six months ended ~~September~~June 30, ~~2020.~~2021. The increase in general and administrative ~~expenses primarily~~expense reflects an increase in professional fees and ~~data and systems expense.~~occupancy costs.

Other Income/ (Expense)

Three Months Ended ~~September~~June 30, ~~2021~~2022 and ~~September~~June 30, ~~2020~~2021

Other Income/ (Expense) was ~~income~~expense of ~~$0.4~~$7.6 million for the three months ended ~~September~~June 30, 2022, and consisted primarily of $6.5 million in net realized and unrealized losses from investments and $1.6 million in equity in the losses of affiliates, partially offset by $0.7 million in dividend income. Other Income/ (Expense) was income of $1.7 million for the three months ended June 30, 2021, and consisted primarily of ~~$0.1~~$0.9 million in net realized and unrealized gains from investments, ~~and $0.3 million in dividend income. Other Income/ (Expense) was an expense of~~ $0.5 ~~million for the three months ended September 30, 2020, and consisted primarily of $0.1~~ million in equity in the earnings of affiliates, and $0.2 million in dividend income.

Six Months Ended June 30, 2022 and June 30, 2021

Other Income/ (Expense) was expense of $7.5 million for the six months ended June 30, 2022, and consisted primarily of $6.7 million net realized and unrealized ~~gains~~losses from investments and $1.7 million in equity in the losses of affiliates, partially offset by $1.1 million in dividend income and $0.1 million in interest income.

~~Nine Months Ended September 30, 2021 and September 30, 2020~~

Other Income/ (Expense) was income of ~~$6.5~~$6.1 million for the ~~nine~~six months ended ~~September~~June 30, 2021, and consisted primarily of $3.5 million net realized and unrealized ~~losses~~gains from investments, $2.0 million in equity in the ~~losses~~earnings of affiliates, ~~$0.7~~$0.4 million in dividend income, and ~~$0.2~~$0.1 million in interest income. Other Income/ (Expense) was an expense of $5.6 million for the nine months ended September 30, 2020, and consisted primarily of $3.0 million in equity in the losses of affiliates and $3.2 million net realized and unrealized losses from investments, partially offset by $0.4 million in interest income, and $0.2 million in
dividend income.

Income Tax Expense

For the three and ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, components of our income tax expense are as follows:


	For the Three Months Ended September 30,						For the Nine Months Ended September 30,				For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2021			2020			2021		2020		2022		2021		2022		2021
	(in thousands)										(in thousands)
Unincorporated and Other Business Tax Expenses	$	(1,550	)	$	(1,044	)	$	371	$	151	$	1,349	$	1,055	$	2,252	$	1,921
Total Corporate Tax Expense		1,618			961			4,638		2,129		1,141		1,520		8,463		3,020
Total Income Tax Expense/ (Benefit)	$	68		$	(83	)	$	5,009	$	2,280	$	2,490	$	2,575	$	10,715	$	4,941

The operating company is a limited liability company that has elected to be treated as a partnership for tax purposes. The operating company has made a provision for New York City Unincorporated Business Tax (“UBT”) and its consolidated subsidiary Pzena Investment Management, LTD has made a provision for U.K. income taxes. The Company's provision for income taxes reflects its U.S. federal, state, and local incomes taxes on its allocable portion of the operating company's income. The effective tax rate includes a rate benefit attributable to the fact that approximately ~~78.2%~~79.5% and ~~77.6%~~78.4% of the operating company's earnings were not subject to corporate-level taxes for the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, respectively. Income before income taxes includes net income attributable to non-controlling interests and not taxable to the Company, which reduces the effective tax rate. This favorable impact is partially offset by the impact of certain permanently non-deductible items. These factors are expected to continue to impact the effective tax rate for future years and to the extent the Company’s economic interest in the operating company changes, the effective tax rate will likewise change with variations in the level of income subject to corporate-level taxes. The effective tax rate will also be affected by the discrete tax impact of future dividends on unvested share-based awards and future vesting of restricted share-based awards based on fluctuations in the trading price of the Company's Class A common stock between grant date and vesting date.

Excluding discrete and permanently non-deductible items, which includes the net income attributable to non-controlling interest, the Company's effective tax rate was ~~24.8%~~27.4% and ~~25.0%~~27.7% for the three and ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, respectively, and ~~24.3%~~25.4% and ~~25.0%~~25.1% for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, respectively.

3940

Table of Contents

Three Months Ended ~~September~~June 30, ~~2021~~2022 and ~~September~~June 30, ~~2020~~2021

Income ~~Tax Expense~~tax expense was ~~$0.1~~$2.5 million for the three months ended ~~September~~June 30, ~~2021~~2022 and ~~$(0.1)~~$2.6 million for the three months ended ~~September~~June 30, ~~2020.~~2021. Income tax expense for the three months ended ~~September~~June 30, ~~2021~~2022 consisted of ~~$(1.6)~~$1.3 million in operating company unincorporated and other business taxes and ~~$1.6~~$1.1 million of corporate income taxes. Income tax expense for the three months ended ~~September~~June 30, ~~2020~~2021 consisted of ~~$(1.0)~~$1.1 million in operating company unincorporated and other business taxes and ~~$1.0~~$1.5 million of corporate income taxes.

~~Nine~~Six Months Ended ~~September~~June 30, ~~2021~~2022 and ~~September~~June 30, ~~2020~~2021

Income Tax Expense was ~~$5.0~~$10.7 million for the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~$2.3~~$4.9 million for the ~~nine~~six months ended ~~September~~June 30, ~~2020.~~2021. Income tax expense for the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 consisted of ~~$0.4~~$2.3 million in operating company unincorporated and other business taxes and of ~~$4.6~~$8.5 million of corporate income taxes. Income tax expense for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 consisted of ~~$0.2~~$1.9 million in operating company unincorporated and other business taxes and ~~$2.1~~$3.0 million of corporate income taxes. The increase in income tax expense during ~~for~~ the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 reflects ~~the increase~~a $5.9 million expense associated with a change in ~~income before income taxes~~estimate of uncertain tax positions due to a change in interpretation of administrative rulings recognized during the ~~nine months ended September 30, 2021.~~first quarter of 2022.

Net Income Attributable to Non-Controlling Interests

Three Months Ended ~~September~~June 30, ~~2021~~2022 and ~~September~~June 30, ~~2020~~2021

Net income attributable to non-controlling interests was ~~$23.6~~$11.9 million for the three months ended ~~September~~June 30, ~~2021,~~2022, and consisted primarily of ~~$23.4~~$14.1 million associated with our employees’ and outside investors’ approximately ~~77.9%~~79.7% weighted average interest in the income of the operating company and ~~$0.3~~$2.2 million associated with the non-controlling interest in the losses of our consolidated entities. Net income attributable to non-controlling interests was $22.5 million for the three months ended June 30, 2021, and consisted of $22.2 million associated with our employees’ and outside investors’ approximately 78.4% weighted average interest in the income of the operating company and $0.2 million associated with the non-controlling interest in the income of our consolidated entities. The change in net income attributable to non-controlling interests primarily reflects a decrease in net income for the three months ended June 30, 2022. We expect the interests in our operating company in subsequent periods to depend on changes in our shareholder’s equity and the size and composition of Class B and Class B-1 units awarded by our operating company’s compensation plans.

Six Months Ended June 30, 2022 and June 30, 2021

Net income attributable to non-controlling interests was ~~$12.9~~$27.6 million for the ~~three~~six months ended ~~September~~June 30, ~~2020,~~2022, and consisted primarily of ~~$12.8~~$28.9 million associated with our employees’ and outside investors’ approximately ~~78.0%~~79.5% weighted average interest in the income of the operating company and ~~$0.1~~
$1.3 million associated with the non-controlling interest in the ~~income~~losses of our consolidated ~~entities .~~entities. Net income attributable to non-controlling interests was $43.3 million for the six months ended June 30, 2021, and consisted primarily of $42.9 million associated with our employees’ and outside investors’ approximately 78.4% weighted average interest in the income of the operating company and $0.4 million associated with the non-controlling interest in the losses of our consolidated entities. The change in net income attributable to non-controlling interests primarily reflects the ~~increase~~decrease in net income for the ~~three~~six months ended ~~September~~June 30, ~~2021,~~2022, partially offset by an increase in our employees’ and outside investors’ weighted average interest in the income of the operating company. We expect the interests in our operating company in subsequent periods to depend on changes in our shareholder’s equity and the size and composition of Class B and Class B-1 units awarded by our operating company’s compensation plans.

~~Nine Months Ended September 30, 2021 and September 30, 2020~~

Net income attributable to non-controlling interests was $67.0 million for the nine months ended September 30, 2021, and consisted primarily of $66.3 million associated with our employees’ and outside investors’ approximately 78.2% weighted average interest in the income of the operating company and $0.7 million associated with the non-controlling interest in the income of our consolidated entities. Net income attributable to non-controlling interests was $24.3 million for the nine months ended September 30, 2020, and consisted primarily of $24.3 million associated with our employees’ and outside investors’ approximately 77.6% weighted average interest in the income of the operating company. The change in net income attributable to non-controlling interests primarily reflects the increase in net income for the nine months ended September 30, 2021, partially offset by an increase in our employees’ and outside investors’ weighted average interest in the income of the operating company. We expect the interests in our operating company in subsequent periods to depend on changes in our shareholder’s equity and the size and composition of Class B and Class B-1 units awarded by our operating company’s compensation plans.

4041

Table of Contents

Liquidity and Capital Resources

Historically, the working capital needs of our business have primarily been met through the cash generated by our operations. Distributions to members of our operating company are our largest use of cash. Other activities include purchases and sales of investments to fund our deferred compensation program, capital expenditures, and supporting strategic growth initiatives such as providing the initial cash investment in our mutual funds.

We expect to fund the liquidity needs of our business in the next twelve months, and over the long term, primarily through cash generated from operations. As an investment management company, our business is materially affected by conditions in the global financial markets and economic conditions throughout the world. Our liquidity is highly dependent on the revenue and income from our operations, which is directly related to our levels of AUM. For the three months ended ~~September~~June 30, ~~2021,~~2022, our average AUM and revenues ~~increased~~decreased by ~~58.1%~~3.9% and ~~52.1%~~4.3%, respectively, compared to our average AUM and revenues for the three months ended ~~September~~June 30, ~~2020.~~2021. At ~~September~~June 30, ~~2021,~~2022, cash and cash equivalents was ~~$70.0~~$49.4 million, inclusive of ~~$2.5~~$2.3 million in cash held by our consolidated subsidiaries. We also had ~~$7.3 million in an open-ended mutual fund that can be sold to meet future cash flow needs and~~ approximately ~~$17.6~~$19.0 million in investments set aside to satisfy our obligations under our deferred compensation ~~programs. Advisory~~programs and advisory fees receivable ~~was $43.0~~of $36.9 million.

In determining the sufficiency of liquidity and capital resources to fund our business, we regularly monitor our liquidity position, including, among other things, cash, working capital, investments, long-term liabilities, lease commitments, and operating company distributions. Compensation is our largest expense. To the extent we deem necessary and appropriate to run our business, recognizing the need to retain our key personnel, we have the ability to change the absolute levels of our compensation packages, as well as change the mix of their cash and non-cash components. Historically, we have not tied our level of compensation directly to revenue, as many Wall Street firms do. Correspondingly, there is not a linear relationship between our compensation and the revenues we generate. This generally has the effect of increasing operating margins in periods of increased revenues, but can reduce operating margins when revenue declines.

We regularly evaluate our staffing requirements and compensation levels with reference to our own liquidity position and external peer benchmarking data. The result of this review directly influences management’s recommendations to our Board of Directors with respect to such staffing and compensation levels.

We anticipate that tax allocations and dividend equivalent payments to the members of our operating company, which consist of certain of our employees, unaffiliated persons, former employees, and us, will continue to be a material financing activity. Cash distributions to operating company members for partnership tax allocations would increase should the taxable income of the operating company increase. Dividend equivalent payments will depend on our dividend policy and the discretion of our Board of Directors, as discussed below.

We believe that our lack of long-term debt, and ability to vary cash compensation levels, have provided us with an appropriate degree of flexibility in providing for our liquidity needs.

Dividend Policy

We are a holding company and our primary investment is our ownership of membership interests in our operating company. As a result, we depend upon distributions from our operating company to pay any dividends that our Board of Directors may declare to be paid to our Class A common stockholders. When, and if, our Board of Directors declares any such dividends, we then cause our operating company to make distributions to us in an amount sufficient to cover the dividends declared. Our dividend policy has certain risks and limitations, particularly with respect to liquidity. We may not pay dividends to our Class A common stockholders in amounts that have been paid to them in the past, or at all, if, among other things, we do not have the cash necessary to pay our intended dividends. To the extent we do not have cash on hand sufficient to pay dividends in the future, we may decide not to pay dividends. By paying cash dividends rather than investing that cash in our future growth, we risk slowing the pace of our growth, or not having a sufficient amount of cash to fund our operations or unanticipated capital expenditures, should the need arise.

On an annual basis, our Board of Directors targets a cash dividend payout ratio of approximately 60% to 70% of our non-GAAP diluted net income, subject to growth initiatives and other funding needs. Our ability to pay dividends is subject to the Board of Directors’ discretion and may be limited by our holding company structure and applicable provisions of Delaware law.

4142

Table of Contents

Tax Receivable Agreement

Our purchase of membership units of our operating company concurrent with our initial public offering, and the subsequent and future exchanges by holders of Class B units of our operating company for shares of our Class A common stock (pursuant to the exchange rights provided for in the operating company’s operating agreement), has resulted in, and is expected to continue to result in, increases in our share of the tax basis of the tangible and intangible assets of our operating company, which will increase the tax depreciation and amortization deductions that otherwise would not have been available to us. These increases in tax basis and tax depreciation and amortization deductions have reduced, and are expected to continue to reduce, the amount of cash taxes that we would otherwise be required to pay in the future. We entered into a tax receivable agreement with the current members of our operating company, the one member of our operating company immediately prior to our initial public offering who sold all membership units to us in connection with our initial public offering and any future holders of Class B units. This tax receivable agreement requires us to pay these members 85% of the amount of cash savings, if any, in U.S. federal, state and local income tax that we actually realize (or are deemed to realize in the case of an early termination payment by us, or a change in control, as described in the tax receivable agreement) as a result of the increases in tax basis described above and certain other tax benefits related to entering into the tax receivable agreement, including tax benefits attributable to payments under the tax receivable agreement.

Cash Flows

Three Months Ended ~~September~~June 30, ~~2021~~2022 and ~~September~~June 30, ~~2020~~2021

Cash, cash equivalents and restricted cash increased ~~$16.5~~$13.8 million to ~~$71.0~~$51.6 million during the three months ended ~~September~~June 30, ~~2021~~2022 compared to a ~~$16.1~~$23.8 million increase in cash, cash equivalents and restricted cash to ~~$50.3~~$54.5 million during the three months ended ~~September~~June 30, ~~2020.~~2021. Net cash provided by in operating activities was ~~$29.1~~$19.1 million for the three months ended ~~September~~June 30, ~~2021,~~2022, compared to net cash ~~used in~~provided by operating activities of ~~$24.4~~$21.5 million for the three months ended ~~September~~June 30, ~~2020.~~2021. The ~~increase~~decrease in cash provided was primarily due to ~~an increase~~a decrease in net income and changes in operating assets and liabilities and working capital.

Net cash used in investing activities decreased ~~$3.3~~$7.7 million to ~~$0.1~~$3.7 million for the three months ended ~~September~~June 30, ~~2021~~2022 from ~~$3.2~~$4.0 million provided ~~for~~in the three months ended ~~September~~June 30, ~~2020.~~2021. The decrease in cash provided by investing activities was primarily due to a ~~$3.0~~$5.9 million decrease in net sales of investments, a $1.1 million decrease in deconsolidations of sponsored investment funds, and a $1.3 million increase in purchases of ~~investments~~property and equipment, partially offset by a ~~$0.2~~$0.5 million ~~decrease~~increase in payments from related parties and during the three months ended ~~September~~June 30, ~~2021.~~2022.

Net cash used in financing activities ~~increased by $1.0~~remained flat at $1.6 million for the three months ended ~~September~~June 30, ~~2021~~2022, compared to ~~$12.5 million from $11.5~~$1.6 million for the three months ended ~~September~~June 30, ~~2020.~~2021. The ~~increase~~change in cash used is primarily due to a ~~$2.0~~$0.7 million increase in net contributions from non-controlling interests and a $1.0 million increase in the sale of shares under equity incentive plans, partially offset by $1.7 million increase in repurchase and ~~retirement of shares~~retirements of Class A ~~common stock partially offset by a $1.0 million decrease in net distributions to non-controlling interests.~~Common Stock during the three months ended June 30, 2022.

~~Nine~~

Six Months Ended ~~September~~June 30, ~~2021~~2022 and ~~September~~June 30, ~~2020~~2021

Cash, cash equivalents and restricted cash ~~increased $4.4~~decreased $30.6 million to ~~$71.0~~$51.6 million during the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 compared to a ~~$3.1~~$12.1 million decrease in cash, cash equivalents and restricted cash to ~~$50.3~~$54.5 million during the ~~nine~~six months ended ~~September~~June 30, ~~2020.~~2021. Net cash provided by operating activities ~~increased $23.3~~was $17.1 million infor the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022, compared to ~~$54.6~~net cash provided by operating activities of $25.6 million ~~from $31.4 million in~~for the ~~nine~~six months ended ~~September~~June 30, ~~2020.~~2021. The ~~increase~~decrease in cash provided was primarily due to ~~an increase~~a decrease in net income and changes in operating assets and liabilities and working capital.

Net cash used in investing activities ~~was~~remained relatively flat at less than $0.1 million for the ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022 compared to ~~net cash~~less than $0.1 million provided ~~by investing activities of $25.6 million~~ for the ~~nine~~six months ended ~~September~~June 30, ~~2020.~~2021. The ~~decrease~~increase in cash ~~provided~~used in investing activities was primarily due to a ~~$25.5~~$5.2 million increase in net sales of investments, offset by a $2.8 million decrease in ~~net cash provided by sale~~deconsolidations of ~~investments~~sponsored investment funds, a $1.9 million increase in purchases of property and equipment, and a $0.6 million increase in payments to related parties during the ~~nine~~six months ended ~~September~~June 30, ~~2021.~~2022.

Net cash used in financing activities ~~decreased $9.9~~increased by $10.0 million to $47.7 million for the ~~nine~~six months ended ~~September~~June 30, ~~2021 to $50.2 million~~2022 from ~~$60.1~~$37.7 million for the ~~nine~~six months ended ~~September~~June 30, ~~2020.~~2021. The ~~decrease~~increase in cash used is primarily due to a ~~$2.0~~$5.0 million ~~decrease in the repurchase and retirement of shares of Class A common stock and Class B units, a $6.0 million decrease~~increase in net distributions to non-controlling interests and a ~~$3.9~~$4.9 million ~~decrease~~increase in ~~dividend payments, partially offset by a $2.0 million decrease in the sale of shares under the equity incentive program~~dividends paid during the ~~nine~~six months ended ~~September~~June 30, ~~2021.~~2022.

4243

Table of Contents

Contractual Obligations

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.

Off-Balance Sheet Arrangements

We did not have any off-balance sheet arrangements as of ~~September~~June 30, ~~2021.~~2022.

Critical Accounting Policies and Estimates

The preparation of our consolidated financial statements, in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP"), requires management to make estimates and judgments that affect our reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under current circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily available from other sources. We evaluate our estimates on an ongoing basis. Actual results may materially differ from these estimates under different assumptions or conditions.

Accounting policies are an integral part of our financial statements. A thorough understanding of these accounting policies is essential when reviewing our reported results of operations and our financial condition. Management believes that the critical accounting policies discussed below involve additional management judgment due to the sensitivity of the methods and assumptions used.

Consolidation

Our policy is to consolidate all majority-owned subsidiaries in which we have a controlling financial interest and variable-interest entities of which we are deemed to be the primary beneficiary. We assess our consolidation practices regularly, as circumstances dictate. All significant inter-company transactions and balances have been eliminated.

Income Taxes

We are a “C” corporation under the Internal Revenue Code, and thus liable for federal, state and local taxes on the income derived from our economic interest in our operating company. The operating company is a limited liability company that has elected to be treated as a partnership for tax purposes. Our operating company has not made a provision for federal or state income taxes because it is the responsibility of each of the operating company’s members (including us) to separately report their proportionate share of the operating company’s taxable income or loss. Similarly, the income of our consolidated subsidiaries is not subject to income taxes, as such income is allocated to each partnership’s individual partners. The operating company has made a provision for New York City Unincorporated Business Tax.

We recognize deferred tax assets and liabilities for the future tax consequences attributable to differences between the carrying amounts of existing assets and liabilities and their respective tax bases, net operating loss carryforwards and tax credits. A valuation allowance is recorded on our deferred tax assets when it is more-likely-than-not that all or a portion of such assets will not be realized. When evaluating the realizability of our deferred tax assets, all evidence, both positive and negative, is evaluated, which requires management to make significant judgments and assumptions. Items considered when evaluating the need for a valuation allowance include our forecast of future taxable income, future reversals of existing temporary differences, tax planning strategies and other relevant considerations.

We believe that the accounting estimate related to the valuation allowance is a critical accounting estimate because the underlying assumptions can change from period to period. For example, tax law changes, or variances in future projected operating performance, could result in a change in the valuation allowance. If we are not able to realize all or part of our net deferred tax assets in the future, an adjustment to our deferred tax asset valuation allowance would be charged to income tax expense in the period such determination was made.

Management's judgment is required in determining our provision for income taxes, evaluating our tax positions and establishing deferred tax assets and liabilities. The calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax regulations. If the ultimate resolution of uncertainties is different from currently estimated, it could affect income tax expense and the effective tax rate.

4344

Table of Contents

Recently Issued Accounting Pronouncements Not Yet Adopted

None.

~~U.S. Economic Relief Legislation~~

On March 27, 2020, the U.S. enacted the Coronavirus Aid, Relief and Economic Security (“CARES”) Act, followed by the American Rescue Plan Act of 2021 (“ARP”) on March 11, 2021. The CARES Act and ARP provide economic relief to eligible individuals and businesses impacted by the COVID-19 pandemic, including changes to tax policy. We are currently assessing what impact, if any, the CARES Act’s or ARP’s provisions will have on our financial position, but we do not believe the impact will be material.

Item 4. Controls and Procedures.

During the course of the review of our consolidated financial statements as of ~~September~~June 30, ~~2021,~~2022, our management, including our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of ~~September~~June 30, ~~2021,~~2022, our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) were effective to ensure that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

There have not been any changes in our internal control over financial reporting during the three and ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

4445

Table of Contents

PART II. OTHER INFORMATION

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

The table below sets forth information regarding purchases of our Class A Common Stock on a monthly basis during the three months ended ~~September~~June 30, ~~2021.~~2022.

Period

(a) Total Number of
Shares of Class A
Common Stock
Purchased

(b) Average
Price Paid per
Share of Class A
Common Stock

(c) Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Programs1

(d) Approximate
Dollar Value of
Shares that May
Yet Be Purchased
Under the Plans
or Programs

(in millions)

July 1, 2021 - July 30, 2021

67,913

$
10.88

67,913

$
46.2

August 1, 2021 - August 31, 2021

103,690

11.16

103,690

45.1

September 1, 2021 - September 30, 2021

62,328

10.11

62,328

44.4

Total

233,931

$
10.80

233,931

$
44.4


Period	(a) Total Number of Shares of Class A Common Stock Purchased		(b) Average Price Paid per Share of Class A Common Stock		(c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs1		(d) Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
							(in millions)
April 1, 2022 - April 30, 2022		201,919	$	7.36		201,919	$	37.5
May 1, 2022 - May 31, 2022		120,501		6.53		120,501		36.7
June 1, 2022 - June 30, 2022		72,537		6.67		72,537		36.2
Total		394,957	$	6.98		394,957	$	36.2

Our share repurchase program was announced on April 24, 2012. The Board of Directors authorized us to repurchase an aggregate of $10 million of our outstanding Class A common stock and the operating company's Class B units on the open market and in private transactions in accordance with applicable securities laws. In February 2014, the Company announced an increase of $20 million in the aggregate amount authorized under the repurchase program. On April 19, 2018, the Company announced an additional increase of $30 million in the aggregate amount authorized under the repurchase program. On July 20, 2021, the Company announced an additional increase of $40 million in the aggregate amount authorized under the current program to repurchase Class A common stock and Class B units. The timing, number and value of common shares and units repurchased are subject to the Company’s discretion. The Company’s share repurchase program is not subject to an expiration date and may be suspended, discontinued, or modified at any time, for any reason.

4546

Table of Contents

Item 6. Exhibits.


Exhibit		Description of Exhibit

2.1		Agreement and Plan of Merger, dated as of July 26, 2022, by and among Pzena Investment Management, Inc., Pzena Investment Management, LLC and Panda Merger Sub, LLC(1).

10.1		Voting Agreement, dated as of July 26, 2022, by and among Pzena Investment Management, Inc. and each of the persons set forth on the signature pages thereto(1).

10.2		Senior Credit Facility Commitment Letter, dated as of July 26, 2022, by and between, JPMorgan Chase Bank, N.A. and Pzena Investment Management, LLC(1).

31.1		Certification of Chief Executive Officer pursuant to Exchange Act Rule 13a-14(a)/15d-14(a) (filed herewith)

31.2		Certification of Chief Financial Officer pursuant to Exchange Act Rule 13a-14(a)/15d-14(a) (filed herewith)

32.1		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith)

32.2		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith)

101.INS		Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because iXBRL tags are embedded within the Inline XBRL document
101.SCH		Inline XBRL Taxonomy Extension Schema
101.CAL		Inline XBRL Taxonomy Calculation Linkbase
101.LAB		Inline XBRL Taxonomy Label Linkbase
101.PRE		Inline XBRL Taxonomy Presentation Linkbase
101.DEF		Inline XBRL Taxonomy Definition Linkbase
104		Cover Page Interactive Data File (formatted as Inline XBRL and contained Exhibit 101)

Previously filed as an exhibit to our current report on Form 8-K filed with the Securities and Exchange Commission on July 28, 2022 (SEC File No. 001-33761).

4647

Table of Contents

SIGNATURES

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

Dated: ~~November 8, 2021~~August 4, 2022


		PZENA INVESTMENT MANAGEMENT, INC.

		By:		/s/ RICHARD S. PZENA
		Name:		Richard S. Pzena
		Title:		Chief Executive Officer
				(Principal Executive Officer)

		By:		/s/ JESSICA R. DORAN
		Name:		Jessica R. Doran
		Title:		Chief Financial Officer
				(Principal Financial and Accounting Officer)

4748


Delaware		20-8999751
(State or Other Jurisdiction of		(I.R.S. Employer
Incorporation or Organization)		Identification No.)


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Class A common stock, par value $0.01 per share	PZN	New York Stock Exchange


	As of				As of
	September 30, 2021		December 31, 2020		June 30, 2022			December 31, 2021
	(unaudited)				(unaudited)
ASSETS
Cash and Cash Equivalents ($936 and $2,201)1	$	69,951	$	65,534
Cash and Cash Equivalents ($0 and $1,030)1					$	49,412		$	81,133
Restricted Cash		1,055		1,050		2,215			1,056
Due from Broker ($28 and $0)1		537		87
Due from Broker						157			55
Advisory Fees Receivable		43,046		36,524		36,855			41,127
Investments ($20,822 and $1,131)1		67,599		34,104
Investments ($1,156 and $27,483)1						80,762			95,506
Receivable from Related Parties		3,649		2,880		5,203			3,871
Other Receivables ($55 and $8)1		279		154
Other Receivables ($0 and $40)1						8,883			265
Prepaid Expenses and Other Assets		1,825		2,569		1,627			1,700
Right-of-use Assets		9,786		11,578		55,311			10,014
Deferred Tax Asset		26,881		29,831		21,969			25,886
Property and Equipment, Net of Accumulated Depreciation of $6,793 and $5,980, respectively		3,547		4,376
Property and Equipment, Net of Accumulated Depreciation of $7,633 and $7,086, respectively						4,990			3,687
TOTAL ASSETS	$	228,155	$	188,687	$	267,384		$	264,300
LIABILITIES AND EQUITY
Liabilities:
Accounts Payable and Accrued Expenses ($29 and $28)1	$	34,223	$	36,317
Due to Broker ($59 and $2)1		1,002		56
Accounts Payable and Accrued Expenses ($0 and $62)1					$	35,456		$	44,167
Due to Broker						51			0
Securities Sold Short, at Fair Value		906		714		241			237
Liability to Selling and Converting Shareholders		27,820		25,701		24,679			24,679
Lease Liabilities		10,077		11,905		65,396			10,323
Deferred Compensation Liability		5,037		5,039		3,604			6,840
TOTAL LIABILITIES		79,065		79,732		129,427			86,246
Commitments and Contingencies (see Note 12)
Equity:
Preferred Stock (Par Value $0.01; 200,000,000 Shares Authorized; NaN Outstanding)		—		—		—			—
Class A Common Stock (Par Value $0.01; 750,000,000 Shares Authorized; 17,523,522 and 17,328,899 Shares Issued and Outstanding in 2021 and 2020, respectively)		175		173
Class B Common Stock (Par Value $0.000001; 750,000,000 Shares Authorized; 54,704,177 and 54,313,620 Shares Issued and Outstanding in 2021 and 2020, respectively)		0		0
Class A Common Stock (Par Value $0.01; 750,000,000 Shares Authorized; 16,722,181 and 17,306,455 Shares Issued and Outstanding in 2022 and 2021, respectively)						167			172
Class B Common Stock (Par Value $0.000001; 750,000,000 Shares Authorized; 56,969,703 and 54,203,277 Shares Issued and Outstanding in 2022 and 2021, respectively)						—			—
Additional Paid-In Capital		4,751		5,190		3,388			3,989
Retained Earnings		34,123		25,611		34,040			38,420
Accumulated Other Comprehensive Income		47		132
Accumulated Other Comprehensive (Loss)/ Income						(188	)		7
Total Pzena Investment Management, Inc.'s Equity		39,096		31,106		37,407			42,588
Non-Controlling Interests		109,994		77,849		100,550			135,466
TOTAL EQUITY		149,090		108,955		137,957			178,054
TOTAL LIABILITIES AND EQUITY	$	228,155	$	188,687	$	267,384		$	264,300


	For the Three Months Ended September 30,					For the Nine Months Ended September 30,
	2021			2020		2021			2020
NET INCOME	$	28,703		$	15,574	$	80,809		$	29,192
OTHER COMPREHENSIVE GAIN
Foreign Currency Translation Adjustment		(659	)		295		(788	)		73
Total Other Comprehensive Gain/ (Loss)		(659	)		295		(788	)		73
Comprehensive Income		28,044			15,869		80,021			29,265
Less: Comprehensive Income Attributable to Non-Controlling Interests		23,043			13,136		66,248			24,381
Total Comprehensive Income Attributable to Pzena Investment Management, Inc.	$	5,001		$	2,733	$	13,773		$	4,884


	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2022			2021			2022			2021
NET INCOME	$	14,439		$	27,077		$	32,921		$	52,106
OTHER COMPREHENSIVE GAIN
Foreign Currency Translation Adjustment		(875	)		(117	)		(1,009	)		(129	)
Total Other Comprehensive Loss		(875	)		(117	)		(1,009	)		(129	)
Comprehensive Income		13,564			26,960			31,912			51,977
Less: Comprehensive Income Attributable to Non-Controlling Interests		11,234			22,370			26,769			43,205
Total Comprehensive Income Attributable to Pzena Investment Management, Inc.	$	2,330		$	4,590		$	5,143		$	8,772


Large accelerated filer	☐	Accelerated filer	☒
Non-accelerated filer	☐	Smaller reporting company	☒
Emerging growth company	☐


		Page
	PART I — FINANCIAL INFORMATION

Item 1.	Financial Statements

	Consolidated Statements of Financial Condition of Pzena Investment Management, ~~Inc.as~~Inc. as of ~~September~~June 30, ~~2021~~2022 (unaudited) and December 31, ~~2020~~2021	12

	Consolidated Statements of Operations (unaudited) of Pzena Investment Management, Inc. for the Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2021~~2022 and ~~2020~~2021	23

	Consolidated Statements of Comprehensive Income (unaudited) of Pzena Investment Management, Inc. for the Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2021~~2022 and ~~2020~~2021	34

	Consolidated Statement of Changes in Equity (unaudited) of Pzena Investment Management, Inc. for the Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2021~~2022 and ~~2020~~2021	45

	Consolidated Statements of Cash Flows (unaudited) of Pzena Investment Management, Inc. for the Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2021~~2022 and ~~2020~~2021	67

	Notes to the Consolidated Financial Statements (unaudited)	78

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2729

Item 4.	Controls and Procedures	4445

	PART II — OTHER INFORMATION

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4546

Item 6.	Exhibits	4647

SIGNATURES		4748


		Ownership at
Legal Entity	Type of Entity (Date of Formation)	~~September~~June 30, ~~2021~~2022
Pzena Investment Management, Pty	Australian Proprietary Limited Company (12/16/2009)	100.0%
Pzena Financial Services, LLC	Delaware Limited Liability Company (10/15/2013)	100.0%
Pzena Investment Management, LTD	England and Wales Private Limited Company (01/08/2015)	100.0%
Pzena Investment Management Europe Limited	Irish Private Company Limited by Shares (07/08/2021)	100.0%
Pzena U.S. Best Ideas (GP), LLC	Delaware Limited Liability Company (11/16/2017)	100.0%
Pzena Global Best Ideas (GP), LLC	Delaware Limited Liability Company (2/15/2018)	100.0%
Pzena Investment Management International 2, LLC	Delaware Limited Liability Company (1/21/2020)	100.0%
Pzena 320 Fund (GP), LLC	Delaware Limited Liability Company (2/23/2022)	100.0%
Pzena International Value Fund, a series of Advisors Series Trust	Open-end Management Investment Company, series of Delaware Statutory Trust (6/27/2021)	58.5%
Pzena International Small Cap Value Fund, a series of Advisors Series Trust	Open-end Management Investment Company, series of Delaware Statutory Trust (6/28/2018)	~~51.4~~51.3%
Pzena ~~Global Focused Value~~320 Fund, LP	~~Australian Registered Investment Scheme (6/10/2016)~~Delaware Limited Partnership (2/23/2022)	~~20.7~~50.0%


	September 30, 2021		June 30, 2021		December 31, 2020		September 30, 2020		June 30, 2020		December 31, 2019
	(in thousands)
Cash and Cash Equivalents	$	69,951	$	53,463	$	65,534	$	49,235	$	33,131	$	52,480
Restricted Cash		1,055		1,054		1,050		1,047		1,043		1,036
Total	$	71,006	$	54,517	$	66,584	$	50,282	$	34,174	$	53,516


	For the Nine Months Ended September 30,
	2021				2020
	Amount		Fair Value1		Amount		Fair Value1
Class B-1 Units2		1,456,753	$	2.41		2,092,879	$	3.98
Options to Purchase Shares of Class A Common Stock3		0	$	0		146,804	$	2.03
Restricted Shares of Class A Common Stock4		0	$	0		16,806	$	4.74


	For the Six Months Ended June 30,
	2022				2021
	Amount		Fair Value1		Amount		Fair Value1
Class B-1 Units2		2,376,376	$	3.49		1,438,767	$	2.40


	January 1,				January 1,
	2021				2022
	Amount		Fair Value1		Amount		Fair Value1
Delayed Exchange Class B Units2		805,987	$	4.67		1,084,675	$	6.16
Restricted Shares of Class A Common Stock3		12,353	$	4.67		17,057	$	6.16


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,				For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2021		2020		2021		2020		2022		2021		2022		2021
	(in thousands, except share and per share amounts)								(in thousands, except share and per share amounts)
Diluted Net Income Allocated to:
Class A Common Stock	$	20,592	$	11,435	$	57,781	$	21,353	$	11,279	$	19,249	$	23,208	$	37,186
Participating Shares of Restricted Class A Common Stock		6		3		17		3		6		6		14		11
Participating Class B Units		2,065		936		5,773		1,763		1,470		1,921		3,023		3,709
Total Diluted Net Income Attributable to Shareholders	$	22,663	$	12,374	$	63,571	$	23,119	$	12,755	$	21,176	$	26,245	$	40,906

Total Basic Weighted-Average Shares Outstanding		17,694,559		16,931,447		17,398,518		17,310,875		16,969,301		17,255,593		17,159,027		17,248,045
Dilutive Effect of Class B Units		54,699,539		54,264,501		55,134,505		54,119,584		56,876,382		55,286,341		56,733,942		55,355,592
Dilutive Effect of Options1		1,725,381		5,418		1,569,185		10,658		36,250		1,793,668		579,720		1,486,643
Dilutive Effect of Phantom Class B Units & Phantom Shares of Class A Common Stock		2,786,184		1,747,495		2,640,566		1,735,983		1,779,026		2,728,652		1,876,429		2,571,352
Dilutive Effect of Restricted Shares of Class A Common Stock2		34,672		10,236		32,579		9,735		11,891		33,018		16,198		31,456
Dilutive Weighted-Average Shares Outstanding		76,940,335		72,959,097		76,775,353		73,186,835		75,672,850		77,097,272		76,365,316		76,693,088
Add: Participating Class B Units and Class B-1 Units3		7,257,283		5,824,112		7,245,358		5,897,774		9,620,203		7,239,297		9,620,203		7,239,297
Total Dilutive Weighted-Average Shares Outstanding		84,197,618		78,783,209		84,020,711		79,084,609		85,293,053		84,336,569		85,985,519		83,932,385
Diluted Earnings per Share4	$	0.27	$	0.16	$	0.76	$	0.28
Diluted Earnings per Share									$	0.15	$	0.25	$	0.31	$	0.49