What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-08-10 compared with 2020-05-11 · 507 added, 220 removed, 817 unchanged (47% of the section changed)

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Our MD&A is presented in five sections:

Overview provides a brief description of our Affiliates, a summary of The Economics of Our Business and an explanation of How We Measure Performance using a non-GAAP measure which we refer to as economic net income, or ENI.

• Overview provides a brief description of our segments and underlying Affiliates, a summary of The Economics of Our Business and an explanation of How We Measure Performance using a non-GAAP measure which we refer to as economic net income, or ENI.

This section also provides a Summary Results of Operations and information regarding our Assets Under Management by Affiliate, strategy, client type and location, and net flows by segment, client type and client location.

GAAP Results of Operations for the Three Months Ended March 31, 2020 and 2019 includes an explanation of changes in our U.S.

GAAP revenue, expense and other items for the three months ended March 31, 2020 and 2019 , as well as key U.S.

GAAP Results of Operations for the Three and Six Months Ended June 30, 2020 and 2019 includes an explanation of changes in our U.S.

GAAP revenue, expense and other items for the three and six months ended June 30, 2020 and 2019, as well as key U.S.

GAAP operating metrics.

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This section also provides a reconciliation between U.S.

GAAP net income attributable to controlling interests and ENI for the three months ended March 31, 2020 and 2019 as well as a reconciliation of key ENI operating items including ENI revenue and ENI operating expenses.

GAAP net income attributable to controlling interests and ENI for the three and six months ended June 30, 2020 and 2019 as well as a reconciliation of key ENI operating items including ENI revenue and ENI operating expenses.

This section also provides key non-GAAP operating metrics and a calculation of tax on economic net income.

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◦ Investment Counselors of Maryland, LLC (“ICM”) (3) — a value-driven domestic equity manager with product offerings focused on small- and mid-cap companies.

Accounted for under the equity method of accounting.

(1) Certain smaller Acadian strategies are included in Alternatives and certain TSW strategies are included in Quant & Solutions where the classification is more appropriate.

(2) In July 2020, we announced the divestiture of Barrow Hanley and Copper Rock, see "Recent Developments" herein.

(3) Accounted for under the equity method of accounting.

Recent Developments

Divestiture of Barrow Hanley and Copper Rock

On July 24, 2020, BrightSphere Inc., a Delaware corporation and wholly owned subsidiary of the Company, entered into a Purchase Agreement (the “CR Purchase Agreement”) with Copper Rock Capital Partners LLC (“Copper Rock”) and Spouting Rock Asset Management LLC (“Spouting Rock”).

Pursuant to the CR Purchase Agreement, Spouting Rock has purchased all of BrightSphere Inc.’s equity interests in Copper Rock.

The consummation of the transaction did not have a significant impact on the Condensed Consolidated Financial Statements of the Company.

On July 26, 2020, the Company, through its subsidiaries BrightSphere Intermediary (BHMS) LLC (the “Seller”), BHMS Investment GP LLC, (“BHMS GP”), BHMS Investment Holdings LP (“BHMS LP”), and Barrow, Hanley, Mewhinney & Strauss, LLC (“Barrow Hanley”), entered into an Equity Purchase Agreement (the “BHMS Purchase Agreement”) with Perpetual, pursuant to which Perpetual agreed to purchase all of Company’s interests in Barrow Hanley in exchange for $319 million of cash consideration, on a cash-free, debt-free basis, subject to certain customary closing and post-closing adjustments.

The transaction is expected to close during fourth quarter of 2020.

COVID-19 Impact

During the first quarter of 2020, the outbreak of COVID-19 had a significant impact on the global economy and the financial and securities markets, which will likely to continue for months to come.

Beginning in the first quarter of 2020, the outbreak of COVID-19 had a significant impact on the global economy and the financial and securities markets, which will likely to continue for months to come.

The overall extent and duration of COVID-19 on businesses and economic activity generally remains unclear.

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The extent of the impact on our business operations and financial results will depend on a number of factors and future developments, which are uncertain and cannot be predicted.

See “Item 1A.

Risk Factors” in Part II—Other Information contained elsewhere in this Quarterly Report on Form 10-Q.

See Item 1A to our Quarterly Report on Form 10-Q filed with the Securities Exchange Commission on May 11, 2020.

The Economics of Our Business

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Our Affiliates earn management fees based on assets under management.

Approximately 70% of our management fees for the three months ended March 31, 2020 are calculated based on average AUM (calculated on either a daily or monthly basis) with the remainder of our management fees calculated based on period-end AUM or other measuring methods.

Approximately 70% of our management fees for the three months ended June 30, 2020 are calculated based on average AUM (calculated on either a daily or monthly basis) with the remainder of our management fees calculated based on period-end AUM or other measuring methods.

Changes in the levels of our AUM are driven by our investment performance and net client cash flows.

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ENI is also adjusted for amortization of acquisition-related contingent consideration and pre-acquisition retained equity with service components.

ENI revenue is primarily comprised of the fee revenues paid to us by our clients for our advisory services and earnings from our equity-accounted Affiliates.

ENI revenue is primarily comprised of the fee revenues paid to us by our clients for our advisory services and earnings from our equity-accounted Affiliate.

Revenue included within ENI differs from U.S.

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Summary Results of Operations

The following table summarizes our unaudited results of operations for the three months ended March 31, 2020 and 2019 :

($ in millions, unless otherwise noted)

Three Months Ended March 31,

The following table summarizes our unaudited results of operations for the three and six months ended June 30, 2020 and 2019:

($ in millions, unless otherwise noted) Three Months Ended June 30, Six Months Ended June 30,

2020 2019 2020 vs.

2019 2020 2019 2020 vs.

Revenue $ 174.7 $ 207.1 $ (32.4) $ 357.3 $ 414.3 $ (57.0)

Pre-tax income from continuing operations attributable to controlling interests

26.2 42.1 (15.9) 72.4 116.4 (44.0)

Net income from continuing operations attributable to controlling interests

18.9 28.0 (9.1) 51.5 80.7 (29.2)

Net income attributable to controlling interests 18.9 28.0 (9.1) 51.5 80.7 (29.2)

GAAP operating margin (1)

15.0 % 22.5 % (750) bps 28.1 % 27.7 % 41 bps

Earnings per share, basic ($) $ 0.23 $ 0.31 $ (0.08) $ 0.62 $ 0.85 $ (0.23)

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ENI revenue (4)

$ 172.5 $ 204.6 $ (32.1) $ 353.1 $ 410.3 $ (57.2)

Pre-tax economic net income (5)

42.5 53.2 (10.7) 86.8 104.8 (18.0)

Adjusted EBITDA 53.9 63.4 (9.5) 110.1 122.3 (12.2)

ENI operating margin (6)

34.3 % 35.8 % (152) bps 33.6 % 34.5 % (89) bps

Economic net income (7)

32.9 41.0 (8.1) 67.2 80.2 (13.0)

ENI diluted EPS ($)

$ 0.41 $ 0.45 $ (0.04) $ 0.81 $ 0.85 $ (0.04)

Other Operational Information

Assets under management (AUM) at period end (in billions)

$ 181.0 $ 225.0 $ (44.0) $ 181.0 $ 225.0 $ (44.0)

Net client cash flows (in billions) (8)

(1.7) (1.1) (0.6) (0.7) (1.4) 0.7

Annualized revenue impact of net flows (8)(9)

(13.4) (7.8) (5.6) (13.6) (8.2) (5.4)

GAAP operating margin equals operating income from continuing operations divided by total revenue.

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GAAP financial information and a further discussion of economic net income refer to “—Non-GAAP Supplemental Performance Measure—Economic Net Income and Segment Analysis.”

Excludes restructuring costs of $0.4 million , costs associated with the transfer of an insurance policy from our former Parent of $0.3 million and $6.0 million relating to the impact of a one-time compensation arrangement entered into that includes advances against future compensation payments for the three months ended March 31, 2020 .

Excludes restructuring costs at the Center of $4.0 million and costs associated with the redomicile to the U.S.

of $0.3 million for the three months ended March 31, 2019 .

(3) Excludes restructuring costs at the Center and Affiliates of $3.0 million and $3.4 million, costs associated with the transfer of an insurance policy from our former Parent of $0.3 million and $0.6 million and costs relating to the impact of a one-time compensation arrangement entered into that includes advances against future compensation payments of $4.7 million and $10.7 million for the three and six ended June 30, 2020, respectively.

Excludes restructuring costs at the Center of $0.5 million and $4.5 million and costs associated with the redomicile to the U.S.

of $0.8 million and $1.1 million for the three and six months ended June 30, 2019, respectively.

(4) ENI revenue is the ENI measure which corresponds to U.S.

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(9) Annualized revenue impact of net flows represents annualized management fees expected to be earned on new accounts and net assets contributed to existing accounts (inflows), less the annualized management fees lost on terminated accounts or net assets withdrawn from existing accounts (outflows), plus revenue impact from reinvested income and distribution.

Annualized management fee for client flow is calculated by multiplying the annual gross fee rate for the relevant account with the inflow or the outflow, including equity-accounted Affiliates.

Annualized management fee for client flow is calculated by multiplying the annual gross fee rate for the relevant account with the inflow or the outflow, including equity-accounted Affiliate.

In addition, reinvested income and distribution for each segment is multiplied by average fee rate for the respective segment to compute the revenue impact.

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The following table presents our assets under management by Affiliate as of each of the dates indicated:

($ in billions)

March 31, 2020

December 31, 2019

($ in billions) June 30, 2020 December 31, 2019

Acadian Asset Management $ 92.4 $ 102.2

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Total assets under management $ 181.0 $ 204.4

(1) In July 2020, we announced the divestiture of Barrow Hanley and Copper Rock, see "Recent Developments" herein.

Our strategies include:

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The following table presents our assets under management by strategy as of each of the dates indicated:

($ in billions)

March 31, 2020

December 31, 2019

($ in billions) June 30, 2020 December 31, 2019

equity, small/smid cap value $ 4.8 $ 6.0

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equity, core/blend 1.8 1.9

equity 34.9 43.4

Global equity 36.2 40.3

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Total global / non-U.S.

equity 109.1 123.9

Fixed income 12.9 13.3

Alternatives 24.1 23.8

Total assets under management $ 181.0 $ 204.4

The following table shows assets under management by client type as of each of the dates indicated:

($ in billions)

March 31, 2020

December 31, 2019

($ in billions) June 30, 2020 December 31, 2019

AUM % of total AUM % of total

Sub-advisory $ 34.5 19.1 % $ 40.5 19.8 %

Corporate/Union 33.5 18.5 % 38.6 18.9 %

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Endowment/Foundation 4.3 2.4 % 5.3 2.6 %

OM plc Group 1.8 1.0 % 2.1 1.0 %

Commingled Trust/UCITS 26.4 14.6 % 30.8 15.1 %

Mutual Fund 1.8 1.0 % 2.2 1.1 %

Other 8.4 4.6 % 9.7 4.7 %

Total assets under management $ 181.0 $ 204.4

The following table shows assets under management by client location as of each of the dates indicated:

($ in billions)

March 31, 2020

December 31, 2019

($ in billions) June 30, 2020 December 31, 2019

AUM % of total AUM % of total

$ 132.1 73.0 % $ 148.4 72.6 %

Europe 17.3 9.5 % 20.1 9.8 %

Asia 11.2 6.2 % 12.4 6.1 %

Australia 7.7 4.3 % 9.4 4.6 %

Other 12.7 7.0 % 14.1 6.9 %

Total assets under management $ 181.0 $ 204.4

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Annualized revenue impact of net flows represents annualized management fees expected to be earned on new accounts and net assets contributed to existing accounts (inflows), less the annualized management fees lost on terminated accounts or net assets withdrawn from existing accounts (outflows), plus revenue impact from reinvested income and distributions.

Annualized management fee for client flow is calculated by multiplying the annual gross fee rate for the relevant account with the inflow or the outflow, including equity-accounted Affiliates.

Annualized management fee for client flow is calculated by multiplying the annual gross fee rate for the relevant account with the inflow or the outflow, including equity-accounted Affiliate.

In addition, reinvested income and distributions for each segment is multiplied by average fee rate for the respective segment to compute the revenue impact.

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The following table summarizes our asset flows and market appreciation (depreciation) by segment for each of the periods indicated:

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

($ in billions, unless otherwise noted) 2020 2019 2020 2019

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Net flows (1)

0.3 1.0 1.8 3.5

Market appreciation (depreciation) 12.7 1.5 (11.7) 8.9

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Average AUM (2)

$ 86.9 $ 95.6 $ 91.5 $ 93.6

Beginning balance $ 24.3 $ 24.0 $ 23.8 $ 23.8

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Net flows (1)

Market appreciation

— (0.1) 0.6 0.1

Market appreciation (depreciation) — (0.2) — (0.1)

Realizations and other (3)

(0.2) (0.2) (0.3) (0.3)

Ending balance $ 24.1 $ 23.5 $ 24.1 $ 23.5

Average AUM (2)

$ 24.3 $ 23.8 $ 24.1 $ 23.8

Liquid Alpha (4)

Beginning balance $ 58.5 $ 103.2 $ 78.7 $ 97.3

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Net flows (1)

(2.0) (2.0) (3.1) (5.0)

Market appreciation (depreciation) 8.4 2.7 (10.7) 11.6

Ending balance $ 64.9 $ 103.9 $ 64.9 $ 103.9

Average AUM $ 63.2 $ 102.7 $ 68.4 $ 102.3

Average AUM of consolidated Affiliates $ 61.3 $ 100.5 $ 66.4 $ 100.2

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Net flows (1)

(1.7) (1.1) (0.7) (1.4)

Market appreciation (depreciation) 21.1 4.0 (22.4) 20.4

Realizations and other (3)

(0.2) (0.2) (0.3) (0.3)

Ending balance $ 181.0 $ 225.0 $ 181.0 $ 225.0

Average AUM $ 174.4 $ 222.1 $ 184.0 $ 219.7

Average AUM of consolidated Affiliates $ 172.5 $ 219.9 $ 182.0 $ 217.6

Annualized basis points:

inflows 33.8 36.0 35.3 35.2

Annualized basis points:

outflows 42.7 40.0 42.4 36.8

Annualized revenue impact of net flows ($ in millions) (1)

$ (13.4) $ (7.8) $ (13.6) $ (8.2)

(1) Net flows and revenue impact of net flows for all periods above have been revised for the inclusion of reinvested income and distributions, and the exclusion of realizations.

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Other activity primarily relates to the decline in billable AUM as a legacy alternative fund transitioned from billing base on committed AUM to net asset value.

(4) In July 2020, we announced divestiture of Barrow Hanley and Copper Rock.

See “Recent Developments” herein.

We also analyze our asset flows by client type and client location.

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The following table summarizes our asset flows by client type for each of the periods indicated:

($ in billions)

Three Months Ended March 31,

($ in billions) Three Months Ended June 30, Six Months Ended June 30,

2020 2019 2020 2019

Beginning balance $ 30.3 $ 65.3 $ 40.5 $ 61.3

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Reinvested income and distributions (1)

0.3 0.5 0.5 0.9

Net flows (2)

(0.1) (2.6) (0.2) (4.4)

Market appreciation (depreciation) 4.3 1.6 (5.8) 7.4

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Reinvested income and distributions (1)

0.9 1.1 1.9 2.0

Net flows (2)

(1.5) 1.6 (0.5) 2.5

Market appreciation (depreciation) 15.4 2.2 (14.9) 12.0

Realizations and other (3)

(0.2) (0.2) (0.3) (0.3)

Ending balance $ 136.3 $ 149.3 $ 136.3 $ 149.3

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Net flows (2)

(0.1) (0.1) — 0.5

Market appreciation (depreciation) 1.4 0.2 (1.7) 1.0

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Reinvested income and distributions (1)

1.2 1.6 2.5 3.0

Net flows (2)

(1.7) (1.1) (0.7) (1.4)

Market appreciation (depreciation) 21.1 4.0 (22.4) 20.4

Realizations and other (3)

(0.2) (0.2) (0.3) (0.3)

Ending balance $ 181.0 $ 225.0 $ 181.0 $ 225.0

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The following table summarizes asset flows by client location for each of the periods indicated:

($ in billions)

Three Months Ended March 31,

($ in billions) Three Months Ended June 30, Six Months Ended June 30,

2020 2019 2020 2019

Beginning balance $ 118.1 $ 168.1 $ 148.4 $ 156.8

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Reinvested income and distributions (1)

0.9 1.2 1.8 2.3

Net flows (2)

(1.2) (1.3) 0.1 (2.3)

Market appreciation (depreciation) 15.3 3.2 (16.2) 15.6

Realizations and other (3)

(0.1) (0.1) (0.2) (0.2)

Ending balance $ 132.1 $ 169.9 $ 132.1 $ 169.9

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Reinvested income and distributions (1)

0.3 0.4 0.7 0.7

Net flows (2)

(0.5) 0.2 (0.8) 0.9

Market appreciation (depreciation) 5.8 0.8 (6.2) 4.8

Realizations and other (3)

(0.1) (0.1) (0.1) (0.1)

Ending balance $ 48.9 $ 55.1 $ 48.9 $ 55.1

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Reinvested income and distributions (1)

1.2 1.6 2.5 3.0

Net flows (2)

(1.7) (1.1) (0.7) (1.4)

Market appreciation (depreciation) 21.1 4.0 (22.4) 20.4

Realizations and other (3)

(0.2) (0.2) (0.3) (0.3)

Ending balance $ 181.0 $ 225.0 $ 181.0 $ 225.0

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Other activity primarily relates to the decline in billable AUM as a legacy alternative fund transitioned from billing base on committed AUM to net asset value.

At March 31, 2020 , our total assets under management were $161.8 billion , a decrease of $(42.6) billion , or (20.8)% , compared to $204.4 billion at December 31, 2019 and a decrease of $(60.5) billion , or (27.2)% , compared to $222.3 billion at March 31, 2019 .

The change in assets under management during the three months ended March 31, 2020 reflects net market depreciation of $(43.5) billion driven by the COVID-19 pandemic that caused significant market disruption, realizations and other of $(0.1) billion , partially offset by net flows of $1.0 billion .

For the three months ended March 31, 2020 , our net flows were $1.0 billion compared to $(0.3) billion for the three months ended March 31, 2019 .

The improvement in net flows during the three months ended March 31, 2020 compared to the three months ended March 31, 2019 was mainly impacted by higher gross sales in the Quant & Solutions segment.

Reinvested income and distributions of $1.3 billion , and $1.4 billion are reflected in the net flows for the three months ended March 31, 2020 and March 31, 2019 , respectively.

For the three months ended March 31, 2020 , the annualized revenue impact of the net flows was relatively flat at $(0.2) million compared to $(0.4) million for the three months ended March 31, 2019 .

Gross inflows of $7.2 billion in the three months ended March 31, 2020 yielded approximately 37 bps compared to $6.9 billion yielding approximately 35 bps in the year-ago period.

Gross outflows of $ (7.5) billion yielded approximately 41 bps in the three months ended March 31, 2020 compared to $(8.6) billion yielding approximately 34 bps in the year-ago period.

GAAP Results of Operations for the Three Months Ended March 31, 2020 and 2019

GAAP results of operations were as follows for the three months ended March 31, 2020 and 2019 :

Three Months Ended March 31,

($ in millions, unless otherwise noted)

At June 30, 2020, our total assets under management were $181.0 billion, an increase of $19.2 billion, or 11.9%, compared to $161.8 billion at March 31, 2020 and a decrease of $(44.0) billion, or (19.6)%, compared to $225.0 billion at June 30, 2019.

The change in assets under management during the three months ended June 30, 2020 reflects net market appreciation of $21.1 billion from the second quarter market recovery, partially offset by net flows of $(1.7) billion.

The change in assets under management during the six months ended June 30, 2020 reflects net market depreciation of $(22.4) billion, driven by the COVID-19 pandemic that caused significant market disruption in the first quarter of 2020, realizations and other of $(0.3) billion, and net flows of $(0.7) billion including reinvested income and distributions of $2.5 billion.

For the three months ended June 30, 2020, our net flows were $(1.7) billion compared to $1.0 billion for the three months ended March 31, 2020 and $(1.1) billion for the three months ended June 30, 2019.

The change in net flows during the three months ended June 30, 2020 compared to the three months ended March 31, 2020 included $(2.1) billion related to Barrow Hanley and Copper Rock.

Reinvested income and distributions of $1.2 billion, $1.3 billion and $1.6 billion are reflected in the net flows for the three months ended June 30, 2020, March 31, 2020 and June 30, 2019, respectively.

For the three months ended June 30, 2020, the annualized revenue impact of the net flows was $(13.4) million.

This is compared to the annualized revenue impact of net flows of $(0.2) million for the three months ended March 31, 2020 and $(7.8) million for the three months ended June 30, 2019.

Gross inflows of $5.8 billion during the three-month period yielded approximately 34 bps, and gross outflows in the same period of $(8.7) billion yielded approximately 43 bps.

For the six months ended June 30, 2020, our net flows were $(0.7) billion compared to $(1.4) billion for the six months ended June 30, 2019.

The improvement in net flows during the six months ended June 30, 2020 compared to the six months ended June 30, 2019 was mainly impacted by higher gross sales.

The change in net flows during the six months ended June 30, 2020 compared to the six months ended June 30, 2019 included $(2.6) billion related to Barrow Hanley and Copper Rock.

Reinvested income and distributions of $2.5 billion, and $3.0 billion are reflected in the net flows for the six months ended June 30, 2020 and June 30, 2019, respectively.

For the six months ended June 30, 2020, the annualized revenue impact of the net flows was $(13.6) million compared to $(8.2) million for the six months ended June 30, 2019 due to average basis points from inflows which included managed volatility strategies that were lower than average basis points from outflows.

Gross inflows of $13.0 billion in the six months ended June 30, 2020 yielded approximately 35 bps compared to $12.0 billion yielding approximately 35 bps in the year-ago period.

Gross outflows of $(16.2) billion yielded approximately 42 bps in the six months ended June 30, 2020 compared to $(16.4) billion yielding approximately 37 bps in the year-ago period.

GAAP Results of Operations for the Three and Six Months Ended June 30, 2020 and 2019

GAAP results of operations were as follows for the three and six months ended June 30, 2020 and 2019:

Three Months Ended June 30, Six Months Ended June 30,

($ in millions, unless otherwise noted) 2020 2019 Increase

(Decrease) 2020 2019 Increase

GAAP Statement of Operations

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Impairment of goodwill

— — — 16.4 — 16.4

Amortization of acquired intangibles

1.9 1.7 0.2 3.5 3.3 0.2

Depreciation and amortization 5.1 4.0 1.1 10.4 7.8 2.6

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Operating income 26.2 46.6 (20.4) 100.3 114.6 (14.3)

Investment income

Investment income (loss) 6.6 2.1 4.5 (7.1) 9.1 (16.2)

Interest income 0.2 0.3 (0.1) 0.5 1.4 (0.9)

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Income from continuing operations before taxes

61.2 35.7 25.5 96.9 118.4 (21.5)

Income tax expense 7.3 14.1 (6.8) 20.9 35.7 (14.8)

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Gain (loss) on disposal of discontinued operations, net of tax

53.9 21.6 32.3 76.0 82.7 (6.7)

Net income (loss) attributable to non-controlling interests in consolidated Funds 35.0 (6.4) 41.4 24.5 2.0 22.5

Net income attributable to controlling interests

$ 18.9 $ 28.0 $ (9.1) $ 51.5 $ 80.7 $ (29.2)

Basic earnings per share ($) $ 0.23 $ 0.31 $ (0.08) $ 0.62 $ 0.85 $ (0.23)

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Weighted average shares of common stock outstanding—basic

80.4 91.5 (11.1) 82.8 94.6 (11.8)

Weighted average shares of common stock outstanding—diluted

80.4 91.5 (11.1) 82.8 94.7 (11.9)

GAAP operating margin (1)

15.0 % 22.5 % 28.1 % 27.7 % 41 bps

GAAP operating margin equals operating income from continuing operations divided by total revenue.

The following table reconciles our net income attributable to controlling interests to our pre-tax income from continuing operations attributable to controlling interests:

($ in millions)

Three Months Ended

($ in millions) Three Months Ended

June 30, Six Months Ended

GAAP Statement of Operations 2020 2019 2020 2019

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Net income from continuing operations attributable to controlling interests

18.9 28.0 51.5 80.7

Income tax expense 7.3 14.1 20.9 35.7

Pre-tax income from continuing operations attributable to controlling interests

$ 26.2 $ 42.1 $ 72.4 $ 116.4

GAAP Revenues

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Our management fees are a function of the fee rates our Affiliates charge to their clients, which are typically expressed in basis points, and the levels of our assets under management.

Excluding assets managed by our equity-accounted Affiliates, average basis points earned on average assets under management were 38.6 bps and 39.0 bps three months ended March 31, 2020 and 2019 , respectively.

Excluding assets managed by our equity-accounted Affiliate, average basis points earned on average assets under management were 39.8 bps and 38.6 bps for the three and six months ended June 30, 2020, respectively, and 37.5 bps and 38.3 bps for the three and six months ended June 30, 2019, respectively.

The most significant driver of increases or decreases in this average fee rate is changes in the mix of our assets under management caused by net inflows or outflows in certain segments, net catch-up fees, or disproportionate market movements.

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($ in millions,

except AUM data in billions)

Three Months Ended March 31,

except AUM data in billions) Three Months Ended June 30, Six Months Ended June 30,

2020 2019 2020 2019

Revenue Basis Pts Revenue Basis Pts Revenue Basis Pts Revenue Basis Pts

Quant & Solutions 82.2 38 93.6 39 $ 167.4 37 $ 184.1 40

Alternatives $ 41.8 69 $ 43.5 73 83.2 69 87.3 74

Liquid Alpha 46.7 31 68.8 27 98.6 30 142.0 29

GAAP management fee revenue & weighted average fee rate on average AUM of consolidated Affiliates(1) $ 170.7 39.8 $ 205.9 37.5 $ 349.2 38.6 $ 413.4 38.3

Average AUM excluding equity-accounted Affiliates

$ 172.5 $ 219.9 $ 182.0 $ 217.6

Average AUM including equity-accounted Affiliates & weighted average fee rate

$ 174.4 40 $ 222.1 37.7 $ 184.0 38.8 $ 219.7 38.5

(1) Amounts shown are equivalent to ENI management fee revenue.

(See “ENI Revenues”)

Three months ended March 31, 2020 compared to three months ended March 31, 2019 :

Management fees decrease d $(29.0) million , or (14.0)% , from $207.5 million for the three months ended March 31, 2019 to $178.5 million for the three months ended March 31, 2020 .

The decrease was primarily attributable to a decrease in average assets under management, which is attributable to outflows in 2019 and equity depreciation in the three months ended March 31, 2020 .

Average assets under management excluding equity-accounted Affiliates decrease d (13.8)% , from $215.9 billion for the three months ended March 31, 2019 to $186.0 billion for the three months ended March 31, 2020 , mainly due to the equity market decline during the three months ended March 31, 2020 driven by the COVID-19 pandemic and the impact of the $(22.8) billion reallocation of several Vanguard subadvisory strategies in the fourth quarter of 2019.

Three months ended June 30, 2020 compared to three months ended June 30, 2019:

Management fees decreased $(35.2) million, or (17.1)%, from $205.9 million for the three months ended June 30, 2019 to $170.7 million for the three months ended June 30, 2020.

The decrease was primarily due to lower levels of average assets under management, which is attributable to outflows in the last twelve months and market decline in the first quarter of 2020.

Average assets under management excluding our equity-accounted Affiliate decreased (21.6)%, from $219.9 billion for the three months ended June 30, 2019 to $172.5 billion for the three months ended June 30, 2020, mainly due to the equity market decline during the first quarter of 2020 driven by the COVID-19 pandemic and the impact of the $(22.8) billion reallocation of several Vanguard subadvisory strategies in the fourth quarter of 2019.

Six months ended June 30, 2020 compared to six months ended June 30, 2019:

Management fees decreased $(64.2) million, or (15.5)%, from $413.4 million for the six months ended June 30, 2019 to $349.2 million for the six months ended June 30, 2020.

The decrease was primarily attributable to a decrease in average assets under management.

Average assets under management excluding equity-accounted Affiliate decreased (16.4)%, from $217.6 billion for the six months ended June 30, 2019 to $182.0 billion for the six months ended June 30, 2020, mainly due to the equity market decline during the six months ended June 30, 2020 driven by the COVID-19 pandemic and the impact of the $(22.8) billion reallocation of several Vanguard subadvisory strategies in the fourth quarter of 2019.

Performance Fees

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Performance fees are typically shared with our Affiliate key employees through various contractual compensation and profit-sharing arrangements.

Three months ended March 31, 2020 compared to three months ended March 31, 2019 :

Performance fees improved $3.8 million , from $(2.8) million for the three months ended March 31, 2019 to $1.0 million for the three months ended March 31, 2020 .

Three months ended June 30, 2020 compared to three months ended June 30, 2019:

Performance fees improved $2.5 million, from $(2.2) million for the three months ended June 30, 2019 to $0.3 million for the three months ended June 30, 2020.

A performance fee penalty in 2019 was attributable to sub-advisory assets no longer with the Affiliates.

Performance fees can be variable and are contractually triggered based on investment performance results over agreed upon time periods.

Six months ended June 30, 2020 compared to six months ended June 30, 2019:

Performance fees improved $6.3 million, from $(5.0) million for the six months ended June 30, 2019 to $1.3 million for the six months ended June 30, 2020.

A performance fee penalty in 2019 was attributable to sub-advisory assets no longer with the Affiliates.

Performance fees are variable and are contractually triggered based on investment performance results over agreed upon time periods.

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With respect to liquidations likely to occur in the near term, we do not expect to receive any net performance fees that would be material to our operating results.

These projections are based on market conditions and investment performance as of March 31, 2020 .

These projections are based on market conditions and investment performance as of June 30, 2020.

Other Revenue

Three months ended March 31, 2020 compared to three months ended March 31, 2019 :

Other revenue increase d $0.2 million , from $1.4 million for the three months ended March 31, 2019 to $1.6 million for the three months ended March 31, 2020 .

The increase was primarily attributable to the increase in revenue recorded for certain Fund expenses paid by our Affiliates and subsequently reimbursed by the Fund for the three months ended March 31, 2020 .

Three months ended June 30, 2020 compared to three months ended June 30, 2019:

Other revenue increased $0.5 million, from $1.5 million for the three months ended June 30, 2019 to $2.0 million for the three months ended June 30, 2020.

The increase was primarily attributable to an increase in consulting performed by an Affiliate for three months ended June 30, 2020.

Six months ended June 30, 2020 compared to six months ended June 30, 2019:

Other revenue increased $0.7 million, from $2.9 million for the six months ended June 30, 2019 to $3.6 million for the six months ended June 30, 2020.

The increase was primarily attributable to an increase in consulting performed by an Affiliate for the six months ended June 30, 2020.

GAAP Expenses

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The following table presents the components of U.S.

GAAP compensation expense for the three months ended March 31, 2020 and 2019 :

Three Months Ended March 31,

GAAP compensation expense for the three and six months ended June 30, 2020 and 2019:

Three Months Ended June 30, Six Months Ended June 30,

($ in millions) 2020 2019 2020 2019

Fixed compensation and benefits (1)

$ 43.9 $ 48.4 $ 91.5 $ 99.2

Sales-based compensation (2)

2.1 3.1 4.2 5.8

Variable compensation (3)

47.1 49.0 93.2 101.7

Affiliate key employee distributions (4)

11.0 13.8 20.8 27.2

Non-cash Affiliate key employee equity revaluations (5)

10.9 7.1 (38.4) (13.0)

Amortization of pre-acquisition employee equity (6)

1.9 2.3 3.0 3.9

GAAP compensation and benefits expense

$ 116.9 $ 123.7 $ 174.3 $ 224.8

(1) Fixed compensation and benefits include base salaries, payroll taxes and the cost of benefit programs provided.

For the three months ended March 31, 2020 , $46.6 million of fixed compensation and benefits (of the $47.6 million above) is included within economic net income, which excludes Fund expenses initially paid by our Affiliates on the Fund’s behalf and subsequently reimbursed.

For the three months ended March 31, 2019 $49.7 million of fixed compensation and benefits (of the $50.8 million above) is included within economic net income, which excludes Fund expenses initially paid by our Affiliates on the Fund’s behalf and subsequently reimbursed.

For the three and six months ended June 30, 2020, $42.8 million and $89.4 million, respectively, of fixed compensation and benefits (of the $43.9 million and $91.5 million above) are included within economic net income, which excludes Fund expenses initially paid by our Affiliates on the Fund’s behalf and subsequently reimbursed.

For the three and six months ended June 30, 2019, $47.3 million and $97.0 million, respectively, of fixed compensation and benefits (of the $48.4 million and $99.2 million above) are included within economic net income, which excludes Fund expenses initially paid by our Affiliates on the Fund’s behalf and subsequently reimbursed.

(2) Sales-based compensation is paid to our and our Affiliates’ sales and distribution teams and represents compensation earned by our sales professionals, paid over a multi-year period, related to revenue earned on new sales.

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The variable compensation ratio at each Affiliate, calculated as variable compensation divided by ENI earnings before variable compensation, will typically be between 25% and 35%.

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

($ in millions) 2020 2019 2020 2019

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Non-cash equity-based award amortization

4.1 4.4 8.3 10.3

Total variable compensation (a)

For the three months ended March 31, 2020 , $39.7 million of variable compensation expense (of the $46.1 million above) is included within economic net income, which excludes $0.4 million of variable compensation associated with restructuring at an Affiliate and $6.0 million of a one-time compensation arrangement entered into that includes advances against future compensation payments.

For the three months ended March 31, 2019 , $48.7 million of variable compensation expense (of the $52.7 million above) is included within economic net income, which excludes $4.0 million of variable compensation associated with restructuring at the Center.

$ 47.1 $ 49.0 $ 93.2 $ 101.7

(a) For the three and six months ended June 30, 2020, $39.4 million and $79.1 million, respectively, of variable compensation expense (of the $47.1 million and $93.2 million above) are included within economic net income, which excludes $3.0 million and $3.4 million of variable compensation associated with restructuring at an Affiliate and $4.7 million and $10.7 million of a one-time compensation arrangement entered into that includes advances against future compensation payments.

For the three and six months ended June 30, 2019, $48.4 million and $97.1 million, respectively, of variable compensation expense (of the $49.0 million and $101.7 million above) are included within economic net income, which excludes $0.5 million and $4.5 million, respectively, of variable compensation associated with restructuring at the Center.

(4) Affiliate key employee distributions represent the share of Affiliate profits after variable compensation that is attributable to Affiliate key employee equity and profit interests holders, according to their ownership interests.

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Fluctuations in compensation and benefits expense for the periods presented are discussed below.

Three months ended March 31, 2020 compared to three months ended March 31, 2019 :

Compensation and benefits expense decrease d $(43.7) million , or (43.2)% , from $101.1 million for the three months ended March 31, 2019 to $57.4 million for the three months ended March 31, 2020 .

Fixed compensation and benefits decreased $(3.2) million , or (6.3)% , from $50.8 million for the three months ended March 31, 2019 to $47.6 million for the three months ended March 31, 2020 , primarily reflecting headcount reductions at the Center and Affiliates.

Variable compensation decreased $(6.6) million , or (12.5)% , from $52.7 million for the three months ended March 31, 2019 to $46.1 million for the three months ended March 31, 2020 .

Three months ended June 30, 2020 compared to three months ended June 30, 2019:

Compensation and benefits expense decreased $(6.8) million, or (5.5)%, from $123.7 million for the three months ended June 30, 2019 to $116.9 million for the three months ended June 30, 2020.

Fixed compensation and benefits decreased $(4.5) million, or (9.3)%, from $48.4 million for the three months ended June 30, 2019 to $43.9 million for the three months ended June 30, 2020, primarily reflecting cost savings from the restructuring at the Center and the Affiliates.

Variable compensation decreased $(1.9) million, or (3.9)%, from $49.0 million for the three months ended June 30, 2019 to $47.1 million for the three months ended June 30, 2020.

The decrease was attributable to lower pre-variable compensation earnings, which in turn was primarily attributable to the decrease in management fee revenue, as well as a lower cost structure at the Center.

Sales-based compensation decreased $(1.0) million, or (32.3)%, from $3.1 million for the three months ended June 30, 2019 to $2.1 million for the three months ended June 30, 2020, as a result of the structure of sales-based compensation programs, driven by the timing of asset inflows which trigger sales-based compensation in both current and prior periods.

Affiliate key employee distributions decreased $(2.8) million, or (20.3)%, from $13.8 million for the three months ended June 30, 2019 to $11.0 million for the three months ended June 30, 2020 as a result of lower underlying operating earnings at the consolidated Affiliates.

Revaluations of Affiliate equity increased by $3.8 million reflecting revaluations of key employee ownership interests at our consolidated Affiliates as the value of Affiliate equity increased $7.1 million for the three months ended June 30, 2019 and increased $10.9 million for the three months ended June 30, 2020.

Amortization of pre-acquisition equity decreased by $(0.4) million from $2.3 million for the three months ended June 30, 2019 to $1.9 million for the three months ended June 30, 2020 as a result of the vesting of the employee equity.

Six months ended June 30, 2020 compared to six months ended June 30, 2019:

Compensation and benefits expense decreased $(50.5) million, or (22.5)%, from $224.8 million for the six months ended June 30, 2019 to $174.3 million for the six months ended June 30, 2020.

Fixed compensation and benefits decreased $(7.7) million, or (7.8)%, from $99.2 million for the six months ended June 30, 2019 to $91.5 million for the six months ended June 30, 2020, primarily reflecting cost savings from the restructuring at the Center and Affiliates.

Variable compensation decreased $(8.5) million, or (8.4)%, from $101.7 million for the six months ended June 30, 2019 to $93.2 million for the six months ended June 30, 2020.

Sales-based compensation decreased $(0.6) million , or (22.2)% , from $2.7 million for the three months ended March 31, 2019 to $2.1 million for the three months ended March 31, 2020 , as a result of the structure of sales-based compensation programs, driven by the timing of asset inflows which trigger sales-based compensation in both current and prior periods.

Affiliate key employee distributions decreased $(3.6) million , or (26.9)% , from $13.4 million for the three months ended March 31, 2019 to $9.8 million for the three months ended March 31, 2020 , primarily as a result of lower earnings before Affiliate key employee distributions at the consolidated Affiliates.

Revaluations of Affiliate equity decreased by $(29.2) million , from $(20.1) million for the three months ended March 31, 2019 to $(49.3) million for the three months ended March 31, 2020 , driven by lower earnings at the Affiliates relative to the prior period, which was driven by lower AUM and revenue as a result of the recent market decline.

Amortization of pre-acquisition equity decreased $(0.5) million , or (31.3)% from $1.6 million for the three months ended March 31, 2019 to $1.1 million for the three months ended March 31, 2020 , driven by vesting of the employee equity.

Sales-based compensation decreased $(1.6) million, or (27.6)%, from $5.8 million for the six months ended June 30, 2019 to $4.2 million for the six months ended June 30, 2020, as a result of the structure of sales-based compensation programs, driven by the timing of asset inflows which trigger sales-based compensation in both current and prior periods.

Affiliate key employee distributions decreased $(6.4) million, or (23.5)%, from $27.2 million for the six months ended June 30, 2019 to $20.8 million for the six months ended June 30, 2020, primarily as a result of lower earnings before Affiliate key employee distributions at the consolidated Affiliates.

Revaluations of Affiliate equity decreased by $(25.4) million, reflecting revaluations of key employee ownership interests at our consolidated Affiliates, as the value of Affiliate equity decreased $(13.0) million for the six months ended June 30, 2019 and decreased $(38.4) million for the six months ended June 30, 2020.

Amortization of pre-acquisition equity decreased $(0.9) million, or (23.1)% from $3.9 million for the six months ended June 30, 2019 to $3.0 million for the six months ended June 30, 2020, as a result of the vesting of the employee equity.

General and Administrative Expense

Three months ended March 31, 2020 compared to three months ended March 31, 2019 :

General and administrative expense decrease d $(4.8) million , or (14.8)% , from $32.5 million for the three months ended March 31, 2019 to $27.7 million for the three months ended March 31, 2020 , driven by cost saving initiatives at the Center and Affiliates.

Three months ended June 30, 2020 compared to three months ended June 30, 2019:

General and administrative expense decreased $(6.6) million, or (21.2)%, from $31.1 million for the three months ended June 30, 2019 to $24.5 million for the three months ended June 30, 2020.

The decrease was primarily due to cost saving initiatives at the Center and Affiliates.

Six months ended June 30, 2020 compared to six months ended June 30, 2019:

General and administrative expense decreased $(11.4) million, or (17.9)%, from $63.6 million for the six months ended June 30, 2019 to $52.2 million for the six months ended June 30, 2020.

The decrease was primarily due to cost saving initiatives at the Center and Affiliates.

Impairment of Goodwill

Three months ended March 31, 2020 compared to three months ended March 31, 2019 :

Impairment of goodwill was $0.0 million for the three months ended March 31, 2019 and $16.4 million for the three months ended March 31, 2020 .

The increase was the result of an impairment charge recorded for the Copper Rock reporting unit in the three months ended March 31, 2020 .

We performed a quantitative impairment test at March 31, 2020 due to the decline in our assets under management for the three months ended March 31, 2020 .

Three months ended June 30, 2020 compared to three months ended June 30, 2019:

No goodwill impairment charge was recorded for the three months ended June 30, 2019 and 2020.

Six months ended June 30, 2020 compared to six months ended June 30, 2019:

Impairment of goodwill was $0.0 million for the six months ended June 30, 2019 and $16.4 million for the six months ended June 30, 2020.

The increase was the result of an impairment charge recorded for the Copper Rock reporting unit in the six months ended June 30, 2020.

In the first half of 2020, we performed a quantitative impairment test of Copper Rock due to the decline in assets under management during the period.

The fair value of the Copper Rock reporting unit did not exceed its carrying value.

Accordingly, we recognized a goodwill impairment charge of $16.4 million for the three months ended March 31, 2020 .

Accordingly, we recognized a goodwill impairment charge of $16.4 million for the six months ended June 30, 2020.

Amortization of Acquired Intangibles Expense

Three months ended March 31, 2020 compared to three months ended March 31, 2019 :

Amortization of acquired intangibles expense was unchanged, at $1.6 million for the three months ended March 31, 2019 and $1.6 million for the three months ended March 31, 2020 .

This account primarily reflects the amortization of intangible assets acquired in the Landmark transaction.

Three months ended June 30, 2020 compared to three months ended June 30, 2019:

Amortization of acquired intangibles expense increased $0.2 million, or 11.8%, from $1.7 million for the three months ended June 30, 2019 to $1.9 million for the three months ended June 30, 2020.

This account primarily reflects the amortization of intangible assets acquired in the Copper Rock and Landmark transactions.

Six months ended June 30, 2020 compared to six months ended June 30, 2019:

Amortization of acquired intangibles expense increased $0.2 million, or 6.1%, from $3.3 million for the six months ended June 30, 2019 to $3.5 million for the six months ended June 30, 2020.

This account primarily reflects the amortization of intangible assets acquired in the Copper Rock and Landmark transactions.

Depreciation and Amortization Expense

Three months ended March 31, 2020 compared to three months ended March 31, 2019 :

Depreciation and amortization expense increase d $1.5 million , or 39.5% , from $3.8 million for the three months ended March 31, 2019 to $5.3 million for the three months ended March 31, 2020 .

Three months ended June 30, 2020 compared to three months ended June 30, 2019:

Depreciation and amortization expense increased $1.1 million, or 27.5%, from $4.0 million for the three months ended June 30, 2019 to $5.1 million for the three months ended June 30, 2020.

The increase was primarily due to additional software and technology investments in the business.

Six months ended June 30, 2020 compared to six months ended June 30, 2019:

Depreciation and amortization expense increased $2.6 million, or 33.3%, from $7.8 million for the six months ended June 30, 2019 to $10.4 million for the six months ended June 30, 2020.

The increase was primarily due to additional software and technology investments in the business.

GAAP Other Non-Operating Items of Income and Expense

4 unchanged sentences

Investment Income

Three months ended March 31, 2020 compared to three months ended March 31, 2019 :

Investment income decreased $(20.7) million from $7.0 million for the three months ended March 31, 2019 to $(13.7) million for the three months ended March 31, 2020 .

The decrease is primarily due to unrealized losses on seed investments driven by the market decline in the current year.

Three months ended June 30, 2020 compared to three months ended June 30, 2019:

Investment income increased $4.5 million, from $2.1 million for the three months ended June 30, 2019 to $6.6 million for the three months ended June 30, 2020, reflecting an increase in returns generated by seed capital investments as the market recovered from declines in the first quarter of 2020.

Six months ended June 30, 2020 compared to six months ended June 30, 2019:

Investment income decreased $(16.2) million from $9.1 million for the six months ended June 30, 2019 to $(7.1) million for the six months ended June 30, 2020.

The decrease is primarily due to unrealized losses on seed investments driven by the market decline in the first quarter of 2020, which was partially offset by unrealized gains in the second quarter of 2020 as the market recovered.

Interest Income

Three months ended March 31, 2020 compared to three months ended March 31, 2019 :

Interest income decrease d $(0.8) million , from $1.1 million for the three months ended March 31, 2019 to $0.3 million for the three months ended March 31, 2020 .

The decrease was due to lower average cash balances and decreases in short-term investment returns in the current year.

Three months ended June 30, 2020 compared to three months ended June 30, 2019:

Interest income decreased $(0.1) million, from $0.3 million for the three months ended June 30, 2019 to $0.2 million for the three months ended June 30, 2020.

The decrease was due to decreases in short-term investment returns in the quarter.

Six months ended June 30, 2020 compared to six months ended June 30, 2019:

Interest income decreased $(0.9) million, from $1.4 million for the six months ended June 30, 2019 to $0.5 million for the six months ended June 30, 2020.

The decrease was due to lower average cash balances and decreases in short-term investment returns in 2020.

Interest Expense

Three months ended March 31, 2020 compared to three months ended March 31, 2019 :

Interest expense increased $0.8 million , or 11.4% , from $7.0 million for the three months ended March 31, 2019 to $7.8 million for the three months ended March 31, 2020 , primarily reflecting the increased utilization of our revolving credit facility in the current year.

Three months ended June 30, 2020 compared to three months ended June 30, 2019:

Interest expense decreased $(1.4) million, or (15.9)%, from $8.8 million for the three months ended June 30, 2019 to $7.4 million for the three months ended June 30, 2020, reflecting a lower balance drawn on the non-recourse seed capital and revolving credit facilities in the current quarter.

Six months ended June 30, 2020 compared to six months ended June 30, 2019:

Interest expense decreased $(0.6) million, or (3.8)%, from $15.8 million for the six months ended June 30, 2019 to $15.2 million for the six months ended June 30, 2020, primarily reflecting a lower balance drawn on the non-recourse seed capital and revolving credit facilities in the current year.

GAAP Income Tax Expense

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This provision will allow the Company to utilize more deferred tax assets.

The Company has assessed the CARES Act and at this time does not expect the CARES Act to have a material impact to the financial statements.

Three months ended March 31, 2020 compared to three months ended March 31, 2019 :

Income tax expense decreased $(8.0) million , from $21.6 million for the three months ended March 31, 2019 to $13.6 million for the three months ended March 31, 2020 .

The decrease was primarily due to the decrease in income from continuing operations before tax attributable to controlling interests and a smaller increase to the liabilities for uncertain tax positions for the three months ended March 31, 2020 compared to the three months ended March 31, 2019 .

We have assessed the CARES Act and at this time do not expect any other provisions of the CARES Act to have a material impact to the financial statements.

Three months ended June 30, 2020 compared to three months ended June 30, 2019:

Income tax expense decreased $(6.8) million, from $14.1 million for the three months ended June 30, 2019 to $7.3 million for the three months ended June 30, 2020.

The decrease relates primarily to decreases in income from continuing operations before tax attributable to controlling interests and a decrease in expense attributable to uncertain tax positions.

Six months ended June 30, 2020 compared to six months ended June 30, 2019 :

Income tax expense decreased $(14.8) million, from $35.7 million for the six months ended June 30, 2019 to $20.9 million for the six months ended June 30, 2020.

The decrease was primarily due to the decrease in income from continuing operations before tax attributable to controlling interests and a decrease in expense attributable to adjustments for uncertain tax positions.

GAAP Consolidated Funds

Three months ended March 31, 2020 compared to three months ended March 31, 2019 :

Consolidated Funds’ revenue increased $0.4 million , from $1.1 million for the three months ended March 31, 2019 to $1.5 million for the three months ended March 31, 2020 .

Consolidated Funds’ expense decreased $(0.1) million , from $0.2 million for the three months ended March 31, 2019 to $0.1 million for the three months ended March 31, 2020 .

Net consolidated Funds’ investment gain (loss) changed $(30.8) million from $13.6 million for the three months ended March 31, 2019 to $(17.2) million for the three months ended March 31, 2020 due to the equity market decline resulting from the COVID-19 pandemic that caused significant market disruption.

Three months ended June 30, 2020 compared to three months ended June 30, 2019:

Consolidated Funds’ revenue decreased $(0.2) million, from $1.9 million for the three months ended June 30, 2019 to $1.7 million for the three months ended June 30, 2020.

Consolidated Funds’ expense increased $0.1 million for the three months ended June 30, 2020 compared to the three months ended June 30, 2019.

Net consolidated Funds’ investment gain (loss) increased $40.1 million from $(4.5) million for the three months ended June 30, 2019 to $35.6 million for the three months ended June 30, 2020 due to market appreciation in the second quarter of 2020.

The net income or loss of all consolidated Funds, excluding any income or loss attributable to seed capital or co-investments we make in the Funds, is included in non-controlling interests in our Condensed Consolidated Financial Statements and is not included in net income attributable to controlling interests or in management fees.

Six months ended June 30, 2020 compared to six months ended June 30, 2019:

Consolidated Funds’ revenue increased $0.2 million, from $3.0 million for the six months ended June 30, 2019 to $3.2 million for the six months ended June 30, 2020.

Consolidated Funds’ expense remained unchanged at $0.2 million for the three and six months ended June 30, 2019 and 2020.

Net consolidated Funds’ investment gain (loss) increased $9.3 million, from $9.1 million for the six months ended June 30, 2019 to $18.4 million for the six months ended June 30, 2020.

GAAP Operating Metrics

The following table shows our key U.S.

GAAP operating metrics for the three months ended March 31, 2020 and 2019 .

GAAP operating metrics for the three and six months ended June 30, 2020 and 2019.

The second, third and fourth metrics below have each been adjusted to eliminate the effect of consolidated Funds to more accurately reflect the economics of our Company.

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

($ in millions) 2020 2019 2020 2019

Operating income

$ 26.2 $ 46.6 $ 100.3 $ 114.6

Total revenue

$ 174.7 $ 207.1 $ 357.3 $ 414.3

GAAP operating margin (1)

15.0 % 22.5 % 28.1 % 27.7 %

Total operating expenses (2)

$ 148.4 $ 160.5 $ 256.8 $ 299.5

Management fee revenue

$ 170.7 $ 205.9 $ 349.2 $ 413.4

GAAP operating expense / management fee revenue (3)

86.9 % 78.0 % 73.5 % 72.4 %

Variable compensation

$ 47.1 $ 49.0 $ 93.2 $ 101.7

Operating income before variable compensation and Affiliate key employee distributions (2)(4)(5)

$ 82.7 $ 107.5 $ 211.3 $ 240.7

GAAP variable compensation ratio (3)

57.0 % 45.6 % 44.1 % 42.3 %

Affiliate key employee distributions

$ 11.0 $ 13.8 $ 20.8 $ 27.2

Operating income before Affiliate key employee distributions (2)(4)(5)

$ 35.6 $ 58.5 $ 118.1 $ 139.0

GAAP Affiliate key employee distributions ratio (3)

30.9 % 23.6 % 17.6 % 19.6 %

(1) Excluding the effect of Funds consolidation in the applicable periods, the U.S.

GAAP operating margin is 40.1% for the three months ended March 31, 2020 and 32.6% for the three months ended March 31, 2019 .

Excludes consolidated Funds expense of $0.1 million for the three months ended March 31, 2020 and $0.2 million for the three months ended March 31, 2019 .

Excludes the effect of Funds consolidation for the three months ended March 31, 2020 and 2019 .

Excludes consolidated Funds revenue of $1.5 million for the three months ended March 31, 2020 and $1.1 million for the three months ended March 31, 2019 .

GAAP operating margin is 14.2% for the three months ended June 30, 2020, 21.8% for the three months ended June 30, 2019, 27.5% for the six months ended June 30, 2020, and 27.2% or the six months ended June 30, 2019.

(2) Excludes consolidated Funds expense of $0.1 million for the three months ended June 30, 2020, $0.0 million for the three months ended June 30, 2019, $0.2 million for the six months ended June 30, 2020 and $0.2 million for the six months ended June 30, 2019.

(3) Excludes the effect of Funds consolidation for the three and six months ended June 30, 2020 and 2019.

(4) Excludes consolidated Funds revenue of $1.7 million for the three months ended June 30, 2020, $1.9 million for the three months ended June 30, 2019, $3.2 million for the six months ended June 30, 2020 and $3.0 million for the six months ended June 30, 2019.

(5) The following table identifies the components of operating income before variable compensation and Affiliate key employee distributions, as well as operating income before Affiliate key employee distributions:

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

($ in millions) 2020 2019 2020 2019

Operating income

$ 26.2 $ 46.6 $ 100.3 $ 114.6

Affiliate key employee distributions

11.0 13.8 20.8 27.2

Operating income of consolidated Funds (1.6) (1.9) (3.0) (2.8)

Operating income before Affiliate key employee distributions

35.6 58.5 118.1 139.0

Variable compensation 47.1 49.0 93.2 101.7

Operating income before variable compensation and Affiliate key employee distributions

$ 82.7 $ 107.5 $ 211.3 $ 240.7

Effects of Inflation

For the three months ended March 31, 2020 and 2019 , inflation did not have a material effect on our consolidated results of operations.

For the three and six months ended June 30, 2020 and 2019, inflation did not have a material effect on our consolidated results of operations.

Non-GAAP Supplemental Performance Measure — Economic Net Income and Segment Analysis

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• We include within management fee revenue any fees paid to Affiliates by consolidated Funds, which are viewed as investment income under U.S.

We include our share of earnings from equity-accounted Affiliates within other income in ENI revenue, rather than investment income.

• We include our share of earnings from our equity-accounted Affiliate within other income in ENI revenue, rather than investment income.

• We treat sales-based compensation as a general and administrative expense, rather than part of fixed compensation and benefits.

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Reconciliation of U.S.

GAAP Net Income to Economic Net Income for the Three Months Ended March 31, 2020 and 2019

The following table reconciles net income attributable to controlling interests to economic net income for the three months ended March 31, 2020 and 2019 :

Three Months Ended March 31,

GAAP Net Income to Economic Net Income for the Three and Six Months Ended June 30, 2020 and 2019

The following table reconciles net income attributable to controlling interests to economic net income for the three and six months ended June 30, 2020 and 2019:

Three Months Ended June 30, Six Months Ended June 30,

($ in millions) 2020 2019 2020 2019

4 unchanged sentences

Capital transaction costs

0.3 1.6 0.5 1.6

Seed/Co-investment (gains) losses and financings (1)

(6.7) (2.8) 14.6 (13.0)

Tax benefit of goodwill and acquired intangibles deductions 2.3 2.4 4.6 4.7

Discontinued operations, restructuring and the impact of a one-time compensation arrangement that includes advances against future compensation payments (2)

8.1 1.3 14.8 5.6

ENI tax normalization

(0.2) 2.4 0.6 3.2

Tax effect of above adjustments, as applicable (3)

(4.4) (3.0) (3.9) 3.2

Economic net income

The net return on seed/co-investment (gains) losses and financings for the three months ended March 31, 2020 and 2019 is shown in the following table:

Three Months Ended March 31,

$ 32.9 $ 41.0 $ 67.2 $ 80.2

(1) The net return on seed/co-investment (gains) losses and financings for the three and six months ended June 30, 2020 and 2019 is shown in the following table:

Three Months Ended June 30, Six Months Ended June 30,

($ in millions) 2020 2019 2020 2019

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* The blended rate is based first on the interest rate paid on our non-recourse seed capital facility up to the average amount drawn, and thereafter on the weighted average rate of the long-term debt.

The three months ended March 31, 2020 includes restructuring costs of $0.4 million , costs associated with the transfer of an insurance policy from our former Parent of $0.3 million and $6.0 million relating to the impact of a one-time compensation arrangement entered into that includes advances against future compensation payments.

The three months ended March 31, 2019 includes restructuring costs at the Center of $4.0 million and costs associated with the redomicile to the U.S.

of $0.3 million .

(2) The three months ended June 30, 2020 includes $3.0 million of restructuring at the Center and Affiliates, $0.3 million associated with the transfer of an insurance policy from our former Parent, and $4.7 million relating to the impact of a one-time compensation arrangement entered into that includes advances against future compensation payments.

The six months ended June 30, 2020 includes $3.4 million of restructuring at the Center and Affiliates, $0.6 million associated with the transfer of an insurance policy from our former Parent, and $10.7 million relating to the impact of a one-time compensation arrangement entered into that includes advances against future compensation payment.

The three months ended June 30, 2019 includes $0.5 million of restructuring costs at the Center and $0.8 million associated with the redomicile to the U.S.

The six months ended June 30, 2019 includes $4.5 million of restructuring costs at the Center and $1.1 million associated with the redomicile to the U.S.

(3) Reflects the sum of lines (i), (ii), (iii), (iv) and the restructuring component of line (vi) multiplied by the 27.3% U.S.

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The following table reconciles U.S.

GAAP revenue to ENI revenue for the three months ended March 31, 2020 and 2019 :

Three Months Ended March 31,

GAAP revenue to ENI revenue for the three and six months ended June 30, 2020 and 2019:

Three Months Ended June 30, Six Months Ended June 30,

($ in millions) 2020 2019 2020 2019

Include investment return on equity-accounted Affiliates

GAAP revenue $ 174.7 $ 207.1 $ 357.3 $ 414.3

Include investment return on equity-accounted Affiliate

0.6 0.7 1.2 1.3

Exclude revenue from consolidated Funds attributable to non-controlling interests

(1.7) (1.9) (3.2) (3.0)

Exclude Fund expenses reimbursed by customers

(1.1) (1.3) (2.2) (2.3)

ENI revenue $ 172.5 $ 204.6 $ 353.1 $ 410.3

The following table identifies the components of ENI revenue:

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

($ in millions) 2020 2019 2020 2019

Management fees (1)

$ 170.7 $ 205.9 $ 349.2 $ 413.4

Performance fees (2)

Other income, including equity-accounted Affiliates (3)

0.3 (2.2) 1.3 (5.0)

Other income, including equity-accounted Affiliate (3)

1.5 0.9 2.6 1.9

ENI revenue $ 172.5 $ 204.6 $ 353.1 $ 410.3

(1) ENI management fees correspond to U.S.

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(3) ENI other income is comprised primarily of other revenue under U.S.

GAAP, plus our earnings from equity-accounted Affiliates of $0.6 million and $0.6 million for the three months ended March 31, 2020 and March 31, 2019 , respectively.

GAAP, plus our earnings from our equity-accounted Affiliate of $0.6 million and $0.7 million for the three months ended June 30, 2020 and June 30, 2019, respectively.

For the six months ended June 30, 2020 and June 30, 2019, our earnings from our equity-accounted Affiliate were $1.2 million and $1.3 million, respectively.

As further described in “—Non-GAAP Supplemental Performance Measure—Economic Net Income and Segment Analysis,” ENI other income also excludes certain Fund expenses initially paid by our Affiliates on the Funds’ behalf and subsequently reimbursed.

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

($ in millions) 2020 2019 2020 2019

GAAP other revenue $ 2.0 $ 1.5 $ 3.6 $ 2.9

Earnings from equity-accounted Affiliates

Earnings from equity-accounted Affiliate 0.6 0.7 1.2 1.3

Exclude Fund expenses reimbursed by customers

(1.1) (1.3) (2.2) (2.3)

ENI other income $ 1.5 $ 0.9 $ 2.6 $ 1.9

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The following table reconciles U.S.

GAAP operating expense to ENI operating expense for the three months ended March 31, 2020 and 2019 .

Three Months Ended March 31,

GAAP operating expense to ENI operating expense for the three and six months ended June 30, 2020 and 2019.

Three Months Ended June 30, Six Months Ended June 30,

($ in millions) 2020 2019 2020 2019

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Amortization of pre-acquisition employee equity

(1.8) (2.3) (3.0) (3.9)

Non-cash key employee equity and profit interest revaluations

(10.9) (7.1) 38.4 13.0

Goodwill impairment and amortization of acquired intangible assets (1.9) (1.7) (19.9) (3.3)

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Restructuring costs and the impact of a one-time compensation arrangement that includes advances against future compensation payments (1)

(8.1) (1.3) (14.8) (5.6)

Fund expenses reimbursed by customers (1.1) (1.3) (2.2) (2.3)

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ENI operating expense $ 74.0 $ 83.0 $ 155.2 $ 171.5

Included for the three months ended March 31, 2020 are restructuring costs of $0.4 million , costs associated with the transfer of an insurance policy from our former Parent of $0.3 million and $6.0 million relating to the impact of a one-time compensation arrangement entered into that includes advances against future compensation payments.

Included for the three months ended March 31, 2019 are restructuring costs at the Center of $4.0 million and costs associated with the redomicile to the U.S.

of $0.3 million .

(1) The three months ended June 30, 2020 includes $3.0 million of restructuring at the Center and Affiliates, $0.3 million associated with the transfer of an insurance policy from our former Parent, and $4.7 million relating to the impact of a one-time compensation arrangement entered into that includes advances against future compensation payments.

The three months ended June 30, 2019 includes $0.5 million of restructuring costs at the Center and $0.8 million associated with the redomicile to the U.S.

The six months ended June 30, 2019 includes $4.5 million of restructuring costs at the Center and $1.1 million associated with the redomicile to the U.S.

The following table identifies the components of ENI operating expense:

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

($ in millions) 2020 2019 2020 2019

Fixed compensation & benefits (1)

$ 42.8 $ 47.3 $ 89.4 $ 97.0

General and administrative expenses (2)

26.1 31.7 55.4 66.7

Depreciation and amortization 5.1 4.0 10.4 7.8

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The following table reconciles U.S.

GAAP compensation and benefits expense for the three months ended March 31, 2020 and 2019 to ENI fixed compensation and benefits expense:

Three Months Ended March 31,

GAAP compensation and benefits expense for the three and six months ended June 30, 2020 and 2019 to ENI fixed compensation and benefits expense:

Three Months Ended June 30, Six Months Ended June 30,

($ in millions) 2020 2019 2020 2019

GAAP compensation and benefits expense

$ 116.9 $ 123.7 $ 174.3 $ 224.8

Amortization of pre-acquisition employee equity

(1.8) (2.3) (3.0) (3.9)

Non-cash key employee equity and profit interest revaluations excluded from ENI

(10.9) (7.1) 38.4 13.0

Sales-based compensation reclassified to ENI general & administrative expenses

(2.1) (3.1) (4.2) (5.8)

Affiliate key employee distributions

(11.0) (13.8) (20.8) (27.2)

Compensation related to restructuring expenses and the impact of a one-time arrangement that includes advances against future compensation payments (a)

(7.8) (0.5) (14.0) (4.5)

Variable compensation

(39.4) (48.4) (79.1) (97.1)

Fund expenses reimbursed by customers

(1.1) (1.2) (2.2) (2.3)

ENI fixed compensation and benefits $ 42.8 $ 47.3 $ 89.4 $ 97.0

Includes costs related to restructuring and $6.0 million relating to the impact of a one-time compensation arrangement entered into that includes advances against future compensation payments for the three months ended March 31, 2020 .

Includes $4.0 million related to restructuring at the Center for the three months ended March 31, 2019 .

(a) The three months ended June 30, 2020 includes $3.0 million of restructuring at the Center and Affiliates, $0.3 million associated with the transfer of an insurance policy from our former Parent, and $4.7 million relating to the impact of a one-time compensation arrangement entered into that includes advances against future compensation payments.

The three months ended June 30, 2019 includes $0.5 million of restructuring costs at the Center and $0.8 million associated with the redomicile to the U.S.

The six months ended June 30, 2019 includes $4.5 million of restructuring costs at the Center and $1.1 million associated with the redomicile to the U.S.

(1) The following table reconciles U.S.

GAAP general and administrative expense to ENI general and administrative expense:

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

($ in millions) 2020 2019 2020 2019

GAAP general and administrative expense

$ 24.5 $ 31.1 $ 52.2 $ 63.6

Sales-based compensation 2.1 3.1 4.2 5.8

Capital transaction costs (0.2) (1.6) (0.2) (1.6)

Restructuring costs (0.3) (0.9) (0.8) (1.1)

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Key Non-GAAP Operating Metrics

The following table shows our key non-GAAP operating metrics for the three months ended March 31, 2020 and 2019 .

The following table shows our key non-GAAP operating metrics for the three and six months ended June 30, 2020 and 2019.

We present these metrics because they are the measures our management uses to evaluate the profitability of our business and are useful to investors because they represent the key drivers and measures of economic performance within our business model.

1 unchanged sentence

GAAP measure:

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

($ in millions) 2020 2019 2020 2019

ENI operating earnings (1)

$ 59.1 $ 73.2 $ 118.8 $ 141.7

$ 172.5 $ 204.6 $ 353.1 $ 410.3

ENI operating margin (2)

34.3 % 35.8 % 33.6 % 34.5 %

ENI operating expense

$ 74.0 $ 83.0 $ 155.2 $ 171.5

ENI management fee revenue (3)

$ 170.7 $ 205.9 $ 349.2 $ 413.4

ENI operating expense ratio (4)

43.4 % 40.3 % 44.4 % 41.5 %

ENI variable compensation

$ 39.4 $ 48.4 $ 79.1 $ 97.1

ENI earnings before variable compensation (1)(5)

$ 98.5 $ 121.6 $ 197.9 $ 238.8

ENI variable compensation ratio (6)

40.0 % 39.8 % 40.0 % 40.7 %

Affiliate key employee distributions

$ 11.0 $ 13.8 $ 20.8 $ 27.2

ENI operating earnings (1)

$ 59.1 $ 73.2 $ 118.8 $ 141.7

ENI Affiliate key employee distributions ratio (7)

18.6 % 18.9 % 17.5 % 19.2 %

(1) ENI operating earnings represents ENI earnings before Affiliate key employee distributions and is calculated as ENI revenue, less ENI operating expense, less ENI variable compensation.

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GAAP operating income to ENI operating earnings:

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

($ in millions) 2020 2019 2020 2019

GAAP operating income $ 26.2 $ 46.6 $ 100.3 $ 114.6

Include earnings from equity-accounted Affiliates

Include earnings from equity-accounted Affiliate

0.6 0.7 1.2 1.3

Exclude the impact of:

Affiliate key employee-owned equity and profit interest revaluations

10.9 7.1 (38.4) (13.0)

Goodwill impairment and amortization of acquired intangible assets and pre-acquisition employee equity

3.7 4.0 22.9 7.2

Capital transaction costs 0.2 1.6 0.2 1.6

Restructuring costs and the impact of a one-time compensation arrangement that includes advances against future compensation payments (a)

8.1 1.3 14.8 5.6

Affiliate key employee distributions 11.0 13.8 20.8 27.2

Variable compensation

39.4 48.4 79.1 97.1

Funds’ operating income (1.6) (1.9) (3.0) (2.8)

ENI earnings before variable compensation

98.5 121.6 197.9 238.8

ENI variable compensation (39.4) (48.4) (79.1) (97.1)

1 unchanged sentence

ENI Affiliate key employee distributions

(11.0) (13.8) (20.8) (27.2)

ENI earnings after Affiliate key employee distributions

Includes restructuring costs of $0.4 million , costs associated with the transfer of an insurance policy from our former Parent of $0.3 million and $6.0 million relating to the impact of a one-time compensation arrangement entered into that includes advances against future compensation payments for the three months ended March 31, 2020 .

Includes restructuring costs at the Center of $4.0 million and costs associated with the redomicile to the U.S.

of $0.3 million for the three months ended March 31, 2019 .

$ 48.1 $ 59.4 $ 98.0 $ 114.5

The three months ended June 30, 2019 includes $0.5 million of restructuring costs at the Center and $0.8 million associated with the redomicile to the U.S.

The six months ended June 30, 2019 includes $4.5 million of restructuring costs at the Center and $1.1 million associated with the redomicile to the U.S.

(2) The ENI operating margin, which is calculated before Affiliate key employee distributions, is used by management and is useful to investors to evaluate the overall operating margin of the business without regard to our various ownership levels at each of the Affiliates.

1 unchanged sentence

GAAP operating margin.

GAAP operating margin, excluding the effect of consolidated Funds, is 40.1% for the three months ended March 31, 2020 and 32.6% for the three months ended March 31, 2019 .

GAAP operating margin, excluding the effect of consolidated Funds, is 14.2% for the three months ended June 30, 2020 and 21.8% for the three months ended June 30, 2019.

The ENI operating margin is important because it gives investors an understanding of the profitability of the total business relative to revenue, irrespective of the ownership position which we have in each of our Affiliates.

4 unchanged sentences

We have provided this ratio since many operating expenses, including fixed compensation and benefits and general and administrative expense, are generally linked to the overall size of the business.

We track this ratio as a key measure of scale economies because in our profit sharing economic model, scale benefits both the Affiliate employees

and our stockholders.

We track this ratio as a key measure of scale economies because in our profit sharing economic model, scale benefits both the Affiliate employees and our stockholders.

The ENI operating expense ratio is most comparable to the U.S.

18 unchanged sentences

The following table reconciles the United States statutory tax to tax on economic net income:

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

($ in millions) 2020 2019 2020 2019

Pre-tax economic net income (1)

$ 42.5 $ 53.2 $ 86.8 $ 104.8

Intercompany interest expense deductible for U.S.

— (16.4) — (33.2)

Taxable economic net income 42.5 36.8 86.8 71.6

1 unchanged sentence

federal and state statutory rates (2)

(11.6) (10.1) (23.7) (19.6)

Other reconciling tax adjustments 2.0 (2.1) 4.1 (5.0)

1 unchanged sentence

Add back intercompany interest expense previously excluded

— 16.4 — 33.2

Economic net income

$ 32.9 $ 41.0 $ 67.2 $ 80.2

Economic net income effective tax rate (3)

22.6 % 22.9 % 22.6 % 23.5 %

(1) Includes interest income and third party ENI interest expense, as shown in the following table:

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

($ in millions) 2020 2019 2020 2019

3 unchanged sentences

Other ENI interest expense exclusions (a)

1.6 2.3 3.5 4.7

ENI net interest expense (5.6) (6.2) (11.2) (9.7)

ENI earnings after Affiliate key employee distributions (b)

48.1 59.4 98.0 114.5

Pre-tax economic net income

Other ENI interest expense exclusions represent cost of financing on seed capital and co-investments.

ENI earnings after Affiliate key employee distributions is calculated as ENI operating income (ENI revenue, less ENI operating expense, less ENI variable compensation), less Affiliate key employee distributions.

$ 42.5 $ 53.2 $ 86.8 $ 104.8

(a) Other ENI interest expense exclusions represent cost of financing on seed capital and co-investments and amortization of debt issuance costs.

(b) ENI earnings after Affiliate key employee distributions is calculated as ENI operating income (ENI revenue, less ENI operating expense, less ENI variable compensation), less Affiliate key employee distributions.

Refer to “—Key Non-GAAP Operating Metrics” for a reconciliation from U.S.

19 unchanged sentences

ENI revenue includes management fees, performance fees and other revenue under U.S.

GAAP, adjusted to include management fees paid to Affiliates by consolidated Funds and our share of earnings from equity-accounted Affiliates.

GAAP, adjusted to include management fees paid to Affiliates by consolidated Funds and our share of earnings from our equity-accounted Affiliate.

ENI revenue is also adjusted to exclude the separate revenues recorded under U.S.

9 unchanged sentences

Segment ENI Revenue

The following table identifies the components of segment ENI revenue for the three months ended March 31, 2020 and 2019 :

Three Months Ended March 31,

The following table identifies the components of segment ENI revenue for the three months ended June 30, 2020 and 2019:

Three Months Ended June 30,

($ in millions) 2020 2019

Quant & Solutions

Alter-natives

Quant & Solutions

Alter-natives

Quant & Solutions Alter-natives Liquid Alpha Other Total Quant & Solutions Alter-natives Liquid Alpha Other Total

Management fees $ 82.2 $ 41.8 $ 46.7 $ — $ 170.7 $ 93.6 $ 43.5 $ 68.8 $ — $ 205.9

Performance fees

0.5 — (0.2) — 0.3 0.1 0.6 (2.9) — (2.2)

Other income, including equity-accounted subsidiaries

0.1 0.7 0.6 0.1 1.5 — 0.2 0.6 0.1 0.9

ENI revenue $ 82.8 $ 42.5 $ 47.1 $ 0.1 $ 172.5 $ 93.7 $ 44.3 $ 66.5 $ 0.1 $ 204.6

The following table identifies the components of segment ENI revenue for the six months ended June 30, 2020 and 2019:

Six Months Ended June 30,

($ in millions) 2020 2019

Quant & Solutions Alter-natives Liquid Alpha Other Total Quant & Solutions Alter-natives Liquid Alpha Other Total

Management fees $ 167.4 $ 83.2 $ 98.6 $ — $ 349.2 $ 184.1 $ 87.3 $ 142.0 $ — $ 413.4

Performance fees

1.5 — (0.2) — 1.3 0.1 0.6 (5.7) — (5.0)

Other income, including equity-accounted subsidiaries

— 1.2 1.2 0.2 2.6 — 0.4 1.3 0.2 1.9

ENI revenue $ 168.9 $ 84.4 $ 99.6 $ 0.2 $ 353.1 $ 184.2 $ 88.3 $ 137.6 $ 0.2 $ 410.3

Quant & Solutions Segment ENI Revenue

Three months ended March 31, 2020 compared to three months ended March 31, 2019 :

Quant & Solutions ENI revenue decreased $(4.4) million , or (4.9)% , from $90.5 million for the three months ended March 31, 2019 to $86.1 million for the three months ended March 31, 2020 .

Three months ended June 30, 2020 compared to three months ended June 30, 2019:

Quant & Solutions ENI revenue decreased $(10.9) million, or (11.6)%, from $93.7 million for three months ended June 30, 2019 to $82.8 million for the three months ended June 30, 2020.

The decrease was attributable to (12.2)% lower management fees, driven by lower average AUM primarily resulting from the equity market decline in the first quarter of 2020.

Six months ended June 30, 2020 compared to six months ended June 30, 2019:

Quant & Solutions ENI revenue decreased $(15.3) million, or (8.3)%, from $184.2 million for the six months ended June 30, 2019 to $168.9 million for the six months ended June 30, 2020.

The decrease was attributable to (9.1)% lower management fees, driven by lower average AUM primarily resulting from the equity market decline in the current year.

Alternatives Segment ENI Revenue

Three months ended March 31, 2020 compared to three months ended March 31, 2019 :

Alternatives ENI revenue decreased $(2.1) million , or (4.8)% , from $44.0 million for the three months ended March 31, 2019 to $41.9 million for the three months ended March 31, 2020 .

The decrease was attributable to (5.5)% lower management fees largely resulting from a decline in liquid alternative assets.

Three months ended June 30, 2020 compared to three months ended June 30, 2019:

Alternatives ENI revenue decreased $(1.8) million, or (4.1)%, from $44.3 million for three months ended June 30, 2019 to $42.5 million for the three months ended June 30, 2020.

The decrease was attributable to (3.9)% lower management fees resulting from lower blended fee rate due to change in asset mix.

Six months ended June 30, 2020 compared to six months ended June 30, 2019:

Alternatives ENI revenue decreased $(3.9) million, or (4.4)%, from $88.3 million for the six months ended June 30, 2019 to $84.4 million for the six months ended June 30, 2020.

The decrease was attributable to (4.7)% largely from lower blended fee rate due to change in asset mix and lower performance fees.

Liquid Alpha Segment ENI Revenue

Three months ended March 31, 2020 compared to three months ended March 31, 2019 :

Liquid Alpha ENI revenue decreased $(18.6) million , or (26.2)% , from $71.1 million for the three months ended March 31, 2019 to $52.5 million for the three months ended March 31, 2020 .

The decrease was attributable to (29.1)% lower management fees, driven by lower average AUM resulting from the equity market decline and net outflows over the last twelve months.

The change in performance fees for the three months ended March 31, 2020 compared to the three months ended March 31, 2019 was primarily due to fulcrum fees recorded in the prior period that did not repeat.

Three months ended June 30, 2020 compared to three months ended June 30, 2019:

Liquid Alpha ENI revenue decreased $(19.4) million, or (29.2)%, from $66.5 million for three months ended June 30, 2019 to $47.1 million for the three months ended June 30, 2020.

The decrease was attributable to (32.1)% lower management fees driven by lower average AUM resulting from the equity market decline and net outflows over the last twelve months, as well as the Vanguard reallocation in the fourth quarter of 2019.

The change in performance fees for the three months ended June 30, 2020 compared to the three months ended June 30, 2019 was primarily due to fulcrum fees recorded in the prior period that did not repeat.

Six months ended June 30, 2020 compared to six months ended June 30, 2019:

Liquid Alpha ENI revenue decreased $(38.0) million, or (27.6)%, from $137.6 million for the six months ended June 30, 2019 to $99.6 million for the six months ended June 30, 2020.

The decrease was attributable to (30.6)% lower management fees, driven by lower average AUM resulting from the equity market decline and net outflows over the last twelve months, as well as the Vanguard reallocation in the fourth quarter of 2019.

The change in performance fees for the six months ended June 30, 2020 compared to the six months ended June 30, 2019 was primarily due to fulcrum fees recorded in the prior period that did not repeat.

Segment ENI Expense

The following table identifies the components of segment ENI expense for the three months ended March 31, 2020 and 2019 :

Three Months Ended March 31,

The following table identifies the components of segment ENI expense for the three months ended June 30, 2020 and 2019:

Three Months Ended June 30,

($ in millions) 2020 2019

Quant & Solutions

Alter-natives

Quant & Solutions

Alter-natives

Quant & Solutions Alter-natives Liquid Alpha Other Total Quant & Solutions Alter-natives Liquid Alpha Other Total

Fixed compensation & benefits

$ 17.3 $ 11.1 $ 11.9 $ 2.5 $ 42.8 $ 19.7 $ 11.2 $ 12.5 $ 3.9 $ 47.3

13.1 4.3 5.4 3.3 26.1 16.5 4.2 7.2 3.8 31.7

Depreciation and amortization

4.6 0.3 0.1 0.1 5.1 3.5 0.2 0.2 0.1 4.0

Total ENI Operating Expenses

$ 35.0 $ 15.7 $ 17.4 $ 5.9 $ 74.0 $ 39.7 $ 15.6 $ 19.9 $ 7.8 $ 83.0

Variable compensation

17.7 9.7 11.2 0.8 39.4 20.0 10.4 15.7 2.3 48.4

Affiliate key employee distributions

1.3 6.9 2.8 — 11.0 1.6 6.4 5.8 — 13.8

Total Expenses $ 54.0 $ 32.3 $ 31.4 $ 6.7 $ 124.4 $ 61.3 $ 32.4 $ 41.4 $ 10.1 $ 145.2

The following table identifies the components of segment ENI expense for the six months ended June 30, 2020 and 2019:

Six Months Ended June 30,

($ in millions) 2020 2019

Quant & Solutions Alter-natives Liquid Alpha Other Total Quant & Solutions Alter-natives Liquid Alpha Other Total

Fixed compensation & benefits

$ 35.6 $ 22.7 $ 25.0 $ 6.1 $ 89.4 $ 39.9 $ 22.4 $ 26.6 $ 8.1 $ 97.0

27.2 8.9 12.0 7.3 55.4 32.9 10.4 14.5 8.9 66.7

Depreciation and amortization

9.3 0.7 0.2 0.2 10.4 6.8 0.5 0.3 0.2 7.8

Total ENI Operating Expenses

$ 72.1 $ 32.3 $ 37.2 $ 13.6 $ 155.2 $ 79.6 $ 33.3 $ 41.4 $ 17.2 $ 171.5

Variable compensation

34.7 18.9 23.7 1.8 79.1 38.7 20.2 32.6 5.6 97.1

Affiliate key employee distributions

2.1 12.7 6.0 — 20.8 2.6 12.1 12.5 — 27.2

Total Expenses $ 108.9 $ 63.9 $ 66.9 $ 15.4 $ 255.1 $ 120.9 $ 65.6 $ 86.5 $ 22.8 $ 295.8

Quant & Solutions Segment ENI Expense

Three months ended March 31, 2020 compared to three months ended March 31, 2019 :

Quant & Solutions ENI operating expense decreased $(2.8) million , or (7.0)% , from $39.9 million for the three months ended March 31, 2019 to $37.1 million for the three months ended March 31, 2020 .

Three months ended June 30, 2020 compared to three months ended June 30, 2019:

Quant & Solutions ENI operating expense decreased $(4.7) million, or (11.8)%, from $39.7 million for the three months ended June 30, 2019 to $35.0 million for the three months ended June 30, 2020.

The decrease was driven by (12.2)% lower ENI fixed compensation and benefits expense resulting from headcount reduction, and (20.6)% lower ENI general and administrative expense resulting from cost saving initiatives.

Quant & Solutions ENI variable compensation expense, which is based on contractual arrangements, decreased (11.5)%, as a result of lower pre-variable compensation earnings.

Affiliate key employee distributions attributable to Quant & Solutions decreased (20.0)% , largely driven by lower Quant & Solutions ENI earnings after variable compensation.

Affiliate key employee distributions attributable to Quant & Solutions decreased (18.8)%, primarily due to lower Quant & Solutions ENI earnings after variable compensation.

Six months ended June 30, 2020 compared to six months ended June 30, 2019:

Quant & Solutions ENI operating expense decreased $(7.5) million, or (9.4)%, from $79.6 million for the six months ended June 30, 2019 to $72.1 million for the six months ended June 30, 2020.

The decrease was driven by (10.8)% lower ENI fixed compensation and benefits expense resulting from headcount reduction, and (17.3)% lower ENI general and administrative expense resulting from cost saving initiatives.

Quant & Solutions ENI variable compensation expense, which is based on contractual arrangements, decreased (10.3)%, as a result of lower pre-variable compensation earnings.

Affiliate key employee distributions attributable to Quant & Solutions decreased (19.2)%, primarily due to lower Quant & Solutions ENI earnings after variable compensation.

Alternatives Segment ENI Expense

Three months ended March 31, 2020 compared to three months ended March 31, 2019 :

Alternatives ENI operating expense decreased $(1.1) million , or (6.2)% , from $17.7 million for the three months ended March 31, 2019 to $16.6 million for the three months ended March 31, 2020 .

Three months ended June 30, 2020 compared to three months ended June 30, 2019:

Alternatives ENI operating expense increased $0.1 million, or 0.6%, from $15.6 million for three months ended June 30, 2019 to $15.7 million for the three months ended June 30, 2020.

The increase was driven by 2.4% higher ENI general and administrative related to outside services, partially offset by (0.9)% lower ENI fixed compensation and benefits expense.

Alternatives ENI variable compensation expense, which is based on contractual arrangements, decreased (6.7)%, as a result of lower pre-variable compensation earnings.

Affili ate key employee distributions attributable to Alternatives increased 7.8%, primarily driven by the mix of distributable earnings between Affiliates period over period.

Six months ended June 30, 2020 compared to six months ended June 30, 2019:

Alternatives ENI operating expense decreased $(1.0) million, or (3.0)%, from $33.3 million for the six months ended June 30, 2019 to $32.3 million for the six months ended June 30, 2020.

The decrease was driven by (14.4)% lower ENI general and administrative expense resulting from lower consulting costs.

Alternatives ENI variable compensation expense, which is based on contractual arrangements, decreased (6.4)%, as a result of lower pre-variable compensation earnings.

Affiliate key employee distributions attributable to Alternatives increased 1.8% , largely driven by the mix of distributable earnings between Affiliates period over period.

Affiliate key employee distributions attributable to Alternatives increased 5.0%, primarily driven by the mix of distributable earnings between Affiliates period over period.

Liquid Alpha Segment ENI Expense

Three months ended March 31, 2020 compared to three months ended March 31, 2019 :

Liquid Alpha ENI operating expense decreased $(1.8) million , or (8.3)% , from $21.6 million for the three months ended March 31, 2019 to $19.8 million for the three months ended March 31, 2020 .

Three months ended June 30, 2020 compared to three months ended June 30, 2019:

Liquid Alpha ENI operating expense decreased $(2.5) million, or (12.6)%, from $19.9 million for the three months ended June 30, 2019 to $17.4 million for the three months ended June 30, 2020.

The decrease was driven by (4.8)% lower ENI fixed compensation and benefits expense resulting from headcount reduction and (25.0)% lower ENI general and administrative expense resulting from cost-saving initiatives.

Liquid Alpha ENI variable compensation expense, which is based on contractual arrangements, decreased (28.7)%, as a result of lower pre-variable compensation earnings.

Affiliate key employee distributions attributable to Liquid Alpha decreased (52.2)% , largely driven by lower Liquid Alpha ENI earnings after variable compensation.

Affiliate key employee distributions attributable to Liquid Alpha decreased (51.7)%, primarily driven by lower Liquid Alpha ENI earnings after variable compensation.

Six months ended June 30, 2020 compared to six months ended June 30, 2019:

Liquid Alpha ENI operating expense decreased $(4.2) million, or (10.1)%, from $41.4 million for the six months ended June 30, 2019 to $37.2 million for the six months ended June 30, 2020.

The decrease was driven by (6.0)% lower ENI fixed compensation and benefits expense resulting from headcount reduction and (17.2)% lower ENI general and administrative expense resulting from cost-saving initiatives.

Liquid Alpha ENI variable compensation expense, which is based on contractual arrangements, decreased (27.3)%, as a result of lower pre-variable compensation earnings.

Affiliate key employee distributions attributable to Liquid Alpha decreased (52.0)%, primarily driven by lower Liquid Alpha ENI earnings after variable compensation.

Other ENI Expense

Three months ended March 31, 2020 compared to three months ended March 31, 2019 :

Other ENI operating expense decrease d $(1.6) million , or (17.2)% , from $9.3 million for the three months ended March 31, 2019 to $7.7 million for the three months ended March 31, 2020 .

Three months ended June 30, 2020 compared to three months ended June 30, 2019:

Other ENI operating expense decreased $(1.9) million or (24.4)%, from $7.8 million for the three months ended June 30, 2019 to $5.9 million for the three months ended June 30, 2020.

The decrease was driven by (35.9)% lower fixed compensation and benefit expense resulting from a reduction in headcount, and (13.2)% lower general and administrative expense resulting from cost-saving initiatives.

Other ENI variable compensation expense decreased (65.2)% which was driven by a reduction in headcount.

Six months ended June 30, 2020 compared to six months ended June 30, 2019:

Other ENI operating expense decreased $(3.6) million, or (20.9)%, from $17.2 million for the six months ended June 30, 2019 to $13.6 million for the six months ended June 30, 2020.

The decrease was driven by (24.7)% lower fixed compensation and benefit expense resulting from a reduction in headcount, and (18.0)% lower general and administrative expense resulting from cost-saving initiatives.

Other ENI variable compensation expense decreased (67.9)% due to a reduction in headcount.

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All amounts presented exclude consolidated Funds:

Three Months Ended March 31,

Six Months Ended June 30,

($ in millions) 2020 2019

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(2) Cash flow data shown only includes cash flows from continuing operations.

Comparison for the three months ended March 31, 2020 and 2019

Net cash used in operating activities of continuing operations decreased $270.4 million , from net cash used of $299.5 million for the three months ended March 31, 2019 to net cash used of $29.1 million for the three months ended March 31, 2020 , driven by the change in operating liabilities as a result of the Landmark earnout that was settled in the three months ended March 31, 2019 .

In the three months ended March 31, 2020 , net cash provided by investing activities of continuing operations increased $5.5 million , from $4.4 million used in the three months ended March 31, 2019 to $1.1 million provided for the three months ended March 31, 2020 , driven primarily by net purchases and sales of investment securities in the three months ended March 31, 2020 .

Net cash provided by financing activities of continuing operations increased $4.5 million , from $36.6 million provided for the three months ended March 31, 2019 to $41.1 million provided for the three months ended March 31, 2020 , primarily due to lower share repurchases, offset by a lower drawdown on the revolving credit facility in the three months ended March 31, 2020 compared to 2019 .

Comparison for the six months ended June 30, 2020 and 2019

Net cash provided by operating activities from continuing operations increased $292.1 million, from net cash used of $229.5 million for the six months ended June 30, 2019 to net cash provided of $62.6 million for the six months ended June 30, 2020, driven by the change in operating liabilities as a result of the Landmark earnout that was settled in the six months ended June 30, 2019.

In the six months ended June 30, 2020, net cash provided by investing activities of continuing operations increased $16.9 million, from $6.8 million used in the six months ended June 30, 2019 to $10.1 million provided by the six months ended June 30, 2020, driven primarily by increased sales of investment securities in the six months ended June 30, 2020.

Net cash used in financing activities of continuing operations increased $59.6 million, from $8.6 million used in the six months ended June 30, 2019 to $68.2 million used in the six months ended June 30, 2020, primarily due to a lower drawdown on the revolving credit facility, and decreased share repurchases in the six months ended June 30, 2020 compared to 2019.

Supplemental Liquidity Measure — Adjusted EBITDA

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The following table reconciles our U.S.

GAAP net income attributable to controlling interests to EBITDA to Adjusted EBITDA to economic net income for the three months ended March 31, 2020 and 2019 .

Three Months Ended March 31,

GAAP net income attributable to controlling interests to EBITDA to Adjusted EBITDA to economic net income for the three and six months ended June 30, 2020 and 2019.

Three Months Ended June 30, Six Months Ended June 30,

($ in millions) 2020 2019 2020 2019

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Income tax expense (including tax expenses related to discontinued operations)

7.3 14.1 20.9 35.7

Depreciation and amortization (including intangible assets) and goodwill impairment

7.0 5.7 30.3 11.1

EBITDA $ 40.4 $ 56.3 $ 117.4 $ 141.9

Non-cash compensation costs, including revaluation of Affiliate key employee-owned equity and profit interests

11.6 7.1 (36.7) (13.0)

Amortization of pre-acquisition employee equity

1.8 2.3 3.0 3.9

(Gain) loss on seed and co-investments (8.2) (5.2) 11.4 (17.7)

Restructuring and the impact of a one-time compensation arrangement that includes advances against future compensation payments (1)

8.1 1.3 14.8 5.6

Capital transaction costs 0.2 1.6 0.2 1.6

Adjusted EBITDA

$ 53.9 $ 63.4 $ 110.1 $ 122.3

ENI net interest expense to third parties (5.6) (6.2) (11.2) (9.7)

Depreciation and amortization (2)

(5.8) (4.0) (12.1) (7.8)

Tax on economic net income (9.6) (12.2) (19.6) (24.6)

Economic net income

Included in the three months ended March 31, 2019 are restructuring costs at the Center of $4.0 million and costs associated with the redomicile to the U.S.

of $0.3 million .

The three months ended March 31, 2020 includes non-cash equity-based award amortization expense.

$ 32.9 $ 41.0 $ 67.2 $ 80.2

The three months ended June 30, 2019 includes $0.5 million of restructuring costs at the Center and $0.8 million associated with the redomicile to the U.S.

The six months ended June 30, 2019 includes $4.5 million of restructuring costs at the Center and $1.1 million associated with the redomicile to the U.S.

(2) The three and six months ended June 30, 2020 includes non-cash equity-based award amortization expense.

Limitations of Adjusted EBITDA

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We believe that our available cash and cash equivalents to be generated from operations, supplemented by short-term and long-term financing, as necessary, will be sufficient to fund current operations and capital requirements for at least the next twelve months, as well as our day-to-day operations and future investment requirements.

We also expect to realize future proceeds from the sale of our equity interest in Barrow Hanley during the second half of 2020.

Our ability to secure short-term and long-term financing in the future will depend on several factors, including our future profitability, our relative levels of debt and equity and the overall condition of the credit markets.

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The following table summarizes our financing arrangements as of the dates indicated:

($ in millions)

Interest rate

($ in millions) June 30,

2020 December 31,

2019 Interest rate Maturity

Third party borrowings:

Revolving credit facility

LIBOR + 1.50% plus 0.20% commitment fee

August 22, 2022

4.80% Senior Notes Due 2026

July 27, 2026

5.125% Senior Notes Due 2031

August 1, 2031

Revolving credit facility $ 130.0 $ 140.0 LIBOR + 1.50% plus 0.20% commitment fee August 22, 2022

4.80% Senior Notes Due 2026 272.6 272.4 4.80% July 27, 2026

5.125% Senior Notes Due 2031 121.4 121.4 5.125% August 1, 2031

Total third party borrowings $ 524.0 $ 533.8

Non-recourse borrowing:

Non-recourse seed capital facility

LIBOR + 1.55% plus 0.95% commitment fee

January 15, 2021

Non-recourse seed capital facility 21.7 35.0 LIBOR + 1.55% plus 0.95% commitment fee January 15, 2021

Total non-recourse borrowing $ 21.7 $ 35.0

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Under the Credit Facility, the ratio of third party borrowings to trailing twelve months Adjusted EBITDA cannot exceed 3.0x, and the interest coverage ratio must not be less than 4.0x.

At March 31, 2020 , our ratio of third party borrowings to trailing twelve months Adjusted EBITDA was 2.5 x and our interest coverage ratio was 7.8 x.

Our ratio of third party borrowings net of total cash and cash equivalents to trailing twelve months Adjusted EBITDA was 2.0 x.

At June 30, 2020, our ratio of third party borrowings to trailing twelve months Adjusted EBITDA was 2.2x and our interest coverage ratio was 7.8x.

At June 30, 2020, our ratio of third party borrowings net of total cash and cash equivalents to trailing twelve months Adjusted EBITDA was 1.7x.

Moody’s Investor Service, Inc.

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In July 2017, we entered into a non-recourse seed capital facility collateralized by our seed capital holdings and can borrow up to $65.0 million, so long as the borrowing does not represent more than 50% of the value of the seed capital collateral.

At March 31, 2020 , amounts outstanding under this non-recourse seed capital facility amounted to $21.7 million .

At June 30, 2020, amounts outstanding under this non-recourse seed capital facility amounted to $21.7 million.

Since this facility is non-recourse to us beyond the seed investments themselves, drawdowns under this facility are excluded from our third party debt levels for purposes of calculating our credit ratio covenants under the Credit Facility.

As of March 31, 2020 , we were in compliance with the required covenants related to borrowings and debt facilities.

As of June 30, 2020, we were in compliance with the required covenants related to borrowings and debt facilities.

Other Compensation Liabilities

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The following table summarizes our other long-term liabilities:

2020 December 31,

($ in millions)

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Voluntary deferral plan liability 89.1 88.3

Total $ 367.5 $ 404.9

Share-based payments liability represents the value of Affiliate key employee-owned equity that may under certain circumstances be repurchased by us that is considered an equity award under U.S.

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Forward Looking Statements

This Quarterly Report on Form 10-Q includes forward-looking statements, including information relating to anticipated revenues, margins, cash flows or earnings, anticipated future performance of our business and our Affiliates or particular segments, our expected future net cash flows, our anticipated expense levels, capital management, expected impact of the COVID-19 pandemic on our business, financial condition, results of operations and cash flows,and/or expectations regarding market conditions.

This Quarterly Report on Form 10-Q includes forward-looking statements, including information relating to our pending divestiture of Barrow Hanley, anticipated revenues, margins, cash flows or earnings, anticipated future performance of our business and our Affiliates or particular segments, our expected future net cash flows, our anticipated expense levels, capital management, expected impact of the COVID-19 pandemic on our business, financial condition, results of operations and cash flows,and/or expectations regarding market conditions.

The words or phrases “will likely result,” “are expected to,” “will continue,” “is anticipated,” “can be,” “may be,” “aim to,” “may affect,” “may depend,” “intends,” “expects,” “believes,” “estimate,” “project,” and other similar expressions are intended to identify such forward-looking statements.

Such statements are subject to various known and unknown risks and uncertainties and we caution readers that any forward-looking information provided by or on behalf of us is not a guarantee of future performance.

Risk Factors, and in our most recent Annual Report on Form 10-K, filed with the Securities and Exchange Commission on March 2, 2020 , and subsequent SEC filings.

Actual results may differ materially from those in forward-looking information as a result of various factors, some of which are beyond our control, including but not limited to those discussed above and elsewhere in this Quarterly Report on Form 10-Q, in our most recent Annual Report on Form 10-K, filed with the Securities and Exchange Commission on March 2, 2020, in our most recent Quarterly Report on Form 10-Q, filed with the Securities Exchange Commission on May 11, 2020 and subsequent SEC filings.

Due to such risks and uncertainties and other factors, we caution each person receiving such forward-looking information not to place undue reliance on such statements.

1 unchanged sentence

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis