Acadian Asset Management Inc. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. Unless we state otherwise or the context otherwise requires, references in this Quarterly Report on Form 10-Q to “BrightSphere” or “BSIG” refer to BrightSphere Investment Group Inc., references to the “Company” refer to BSIG, and references to “we,” “our” and “us” refer to BSIG and its consolidated subsidiaries and equity-accounted Affiliates, excluding discontinued operations. References to the holding company or “Center” excluding the Affiliates refer to BrightSphere Inc., or “BSUS,” a Delaware corporation and wholly owned subsidiary of BSIG. Unless we state otherwise or the context otherwise requires, references in this Quarterly Report on Form 10-Q to “Affiliates” or an “Affiliate” refer to the asset management firms in which we have an ownership interest. References in this Quarterly Report on Form 10-Q to “OM plc” refer to Old Mutual plc, our former parent. None of the information in this Quarterly Report on Form 10-Q constitutes either an offer or a solicitation to buy or sell any of our Affiliates’ products or services, nor is any such information a recommendation for any of our Affiliates’ products or services. The following discussion of our financial condition and results of operations should be read in conjunction with our Condensed Consolidated Financial Statements and related notes which appear elsewhere in this Quarterly Report on Form 10-Q. This discussion contains forward-looking statements that involve risks and uncertainties. See “Forward-Looking Statements” at the end of this Item 2 for more information. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those discussed below. This Management’s Discussion and Analysis of Financial Condition and Results of Operations, or MD&A, is designed to provide a reader of our financial statements with a narrative from the perspective of our management on our financial condition, results of operations, liquidity and certain other factors that may affect our future results. Our MD&A is presented in five sections: • 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. • U.S. GAAP Results of Operations for the Three and Nine Months Ended September 30, 2020 and 2019 includes an explanation of changes in our U.S. GAAP revenue, expense and other items for the three and nine months ended September 30, 2020 and 2019, as well as key U.S. GAAP operating metrics. • Non-GAAP Supplemental Performance Measure — Economic Net Income and Segment Analysis includes an explanation of the key differences between U.S. GAAP net income and ENI, the key measure management uses to evaluate our performance. This section also provides a reconciliation between U.S. GAAP net income attributable to controlling interests and ENI for the three and nine months ended September 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. In addition, this section provides segment analysis for each of our business segments. • Capital Resources and Liquidity discusses our key balance sheet data. This section discusses Cash Flows from the business; Adjusted EBITDA; Future Capital Needs; Borrowings and Long-Term Debt. The discussion of Adjusted EBITDA includes an explanation of how we calculate Adjusted EBITDA and a reconciliation of U.S. GAAP net income attributable to controlling interests to Adjusted EBITDA. • Critical Accounting Policies and Estimates provides a discussion of the key accounting policies and estimates that we believe are the most critical to an understanding of our results of operations and financial condition. These accounting policies and estimates require complex management judgment regarding matters that are highly uncertain at the time the policies were applied and estimates were made. 39 Table of Contents Overview We are a diversified, global asset management company headquartered in Boston, Massachusetts. We operate our business through three business segments: • Quant & Solutions —comprised of versatile, often highly-tailored strategies that leverage data and technology in a computational, factor-based investment process across a range of asset classes and geographies, including Global, non-U.S., emerging markets and managed volatility equities, as well as multi-asset products. • Alternatives —comprised of illiquid and differentiated liquid investment strategies that include private equity, real estate and real assets, including forestry, as well as a growing suite of liquid alternative capabilities in areas such as long/short, market neutral and absolute return. • Liquid Alpha (1) —comprised of specialized investment strategies with a focus on alpha-generation across market cycles in long-only small-, mid-, and large-cap U.S., global, non-U.S. and emerging markets equities, as well as fixed income. (1) In July 2020, we completed the sale of Copper Rock Capital Partners LLC (“Copper Rock”) and announced the divestiture of Barrow Hanley Mewhinney & Strauss, LLC (“Barrow Hanley”), which is expected to close in the fourth quarter of 2020, see "Recent Developments" herein. Within our three segments, we have five (1) affiliate firms to whom we refer in this Quarterly Report as our Affiliates. Through our Affiliates, we offer a diverse range of actively-managed investment strategies and products to institutional investors around the globe. While our Affiliates maintain autonomy in the investment process and the day-to-day management of their businesses, our strategy is to work with them to accelerate the growth and profitability of their firms. Under U.S. GAAP, our Affiliates may be consolidated into our operations or may be accounted for under the equity method of accounting. We may also be required to consolidate certain of our Affiliates’ sponsored investment entities, or Funds, due to the nature of our decision-making rights, our economic interests in these Funds or the rights of third party clients in those Funds. (1) In July 2020, we completed the sale of Copper Rock and announced divestiture of Barrow Hanley, which is expected to close in the fourth quarter of 2020. This number gives effect to these divestitures. See "Recent Developments" herein. 40 Table of Contents Our Affiliates within each business segment and their principal strategies include: Quant & Solutions • Acadian Asset Management LLC (“Acadian”) (1) —a leading quantitatively-oriented manager of active global and international equity, and alternative strategies. Alternatives ◦ Landmark Partners, LLC (“Landmark”) —a leading global secondary private equity, real estate and real asset investment firm. ◦ Campbell Global, LLC (“Campbell Global”) —a leading sustainable forestry and natural resource investment manager that seeks to deliver superior investment performance by focusing on unique acquisition opportunities, client objectives and disciplined management. Liquid Alpha ◦ Barrow, Hanley, Mewhinney & Strauss, LLC (“Barrow Hanley”) (2) —a widely recognized value-oriented investment manager of U.S., international and global equities, fixed income and a range of balanced investment management strategies. ◦ Thompson, Siegel & Walmsley LLC (“TSW”) (1) —a value-oriented investment manager focused on small- and mid-cap U.S. equity, international equity and fixed income strategies. ◦ Investment Counselors of Maryland, LLC (“ICM”) (3) — a value-driven domestic equity manager with product offerings focused on small- and mid-cap companies. (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. See "Recent Developments" herein. We have presented operational information (including AUM and flow data) including Barrow Hanley for all periods. Under U.S. GAAP, financial results continue to include Barrow Hanley until the transaction closes, which is expected to be in the fourth quarter of 2020. (3) Accounted for under the equity method of accounting. Recent Developments Divestiture of Barrow Hanley and Copper Rock On July 24, 2020, we sold all of our equity interests in Copper Rock, a former Affiliate, to Spouting Rock Asset Management LLC. The transaction resulted in a $7.2 million gain which is reflected on our Condensed Consolidated Statement of Operations for the three and nine months ended September 30, 2020. On July 26, 2020, we entered into a purchase and sale agreement with Perpetual U.S. Holdings Company Inc. to sell all our 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 in the fourth quarter of 2020. COVID-19 Impact 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. We continue to monitor the economic uncertainty and market volatility related to COVID-19, which has impacted the investment management industry in which we and our Affiliates operate. 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. 41 Table of Contents 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 Our profitability is affected by a variety of factors including the level and composition of our average assets under management, or AUM, fee rates charged on AUM and our expense structure. Our Affiliates earn management fees based on assets under management. Approximately 70% of our management fees for the three months ended September 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. Our Affiliates may also earn performance fees, or adjust management fees, when certain accounts differ in relation to relevant benchmarks or exceed or fail to exceed required returns. Approximately $18.0 billion, or 10% of our AUM in consolidated Affiliates, are in accounts with incentive fee or carried interest features in which we participate in the performance fee. The majority of these incentive fees are calculated based on value added over the relevant benchmarks on a rolling three-year basis. Carried interests are features of private equity funds, which are calculated based on long-term cumulative returns. Our largest expense item is compensation and benefits paid to our and our Affiliates’ employees, which consists of both fixed and variable components. Fixed compensation and benefits represents base salaries and wages, payroll taxes and the costs of our employee benefit programs. Variable compensation, calculated as described below, may be awarded in cash, equity or profit interests. The arrangements in place with our Affiliates result in the sharing of economics between BSUS and each Affiliate’s key management personnel using a profit-sharing model, except for ICM, which uses a revenue share model as a result of a legacy economic arrangement that has not been restructured. Profit sharing affects two elements within our earnings: (i) the calculation of variable compensation and (ii) the level of each Affiliate’s equity or profit interests distribution to its employees. Variable compensation is the portion of earnings that is contractually allocated to Affiliate employees as a bonus pool, typically representing a fixed percentage of earnings before variable compensation, which is measured as revenues less fixed compensation and benefits and other operating and administrative expenses. Profits after variable compensation are shared between us and Affiliate key employee equity holders according to our respective equity or profit interests ownership. The sharing of profits in this manner ensures that the economic interests of Affiliate key employees and those of BSUS are aligned, both in terms of generating strong annual earnings as well as investing those earnings back into the business in order to generate growth over the long term. We view profit sharing as an attractive operating model, as it allows us to share in the benefits of operating leverage as the business grows, and ensures all equity and profit interests holders are incentivized to achieve that growth. Equity or profit interests owned by Affiliate key employees are either awarded as part of their variable compensation arrangements, or alternatively, may have originally resulted from BSUS acquiring less than 100% of the Affiliate. Over time, Affiliate key employee-owned equity or profit interests are recycled from one generation of employee-owners to the next, either by the next generation purchasing equity or profit interests directly from retiring principals, or by Affiliate key employees forgoing cash bonuses in exchange for the equivalent value in Affiliate equity or profit interests. The recycling of equity or profit interests is often facilitated by BSUS; see "—U.S. GAAP Results of Operations—U.S. GAAP Expenses—Compensation and Benefits Expense" for a further discussion. 42 Table of Contents How We Measure Performance We manage our business based on three business segments, reflecting how our management assesses the performance of our business. In measuring and monitoring the key components of our earnings, our management uses a non-GAAP financial measure, ENI, to evaluate the financial performance of, and to make operational decisions for, our business. We also use ENI to make resource allocation decisions, determine appropriate levels of investment or dividend payout, manage balance sheet leverage, determine Affiliate variable compensation and equity distributions, and incentivize management. It is an important measure in evaluating our financial performance because we believe it most accurately represents our operating performance and cash generation capability. ENI differs from net income determined in accordance with U.S. GAAP as a result of both the reclassification of certain income statement items and the exclusion of certain non-cash or non-recurring income statement items. In particular, ENI excludes non-cash charges representing the changes in the value of Affiliate equity and profit interests held by Affiliate key employees, the impact of a one-time compensation arrangement entered into that includes advances against future compensation payments, the results of discontinued operations which are no longer part of our business, restructuring costs, capital transaction costs, seed capital and co-investment gains, losses and related financing costs and that portion of consolidated Funds which are not attributable to our stockholders. 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 Affiliate. Revenue included within ENI differs from U.S. GAAP revenue in that it excludes amounts from consolidated Funds which are not attributable to our stockholders, it excludes reimbursement of certain costs we paid on behalf of our customers and includes our share of earnings from our equity-accounted Affiliate. ENI expenses are calculated to reflect all usual expenses from ongoing continuing operations attributable to our stockholders. Expenses included within ENI differ from U.S. GAAP expenses in that they exclude amounts from consolidated Funds which are not attributable to our stockholders, revaluations of Affiliate key employee owned equity and profit interests, amortization and impairment of acquired intangibles and other acquisition-related items, the impact of a one-time compensation arrangement entered into that includes advances against future compensation payments, costs we paid on behalf of our customers which were subsequently reimbursed and certain other non-cash expenses. “Non-controlling interests” is a concept under U.S. GAAP that identifies net components of revenues and expenses that are not attributable to our stockholders. For example, the portion of the net income (loss) of any consolidated Fund that is attributable to the outside investors or clients of the consolidated Fund is included in “Non-controlling interests” in our Condensed Consolidated Financial Statements. Conversely, “controlling interests” is the portion of revenue or expense that is attributable to our stockholders. For a more detailed discussion of the differences between U.S. GAAP net income and economic net income, see "—Non-GAAP Supplemental Performance Measure — Economic Net Income and Segment Analysis." 43 Table of Contents Summary Results of Operations The following table summarizes our unaudited results of operations for the three and nine months ended September 30, 2020 and 2019: ($ in millions, unless otherwise noted) Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 vs. 2019 2020 2019 2020 vs. 2019 U.S. GAAP Basis Revenue $ 182.4 $ 197.8 $ (15.4) $ 539.7 $ 612.1 $ (72.4) Pre-tax income from continuing operations attributable to controlling interests 50.0 43.4 6.6 122.4 159.8 (37.4) Net income from continuing operations attributable to controlling interests 37.2 75.4 (38.2) 88.7 156.1 (67.4) Net income attributable to controlling interests 37.2 75.4 (38.2) 88.7 156.1 (67.4) U.S. GAAP operating margin (1) 22.2 % 26.2 % (403) bps 26.1 % 27.2 % (111) bps Earnings per share, basic ($) $ 0.46 $ 0.84 $ (0.38) $ 1.08 $ 1.68 $ (0.60) Earnings per share, diluted ($) $ 0.46 $ 0.84 $ (0.38) $ 1.08 $ 1.68 $ (0.60) Basic shares outstanding (in millions) 80.0 90.0 (10.0) 81.8 93.0 (11.2) Diluted shares outstanding (in millions) 80.9 90.0 (9.1) 82.1 93.1 (11.0) Economic Net Income Basis (2)(3) (Non-GAAP measure used by management) ENI revenue (4) $ 180.8 $ 195.8 $ (15.0) $ 533.9 $ 606.1 $ (72.2) Pre-tax economic net income (5) 49.5 49.7 (0.2) 136.3 154.5 (18.2) Adjusted EBITDA 60.5 59.8 0.7 170.6 182.1 (11.5) ENI operating margin (6) 36.4 % 34.7 % 166 bps 34.6 % 34.6 % (2) bps Economic net income (7) 37.7 37.4 0.3 104.9 117.6 (12.7) ENI diluted EPS ($) $ 0.47 $ 0.42 $ 0.05 $ 1.28 $ 1.26 $ 0.02 Other Operational Information Assets under management (AUM) at period end (in billions) $ 184.8 $ 216.8 $ (32.0) $ 184.8 $ 216.8 $ (32.0) Net client cash flows (in billions) (1.5) (6.2) 4.7 (2.2) (7.6) 5.4 Annualized revenue impact of net flows (8) (0.5) (16.2) 15.7 (14.1) (24.4) 10.3 (1) U.S. GAAP operating margin equals operating income from continuing operations divided by total revenue. (2) Economic net income is a non-GAAP measure we use to evaluate the performance of our business. For a reconciliation to U.S. GAAP financial information and a further discussion of economic net income refer to “—Non-GAAP Supplemental Performance Measure—Economic Net Income and Segment Analysis.” (3) Excludes restructuring costs at the Center and Affiliates of $1.4 million and $4.8 million, costs associated with the transfer of an insurance policy from our former Parent of $0.4 million and $1.0 million, costs relating to the impact of a one-time compensation arrangement entered into that includes advances against future compensation payments of $3.2 million and $13.9 million, and the gain on sale of Copper Rock of $7.2 million and $7.2 million for the three and nine ended September 30, 2020, respectively. Excludes restructuring costs at the Center of $0.1 million and $4.6 million and costs associated with the redomicile to the U.S. of $0.9 million and $2.0 million for the three and nine months ended September 30, 2019, respectively. (4) ENI revenue is the ENI measure which corresponds to U.S. GAAP revenue. (5) Pre-tax economic net income is the ENI measure which corresponds to U.S. GAAP pre-tax income from continuing operations attributable to controlling interests. 44 Table of Contents (6) ENI operating margin is a non-GAAP efficiency measure, calculated based on ENI operating earnings divided by ENI revenue. ENI operating earnings is calculated as ENI revenue, less ENI operating expense, less ENI variable compensation. The ENI operating margin corresponds to our U.S. GAAP operating margin, excluding the effect of consolidated Funds. (7) Economic net income is the ENI measure which is most directly comparable to U.S. GAAP net income from continuing operations attributable to controlling interests. (8) 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 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. For a further discussion of the uses and limitations of the annualized revenue impact of net flows, see "Assets Under Management" herein. Assets Under Management On July 24, 2020, we completed the sale of all of our equity interests in Copper Rock, a former Affiliate, to Spouting Rock. Unless specifically noted, flow information from Copper Rock is included up to June 30, 2020, but excluded thereafter, and AUM data at September 30, 2020 excludes the Copper Rock AUM. On July 26, 2020, we entered into a purchase and sale agreement to sell our interests in Barrow Hanley to Perpetual in exchange for $319 million of cash consideration, on a cash-free, debt-free basis, subject to certain customary closing and post-closing adjustments. The transaction is expected to close in the fourth quarter of 2020. Barrow Hanley will continue to contribute to our financial results until the transaction closes. Unless specifically noted, flow information includes flows from Barrow Hanley, and AUM data at September 30, 2020 includes the Barrow Hanley AUM. The following table presents our assets under management by Affiliate as of each of the dates indicated: ($ in billions) September 30, 2020 December 31, 2019 Acadian Asset Management $ 95.9 $ 102.2 Barrow, Hanley, Mewhinney & Strauss 44.6 51.7 Campbell Global 4.9 4.8 Copper Rock Capital Partners (1) — 3.9 Investment Counselors of Maryland 2.3 2.4 Landmark Partners 18.1 18.3 Thompson, Siegel & Walmsley 19.0 21.1 Total assets under management $ 184.8 $ 204.4 (1) On July 24, 2020, we completed the sale of all of our equity interests in Copper Rock to Spouting Rock. 45 Table of Contents Our strategies include: i. U.S. equity, which includes small cap through large cap securities and substantially value or blended investment styles; ii. Global / non-U.S. equity, which includes global and international equities including emerging markets; iii. Fixed income, which includes government bonds, corporate bonds and other fixed income investments in the United States; and iv. Alternatives, which consist of illiquid and differentiated liquid investment strategies that include private equity, real estate and real assets, including forestry, as well as a growing suite of liquid alternative capabilities in areas such as long/short, market neutral and absolute return. The following table presents our assets under management by strategy as of each of the dates indicated: ($ in billions) September 30, 2020 December 31, 2019 U.S. equity, small/smid cap value $ 5.2 $ 6.0 U.S. equity, mid cap value 4.0 5.3 U.S. equity, large cap value 24.5 30.2 U.S. equity, core/blend 1.9 1.9 Total U.S. equity 35.6 43.4 Global equity 34.6 40.3 International equity 54.2 54.9 Emerging markets equity 23.8 28.7 Total global / non-U.S. equity 112.6 123.9 Fixed income 12.7 13.3 Alternatives 23.9 23.8 Total assets under management $ 184.8 $ 204.4 The following table shows assets under management by client type as of each of the dates indicated: ($ in billions) September 30, 2020 December 31, 2019 AUM % of total AUM % of total Sub-advisory $ 36.3 19.6 % $ 40.5 19.8 % Corporate/Union 33.6 18.2 % 38.6 18.9 % Public/Government 70.7 38.3 % 75.2 36.8 % Endowment/Foundation 4.0 2.2 % 5.3 2.6 % OM plc Group 1.8 1.0 % 2.1 1.0 % Commingled Trust/UCITS 27.5 14.9 % 30.8 15.1 % Mutual Fund 2.1 1.1 % 2.2 1.1 % Other 8.8 4.8 % 9.7 4.7 % Total assets under management $ 184.8 $ 204.4 46 Table of Contents The following table shows assets under management by client location as of each of the dates indicated: ($ in billions) September 30, 2020 December 31, 2019 AUM % of total AUM % of total U.S. $ 136.8 74.0 % $ 148.4 72.6 % Europe 17.0 9.2 % 20.1 9.8 % Asia 10.1 5.5 % 12.4 6.1 % Australia 8.2 4.4 % 9.4 4.6 % Other 12.7 6.9 % 14.1 6.9 % Total assets under management $ 184.8 $ 204.4 AUM flows and the annualized revenue impact of net flows Net client cash flows and revenue impact of net client cash flows for all periods include reinvested income and distributions, and exclude realizations. Reinvested income and distributions represent investment yield that is reinvested back into the portfolios as opposed to distributed as cash. Realizations include distributions related to the sale of alternative assets, which represent a return on investment. In the following table, we present our asset flows and market appreciation (depreciation) by segment. We also present a key metric used to better understand our asset flows, the annualized revenue impact of net client cash flows. 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 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. The annualized revenue impact of net flows metric is designed to provide investors with a better indication of the potential financial impact of net client cash flows, however it has certain limitations. For instance, it does not include assumptions for the next twelve months' market appreciation or depreciation and investment performance associated with the assets gained or lost. Nor does it account for factors such as future client terminations or additional contributions or withdrawals over the next twelve months. Additionally, the basis points reported are fee rates based on the asset levels at the time of the transactions and do not consider the fact that client fee rates may change over the next twelve months. 47 Table of Contents The following table summarizes our asset flows and market appreciation (depreciation) by segment for each of the periods indicated: Three Months Ended September 30, Nine Months Ended September 30, ($ in billions, unless otherwise noted) 2020 2019 2020 2019 Quant & Solutions Beginning balance $ 92.0 $ 97.6 $ 101.9 $ 85.2 Gross inflows 2.8 3.0 9.8 10.6 Gross outflows (5.7) (3.6) (12.5) (9.1) Reinvested income and distributions 0.6 0.7 2.2 2.1 Net flows (2.3) 0.1 (0.5) 3.6 Market appreciation (depreciation) 5.7 (2.2) (6.0) 6.7 Ending balance $ 95.4 $ 95.5 $ 95.4 $ 95.5 Average AUM (1) $ 95.7 $ 96.0 $ 93.1 $ 94.1 Alternatives Beginning balance $ 24.1 $ 23.5 $ 23.8 $ 23.8 Gross inflows 0.8 0.6 1.6 1.3 Gross outflows (0.1) (0.1) (0.3) (0.7) Net flows 0.7 0.5 1.3 0.6 Market depreciation (0.2) — (0.2) (0.1) Realizations and other (2) (0.7) (0.8) (1.0) (1.1) Ending balance $ 23.9 $ 23.2 $ 23.9 $ 23.2 Average AUM (1) $ 23.9 $ 23.2 $ 24.0 $ 23.6 Liquid Alpha (3) Beginning balance $ 64.9 $ 103.9 $ 78.7 $ 97.3 Sale of Affiliate (1.7) — (1.7) — Gross inflows 2.8 1.0 8.0 4.7 Gross outflows (3.1) (8.4) (12.3) (18.7) Reinvested income and distributions 0.4 0.6 1.3 2.2 Net flows 0.1 (6.8) (3.0) (11.8) Market appreciation (depreciation) 2.2 1.0 (8.5) 12.6 Ending balance $ 65.5 $ 98.1 $ 65.5 $ 98.1 Average AUM $ 65.2 $ 99.8 $ 67.5 $ 101.2 Average AUM of consolidated Affiliates $ 63.0 $ 97.6 $ 65.4 $ 99.1 Total (4) Beginning balance $ 181.0 $ 225.0 $ 204.4 $ 206.3 Sale of Affiliate (1.7) — (1.7) — Gross inflows 6.4 4.6 19.4 16.6 Gross outflows (8.9) (12.1) (25.1) (28.5) Reinvested income and distributions 1.0 1.3 3.5 4.3 Net flows (1.5) (6.2) (2.2) (7.6) Market appreciation (depreciation) 7.7 (1.2) (14.7) 19.2 Realizations and other (2) (0.7) (0.8) (1.0) (1.1) Ending balance $ 184.8 $ 216.8 $ 184.8 $ 216.8 Average AUM $ 184.8 $ 219.0 $ 184.6 $ 218.9 Average AUM of consolidated Affiliates $ 182.6 $ 216.8 $ 182.5 $ 216.8 Annualized basis points: inflows 41.8 33.7 37.4 34.8 Annualized basis points: outflows 34.5 30.1 39.4 34.0 Annualized revenue impact of net flows ($ in millions) $ (0.5) $ (16.2) $ (14.1) $ (24.4) 48 Table of Contents (1) Average AUM equals average AUM of consolidated Affiliates. (2) Realizations include distributions related to the sale of alternative assets, and represent a return on investments. Other activity primarily relates to the decline in billable AUM as a legacy alternative fund transitioned from billing based on committed AUM to net asset value. (3) The following table summarizes our asset flows and market appreciation (depreciation) for the Liquid Alpha segment excluding Barrow Hanley and Copper Rock for the periods indicated: Three Months Ended September 30, Nine Months Ended September 30, ($ in billions) 2020 2019 2020 2019 Liquid Alpha Beginning balance $ 19.1 $ 22.8 $ 23.1 $ 21.3 Net flows 1.1 (0.6) 0.5 (1.3) Market appreciation (depreciation) 0.7 — (2.7) 2.2 Ending balance $ 20.9 $ 22.2 $ 20.9 $ 22.2 Average AUM of consolidated Affiliates $ 18.0 $ 20.1 $ 17.9 $ 20.6 (4) The following table summarizes our total asset flows and market appreciation (depreciation) excluding Barrow Hanley and Copper Rock: Three Months Ended September 30, Nine Months Ended September 30, ($ in billions) 2020 2019 2020 2019 Total Beginning balance $ 135.2 $ 143.9 $ 148.8 $ 130.3 Net flows (0.5) — 1.4 2.9 Market appreciation (depreciation) 6.2 (2.2) (9.0) 8.8 Realizations and other (0.7) (0.8) (1.0) (1.1) Ending balance $ 140.2 $ 140.9 $ 140.2 $ 140.9 Average AUM of consolidated Affiliates $ 137.6 $ 139.3 $ 135.1 $ 138.3 We also analyze our asset flows by client type and client location. Our client types include: i. Sub-advisory, which includes assets managed for underlying mutual fund and variable insurance products which are sponsored by insurance companies and mutual fund platforms, where the end client is typically retail; ii. Institutional, which includes assets managed for public/government pension funds, including U.S. state and local government funds and non-U.S. sovereign wealth, local government and national pension funds; also includes corporate and union-sponsored pension plans; and iii. Retail/other, which includes assets managed for mutual funds sponsored by our Affiliates, defined contribution plans and accounts managed for high net worth clients. 49 Table of Contents The following table summarizes our asset flows by client type for each of the periods indicated: ($ in billions) Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 Sub-advisory Beginning balance $ 34.5 $ 64.3 $ 40.5 $ 61.3 Sale of Affiliate (0.2) — (0.2) — Gross inflows 1.5 0.9 5.3 3.4 Gross outflows (1.4) (5.7) (5.9) (13.5) Reinvested income and distributions (1) 0.2 0.4 0.7 1.3 Net flows 0.3 (4.4) 0.1 (8.8) Market appreciation (depreciation) 1.7 0.3 (4.1) 7.7 Ending balance $ 36.3 $ 60.2 $ 36.3 $ 60.2 Institutional Beginning balance $ 136.3 $ 149.3 $ 152.0 $ 135.1 Sale of Affiliate (1.4) — (1.4) — Gross inflows 4.3 3.3 12.1 11.5 Gross outflows (7.3) (6.0) (17.5) (13.7) Reinvested income and distributions (1) 0.7 0.8 2.6 2.8 Net flows (2.3) (1.9) (2.8) 0.6 Market appreciation (depreciation) 5.7 (1.4) (9.2) 10.6 Realizations and other (2) (0.7) (0.8) (1.0) (1.1) Ending balance $ 137.6 $ 145.2 $ 137.6 $ 145.2 Retail/Other Beginning balance $ 10.2 $ 11.4 $ 11.9 $ 9.9 Sale of Affiliate (0.1) — (0.1) — Gross inflows 0.6 0.4 2.0 1.7 Gross outflows (0.2) (0.4) (1.7) (1.3) Reinvested income and distributions (1) 0.1 0.1 0.2 0.2 Net flows 0.5 0.1 0.5 0.6 Market appreciation (depreciation) 0.3 (0.1) (1.4) 0.9 Ending balance $ 10.9 $ 11.4 $ 10.9 $ 11.4 Total Beginning balance $ 181.0 $ 225.0 $ 204.4 $ 206.3 Sale of Affiliate (1.7) — (1.7) — Gross inflows 6.4 4.6 19.4 16.6 Gross outflows (8.9) (12.1) (25.1) (28.5) Reinvested income and distributions (1) 1.0 1.3 3.5 4.3 Net flows (1.5) (6.2) (2.2) (7.6) Market appreciation (depreciation) 7.7 (1.2) (14.7) 19.2 Realizations and other (2) (0.7) (0.8) (1.0) (1.1) Ending balance $ 184.8 $ 216.8 $ 184.8 $ 216.8 (1) Reinvested income and distributions is allocated based on consolidated total distribution rate multiplied by the beginning of period AUM of each client type. (2) Realizations include distributions related to the sale of alternative assets, and represent a return on investments. Other activity primarily relates to the decline in billable AUM as a legacy alternative fund transitioned from billing based on committed AUM to net asset value. 50 Table of Contents It is a strategic objective to increase our percentage of assets under management sourced from non-U.S. clients. Our categorization by client location includes: i. U.S.-based clients, where the contracting client is based in the United States, and ii. Non-U.S.-based clients, where the contracting client is based outside the United States. The following table summarizes asset flows by client location for each of the periods indicated: ($ in billions) Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 U.S. Beginning balance $ 132.1 $ 169.9 $ 148.4 $ 156.8 Sale of Affiliate (0.5) — (0.5) — Gross inflows 4.5 2.9 14.1 10.5 Gross outflows (5.1) (8.8) (16.4) (21.0) Reinvested income and distributions (1) 0.7 1.0 2.5 3.3 Net flows 0.1 (4.9) 0.2 (7.2) Market appreciation (depreciation) 5.8 (0.6) (10.4) 15.0 Realizations and other (2) (0.7) (0.7) (0.9) (0.9) Ending balance $ 136.8 $ 163.7 $ 136.8 $ 163.7 Non-U.S. Beginning balance $ 48.9 $ 55.1 $ 56.0 $ 49.5 Sale of Affiliate (1.2) — (1.2) — Gross inflows 1.9 1.7 5.3 6.1 Gross outflows (3.8) (3.3) (8.7) (7.5) Reinvested income and distributions (1) 0.3 0.3 1.0 1.0 Net flows (1.6) (1.3) (2.4) (0.4) Market appreciation (depreciation) 1.9 (0.6) (4.3) 4.2 Realizations and other (2) — (0.1) (0.1) (0.2) Ending balance $ 48.0 $ 53.1 $ 48.0 $ 53.1 Total Beginning balance $ 181.0 $ 225.0 $ 204.4 $ 206.3 Sale of Affiliate (1.7) — (1.7) — Gross inflows 6.4 4.6 19.4 16.6 Gross outflows (8.9) (12.1) (25.1) (28.5) Reinvested income and distributions (1) 1.0 1.3 3.5 4.3 Net flows (1.5) (6.2) (2.2) (7.6) Market appreciation (depreciation) 7.7 (1.2) (14.7) 19.2 Realizations and other (2) (0.7) (0.8) (1.0) (1.1) Ending balance $ 184.8 $ 216.8 $ 184.8 $ 216.8 (1) Reinvested income and distributions is allocated based on consolidated distribution total rate multiplied by the beginning of period AUM of each client location. (2) Realizations include distributions related to the sale of alternative assets, and represent a return on investments. Other activity primarily relates to the decline in billable AUM as a legacy alternative fund transitioned from billing based on committed AUM to net asset value. 51 Table of Contents At September 30, 2020, our total assets under management were $184.8 billion, an increase of $3.8 billion, or 2.1%, compared to $181.0 billion at June 30, 2020 and a decrease of $(32.0) billion, or (14.8)%, compared to $216.8 billion at September 30, 2019. The change in assets under management during the three months ended September 30, 2020 reflects net market appreciation of $7.7 billion from continued market recovery, partially offset by net flows of $(1.5) billion and the sale of Copper Rock of $(1.7) billion. The change in assets under management during the nine months ended September 30, 2020 reflects net market depreciation of $(14.7) billion, driven by the COVID-19 pandemic that caused significant market disruption in the first quarter of 2020, realizations and other of $(1.0) billion, net flows of $(2.2) billion including reinvested income and distributions of $3.5 billion, and the sale of Copper Rock of $(1.7) billion. For the three months ended September 30, 2020, our net flows were $(1.5) billion compared to $(1.7) billion for the three months ended June 30, 2020 and $(6.2) billion for the three months ended September 30, 2019. Net flows for the three months ended September 30, 2020 inc luded $(1.0) billion related to Barrow Hanley and Copper Rock. Reinvested income and distributions of $1.0 billion, $1.2 billion and $1.3 billion are reflected in the net flows for the three months ended September 30, 2020, June 30, 2020 and September 30, 2019, respectively. For the three months ended September 30, 2020, the annualized revenue impact of the net flows was $(0.5) million. This is compared to the annualized revenue impact of net flows of $(13.4) million for the three months ended June 30, 2020 and $(16.2) million for the three months ended September 30, 2019. Gross inflows of $6.4 billion during the three-month period yielded approximately 42 bps, and gross outflows in the same period of $(8.9) billion yielded approximately 34 bps. For the nine months ended September 30, 2020, our net flows were $(2.2) billion compared to $(7.6) billion for the nine months ended September 30, 2019. The improvement in net flows during the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019 was primarily due to improvement of the Liquid Alpha segment. Net flows during the nine months ended September 30, 2020 included $(3.6) billion related to Barrow Hanley and Copper Rock. Reinvested income and distributions of $3.5 billion, and $4.3 billion are reflected in the net flows for the nine months ended September 30, 2020 and September 30, 2019, respectively. For the nine months ended September 30, 2020, the annualized revenue impact of the net flows was $(14.1) million compared to $(24.4) million for the nine months ended September 30, 2019 due to lower net outflows in 2020. Gross inflows of $19.4 billion in the nine months ended September 30, 2020 yielded approximately 37 bps compared to $16.6 billion yielding approximately 35 bps in the year-ago period. Gross outflows of $(25.1) billion yielded approximately 39 bps in the nine months ended September 30, 2020 compared to $(28.5) billion yielding approximately 34 bps in the year-ago period. 52 Table of Contents U.S. GAAP Results of Operations for the Three and Nine Months Ended September 30, 2020 and 2019 Our U.S. GAAP results of operations were as follows for the three and nine months ended September 30, 2020 and 2019: Three Months Ended September 30, Nine Months Ended September 30, ($ in millions, unless otherwise noted) 2020 2019 Increase (Decrease) 2020 2019 Increase (Decrease) U.S. GAAP Statement of Operations Management fees $ 178.2 $ 196.4 $ (18.2) $ 527.4 $ 609.8 $ (82.4) Performance fees 1.2 (1.9) 3.1 2.5 (6.9) 9.4 Other revenue 1.6 1.4 0.2 5.2 4.3 0.9 Consolidated Funds’ revenue 1.4 1.9 (0.5) 4.6 4.9 (0.3) Total revenue 182.4 197.8 (15.4) 539.7 612.1 (72.4) Compensation and benefits 109.7 108.0 1.7 284.0 332.8 (48.8) General and administrative expense 25.4 31.7 (6.3) 77.6 95.3 (17.7) Impairment of goodwill — — — 16.4 — 16.4 Amortization of acquired intangibles 1.6 1.6 — 5.1 4.9 0.2 Depreciation and amortization 5.2 4.4 0.8 15.6 12.2 3.4 Consolidated Funds’ expense — 0.2 (0.2) 0.2 0.4 (0.2) Total operating expenses 141.9 145.9 (4.0) 398.9 445.6 (46.7) Operating income 40.5 51.9 (11.4) 140.8 166.5 (25.7) Investment income (loss) 3.9 2.3 1.6 (3.2) 11.4 (14.6) Interest income — 0.4 (0.4) 0.5 1.8 (1.3) Interest expense (6.9) (8.3) 1.4 (22.1) (24.1) 2.0 Gain on sale of Affiliate 7.2 — 7.2 7.2 — 7.2 Net consolidated Funds’ investment gains 2.1 4.7 (2.6) 20.5 13.8 6.7 Income from continuing operations before taxes 46.8 51.0 (4.2) 143.7 169.4 (25.7) Income tax expense (benefit) 12.8 (32.0) 44.8 33.7 3.7 30.0 Income from continuing operations 34.0 83.0 (49.0) 110.0 165.7 (55.7) Gain (loss) on disposal of discontinued operations, net of tax — — — — — — Net income 34.0 83.0 (49.0) 110.0 165.7 (55.7) Net income attributable to non-controlling interests in consolidated Funds (3.2) 7.6 (10.8) 21.3 9.6 11.7 Net income attributable to controlling interests $ 37.2 $ 75.4 $ (38.2) $ 88.7 $ 156.1 $ (67.4) Basic earnings per share ($) $ 0.46 $ 0.84 $ (0.38) $ 1.08 $ 1.68 $ (0.60) Diluted earnings per share ($) 0.46 0.84 (0.38) 1.08 1.68 (0.60) Weighted average shares of common stock outstanding—basic 80.0 90.0 (10.0) 81.8 93.0 (11.2) Weighted average shares of common stock outstanding—diluted 80.9 90.0 (9.1) 82.1 93.1 (11.0) U.S. GAAP operating margin (1) 22.2 % 26.2 % 26.1 % 27.2 % (1) The U.S. GAAP operating margin equals operating income from continuing operations divided by total revenue. 53 Table of Contents The following table reconciles our net income attributable to controlling interests to our pre-tax income from continuing operations attributable to controlling interests: ($ in millions) Three Months Ended September 30, Nine Months Ended September 30, U.S. GAAP Statement of Operations 2020 2019 2020 2019 Net income attributable to controlling interests $ 37.2 $ 75.4 $ 88.7 $ 156.1 Exclude: (Gain) loss on disposal of discontinued operations, net of tax — — — — Net income from continuing operations attributable to controlling interests 37.2 75.4 88.7 156.1 Add: Income tax expense 12.8 (32.0) 33.7 3.7 Pre-tax income from continuing operations attributable to controlling interests $ 50.0 $ 43.4 $ 122.4 $ 159.8 U.S. GAAP Revenues Our U.S. GAAP revenues principally consist of: i. management fees earned based on our overall weighted average fee rate charged to our clients and the level of assets under management; ii. performance fees earned or management fee adjustments when our Affiliates’ investment performance over agreed time periods for certain clients has differed from pre-determined hurdles; iii. other revenue, consisting primarily of consulting services as well as reimbursement of certain Fund expenses our Affiliates paid on behalf of our Funds; and iv. revenue from consolidated Funds, a portion of which is attributable to the holders of non-controlling interests in consolidated Funds. Management Fees 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 Affiliate, average basis points earned on average assets under management were 38.8 bps and 38.6 bps for the three and nine months ended September 30, 2020, respectively, and 35.9 bps and 37.6 bps for the three and nine months ended September 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. 54 Table of Contents Our average basis points by segment (including only consolidated Affiliates that are included in management fee revenue, unless indicated) over each of the periods indicated were: ($ in millions, except AUM data in billions) Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 Revenue Basis Pts Revenue Basis Pts Revenue Basis Pts Revenue Basis Pts Quant & Solutions 87.9 37 92.7 38 $ 255.3 37 $ 276.8 39 Alternatives $ 43.2 72 $ 37.2 64 126.4 70 124.5 71 Liquid Alpha 47.1 30 66.5 27 145.7 30 208.5 28 U.S. GAAP management fee revenue & weighted average fee rate on average AUM of consolidated Affiliates (1) $ 178.2 38.8 $ 196.4 35.9 $ 527.4 38.6 $ 609.8 37.6 Average AUM excluding equity-accounted Affiliates $ 182.6 $ 216.8 $ 182.5 $ 216.8 Average AUM including equity-accounted Affiliates & weighted average fee rate $ 184.8 39.0 $ 219.0 36.2 $ 184.6 38.8 $ 218.9 37.8 (1) Amounts shown are equivalent to ENI management fee revenue. (See “ENI Revenues”) Three months ended September 30, 2020 compared to three months ended September 30, 2019: Management fees decreased $(18.2) million, or (9.3)%, from $196.4 million for the three months ended September 30, 2019 to $178.2 million for the three months ended September 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 (15.8)%, from $216.8 billion for the three months ended September 30, 2019 to $182.6 billion for the three months ended September 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. Nine months ended September 30, 2020 compared to nine months ended September 30, 2019: Management fees decreased $(82.4) million, or (13.5)%, from $609.8 million for the nine months ended September 30, 2019 to $527.4 million for the nine months ended September 30, 2020. The decrease was primarily attributable to a decrease in average assets under management. Average assets under management excluding equity-accounted Affiliate decreased (15.8)%, from $216.8 billion for the nine months ended September 30, 2019 to $182.5 billion for the nine months ended September 30, 2020, mainly due to the equity market decline during the nine months ended September 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. 55 Table of Contents Performance Fees Approximately $18.0 billion, or 10% of our AUM in consolidated Affiliates, were in accounts with incentive fee or carried interest features in which we participate. Performance fees are typically shared with our Affiliate key employees through various contractual compensation and profit-sharing arrangements. Three months ended September 30, 2020 compared to three months ended September 30, 2019: Performance fees improved $3.1 million, from $(1.9) million for the three months ended September 30, 2019 to $1.2 million for the three months ended September 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. Nine months ended September 30, 2020 compared to nine months ended September 30, 2019: Performance fees improved $9.4 million, from $(6.9) million for the nine months ended September 30, 2019 to $2.5 million for the nine months ended September 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. The liquidation of an alternative product may result in the recognition of a performance fee. 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 September 30, 2020. Other Revenue Three months ended September 30, 2020 compared to three months ended September 30, 2019: Other revenue increased $0.2 million, from $1.4 million for the three months ended September 30, 2019 to $1.6 million for the three months ended September 30, 2020. The increase was primarily attributable to an increase in consulting performed by an Affiliate for three months ended September 30, 2020. Nine months ended September 30, 2020 compared to nine months ended September 30, 2019: Other revenue increased $0.9 million, from $4.3 million for the nine months ended September 30, 2019 to $5.2 million for the nine months ended September 30, 2020. The increase was primarily attributable to an increase in consulting performed by an Affiliate for the nine months ended September 30, 2020. U.S. GAAP Expenses Our U.S. GAAP expenses principally consist of: i. compensation paid to our investment professionals and other employees, including base salary, benefits, sales-based compensation, variable compensation, Affiliate distributions, revaluation of key employee owned Affiliate equity and profit interests, and the amortization of pre-acquisition employee equity; ii. general and administrative expenses; iii. impairment of goodwill; iv. amortization of acquired intangible assets; v. depreciation and amortization charges; and vi. expenses of consolidated Funds, a portion of which is attributable to the holders of non-controlling interests in consolidated Funds. 56 Table of Contents Compensation and Benefits Expense Our most significant category of expense is compensation and benefits awarded to our and our Affiliates’ employees. The following table presents the components of U.S. GAAP compensation expense for the three and nine months ended September 30, 2020 and 2019: Three Months Ended September 30, Nine Months Ended September 30, ($ in millions) 2020 2019 2020 2019 Fixed compensation and benefits (1) $ 44.0 $ 47.7 $ 135.5 $ 146.9 Sales-based compensation (2) 2.0 2.7 6.2 8.5 Variable compensation (3) 44.5 44.1 137.7 145.8 Affiliate key employee distributions (4) 11.0 12.6 31.8 39.8 Non-cash Affiliate key employee equity revaluations (5) 6.6 (14.7) (31.8) (27.7) Amortization of pre-acquisition employee equity (6) 1.6 15.6 4.6 19.5 Total U.S. GAAP compensation and benefits expense $ 109.7 $ 108.0 $ 284.0 $ 332.8 (1) Fixed compensation and benefits include base salaries, payroll taxes and the cost of benefit programs provided. For the three and nine months ended September 30, 2020, $42.8 million and $132.2 million, respectively, of fixed compensation and benefits (of the $44.0 million and $135.5 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 nine months ended September 30, 2019, $46.7 million and $143.7 million, respectively, of fixed compensation and benefits (of the $47.7 million and $146.9 million above) are included within economic net income, which excludes Fund expenses initially paid by our Affiliates on the Fund’s behalf and subsequently reimbursed. (2) Sales-based compensation is paid to our and our Affiliates’ sales and distribution teams and represents compensation earned by our sales professionals, paid over a multi-year period, related to revenue earned on new sales. Its variability is based upon the structure of sales-based compensation due on inflows of assets under management and market-based movement in both current and prior periods. (3) Variable compensation is contractually set and calculated individually at each Affiliate, plus Center bonuses and compensation paid by our Affiliates on behalf of their Funds that are subsequently reimbursed. Variable compensation is usually awarded based on a contractual percentage of each Affiliate’s ENI profits before variable compensation and may be paid in the form of cash or non-cash Affiliate equity or profit interests. In Affiliates with an agreed split of performance fees between Affiliate employees and BSUS, the Affiliates’ share of performance fees is allocated entirely to variable compensation. Center variable compensation includes cash and our equity. Non-cash variable compensation awards typically vest over several years and are recognized as compensation expense over that service period. The variable compensation ratio at each Affiliate, calculated as variable compensation divided by ENI earnings before variable compensation, will typically be between 25% and 35%. 57 Table of Contents Three Months Ended September 30, Nine Months Ended September 30, ($ in millions) 2020 2019 2020 2019 Cash variable compensation $ 40.8 $ 39.9 $ 125.7 $ 131.3 Non-cash equity-based award amortization 3.7 4.2 12.0 14.5 Total variable compensation (a) $ 44.5 $ 44.1 $ 137.7 $ 145.8 (a) For the three and nine months ended September 30, 2020, $41.2 million and $120.3 million, respectively, of variable compensation expense (of the $44.5 million and $137.7 million above) are included within economic net income, which excludes $0.1 million and $3.5 million of variable compensation associated with restructuring at the Center and Affiliates and $3.2 million and $13.9 million of a one-time compensation arrangement entered into that includes advances against future compensation payments. For the three and nine months ended September 30, 2019, $44.1 million and $141.2 million, respectively, of variable compensation expense (of the $44.1 million and $145.8 million above) are included within economic net income, which excludes $0.1 million and $4.6 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. The Affiliate key employee distribution ratio at each Affiliate is calculated as Affiliate key employee distributions divided by ENI operating earnings at that Affiliate. At certain Affiliates with tiered equity structures, BSUS and other classes of employee equity holders are entitled to an initial proportionate preference over profits after variable compensation, structured such that before a preference threshold is reached, there would be no required key employee distributions to the tiered equity holders, whereas for profits above the threshold, the key employee distribution amount to the tiered equity holders would be calculated based on the tiered key employee ownership percentages. Based on current economic arrangements, employee distributions range from approximately 20% to 40% of marginal ENI operating earnings at each of our consolidated Affiliates. (5) Non-cash Affiliate key employee equity revaluations represent changes in the value of Affiliate equity and profit interests held by Affiliate key employees. These ownership interests may in certain circumstances be repurchased by BSUS at a value based on a pre-determined fixed multiple of twelve-month earnings and as such a liability is carried on our balance sheet based on the expected cash to be paid. However, any equity or profit interests repurchased by BSUS can be used to fund a portion of future variable compensation awards, resulting in savings in cash variable compensation that offset the negative cash effect of repurchasing the equity. Our Affiliate equity and profit interest plans have been designed to ensure BSUS is not required to repurchase more equity than we can reasonably recycle through variable compensation awards in any given twelve month period. (6) Amortization of pre-acquisition employee equity represents amortization of the value of employee equity owned prior to the acquisition of Landmark. This is included in U.S. GAAP compensation expense as a result of ongoing service requirements for employee recipients. 58 Table of Contents Fluctuations in compensation and benefits expense for the periods presented are discussed below. Three months ended September 30, 2020 compared to three months ended September 30, 2019: Compensation and benefits expense increased $1.7 million, or 1.6%, from $108.0 million for the three months ended September 30, 2019 to $109.7 million for the three months ended September 30, 2020. Fixed compensation and benefits decreased $(3.7) million, or (7.8)%, from $47.7 million for the three months ended September 30, 2019 to $44.0 million for the three months ended September 30, 2020, primarily reflecting cost savings from the restructuring at the Center and the Affiliates. Variable compensation increased $0.4 million, or 0.9%, from $44.1 million for the three months ended September 30, 2019 to $44.5 million for the three months ended September 30, 2020. The increase was attributable to the impact of a one-time compensation arrangement entered into that includes advances against future compensation payments, offset by lower pre-variable compensation earnings during the current period. Sales-based compensation decreased $(0.7) million, or (25.9)%, from $2.7 million for the three months ended September 30, 2019 to $2.0 million for the three months ended September 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 $(1.6) million, or (12.7)%, from $12.6 million for the three months ended September 30, 2019 to $11.0 million for the three months ended September 30, 2020 as a result of lower underlying operating earnings at the consolidated Affiliates. Revaluations of Affiliate equity increased by $21.3 million reflecting revaluations of key employee ownership interests at our consolidated Affiliates as the value of Affiliate equity decreased $(14.7) million for the three months ended September 30, 2019 and increased $6.6 million for the three months ended September 30, 2020. Amortization of pre-acquisition equity decreased by $(14.0) million from $15.6 million for the three months ended September 30, 2019 to $1.6 million for the three months ended September 30, 2020 as a result of vesting of the employee equity in the prior year period. Nine months ended September 30, 2020 compared to nine months ended September 30, 2019: Compensation and benefits expense decreased $(48.8) million, or (14.7)%, from $332.8 million for the nine months ended September 30, 2019 to $284.0 million for the nine months ended September 30, 2020. Fixed compensation and benefits decreased $(11.4) million, or (7.8)%, from $146.9 million for the nine months ended September 30, 2019 to $135.5 million for the nine months ended September 30, 2020, primarily reflecting cost savings from the restructuring at the Center and Affiliates. Variable compensation decreased $(8.1) million, or (5.6)%, from $145.8 million for the nine months ended September 30, 2019 to $137.7 million for the nine months ended September 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 and Affiliates. Sales-based compensation decreased $(2.3) million, or (27.1)%, from $8.5 million for the nine months ended September 30, 2019 to $6.2 million for the nine months ended September 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 $(8.0) million, or (20.1)%, from $39.8 million for the nine months ended September 30, 2019 to $31.8 million for the nine months ended September 30, 2020, primarily as a result of lower earnings before Affiliate key employee distributions at the consolidated Affiliates. Revaluations of Affiliate equity decreased by $(4.1) million, reflecting revaluations of key employee ownership interests at our consolidated Affiliates, as the value of Affiliate equity decreased $(27.7) million for the nine months ended September 30, 2019 and decreased $(31.8) million for the nine months ended September 30, 2020. Amortization of pre-acquisition equity decreased $(14.9) million, or (76.4)% from $19.5 million for the nine months ended September 30, 2019 to $4.6 million for the nine months ended September 30, 2020, as a result of vesting of the employee equity in the prior year period. 59 Table of Contents General and Administrative Expense Three months ended September 30, 2020 compared to three months ended September 30, 2019: General and administrative expense decreased $(6.3) million, or (19.9)%, from $31.7 million for the three months ended September 30, 2019 to $25.4 million for the three months ended September 30, 2020. The decrease was primarily due to cost saving initiatives at the Center and Affiliates. Nine months ended September 30, 2020 compared to nine months ended September 30, 2019: General and administrative expense decreased $(17.7) million, or (18.6)%, from $95.3 million for the nine months ended September 30, 2019 to $77.6 million for the nine months ended September 30, 2020. The decrease was primarily due to cost saving initiatives at the Center and Affiliates. Impairment of Goodwill Three months ended September 30, 2020 compared to three months ended September 30, 2019: No goodwill impairment charge was recorded in either the three months ended September 30, 2019 or 2020. Nine months ended September 30, 2020 compared to nine months ended September 30, 2019: No goodwill impairment charge was recorded in the nine months ended September 30, 2019. Impairment of goodwill was $16.4 million for the nine months ended September 30, 2020. The increase was the result of an impairment charge recorded for the Copper Rock reporting unit which was included within the Liquid Alpha segment prior to its disposition in the nine months ended September 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 and 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 nine months ended September 30, 2020. In July 2020, we completed the sale of our equity interests in Copper Rock to Spouting Rock. See "Recent Developments" herein. Amortization of Acquired Intangibles Expense Three months ended September 30, 2020 compared to three months ended September 30, 2019: Amortization of acquired intangibles expense was unchanged, at $1.6 million for the three months ended September 30, 2019 and $1.6 million for the three months ended September 30, 2020. This account primarily reflects the amortization of intangible assets acquired in the Landmark transaction. Nine months ended September 30, 2020 compared to nine months ended September 30, 2019: Amortization of acquired intangibles expense increased $0.2 million, or 4.1%, from $4.9 million for the nine months ended September 30, 2019 to $5.1 million for the nine months ended September 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 September 30, 2020 compared to three months ended September 30, 2019: Depreciation and amortization expense increased $0.8 million, or 18.2%, from $4.4 million for the three months ended September 30, 2019 to $5.2 million for the three months ended September 30, 2020. The increase was primarily due to additional software and technology investments in the business. Nine months ended September 30, 2020 compared to nine months ended September 30, 2019: Depreciation and amortization expense increased $3.4 million, or 27.9%, from $12.2 million for the nine months ended September 30, 2019 to $15.6 million for the nine months ended September 30, 2020. The increase was primarily due to additional software and technology investments in the business. 60 Table of Contents U.S. GAAP Other Non-Operating Items of Income and Expense Other non-operating items of income and expense consist of: i. investment income; ii. interest income; and iii. interest expense. Investment Income Three months ended September 30, 2020 compared to three months ended September 30, 2019: Investment income increased $1.6 million, from $2.3 million for the three months ended September 30, 2019 to $3.9 million for the three months ended September 30, 2020, reflecting an increase in returns in the current period generated by seed capital investments as the market recovered from declines in the first quarter of 2020. Nine months ended September 30, 2020 compared to nine months ended September 30, 2019: Investment income decreased $(14.6) million, from $11.4 million for the nine months ended September 30, 2019 to $(3.2) million for the nine months ended September 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 and third quarters of 2020 as the market recovered. Interest Income Three months ended September 30, 2020 compared to three months ended September 30, 2019: Interest income decreased $(0.4) million, from $0.4 million for the three months ended September 30, 2019 to $0.0 million for the three months ended September 30, 2020. The decrease was due to decreases in short-term investment returns in the quarter. Nine months ended September 30, 2020 compared to nine months ended September 30, 2019: Interest income decreased $(1.3) million, from $1.8 million for the nine months ended September 30, 2019 to $0.5 million for the nine months ended September 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 September 30, 2020 compared to three months ended September 30, 2019: Interest expense decreased $(1.4) million, or (16.9)%, from $8.3 million for the three months ended September 30, 2019 to $6.9 million for the three months ended September 30, 2020, reflecting a lower quarterly average balance in 2020 on our revolving credit and non-recourse seed capital facilities. We repaid the balance on our non-recourse seed capital facility, and paid down a portion of the balance on our revolving credit facility in the three months ended September 30, 2020. Nine months ended September 30, 2020 compared to nine months ended September 30, 2019: Interest expense decreased $(2.0) million, or (8.3)%, from $24.1 million for the nine months ended September 30, 2019 to $22.1 million for the nine months ended September 30, 2020, primarily reflecting a lower balance drawn on the non-recourse seed capital and revolving credit facilities in the current year. We repaid the balance on our non-recourse seed capital facility, and paid down a portion of the balance on our revolving credit facility in the nine months ended September 30, 2020. 61 Table of Contents U.S. GAAP Income Tax Expense (Benefit) Our effective tax rate has been impacted by changes in liabilities for uncertain tax positions, tax effects of stock-based compensation, limitations on executive compensation, the mix of income earned in the United States versus lower-taxed foreign jurisdictions and benefits from intercompany financing arrangements. Our effective tax rate could be impacted in the future by these items as well as further changes in tax laws and regulations in jurisdictions in which we operate. The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) contains numerous income tax provisions including some that are effective retroactively. Our Condensed Consolidated Balance Sheet reflects the benefit of a provision that increased the business interest limitation under IRC Section 163(j) from 30% to 50% for tax years 2019 and 2020. This provision will allow us to utilize more of the deferred tax asset related to IRC Section 163(j). 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 our financial statements. Three months ended September 30, 2020 compared to three months ended September 30, 2019: Income tax expense (benefit) increased $44.8 million, from a benefit of $(32.0) million for the three months ended September 30, 2019 to an expense of $12.8 million for the three months ended September 30, 2020. The increase in income tax expense relates to the reductions to liabilities for uncertain tax positions and the revaluation of certain deferred tax assets in connection with the Redomestication in the three months ended September 30, 2019 that did not occur in the three months ended September 30, 2020, In addition, the gain from the disposition of Copper Rock also contributed to the increase in income tax expense in the three months ended September 30, 2020. Nine months ended September 30, 2020 compared to nine months ended September 30, 2019 : Income tax expense increased $30.0 million, from $3.7 million for the nine months ended September 30, 2019 to $33.7 million for the nine months ended September 30, 2020. The increase in income tax expense relates to the reductions to liabilities for uncertain tax positions and the revaluation of certain deferred tax assets in connection with the Redomestication in the nine months ended September 30, 2019 that did not occur in the nine months ended September 30, 2020. This increase is partially offset by a decrease in income from continuing operations as of September 30, 2020 as compared to September 30, 2019. Gain on Sale of Affiliate Three months ended September 30, 2020 compared to three months ended September 30, 2019: No gain on sale of Affiliate was recorded in the three months ended September 30, 2019. Gain on sale of Affiliate was $7.2 million for the three months ended September 30, 2020, representing our gain on the sale of our equity interests in Copper Rock. Nine months ended September 30, 2020 compared to nine months ended September 30, 2019: No gain on sale of an Affiliate was recorded in the nine months ended September 30, 2019. Gain on sale of Affiliate was $7.2 million for the nine months ended September 30, 2020, representing our gain on the sale of our equity interests in Copper Rock. 62 Table of Contents U.S. GAAP Consolidated Funds Three months ended September 30, 2020 compared to three months ended September 30, 2019: Consolidated Funds’ revenue decreased $(0.5) million, from $1.9 million for the three months ended September 30, 2019 to $1.4 million for the three months ended September 30, 2020. Consolidated Funds’ expense decreased $(0.2) million for the three months ended September 30, 2020 compared to the three months ended September 30, 2019. Net consolidated Funds’ investment gain (loss) decreased $(2.6) million, from $4.7 million for the three months ended September 30, 2019 to $2.1 million for the three months ended September 30, 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. Nine months ended September 30, 2020 compared to nine months ended September 30, 2019: Consolidated Funds’ revenue decreased $(0.3) million, from $4.9 million for the nine months ended September 30, 2019 to $4.6 million for the nine months ended September 30, 2020. Consolidated Funds’ expense decreased $(0.2) million, from $0.4 million for the nine months ended September 30, 2019 to $0.2 million for the nine months ended September 30, 2020. Net consolidated Funds’ investment gain (loss) increased $6.7 million, from $13.8 million for the nine months ended September 30, 2019 to $20.5 million for the nine months ended September 30, 2020. The net income or loss of all consolidated Funds, excluding any income or loss attributable to seed capital or co-investments we make in the Funds, is included in non-controlling interests in our Condensed Consolidated Financial Statements and is not included in net income attributable to controlling interests or in management fees. 63 Table of Contents Key U.S. GAAP Operating Metrics The following table shows our key U.S. GAAP operating metrics for the three and nine months ended September 30, 2020 and 2019. The second, third and fourth metrics below have each been adjusted to eliminate the effect of consolidated Funds to more accurately reflect the economics of our Company. Three Months Ended September 30, Nine Months Ended September 30, ($ in millions) 2020 2019 2020 2019 Numerator: Operating income $ 40.5 $ 51.9 $ 140.8 $ 166.5 Denominator: Total revenue $ 182.4 $ 197.8 $ 539.7 $ 612.1 U.S. GAAP operating margin (1) 22.2 % 26.2 % 26.1 % 27.2 % Numerator: Total operating expenses (2) $ 141.9 $ 145.7 $ 398.7 $ 445.2 Denominator: Management fee revenue $ 178.2 $ 196.4 $ 527.4 $ 609.8 U.S. GAAP operating expense / management fee revenue (3) 79.6 % 74.2 % 75.6 % 73.0 % Numerator: Variable compensation $ 44.5 $ 44.1 $ 137.7 $ 145.8 Denominator: Operating income before variable compensation and Affiliate key employee distributions (2)(4)(5) $ 94.6 $ 106.9 $ 305.9 $ 347.6 U.S. GAAP variable compensation ratio (3) 47.0 % 41.3 % 45.0 % 41.9 % Numerator: Affiliate key employee distributions $ 11.0 $ 12.6 $ 31.8 $ 39.8 Denominator: Operating income before Affiliate key employee distributions (2)(4)(5) $ 50.1 $ 62.8 $ 168.2 $ 201.8 U.S. GAAP Affiliate key employee distributions ratio (3) 22.0 % 20.1 % 18.9 % 19.7 % (1) Excluding the effect of Funds consolidation in the applicable periods, the U.S. GAAP operating margin is 21.6% for the three months ended September 30, 2020, 25.6% for the three months ended September 30, 2019, 25.5% for the nine months ended September 30, 2020, and 26.7% for the nine months ended September 30, 2019. (2) Excludes consolidated Funds expense of $0.0 million for the three months ended September 30, 2020, $0.2 million for the three months ended September 30, 2019, $0.2 million for the nine months ended September 30, 2020 and $0.4 million for the nine months ended September 30, 2019. (3) Excludes the effect of Funds consolidation for the three and nine months ended September 30, 2020 and 2019. (4) Excludes consolidated Funds revenue of $1.4 million for the three months ended September 30, 2020, $1.9 million for the three months ended September 30, 2019, $4.6 million for the nine months ended September 30, 2020 and $4.9 million for the nine months ended September 30, 2019. 64 Table of Contents (5) The following table identifies the components of operating income before variable compensation and Affiliate key employee distributions, as well as operating income before Affiliate key employee distributions: Three Months Ended September 30, Nine Months Ended September 30, ($ in millions) 2020 2019 2020 2019 Operating income $ 40.5 $ 51.9 $ 140.8 $ 166.5 Affiliate key employee distributions 11.0 12.6 31.8 39.8 Operating income of consolidated Funds (1.4) (1.7) (4.4) (4.5) Operating income before Affiliate key employee distributions 50.1 62.8 168.2 201.8 Variable compensation 44.5 44.1 137.7 145.8 Operating income before variable compensation and Affiliate key employee distributions $ 94.6 $ 106.9 $ 305.9 $ 347.6 Effects of Inflation For the three and nine months ended September 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 As supplemental information, we provide a non-GAAP performance measure that we refer to as economic net income, or ENI, which represents our management’s view of the underlying economic earnings generated by us. We define economic net income as ENI revenue less (i) ENI operating expenses, (ii) variable compensation, (iii) key employee distributions, (iv) net interest and (v) taxes, each as further discussed in this section. ENI adjustments to U.S. GAAP include both reclassifications of U.S. GAAP revenue and expense items, as well as adjustments to U.S. GAAP results, primarily to exclude non-cash, non-economic expenses, or to reflect cash benefits not recognized under U.S. GAAP. ENI is an important measure to investors because it is used by us to make resource allocation decisions, determine appropriate levels of investment or dividend payout, manage balance sheet leverage, determine Affiliate variable compensation and equity distributions, and incentivize management. It is also an important measure because it assists management in evaluating our operating performance and is presented in a way that most closely reflects the key elements of our profit share operating model with our Affiliates. For a further discussion of how we use ENI and why ENI is useful to investors, see “—Overview—How We Measure Performance.” In the first quarter of 2020, we refined our definition of economic net income in light of a one-time compensation arrangement entered into that includes advance against future contractual compensation payments. To calculate economic net income, we re-categorize certain line items on our Condensed Consolidated Statements of Operations to reflect the following: • We exclude the effect of Funds consolidation by removing the portion of Fund revenues, expenses and investment return which were not attributable to our stockholders. • We include within management fee revenue any fees paid to Affiliates by consolidated Funds, which are viewed as investment income under U.S. GAAP. • We include our share of earnings from our equity-accounted Affiliate within other income in ENI revenue, rather than investment income. 65 Table of Contents • We treat sales-based compensation as a general and administrative expense, rather than part of fixed compensation and benefits. • We identify separately from operating expenses variable compensation and Affiliate key employee distributions, which represent Affiliate earnings shared with Affiliate key employees. • We net the separate revenues and expenses under U.S. GAAP for certain Fund expenses initially paid by our Affiliates on the Funds’ behalf and subsequently reimbursed, to better reflect the economics of our business. We also make the following adjustments to U.S. GAAP results to more closely reflect our economic results: i. We exclude non-cash expenses representing changes in the value of Affiliate equity and profit interests held by Affiliate key employees. These ownership interests may in certain circumstances be repurchased by BSUS at a value based on a pre-determined fixed multiple of trailing earnings and as such this value is carried on our balance sheet as a liability. Non-cash movements in the value of this liability are treated as compensation expense under U.S. GAAP. However, any equity or profit interests repurchased by BSUS can be used to fund a portion of future variable compensation awards, resulting in savings in cash variable compensation that offset the negative cash effect of repurchasing the equity. Our Affiliate equity and profit interest plans have been designed to ensure BSUS is never required to repurchase more equity than we can reasonably recycle through variable compensation awards in any given twelve-month period. ii. We exclude non-cash amortization or impairment expenses related to acquired goodwill and other intangibles as these are non-cash charges that do not result in an outflow of tangible economic benefits from the business. We also exclude the amortization of acquisition-related contingent consideration, as well as the value of employee equity owned pre-acquisition, as occurred as a result of the Landmark transaction, where such items have been included in compensation expense as a result of ongoing service requirements for certain employees. Please note that the revaluations related to these acquisition-related items are included in (i) above. iii. We exclude capital transaction costs, including the costs of raising debt or equity, gains or losses realized as a result of redeeming debt or equity and direct incremental costs associated with acquisitions of businesses or assets. iv. We exclude seed capital and co-investment gains, losses and related financing costs. The net returns on these investments are considered and presented separately from ENI because ENI is primarily a measure of our earnings from managing client assets, which therefore differs from earnings generated by our investments in Affiliate products, which can be variable from period to period. v. We include cash tax benefits associated with deductions allowed for acquired intangibles and goodwill that may not be recognized or have timing differences compared to U.S. GAAP. vi. We exclude the results of discontinued operations attributable to controlling interests since they are not part of our ongoing business, restructuring costs incurred in continuing operations, and the impact of a one-time compensation arrangement entered into that includes advances against future contractual compensation payments. vii. We exclude deferred tax resulting from changes in tax law and expiration of statutes, adjustments for uncertain tax positions, deferred tax attributable to intangible assets and other unusual items not related to current operating results to reflect ENI tax normalization. We also adjust our income tax expense to reflect any tax impact of our ENI adjustments. 66 Table of Contents Reconciliation of U.S. GAAP Net Income to Economic Net Income for the Three and Nine Months Ended September 30, 2020 and 2019 The following table reconciles net income attributable to controlling interests to economic net income for the three and nine months ended September 30, 2020 and 2019: Three Months Ended September 30, Nine Months Ended September 30, ($ in millions) 2020 2019 2020 2019 U.S. GAAP net income attributable to controlling interests $ 37.2 $ 75.4 $ 88.7 $ 156.1 Adjustments to reflect the economic earnings of the Company: i. Non-cash key employee-owned equity and profit interest revaluations 6.6 (14.7) (31.8) (27.7) ii. Goodwill impairment and amortization of acquired intangible assets and pre-acquisition employee equity 3.2 17.2 26.1 24.4 iii. Capital transaction costs 0.1 0.9 0.6 2.5 iv. Seed/Co-investment (gains) losses and financings (1) (8.2) 1.9 6.4 (11.1) v. Tax benefit of goodwill and acquired intangibles deductions 2.2 2.4 6.8 7.1 vi. Discontinued operations, restructuring and the impact of a one-time compensation arrangement that includes advances against future compensation payments (2) (2.2) 1.0 12.6 6.6 vii. ENI tax normalization (1.3) (44.9) (0.7) (41.7) Tax effect of above adjustments, as applicable (3) 0.1 (1.8) (3.8) 1.4 Economic net income $ 37.7 $ 37.4 $ 104.9 $ 117.6 (1) The net return on seed/co-investment (gains) losses and financings for the three and nine months ended September 30, 2020 and 2019 is shown in the following table: Three Months Ended September 30, Nine Months Ended September 30, ($ in millions) 2020 2019 2020 2019 Seed/Co-investment (gains) losses $ (9.7) $ (0.3) $ 1.7 $ (18.0) Financing costs: Seed/Co-investment average balance 93.3 141.9 107.4 144.9 Blended interest rate* 6.0 % 6.2 % 5.8 % 6.3 % Financing costs 1.5 2.2 4.7 6.9 Net seed/co-investment (gains) losses and financing $ (8.2) $ 1.9 $ 6.4 $ (11.1) * 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. 67 Table of Contents (2) The three months ended September 30, 2020 includes $1.4 million of restructuring costs at the Center and Affiliates, $0.4 million costs associated with the transfer of an insurance policy from our former Parent, $3.2 million costs relating to the impact of a one-time compensation arrangement entered into that includes advances against future compensation payments, and the gain on sale of Copper Rock of $7.2 million. The nine months ended September 30, 2020 includes $4.8 million of restructuring costs at the Center and Affiliates, $1.0 million costs associated with the transfer of an insurance policy from our former Parent, $13.9 million costs relating to the impact of a one-time compensation arrangement entered into that includes advances against future compensation payment, and the gain on sale of Copper Rock of $7.2 million. The three months ended September 30, 2019 includes $0.1 million of restructuring costs at the Center and $0.9 million associated with the redomicile to the U.S. The nine months ended September 30, 2019 includes $4.6 million of restructuring costs at the Center and $2.0 million associated with the redomicile to the U.S. (3) Reflects the sum of lines (i), (ii), (iii), (iv) and the restructuring component of line (vi) multiplied by the 27.3% U.S. statutory tax rate (including state tax). Limitations of Economic Net Income Economic net income is the key measure our management uses to evaluate the financial performance of, and make operational decisions for, our business. Economic net income is not audited and is not a substitute for net income or other performance measures that are derived in accordance with U.S. GAAP. Furthermore, our calculation of economic net income may differ from similarly titled measures provided by other companies. Because the calculation of economic net income excludes certain ongoing expenses, including amortization expense and certain compensation costs, it has certain material limitations and should not be viewed in isolation or as a substitute for U.S. GAAP measures of earnings. ENI Revenues The following table reconciles U.S. GAAP revenue to ENI revenue for the three and nine months ended September 30, 2020 and 2019: Three Months Ended September 30, Nine Months Ended September 30, ($ in millions) 2020 2019 2020 2019 U.S. GAAP revenue $ 182.4 $ 197.8 $ 539.7 $ 612.1 Include investment return on equity-accounted Affiliate 0.9 0.8 2.1 2.1 Exclude revenue from consolidated Funds attributable to non-controlling interests (1.4) (1.9) (4.6) (4.9) Exclude Fund expenses reimbursed by customers (1.1) (0.9) (3.3) (3.2) ENI revenue $ 180.8 $ 195.8 $ 533.9 $ 606.1 68 Table of Contents The following table identifies the components of ENI revenue: Three Months Ended September 30, Nine Months Ended September 30, ($ in millions) 2020 2019 2020 2019 Management fees (1) $ 178.2 $ 196.4 $ 527.4 $ 609.8 Performance fees (2) 1.2 (1.9) 2.5 (6.9) Other income, including equity-accounted Affiliate (3) 1.4 1.3 4.0 3.2 ENI revenue $ 180.8 $ 195.8 $ 533.9 $ 606.1 (1) ENI management fees correspond to U.S. GAAP management fees. (2) ENI performance fees correspond to U.S. GAAP performance fees. (3) ENI other income is comprised primarily of other revenue under U.S. GAAP, plus our earnings from our equity-accounted Affiliate of $0.9 million and $0.8 million for the three months ended September 30, 2020 and September 30, 2019, respectively. For the nine months ended September 30, 2020 and September 30, 2019, our earnings from our equity-accounted Affiliate were $2.1 million and $2.1 million, respectively. As further described in “—Non-GAAP Supplemental Performance Measure—Economic Net Income and Segment Analysis,” ENI other income also excludes certain Fund expenses initially paid by our Affiliates on the Funds’ behalf and subsequently reimbursed. Three Months Ended September 30, Nine Months Ended September 30, ($ in millions) 2020 2019 2020 2019 U.S. GAAP other revenue $ 1.6 $ 1.4 $ 5.2 $ 4.3 Earnings from equity-accounted Affiliate 0.9 0.8 2.1 2.1 Exclude Fund expenses reimbursed by customers (1.1) (0.9) (3.3) (3.2) ENI other income $ 1.4 $ 1.3 $ 4.0 $ 3.2 69 Table of Contents ENI Operating Expenses The largest difference between U.S. GAAP operating expense and ENI operating expense relates to compensation. As shown in the following reconciliation, we exclude the impact of key employee equity revaluations. We also exclude the amortization of pre-acquisition equity owned by employees, with a service requirement, associated with the Landmark acquisition. Variable compensation and Affiliate key employee distributions are also segregated out of U.S. GAAP operating expense in order to align with the manner in which these items are contractually calculated at the Affiliate level. The following table reconciles U.S. GAAP operating expense to ENI operating expense for the three and nine months ended September 30, 2020 and 2019. Three Months Ended September 30, Nine Months Ended September 30, ($ in millions) 2020 2019 2020 2019 U.S. GAAP operating expense $ 141.9 $ 145.9 $ 398.9 $ 445.6 Less: items excluded from economic net income Amortization of pre-acquisition employee equity (1.6) (15.6) (4.6) (19.5) Non-cash key employee equity and profit interest revaluations (6.6) 14.7 31.8 27.7 Goodwill impairment and amortization of acquired intangible assets (1.6) (1.6) (21.5) (4.9) Capital transaction costs — (0.9) (0.2) (2.5) Restructuring costs and the impact of a one-time compensation arrangement that includes advances against future compensation payments (1) (5.0) (1.0) (19.8) (6.6) Fund expenses reimbursed by customers (1.1) (0.9) (3.3) (3.2) Funds’ operating expense — (0.2) (0.2) (0.4) Less: items segregated out of U.S. GAAP operating expense Variable compensation (41.2) (44.1) (120.3) (141.2) Affiliate key employee distributions (11.0) (12.6) (31.8) (39.8) ENI operating expense $ 73.8 $ 83.7 $ 229.0 $ 255.2 (1) The three months ended September 30, 2020 includes $1.4 million of restructuring costs at the Center and Affiliates, $0.4 million costs associated with the transfer of an insurance policy from our former Parent, and $3.2 million costs relating to the impact of a one-time compensation arrangement entered into that includes advances against future compensation payments. The nine months ended September 30, 2020 includes $4.8 million of restructuring costs at the Center and Affiliates, $1.0 million costs associated with the transfer of an insurance policy from our former Parent, and $13.9 million costs relating to the impact of a one-time compensation arrangement entered into that includes advances against future compensation payments. The three months ended September 30, 2019 includes $0.1 million of restructuring costs at the Center and $0.9 million costs associated with the redomicile to the U.S. The nine months ended September 30, 2019 includes $4.6 million of restructuring costs at the Center and $2.0 million associated with the redomicile to the U.S. 70 Table of Contents The following table identifies the components of ENI operating expense: Three Months Ended September 30, Nine Months Ended September 30, ($ in millions) 2020 2019 2020 2019 Fixed compensation & benefits (1) $ 42.8 $ 46.7 $ 132.2 $ 143.7 General and administrative expenses (2) 25.8 32.6 81.2 99.3 Depreciation and amortization 5.2 4.4 15.6 12.2 ENI operating expense $ 73.8 $ 83.7 $ 229.0 $ 255.2 (1) Fixed compensation and benefits include base salaries, payroll taxes and the cost of benefit programs provided. The following table reconciles U.S. GAAP compensation and benefits expense for the three and nine months ended September 30, 2020 and 2019 to ENI fixed compensation and benefits expense: Three Months Ended September 30, Nine Months Ended September 30, ($ in millions) 2020 2019 2020 2019 Total U.S. GAAP compensation and benefits expense $ 109.7 $ 108.0 $ 284.0 $ 332.8 Amortization of pre-acquisition employee equity (1.6) (15.6) (4.6) (19.5) Non-cash key employee equity and profit interest revaluations excluded from ENI (6.6) 14.7 31.8 27.7 Sales-based compensation reclassified to ENI general & administrative expenses (2.0) (2.7) (6.2) (8.5) Affiliate key employee distributions (11.0) (12.6) (31.8) (39.8) Compensation related to restructuring expenses and the impact of a one-time arrangement that includes advances against future compensation payments (a) (3.4) (0.1) (17.4) (4.6) Variable compensation (41.2) (44.1) (120.3) (141.2) Fund expenses reimbursed by customers (1.1) (0.9) (3.3) (3.2) ENI fixed compensation and benefits $ 42.8 $ 46.7 $ 132.2 $ 143.7 (a) The three months ended September 30, 2020 includes $0.2 million of restructuring costs at the Center and $3.2 million costs relating to the impact of a one-time compensation arrangement entered into that includes advances against future compensation payments. The nine months ended September 30, 2020 includes $3.5 million of restructuring costs at the Center and Affiliates and $13.9 million costs relating to the impact of a one-time compensation arrangement entered into that includes advances against future compensation payments. The three months ended September 30, 2019 includes $0.1 million of restructuring costs at the Center. The nine months ended September 30, 2019 includes $4.6 million of restructuring costs at the Center. 71 Table of Contents (2) The following table reconciles U.S. GAAP general and administrative expense to ENI general and administrative expense: Three Months Ended September 30, Nine Months Ended September 30, ($ in millions) 2020 2019 2020 2019 U.S. GAAP general and administrative expense $ 25.4 $ 31.7 $ 77.6 $ 95.3 Sales-based compensation 2.0 2.7 6.2 8.5 Capital transaction costs — (0.9) (0.2) (2.5) Restructuring costs (1.6) (0.9) (2.4) (2.0) ENI general and administrative expense $ 25.8 $ 32.6 $ 81.2 $ 99.3 Key Non-GAAP Operating Metrics The following table shows our key non-GAAP operating metrics for the three and nine months ended September 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. Please see the footnotes below for an explanation of each ratio, its usefulness in measuring the economics and operating performance of our business, and a reference to the most closely related U.S. GAAP measure: Three Months Ended September 30, Nine Months Ended September 30, ($ in millions) 2020 2019 2020 2019 Numerator: ENI operating earnings (1) $ 65.8 $ 68.0 $ 184.6 $ 209.7 Denominator: ENI revenue $ 180.8 $ 195.8 $ 533.9 $ 606.1 ENI operating margin (2) 36.4 % 34.7 % 34.6 % 34.6 % Numerator: ENI operating expense $ 73.8 $ 83.7 $ 229.0 $ 255.2 Denominator: ENI management fee revenue (3) $ 178.2 $ 196.4 $ 527.4 $ 609.8 ENI operating expense ratio (4) 41.4 % 42.6 % 43.4 % 41.8 % Numerator: ENI variable compensation $ 41.2 $ 44.1 $ 120.3 $ 141.2 Denominator: ENI earnings before variable compensation (1)(5) $ 107.0 $ 112.1 $ 304.9 $ 350.9 ENI variable compensation ratio (6) 38.5 % 39.3 % 39.5 % 40.2 % Numerator: Affiliate key employee distributions $ 11.0 $ 12.6 $ 31.8 $ 39.8 Denominator: ENI operating earnings (1) $ 65.8 $ 68.0 $ 184.6 $ 209.7 ENI Affiliate key employee distributions ratio (7) 16.7 % 18.5 % 17.2 % 19.0 % (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. It differs from economic net income because it does not include the effects of Affiliate key employee distributions, net interest expense or income tax expense. 72 Table of Contents The following table reconciles U.S. GAAP operating income to ENI operating earnings: Three Months Ended September 30, Nine Months Ended September 30, ($ in millions) 2020 2019 2020 2019 U.S. GAAP operating income $ 40.5 $ 51.9 $ 140.8 $ 166.5 Include earnings from equity-accounted Affiliate 0.9 0.8 2.1 2.1 Exclude the impact of: Affiliate key employee-owned equity and profit interest revaluations 6.6 (14.7) (31.8) (27.7) Goodwill impairment and amortization of acquired intangible assets and pre-acquisition employee equity 3.2 17.2 26.1 24.4 Capital transaction costs — 0.9 0.2 2.5 Restructuring costs and the impact of a one-time compensation arrangement that includes advances against future compensation payments (a) 5.0 1.0 19.8 6.6 Affiliate key employee distributions 11.0 12.6 31.8 39.8 Variable compensation 41.2 44.1 120.3 141.2 Funds’ operating income (1.4) (1.7) (4.4) (4.5) ENI earnings before variable compensation 107.0 112.1 304.9 350.9 Less: ENI variable compensation (41.2) (44.1) (120.3) (141.2) ENI operating earnings 65.8 68.0 184.6 209.7 Less: ENI Affiliate key employee distributions (11.0) (12.6) (31.8) (39.8) ENI earnings after Affiliate key employee distributions $ 54.8 $ 55.4 $ 152.8 $ 169.9 (a) The three months ended September 30, 2020 includes $1.4 million of restructuring costs at the Center and Affiliates, $0.4 million costs associated with the transfer of an insurance policy from our former Parent, and $3.2 million costs relating to the impact of a one-time compensation arrangement entered into that includes advances against future compensation payments. The nine months ended September 30, 2020 includes $4.8 million of restructuring costs at the Center and Affiliates, $1.0 million costs associated with the transfer of an insurance policy from our former Parent, and $13.9 million costs relating to the impact of a one-time compensation arrangement entered into that includes advances against future compensation payments. The three months ended September 30, 2019 includes $0.1 million of restructuring costs at the Center and $0.9 million associated with the redomicile to the U.S. The nine months ended September 30, 2019 includes $4.6 million of restructuring costs at the Center and $2.0 million associated with the redomicile to the U.S. 73 Table of Contents (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. The ENI operating margin is most comparable to our U.S. GAAP operating margin. Our U.S. GAAP operating margin, excluding the effect of consolidated Funds, is 21.6% for the three months ended September 30, 2020, 25.6% for the three months ended September 30, 2019, 25.5% for the nine months ended September 30, 2020, and 26.7% for the nine months ended September 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. Management and investors use this ratio when comparing our profitability relative to our peer group and evaluating our ability to manage the cost structure and profitability of our business under different operating environments. (3) ENI management fee revenue corresponds to U.S. GAAP management fee revenue. (4) The ENI operating expense ratio is used by management and is useful to investors to evaluate the level of operating expense as measured against our recurring management fee revenue. 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. The ENI operating expense ratio is most comparable to the U.S. GAAP operating expense / management fee revenue ratio. (5) ENI earnings before variable compensation is calculated as ENI revenue, less ENI operating expense. (6) The ENI variable compensation ratio is used by management and is useful to investors to evaluate consolidated variable compensation as measured against our ENI earnings before variable compensation. Variable compensation is contractually set and calculated individually at each Affiliate, plus Center bonuses. Variable compensation is usually awarded based on a contractual percentage of each Affiliate’s ENI earnings before variable compensation and may be paid in the form of cash or non-cash Affiliate equity or profit interests. Center variable compensation includes cash and our equity. Non-cash variable compensation awards typically vest over several years and are recognized as compensation expense over that service period. 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%. The ENI variable compensation ratio is most comparable to the U.S. GAAP variable compensation ratio. (7) The ENI Affiliate key employee distribution ratio is used by management and is useful to investors to evaluate Affiliate key employee distributions as measured against our ENI operating earnings. 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. The Affiliate key employee distribution ratio at each Affiliate is calculated as Affiliate key employee distributions divided by ENI operating earnings at that Affiliate. At certain Affiliates, with tiered equity structures, BSUS and other classes of employee equity holders are entitled to an initial proportionate preference over profits after variable compensation, structured such that before a preference threshold is reached, there would be no required key employee distributions to the tiered equity holders, whereas for profits above the threshold the key employee distribution amount to the tiered equity holders would be calculated based on the tiered key employee ownership percentages. Based on current economic arrangements, employee distributions range from approximately 20% to 40% of marginal ENI operating earnings at each of our consolidated Affiliates. The ENI Affiliate key employee distributions ratio is most comparable to the U.S. GAAP Affiliate key employee distributions ratio. 74 Table of Contents Tax on Economic Net Income The following table reconciles the United States statutory tax to tax on economic net income: Three Months Ended September 30, Nine Months Ended September 30, ($ in millions) 2020 2019 2020 2019 Pre-tax economic net income (1) $ 49.5 $ 49.7 $ 136.3 $ 154.5 Intercompany interest expense deductible for U.S. tax purposes — (2.2) — (35.4) Taxable economic net income 49.5 47.5 136.3 119.1 Taxes at the U.S. federal and state statutory rates (2) (13.5) (13.0) (37.2) (32.6) Other reconciling tax adjustments 1.7 0.7 5.8 (4.3) Tax on economic net income (11.8) (12.3) (31.4) (36.9) Add back intercompany interest expense previously excluded — 2.2 — 35.4 Economic net income $ 37.7 $ 37.4 $ 104.9 $ 117.6 Economic net income effective tax rate (3) 23.8 % 24.7 % 23.0 % 23.9 % (1) Includes interest income and third party ENI interest expense, as shown in the following table: Three Months Ended September 30, Nine Months Ended September 30, ($ in millions) 2020 2019 2020 2019 U.S. GAAP interest income $ — $ 0.4 $ 0.5 $ 1.8 U.S. GAAP interest expense (6.9) (8.3) (22.1) (24.1) U.S. GAAP net interest expense (6.9) (7.9) (21.6) (22.3) Other ENI interest expense exclusions (a) 1.6 2.2 5.1 6.9 ENI net interest expense (5.3) (5.7) (16.5) (15.4) ENI earnings after Affiliate key employee distributions (b) 54.8 55.4 152.8 169.9 Pre-tax economic net income $ 49.5 $ 49.7 $ 136.3 $ 154.5 (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. GAAP operating income (loss) to ENI earnings after Affiliate key employee distributions. (2) Taxed at U.S. Federal and State statutory rate of 27.3%. (3) The economic net income effective tax rate is calculated by dividing the tax on economic net income by pre-tax economic net income. 75 Table of Contents Segment Analysis We conduct our operations through three business segments: • Quant & Solutions —comprised of versatile, often highly-tailored strategies that leverage data and technology in a computational, factor based investment process across a range of asset classes and geographies, including Global, non-U.S., emerging markets and managed volatility equities, as well as multi-asset products. • Alternatives —comprised of illiquid and differentiated liquid investment strategies that include private equity, real estate and real assets, including forestry, as well as a growing suite of liquid alternative capabilities in areas such as long/short, market neutral and absolute return. • Liquid Alpha (1) —comprised of specialized investment strategies with a focus on alpha-generation across market cycles in long-only small-, mid-, and large-cap U.S., global, non-U.S. and emerging markets equities, as well as fixed income. (1) In July 2020, we completed the sale of Copper Rock and announced the divestiture of Barrow Hanley, expected to close in the fourth quarter of 2020. See "Recent Developments" herein. We have a corporate head office that is included in “Other”. The corporate head office supports the segments by providing infrastructure and administrative support in the areas of accounting/finance, operations, information technology, strategy and relationship management, legal, compliance and human resources. The corporate head office expenses are not allocated to our three reportable segments but the CODM does consider the cost structure of the corporate head office when evaluating the financial performance of the segments. The primary measure used by the CODM in measuring performance and allocating resources to the segments is Economic Net Income ("ENI"). We define economic net income for the segments as ENI revenue less (i) ENI operating expenses, (ii) variable compensation and (iii) key employee distributions. The ENI adjustments to U.S. GAAP include both reclassifications of U.S. GAAP revenue and expense items, as well as adjustments to U.S. GAAP results, primarily to exclude non-cash, non-economic expenses, or to reflect cash benefits not recognized under U.S. GAAP. 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 our equity-accounted Affiliate. ENI revenue is also adjusted to exclude the separate revenues recorded under U.S. GAAP for certain Fund expenses reimbursed to our Affiliates. ENI operating expenses include compensation and benefits, general and administrative expense, and depreciation and amortization under U.S. GAAP, adjusted to exclude non-cash expenses representing changes in the value of Affiliate equity and profit interests held by Affiliate key employees, non-cash amortization of the value of employee equity owned pre-acquisition that occurred as a result of the Landmark transaction, impairment of goodwill, the impact of a one-time compensation arrangement entered into that includes advances against future compensation payments, and the separate expenses recorded under U.S. GAAP for certain Fund expenses reimbursed to our Affiliates. Additionally, variable compensation and Affiliate key employee distributions are segregated from ENI operating expenses. ENI segment results are also adjusted to exclude the portion of consolidated Fund revenues, expenses and investment return recorded under U.S. GAAP. Refer to the reconciliations of U.S. GAAP revenue to ENI revenue, U.S. GAAP Operating expense to ENI Operating expense, variable compensation and Affiliate key employee distributions disclosed previously within this section. 76 Table of Contents Segment ENI Revenue The following table identifies the components of segment ENI revenue for the three months ended September 30, 2020 and 2019: Three Months Ended September 30, ($ in millions) 2020 2019 Quant & Solutions Alter-natives Liquid Alpha Other Total Quant & Solutions Alter-natives Liquid Alpha Other Total Management fees $ 87.9 $ 43.2 $ 47.1 $ — $ 178.2 $ 92.7 $ 37.2 $ 66.5 $ — $ 196.4 Performance fees 1.2 — — — 1.2 0.4 (0.2) (2.1) — (1.9) Other income, including equity-accounted subsidiaries (0.1) 0.6 0.8 0.1 1.4 — 0.4 0.8 0.1 1.3 ENI revenue $ 89.0 $ 43.8 $ 47.9 $ 0.1 $ 180.8 $ 93.1 $ 37.4 $ 65.2 $ 0.1 $ 195.8 The following table identifies the components of segment ENI revenue for the nine months ended September 30, 2020 and 2019: Nine Months Ended September 30, ($ in millions) 2020 2019 Quant & Solutions Alter-natives Liquid Alpha Other Total Quant & Solutions Alter-natives Liquid Alpha Other Total Management fees $ 255.3 $ 126.4 $ 145.7 $ — $ 527.4 $ 276.8 $ 124.5 $ 208.5 $ — $ 609.8 Performance fees 2.7 — (0.2) — 2.5 0.5 0.4 (7.8) — (6.9) Other income, including equity-accounted subsidiaries (0.1) 1.8 2.0 0.3 4.0 — 0.8 2.1 0.3 3.2 ENI revenue $ 257.9 $ 128.2 $ 147.5 $ 0.3 $ 533.9 $ 277.3 $ 125.7 $ 202.8 $ 0.3 $ 606.1 Quant & Solutions Segment ENI Revenue Three months ended September 30, 2020 compared to three months ended September 30, 2019: Quant & Solutions ENI revenue decreased $(4.1) million, or (4.4)%, from $93.1 million for three months ended September 30, 2019 to $89.0 million for the three months ended September 30, 2020. The decrease was attributable to (5.2)% lower management fees driven by lower average AUM primarily resulting from the equity market decline in the first quarter of 2020. Nine months ended September 30, 2020 compared to nine months ended September 30, 2019: Quant & Solutions ENI revenue decreased $(19.4) million, or (7.0)%, from $277.3 million for the nine months ended September 30, 2019 to $257.9 million for the nine months ended September 30, 2020. The decrease was attributable to (7.8)% lower management fees, driven by lower average AUM primarily resulting from the equity market decline in the current year. 77 Table of Contents Alternatives Segment ENI Revenue Three months ended September 30, 2020 compared to three months ended September 30, 2019: Alternatives ENI revenue increased $6.4 million, or 17.1%, from $37.4 million for three months ended September 30, 2019 to $43.8 million for the three months ended September 30, 2020. The increase was attributable to 16.1% higher management fees resulting from inflows and change in net catch-up fees. Nine months ended September 30, 2020 compared to nine months ended September 30, 2019: Alternatives ENI revenue increased $2.5 million, or 2.0%, from $125.7 million for the nine months ended September 30, 2019 to $128.2 million for the nine months ended September 30, 2020. The increase was attributable to inflows and change in net catch-up fees. Liquid Alpha Segment ENI Revenue Three months ended September 30, 2020 compared to three months ended September 30, 2019: Liquid Alpha ENI revenue decreased $(17.3) million, or (26.5)%, from $65.2 million for three months ended September 30, 2019 to $47.9 million for the three months ended September 30, 2020. The decrease was attributable to (29.2)% 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 was primarily due to fulcrum fees recorded in the three months ended September 30, 2019 that did not repeat in the three months ended September 30, 2020. Nine months ended September 30, 2020 compared to nine months ended September 30, 2019: Liquid Alpha ENI revenue decreased $(55.3) million, or (27.3)%, from $202.8 million for the nine months ended September 30, 2019 to $147.5 million for the nine months ended September 30, 2020. The decrease was attributable to (30.1)% lower management fees, driven by lower average AUM resulting from the equity market decline and net outflows over the last twelve months, as well as the Vanguard reallocation in the fourth quarter of 2019. The change in performance fees was primarily due to fulcrum fees recorded in nine months ended September 30, 2019 that did not repeat in the nine months ended September 30, 2020. 78 Table of Contents Segment ENI Expense The following table identifies the components of segment ENI expense for the three months ended September 30, 2020 and 2019: Three Months Ended September 30, ($ in millions) 2020 2019 Quant & Solutions Alter-natives Liquid Alpha Other Total Quant & Solutions Alter-natives Liquid Alpha Other Total Fixed compensation & benefits $ 18.5 $ 10.9 $ 10.9 $ 2.5 $ 42.8 $ 20.4 $ 10.8 $ 11.9 $ 3.6 $ 46.7 G&A 14.3 3.9 4.5 3.1 25.8 16.5 5.0 6.5 4.6 32.6 Depreciation and amortization 4.4 0.5 0.1 0.2 5.2 3.9 0.3 0.1 0.1 4.4 Total ENI Operating Expenses $ 37.2 $ 15.3 $ 15.5 $ 5.8 $ 73.8 $ 40.8 $ 16.1 $ 18.5 $ 8.3 $ 83.7 Variable compensation 18.0 10.1 12.3 0.8 41.2 18.8 7.8 15.6 1.9 44.1 Affiliate key employee distributions 0.8 7.3 2.9 — 11.0 1.5 5.0 6.1 — 12.6 Total Expenses $ 56.0 $ 32.7 $ 30.7 $ 6.6 $ 126.0 $ 61.1 $ 28.9 $ 40.2 $ 10.2 $ 140.4 The following table identifies the components of segment ENI expense for the nine months ended September 30, 2020 and 2019: Nine Months Ended September 30, ($ in millions) 2020 2019 Quant & Solutions Alter-natives Liquid Alpha Other Total Quant & Solutions Alter-natives Liquid Alpha Other Total Fixed compensation & benefits $ 54.1 $ 33.6 $ 35.9 $ 8.6 $ 132.2 $ 60.3 $ 33.2 $ 38.5 $ 11.7 $ 143.7 G&A 41.5 12.8 16.5 10.4 81.2 49.3 15.5 21.1 13.4 99.3 Depreciation and amortization 13.7 1.2 0.3 0.4 15.6 10.8 0.7 0.4 0.3 12.2 Total ENI Operating Expenses $ 109.3 $ 47.6 $ 52.7 $ 19.4 $ 229.0 $ 120.4 $ 49.4 $ 60.0 $ 25.4 $ 255.2 Variable compensation 52.7 29.0 36.0 2.6 120.3 57.6 28.0 48.1 7.5 141.2 Affiliate key employee distributions 2.9 20.0 8.9 — 31.8 4.1 17.1 18.6 — 39.8 Total Expenses $ 164.9 $ 96.6 $ 97.6 $ 22.0 $ 381.1 $ 182.1 $ 94.5 $ 126.7 $ 32.9 $ 436.2 79 Table of Contents Quant & Solutions Segment ENI Expense Three months ended September 30, 2020 compared to three months ended September 30, 2019: Quant & Solutions ENI operating expense decreased $(3.6) million, or (8.8)%, from $40.8 million for the three months ended September 30, 2019 to $37.2 million for the three months ended September 30, 2020. The decrease was driven by (9.3)% lower ENI fixed compensation and benefits expense resulting from headcount reduction, and (13.3)% lower ENI general and administrative expense resulting from cost saving initiatives. Quant & Solutions ENI variable compensation expense, which is based on contractual arrangements, decreased (4.3)%, as a result of change in the mix of cash and non-cash variable compensation. Affiliate key employee distributions attributable to Quant & Solutions decreased (46.7)%, primarily due to the leveraged nature of the profit-sharing agreement . Nine months ended September 30, 2020 compared to nine months ended September 30, 2019: Quant & Solutions ENI operating expense decreased $(11.1) million, or (9.2)%, from $120.4 million for the nine months ended September 30, 2019 to $109.3 million for the nine months ended September 30, 2020. The decrease was driven by (10.3)% lower ENI fixed compensation and benefits expense resulting from headcount reduction, and (15.8)% lower ENI general and administrative expense resulting from cost saving initiatives. Quant & Solutions ENI variable compensation expense, which is based on contractual arrangements, decreased (8.5)%, as a result of lower earnings before variable compensation. Affiliate key employee distributions attributable to Quant & Solutions decreased (29.3)%, primarily due to lower Quant & Solutions ENI earnings after variable compensation. Alternatives Segment ENI Expense Three months ended September 30, 2020 compared to three months ended September 30, 2019: Alternatives ENI operating expense decreased $(0.8) million, or (5.0)%, from $16.1 million for three months ended September 30, 2019 to $15.3 million for the three months ended September 30, 2020. The decrease was driven by (22.0)% lower ENI general and administrative related to outside services, partially offset by 0.9% higher ENI fixed compensation and benefits expense. Alternatives ENI variable compensation expense, which is based on contractual arrangements, increased 29.5%, as a result of higher earnings before variable compensation. Affiliate key employee distributions attributable to Alternatives increased 46.0%, primarily driven by higher Alternatives ENI earnings after variable compensation. Nine months ended September 30, 2020 compared to nine months ended September 30, 2019: Alternatives ENI operating expense decreased $(1.8) million, or (3.6)%, from $49.4 million for the nine months ended September 30, 2019 to $47.6 million for the nine months ended September 30, 2020. The decrease was driven by (17.4)% lower ENI general and administrative expense resulting from lower consulting costs. Alternatives ENI variable compensation expense, which is based on contractual arrangements, increased 3.6%, as a result of higher earnings before variable compensation. Affiliate key employee distributions attributable to Alternatives increased 17.0%, primarily driven by higher Alternatives ENI earnings after variable compensation. 80 Table of Contents Liquid Alpha Segment ENI Expense Three months ended September 30, 2020 compared to three months ended September 30, 2019: Liquid Alpha ENI operating expense decreased $(3.0) million, or (16.2)%, from $18.5 million for the three months ended September 30, 2019 to $15.5 million for the three months ended September 30, 2020. The decrease was driven by (8.4)% lower ENI fixed compensation and benefits expense resulting from headcount reduction and (30.8)% lower ENI general and administrative expense resulting from cost-saving initiatives. Liquid Alpha ENI variable compensation expense, which is based on contractual arrangements, decreased (21.2)%, as a result of lower pre-variable compensation earnings. Affiliate key employee distributions attributable to Liquid Alpha decreased (52.5)%, primarily driven by lower Liquid Alpha ENI earnings after variable compensation. Nine months ended September 30, 2020 compared to nine months ended September 30, 2019: Liquid Alpha ENI operating expense decreased $(7.3) million, or (12.2)%, from $60.0 million for the nine months ended September 30, 2019 to $52.7 million for the nine months ended September 30, 2020. The decrease was driven by (6.8)% lower ENI fixed compensation and benefits expense resulting from headcount reduction and (21.8)% lower ENI general and administrative expense resulting from cost-saving initiatives. Liquid Alpha ENI variable compensation expense, which is based on contractual arrangements, decreased (25.2)%, as a result of lower pre-variable compensation earnings. Affiliate key employee distributions attributable to Liquid Alpha decreased (52.2)%, primarily driven by lower Liquid Alpha ENI earnings after variable compensation. Other ENI Expense Three months ended September 30, 2020 compared to three months ended September 30, 2019: Other ENI operating expense decreased $(2.5) million or (30.1)%, from $8.3 million for the three months ended September 30, 2019 to $5.8 million for the three months ended September 30, 2020. The decrease was driven by (30.6)% lower fixed compensation and benefit expense resulting from a reduction in headcount, and (32.6)% lower general and administrative expense resulting from cost-saving initiatives. Other ENI variable compensation expense decreased (57.9)% which was driven by a reduction in headcount. Nine months ended September 30, 2020 compared to nine months ended September 30, 2019: Other ENI operating expense decreased $(6.0) million, or (23.6)%, from $25.4 million for the nine months ended September 30, 2019 to $19.4 million for the nine months ended September 30, 2020. The decrease was driven by (26.5)% lower fixed compensation and benefit expense resulting from a reduction in headcount, and (22.4)% lower general and administrative expense resulting from cost-saving initiatives. Other ENI variable compensation expense decreased (65.3)% due to a reduction in headcount. 81 Table of Contents Capital Resources and Liquidity Cash Flows The following table summarizes certain key financial data relating to cash flows. All amounts presented exclude consolidated Funds: Nine Months Ended September 30, ($ in millions) 2020 2019 Cash provided by (used in) (1)(2) Operating activities $ 144.7 $ (149.9) Investing activities 26.5 (4.6) Financing activities (140.6) (69.6) (1) Excludes consolidated Funds. (2) Cash flow data shown only includes cash flows from continuing operations. Comparison for the nine months ended September 30, 2020 and 2019 Net cash provided by operating activities from continuing operations increased $294.6 million, from net cash used of $149.9 million for the nine months ended September 30, 2019 to net cash provided of $144.7 million for the nine months ended September 30, 2020, driven by the change in operating liabilities as a result of the Landmark earnout that was settled in the nine months ended September 30, 2019. In the nine months ended September 30, 2020, net cash provided by investing activities of continuing operations increased $31.1 million, from $4.6 million used in the nine months ended September 30, 2019 to $26.5 million provided in the nine months ended September 30, 2020, driven primarily by increased sales of investment securities in the nine months ended September 30, 2020. Net cash used in financing activities of continuing operations increased $71.0 million, from $69.6 million used in the nine months ended September 30, 2019 to $140.6 million used in the nine months ended September 30, 2020, primarily due to a lower drawdown on the revolving credit facility, the pay down and termination of the non-recourse seed facility and decreased share repurchases in the nine months ended September 30, 2020 compared to 2019. Supplemental Liquidity Measure — Adjusted EBITDA As supplemental information, we provide information regarding Adjusted EBITDA, which we define as economic net income before net interest, income taxes, depreciation and amortization. Adjusted EBITDA is a non-GAAP liquidity measure that we provide in addition to, but not as a substitute for, cash flows from operating activities. It should be noted that our calculation of Adjusted EBITDA may not be consistent with Adjusted EBITDA as calculated by other companies. We believe Adjusted EBITDA is a useful liquidity metric because it indicates our ability to make further investments in our business, service debt and meet working capital requirements. It is also encapsulated in our line of credit as part of our liquidity covenants. 82 Table of Contents The following table reconciles our U.S. GAAP net income attributable to controlling interests to EBITDA to Adjusted EBITDA to economic net income for the three and nine months ended September 30, 2020 and 2019. Three Months Ended September 30, Nine Months Ended September 30, ($ in millions) 2020 2019 2020 2019 Net income attributable to controlling interests $ 37.2 $ 75.4 $ 88.7 $ 156.1 Net interest expense to third parties 6.9 7.9 21.6 22.3 Income tax expense (including tax expenses related to discontinued operations) 12.8 (32.0) 33.7 3.7 Depreciation and amortization (including intangible assets) and goodwill impairment 6.8 6.0 37.1 17.1 EBITDA $ 63.7 $ 57.3 $ 181.1 $ 199.2 Non-cash compensation costs, including revaluation of Affiliate key employee-owned equity and profit interests 7.1 (14.7) (29.6) (27.7) Amortization of pre-acquisition employee equity 1.6 15.6 4.6 19.5 (Gain) loss on seed and co-investments (9.7) (0.3) 1.7 (18.0) Restructuring and the impact of a one-time compensation arrangement that includes advances against future compensation payments (1) (2.2) 1.0 12.6 6.6 Capital transaction costs — 0.9 0.2 2.5 Adjusted EBITDA $ 60.5 $ 59.8 $ 170.6 $ 182.1 ENI net interest expense to third parties (5.3) (5.7) (16.5) (15.4) Depreciation and amortization (2) (5.7) (4.4) (17.8) (12.2) Tax on economic net income (11.8) (12.3) (31.4) (36.9) Economic net income $ 37.7 $ 37.4 $ 104.9 $ 117.6 (1) The three months ended September 30, 2020 includes $1.4 million of restructuring costs at the Center and Affiliates, $0.4 million costs associated with the transfer of an insurance policy from our former Parent, $3.2 million costs relating to the impact of a one-time compensation arrangement entered into that includes advances against future compensation payments, and the gain on sale of Copper Rock of $7.2 million. The nine months ended September 30, 2020 includes $4.8 million of restructuring costs at the Center and Affiliates, $1.0 million costs associated with the transfer of an insurance policy from our former Parent, $13.9 million costs relating to the impact of a one-time compensation arrangement entered into that includes advances against future compensation payments, and the gain on sale of Copper Rock of $7.2 million. The three months ended September 30, 2019 includes $0.1 million of restructuring costs at the Center and $0.9 million associated with the redomicile to the U.S. The nine months ended September 30, 2019 includes $4.6 million of restructuring costs at the Center and $2.0 million associated with the redomicile to the U.S. (2) The three and nine months ended September 30, 2020 includes non-cash equity-based award amortization expense. Limitations of Adjusted EBITDA As a non-GAAP, unaudited liquidity measure and derivation of EBITDA, Adjusted EBITDA has certain material limitations. It does not include cash costs associated with capital transactions and excludes certain U.S. GAAP expenses that fall outside the definition of EBITDA. Each of these categories of expense represents costs to us of doing business, and therefore any measure that excludes any or all of these categories of expense has material limitations. 83 Table of Contents Future Capital Needs We believe that our available cash and cash equivalents to be generated from operations, supplemented by short-term and long-term financing, as necessary, will be sufficient to fund current operations and capital requirements for at least the next twelve months, as well as our day-to-day operations and future investment requirements. We also expect to realize future proceeds from the sale of our equity interest in Barrow Hanley during the fourth quarter of 2020. Our ability to secure short-term and long-term financing in the future will depend on several factors, including our future profitability, our relative levels of debt and equity and the overall condition of the credit markets. Borrowings and Long-Term Debt The following table summarizes our financing arrangements as of the dates indicated: ($ in millions) September 30, 2020 December 31, 2019 Interest rate Maturity Third party borrowings: Revolving credit facility (1) $ 80.0 $ 140.0 LIBOR + 1.50% plus 0.20% commitment fee August 22, 2022 4.80% Senior Notes Due 2026 272.7 272.4 4.80% July 27, 2026 5.125% Senior Notes Due 2031 121.5 121.4 5.125% August 1, 2031 Total third party borrowings $ 474.2 $ 533.8 Non-recourse borrowing: Non-recourse seed capital facility (2) — 35.0 LIBOR + 1.55% plus 0.95% commitment fee N/A Total non-recourse borrowing $ — $ 35.0 Total borrowings $ 474.2 $ 568.8 (1) We entered into an amendment on September 3, 2020 to the revolving credit facility to reduce the revolving credit facility to $150 million upon the consummation of sale of our equity interests in Barrow Hanley. (2) We paid down and terminated the non-recourse seed capital facility set to expire on January 15, 2021 in the third quarter. Revolving Credit Facility On August 20, 2019, we entered into a $450.0 million senior unsecured revolving credit facility with Citibank, as administrative agent and issuing bank, and RBC Capital Markets and BMO Capital Markets Corp. as joint lead arrangers and joint book runners (the “Credit Facility”). Subject to certain conditions, we may borrow up to an additional $150.0 million under the Credit Facility. The Credit Facility has a maturity date of August 22, 2022. The previous revolving credit facility with Citibank with maturity date of October 15, 2019 was terminated. Borrowings under the Credit Facility bear interest, at our option, at either the per annum rate equal to (a) the greatest of (i) the prime rate, (ii) the federal funds effective rate plus 0.5% and (iii) the one month Adjusted LIBO Rate plus 1.0%, plus, in each case an additional amount based on our credit rating or (b) the London interbank offered rate for a period, at our election, equal to one, two, three or six months plus an additional amount ranging from 1.125% to 2.00%, with such additional amount based on our credit rating. In addition, we are charged a commitment fee based on the average daily unused portion of the Credit Facility at a per annum rate ranging from 0.125% to 0.45%, with such amount based on our credit rating. On September 3, 2020, we along with the Royal Bank of Canada, BMO Harris Bank, N.A., Bank of China, New York Branch, Wells Fargo Bank, National Association, Barclays Bank PLC, Morgan Stanley Bank, N.A., Bank of America N.A., the Bank of New York Mellon and Citibank, N.A., as an issuing bank and administrative agent (collectively, the “Lenders”), entered into an amendment (the “Amendment”) to the Revolving Credit Agreement dated as of August 20, 2019 (the “Credit Agreement”). The Amendment includes changes to the Credit Agreement to permit the sale of the Company's equity interests in Barrow Hanley (the “Barrow Hanley Sale”). Under the Credit Agreement, the Barrow Hanley Sale required consent of the Lenders given that Barrow Hanley accounted for more 84 Table of Contents than 10% of our consolidated Adjusted EBITDA. The Amendment provides that, effective immediately upon the consummation of the Barrow Hanley Sale, the Lenders commitments under the Credit Agreement shall be $150 million. 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 September 30, 2020, our ratio of third party borrowings to trailing twelve months Adjusted EBITDA was 2.0x and our interest coverage ratio was 8.1x. At September 30, 2020, our ratio of third party borrowings net of total cash and cash equivalents to trailing twelve months Adjusted EBITDA was 1.5x. Moody’s Investor Service, Inc. and Standard & Poor’s have each assigned an investment-grade rating to our senior, unsecured long-term indebtedness. As a result of the assignment of the credit ratings, our interest rate on outstanding borrowings was set at LIBOR + 1.50% and the commitment fee on the unused portion of the revolving credit facility was set at 0.20%. Non-recourse seed capital facility 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 September 30, 2020, amounts outstanding under this non-recourse seed capital facility amounted to $0.0 million. During the three months ended September 30, 2020, we paid down and terminated the non-recourse seed capital facility that was set to expire on January 15, 2021. Since this facility is non-recourse to us beyond the seed investments themselves, drawdowns under this facility are excluded from our third party debt levels for purposes of calculating our credit ratio covenants under the Credit Facility. As of September 30, 2020, we were in compliance with the required covenants related to borrowings and debt facilities. Other Compensation Liabilities Other compensation liabilities principally consist of cash-settled Affiliate equity and profit interests liabilities held by certain Affiliate key employees, and voluntary deferred compensation plans. The following table summarizes our other long-term liabilities: September 30, 2020 December 31, 2019 ($ in millions) Share-based payments liability $ 207.6 $ 221.8 Affiliate profit interests liability 40.1 94.8 Employee equity 247.7 316.6 Voluntary deferral plan liability 65.8 88.3 Total (1) $ 313.5 $ 404.9 85 Table of Contents (1) Total other compensation liabilities excludes balance of Affiliate other compensation liabilities classified as held for sale on the Condensed Consolidated Balance Sheet. See discussion of Divestitures and Held for Sale in Note 3 of the accompanying Condensed Consolidated Financial Statements. 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. GAAP based on the terms and conditions attached to these interests. Affiliate profit interests liability represents the value of Affiliate key employee-owned equity that may under certain circumstances be repurchased by us that is not considered an equity award under U.S. GAAP, but rather a form of compensation arrangement, based on the terms and conditions attached to these interests. Our obligation in any given period in respect of funding these potential repurchases of Affiliate equity is limited to only that portion that may be put to us by Affiliate key employees, which is typically capped annually under the terms of these arrangements such that we are not required to repurchase more than we can reasonably recycle by re-granting the interests in lieu of cash variable compensation owed to Affiliate key employees. Certain of our and our Affiliates’ key employees are eligible to participate in our voluntary deferral plan, or VDP, which provides our senior personnel the opportunity to voluntarily defer a portion of their compensation. There is a voluntary deferral plan investment balance included in investments on the Consolidated Balance Sheets that corresponds to this deferral liability. Critical Accounting Policies and Estimates There have been no significant changes to the critical accounting policies and estimates disclosed in our most recent Form 10-K for the year ended December 31, 2019. Critical accounting policies and estimates are those that require management’s most difficult, subjective or complex judgments and would therefore be deemed the most critical to an understanding of our results of operations and financial condition. Recent Accounting Developments See discussion of Recent Accounting Developments in Note 2 of the accompanying Condensed Consolidated Financial Statements. 86 Table of Contents Forward Looking Statements This Quarterly Report on Form 10-Q includes forward-looking statements, including information relating to our pending divestiture of Barrow Hanley, including the expected timing for the closing of the divestiture, 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. 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 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. Further, such forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q and we undertake no obligations to update any forward looking statement to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect the occurrence of unanticipated events. 87 Table of Contents