Veritable Transaction(1) | (136.5) | | | Foreign currency translation | | 1.9 | | | Other | | (5.1) | | | | | 7.Balance, as of September 30, 2023 | Fair Value Measurements | $ | 2,509.0 | |
___________________________The following tables summarize(1)Represents Goodwill allocated to Veritable as of the Company’s financial assets and liabilities that are measured at fair value on a recurring basis:closing date, including $3.5 million attributable to the non-controlling interests.
| | | | | | | | | | | | | | | | | | | | | Fair Value Measurements | | | December 31,
2016 | | | | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Other Unobservable Inputs (Level 3) | | Financial Assets | | | | | | | | | Cash equivalents | $ | 64.1 |
| | $ | 64.1 |
| | $ | — |
| | $ | — |
| Investments in marketable securities(1) | | | | | | | | | Trading securities | 40.5 |
| | 40.5 |
| | — |
| | — |
| | Available-for-sale securities | 81.9 |
| | 81.9 |
| | — |
| | — |
| | Other investments | 3.4 |
| | 3.4 |
| | — |
| | — |
| Foreign currency forward contracts(2) | 0.6 |
| | — |
| | 0.6 |
| | — |
| Financial Liabilities(2) | | | | | | | | | Contingent payment arrangements | $ | 8.6 |
| | $ | — |
| | $ | — |
| | $ | 8.6 |
| | Affiliate equity obligations | 12.1 |
| | — |
| | — |
| | 12.1 |
| | Foreign currency forward contracts | 0.5 |
| | — |
| | 0.5 |
| | — |
|
AFFILIATED MANAGERS GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
| | | | | | | | | | | | | | | | | | | | | Fair Value Measurements | | | September 30,
2017 | | | | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Other Unobservable Inputs (Level 3) | | Financial Assets | | | | | | | | | Cash equivalents | $ | 35.1 |
| | $ | 35.1 |
| | $ | — |
| | $ | — |
| Investments in marketable securities(1) | | | | | | | | | Trading securities | 51.1 |
| | 51.1 |
| | — |
| | — |
| | Available-for-sale securities | 41.3 |
| | 41.3 |
| | — |
| | — |
| Foreign currency forward contracts(2) | 0.7 |
| | — |
| | 0.7 |
| | — |
| Financial Liabilities(2) | | | | | | | | | Contingent payment arrangements | $ | 8.1 |
| | $ | — |
| | $ | — |
| | $ | 8.1 |
| | Affiliate equity obligations | 45.7 |
| | — |
| | — |
| | 45.7 |
| | Foreign currency forward contracts | 1.0 |
| | — |
| | 1.0 |
| | — |
|
__________________________
| | (1)
| Principally investments in equity securities. |
| | (2)
| Amounts are presented within Other assets or Other liabilities. |
The following are descriptions of the significant financial assets and liabilities measured at fair value and the fair value methodologies used.
Cash equivalents consist primarily of highly liquid investments in daily redeeming money market funds, without enacted liquidity fees or redemption gates that are valued at net asset value (“NAV”).
Investments in marketable securities consist primarily of investments in publicly traded securities and funds advised by Affiliates that are valued at NAV. Publicly traded securities valued using unadjusted quoted market prices for identical instruments in active markets are classified as level 1. Publicly traded securities valued using quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active are classified as level 2. Investments in funds advised by Affiliates that are valued at NAV are classified as level 1.
Contingent payment arrangements represent the present value of the expected future settlement of contingent payment arrangements related to the Company’s investments in consolidated Affiliates. The significant unobservable inputs that are used in the fair value measurement of these obligations are growth and discount rates. Increases in the growth rate result in a higher obligation while increases in the discount rate result in a lower obligation.
Affiliate equity obligations include agreements to repurchase Affiliate equity. The significant unobservable inputs that are used in the fair value measurement of the agreements to repurchase Affiliate equity are growth and discount rates. Increases in the growth rate result in a higher obligation while increases in the discount rate result in a lower obligation.
Foreign currency forward contracts use model-derived valuations in which all significant inputs are observable in active markets to determine fair value.
It is the Company’s policy to value financial assets or liabilities transferred as of the beginning of the period in which the transfer occurs. There were no significant transfers of financial assets or liabilities between level 1 and level 2 in the three and nine months ended September 30, 2016 and 2017.
Level 3 Financial Assets and Liabilities
The following tables present the changes in level 3 liabilities:
AFFILIATED MANAGERS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
| | | | | | | | | | | | | | | | | | | | For the Three Months Ended September 30, | | | 2016 | 2017 | | | Contingent Payment Arrangements | | Affiliate Equity Obligations | | | Contingent Payment Arrangements | | Affiliate Equity Obligations | | Balance, beginning of period | $ | 8.0 |
| | $ | 27.0 |
| | | $ | 7.8 |
| | $ | 70.7 |
| | Net realized and unrealized (gains) losses | 0.2 |
| (1) | 0.1 |
| | | 0.3 |
| (1) | (0.2 | ) | | Purchases and issuances | — |
| | 8.4 |
| | | — |
| | 11.1 |
| | Settlements and reductions | — |
| | (8.8 | ) | | | — |
| | (35.9 | ) | | Balance, end of period | $ | 8.2 |
| | $ | 26.7 |
| | | $ | 8.1 |
| | $ | 45.7 |
| | | | | | | | | | | | Net change in unrealized (gains) losses relating to instruments still held at the reporting date | $ | 0.2 |
| (1) | $ | — |
| | | $ | 0.3 |
| (1) | $ | — |
|
| | | | | | | | | | | | | | | | | | | | For the Nine Months Ended September 30, | | | 2016 | | | 2017 | | | Contingent Payment Arrangements | | Affiliate Equity Obligations | | | Contingent Payment Arrangements | | Affiliate Equity Obligations | | Balance, beginning of period | $ | 10.2 |
| | $ | 62.3 |
| | | $ | 8.6 |
| | $ | 12.1 |
| | Net realized and unrealized (gains) losses | (2.0 | ) | (1) | 0.1 |
| | | 2.3 |
| (1) | (0.2 | ) | | Purchases and issuances | — |
| | 48.2 |
| | | — |
| | 161.5 |
| | Settlements and reductions | — |
| | (83.9 | ) | | | (2.8 | ) | | (127.7 | ) | | Balance, end of period | $ | 8.2 |
| | $ | 26.7 |
| | | $ | 8.1 |
| | $ | 45.7 |
| | | | | | | | | | | | Net change in unrealized (gains) losses relating to instruments still held at the reporting date | $ | (2.0 | ) | (1) | $ | — |
| | | 2.3 |
| (1) | $ | — |
|
___________________________
| | (1)
| Accretion and changes in the expected value of the Company’s contingent payment arrangements are recorded in Imputed interest expense and contingent payment arrangements. |
The following table presents certain quantitative information about the significant unobservable inputs used in valuing the Company’s level 3 financial liabilities:
| | | | | | | | | | | | | | | | | | | Quantitative Information About Level 3 Fair Value Measurements | | | Valuation Techniques | | Unobservable Input | | Fair Value at
December 31, 2016 | | Range at
December 31, 2016 | | Fair Value at September 30, 2017 | | Range at September 30, 2017 | | Contingent payment arrangements | Discounted cash flow | | Growth rates | | $ | 8.6 |
| | 3% - 8% | | $ | 8.1 |
| | 8% - 9% | | | | | Discount rates | | |
| | 14% - 15% | | |
| | 14% - 15% | | Affiliate equity obligations | Discounted cash flow | | Growth rates | | 12.1 |
| | 4% - 10% | | 45.7 |
| | 5% - 9% | | | | | Discount rates | | |
| | 15% - 16% | | |
| | 12% - 16% |
Investments Measured at NAV as a Practical Expedient
The Company’s Affiliates sponsor investment products in which the Company and Affiliates may make general partner and seed capital investments. The Company uses the NAV of these investments as a practical expedient for their fair value. The following table summarizes the nature of the Company’s investments, unfunded commitments and any related liquidity restrictions or other factors that may impact the ultimate value realized:
AFFILIATED MANAGERS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
| | | | | | | | | | | | | | | | | | | December 31, 2016 | | September 30, 2017 | | Category of Investment | Fair Value | | Unfunded Commitments | | Fair Value | | Unfunded Commitments | Private equity funds(1) | $ | 137.8 |
| | $ | 92.2 |
| | $ | 151.9 |
| | $ | 94.9 |
| Other funds(2) | 9.7 |
| | — |
| | 8.6 |
| | — |
| Other investments(3) | $ | 147.5 |
| | $ | 92.2 |
| | $ | 160.5 |
| | $ | 94.9 |
|
___________________________
| | (1)
| The Company uses NAV as a practical expedient one quarter in arrears (adjusted for current period calls and distributions) to determine the fair value. These funds primarily invest in a broad range of private equity funds, as well as making direct investments. Distributions will be received as the underlying assets are liquidated over the life of the funds, which is generally up to 15 years. |
| | (2)
| These are multi-disciplinary funds that invest across various asset classes and strategies, including long/short equity, credit and real estate. Investments are generally redeemable on a daily, monthly or quarterly basis. |
| | (3)
| Fair value attributable to the controlling interest was $59.9 million and $72.8 million as of December 31, 2016 and September 30, 2017, respectively. |
Other Financial Assets and Liabilities Not Carried at Fair Value
The carrying amount of Receivables and Payables and accrued liabilities approximates fair value because of the short-term nature of these instruments. The carrying value of notes receivable, which is reported in Other assets, approximates fair value because interest rates and other terms are at market rates. The carrying value of the credit facilities, which is reported in Senior bank debt, approximates fair value because the debt has variable interest based on selected short-term rates. The following table summarizes the Company’s other financial liabilities not carried at fair value: | | | | | | | | | | | | | | | | | | | | | December 31, 2016 | | September 30, 2017 | | | | | Carrying Value | | Fair Value | | Carrying Value | | Fair Value | | Fair Value Hierarchy | | Senior notes | $ | 945.1 |
| | $ | 936.0 |
| | $ | 745.5 |
| | $ | 779.6 |
| | Level 2 | | Convertible securities | 307.5 |
| | 466.9 |
| | 309.3 |
| | 527.8 |
| | Level 2 |
| | 8. | Goodwill and Acquired Client Relationships |
The following tables present the changes in the Company’s consolidated Affiliates’ Goodwill and components of Acquired client relationships (net): | | | | | | | | | Goodwill | | | | Total | | Balance, as of December 31, 2016 | | $ | 2,628.1 |
| | Foreign currency translation | | 33.7 |
| | Balance, as of September 30, 2017 | | $ | 2,661.8 |
|
As of September 30, 2017,2023 the Company completed its annual impairment assessmentsassessment on its goodwill and no impairmentsimpairment was indicated. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Acquired Client Relationships (Net) | | | Definite-lived | | Indefinite-lived | | Total | | | Gross Book
Value | | Accumulated
Amortization | | Net Book
Value | | Net Book
Value | | Net Book
Value | | Balance, as of December 31, 2022 | $ | 1,355.1 | | | $ | (1,069.7) | | | $ | 285.4 | | | $ | 1,590.6 | | | $ | 1,876.0 | | Veritable Transaction(1) | (85.1) | | | 57.0 | | | (28.1) | | | — | | | (28.1) | | | Intangible amortization and impairments | — | | | (37.5) | | | (37.5) | | | — | | | (37.5) | | | Foreign currency translation | (0.9) | | | 1.1 | | | 0.2 | | | 3.0 | | | 3.2 | | Transfers(2) | (10.3) | | | 10.3 | | | — | | | (4.1) | | | (4.1) | | | Balance, as of September 30, 2023 | $ | 1,258.8 | | | $ | (1,038.8) | | | $ | 220.0 | | | $ | 1,589.5 | | | $ | 1,809.5 | |
___________________________(1)Represents acquired client relationships attributable to Veritable as of the closing date, including $6.7 million attributable to the non-controlling interests. (2)Transfers include acquired client relationships at Affiliates that were indicated.deconsolidated during the period. | | | | | | | | | | | | | | | | | | | | | | | Acquired Client Relationships | | | Definite-lived | | Indefinite-lived | | Total | | | Gross Book Value | | Accumulated Amortization | | Net Book Value | | Net Book Value | | Net Book Value | | Balance, as of December 31, 2016 | $ | 1,290.0 |
| | $ | (788.1 | ) | | $ | 501.9 |
| | $ | 995.5 |
| | $ | 1,497.4 |
| | Intangible amortization and impairments | — |
| | (65.1 | ) | | (65.1 | ) | | — |
| | (65.1 | ) | | Foreign currency translation | 5.0 |
| | — |
| | 5.0 |
| | 29.9 |
| | 34.9 |
| | Balance, as of September 30, 2017 | $ | 1,295.0 |
| | $ | (853.2 | ) | | $ | 441.8 |
| | $ | 1,025.4 |
| | $ | 1,467.2 |
|
AFFILIATED MANAGERS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
Definite-lived acquired client relationships at the Company’s consolidated Affiliates are amortized over their expected useful lives. Asperiod of September 30, 2017, these relationships were being amortized over a weighted average life of approximately 12 years.economic benefit. The Company recorded amortization expense inwithin Intangible amortization and impairments in the Consolidated Statements of Income for these relationships of $26.9$12.2 million and $82.2$36.9 million for the three and nine months ended September 30, 2016,2022, respectively, and $21.2$12.5 million and $65.1$37.5 million for the three and nine months ended September 30, 2017,2023, respectively. Based on relationships existing as of September 30, 2017,2023, the Company estimates that its consolidated annual amortization expense will be approximately $85$11 million for the remainder of 2023, approximately $30 million in 2024, and approximately $25 million in each of 2017, 20182025, 2026, 2027, and 2019, $50 million in 2020 and $30 million in 2021.2028. As of September 30, 2023, no impairments of indefinite-lived acquired client relationships were indicated. | | 9. | Equity Method Investments in Affiliates |
Veritable Transaction In 2016,September 2023, the Company completed investmentsits previously announced agreement with a third party and Veritable, LP (“Veritable”), one of the Company’s consolidated Affiliates, under which the third party acquired 100% of the outstanding equity interests in SystematicaVeritable (the “Veritable Transaction”). Pursuant to the terms of the agreement, the Company received $287.4 million in cash, net of transaction costs of $6.6 million. Veritable is included in the Company’s results through the closing date, and the Company’s gain on the transaction was $133.1 million, which is recorded in Affiliate Transaction gain on the Consolidated Statements of Income. The after-tax net cash proceeds from the transaction were $225.1 million. 10.Equity Method Investments L.P. and Baring Private Equity Asia, both of which closedin Affiliates In August 2023, the Company completed its minority investment in Forbion Group Holding B.V. (“Forbion”), a leading European private markets firm focused on January 4, 2016, Capula Investment Management, LLP, Mount Lucas Management LP and Capeview Capital LLP, all of which closed on July 1, 2016, Partner Fund Management, L.P., which closed on September 30, 2016, and Winton Group Ltd., which closed on October 4, 2016.investing in high-quality life sciences companies. The Company’s provisional purchase price allocations were completedallocation is measured using financial models that includedinclude assumptions of expected market performance, net client cash flows, and discount rates. The majorityassociated provisional amounts may be revised upon completion of the consideration paid is deductible for U.S. tax purposes over a 15-year life. final valuation. The financial results of certain Affiliates accounted for under the equity method Affiliates are recognized in the Consolidated Financial Statements one quarter in arrears. The aggregate purchase price allocation forEquity method investments in Affiliates (net) consisted of the 2016 investments was as follows:following:
AFFILIATED MANAGERS GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
| | | | | | | Total | | Consideration paid | $ | 1,362.3 |
| | | | | Definite-lived acquired client relationships | $ | 560.8 |
| | Indefinite-lived acquired client relationships | 36.9 |
| | Tangible assets | 2.0 |
| | Deferred tax liability | (91.8 | ) | | Goodwill | 854.4 |
| | | $ | 1,362.3 |
|
For these new investments, the Company recorded amortization expense on the definite-lived acquired client relationships of $3.7 million and $11.2 million in the three and nine months ended September 30, 2016, respectively, and $15.5 million and $33.9 million in the three and nine months ended September 30, 2017, respectively. | | | | | | | | | | | | | | | | | December 31,
2022 | | September 30,
2023 | | Goodwill | | $ | 1,262.4 | | | $ | 1,300.3 | | | Definite-lived acquired client relationships (net) | | 479.4 | | | 525.7 | | | Indefinite-lived acquired client relationships (net) | | 119.0 | | | 122.6 | | | Undistributed earnings and tangible capital | | 278.7 | | | 86.3 | | | Equity method investments in Affiliates (net) | | $ | 2,139.5 | | | $ | 2,034.9 | |
The following table presents the change in Equity method investments in Affiliates:Affiliates (net): | | | | | | | Equity Method Investments in Affiliates (Net) | | Balance, as of December 31, 2022 | $ | 2,139.5 | | | Investments in Affiliates | 145.9 | | | Earnings | 217.3 | | | Intangible amortization and impairments | (63.0) | | | Distributions of earnings | (423.1) | | | | | Foreign currency translation | 37.5 | | | Other | (19.2) | | | Balance, as of September 30, 2023 | $ | 2,034.9 | |
| | | | | | | Total | | Balance, as of December 31, 2016 | $ | 3,368.3 |
| | Equity method earnings | 303.3 |
| | Equity method intangible amortization | (71.7 | ) | | Distributions of earnings from equity method investments | (368.0 | ) | | Investments | 29.8 |
| | Foreign currency translation | 32.1 |
| | Other | (3.0 | ) | | Balance, as of September 30, 2017 | $ | 3,290.8 |
|
As of September 30, 2017, the definite-livedDefinite-lived acquired client relationships at all of the Company’s Affiliates accounted for under the equity method Affiliates were beingare amortized over a weighted average lifetheir expected period of approximately 10 years.economic benefit. The Company recognizedrecorded amortization expense for these relationships of $14.0$31.4 million and $43.0$89.3 million for the three and nine months ended September 30, 2016,2022, respectively, and $25.9$21.2 million and $71.7$63.0 million for the three and nine months ended September 30, 2017,2023, respectively. Based on relationships existing as of September 30, 2017,2023, the Company estimates the annual amortization expense attributable to its current equity method Affiliates will be approximately $100$23 million for the remainder of 2023, approximately $60 million in each of 20172024 and 2018 and $802025, approximately $50 million in each of 2019, 20202026 and 2021.
AFFILIATED MANAGERS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
2027, and approximately $40 million in 2028.
The Company has determined that one of itshad 20 and 21 Affiliates accounted for under the equity method Affiliates is significant under Rule 10-01(b)(1)as of Regulation S-X. For the threeDecember 31, 2022 and nine months ended September 30, 2016, this2023, respectively. The majority of these Affiliates are partnerships with structured interests that define how the Company will participate in Affiliate earnings, typically based upon a fixed percentage of revenue reduced by, in some cases, certain agreed-upon expenses. The partnership agreements do not define a fixed percentage for the Company’s ownership of the equity methodof the Affiliate. These percentages would be subject to a separate future negotiation if an Affiliate were to be sold or liquidated. In October 2023, the Company completed its minority investment in Ara Partners Group, LLC (“Ara Partners”), a private markets firm specializing in industrial decarbonization. Following the close of the transaction, Ara Partners’ management continues to hold a significant majority of the equity of the business and directs its day-to-day operations. The financial results will be recognized revenue of $230.2 million and $658.6 million, respectively, and net income of $126.4 million and $361.0 million, respectively. Forin the three and nine months ended September 30, 2017, this equity method Affiliate recognized revenue of $301.8 million and $826.6 million, respectively, and net income of $178.3 million and $471.3 million, respectively.Consolidated Financial Statements one quarter in arrears. | | 10. | Related Party Transactions |
11.Related Party Transactions A prior owner of one of the Company’s consolidated Affiliates retained an interestretains interests in certain of the Affiliate’s private equity investment partnerships.partnerships and, as a result, is a related party of the Company. The prior owner’s interest isinterests are presented in the Company’s Consolidated Balance Sheets as either a liability inwithin Other liabilities or as Non-controlling interests, depending on the structure of the prior owner’s investments in the partnerships. The total liability was $67.8and were $21.0 million and $64.1$18.5 million atas of December 31, 20162022 and September 30, 2017, respectively. The total non-controlling interest was $2.5 million and $0.8 million at December 31, 2016 and September 30, 2017,2023, respectively. The Company may invest from time to time in funds or products advised by its Affiliates. The Company’s executive officers and directors may invest from time to time in funds advised or products offered by its Affiliates, or receive other investment services provided by its Affiliates, on substantially the same terms as other investors. In addition, the Company and its Affiliates earn asset based revenue, performance fees, distributionasset- and servicing and otherperformance-based fees and incur distribution and servicing and other expenses for services provided to Affiliate sponsored investment products. In addition, Affiliate management owners and Companythe Company’s officers may serve as trustees or directors of certain investment vehicles from which the Company or an Affiliate earns revenue. The Company has liabilitiesfees. Also, from time to related parties for contingent payment arrangements in connection with certain business combinations. The net present value of the total amounts payable were $8.6 million and $8.1 million as of December 31, 2016 and September 30, 2017, respectively, and were included in Other liabilities.
The Company has related party transactions in association with its Affiliate equity transactions, as more fully described in Notes 12 and 13.
| | 11. | Share-Based Compensation |
The following is a summary of share-based compensation expense: | | | | | | | | | | | | | | | | | | | For the Three Months Ended September 30, | | For the Nine Months Ended September 30, | | | 2016 | | 2017 | | 2016 | | 2017 | | Share-based compensation | $ | 10.7 |
| | $ | 10.3 |
| | $ | 30.7 |
| | $ | 30.0 |
| | Tax benefit | 4.1 |
| | 4.0 |
| | 11.8 |
| | 11.5 |
|
The Company had $66.4 million and $73.8 million of unrecognized share-based compensation as of December 31, 2016 and September 30, 2017, respectively, which will be recognized over a weighted average period of approximately three years (assuming no forfeitures).
Stock Options
The following table summarizes transactions in the Company’s stock options:
| | | | | | | | | | | | Stock Options | | Weighted Average Exercise Price | | Weighted Average Remaining Contractual Life (years) | | Unexercised options outstanding - December 31, 2016 | 1.4 |
| | $ | 108.53 |
| | | | Options granted | 0.0 |
| | 168.60 |
| | | | Options exercised | (0.6 | ) | | 96.86 |
| | | | Options forfeited | (0.1 | ) | | 140.26 |
| | | | Unexercised options outstanding - September 30, 2017 | 0.7 |
| | 118.35 |
| | 3.5 | | Exercisable at September 30, 2017 | 0.3 |
| | 108.55 |
| | 1.5 |
For the nine months ended September 30, 2016 and 2017,time, the Company granted stock options with fair valuesmay
AFFILIATED MANAGERS GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
stock onenter into ordinary course engagements for capital markets, banking, brokerage, and other services with beneficial owners of 5% or more of the grant date. In certain circumstances, option awards also require certain performance conditions to be satisfied in order for the options to be exercised.Company’s voting securities.
The fair valueCompany has related party transactions in association with its deferred and contingent payment obligations, and Affiliate equity transactions, as more fully described in Notes 8, 13, and 14. 12.Share-Based Compensation The following table presents share-based compensation expense: | | | | | | | | | | | | | | | | | | | | | | | | | For the Three Months Ended September 30, | | For the Nine Months Ended September 30, | | 2022 | | 2023 | | 2022 | | 2023 | | Share-based compensation | $ | 15.2 | | | $ | 14.5 | | | $ | 45.0 | | | $ | 43.9 | | | Tax benefit | 2.0 | | | 1.9 | | | 5.6 | | | 5.5 | |
As of options granted was estimated usingDecember 31, 2022, the Black-Scholes option pricing model. For the nine months endedCompany had unrecognized share-based compensation expense of $64.7 million. As of September 30, 2016 and 2017,2023, the Company had unrecognized share-based compensation expense of $68.3 million, which will be recognized over a weighted average fair valuesperiod of options granted were $39.02 and $48.05, per option, respectively, based on the weighted-average grant date assumptions stated below. | | | | | | | | | | | For the Nine Months Ended September 30, | | | | 2016 | | 2017 | | Dividend yield | | — |
| | 0.5 | % | | Expected volatility | | 30.7 | % | | 28.0 | % | | Risk-free interest rate | | 1.6 | % | | 2.1 | % | | Expected life of options (in years) | | 5.7 |
| | 5.7 |
| | Forfeiture rate | | — |
| | — |
|
Restricted Stock The following table summarizes transactions in the Company’s restricted stock units: | | | | | | | Restricted Stock Units | | Weighted Average Grant Date Value | | | Restricted Stock Units | | Weighted Average Grant Date Value | | | Unvested units - December 31, 2016 | 0.6 |
| | $ | 168.84 |
| | | Unvested units–December 31, 2022 | | Unvested units–December 31, 2022 | 1.1 | | | $ | 106.88 | | | Units granted | 0.2 |
| | 153.09 |
| Units granted | 0.3 | | | 159.55 | | | Units vested | (0.2 | ) | | 167.72 |
| Units vested | (0.5) | | | 85.07 | | | Units forfeited | (0.0 | ) | | 170.52 |
| Units forfeited | (0.0 | ) | | 132.05 | | | Unvested units - September 30, 2017 | 0.6 |
| | 162.97 |
| | | Performance condition changes | | Performance condition changes | 0.0 | | | 73.81 | | | Unvested units–September 30, 2023 | | Unvested units–September 30, 2023 | 0.9 | | | 138.66 | |
For the nine months ended September 30, 20162022 and 2017,2023, the Company granted awardsrestricted stock units with fair values of $28.0$47.1 million and $36.7$49.2 million, respectively. These awardsrestricted stock units were valued based on the closing price of the Company’s common stock on the grant date and containthe number of shares expected to vest. Restricted stock units containing vesting conditions requiringgenerally require service over a period of three years to four years. In certain circumstances, awardsyears and may also require the satisfaction of certain performance conditions. For awards with performance conditions, the number of restricted stock units expected to be satisfied.vest may change over time depending upon the performance level achieved. Stock Options The following table summarizes transactions in the Company’s stock options:
AFFILIATED MANAGERS GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
| | | | | | | | | | | | | | | | | | | Stock Options | | Weighted Average
Exercise Price | | Weighted Average
Remaining
Contractual Life
(Years) | | Unexercised options outstanding–December 31, 2022 | 3.2 | | | $ | 76.81 | | | | | Options granted | — | | | — | | | | | Options exercised | (0.0 | ) | | 127.77 | | | | | Options forfeited | — | | | — | | | | | Options expired | — | | | — | | | | | Performance condition changes | — | | | — | | | | | Unexercised options outstanding–September 30, 2023 | 3.2 | | | 76.74 | | | 3.0 | | Exercisable at September 30, 2023 | 0.0 | | | 119.54 | | | 3.0 |
For the nine months ended September 30, 2022, the Company granted stock options with fair values of $1.8 million. The Company did not grant any stock options during the nine months ended September 30, 2023. Stock options generally vest over a period of three years to five years and expire seven years after the grant date. All stock options have been granted with exercise prices equal to the closing price of the Company’s common stock on the grant date. Substantially all of the Company’s outstanding stock options contain both service and performance conditions. For awards with performance conditions, the number of stock options expected to vest may change over time depending upon the performance level achieved. For the nine months ended September 30, 2022, the weighted average fair value of options granted was $47.84. The Company uses the Black-Scholes option pricing model to determine the fair value of options. The weighted average grant date assumptions used to estimate the fair value of stock options granted were as follows: | | | | | | | | | | | 12. | Redeemable Non-Controlling Interests | For the Nine Months Ended September 30, | | | 2022 | | | | Dividend yield | | 0.0 | % | | | | Expected volatility | | 36.8 | % | | | | Risk-free interest rate | | 1.7 | % | | | | Expected life of options (in years) | | 5.7 | | | | Forfeiture rate | | — | % | | |
13.Redeemable Non-Controlling Interests Affiliate equity interests provide holders with a ratable portion of ownershipan equity interest in one of the Company’s consolidated Affiliates, consistent with the structured partnership interests in place at the respective Affiliate. Affiliate equity holders generally have a conditional right to put their interests to the Company at certain intervals (between five years and 15 years from the date the equity interest is received by the Affiliate equity holder or on an annual basis following an Affiliate equity holder’s departure). The current redemption value ofPrior to becoming redeemable, the Company’s Affiliate equity interests is presented aswithin Non-controlling interests. Upon becoming redeemable, these interests are reclassified to Redeemable non-controlling interests.interests at their current redemption values. Changes in the current redemption value are recorded to Additional paid-in capital. When the Company has an unconditional obligation to purchase Affiliate equity interests, the interests are reclassified from Redeemable non-controlling interest to Other liabilities at current fair value. Changes in fair value are recorded to Other expenses (net). The following table presents the changes in Redeemable non-controlling interests:
| | | | | | | | | Redeemable Non-controlling interests | | Balance, as of December 31, 2016 | | $ | 673.5 |
| | Changes attributable to consolidated products | | 9.5 |
| | Repurchases of redeemable Affiliate equity | | (151.6 | ) | | Transfers from non-controlling interests | | 56.8 |
| | Changes in redemption value | | 216.4 |
| | Balance, as of September 30, 2017 | | $ | 804.6 |
|
AFFILIATED MANAGERS GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
| | | | | | | | | | 13. | | | Redeemable Non-controlling Interests | | Balance, as of December 31, 2022 | | | $ | 465.4 | | | Veritable Transaction | | | (16.8) | | Decrease attributable to consolidated Affiliate Equitysponsored investment products | | | (6.2) | | | Transfers to Other liabilities | | | (57.1) | | | Transfers from Non-controlling interests | | | 0.1 | | | Changes in redemption value | | | 46.9 | | Balance, as of September 30, 2023(1) | | | $ | 432.3 | |
___________________________(1)As of December 31, 2022 and September 30, 2023, Redeemable non-controlling interests include consolidated Affiliate sponsored investment products primarily attributable to third-party investors of $20.1 million and $13.9 million, respectively. 14.Affiliate Equity Affiliate equity interests are allocated income in a manner that is consistent with the structured partnership interests in place at the respective Affiliate. The Company’s Affiliates generally pay quarterly distributions to Affiliate equity holders. Distributions paid to non-controlling interest Affiliate equity holders were $278.0 million and $216.4 million for the nine months ended September 30, 2022 and 2023, respectively. The Company periodically purchases Affiliate equity from and issues Affiliate equity to the Company’s consolidated Affiliate partners and other parties under agreements that provide the Company a conditional right to call and Affiliate equity holders the conditional right to put their Affiliate equity interests to the Company at certain intervals. The Company has the right to settle a portion of these purchases in shares of its common stock. For Affiliates accounted for under the equity method, the Company does not typically have such put and call arrangements. For the nine months ended September 30, 20162022 and 2017, distributions paid to Affiliate equity holders were $270.1 million and $266.8 million, respectively.
The Company periodically repurchases Affiliate equity interests from and issues Affiliate equity interests to its Affiliate equity holders. For the nine months ended September 30, 2016 and 2017,2023, the amount of cash paid for repurchasespurchases was $82.1$37.0 million and $121.3$41.7 million, respectively. For the nine months ended September 30, 20162022 and 2017,2023, the total amount of cash received for issuances was $11.8$15.2 million and $8.8$13.4 million, respectively.
Sales and repurchasespurchases of Affiliate equity generally occur at fair value; however, the Company also grants Affiliate equity to its consolidated Affiliate partners employees and officersother parties as a form of compensation. If the equity is issued for consideration below the fair value of the equity, or repurchasedpurchased for consideration above the fair value of the equity, then suchthe difference is recorded as compensation expense in Compensation and related expenses in the Consolidated Statements of Income over the requisite service period. The following is a summary oftable presents Affiliate equity compensation expense: | | | | For the Three Months Ended September 30, | | For the Nine Months Ended September 30, | | For the Three Months Ended September 30, | | For the Nine Months Ended September 30, | | | 2016 | | 2017 | | 2016 | | 2017 | | 2022 | | 2023 | | 2022 | | 2023 | | Controlling interest | $ | 3.2 |
| | $ | 2.3 |
| | $ | 7.7 |
| | $ | 9.4 |
| Controlling interest | $ | 0.5 | | | $ | 0.0 | | | $ | 0.8 | | | $ | 6.1 | | | Non-controlling interests | 18.5 |
| | 7.7 |
| | 27.2 |
| | 29.2 |
| Non-controlling interests | 8.5 | | | 11.5 | | | 35.1 | | | 33.4 | | | Total | $ | 21.7 |
| | $ | 10.0 |
| | $ | 34.9 |
| | $ | 38.6 |
| Total | $ | 9.0 | | | $ | 11.5 | | | $ | 35.9 | | | $ | 39.5 | |
The following is a summary oftable presents unrecognized Affiliate equity compensation expense: | | | | | | | | | | | | |
| Controlling Interest | | Remaining Life | | Non-controlling Interests | | Remaining Life | | December 31, 2016 | $ | 31.3 |
| | 4 years | | $ | 70.7 |
| | 5 years | | September 30, 2017 | 33.0 |
| | 4 years | | 82.5 |
| | 5 years |
| | | | | | | | | | | | | | | | | | | | | | | | | Controlling Interest | | Remaining Life | | Non-controlling Interests | | Remaining Life | | December 31, 2022 | $ | 31.4 | | | 5 years | | $ | 284.6 | | | 7 years | | September 30, 2023 | 30.0 | | | 5 years | | 258.3 | | | 6 years |
The Company records amounts receivable from, and payable to, Affiliate equity holders in connection with the transfer of Affiliate equity interests that have not settled at the end of the period. The total amount receivable was $22.9$11.6 million and $10.9$6.0 million at
AFFILIATED MANAGERS GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
as of December 31, 20162022 and September 30, 2017,2023, respectively, and was included in Other assets. The total amount payable was $12.1$24.5 million and $45.7$45.2 million as of December 31, 20162022 and September 30, 2017,2023, respectively, and was included in Other liabilities.
Effects of Changes in the Company’s Ownership in Affiliates
The Company periodically acquires interests from, and transfers interests to, Affiliate equity holders. Because these transactions do not result in a change of control, any gain or loss related to these transactions is recorded to Additional paid-in capital, which increases or decreases the controlling interest’s equity. No gain or loss related to these transactions is recognized in the Consolidated Statements of Income or the Consolidated Statements of Comprehensive Income.
While the Company presents the current redemption value of Affiliate equity within Redeemable non-controlling interests, with changes in the current redemption value increasing or decreasing the controlling interest’s equity over time, the following table disclosespresents the cumulative effect that ownership changes had on the controlling interest’s equity related only to Affiliate equity transactions that settledoccurred during the applicable periods: AFFILIATED MANAGERS GROUP, INC. | | | | | | | | | | | | | | | | | | | | | | | | | | For the Three Months Ended September 30, | | For the Nine Months Ended September 30, | | | 2022 | | 2023 | | 2022 | | 2023 | | Net income (controlling interest) | $ | 112.6 | | | $ | 217.0 | | | $ | 368.0 | | | $ | 476.8 | | | Decrease in controlling interest paid-in capital from Affiliate equity issuances | (5.1) | | | (4.5) | | | (0.2) | | | (13.1) | | | (Decrease) increase in controlling interest paid-in capital from Affiliate equity purchases | (2.3) | | | 1.9 | | | (32.2) | | | (36.1) | | | Net income (controlling interest) including the net impact of Affiliate equity transactions | $ | 105.2 | | | $ | 214.4 | | | $ | 335.6 | | | $ | 427.6 | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
15.Income Taxes
| | | | | | | | | | | | | | | | | | | For the Three Months Ended September 30, | | For the Nine Months Ended September 30, | | | 2016 | | 2017 | | 2016 | | 2017 | | Net income (controlling interest) | $ | 110.2 |
| | $ | 125.4 |
| | $ | 322.5 |
| | $ | 374.2 |
| | Increase / (decrease) in controlling interest paid-in capital from purchases and sales of Affiliate equity issuances | 5.3 |
| | (0.3 | ) | | 1.9 |
| | (0.6 | ) | | Decrease in controlling interest paid-in capital related to Affiliate equity repurchases | (2.1 | ) | | (12.7 | ) | | (23.4 | ) | | (81.8 | ) | | Net income attributable to controlling interest and transfers from Non-controlling interests | $ | 113.4 |
| | $ | 112.4 |
| | $ | 301.0 |
| | $ | 291.8 |
|
The Company’s consolidated income tax provision includes taxes attributable to the controlling interest and, to a lesser extent, taxes attributable to the non-controlling interestsinterests. The following table presents the consolidated provision for income taxes: | | | | | | | | | | | | | | | | | | | | | | | | | | For the Three Months Ended September 30, | | For the Nine Months Ended September 30, | | | 2022 | | 2023 | | 2022 | | 2023 | | Controlling interest: | | | | | | | | | Current taxes | $ | 17.9 | | | $ | 87.0 | | | $ | 73.3 | | | $ | 136.9 | | | Intangible-related deferred taxes | 12.7 | | | (13.5) | | | 41.2 | | | 16.4 | | | Other deferred taxes | 4.2 | | | 2.4 | | | 6.6 | | | (3.4) | | | Total controlling interest | 34.8 | | | 75.9 | | | 121.1 | | | 149.9 | | | Non-controlling interests: | | | | | | | | | Current taxes | $ | 2.0 | | | $ | 1.8 | | | $ | 9.4 | | | $ | 5.5 | | | Deferred taxes | — | | | — | | | — | | | — | | | Total non-controlling interests | 2.0 | | | 1.8 | | | 9.4 | | | 5.5 | | | Income tax expense | $ | 36.8 | | | $ | 77.7 | | | $ | 130.5 | | | $ | 155.4 | | | Income before income taxes (controlling interest) | $ | 147.4 | | | $ | 292.9 | | | $ | 489.1 | | | $ | 626.7 | |
| | | | | | | | | | | | | | | | | | | | | | | | Effective tax rate (controlling interest)(1) | 23.6 | % | | 25.9 | % | | 24.8 | % | | 23.9 | % |
___________________________(1)Taxes attributable to the controlling interest divided by income before income taxes (controlling interest). The Company’s effective tax rate (controlling interest) for the three months ended September 30, 2022 was lower than the marginal tax rate of 24.5%, primarily due to discrete foreign tax benefits. The Company’s effective tax rate (controlling interest) for the nine months ended September 30, 2022 was not meaningfully different than the marginal tax rate of 24.5%.
AFFILIATED MANAGERS GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
The Company’s effective tax rate (controlling interest) for the three months ended September 30, 2023 was higher than the marginal tax rate of 24.5%, primarily due to the increase in the UK corporate tax rate in 2023. The Company’s effective tax rate (controlling interest) for the nine months ended September 30, 2023 was lower than the marginal tax rate primarily due to discrete foreign tax benefits and tax windfalls attributable to share-based compensation. In August 2022, the Inflation Reduction Act was enacted into law. The relevant provisions of the Inflation Reduction Act for the Company are the 15% corporate alternative minimum income tax and the 1% excise tax on repurchases of the Company’s common stock. These provisions are effective as follows:of January 1, 2023. The Company does not currently expect the Inflation Reduction Act to have a material impact on its Consolidated Financial Statements. The Company records the excise tax as part of the cost basis of its common stock repurchased. | | | | | | | | | | | | | | | | | | | For the Three Months Ended September 30, | | For the Nine Months Ended September 30, | | | 2016 | | 2017 | | 2016 | | 2017 | | Controlling interest: | | | | | | | | | Current tax | $ | 29.5 |
| | $ | 39.6 |
| | $ | 84.2 |
| | $ | 102.0 |
| | Intangible-related deferred taxes | 19.5 |
| | 22.9 |
| | 63.0 |
| | 61.8 |
| | Other deferred taxes | 1.1 |
| | 1.6 |
| | 8.4 |
| | 18.7 |
| | Total controlling interest | 50.1 |
| | 64.1 |
| | 155.6 |
| | 182.5 |
| | Non-controlling interests: | | | | | | | | | Current tax | $ | 1.5 |
| | $ | 2.1 |
| | $ | 5.7 |
| | $ | 5.9 |
| | Deferred taxes | (1.3 | ) | | (0.1 | ) | | (1.6 | ) | | (0.2 | ) | | Total non-controlling interests | 0.2 |
| | 2.0 |
| | 4.1 |
| | 5.7 |
| | Provision for income taxes | $ | 50.3 |
| | $ | 66.1 |
| | $ | 159.7 |
| | $ | 188.2 |
| | Income before income taxes (controlling interest) | $ | 160.3 |
| | $ | 189.5 |
| | $ | 478.1 |
| | $ | 556.7 |
| Effective tax rate attributable to controlling interest(1) | 31.3 | % | | 33.8 | % | | 32.5 | % | | 32.8 | % |
__________________________
| | (1)
| Taxes attributable to the controlling interest divided by Income before income taxes (controlling interest). |
The calculation of basic earningsEarnings per share (basic) is based on the weighted average number of shares of the Company’s common stock outstanding during the period. Diluted earningsEarnings per share (diluted) is similar to basic earningsEarnings per share (basic), but adjusts for the dilutive effect of the potential issuance of incremental shares of the Company’s common stock. The following is a reconciliation of the numerator and denominator used in the calculation of basic and diluted earnings per share available to common stockholders.stockholders: | | | | | | | | | | | | | | | | | | | | | | | | | | For the Three Months Ended September 30, | | For the Nine Months Ended September 30, | | | 2022 | | 2023 | | 2022 | | 2023 | | Numerator | | | | | | | | | Net income (controlling interest) | $ | 112.6 | | | $ | 217.0 | | | $ | 368.0 | | | $ | 476.8 | | | Income from hypothetical settlement of Redeemable non-controlling interests, net of taxes | 5.8 | | | 17.1 | | | 43.4 | | | 39.4 | | | Interest expense on junior convertible securities, net of taxes | 3.4 | | | 3.4 | | | 10.6 | | | 10.1 | | | Net income (controlling interest), as adjusted | $ | 121.8 | | | $ | 237.5 | | | $ | 422.0 | | | $ | 526.3 | | | Denominator | | | | | | | | | Average shares outstanding (basic) | 38.2 | | | 34.9 | | | 38.8 | | | 35.6 | | | Effect of dilutive instruments: | | | | | | | | | Stock options and restricted stock units | 1.3 | | | 1.7 | | | 1.4 | | | 1.7 | | | Hypothetical issuance of shares to settle Redeemable non-controlling interests | 2.3 | | | 5.1 | | | 5.7 | | | 3.9 | | | Junior convertible securities | 1.7 | | | 1.7 | | | 1.9 | | | 1.7 | | | Average shares outstanding (diluted) | 43.5 | | | 43.4 | | | 47.8 | | | 42.9 | |
Average shares outstanding (diluted) in the table above excludes stock options and restricted stock units that have not met certain performance conditions and instruments that have an anti-dilutive effect on Earnings per share (diluted). The following is a summary of items excluded from the denominator in the table above: | | | | | | | | | | | | | | | | | | | | | | | | | | For the Three Months Ended September 30, | | For the Nine Months Ended September 30, | | | 2022 | | 2023 | | 2022 | | 2023 | | Stock options and restricted stock units | 0.2 | | | 0.2 | | | 0.2 | | | 0.3 | | | Shares issuable to settle Redeemable non-controlling interests | 4.3 | | | 0.1 | | | 2.0 | | | 0.7 | | | | | | | | | |
For the three and nine months ended September 30, 2023, under its authorized share repurchase programs, the Company repurchased 1.2 million and 2.0 million shares of its common stock at an average price per share of $137.34 and $132.90, respectively. In December 2022, the Company entered into an accelerated share repurchase agreement to repurchase shares of its common stock in exchange for an upfront payment of $225.0 million. The Company received an initial share delivery of 1.1 million shares in December 2022, which represented 80% of the upfront payment based on the closing price of its common
AFFILIATED MANAGERS GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
| | | | | | | | | | | | | | | | | | | For the Three Months Ended September 30, | | For the Nine Months Ended September 30, | | | 2016 | | 2017 | | 2016 | | 2017 | | Numerator | | | | | | | | | Net income (controlling interest) | $ | 110.2 |
| | $ | 125.4 |
| | $ | 322.5 |
| | $ | 374.2 |
| | Interest expense on convertible securities, net of taxes | 3.9 |
| | 3.9 |
| | 11.6 |
| | 11.6 |
| | Net income (controlling interest), as adjusted | $ | 114.1 |
| | $ | 129.3 |
| | $ | 334.1 |
| | $ | 385.8 |
| | Denominator | | | | | | | | | Average shares outstanding (basic) | 53.9 |
| | 55.8 |
| | 53.9 |
| | 56.3 |
| | Effect of dilutive instruments: | | | | | | | | | Stock options and restricted stock units | 0.5 |
| | 0.3 |
| | 0.5 |
| | 0.3 |
| | Junior convertible securities | 2.2 |
| | 2.2 |
| | 2.2 |
| | 2.2 |
| | Average shares outstanding (diluted) | 56.6 |
| | 58.3 |
| | 56.6 |
| | 58.8 |
|
Average shares outstanding (diluted) instock on the table above excludeagreement date. In June 2023, the Company received a final share awards that have not satisfied performance conditions and the anti-dilutive effectdelivery of the following shares:
| | | | | | | | | | | | | | | For the Three Months Ended September 30, | | For the Nine Months Ended September 30, | | | 2016 | | 2017 | | 2016 | | 2017 | | Stock options and restricted stock units | 0.5 |
| | 0.0 |
| | 0.7 |
| | 0.1 |
| | Shares subject to forward sale agreement | 2.0 |
| | — |
| | 2.0 |
| | — |
|
The Company may settle portions of its Affiliate equity purchases in shares of its common stock. Because it is the Company’s intent to settle these potential purchases in cash, the calculation of diluted earnings per share excludes any potential dilutive effect from possible share settlements of Affiliate equity purchases.
In the three and nine months ended September 30, 2017,0.4 million shares. Under this agreement the Company repurchased 0.4a total of 1.5 million and 1.7 million shares respectively, at an average price of $147.29 per share of $175.68 and $164.00, respectively.share.
17.Comprehensive Income The following tables showtable presents the tax effects allocated to each component of Other comprehensive income (loss): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | For the Three Months Ended September 30, | | 2022 | | 2023 | | Pre-Tax | | Tax
Benefit | | Net of Tax | | Pre-Tax | | Tax (Expense)
Benefit | | Net of Tax | | Foreign currency translation gain (loss) | $ | (91.7) | | | $ | 4.9 | | | $ | (86.8) | | | $ | (27.6) | | | $ | (3.0) | | | $ | (30.6) | | | Change in net realized and unrealized gain (loss) on derivative financial instruments | (1.6) | | | 0.0 | | | (1.6) | | | (0.3) | | | 0.0 | | | (0.3) | | | Change in net unrealized gain (loss) on available-for-sale debt securities | — | | | — | | | — | | | 0.6 | | | 0.0 | | | 0.6 | | | Other comprehensive income (loss) | $ | (93.3) | | | $ | 4.9 | | | $ | (88.4) | | | $ | (27.3) | | | $ | (3.0) | | | $ | (30.3) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | For the Three Months Ended September 30, | | | 2016 | | 2017 | | | Pre-Tax | | Tax Benefit
(Expense) | | Net of Tax | | Pre-Tax | | Tax Benefit
(Expense) | | Net of Tax | | Foreign currency translation adjustment | $ | (16.8 | ) | | $ | — |
| | $ | (16.8 | ) | | $ | 53.0 |
| | $ | — |
| | $ | 53.0 |
| | Change in net realized and unrealized gain (loss) on derivative securities | 0.1 |
| | (0.0 | ) | | 0.1 |
| | 0.2 |
| | (0.1 | ) | | 0.1 |
| | Change in net unrealized gain (loss) on investment securities | 5.8 |
| | (1.8 | ) | | 4.0 |
| | (6.8 | ) | | 2.5 |
| | (4.3 | ) | | Other comprehensive income (loss) | $ | (10.9 | ) | | $ | (1.8 | ) | | $ | (12.7 | ) | | $ | 46.4 |
| | $ | 2.4 |
| | $ | 48.8 |
|
AFFILIATED MANAGERS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | For the Nine Months Ended September 30, | | | 2016 | | 2017 | | | Pre-Tax | | Tax Benefit
(Expense) | | Net of Tax | | Pre-Tax | | Tax Benefit
(Expense) | | Net of Tax | | Foreign currency translation adjustment | $ | (72.7 | ) | | $ | — |
| | $ | (72.7 | ) | | $ | 92.1 |
| | $ | — |
| | $ | 92.1 |
| | Change in net realized and unrealized gain (loss) on derivative securities | (0.6 | ) | | (0.1 | ) | | (0.7 | ) | | (0.7 | ) | | (0.1 | ) | | (0.8 | ) | | Change in net unrealized gain (loss) on investment securities | (34.6 | ) | | 13.8 |
| | (20.8 | ) | | (6.6 | ) | | 3.2 |
| | (3.4 | ) | | Other comprehensive income (loss) | $ | (107.9 | ) | | $ | 13.7 |
| | $ | (94.2 | ) | | $ | 84.8 |
| | $ | 3.1 |
| | $ | 87.9 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | For the Nine Months Ended September 30, | | 2022 | | 2023 | | Pre-Tax | | Tax
Benefit | | Net of Tax | | Pre-Tax | | Tax (Expense)
Benefit | | Net of Tax | | Foreign currency translation gain (loss) | $ | (174.8) | | | $ | 2.8 | | | $ | (172.0) | | | $ | 27.5 | | | $ | (6.9) | | | $ | 20.6 | | | Change in net realized and unrealized gain (loss) on derivative financial instruments | (2.2) | | | 0.0 | | | (2.2) | | | 0.5 | | | 0.0 | | | 0.5 | | | Change in net unrealized gain (loss) on available-for-sale debt securities | — | | | — | | | — | | | 0.3 | | | 0.1 | | | 0.4 | | | Other comprehensive income (loss) | $ | (177.0) | | | $ | 2.8 | | | $ | (174.2) | | | $ | 28.3 | | | $ | (6.8) | | | $ | 21.5 | |
The components of accumulated other comprehensive income (loss),loss, net of taxes, were as follows: | | | | | | | | | | | | | | | | | | | | | | | | | Foreign
Currency
Translation
Adjustment | | Realized and
Unrealized Gains (Losses)
on Derivative Financial Instruments | | Unrealized
Gains (Losses)
on Investment Available-for-Sale Debt
Securities | | Total | | Balance, as of December 31, 2022 | $ | (296.4) | | | $ | (0.4) | | | $ | (1.0) | | | $ | (297.8) | | | Other comprehensive income before reclassifications | 20.6 | | | 0.6 | | | 0.4 | | | 21.6 | | | Amounts reclassified | — | | | (0.1) | | | — | | | (0.1) | | | Net other comprehensive income | 20.6 | | | 0.5 | | | 0.4 | | | 21.5 | | | Balance, as of September 30, 2023 | $ | (275.8) | | | $ | 0.1 | | | $ | (0.6) | | | $ | (276.3) | |
| | | | | | | | | | | | | | | | | | | Foreign Currency Translation Adjustment | | Realized and Unrealized Gains (Losses) on Derivative Securities | | Unrealized Gains (Losses) on Investment Securities (1) | | Total | | Balance, as of December 31, 2016 | $ | (213.9 | ) | | $ | 0.4 |
| | $ | 9.8 |
| | $ | (203.7 | ) | | Other comprehensive gain (loss) before reclassifications | 92.1 |
| | (0.4 | ) | | 13.8 |
| | 105.5 |
| | Amounts reclassified | — |
| | (0.4 | ) | | (17.2 | ) | | (17.6 | ) | | Net other comprehensive gain (loss) | 92.1 |
| | (0.8 | ) | | (3.4 | ) | | 87.9 |
| | Balance, as of September 30, 2017 | $ | (121.8 | ) | | $ | (0.4 | ) | | $ | 6.4 |
| | $ | (115.8 | ) |
__________________________
| | (1)
| See Note 3 for amounts reclassified from Other comprehensive income (loss). |
In the first quarterTable of 2017, the Company’s Chief Operating Decision Maker (the “CODM”) changed the manner in which he assesses the Company’s performance. In 2016, the CODM assessed the performance of the Company in three business segments representing three distribution channels. Given an increase in the number of the Company’s Affiliates accounted for under the equity method of accounting and changes in the way asset management services are delivered, during the first quarter of 2017, the CODM began to assess the performance of the Company as a single global active asset management company. As a result, the CODM now reviews information organized around one operating segment to evaluate and manage the Company’s business operations. Therefore, the Company has determined that it has one reportable segment. In connection with this change, the Company completed impairment assessments based on its former three distribution channels, as well as its single global active asset management reporting unit, and determined that there were no impairments under either approach.Contents
| | Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations Forward-Looking Statements Certain matters discussed in this Quarterly Report on Form 10-Q, in our other filings with the Securities and Exchange Commission, in our press releases, and in oral statements made with the approval of an executive officer may constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements include, but are not limited to, statements related to our expectations regarding the performance of our business, our financial results, our liquidity and capital resources, and other non-historical statements, and may be prefaced with words such as “outlook,” “guidance,” “believes,” “expects,” “potential,” “preliminary,” “continues,” “may,” “will,” “should,” “seeks,” “approximately,” “predicts,” “projects,” “positioned,” “prospects,” “intends,” “plans,” “estimates,” “pending investments,” “anticipates”“anticipates,” or the negative version of these words or other comparable words. Such statements are subject to certain risks and uncertainties, including, among others, the factors discussed under the caption “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2016. 2022, and from time to time, as applicable, our Quarterly Reports on Form 10-Q . These factors (among others) could affect our financial condition, business activities, results of operations, cash flows, or overall financial performance and cause actual results and business activities to differ materially from historical earningsperiods and those presently anticipated and projected. Forward-looking statements speak only as of the date they are made, and we will not undertake and we specifically disclaim any obligation to release publicly the result of any revisions that may be made to any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of events, whether or not anticipated. In that respect, we caution readers not to place undue reliance on any such forward-looking statements. Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with theour Consolidated Financial Statements and the notes thereto contained elsewhere in this Quarterly Report on Form 10-Q. References throughout this report to “AMG,” “we,” “us,” “our,” the “Company” and similar references refer to Affiliated Managers Group, Inc., unless otherwise stated or the context otherwise requires. Executive Overview We areAMG is a global asset management company with equity investments in leading boutiquepartner to independent investment management firms which we referglobally. Our strategy is to generate long-term value by investing in a diverse array of high-quality independent partner-owned firms, referred to as “Affiliates,” through a proven partnership approach, and allocating resources across our “Affiliates.”unique opportunity set to the areas of highest growth and return. Our innovative partnership approach allowsenables each Affiliate’s management team to own significant equity in their firm while maintaining operational and maintain operationalinvestment autonomy. Our strategy is to generate shareholder value through the growth of existing Affiliates, as well as through investments in new Affiliates and additional investments in existing Affiliates. In addition, we provide centralized assistance tooffer our Affiliates ingrowth capital, distribution, and other strategic matters, marketing, distribution, product developmentvalue-added capabilities, which enhance the long-term growth of these independent businesses, and operations.enable them to align equity incentives across generations of principals to build enduring franchises. As of September 30, 2017,2023, our aggregate assets under management were $803.7approximately $636 billion in more than 550 investment products across a broad range of active, return-orienteddifferentiated investment strategies.
WeIn August 2023, we completed our minority investment in Forbion Group Holding B.V. (“Forbion”), a leading European private markets firm focused on investing in high-quality life sciences companies. Following the close of the transaction, Forbion partners continue to hold meaningfula significant majority of the equity of the business and direct its day-to-day operations.
In September 2023, we completed our previously announced agreement with a third party and Veritable, LP (“Veritable”), one of our consolidated Affiliates, under which the third party acquired 100% of the outstanding equity interests in eachVeritable (the “Veritable Transaction”). Pursuant to the terms of the agreement, we received $287.4 million in cash, net of transaction costs of $6.6 million. Our gain on the transaction was $133.1 million and our after-tax net cash proceeds were $225.1 million. In October 2023, we completed our minority investment in Ara Partners Group, LLC (“Ara Partners”), a private markets firm specializing in industrial decarbonization. Following the close of the transaction, Ara Partners’ management continues to hold a significant majority of the equity of the business and directs its day-to-day operations. The financial results will be recognized in the Consolidated Financial Statements one quarter in arrears. Operating Performance Measures Under accounting principles generally accepted in the U.S. (“GAAP”), we are required to consolidate certain of our Affiliates. In certain cases, we consolidate the Affiliate’s financial results in our Revenue, Operating expensesAffiliates and Non-operating (income) and expenses. In other cases, we use the equity method of accounting and our share of the Affiliate’s financial results is reported (net of intangible amortization) in Income from equity method investments. While we account for a majority of our Affiliates on a consolidated basis of accounting, a growing number of our Affiliates are accounted for on an equity method basis and are integral to our operations. Accordingly, Income from equity method investments is included in Operating income. others. Whether we account forconsolidate an Affiliate on a consolidated or use the equity method basis of accounting, we generally maintain the same innovative partnership approach and provide support and assistance in substantially the same manner and our operating model is generally the same. Furthermore, our Affiliates are impacted by similar marketplace factors and operational trends, which may not be observable when analyzing the financial resultsfor all of our consolidated and equity method Affiliates separately. Therefore, we believe our aggregate operating measures of assets under management, average assets under management and aggregate revenue, which incorporate the assets under management and revenues ofAffiliates. Furthermore, all of our Affiliates regardlessare investment managers and are impacted by similar
marketplace factors and industry trends. Therefore, our key aggregate operating performance measures are important in providing management and investors with a more comprehensive view of the operating performance and material trends across our entire business. Aggregate revenue is calculated by combining the Revenue of our consolidated Affiliates with equity method revenue. We discuss both Revenue at our consolidated Affiliates and equity method revenue in our Results of Operations. Equity method revenue and aggregate revenue are provided in addition to, but not as substitutes for, Revenue at our consolidated Affiliates. The following table presents our key aggregate operating performance measures: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | As of and for the Three Months Ended September 30, | | | | As of and for the Nine Months Ended September 30, | | | | (in billions, except as noted) | | 2022 | | 2023 | | % Change | | 2022 | | 2023 | | % Change | | Assets under management | | $ | 644.6 | | | $ | 635.8 | | | (1) | % | | $ | 644.6 | | | $ | 635.8 | | | (1) | % | | Average assets under management | | 680.1 | | | 663.8 | | | (2) | % | | 731.8 | | | 664.4 | | | (9) | % | | Aggregate fees (in millions) | | 1,165.5 | | | 997.5 | | | (14) | % | | 3,675.6 | | | 3,505.7 | | | (5) | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | As of and for the Three Months Ended September 30, | | | | As of and for the Nine Months Ended September 30, | | | | (in billions, except as noted) | | 2016 | | 2017 | | % Change | | 2016 | | 2017 | | % Change | Assets under management(1) | | | | | | | | | | | | | | Consolidated Affiliate assets under management | | $ | 378.8 |
| | $ | 416.3 |
| | 10 | % | | $ | 378.8 |
| | $ | 416.3 |
| | 10 | % | | Equity method Affiliate assets under management | | 293.6 |
| | 387.4 |
| | 32 | % | | 293.6 |
| | 387.4 |
| | 32 | % | | Total | | $ | 672.4 |
| | $ | 803.7 |
| | 20 | % | | $ | 672.4 |
| | $ | 803.7 |
| | 20 | % | | | | | | | | | | | | | | | Average assets under management(1) | | | | | | | | | | | | | | Consolidated Affiliate average assets under management | | $ | 378.0 |
| | $ | 414.5 |
| | 10 | % | | $ | 371.9 |
| | $ | 400.9 |
| | 8 | % | | Equity method Affiliate average assets under management | | 285.5 |
| | 376.1 |
| | 32 | % | | 273.6 |
| | 365.6 |
| | 34 | % | | Total | | $ | 663.5 |
| | $ | 790.6 |
| | 19 | % | | $ | 645.5 |
| | $ | 766.5 |
| | 19 | % | | | | | | | | | | | | | | | | Revenue (in millions) | | $ | 544.7 |
| | $ | 585.7 |
| | 8 | % | | $ | 1,644.2 |
| | $ | 1,700.9 |
| | 3 | % | Equity method revenue (in millions)(2) | | 456.4 |
| | 686.6 |
| | 50 | % | | 1,350.5 |
| | 2,159.8 |
| | 60 | % |
__________________________
| | (1)
| Assets under management, and therefore average assets under management, include the assets under management of our consolidated and equity method Affiliates. Assets under management is presented on a current basis without regard to the timing of the inclusion of an Affiliate’s financial results in our Consolidated Financial Statements. Average assets under management provides a more meaningful relationship to our financial and operating results as it reflects both the particular billing patterns of Affiliate sponsored products and client accounts and corresponds with the timing of the inclusion of an Affiliate's financial results in our Consolidated Financial Statements. |
| | (2)
| Equity method revenue consists of asset based revenue and performance fees earned by our equity method Affiliates. |
Assets Under Management
Through our Affiliates, we manage active return-oriented strategies rather than passive or indexing strategies, fixed income or money market products, which typically carry lower fee rates. We continue to see meaningful client demand for active return-oriented strategies, particularly in alternative and multi-asset strategies, reflecting continued investor demand for returns that are less correlated to traditional equity and fixed income markets. Investor demand for passively managed and indexing strategies has continued, particularly for the large cap U.S. equity portion of client portfolios, and we have experienced outflows in U.S. equity strategies consistent with this industry-wide trend. We expect client demand for alternative and multi-asset strategies to continue, and believe the best-performing active equity managers (whether global-, regional- or country-specific) will continue to have significant opportunities to grow from net client cash inflows. We believe we are well positioned to benefit from these trends.
The following charts and tables provide information regarding the composition of and changes in our assets under management on a current basis by active return-oriented strategy and client type:
__________________
| | (1)
| Alternatives primarily include assets under management in long and short public equity, control equity, managed futures, multi-strategy, and other alternative and hedge fund strategies, as well as energy and infrastructure investments and primary and secondary private equity strategies. Alternative strategies generate earnings from (i) management fees from products subject to lock-ups or similar restrictions, (ii) management fees from products not subject to such restrictions and/or (iii) performance fees and carried interest. |
| | (2)
| Global equities include emerging markets strategies, which accounted for 10% of our aggregate assets under management as of September 30, 2017. |
By Strategy - Quarter to Date
| | | | | | | | | | | | | | | | | | | | | | (in billions) | Alternatives | | Global Equities | | U.S. Equities | | Multi-asset & Other | | Total | | June 30, 2017 | $ | 296.3 |
| | $ | 267.9 |
| | $ | 110.7 |
| | $ | 97.2 |
| | $ | 772.1 |
| | Client cash inflows and commitments | 20.7 |
| | 7.3 |
| | 3.8 |
| | 3.9 |
| | 35.7 |
| | Client cash outflows and realizations | (10.4 | ) | | (11.9 | ) | | (7.0 | ) | | (3.3 | ) | | (32.6 | ) | | Net client cash flows | 10.3 |
| | (4.6 | ) | | (3.2 | ) | | 0.6 |
| | 3.1 |
| | Market changes | 5.6 |
| | 13.6 |
| | 4.1 |
| | 0.9 |
| | 24.2 |
| Foreign exchange(1) | 1.4 |
| | 2.4 |
| | 0.2 |
| | 0.5 |
| | 4.5 |
| | Other | (0.2 | ) | | — |
| | — |
| | — |
| | (0.2 | ) | | September 30, 2017 | $ | 313.4 |
| | $ | 279.3 |
| | $ | 111.8 |
| | $ | 99.2 |
| | $ | 803.7 |
|
By Client Type - Quarter to Date
| | | | | | | | | | | | | | | | | | (in billions) | Institutional | | Retail | | High Net Worth | | Total | | June 30, 2017 | $ | 457.4 |
| | $ | 207.1 |
| | $ | 107.6 |
| | $ | 772.1 |
| | Client cash inflows and commitments | 16.3 |
| | 15.5 |
| | 3.9 |
| | 35.7 |
| | Client cash outflows and realizations | (20.1 | ) | | (9.3 | ) | | (3.2 | ) | | (32.6 | ) | | Net client cash flows | (3.8 | ) | | 6.2 |
| | 0.7 |
| | 3.1 |
| | Market changes | 14.8 |
| | 7.0 |
| | 2.4 |
| | 24.2 |
| Foreign exchange(1) | 2.7 |
| | 1.4 |
| | 0.4 |
| | 4.5 |
| | Other | (0.2 | ) | | — |
| | — |
| | (0.2 | ) | | September 30, 2017 | $ | 470.9 |
| | $ | 221.7 |
| | $ | 111.1 |
| | $ | 803.7 |
|
By Strategy - Year to Date
| | | | | | | | | | | | | | | | | | | | | | (in billions) | Alternatives | | Global Equities | | U.S. Equities | | Multi-asset & Other | | Total | | December 31, 2016 | $ | 252.4 |
| | $ | 233.9 |
| | $ | 110.1 |
| | $ | 92.3 |
| | $ | 688.7 |
| | Client cash inflows and commitments | 47.3 |
| | 25.1 |
| | 10.6 |
| | 12.8 |
| | 95.8 |
| | Client cash outflows and realizations | (27.9 | ) | | (30.6 | ) | | (21.6 | ) | | (12.0 | ) | | (92.1 | ) | | Net client cash flows | 19.4 |
| | (5.5 | ) | | (11.0 | ) | | 0.8 |
| | 3.7 |
| | New investments | 30.6 |
| | 1.5 |
| | — |
| | 3.3 |
| | 35.4 |
| | Market changes | 8.3 |
| | 43.8 |
| | 12.5 |
| | 5.0 |
| | 69.6 |
| Foreign exchange(1) | 4.0 |
| | 6.0 |
| | 0.3 |
| | 1.4 |
| | 11.7 |
| | Other | (1.3 | ) | | (0.4 | ) | | (0.1 | ) | | (3.6 | ) | | (5.4 | ) | | September 30, 2017 | $ | 313.4 |
| | $ | 279.3 |
| | $ | 111.8 |
| | $ | 99.2 |
| | $ | 803.7 |
|
By Client Type - Year to Date
| | | | | | | | | | | | | | | | | | (in billions) | Institutional | | Retail | | High Net Worth | | Total | | December 31, 2016 | $ | 401.2 |
| | $ | 188.3 |
| | $ | 99.2 |
| | $ | 688.7 |
| | Client cash inflows and commitments | 44.2 |
| | 39.3 |
| | 12.3 |
| | 95.8 |
| | Client cash outflows and realizations | (50.5 | ) | | (31.4 | ) | | (10.2 | ) | | (92.1 | ) | | Net client cash flows | (6.3 | ) | | 7.9 |
| | 2.1 |
| | 3.7 |
| | New Investments | 31.0 |
| | 1.2 |
| | 3.2 |
| | 35.4 |
| | Market changes | 39.6 |
| | 20.5 |
| | 9.5 |
| | 69.6 |
| Foreign exchange(1) | 7.0 |
| | 4.0 |
| | 0.7 |
| | 11.7 |
| | Other | (1.6 | ) | | (0.2 | ) | | (3.6 | ) | | (5.4 | ) | | September 30, 2017 | $ | 470.9 |
| | $ | 221.7 |
| | $ | 111.1 |
| | $ | 803.7 |
|
_________________________
| | (1)
| Foreign exchange reflects the impact of translating non-U.S. dollar denominated assets under management into U.S. dollars for reporting purposes. |
In addition to assets under management, we also report average assets under management. Average assets under management provides a more meaningful relationship to our financial and operating results as it reflects both the particular billing patterns of Affiliate sponsored products and client accounts and corresponds with the timing of the inclusion of an Affiliate’s financial results in our operating performance measures and Consolidated Financial Statements.
Average assets under management increased $127.1 billion or 19%reflects the timing of the inclusion of an Affiliate’s financial results in our operating performance measures and Consolidated Financial Statements. Average assets under management for mutual funds and similar investment products generally represents an average of the three months ended September 30, 2017 compared to the corresponding period in the prior year, due to a 32% increase indaily net assets under management, while for institutional and high net worth clients, average assets under management generally represents an average of the assets at equity method Affiliates and a 10% increase in average assets under management at consolidated Affiliates. Average assets under management increased $121.0 billionthe beginning or 19% inend of each month during the nine months ended September 30, 2017 compared to the corresponding period in the prior year, due to a 34% increase in average assets under management at equity method Affiliates and a 8% increase in average assets under management at consolidated Affiliates.
Aggregate Revenue
Aggregate revenue is calculatedfees consist of the total asset- and performance-based fees earned by combining the Revenueall of our consolidated Affiliates with equity method revenue. Aggregate revenue and equity method revenueAffiliates. For certain of our Affiliates accounted for under the equity method, we report aggregate fees and the Affiliate’s financial results in our Consolidated Financial Statements one quarter in arrears. Aggregate fees are provided in addition to, but not as substitutesa substitute for, RevenueConsolidated revenue or other GAAP performance measures.
Assets Under Management Our Affiliates provide a diverse range of differentiated return streams through their specialized investment processes. We continue to see client demand for alternative strategies, as evidenced by our net inflows in this category for the three and nine months ended September 30, 2023. At the same time, our equity strategies saw outflows, particularly in global equities, in line with client cash flow trends across the industry. We continue to invest in areas of long-term client demand — including private markets, liquid alternatives, sustainable investment strategies, wealth management, and Asia — through new and existing Affiliates, to better position AMG to benefit from industry growth trends. We also anticipate that independent investment firms will continue to seek access to an evolving range of partnership solutions, and that we have a significant opportunity to invest in additional high-quality firms across the global investment management industry. The following charts present information regarding the composition of our assets under management by strategy and client type as of September 30, 2023: ___________________________ (1)Alternatives include private markets strategies, which accounted for 16% of our assets under management as of September 30, 2023.
The following tables present changes in our assets under management by strategy and client type for the three and nine months ended September 30, 2023: By Strategy - Quarter to Date | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (in billions) | Alternatives | | Global Equities | | U.S. Equities | | Multi-Asset & Fixed Income | | Total | | June 30, 2023 | $ | 225.7 | | | $ | 190.5 | | | $ | 140.7 | | | $ | 117.0 | | | $ | 673.9 | | | Client cash inflows and commitments | 6.8 | | | 3.8 | | | 3.9 | | | 4.9 | | | 19.4 | | | Client cash outflows | (3.9) | | | (13.2) | | | (7.2) | | | (4.5) | | | (28.8) | | | Net client cash flows | 2.9 | | | (9.4) | | | (3.3) | | | 0.4 | | | (9.4) | | | New investments | 3.0 | | | — | | | — | | | — | | | 3.0 | | Veritable(1) | (0.2) | | | — | | | — | | | (17.6) | | | (17.8) | | | Market changes | 3.9 | | | (5.3) | | | (3.6) | | | (1.5) | | | (6.5) | | Foreign exchange(2) | (1.7) | | | (2.4) | | | (0.5) | | | (0.4) | | | (5.0) | | | Realizations and distributions (net) | (2.2) | | | (0.0 | ) | | (0.0 | ) | | (0.1) | | | (2.3) | | Other(3) | (0.2) | | | — | | | 0.1 | | | 0.0 | | | (0.1) | | | September 30, 2023 | $ | 231.2 | | | $ | 173.4 | | | $ | 133.4 | | | $ | 97.8 | | | $ | 635.8 | |
By Client Type - Quarter to Date | | | | | | | | | | | | | | | | | | | | | | | | | (in billions) | Institutional | | Retail | | High Net Worth | | Total | | June 30, 2023 | $ | 339.2 | | | $ | 199.2 | | | $ | 135.5 | | | $ | 673.9 | | | Client cash inflows and commitments | 8.2 | | | 6.6 | | | 4.6 | | | 19.4 | | | Client cash outflows | (11.0) | | | (13.0) | | | (4.8) | | | (28.8) | | | Net client cash flows | (2.8) | | | (6.4) | | | (0.2) | | | (9.4) | | | New investments | 2.8 | | | — | | | 0.2 | | | 3.0 | | Veritable(1) | (0.2) | | | — | | | (17.6) | | | (17.8) | | | Market changes | (0.4) | | | (3.9) | | | (2.2) | | | (6.5) | | Foreign exchange(2) | (2.8) | | | (1.9) | | | (0.3) | | | (5.0) | | | Realizations and distributions (net) | (2.0) | | | (0.1) | | | (0.2) | | | (2.3) | | Other(3) | 0.1 | | | (0.1) | | | (0.1) | | | (0.1) | | | September 30, 2023 | $ | 333.9 | | | $ | 186.8 | | | $ | 115.1 | | | $ | 635.8 | |
By Strategy - Year to Date | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Alternatives | | Global Equities | | U.S. Equities | | Multi-Asset & Fixed Income | | Total | | December 31, 2022 | $ | 220.9 | | | $ | 186.1 | | | $ | 133.3 | | | $ | 110.5 | | | $ | 650.8 | | | Client cash inflows and commitments | 22.5 | | | 13.1 | | | 13.7 | | | 14.6 | | | 63.9 | | | Client cash outflows | (15.5) | | | (35.3) | | | (22.4) | | | (13.8) | | | (87.0) | | | Net client cash flows | 7.0 | | | (22.2) | | | (8.7) | | | 0.8 | | | (23.1) | | | New investments | 3.0 | | | — | | | — | | | — | | | 3.0 | | Veritable(1) | (0.2) | | | — | | | — | | | (17.6) | | | (17.8) | | | Market changes | 5.5 | | | 9.9 | | | 8.8 | | | 4.3 | | | 28.5 | | Foreign exchange(2) | 0.2 | | | 0.0 | | | 0.0 | | | (0.2) | | | (0.0 | ) | | Realizations and distributions (net) | (4.8) | | | (0.1) | | | (0.1) | | | (0.2) | | | (5.2) | | Other(3) | (0.4) | | | (0.3) | | | 0.1 | | | 0.2 | | | (0.4) | | | September 30, 2023 | $ | 231.2 | | | $ | 173.4 | | | $ | 133.4 | | | $ | 97.8 | | | $ | 635.8 | |
By Client Type - Year to Date | | | | | | | | | | | | | | | | | | | | | | | | | Institutional | | Retail | | High Net Worth | | Total | | December 31, 2022 | $ | 333.5 | | | $ | 188.9 | | | $ | 128.4 | | | $ | 650.8 | | | Client cash inflows and commitments | 25.1 | | | 24.1 | | | 14.7 | | | 63.9 | | | Client cash outflows | (36.1) | | | (35.5) | | | (15.4) | | | (87.0) | | | Net client cash flows | (11.0) | | | (11.4) | | | (0.7) | | | (23.1) | | | New investments | 2.8 | | | — | | | 0.2 | | | 3.0 | | Veritable(1) | (0.2) | | | — | | | (17.6) | | | (17.8) | | | Market changes | 13.1 | | | 10.1 | | | 5.3 | | | 28.5 | | Foreign exchange(2) | 0.0 | | | 0.0 | | | (0.0 | ) | | (0.0 | ) | | Realizations and distributions (net) | (4.2) | | | (0.8) | | | (0.2) | | | (5.2) | | Other(3) | (0.1) | | | (0.0 | ) | | (0.3) | | | (0.4) | | | September 30, 2023 | $ | 333.9 | | | $ | 186.8 | | | $ | 115.1 | | | $ | 635.8 | |
___________________________(1)Assets under management attributable to Veritable as of the closing date. (2)Foreign exchange reflects the impact of translating into U.S. dollars the assets under management of our Affiliates whose functional currency is not the U.S. dollar. (3)Other includes assets under management attributable to product transitions and reclassifications. The following tables present performance of our investment strategies, where available, measured by the percentage of assets under management ahead of their relevant benchmark: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | AUM Weight | | % of AUM Ahead of Benchmark(1) | | | | | 3-year | | 5-year | | 10-year | Liquid alternatives(2) | | 20 | % | | 85 | % | | 85 | % | | 86 | % | Global equity(2) | | 27 | % | | 45 | % | | 39 | % | | 64 | % | U.S. equity(2) | | 21 | % | | 46 | % | | 75 | % | | 83 | % | Multi-asset and fixed income(3) | | 16 | % | | N/A | | N/A | | N/A |
| | | | | | | | | | | | | | | | | | | | | | | AUM Weight | | % of AUM Ahead of Benchmark(1) | | | | | IRR Latest Vintage | | IRR Last Three Vintages | Private markets(4) | | 16 | % | | 90 | % | | 89 | % |
___________________________(1)Past performance is not indicative of future results. Performance and AUM information is as of September 30, 2023 and is based on data available at the time of calculation. Product returns are sourced from Affiliates while benchmark returns are generally sourced via third-party subscriptions. (2)For liquid alternative, global equity, and U.S. equity products, performance is reported as the percentage of assets that have outperformed benchmarks across the indicated periods, and excludes market-hedging products. For purposes of investment performance comparisons, products are an aggregation of portfolios (separate accounts, investment funds, and other products) that each represent a particular investment objective, using the most representative portfolio for the performance comparison. Performance is presented for products with a three-, five-, and/or ten-year track record and is measured on a consistent basis relative to the most appropriate benchmarks. Benchmark appropriateness is generally reviewed annually to reflect any changes in how underlying portfolios/mandates are managed. Product and benchmark performance is reflected as total return and is annualized. Reported product performance is gross-of-fees for institutional and high-net-worth separate accounts, and generally net-of-fees across retail funds and other commingled vehicles such as hedge funds. (3)Multi-asset and fixed income products are mainly our wealth management and solutions offerings. These investment products are primarily customized toward wealth preservation, estate planning, and liability and tax management, and therefore are typically not measured against a benchmark.
(4)For private markets products, performance is reported as the percentage of assets that have outperformed benchmarks on a since-inception internal rate of return basis. Benchmarks utilized include a combination of public market equivalents, peer medians, and absolute returns where benchmarks are not available. For purposes of investment performance comparisons, the latest vintage comparison includes the most recent vehicles and strategies (traditional long-duration investment funds, customized vehicles, and other evergreen vehicles and product structures) where meaningful performance is available and calculable. In order to illustrate the performance of our private markets product category over a longer period of history, the last three vintages comparison incorporates the latest vintage vehicles and the prior two vintages for traditional long-duration investment funds, as well as additional vehicles and strategies launched during the equivalent time period as the last three vintages of traditional long-duration investment funds. Due to the nature of these investments and vehicles, reported performance is typically on a three- to six-month lag basis. Aggregate Fees Aggregate fees consist of asset- and performance-based fees of our consolidated and equity method Affiliates. We derive our aggregate revenue primarily from asset based revenue and performanceAsset-based fees from investment management services. Asset based revenue includesinclude advisory and other fees earned by our Affiliates for services provided to their clients and are typically determined as a percentage of the value of a client’s assets under management. Performancemanagement, generally inclusive of uncalled commitments. Asset-based fees are billedgenerally impacted by the level of average assets under management and the composition of these assets across our strategies with different asset-based fee ratios. Our asset-based fee ratio is calculated as asset-based fees divided by average assets under management. In some cases, if product returns exceed certain performance thresholds, we will participate in performance-based fees. Performance-based fees are based uponon investment performance, typically on an absolute basis or relative to a benchmark.
Our ratiobenchmark or a hurdle rate, and are generally recognized when it is improbable that there will be a significant reversal in the amount of asset based revenue recognized. Performance-based fees are generally billed less frequently than asset-based fees and will vary from period to averageperiod because they inherently depend on investment performance. As of September 30, 2023, approximately 28% of our total assets under management (“asset based revenue ratio”), either in the aggregate or separately for consolidated Affiliates or equity method Affiliates, is calculated as asset based revenue divided by averagecould potentially earn performance-based fees. These percentages were approximately 13% and 47% of our assets under management for the respective Affiliates. Our asset based revenue ratios may change as a result of new investments, client cash flows, market changes, foreign exchange or changes in contractual fees.
The following table presents the Revenue of our consolidated Affiliates and Affiliates accounted for under the equity method, respectively. We anticipate performance-based fees will be a recurring component of our aggregate fees; however we do not anticipate these fees to be a significant component of our Consolidated revenue and when combined, aggregate revenue:
| | | | | | | | | | | | | | | | | | | | | | | | | | | For the Three Months Ended September 30, | | | | For the Nine Months Ended September 30, | | | | (in millions) | | 2016 | | 2017 | | % Change | | 2016 | | 2017 | | % Change | | Revenue | | $ | 544.7 |
| | $ | 585.7 |
| | 8 | % | | $ | 1,644.2 |
| | $ | 1,700.9 |
| | 3 | % | | Equity method revenue | | 456.4 |
| | 686.6 |
| | 50 | % | | 1,350.5 |
| | 2,159.8 |
| | 60 | % |
as these fees are predominately earned by our Affiliates accounted for under the equity method.
Aggregate revenue increased 27% infees were $997.5 million for the three months ended September 30, 2017. This increase2023, a decrease of $168.0 million or 14% as compared to the three months ended September 30, 2022. The decrease in our aggregate fees was due to a $230.2 million or 50% increase in equity method revenue and a $41.0$101.0 million or 8% increasedecrease from performance-based fees, primarily in Revenue at our consolidated Affiliates.liquid alternative and private markets strategies, and a $67.0 million or 6% decrease from asset-based fees. The increasedecrease in equity method revenueasset-based fees was principally due to an increasea decrease in our average assets under management, primarily in our global equity strategies, and the impact of $166.8 million or 36% from asset based revenue and an
increase of $63.4 million or 14% from performance fees. The increasethe BPEA Transaction (as defined in Revenue at our consolidated Affiliates was due to an increase of $38.2 million or 7% from asset based revenue and a $2.8 million or 1% increase from performance fees.
“Supplemental Financial Performance Measures”).
Aggregate revenue increased 29% infees were $3,505.7 million for the nine months ended September 30, 2017, due to an increase in equity method revenue2023, a decrease of $809.3$169.9 million or 60% and a $56.7 million or 3% increase5% as compared to the nine months ended September 30, 2022. The decrease in Revenue at our consolidated Affiliates. The increase in equity method revenue was due to an increase of $532.9 million or 40% from asset based revenue and an increase of $276.4 million or 20% from performance fees. The increase in Revenue at our consolidated Affiliatesaggregate fees was due to a $70.1$383.2 million or 4% increase11% decrease from asset based revenue, partiallyasset-based fees, offset by a $13.4$213.3 million or 1%6% increase from performance-based fees, primarily in our liquid alternative strategies. The decrease from performance fees.
See Results of Operations forin asset-based fees was principally due to a further discussiondecrease in our average assets under management, primarily in our global equity strategies, and the impact of the changes in Revenue at our consolidated Affiliates and equity method revenue.BPEA Transaction.
Financial and Supplemental Financial Performance Measures The following table presents our key financial and supplemental financial performance measures: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | For the Three Months Ended September 30, | | | | For the Nine Months Ended September 30, | | | | (in millions) | | 2022 | | 2023 | | % Change | | 2022 | | 2023 | | % Change | | Net income (controlling interest) | | $ | 112.6 | | | $ | 217.0 | | | 93 | % | | $ | 368.0 | | | $ | 476.8 | | | 30 | % | Adjusted EBITDA (controlling interest)(1) | | 221.2 | | | 208.4 | | | (6) | % | | 676.1 | | | 639.6 | | | (5) | % | Economic net income (controlling interest)(1) | | 167.0 | | | 149.5 | | | (10) | % | | 507.1 | | | 474.9 | | | (6) | % |
___________________________(1)Adjusted EBITDA (controlling interest) and Economic net income (controlling interest) are non-GAAP performance measures and are discussed in “Supplemental Financial Performance Measures.”
| | | | | | | | | | | | | | | | | | | | | | | | | | | For the Three Months Ended September 30, | | | | For the Nine Months Ended September 30, | | | | (in millions) | | 2016 | | 2017 | | % Change | | 2016 | | 2017 | | % Change | | Net income (controlling interest) | | $ | 110.2 |
| | $ | 125.4 |
| | 14 | % | | $ | 322.5 |
| | $ | 374.2 |
| | 16 | % | Adjusted EBITDA (controlling interest)(1) | | 219.8 |
| | 256.3 |
| | 17 | % | | 655.8 |
| | 754.8 |
| | 15 | % | Economic net income (controlling interest)(1) | | 165.5 |
| | 191.3 |
| | 16 | % | | 492.3 |
| | 563.2 |
| | 14 | % |
__________________________
| | (1)
| Adjusted EBITDA (controlling interest) and Economic net income (controlling interest) are non-GAAP performance measures and are discussed in “Supplemental Financial Performance Measures.” |
We believe Adjusted EBITDA (controlling interest) is an important supplemental financial performance measure for our management and investors. Adjusted EBITDA (controlling interest)as it provides a comprehensive view of our share of the financial performance of our entire business before interest, taxes, depreciation, amortization, impairments and adjustments to our contingent payment obligations. Conversely, our GAAP financial performance measures, Operating income and Income before income taxes, include the non-controlling interest’s share of financial performance.
business. Our ownership level of consolidated Affiliates is higher than our ownership level of our equity method Affiliates and, as a result, we experience a greater proportion of an increaseAdjusted EBITDA (controlling interest) decreased $12.8 million or decrease in Revenue from our consolidated Affiliates than an increase or decrease in our equity method revenue. While our equity method revenue increased 50%6% in the three months ended September 30, 2017, our Revenue from consolidated Affiliates increased 8%, resulting in2023 primarily due to a $36.5$168.0 million or 17% increase14% decrease in aggregate fees. Adjusted EBITDA (controlling interest). Indecreased less than aggregate fees on a percentage basis primarily due to the recognition of performance-based fees earned by Affiliates in which we hold a greater economic interest. For the nine months ended September 30, 2017,2023, our equity method revenue increased 60%, while our Revenue from consolidated Affiliates increased 3%, resulting in a $99.0Adjusted EBITDA (controlling interest) decreased $36.5 million or 15%5%, primarily due to a $169.9 million or 5% decrease in aggregate fees and the impact of the BPEA Transaction. For the three months ended September 30, 2023, our Net income (controlling interest) increased $104.4 million or 93%. This increase was primarily due to a $133.1 million gain on the Veritable Transaction and an $18.6 million increase in Investment and other income attributable to the controlling interest, partially offset by a $41.1 million increase in Income tax expense attributable to the controlling interest, primarily due to the Veritable Transaction. For the nine months ended September 30, 2023, our Net income (controlling interest) increased $108.8 million or 30%. This increase was primarily due to a $133.1 million gain on the Veritable Transaction, a $73.2 million increase in Investment and other income attributable to the controlling interest, and a $30.4 million increase in Equity method income (net). These increases were partially offset by a $234.7 million decrease in Consolidated revenue, a $28.8 million increase in Income tax expense attributable to the controlling interest, primarily due to the Veritable Transaction, and an increase in Other expenses (net) attributable to the controlling interest, primarily due to an $18.2 million increase in expenses related to changes in the values of contingent payment obligations. We believe Economic net income (controlling interest) is an important supplemental financial performance measure because it represents our performance before non-cash expenses relating to the acquisition of interests in Affiliates and improves comparability of performance between periods. For the three months ended September 30, 2023, our Economic net income (controlling interest) decreased $17.5 million or 10%, primarily due to a $12.8 million decrease in Adjusted EBITDA (controlling interest) and a $2.8 million increase in Interest expense attributable to the controlling interest. For the nine months ended September 30, 2023, our Economic net income (controlling interest) decreased $32.2 million or 6%, primarily due to a $36.5 million decrease in Adjusted EBITDA (controlling interest). Our Net income (controlling interest) increased $15.2 million or 14% and $51.7 million or 16% in the three and nine months ended September 30, 2017, respectively, which was consistent with the 17% and 15% increases in Adjusted EBITDA (controlling interest) during the respective periods.
We consider Economic net income (controlling interest) to be an important measure of our financial performance, as we believe it best represents our performance after tax and before our share of non-cash expenses relating to our acquisition of interests in our Affiliates. Our Economic net income (controlling interest) increased $25.8 million or 16% and $70.9 million or 14% in the three and nine months ended September 30, 2017, respectively, which was consistent with the 17% and 15% increases in Adjusted EBITDA (controlling interest) during the respective periods.
Results of Operations The following discussion includes the key operating performance measures and financial results of our consolidated and equity method Affiliates. Our consolidated Affiliates’ financial results are included in our Revenue, OperatingConsolidated revenue, Consolidated expenses, and Non-operating (income)Investment and expenses,other income (expense), and our share of our equity method Affiliates’ financial results is reported, (netnet of intangible amortization)amortization and impairments, in Income from equityEquity method investments in Operating income.income (net). Consolidated Revenue
The following table summarizespresents our consolidated Affiliate average assets under management and Revenue:Consolidated revenue: | | | | | | | | | | | | | | | | | | | | | | | | | For the Three Months Ended September 30, | | | | For the Nine Months Ended September 30, | | | | (in millions, except as noted) | 2016 | | 2017 | | % Change | | 2016 | | 2017 | | % Change | | Consolidated Affiliates average assets under management (in billions) | $ | 378.0 |
| | $ | 414.5 |
| | 10 | % | | $ | 371.9 |
| | $ | 400.9 |
| | 8 | % | | Revenue | $ | 544.7 |
| | $ | 585.7 |
| | 8 | % | | $ | 1,644.2 |
| | $ | 1,700.9 |
| | 3 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | For the Three Months Ended September 30, | | | | For the Nine Months Ended September 30, | | | | (in millions, except as noted) | 2022 | | 2023 | | % Change | | 2022 | | 2023 | | % Change | | Consolidated Affiliate average assets under management (in billions) | $ | 397.8 | | | $ | 397.7 | | | (0 | )% | | $ | 434.1 | | | $ | 399.7 | | | (8) | % | | Consolidated revenue | $ | 578.6 | | | $ | 525.2 | | | (9) | % | | $ | 1,789.9 | | | $ | 1,555.2 | | | (13) | % |
Our Revenue increased $41.0Consolidated revenue decreased $53.4 million or 8% in9% for the three months ended September 30, 2017,2023, due to a $38.2$47.1 million or 7% increase8% decrease from asset based revenue,performance-based fees, primarily in our private markets strategies, and a $2.8$6.3 million or 1% increasedecrease from performanceasset-based fees. The change in asset based revenue was due to a 10% increase in average assets under management, partially offset by a 2% decline in our asset based revenue ratio. The decline in our asset based revenue ratio was primarily due to changes in the composition of our average assets under management.
Our Revenue increased $56.7Consolidated revenue decreased $234.7 million or 3% in13% for the nine months ended September 30, 2017,2023, due to a $70.1$141.4 million or 4% increase8% decrease from asset based revenue, partially offset byasset-based fees and a $13.4$93.3 million or 1%5% decrease from performance fees. The change in asset based revenue was due to an 8% increase in average assets under management and a 3% declineperformance-based fees, primarily in our asset based revenue ratio.private markets strategies. The declinedecrease in our asset based revenue ratioasset-based fees was principally due to a decrease in asset based revenue related to renewal commissions at one of our Affiliates in the United Kingdom as a result of a regulatory change which was offset by a reduction in distribution expenses at theconsolidated Affiliate which were reported in Selling, general and administrative expenses. The decline in our asset based revenue ratio was also due to changes in the composition of our average assets under management.management, primarily in our global equity strategies. OperatingConsolidated Expenses
The following table summarizes our consolidated operating expenses:
| | | | | | | | | | | | | | | | | | | | | | | | For the Three Months Ended September 30, | | | | For the Nine Months Ended September 30, | | | | | % Change | | % Change | | (in millions) | 2016 | | 2017 | | | 2016 | | 2017 | | | Compensation and related expenses | $ | 244.2 |
| | $ | 238.7 |
| | (2 | )% | | $ | 702.9 |
| | $ | 722.9 |
| | 3% | | Selling, general and administrative | 94.2 |
| | 91.9 |
| | (2 | )% | | 286.7 |
| | 269.7 |
| | (6)% | | Intangible amortization and impairments | 26.9 |
| | 21.2 |
| | (21 | )% | | 82.2 |
| | 65.1 |
| | (21)% | | Depreciation and other amortization | 5.0 |
| | 4.8 |
| | (4 | )% | | 15.0 |
| | 14.9 |
| | (1)% | | Other operating expenses (net) | 3.4 |
| | 10.3 |
| | N.M.(1) |
| | 25.9 |
| | 32.0 |
| | 24% | | Total operating expenses | $ | 373.7 |
| | $ | 366.9 |
| | (2 | )% | | $ | 1,112.7 |
| | $ | 1,104.6 |
| | (1)% |
___________________________ | | (1)
| Percentage change is not meaningful. |
Our operatingConsolidated expenses are primarily attributable to the non-controlling interests because the substantial majority of these expenses are incurred byour consolidated Affiliates with which we share in revenue without regard to expenses. For these Affiliates, the amountAffiliates.
The following table presents our Consolidated expenses: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | For the Three Months Ended September 30, | | | | For the Nine Months Ended September 30, | | | | | % Change | | % Change | | (in millions) | 2022 | | 2023 | | | 2022 | | 2023 | | | Compensation and related expenses | $ | 273.8 | | | $ | 211.8 | | | (23) | % | | $ | 797.0 | | | $ | 663.0 | | | (17) | % | | Selling, general and administrative | 93.2 | | | 91.1 | | | (2) | % | | 275.7 | | | 273.4 | | | (1) | % | | Intangible amortization and impairments | 14.4 | | | 12.5 | | | (13) | % | | 39.4 | | | 37.5 | | | (5) | % | | Interest expense | 28.3 | | | 31.1 | | | 10 | % | | 84.7 | | | 92.4 | | | 9 | % | | Depreciation and other amortization | 3.8 | | | 3.0 | | | (21) | % | | 11.9 | | | 10.0 | | | (16) | % | | Other expenses (net) | 11.9 | | | 7.9 | | | (34) | % | | 12.3 | | | 36.2 | | | N.M.(1) | | Total consolidated expenses | $ | 425.4 | | | $ | 357.4 | | | (16) | % | | $ | 1,221.0 | | | $ | 1,112.5 | | | (9) | % |
___________________________(1)Percentage change is generally determined by the percentage of revenue allocated to operating expenses as part of the structured partnership interests in place at the respective Affiliate. Accordingly, our operating expenses are impacted by increases or decreases in a consolidated Affiliate’s revenue and corresponding increases or decreases in a consolidated Affiliate’s operating expenses.not meaningful. Compensation and related expenses decreased $5.5$62.0 million or 2% in23% for the three months ended September 30, 2017,2023, primarily due to a $11.9$63.9 million or 5% decrease fromin compensation expenses associated with Affiliate equity transactions,correlated to the decrease in Consolidated revenue, partially offset by an $8.0a $2.5 million or 3% increase fromin Affiliate equity compensation expenses at Affiliates. These changes primarily relate to the non-controlling interests.expense. Compensation and related expenses increased $20.0decreased $134.0 million or 3% in17% for the nine months ended September 30, 2017,2023, primarily due to a $17.0$136.0 million or 2% increase fromdecrease in compensation expenses at Affiliates andcorrelated to the decrease in Consolidated revenue, partially offset by a $3.6 million or 1% increase from compensation expenses associated within Affiliate equity transactions. These changes primarily relate to the non-controlling interests.
compensation expense.
There waswere no significant changechanges in Selling, general and administrative expenses infor the three months ended September 30, 2017. 2023.
Selling, general and administrative expenses decreased $17.0$2.3 million or 6% in1% for the nine months ended September 30, 2017,2023, primarily due to a $8.8$9.0 million or 3% decrease from a reduction in distribution and investment-related expenses related to commissions at certainprincipally as a result of our Affiliatesa decrease in the United Kingdomaverage assets under management on which these expenses are incurred. This decrease was partially offset by a $3.1 million increase in professional fees and a $5.8$3.0 million or 2% decrease from a reduction of expensesincrease in wealth management initiatives.travel-related expenses. There were no significant changes in Intangible amortization and impairments decreased $5.7for the three and nine months ended September 30, 2023. Interest expense increased $2.8 million or 21% in10% for the three months ended September 30, 2017,2023, due to a $3.3 million or 12% decrease from a change in the pattern of economic benefit for certain assets and a $2.4higher interest rates on our term loan. Interest expense increased $7.7 million or 9% decrease from certain assets being fully amortized. Intangible amortization and impairments decreased $17.1 million or 21% infor the nine months ended September 30, 2017,2023, primarily due to a $11.6$10.5 million or 14%increase resulting from higher interest rates on our term loan. This increase was partially offset by a $2.9 million decrease resulting from a changerepurchases of our junior convertible securities in the patternfirst half of economic benefit for certain assets and a $5.5 million or 7% decrease from certain assets being fully amortized.2022.
There were no significant changes in Depreciation and other amortization infor the three and nine months ended September 30, 2017.2023. Other operating expenses (net) increased $6.9decreased $4.0 million inor 34% for the three months ended September 30, 2017,2023, primarily from decreasesdue to a $4.9 million decrease in net gains on Affiliate sponsored consolidated investment productsexpenses related to changes in the values of $6.2 million. This change primarily relates to the non-controlling interests.contingent payment obligations. Other operating expenses (net) increased $6.1$23.9 million or 24% infor the nine months ended September 30, 2017,2023, primarily from decreasesdue to a $23.6 million increase in net gains on Affiliate sponsored consolidated investment productsexpenses related to changes in the values of $4.8 million or 19%. This change primarily relates to the non-controlling interests.contingent payment obligations. Income from Equity Method InvestmentsIncome (Net)
For our Affiliates accounted for under the equity method, Affiliates, ourwe use structured partnership interests in which we contractually share of an Affiliate’s earnings or losses is contractually calculated using a formula, which is based either on a fixed percentage of suchin the Affiliate’s revenue without regard to expenses or by reference to such Affiliate’s revenue less certain agreed-upon expenses. Our share of an equity method Affiliate’s earnings or losses is reported (net of intangible amortization attributable to our investment in an Affiliate) in Income from Affiliates accounted for under the equity method, investmentsnet of amortization and impairments, is included in Operating income. Additional investments in existing or new Affiliates will generally impact our financial results in the year of investment and, depending upon the timing, in the following year when the full-year financial results of the Affiliate investment are reflected in our Consolidated Financial Statements.Equity method income (net).
The following table summarizes equity method earnings and equity method intangible amortization, which together comprise Income from equity method investments, as well aspresents equity method Affiliate average assets under management and equity method revenue.revenue, as well as equity method earnings, equity method intangible amortization, and equity method intangible impairments, if any, which in aggregate form Equity method revenue is provided in addition to, but not as a substitute for, Revenue at our consolidated Affiliates.income (net):
| | | | For the Three Months Ended September 30, | | | | For the Nine Months Ended September 30, | | | | For the Three Months Ended September 30, | | | | For the Nine Months Ended September 30, | | | | (in millions, except as noted) | 2016 | | 2017 | | % Change | | 2016 | | 2017 | | % Change | (in millions, except as noted) | 2022 | | 2023 | | % Change | | 2022 | | 2023 | | % Change | | Operating Performance Measures | | Operating Performance Measures | | | | | | | | | | | | | Equity method Affiliate average assets under management (in billions) | | Equity method Affiliate average assets under management (in billions) | $ | 282.3 | | | $ | 266.1 | | | (6) | % | | $ | 297.7 | | | $ | 264.7 | | | (11) | % | | Equity method revenue | | Equity method revenue | $ | 586.9 | | | $ | 472.3 | | | (20) | % | | $ | 1,885.7 | | | $ | 1,950.5 | | | 3 | % | | | Financial Performance Measures | | Financial Performance Measures | | | Equity method earnings | $ | 81.5 |
| | $ | 96.6 |
| | 19 | % | | $ | 243.7 |
| | $ | 303.3 |
| | 24 | % | Equity method earnings | $ | 76.2 | | | $ | 61.0 | | | (20) | % | | $ | 213.2 | | | $ | 217.3 | | | 2 | % | | Equity method intangible amortization | (14.0 | ) | | (25.9 | ) | | 85 | % | | (43.0 | ) | | (71.7 | ) | | 67 | % | Equity method intangible amortization | (31.4) | | | (21.2) | | | (32) | % | | (89.3) | | | (63.0) | | | (29) | % | | Income from equity method investments | $ | 67.5 |
| | $ | 70.7 |
| | 5 | % | | $ | 200.7 |
| | $ | 231.6 |
| | 15 | % | | | | | | | | | | | | | | | | | Operating Measures | | | | | | | | | | | | | | Equity method Affiliates average assets under management (in billions) | $ | 285.5 |
| | $ | 376.1 |
| | 32 | % | | $ | 273.6 |
| | $ | 365.6 |
| | 34 | % | | | Equity method revenue | $ | 456.4 |
| | $ | 686.6 |
| | 50 | % | | $ | 1,350.5 |
| | $ | 2,159.8 |
| | 60 | % | | | Equity method income (net) | | Equity method income (net) | $ | 44.8 | | | $ | 39.8 | | | (11) | % | | $ | 123.9 | | | $ | 154.3 | | | 25 | % |
Our equity method revenue decreased $114.6 million or 20% for the three months ended September 30, 2023, due to a $60.7 million or 10% decrease from asset-based fees and a $53.9 million or 10% decrease from performance-based fees, primarily in our liquid alternatives strategies. The decrease in asset-based fees was primarily due to the impact of the BPEA Transaction, partially offset by changes in the composition of our assets under management.
For the three months ended September 30, 2023, equity method earnings decreased $15.2 million or 20%, primarily due to a $114.6 million or 20% decrease in equity method revenue. Equity method intangible amortization decreased $10.2 million or 32% for the three months ended September 30, 2023, primarily due to a $9.1 million decrease due to a decline in actual and expected client attrition for certain definite-lived acquired client relationships and a $2.7 million decrease in amortization expense related to certain definite-lived assets being fully amortized. These decreases were partially offset by a $1.6 million increase in amortization expense due to an investment in a new Affiliate. Our equity method revenue increased $230.2$64.8 million or 50% in the three months ended September 30 2017, due to a $166.8 million or 36% increase from asset based revenue and a $63.4 million or 14% increase from performance fees. The increase in asset based revenue was due to increases of $125.4 million or 27% from our 2016 investments in new Affiliates and $41.4 million or 9% from existing Affiliates. The increase in performance fees was due to a $57.8 million or 13% increase from existing Affiliates and a $5.6 million or 1% increase from our 2016 investments in new Affiliates.
While equity method revenue increased 50% in the three months ended September 30, 2017, equity method earnings increased $15.1 million or 19%, primarily due to our 2016 investments in new Affiliates, in which we own less of the equity interests than in our existing equity method Affiliates.
Equity method intangible amortization increased $11.9 million or 85% in the three months ended September 30, 2017, due to our 2016 investments in new Affiliates.
Our equity method revenue increased $809.3 million or 60% in3% for the nine months ended September 30, 2017,2023, due to a $532.9$306.6 million or 40%15% increase from asset based revenue andperformance-based fees, primarily in our liquid alternative strategies, offset by a $276.4$241.8 million or 20% increase12% decrease from performanceasset-based fees. The increasedecrease in asset based revenueasset-based fees was primarily due to increasesthe impact of $395.4 million or 29% fromthe BPEA Transaction, partially offset by changes in the composition of our 2016 investments in new Affiliates and $137.5 million or 10% from existing Affiliates. The increase in performance fees was due to a $238.2 million or 18% increase from performance fees from our 2016 investments in new Affiliates and a $38.1 million or 3% increase from existing Affiliates.assets under management.
While equity method revenue increased 60% inFor the nine months ended September 30, 2017,2023, equity method earnings increased $59.6$4.1 million or 24%2%, primarily due to our 2016 investmentsa $64.8 million or 3% increase in new Affiliates, in which we own less of the equity interests than in our existing equity method Affiliates.revenue.
Equity method intangible amortization increased $28.7decreased $26.3 million or 67% in29% for the nine months ended September 30, 2017, due to a $22.9 million or 53% increase from our 2016 investments in new Affiliates and a $5.8 million or 14% increase from a change in the pattern of economic benefit related to assets at certain existing Affiliates. Non-Operating (Income) and Expenses
The following table summarizes non-operating income and expense data:
| | | | | | | | | | | | | | | | | | | | | | | | | For the Three Months Ended September 30, | | | | For the Nine Months Ended September 30, | | | | (in millions) | 2016 | | 2017 | | % Change | | 2016 | | 2017 | | % Change | | Investment and other income | $ | (11.0 | ) | | $ | (15.6 | ) | | 42 | % | | $ | (26.7 | ) | | $ | (44.7 | ) | | 67 | % | | Interest expense | 22.4 |
| | 21.5 |
| | (4 | )% | | 66.4 |
| | 65.8 |
| | (1 | )% | | Imputed interest expense and contingent payment arrangements | 0.9 |
| | 0.7 |
| | (22 | )% | | (0.2 | ) | | 3.7 |
| | N.M.(1) |
| | Income taxes | 50.3 |
| | 66.1 |
| | 31 | % | | 159.7 |
| | 188.2 |
| | 18 | % |
___________________________
| | (1)
| Percentage change is not meaningful. |
Investment and other income increased $4.6 million or 42% in the three months ended September 30, 2017,2023, primarily due to a $2.9$23.0 million or 26% increase from changes in the fair value of investments and a $1.4 million or 13% increase from realized gains on the sale of investment securities.
Investment and other income increased $18.0 million or 67% in the nine months ended September 30, 2017, primarilydecrease due to a $14.2decline in actual and expected client attrition for certain definite-lived acquired client relationships and an $8.1 million or 53% increase from changesdecrease in the fair value of investments and a $5.7 million or 21% increase from realized gains on the sale of investment securities,amortization expense related to certain definite-lived assets being fully amortized. These decreases were partially offset by a $1.7$4.8 million or 6% decrease from lower dividend income.increase in amortization expense due to an investment in a new Affiliate.
There were no significant changes in Interest expense inAffiliate Transaction Gain
For the three and nine months ended September 30, 2017.2023, we recorded a $133.1 million pre-tax gain on the Veritable Transaction. See Note 9 of our Consolidated Financial Statements. There was no significantInvestment and Other Income (Expense)
The following table presents our Investment and other income (expense): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | For the Three Months Ended September 30, | | | | For the Nine Months Ended September 30, | | | | (in millions) | 2022 | | 2023 | | % Change | | 2022 | | 2023 | | % Change | | Investment and other income (expense) | $ | 3.1 | | | $ | 23.0 | | | N.M.(1) | | $ | (5.3) | | | $ | 87.2 | | | N.M.(1) |
___________________________(1)Percentage change in Imputed interest expenseis not meaningful.
Investment and contingent payment arrangements inother income increased $19.9 million for the three months ended September 30, 2017. Imputed2023, primarily due to increases in net realized and unrealized gains on Other investments of $13.5 million and an increase in interest income of $6.7 million. Investment and contingent payment arrangementsother income increased $3.9$92.5 million infor the nine months ended September 30, 2017,2023, primarily due to increases in net realized and unrealized gains on Investments in marketable securities and Other investments of $51.6 million and $27.2 million, respectively, and an increase in interest income of $17.8 million. Income Tax Expense The following table presents our Income tax expense: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | For the Three Months Ended September 30, | | | | For the Nine Months Ended September 30, | | | | (in millions) | 2022 | | 2023 | | % Change | | 2022 | | 2023 | | % Change | | Income tax expense | $ | 36.8 | | | $ | 77.7 | | | N.M.(1) | | $ | 130.5 | | | $ | 155.4 | | | 19 | % |
___________________________(1)Percentage change is not meaningful. Income tax expense increased $40.9 million for the three months ended September 30, 2023, primarily due to a $2.8$38.9 million gain on the revaluation of a contingent payment arrangementincrease in the nine months ended September 30, 2016, which did not recur, and a $1.4 million expense on the revaluation of a contingent payment arrangement in the nine months ended September 30, 2017. Income taxes increased $15.8 million or 31% and $28.5 million or 18% in the three and nine months ended September 30, 2017, respectively, primarily due toresulting from an increase in Income before income taxes attributable to the controlling interest primarily attributable to the gain on the Veritable Transaction.
Income tax expense increased $24.9 million or 19% for the nine months ended September 30, 2023, primarily due to a $36.1 million increase in taxes resulting from an increase in Income taxes attributable to the controlling interest primarily attributable to the gain on the Veritable Transaction, partially offset by stocka $3.9 million decrease in tax expense attributable to the non-controlling interest, a $2.6 million increase in tax windfalls attributable to share-based compensation, and a $1.9 million discrete tax benefits. Inexpense related to foreign income for the nine months ended September 30, 2022 that did not reoccur. Net Income The following table presents Net income, Net income (non-controlling interests), and Net income (controlling interest): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | For the Three Months Ended September 30, | | | | For the Nine Months Ended September 30, | | | | (in millions) | 2022 | | 2023 | | % Change | | 2022 | | 2023 | | % Change | | | | | | | | | | | | | | Net income | $ | 164.3 | | | $ | 286.0 | | | 74 | % | | $ | 557.0 | | | $ | 661.9 | | | 19 | % | | Net income (non-controlling interests) | 51.7 | | | 69.0 | | | 33 | % | | 189.0 | | | 185.1 | | | (2) | % | | Net income (controlling interest) | 112.6 | | | 217.0 | | | 93 | % | | 368.0 | | | 476.8 | | | 30 | % |
Net income (controlling interest) increased $104.4 million or 93% for the three months ended September 30, 2016, we also recognized a benefit2023, primarily due to the reductiongain on the Veritable Transaction and an increase in corporateInvestment and other income attributable to the controlling interest, partially offset by an increase in Income tax ratesexpense attributable to the controlling interest, primarily due to the Veritable Transaction. Net income (controlling interest) increased $108.8 million or 30% for the nine months ended September 30, 2023, primarily due to the gain on the Veritable Transaction and increases in Investment and other income attributable to the controlling interest and Equity method income (net). These increases were partially offset by a decrease in Consolidated revenue and increases in Income tax expense attributable to the controlling interest, primarily due to the Veritable Transaction and Other expenses (net) attributable to the controlling interest, primarily due to changes in the United Kingdom, which did not recur in 2017.values of contingent payment obligations. Net Income
The previously discussed changes in Revenue, expenses and Income from equity method investments had the following effect on Net income:
| | | | | | | | | | | | | | | | | | | | | | | | | For the Three Months Ended September 30, | | | | For the Nine Months Ended September 30, | | | | (in millions) | 2016 | | 2017 | | % Change | | 2016 | | 2017 | | % Change | | Net income | $ | 175.9 |
| | $ | 216.8 |
| | 23 | % | | $ | 533.0 |
| | $ | 614.9 |
| | 15 | % | | Net income (non-controlling interests) | 65.7 |
| | 91.4 |
| | 39 | % | | 210.5 |
| | 240.7 |
| | 14 | % | | Net income (controlling interest) | 110.2 |
| | 125.4 |
| | 14 | % | | 322.5 |
| | 374.2 |
| | 16 | % |
Supplemental Financial Performance Measures Adjusted EBITDA (controlling interest)
As supplemental information, we provide a non-GAAP measure that we refer to asperformance measures of Adjusted EBITDA (controlling interest)., Economic net income (controlling interest), and Economic earnings per share. Management utilizes these non-GAAP performance measures to assess our performance before our share of certain non-cash expenses and to improve comparability between periods. In the first quarter of 2023, we updated the definitions of Adjusted EBITDA (controlling interest) representsand Economic net income (controlling interest) to reflect AMG's strategic evolution, including our earningsincreased allocation of capital toward private markets and liquid alternatives. To align with the economic impact of these capital allocation decisions, the
updated definitions of Adjusted EBITDA (controlling interest) and Economic net income (controlling interest): (i) include only the realized economic gains and losses on seed capital, general partner commitments, and other strategic investments and (ii) exclude any unrealized gains and losses on strategic investments (consistent with the existing treatment of seed capital and general partner commitments). We have retroactively applied this definition change to prior periods. The following table presents the impact on the three and nine months ended September 30, 2022: | | | | | | | | | | | | | | | | | For the Three Months Ended September 30, | | For the Nine Months Ended September 30, | | (in millions) | | 2022 | | 2022 | | Adjusted EBITDA (controlling interest)–As reported | | $ | 221.2 | | | $ | 676.1 | | | Adjusted EBITDA (controlling interest)–Prior definition | | 220.4 | | | 689.1 | | | Change | | $ | 0.8 | | | $ | (13.0) | | | % Change | | 0.4 | % | | (1.9) | % | | | | | | | | | | | | Economic net income (controlling interest)–As reported | | $ | 167.0 | | | $ | 507.1 | | | Economic net income (controlling interest)–Prior definition | | 166.4 | | | 516.9 | | | Change | | $ | 0.6 | | | $ | (9.8) | | | % Change | | 0.4 | % | | (1.9) | % | | | | | | | | | | | | Economic earnings per share–As reported | | $ | 4.23 | | | $ | 12.61 | | | Economic earnings per share–Prior definition | | 4.21 | | | 12.85 | | | Change | | $ | 0.02 | | | $ | (0.24) | | | % Change | | 0.5 | % | | (1.9) | % |
Adjusted EBITDA (controlling interest) Adjusted EBITDA (controlling interest) is an important supplemental financial performance measure for management as it provides a comprehensive view of the financial performance of our business before our share of interest expense, income and certain non-income based taxes, depreciation, amortization, impairments, gains and adjustmentslosses related to the Veritable and BPEA Transactions, and non-cash items such as certain Affiliate equity activity, gains and losses on our contingent payment obligations.obligations, and unrealized gains and losses on seed capital, general partner commitments, and other strategic investments. Adjusted EBITDA (controlling interest) is also adjusted for realized economic gains and losses related to these seed capital, general partner commitments, and other strategic investments. We believe that many investors use this informationnon-GAAP measure when assessing the financial performance of companies in the investment management industry. This non-GAAP performance measure is provided in addition to, but not as a substitute for, Net income (controlling interest) or any other GAAP measures of financial performance.performance measures. The following table providespresents a reconciliation of Net income (controlling interest) to Adjusted EBITDA (controlling interest): | | | | | | | | | | | | | | | | | | | | | | | | | For the Three Months Ended September 30, | | For the Nine Months Ended September 30, | | (in millions) | 2022 | | 2023 | | 2022 | | 2023 | | Net income (controlling interest) | $ | 112.6 | | | $ | 217.0 | | | $ | 368.0 | | | $ | 476.8 | | | Interest expense | 28.3 | | | 31.1 | | | 84.7 | | | 92.4 | | | Income taxes | 34.8 | | | 76.6 | | | 121.1 | | | 150.7 | | Intangible amortization and impairments(1) | 41.9 | | | 29.8 | | | 116.9 | | | 88.6 | | Affiliate Transactions(2) | — | | | (139.6) | | | — | | | (162.7) | | Other items(3) | 3.6 | | | (6.5) | | | (14.6) | | | (6.2) | | | Adjusted EBITDA (controlling interest) | $ | 221.2 | | | $ | 208.4 | | | $ | 676.1 | | | $ | 639.6 | |
___________________________ | | | | | | | | | | | | | | | | | | | For the Three Months Ended September 30, | | For the Nine Months Ended September 30, | | (in millions) | 2016 | | 2017 | | 2016 | | 2017 | | Net income (controlling interest) | $ | 110.2 |
| | $ | 125.4 |
| | $ | 322.5 |
| | $ | 374.2 |
| | Interest expense | 22.4 |
| | 21.5 |
| | 66.4 |
| | 65.8 |
| Imputed interest expense and contingent payment arrangements(1) | 0.9 |
| | 0.7 |
| | (0.2 | ) | | 3.7 |
| | Income taxes | 50.1 |
| | 64.1 |
| | 155.6 |
| | 182.5 |
| | Depreciation and other amortization | 2.0 |
| | 2.4 |
| | 5.9 |
| | 7.1 |
| Intangible amortization and impairments(2) | 34.2 |
| | 42.2 |
| | 105.6 |
| | 121.5 |
| | Adjusted EBITDA (controlling interest) | $ | 219.8 |
| | $ | 256.3 |
| | $ | 655.8 |
| | $ | 754.8 |
|
___________________________35 | | (1)
| For the nine months ended September 30, 2016 and 2017, Imputed interest expense and contingent payment arrangements include gains from adjustments to our contingent payment obligations of $2.8 million ($1.7 million net of tax) and expenses from adjustments to our contingent payment obligations of $1.4 million ($0.9 million net of tax), respectively. There were no contingent payment adjustments in the three months ended September 30, 2016 and 2017. |
| | (2)
| Our reported intangible amortization includes amortization attributable to our non-controlling interests. For our equity method Affiliates, we do not separately report intangible amortization in our Consolidated Statements of Income. Our share of these Affiliates’ amortization is reported in Income from equity method investments. |
not separately report intangible amortization and impairments in our Consolidated Statements of Income. Our share of these Affiliates’ amortization and impairments is reported in Equity method income (net). The following table summarizespresents the Intangible amortization and impairments shown above: | | | | | | | | | | | | | | | | | | | | | | | | | | For the Three Months Ended September 30, | | For the Nine Months Ended September 30, | | (in millions) | 2022 | | 2023 | | 2022 | | 2023 | | Consolidated intangible amortization and impairments | $ | 14.4 | | | $ | 12.5 | | | $ | 39.4 | | | $ | 37.5 | | | Consolidated intangible amortization and impairments (non-controlling interests) | (3.9) | | | (3.9) | | | (11.8) | | | (11.9) | | | Equity method intangible amortization and impairments | 31.4 | | | 21.2 | | | 89.3 | | | 63.0 | | | Total | $ | 41.9 | | | $ | 29.8 | | | $ | 116.9 | | | $ | 88.6 | |
(2)Includes Veritable Transaction gain of $133.1 million for the three and nine months ended September 30, 2023, and gains of $6.5 million and $29.6 million on ordinary shares of EQT AB (“EQT”), a public company listed on Nasdaq Stockholm (EQT.ST), for the three and nine months ended September 30, 2023, respectively. We received the EQT shares through the sale of our equity interest in Baring Private Equity Asia (“BPEA”), in connection with the strategic combination of BPEA and EQT, which was completed in the fourth quarter of 2022 (the “BPEA Transaction”). | | | | | | | | | | | | | | | | | | | For the Three Months Ended September 30, | | For the Nine Months Ended September 30, | | (in millions) | 2016 | | 2017 | | 2016 | | 2017 | | Reported Intangible amortization and impairments | $ | 26.9 |
| | $ | 21.2 |
| | $ | 82.2 |
| | $ | 65.1 |
| | Intangible amortization (non-controlling interests) | (6.7 | ) | | (4.9 | ) | | (19.6 | ) | | (15.3 | ) | | Equity method intangible amortization | 14.0 |
| | 25.9 |
| | 43.0 |
| | 71.7 |
| | Total | $ | 34.2 |
| | $ | 42.2 |
| | $ | 105.6 |
| | $ | 121.5 |
|
(3)Other items include certain non-income based taxes, depreciation, and non-cash items such as gains and losses on our contingent payment obligations, certain Affiliate equity activity, unrealized gains and losses on seed capital, general partner commitments, and other strategic investments, and realized economic gains and losses related to these seed capital, general partner commitments, and other strategic investments.
Economic Net Income (controlling interest) and Economic Earnings Per Share As supplemental information, we also provide non-GAAP measures that we refer to as Economic net income (controlling interest) and Economic earnings per share. We considerbelieve Economic net income (controlling interest) and Economic earnings per share to beare important measures of our financial performance, as we believebecause they best represent our performance before our share of non-cash expenses relating to ourthe acquisition of interests in our Affiliates and they are, therefore, employed as our principal financialimprove comparability of performance measures.between periods. Economic net income (controlling interest) and Economic earnings per share are used by our management and Board of Directors as our principal performance benchmarks, including as one of the measures for aligning executive compensation with stockholder value. These non-GAAP performance measures are provided in addition to, but not as substitutes for, other GAAP measures of financial performance, such as Net income (controlling interest) and Earnings per share (diluted). or other GAAP performance measures.
Under our Economic net income (controlling interest) definition, we add toadjust Net income (controlling interest) for our share of pre-tax intangible amortization and impairments attributable to intangible assets (including the portion attributable to equity method investments in Affiliates), deferred taxes related to intangible assets, and other economic items, which include non-cash imputed interest (principally related to the accounting for convertible securities and contingent payment arrangements) and certain Affiliate equity expenses. We add back intangible amortization and impairments attributable to acquired client relationships because these expenses do not correspond to the changes in the value of these assets, which do not diminish predictably over time. The portion ofWe also adjust for deferred taxes generally attributable to intangible assets (including goodwill) is added back because we believe it is unlikely these accruals will be used to settle material tax obligations. We add back non-cash imputed interestFurther, we adjust for gains and reductions or increases in contingent payment arrangementslosses related to better reflect our contractual interest obligations. We add back non-cash expenses relatingthe Veritable and BPEA Transactions, net of tax, and other economic items to certain transfersimprove comparability of equityperformance between Affiliate partners when these transfers have no dilutive effect to shareholders.periods. Economic earnings per share represents Economic net income (controlling interest) divided by the Average shares outstanding (adjusted diluted). In this calculation, we exclude the potential shares issued upon settlement of Redeemable non-controlling interests from Average shares outstanding (adjusted diluted) because we intend to settle those obligations without issuing shares, consistent with all prior Affiliate equity purchase transactions. The potential share issuance in connection with our junior convertible securities is measured using a “treasury stock” method. Under this method, only the net number of shares of common stock equal to the value of these junior convertible securities in excess of par, if any, isare deemed to be outstanding. We believe the inclusion of net shares under a treasury stock method best reflects the benefit of the increase in available capital resources (which could be used to repurchase shares of our common stock) that occurs when these securities are converted and we are relieved of our debt obligation. This method does not take into account any increase or decrease in our cost of capital in an assumed conversion. The following table providespresents a reconciliation of Net income (controlling interest) to Economic net income (controlling interest): and Economic earnings per share:
| | | | For the Three Months Ended September 30, | | For the Nine Months Ended September 30, | | For the Three Months Ended September 30, | | For the Nine Months Ended September 30, | | (in millions, except per share data) | 2016 | | 2017 | | 2016 | | 2017 | (in millions, except per share data) | 2022 | | 2023 | | 2022 | | 2023 | | Net income (controlling interest) | $ | 110.2 |
| | $ | 125.4 |
| | $ | 322.5 |
| | $ | 374.2 |
| Net income (controlling interest) | $ | 112.6 | | | $ | 217.0 | | | $ | 368.0 | | | $ | 476.8 | | Intangible amortization and impairments(1) | 34.2 |
| | 42.2 |
| | 105.6 |
| | 121.5 |
| Intangible amortization and impairments(1) | 41.9 | | | 29.8 | | | 116.9 | | | 88.6 | | | Intangible-related deferred taxes | 19.5 |
| | 22.9 |
| | 63.0 |
| | 61.8 |
| | Intangible-related deferred taxes(2) | | Intangible-related deferred taxes(2) | 12.7 | | | 14.7 | | | 41.2 | | | 44.6 | | Affiliate Transactions(3) | | Affiliate Transactions(3) | — | | | (104.7) | | | — | | | (122.1) | | Other economic items(3)(4) | 1.6 |
| | 0.8 |
| | 1.2 |
| | 5.7 |
| (0.2) | | | (7.3) | | | (19.0) | | | (13.0) | | | Economic net income (controlling interest) | $ | 165.5 |
| | $ | 191.3 |
| | $ | 492.3 |
| | $ | 563.2 |
| Economic net income (controlling interest) | $ | 167.0 | | | $ | 149.5 | | | $ | 507.1 | | | $ | 474.9 | | | Average shares outstanding (diluted) | 56.6 |
| | 58.3 |
| | 56.6 |
| | 58.8 |
| Average shares outstanding (diluted) | 43.5 | | | 43.4 | | | 47.8 | | | 42.9 | | | | Hypothetical issuance of shares to settle Redeemable non-controlling interests | | Hypothetical issuance of shares to settle Redeemable non-controlling interests | (2.3) | | | (5.1) | | | (5.7) | | | (3.9) | | | Assumed issuance of junior convertible securities shares | (2.2 | ) | | (2.2 | ) | | (2.2 | ) | | (2.2 | ) | Assumed issuance of junior convertible securities shares | (1.7) | | | (1.7) | | | (1.9) | | | (1.7) | | | Average shares outstanding (adjusted diluted) | 54.4 |
| | 56.1 |
| | 54.4 |
| | 56.6 |
| Average shares outstanding (adjusted diluted) | 39.5 | | | 36.6 | | | 40.2 | | | 37.3 | | | Economic earnings per share | $ | 3.04 |
| | $ | 3.41 |
| | $ | 9.04 |
| | $ | 9.95 |
| Economic earnings per share | $ | 4.23 | | | $ | 4.08 | | | $ | 12.61 | | | $ | 12.72 | |
____________________________(1)See note (1) to the table in “Adjusted EBITDA (controlling interest).”
(2)For the three and nine months ended, September 30, 2023, intangible-related deferred taxes have been adjusted to eliminate a $28.9 million benefit related to the Veritable Transaction.
| | (3)Includes Veritable Transaction gain of $133.1 million and gains on EQT shares of $6.5 million and $29.6 million, net of $34.9 million and $40.6 million income tax expense for the three and nine months ended September 30, 2023, respectively. (4)Other economic items include gains and losses related to contingent payment obligations, tax windfalls and shortfalls from share-based compensation, certain Affiliate equity activity, unrealized gains and losses on seed capital, general partner commitments, and other strategic investments, and realized economic gains and losses related to these seed capital, general partner commitments, and other strategic investments. Other economic items were net of income tax benefit of $0.0 million and $7.0 million for the three and nine months ended September 30, 2022, respectively, and income tax expense of $0.3 million and $4.7 million for the three and nine months ended September 30, 2023, respectively. (1)
| See note (2) to the table in “Adjusted EBITDA (controlling interest).”
|
| | (2)
| See note (1) to the table in “Adjusted EBITDA (controlling interest).”
|
| | (3)
| For the three months ended September 30, 2016 and 2017, Other economic items were net of income tax expense of $0.1 million and $0.3 million, respectively. For the nine months ended September 30, 2016 and 2017, Other economic items were net of an income tax benefit of $0.1 million and income tax expense of $1.4 million, respectively. |
Liquidity and Capital Resources DuringWe generate long-term value by investing in new Affiliate partnerships, existing Affiliates, and strategic value-add capabilities through which we can leverage our scale and resources to benefit our Affiliates and enhance their long-term growth prospects. Given our annual cash generation from operations, in addition to investing for growth in our business, we are also able to return excess capital to shareholders primarily through share repurchases. We continue to manage our capital structure consistent with an investment grade company and are currently rated A3 by Moody’s Investor Services and BBB+ by S&P Global Ratings.
Cash and cash equivalents were $999.2 million as of September 30, 2023 and were attributable to both our controlling and the non-controlling interests. In the nine months ended September 30, 2017,2023, we met our cash requirements primarily through cash generated by operating activities. Our principal uses of cash duringin the quarternine months ended September 30, 2023 were and for the foreseeable future are expected to be, for
repaymentsinvestments in new Affiliates, purchases of senior debt,investment securities, distributions to Affiliate equity holders, repurchasesand the return of common stock,excess capital through share repurchases.
We expect investments in new Affiliates, investments in existing Affiliates, primarily through purchases of Affiliate equity interests and general partner and seed capital investments, purchases of marketable securities, the return of capital through share repurchases and the payment of cash dividends on our common stock, repayment of debt, distributions to Affiliate equity holders, payment of income taxes, and general working capital purposes. We also expect that a principal useto be the primary uses of cash will beon a consolidated basis for investments in new and existing Affiliates.the foreseeable future. We anticipate that our current cash balance, cash flows from operations, together withproceeds from sales of our marketable securities, and borrowings under our revolver and proceeds from our equity distribution program, will be sufficient to support our cash flow needs for the foreseeable future.
Cash and cash equivalents at December 31, 2016 and September 30, 2017 were $430.8 million and $374.7 million, respectively, including $18.9 million and $24.9 million, respectively, in our wholly-owned foreign subsidiaries, which could be repatriated without accruing or paying any significant additional U.S. taxes.
The following table summarizes our cash flow activities:
| | | | | | | | | | | For the Nine Months Ended September 30, | | (in millions) | 2016 | | 2017 | | Operating cash flow | $ | 684.5 |
| | $ | 800.5 |
| | Investing cash flow | (868.7 | ) | | 4.9 |
| | Financing cash flow | 36.6 |
| | (871.5 | ) |
Operating Cash Flow
In the nine months ended September 30, 2017, Cash flow from operating activities increased $116.0 million, of which approximately 70% was attributable to the controlling interest. Cash flow from operating activities attributable to the controlling interest increased primarily from the receipt of cash distributions of our share of equity method earnings from our 2016 investments in new Affiliates.
Investing Cash Flow
In the nine months ended September 30, 2017, Cash flows from investing activities, which is primarily attributable to the controlling interest, increased $873.6 million, primarily due to a decrease in Investments in Affiliates of $854.6 million.
Financing Cash Flow
In the nine months ended September 30, 2017, Cash flows used in financing activities, which is primarily attributable to the controlling interest, increased $908.1 million. This increase was primarily due to a change in senior debt activity from net borrowings of $230.0 million in the nine months ended September 30, 2016 to net repayments of $200.0 million in the nine months ended September 30, 2017. This increase was also due to an increase in repurchases of common stock of $243.0 million and a decrease in cash received for the issuance of common stock of $129.5 million.
The following table summarizes the carrying value of our outstanding indebtedness:
| | | | | | | | | | (in millions) | December 31, 2016 | | September 30, 2017 | | Senior bank debt | $ | 870.0 |
| | $ | 870.0 |
| | Senior notes | 945.1 |
| | 745.5 |
| | Convertible securities | 307.5 |
| | 309.3 |
|
Senior Bank Debt and Senior Notes
We have a $1.45 billion senior unsecured multicurrency revolving credit facility (the “revolver”) will be sufficient to support our uses of cash for the foreseeable future. In addition, we may draw funding from the debt and a $385.0 million senior unsecured term loan facility (the “term loan”equity capital markets, and together with the revolver, the “credit facilities”). Theour credit facilities both matureratings, among other factors, allow us to access these sources of funding on September 30, 2020.favorable terms.
The credit facilities contain financial covenants with respect to leveragefollowing table presents operating, investing, and interest coverage, as well as customary affirmativefinancing cash flow activities:
| | | | | | | | | | | | | For the Nine Months Ended September 30, | | (in millions) | 2022 | | 2023 | | Operating cash flow | $ | 797.4 | | | $ | 619.4 | | | Investing cash flow | (266.6) | | | 477.9 | | | Financing cash flow | (779.1) | | | (524.0) | |
Operating Cash Flow Operating cash flows are calculated by adjusting Net income for other significant sources and negative covenants, including limitations on priority indebtedness, asset dispositionsuses of cash, significant non-cash items, and fundamental corporate changes,timing differences in the cash settlement of assets and certain customary events of default. As of September 30, 2017, we were in compliance with all terms of our credit facilities and had approximately $1 billion of remaining capacity under our revolver, all of which we could borrow and remain in compliance with our credit facilities.liabilities.
InFor the threenine months ended September 30, 2017, we redeemed all $200.02023, Cash flows from operating activities were $619.4 million, principal amount outstandingprimarily from Net income of our 6.375% senior unsecured notes$661.9 million adjusted for distributions of earnings received for equity method investments of $421.7 million. These items were partially offset by timing differences in the cash settlement of receivables, other assets, and payables, accrued liabilities, and other liabilities of $254.6 million and for non-cash items of $215.9 million. For the nine months ended September 30, 2023, operating cash flows were primarily attributable to the controlling interest.
Investing Cash Flow For the nine months ended September 30, 2023, Cash flows from investing activities were $477.9 million, primarily due 2042 at a redemption price equal to 100%$294.0 million of cash proceeds from the principal amount. The notesVeritable Transaction and $284.3 million of net maturities and sales of investment securities. These items were subsequently canceled and retired.partially offset by $93.8 million of investments in Affiliates. For the nine months ended September 30, 2023, investing cash flows were primarily attributable to the controlling interest. We are currently rated A3 by Moody’s Investors Service and A- by S&P Global Ratings. A downgradeFinancing Cash Flow
For the nine months ended September 30, 2023, Cash flows used in financing activities were $524.0 million, primarily due to $216.4 million of our credit rating, including a downgradedistributions to below investment grade, would not trigger a default or have any other significant impact on the termsnon-controlling interests, $213.6 million of our existing credit facilities. A reduction in our credit rating could, however, increase our borrowing costs. Additionally, a downgraderepurchases of our credit rating below investment grade in connection with a change in control would require us to make a repurchase offer on our senior notes. Equity Distribution Program
In 2016, we entered into equity distribution and forward equity agreements with several major securities firms under which we, from time to time, may issue and sell shares of our common stock (immediately or on a forward basis) having an aggregate sales price(net) and $54.8 million of up to $500.0 million (the “equity distribution program”). As of September 30, 2017, no sales have occurred under the equity distribution program.other financing items.
Affiliate Equity Many ofWe periodically purchase Affiliate equity from and issue Affiliate equity to our consolidated Affiliate partners and other parties, under agreements that provide us with a conditional right to call and Affiliate equity holders with thea conditional right to put their Affiliate equity interests to us at certain intervals. We have the right to settle a portion of these purchases in shares of our common stock. For Affiliates accounted for under the equity method, Affiliates, we do not typically have such put and call arrangements. The purchase price of these conditional purchases is generally calculated based upon a multiple of the Affiliate’s cash flow distributions, which is intended to represent fair value. Affiliate equity holders are also permitted to sell their equity interests to other individuals or entities in certain cases, subject to our approval or other restrictions.
As of September 30, 2017, our2023, the current redemption value of $804.6Affiliate equity interests was $477.5 million, for these interests has beenof which $432.3 million was presented as Redeemable non-controlling interests.interests (including $13.9 million of consolidated Affiliate sponsored investment products primarily attributable to third-party investors), and $45.2 million was presented as Other liabilities. Although the timing and amounts of these purchases are difficult to predict, we repurchased $161.5paid $41.7 million offor Affiliate equity purchases and received $13.4 million for Affiliate equity issuances during the nine months ended September 30, 2017,2023, and we expect to repurchasenet purchases of approximately $10$30 million inof Affiliate equity during the fourth quarterremainder of 2017.2023. In the event of a repurchase,purchase, we become the owner of the cash flow associated with the repurchasedpurchased equity. Commitments
We have committed to co-invest in certain investment partnerships. As of September 30, 2017, these unfunded commitments totaled $94.9 million See Notes 13 and may be called in future periods.
As of September 30, 2017, we were contingently liable, upon achievement by certain Affiliates of specified financial targets, to make payments related to our investments in Affiliates through 2019. For our consolidated Affiliates, we were contingently liable for up to $21.7 million, and expected to make payments of $8.9 million ($1.6 million in 2017). The present value of these expected payments was $8.1 million. For our equity method Affiliates, we were contingently liable for up to $170.0 million, and expected to make no payments.
Affiliate equity interests provide holders with a conditional right to put their interests to us over time. In addition, in connection with an investment in an Affiliate accounted for under the equity method, we entered into an arrangement with a minority owner of the Affiliate that gives such owner the right to sell a portion of its ownership interest in the Affiliate to us annually beginning in the fourth quarter of 2018. The purchase price of these conditional purchases will be at fair market value on the date of the transaction.
We and certain14 of our Affiliates operate under regulatory authorities, which require that we and they maintain minimum financial or capital requirements.Consolidated Financial Statements.
Share Repurchases Our Board of Directors authorized share repurchase programs in May 2015October 2023, October 2022, and January 2017, authorizing us2022 to repurchase up to 3.3 million, 3.0 million, and 1.92.0 million shares of our common stock, respectively, for a totaland these authorizations have no expiry. Purchases may be made from time to time, at management’s discretion, in the open market or in privately negotiated transactions, including through the use of 4.9 million shares, which do not expire.trading plans, as well as pursuant to accelerated share repurchase programs or other share repurchase strategies that may include derivative financial instruments. As of September 30, 2017,2023, we had repurchased 2.6 millionall of the shares of this total authorized amount. Inin January 2022. During the three and nine months ended September 30, 2017,2023, we repurchased 0.41.2 million and 1.72.0 million shares respectively,of our common stock at an average price per share of $175.68$137.34 and $164.00,$132.90, respectively. As of the October 16, 2023 authorization, there were a total of 5.0 millionshares available for repurchase under our share repurchase programs.
Contractual ObligationsIn December 2022, we entered into an accelerated share repurchase agreement to repurchase shares of our common stock in exchange for an upfront payment of $225.0 million. We received an initial share delivery of 1.1 million shares in December 2022, which represented 80% of the upfront payment based on the closing price of our common stock on the agreement date. In June 2023, we received a final share delivery of 0.4 million shares. Under this agreement we repurchased a total of 1.5 million shares at an average price of $147.29 per share.
In August 2022, the Inflation Reduction Act was enacted into law and included a 1% excise tax on stock repurchases after December 31, 2022. We do not currently expect the excise tax to have a material impact on our financial position or cash flows.
Debt The following table summarizespresents the carrying value of our contractual obligationsoutstanding indebtedness. See Note 7 of our Consolidated Financial Statements. | | | | | | | | | | | | | (in millions) | December 31, 2022 | | September 30, 2023 | | Senior bank debt | $ | 350.0 | | | $ | 350.0 | | | Senior notes | 1,098.7 | | | 1,099.2 | | | Junior subordinated notes | 765.9 | | | 765.9 | | | Junior convertible securities | 341.7 | | | 341.7 | |
The carrying value of our debt differs from the amount reported in the notes to our Consolidated Financial Statements, as the carrying value of our debt in the table above is not reduced for debt issuance costs. Senior Bank Debt We have a $1.25 billion revolver and a $350.0 million term loan (together, the “credit facilities”). The revolver matures on October 25, 2027 and the term loan matures on October 23, 2026. Subject to certain conditions, we may increase the commitments under the revolver by up to an additional $500.0 million and may borrow up to an additional $75.0 million under the term loan. As of September 30, 2017. Contractual debt obligations include2023, we had no outstanding borrowings under the cash paymentrevolver, and could borrow all capacity and remain in compliance with our credit facilities. Senior Notes As of fixed interest.September 30, 2023, we had senior notes outstanding, the respective principal terms of which are presented below: | | | | | | | | | | | | | | | | | | | | | | | 2024
Senior Notes | | 2025
Senior Notes | | 2030
Senior Notes | | Issue date | | February 2014 | | February 2015 | | June 2020 | | Maturity date | | February 2024 | | August 2025 | | June 2030 | | Par value (in millions) | | $ | 400.0 | | | $ | 350.0 | | | $ | 350.0 | | | Stated coupon | | 4.25 | % | | 3.50 | % | | 3.30 | % | | Coupon frequency | | Semi-annually | | Semi-annually | | Semi-annually | | Potential call date | | Any time | | Any time | | Any time |
Junior Subordinated Notes As of September 30, 2023, we had junior subordinated notes outstanding, the respective principal terms of which are presented below:
| | | | | | | | | | | | | | | | | | | | | | | | | Payments Due | | (in millions) | Total | | Remainder of 2017 | | 2018-2019 | | 2020-2021 | | Thereafter | Contractual Obligations(1) | | | | | | | | | | | Senior bank debt | $ | 870.0 |
| | $ | — |
| | $ | — |
| | $ | 870.0 |
| | $ | — |
| | Senior notes | 958.5 |
| | — |
| | 58.5 |
| | 58.5 |
| | 841.5 |
| | Junior convertible securities | 880.1 |
| | 5.5 |
| | 44.4 |
| | 44.4 |
| | 785.8 |
| Leases(2) | 199.4 |
| | 9.6 |
| | 67.9 |
| | 59.2 |
| | 62.7 |
| | Affiliate equity | 45.7 |
| | 44.3 |
| | 1.4 |
| | — |
| | — |
| | Total contractual obligations | $ | 2,953.7 |
| | $ | 59.4 |
| | $ | 172.2 |
| | $ | 1,032.1 |
| | $ | 1,690.0 |
| | Contingent Obligations | | | | | | | | | | Contingent payment obligations(3) | $ | 8.9 |
| | $ | 1.6 |
| | $ | 7.3 |
| | $ | — |
| | $ | — |
|
| | | | | | | | | | | | | | | | | | | | | | | 2059
Junior Subordinated Notes | | 2060
Junior Subordinated Notes | | 2061
Junior Subordinated Notes | | Issue date | | March 2019 | | September 2020 | | July 2021 | | Maturity date | | March 2059 | | September 2060 | | September 2061 | | Par value (in millions) | | $ | 300.0 | | | $ | 275.0 | | | $ | 200.0 | | | Stated coupon | | 5.875 | % | | 4.75 | % | | 4.20 | % | | Coupon frequency | | Quarterly | | Quarterly | | Quarterly | | Potential call date | | March 2024 | | September 2025 | | September 2026 | | Listing | | NYSE | | NYSE | | NYSE |
___________________________Junior Convertible Securities
| | As of September 30, 2023, we had $341.7 million of principal outstanding in our 5.15% junior convertible trust preferred securities (the “junior convertible securities”), maturing in 2037. The junior convertible securities were issued by AMG Capital Trust II, a Delaware statutory trust, in October 2007. Each of the junior convertible securities represents an undivided beneficial interest in the assets of the trust. The trust’s only assets are junior subordinated convertible debentures issued to it by us, and have substantially the same payment terms as the junior convertible securities. We own all of the trust’s common securities, and have fully and unconditionally guaranteed, on a subordinated basis, the payment obligations on the junior convertible securities. We do not consolidate the trust’s financial results into our Consolidated Financial Statements. Holders of the junior convertible securities have no rights to put these securities to us. Upon conversion, holders will receive cash or shares of our common stock, or a combination thereof, at our election. We may redeem the junior convertible securities, subject to our stock trading at or above certain specified levels over specified periods, and may also repurchase junior convertible securities in the open market or in privately negotiated transactions from time to time at management’s discretion. During the nine months ended September 30, 2022, we repurchased a portion of our junior convertible securities for a purchase price of $60.9 million and as a result of these repurchases, we reduced our Deferred income tax liability (net) by $11.7 million. We did not repurchase any of our junior convertible securities during the nine months ended September 30, 2023. Equity Distribution Program In the second quarter of 2022, we entered into equity distribution and forward equity agreements with several major securities firms under which we may, from time to time, issue and sell shares of our common stock (immediately or on a forward basis) having an aggregate sales price of up to $500.0 million (the “equity distribution program”). This equity distribution program superseded and replaced our prior equity distribution program. As of September 30, 2023, no sales had occurred under the equity distribution program. Commitments See Note 8 of our Consolidated Financial Statements. Other Contingent Commitments See Notes 5 and 8 of our Consolidated Financial Statements. Leases As of September 30, 2023, our lease obligations were $10.1 million for the remainder of 2023, $73.3 million from 2024 through 2025, $46.7 million from 2026 through 2027, and $87.3 million thereafter. The portion of these lease obligations attributable to the controlling interest were $2.9 million for the remainder of 2023, $20.2 million from 2024 through 2025, $6.4 million from 2026 through 2027, and $10.0 million thereafter. (1)
| This table does not include liabilities for commitments to co-invest in certain investment partnerships or uncertain tax positions of $94.9 million and $26.4 million, respectively, as of September 30, 2017, as we cannot predict when such obligations will be paid.
|
| | (2)
| The controlling interest portion is $3.0 million through 2017, $22.8 million in 2018-2019, $19.8 million in 2020-2021 and $29.4 million thereafter. |
| | (3)
| The contingent payment obligations disclosed in the table represent our expected settlement amounts associated with our investments in new Affiliates. The maximum settlement amount through 2017 is $4.7 million, $187.0 million in 2018-2019 and none thereafter. |
Recent Accounting Developments See Note 2 of theour Consolidated Financial Statements. Critical Accounting Estimates and Judgments Our 2022 Annual Report on Form 10‑K includes additional information about our Critical Accounting Estimates and Judgments, and should be read in conjunction with this Quarterly Report on Form 10‑Q.
| | Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
Item 3.Quantitative and Qualitative Disclosures About Market Risk There have been no material changes to our Quantitative and Qualitative Disclosures About Market Risk infor the three months ended September 30, 2017.2023. Please refer to the below as well as the additional disclosures in Item 7A of our 20162022 Annual Report on Form 10-K. Foreign Currency Exchange Risk
To illustrate the effect of possible changes in currency exchange rates, we estimate a 1% change in the pound sterling and Canadian dollar to U.S. dollar exchange rates would have resulted in changes to stockholders’ equity of approximately $13 million and $2 million, respectively, as of September 30, 2017, and annual changes to Income before income taxes of $1.1 million and $0.3 million, respectively.
| | Item 4. | Controls and Procedures |
Item 4.Controls and Procedures We carried out an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures during the quarter covered by this Quarterly Report on Form 10-Q. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the quarter covered by this Quarterly Report on Form 10-Q, our disclosure controls and procedures are effective in ensuring that (i) the information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and (ii) such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, we recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and our management
necessarily was required to apply its judgment in evaluating and implementing possible controls and procedures. Our disclosure controls and procedures were designed to provide reasonable assurance of achieving their stated objectives, and our principal executive officer and principal financial officersofficer concluded that our disclosure controls and procedures were effective at the reasonable assurance level. We review on an ongoing basis and document our disclosure controls and procedures, and our internal control over financial reporting, and we may from time to time make changes in an effort to enhance their effectiveness and ensure that our systems evolve with our business. No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the quarter covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. PART II—OTHER INFORMATION
| | Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
| | (c) | Purchases of Equity Securities by the Issuer. |
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds (a)None. (b)None. (c)Purchases of Equity Securities by the Issuer: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Period | | Total Number of Shares Purchased(1) | | Average Price Paid Per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | Average Price Paid Per Share | | Maximum Number of Shares that May Yet Be Purchased Under Outstanding Plans or Programs(2) | | July 1-31, 2023 | | 309,470 | | | $ | 147.63 | | | 309,470 | | | $ | 147.63 | | | 2,883,270 | | | August 1-31, 2023 | | 545,132 | | | 134.54 | | | 545,132 | | | 134.54 | | | 2,338,138 | | | September 1-30, 2023 | | 394,354 | | | 133.14 | | | 394,354 | | | 133.14 | | | 1,943,784 | | | Total | | 1,248,956 | | | 137.34 | | | 1,248,956 | | | 137.34 | | | |
___________________________(1)Includes shares surrendered to the Company to satisfy tax withholding and/or option exercise price obligations in connection with stock swap and option exercise transactions, if any. (2)Our Board of Directors authorized share repurchase programs in October 2023, October 2022, and January 2022 to repurchase up to 3.3 million, 3.0 million, and 2.0 million shares of our common stock, respectively, and these authorizations have no expiry. Purchases may be made from time to time, at management’s discretion, in the open market or in privately negotiated transactions, including through the use of trading plans, as well as pursuant to accelerated share repurchase programs or other share repurchase strategies that may include derivative financial instruments. As of September 30, 2023, we had repurchased all of the shares authorized in January 2022. As of the October 16, 2023 authorization, there were a total of 5.0 million shares available for repurchase under our share repurchase programs. | | | | | | | | | | | | | | | | | | | | Period | | Total Number of Shares Purchased(1) | | Average Price Paid Per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | Average Price Paid Per Share | | Maximum Number of Shares that May Yet Be Purchased Under Outstanding Plans or Programs(2) | July 1-31, 2017(3) | | 1,838 |
| | $ | 175.14 |
| | 1,838 |
| | $ | 175.14 |
| | 2,718,174 |
| | August 1-31, 2017 | | 339,128 |
| | 176.91 |
| | 339,128 |
| | 176.91 |
| | 2,379,046 |
| | September 1-30, 2017 | | 81,774 |
| | 174.56 |
| | 81,774 |
| | 174.56 |
| | 2,297,272 |
| | Total | | 422,740 |
| | 175.68 |
| | 422,740 |
| | 175.68 |
| | |
____________________________ | | (1)
| Includes shares surrendered, if any, to the Company to satisfy tax withholding and/or option exercise price obligations in connection with stock swap option exercise transactions. |
| | (2)
| Our Board of Directors authorized share repurchase programs in May 2015 and January 2017, authorizing us to repurchase up to 3.0 million and 1.9 million shares of our common stock, respectively, for a total of 4.9 million shares, which do not expire. As of September 30, 2017, we had repurchased 2.6 million shares of this total authorized amount. |
| | (3)
| Includes 1,838 shares delivered upon the completion of a $32.0 million accelerated share repurchase program entered into in June 2017 and completed in July 2017, resulting in delivery of a total of 182,713 shares at an average share price of $175.14 per share. This average share price has been used for the shares delivered upon completion of the program in July 2017 included in this table. |
Item 6.Exhibits The exhibits are listed on the Exhibit Index and are included elsewhere in this Quarterly Report on Form 10-Q.
below.
EXHIBIT INDEX | | | | | | | | | | | | | Exhibit No. | | Description | | | | | | | | | | | | | | | | | 31.1 | | | | | 31.2 | | | | | 32.1 | | | | | 32.2 | | | | | 101 | | | The following financial statements from the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2023 are filed herewith, formatted in XBRL (Inline eXtensible Business Reporting Language): (i) the Consolidated Statements of Income for the three- and nine-month periods ended September 30, 2023 and 2022, (ii) the Consolidated Statements of Comprehensive Income for the three- and nine-month periods ended September 30, 2023 and 2022, (iii) the Consolidated Balance Sheets at September 30, 2023 and December 31, 2022, (iv) the Consolidated Statements of Changes in Equity for the three- and nine-month periods ended September 30, 2023 and 2022, (v) the Consolidated Statements of Cash Flows for the nine-month periods ended September 30, 2023 and 2022, and (vi) the Notes to the Consolidated Financial Statements | | 104 | | | The cover page from the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2023, formatted in XBRL (Inline eXtensible Business Reporting Language) and contained in Exhibit 101 |
* Filed herewith ** Furnished herewith
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. | | | | | | | AFFILIATED MANAGERS GROUP, INC.
(Registrant)
| November 2, 20176, 2023 | /s/ JAY C. HORGENTHOMAS M. WOJCIK | | Jay C. HorgenThomas M. Wojcik
on behalf of the Registrant as Chief Financial Officer and Treasurer (and also as Principal Financial and Principal Accounting Officer) |
EXHIBIT INDEX
| | | | | | | | Exhibit No. | | Description | 31.1 |
| | | 31.2 |
| | | 32.1 |
| | | 32.2 |
| | | 101 |
| | The following financial statements from the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2017 are filed herewith, formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Statements of Income for the three-and nine-month periods ended September 30, 2017 and 2016, (ii) the Consolidated Balance Sheets at September 30, 2017 and December 31, 2016, (iii) the Consolidated Statements of Equity for the nine-month periods ended September 30, 2017 and 2016, (iv) the Consolidated Statements of Cash Flows for the nine-month periods ended September 30, 2017 and 2016, and (v) the Notes to the Consolidated Financial Statements. |
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