What changed in this filing

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Item 7. Management’s Discussion and Analysis

2021-03-01 compared with 2020-03-02 · 469 added, 329 removed, 1088 unchanged (42% of the section changed)

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

Unless we state otherwise or the context otherwise requires, references in this Annual Report on Form 10-K 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 indirect, wholly owned subsidiary of BSIG.

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and Commitments, Contingencies and Off-Balance Sheet Obligations.

The discussion of Adjusted EBITDA includes an explanation of how we calculate Adjusted EBITDA and a reconciliation of Adjusted EBITDA to U.S.

GAAP net income attributable to controlling interests.

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 that require complex management judgment regarding matters that are highly uncertain at the time policies were applied and estimates were made.

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 policies were applied and estimates were made.

We are a diversified, global asset management company headquartered in Boston, Massachusetts.

We completed a redomestication process to change our publicly traded parent company from a United Kingdom company to a Delaware corporation on July 12, 2019.

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.

• 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., and emerging markets equities, as well as multi-asset and managed volatility 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 —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.

Within our three segments, we have seven affiliate firms to whom we refer in this Annual Report on Form 10-K as our Affiliates.

• Liquid Alpha —comprised of specialized investment strategies with a focus on alpha-generation across market cycles in long-only small-, mid-, and large-cap U.S.

equities, as well as fixed income.

Within our three segments, we have five affiliate firms to whom we refer in this Annual Report on Form 10-K as our Affiliates.

Through our Affiliates, we offer a diverse range of actively-managed investment strategies and products to institutional investors around the globe.

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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.

Our current Affiliates and their principal strategies include:

Acadian Asset Management LLC (“Acadian”) —a leading quantitative investment manager of active global, international equity, and alternative strategies.

Barrow, Hanley, Mewhinney & Strauss, LLC (“Barrow Hanley”) —a widely recognized value-oriented investment manager of U.S., international and global equities, fixed income and a range of balanced investment management strategies.

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.

Copper Rock Capital Partners LLC (“Copper Rock”) —a specialized growth equity investment manager of small-cap international, global and emerging markets equity strategies.

Investment Counselors of Maryland, LLC (“ICM”) (1) — a value-driven domestic equity manager with product offerings focused on small- and mid-cap companies.

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.

• 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.

• 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”) (2) — 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) Accounted for under the equity method of accounting.

Recent Developments

Change in Segments

We continually monitor and review our segment reporting structure in accordance with authoritative guidance to determine whether any changes have occurred that would impact our reportable segments.

Because of the change in our Chief Operating Decision Maker (“CODM”) at the end of 2018, we underwent a strategic shift in 2019 to refocus our businesses by our various investment strategies.

During the third quarter of 2019, we realigned our business and reportable segment information that the CODM regularly reviews to evaluate performance for operating decision-making purposes, including performance assessment and allocation of resources.

As a result, our segment reporting structure is based on our various investment strategies.

As a result of the change noted above, effective from the quarter ended September 30, 2019, we have the following business segments:

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 —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.

Divestiture of Barrow Hanley, Copper Rock and ICM

On July 24, 2020, we sold all of our equity interests in Copper Rock, a former Affiliate included in our Liquid Alpha segment, to Spouting Rock Asset Management LLC.

The transaction resulted in a $7.2 million pre-tax gain which is reflected on our Consolidated Statement of Operations for the year ended December 31, 2020.

On November 17, 2020, we completed the sale of all of our equity interests in Barrow Hanley, a former Affiliate included in our Liquid Alpha segment, to Perpetual U.S.

Holdings Company Inc.

(“Perpetual”).

The transaction resulted in a $231.2 million pre-tax gain which is reflected on our Consolidated Statement of Operations for the year ended December 31, 2020.

On February 6, 2021, we entered into a definitive agreement to sell all our interests in ICM, an Affiliate included in the Liquid Alpha segment.

The transaction is expected to close during second quarter of 2021.

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.

Because most of the revenue we earn is based on the market value of our assets under management, fluctuations in global markets impact our revenues and earnings.

Our assets under management, excluding the impact of Barrow Hanley and Copper Rock divestitures, declined from $148.8 billion on December 31, 2019 to $119.8 billion on March 31, 2020, and have subsequently rebounded to $156.7 billion as of December 31, 2020.

The COVID-19 pandemic continues to impact the manner in which we operate.

As of the date of this filing, the majority of our employees are working from home and our employees have significantly reduced business travel.

Additionally, many third-party vendors on whom we rely for certain critical functions are also operating in remote environments.

Given the continued uncertainty surrounding the COVID-19 pandemic, it is difficult to predict how long such remote working conditions and travel restrictions will last.

We expect most operating costs to return to pre-COVID-19 levels when employees return to the office and resume business travel.

We believe we are operating well under these circumstances, benefiting from the flexible and highly mobile operating environment.

However, market volatility, as well as changes in our operations and those of our key vendors, may result in increased client redemptions;

inefficiencies, delays and decreased communication;

and an increase in the number and significance of operational and trade errors.

In addition, we do not know what, if any, longer-term impact the current operating circumstances (and/or the extension of them) will have on our business and results.The extent of the impact on our business operations, assets under management and financial results will depend on a number of factors and future developments, which are uncertain and cannot be predicted.

See Item 1A, Risk Factors.

The Economics of Our Business

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taxes and the costs of our employee benefit programs.

Variable compensation, calculated as described below, may be

awarded in cash, equity or profit interests.

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

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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 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 shareholders.

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 Affiliates.

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

Revenue included within ENI differs from U.S.

GAAP revenue in that it excludes amounts from consolidated Funds which are not attributable to our shareholders, it excludes reimbursement of certain costs we paid on behalf of our customers and it includes our share of earnings from equity-accounted Affiliates.

ENI expenses are calculated to reflect all usual expenses from ongoing continuing operations attributable to our shareholders.

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 it 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 shareholders, revaluations of Affiliate key employee owned equity and profit interests, amortization and impairment of acquired intangibles and other acquisition-related items, costs we paid on behalf of our customers which were subsequently reimbursed and certain other non-cash expenses.

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 shareholders.

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 Funds that is attributable to the outside investors or clients of the consolidated Funds is included in “Non-controlling interests” in our Consolidated Financial Statements.

Conversely, “controlling interests” is the portion of revenue or expense that is attributable to our shareholders.

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.

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The following table summarizes our results of operations for the years ended December 31, 2020, 2019, and 2018:

Years ended December 31,

Increase (Decrease)

($ in millions, unless otherwise noted)

Years ended December 31, Increase (Decrease)

($ in millions, unless otherwise noted) 2020 2019 2018 2020 vs.

2019 2019 vs.

Revenue $ 718.5 $ 819.5 $ 928.2 $ (101.0) $ (108.7)

Pre-tax income from continuing operations attributable to controlling interests

398.8 241.9 141.3 156.9 100.6

Net income from continuing operations attributable to controlling interests

286.7 223.9 136.3 62.8 87.6

Net income attributable to controlling interests 286.7 223.9 136.4 62.8 87.5

GAAP operating margin (1)

25 % 31 % 9 % (557) bps 2152 bps

Earnings per share, basic ($) $ 3.53 $ 2.45 $ 1.27 $ 1.08 $ 1.18

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ENI revenue (4)

$ 711.3 $ 811.3 $ 919.1 $ (100.0) $ (107.8)

Pre-tax economic net income (5)

187.1 210.8 262.5 (23.7) (51.7)

ENI operating margin (6)

35 % 35 % 38 % 6 bps (326) bps

Adjusted EBITDA $ 232.4 $ 249.0 $ 290.6 $ (16.6) $ (41.6)

Economic net income (7)

143.6 160.8 199.8 (17.2) (39.0)

ENI diluted EPS ($)

$ 1.75 $ 1.76 $ 1.86 $ (0.01) $ (0.10)

Other Operational Information

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

$ 156.7 $ 204.4 $ 206.3 $ (47.7) $ (1.9)

Net client cash flows (in billions) (3.3) (32.7) (4.3) 29.4 (28.4)

Annualized revenue impact of net flows (8)

(22.0) (69.1) 19.1 47.1 (88.2)

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

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

Excludes restructuring costs at the Center and Affiliates of $6.7 million ( $4.9 million after taxes) and costs associated with the redomicile to the U.S.

of $2.5 million for the year ended December 31, 2019 .

Excludes restructuring charges associated with the 2018 CEO transition of $4.8 million ( $3.6 million after taxes) for the year ended December 31, 2018 .

Excludes restructuring charges associated with the 2017 CEO transition of $9.8 million ( $5.7 million after taxes) and $1.0 million related to the Heitman transaction ($0.6 million after taxes) for the year ended December 31, 2017 .

(3) Excludes costs relating to the impact of a one-time compensation arrangement entered into that includes advances against future compensation payments of $17.0 million and restructuring costs which include costs associated with the transfer of an insurance policy from our former Parent of $1.6 million, restructuring at the Center and Affiliates of $9.4 million, and the gain on sale of Affiliates of $241.3 million for the year ended December 31, 2020.

Excludes restructuring costs which include costs associated with the redomicile to the U.S.

of $1.6 million, costs associated with the transfer of an insurance policy from our former Parent of $0.9 million and restructuring costs at the Center and Affiliates of $6.7 million for the year ended December 31, 2019.

Excludes restructuring charges associated with the 2018 CEO transition of $4.8 million for the year ended December 31, 2018.

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

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GAAP net income from continuing operations attributable to controlling interests.

As previously disclosed, in August 2017 we entered into an agreement to sell our stake in Heitman, a real estate manager and former Affiliate, to Heitman’s management for cash consideration totaling $110.0 million.

Operational information (including AUM and flows data) excludes Heitman for periods beginning in the third quarter of 2017 (Heitman remained in operational information for the first half of 2017).

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

Annualized revenue impact of net flows represents the difference between annualized management fees expected to be earned on new accounts and net assets contributed to existing accounts, less the annualized management fees lost on terminated accounts or net assets withdrawn from existing accounts, plus revenue impact from reinvested income and distributions, including equity-accounted Affiliates.

(8) Annualized revenue impact of net flows represents the difference between annualized management fees expected to be earned on new accounts and net assets contributed to existing accounts, less the annualized management fees lost on terminated accounts or net assets withdrawn from existing accounts, plus revenue impact from reinvested income and distributions, including equity-accounted Affiliate.

The annualized management fees are calculated by multiplying the annual gross fee rate for the relevant account by the net assets gained in the account in the event of a positive flow, excluding any current or future market appreciation or depreciation, or the net assets lost in the account in the event of an outflow, excluding any current or future market appreciation or depreciation.

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Assets Under Management

In August 2017, we entered into an agreement to sell our stake in Heitman, a real estate manager and former Affiliate, to Heitman’s management for cash consideration totaling $110.0 million.

Unless specifically noted, flow information includes flows from Heitman for the first half of 2017, but excludes it thereafter, and AUM data excludes the Heitman AUM at December 31, 2017 and thereafter.

Our total assets under management as of December 31, 2020 were $156.7 billion.

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

($ in billions)

December 31, 2019

December 31, 2018

December 31, 2017

($ in billions) December 31, 2020 December 31, 2019 December 31, 2018

Acadian Asset Management $ 108.1 $ 102.2 $ 86.2

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Total assets under management

$ 156.7 $ 204.4 $ 206.3

(1) On February 6, 2021, we entered into a definitive agreement to sell all our interests in ICM.

The transaction is expected to close during second quarter of 2021.

Our strategies include:

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

($ in billions)

December 31, 2019

December 31, 2018

December 31, 2017

($ in billions) December 31, 2020 December 31, 2019 December 31, 2018

equity, small/smid cap value $ 4.4 $ 6.0 $ 5.1

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equity, core/blend 2.9 1.9 2.7

equity 11.6 43.4 62.6

Global equity 32.1 40.3 34.4

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Total global/non-U.S.

equity 119.0 123.9 106.8

Fixed income 1.9 13.3 13.1

Alternatives 24.2 23.8 23.8

Total assets under management $ 156.7 $ 204.4 $ 206.3

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

($ in billions)

December 31, 2019

December 31, 2018

December 31, 2017

($ in billions) December 31, 2020 December 31, 2019 December 31, 2018

AUM % of total AUM % of total AUM % of total

Sub-advisory $ 23.7 15.1 % $ 40.5 19.8 % $ 61.3 29.7 %

Corporate / Union 21.7 13.9 % 38.6 18.9 % 36.4 17.6 %

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Endowment / Foundation 3.0 1.9 % 5.3 2.6 % 4.5 2.2 %

OM plc Group 0.8 0.5 % 2.1 1.0 % 2.1 1.0 %

Commingled Trust/UCITS 30.3 19.3 % 30.8 15.1 % 28.2 13.7 %

Mutual Fund 2.8 1.8 % 2.2 1.1 % 2.0 1.0 %

Other 7.0 4.5 % 9.7 4.7 % 7.9 3.8 %

Total assets under management $ 156.7 $ 204.4 $ 206.3

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

($ in billions)

December 31, 2019

December 31, 2018

December 31, 2017

($ in billions) December 31, 2020 December 31, 2019 December 31, 2018

AUM % of total AUM % of total AUM % of total

$ 114.1 72.8 % $ 148.4 72.6 % $ 156.8 76.0 %

Europe 17.0 10.9 % 20.1 9.8 % 17.3 8.4 %

Asia 7.4 4.7 % 12.4 6.1 % 10.4 5.0 %

Australia 8.1 5.2 % 9.4 4.6 % 9.2 4.5 %

Other 10.1 6.4 % 13.9 6.9 % 12.6 6.1 %

Total assets under management $ 156.7 $ 204.4 $ 206.3

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 have been revised for the inclusion of reinvested income and distributions, and the exclusion of realizations.

Reinvested income and distributions represent investment yield that is reinvested back into the portfolios as opposed to distributed as cash.

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

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

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

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

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

($ in billions, unless otherwise noted)

Years ended December 31,

($ in billions, unless otherwise noted) Years ended December 31,

2020 2019 2018

Quant & Solutions

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Average AUM (1)

$ 94.9 $ 95.3 $ 95.8

Beginning balance $ 23.8 $ 23.8 $ 22.1

Removal of Affiliate

Gross inflows 2.3 2.0 6.1

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Realizations and Other (2)

(1.1) (1.3) (2.1)

Ending balance $ 24.2 $ 23.8 $ 23.8

Average AUM of consolidated Affiliates

Average AUM (1)

$ 24.2 $ 23.6 $ 23.1

Liquid Alpha (3)

Beginning balance $ 78.7 $ 97.3 $ 124.9

Sale of Affiliates (50.3) — —

Gross inflows 9.4 5.8 6.7

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Ending balance $ 25.1 $ 78.7 $ 97.3

Average AUM $ 60.6 $ 97.4 $ 116.0

Average AUM of consolidated Affiliates $ 58.3 $ 95.2 $ 113.9

Beginning balance $ 204.4 $ 206.3 $ 243.0

Removal of Affiliate

Sale of Affiliates (50.3) — —

Gross inflows 24.6 20.7 27.6

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Realizations and Other (2)

(1.1) (1.3) (2.1)

Ending balance $ 156.7 $ 204.4 $ 206.3

Average AUM $ 179.7 $ 216.3 $ 234.9

Average AUM of consolidated Affiliates $ 177.4 $ 214.1 $ 232.8

Annualized basis points:

inflows 36.4 35.6 47.8

Annualized basis points:

outflows 40.0 27.4 35.0

Annualized revenue impact of net flows (in millions) $ (22.0) $ (69.1) $ 19.1

We have removed Heitman from our AUM and cash flow metrics as of the beginning of the third quarter 2017.

Heitman stopped contributing to our financial results as of November 30, 2018, therefore Heitman’s December 31, 2017 AUM is not reflected in the table above.

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

(1) Average AUM equals average AUM of consolidated Affiliates.

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

(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:

($ in billions) Years ended December 31,

2020 2019 2018

Beginning balance $ 23.1 $ 21.3 $ 26.8

Net flows 1.0 (0.2) 0.8

Market appreciation depreciation 1.0 2.0 (6.3)

Ending balance $ 25.1 $ 23.1 $ 21.3

Average AUM $ 20.6 $ 22.7 $ 25.3

Average AUM of consolidated Affiliates $ 18.3 $ 20.5 $ 23.2

(4) The following table summarizes our total asset flows and market appreciation (depreciation) excluding Barrow Hanley and Copper Rock:

($ in billions) Years ended December 31,

2020 2019 2018

Beginning balance $ 148.8 $ 130.3 $ 144.9

Net flows 1.1 3.8 9.6

Market appreciation depreciation 6.8 14.7 (24.2)

Realizations and other — — —

Ending balance $ 156.7 $ 148.8 $ 130.3

Average AUM of consolidated Affiliates $ 137.4 $ 139.4 $ 142.1

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

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

($ in billions)

Years ended December 31,

($ in billions) Years ended December 31,

2020 2019 2018

Beginning balance $ 40.5 $ 61.3 $ 80.1

Removal of Affiliate

Sale of Affiliates (16.8) — —

Gross inflows 6.3 4.5 5.8

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Beginning balance $ 152.0 $ 135.1 $ 151.9

Removal of Affiliate

Sale of Affiliates (30.5) — —

Gross inflows 15.9 14.2 20.1

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Realizations and other (2)

(1.1) (1.3) (2.1)

Ending balance $ 123.2 $ 152.0 $ 135.1

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Beginning balance $ 11.9 $ 9.9 $ 11.0

Removal of Affiliate

Sale of Affiliates (3.0) — —

Gross inflows 2.4 2.0 1.7

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Beginning balance $ 204.4 $ 206.3 $ 243.0

Removal of Affiliate

Sale of Affiliates (50.3) — —

Gross inflows 24.6 20.7 27.6

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Realizations and other (2)

(1.1) (1.3) (2.1)

Ending balance $ 156.7 $ 204.4 $ 206.3

Reflects the removal of Heitman beginning in the third quarter of 2017.

(1) Reinvested income and distributions is allocated based on consolidated total distribution rate multiplied by the beginning of period AUM of each client type.

Net flows for all periods above have been revised for the inclusion of reinvested income and distributions, and the exclusion of realizations.

(2) Realizations include distributions related to the sale of alternative assets, and represent a return on investments.

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

($ in billions)

Years ended December 31,

($ in billions) Years ended December 31,

2020 2019 2018

Beginning balance $ 148.4 $ 156.8 $ 190.1

Removal of Affiliate

Sale of Affiliates (39.9) — —

Gross inflows 18.3 13.5 18.8

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Realizations and other (2)

(1.0) (1.1) (1.8)

Ending balance $ 114.1 $ 148.4 $ 156.8

Beginning balance $ 56.0 $ 49.5 $ 52.9

Removal of Affiliate

Sale of Affiliates (10.4) — —

Gross inflows 6.3 7.2 8.8

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Realizations and other (2)

(0.1) (0.2) (0.3)

Ending balance $ 42.6 $ 56.0 $ 49.5

Beginning balance $ 204.4 $ 206.3 $ 243.0

Removal of Affiliate

Sale of Affiliates (50.3) — —

Gross inflows 24.6 20.7 27.6

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Realizations and other (2)

(1.1) (1.3) (2.1)

Ending balance $ 156.7 $ 204.4 $ 206.3

Reflects the removal of Heitman beginning in the third quarter of 2017.

(1) Reinvested income and distributions is allocated based on consolidated total distribution rate multiplied by the beginning of period AUM of each client location.

Net flows for all periods above have been revised for the inclusion of reinvested income and distributions, and the exclusion of realizations.

(2) Realizations include distributions related to the sale of alternative assets, and represent a return on investments.

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The assets under management at December 31, 2019 represented a decrease of $(1.9) billion or (0.9)% compared to $206.3 billion at December 31, 2018.

The change in assets under management during the year ended December 31, 2020 reflects the sale of Barrow Hanley and Copper Rock of $(50.3) billion, net outflows of $(3.3) billion including reinvested income and distributions of $4.3 billion, and realizations and other of $(1.1) billion, partially offset by net market appreciation of $7.0 billion from continued market recovery.

The change in assets under management during the year ended December 31, 2019 reflects net market appreciation of $32.1 billion, realizations and other of $(1.3) billion and net outflows of $(32.7) billion including reinvested income and distributions of $5.4 billion.

The change in assets under management during the year ended December 31, 2018 reflects net market depreciation of $(30.3) billion , realizations and other of $(2.1) billion and net outflows of $(4.3) billion including reinvested income and distributions of $5.7 billion .

In addition to the removal of Heitman, which accounted for a decrease in assets under management of $(32.4) billion , the change in assets under management during the year ended December 31, 2017 reflects net market appreciation of $ 35.8 billion , realizations and other of $(0.8) billion , and net flows of $0.0 billion including reinvested income and distributions of $5.2 billion .

These changes align the definition of AUM with management fees charged to clients.

For the year ended December 31, 2019 , our net outflows were $(32.7) billion compared to net outflows of $(4.3) billion for the year ended December 31, 2018 and net flows of $0.0 billion for the year ended December 31, 2017 .

The net outflows for the year ended December 31, 2019 were mainly impacted by the $(22.8) billion reallocation of several Vanguard subadvisory strategies.

The change in assets under management during the year ended December 31, 2018 reflects net market depreciation of $(30.3) billion, realizations and other of $(2.1) billion, and net flows of $(4.3) billion including reinvested income and distributions of $5.7 billion.

For the year ended December 31, 2020, our net outflows were $(3.3) billion compared to net outflows of $(32.7) billion for the year ended December 31, 2019 and net outflows of $(4.3) billion for the year ended December 31, 2018.

The change in net outflows for the year ended December 31, 2020.December 31, 2019, and December 31, 2018 was primarily due to the $(22.8) billion reallocation of several Vanguard sub-advisory strategies for the year ended December 31, 2019 that did not occur in the year ended December 31, 2020 or December 31, 2018.

Reinvested income and distributions of $4.3 billion, $5.4 billion, and $5.7 billion are reflected in the net flows for the years ended December 31, 2020, 2019 and 2018, respectively.

For the year ended December 31, 2019 , the annualized revenue impact of the net flows decreased to $(69.1) million compared to $19.1 million for the year ended December 31, 2018 , including $(34.6) million related to the reallocation of several Vanguard subadvisory strategies.

Gross outflows of $(58.8) billion in the year ended December 31, 2019 yielded approximately 27 bps compared to $(37.6) billion in the year ended December 31, 2018 yielded approximately 35 bps, and gross outflows of $(36.2) billion in the year ended December 31, 2017 which yielded approximately 34 bps.

For the year ended December 31, 2020, the annualized revenue impact of the net flows improved to $(22.0) million compared to $(69.1) million for the year ended December 31, 2019.

GAAP Results of Operations

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GAAP results of operations were as follows for the years ended December 31, 2020, 2019 and 2018.

Years ended December 31,

Increase (Decrease)

($ in millions unless otherwise noted)

Years ended December 31, Increase (Decrease)

($ in millions unless otherwise noted) 2020 2019 2018 2020 vs.

2019 2019 vs.

GAAP Consolidated Statements of Operations (1)

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Compensation and benefits 388.7 416.2 696.4 (27.5) (280.2)

General and administrative

General and administrative expense 106.0 128.8 126.0 (22.8) 2.8

Impairment of goodwill 16.4 — — 16.4 —

Amortization of acquired intangibles

6.7 6.6 6.6 0.1 —

Depreciation and amortization 21.0 17.2 14.5 3.8 2.7

5 unchanged sentences

Interest expense (28.5) (32.2) (24.9) (3.7) (7.3)

Gain on sale of Affiliates 241.3 — — 241.3 —

Revaluation of DTA deed — — 20.0 — (20.0)

1 unchanged sentence

Income from continuing operations before taxes

427.6 258.0 135.2 169.6 122.8

Income tax expense 112.1 18.0 5.0 94.1 13.0

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

— — 0.1 — (0.1)

Net income 315.5 240.0 130.3 75.5 109.7

Net income (loss) attributable to non-controlling interests in consolidated Funds

28.8 16.1 (6.1) 12.7 22.2

Net income attributable to controlling interests

$ 286.7 $ 223.9 $ 136.4 $ 62.8 $ 87.5

Basic earnings per share ($) $ 3.53 $ 2.45 $ 1.27 $ 1.08 $ 1.18

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Weighted average shares of common stock outstanding—basic

81.3 91.2 107.4 (9.9) (16.2)

Weighted average shares of common stock outstanding—diluted

82.0 91.3 107.6 (9.3) (16.3)

GAAP operating margin (2)

25 % 31 % 9 % (557) bps 2152 bps

(1) Certain Funds have been consolidated due to our seed capital or co-investments in the Funds.

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

Excluding assets managed by our equity-accounted Affiliates, average basis points earned on average assets under management were 37.7 bps for the year ended December 31, 2019 , 38.9 bps for the year ended December 31, 2018 and 38.2 bps for the year ended December 31, 2017 .

Excluding assets managed by our equity-accounted Affiliate, average basis points earned on average assets under management were 39.2 bps for the year ended December 31, 2020, 37.7 bps for the year ended December 31, 2019 and 38.9 bps for the year ended December 31, 2018.

The greatest 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 asset classes, net catch-up fees, or disproportionate market movements.

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($ in millions,

except AUM data in billions)

Years ended December 31,

except AUM data in billions) Years ended December 31,

2020 2019 2018

Revenue Basis Pts Revenue Basis Pts Revenue Basis Pts

Quant & Solutions $ 346.8 36 $ 370.8 39 $ 377.4 39

Alternatives 170.6 70 165.0 70 208.3 90

Liquid Alpha 180.5 31 271.2 28 319.3 28

GAAP management fee revenue & weighted average fee rate on average AUM of consolidated Affiliates (1)

Average AUM excluding equity-accounted Affiliates

Average AUM including equity-accounted Affiliates & weighted average fee rate (2)

$ 697.9 39.2 $ 807.0 37.7 $ 905.0 38.9

Average AUM excluding equity-accounted Affiliate $ 177.4 $ 214.1 $ 232.8

Average AUM including equity-accounted Affiliate & weighted average fee rate $ 179.7 39.5 $ 216.3 37.9 $ 234.9 39.0

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

(See “ENI Revenues.”)

Average AUM including equity-accounted Affiliates excludes Heitman as of the beginning of the third quarter, 2017.

Year ended December 31, 2020 compared to year ended December 31, 2019:

Management fees decreased $(109.1) million, or (13.5)%, from $807.0 million for the year ended December 31, 2019 to $697.9 million for the year ended December 31, 2020.

The decrease was primarily attributable to a decrease in both average assets under management excluding equity-accounted Affiliates and our weighted average fee rate for the year ended December 31, 2019 .

The decrease in management fee revenue was also caused by net catch-up fees associated with alternative assets earned in 2018 that did not repeat in 2019.

Net catch-up fees represent payment of certain Fund management fees back to the initial closing date for certain products with multiple closings, less placement fees paid to third parties related to these funds.

Average assets under management excluding equity-accounted Affiliates decreased (8.0)% , from $232.8 billion for the year ended December 31, 2018 to $214.1 billion for the year ended December 31, 2019 , mainly due to equity market decline at the end of 2018 and the impact of the $(22.8) billion reallocation of several Vanguard subadvisory strategies in the fourth quarter of 2019.

The decrease was primarily due to the disposition of Barrow Hanley and Copper Rock and lower overall level of average assets under management.

Average assets under management excluding equity-accounted Affiliate decreased (17.1)%, from $214.1 billion for the year ended December 31, 2019 to $177.4 billion for the year ended December 31, 2020, mainly due to the sale of Barrow Hanley and Copper Rock and the equity market decline during the first quarter of 2020 driven by the COVID-19 pandemic.

Year ended December 31, 2019 compared to year ended December 31, 2018:

Management fees increased $47.0 million , or 5.5% , from $858.0 million for the year ended December 31, 2017 to $905.0 million for the year ended December 31, 2018 .

The increase was due to higher levels of average assets under management excluding equity-accounted Affiliates, net catch-up fees associated with alternative assets earned in 2018 and continued shift to higher fee-rate products.

Management fees decreased $(98.0) million, or (10.8)%, from $905.0 million for the year ended December 31, 2018 to $807.0 million for the year ended December 31, 2019.

The decrease was primarily attributable to a decrease in both average assets under management excluding our equity-accounted Affiliate and our weighted average fee rate for the year ended December 31, 2019.

The decrease in management fee revenue was also caused by net catch-up fees associated with alternative assets earned in 2018 that did not repeat in 2019.

Average assets under management excluding equity-accounted Affiliates increased 3.6% , from $224.8 billion for the year ended December 31, 2017 to $232.8 billion for the year ended December 31, 2018 .

Overall, the increase in management fee revenue is reflective of the increases in basis point yields of our assets under management.

Excluding equity-accounted Affiliates, the weighted average fee rate earned on our average assets under management was 38.9 basis points in 2018 and 38.2 basis points in 2017 with the increase driven mostly by the mix of flows and market movements in and out of assets with varying fee rates as well as the higher fee-rate assets under management added as a result of Landmark’s fundraising (including catch-up fees).

Average assets under management excluding equity-accounted Affiliate decreased (8.0)%, from $232.8 billion for the year ended December 31, 2018 to $214.1 billion for the year ended December 31, 2019, mainly due to equity market decline at the end of 2018 and the impact of the $(22.8) billion reallocation of several Vanguard sub-advisory strategies in the fourth quarter of 2019.

Performance Fees

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

Year ended December 31, 2019 compared to year ended December 31, 2018 :

Performance fees decreased $(9.9) million , or (101.0)% , from $9.8 million for the year ended December 31, 2018 to $(0.1) million for the year ended December 31, 2019 .

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

The decrease was also attributable to lower performance fees earned by alternative products.

Year ended December 31, 2020 compared to year ended December 31, 2019:

Performance fees improved $7.9 million, from $(0.1) million for the year ended December 31, 2019 to $7.8 million for the year ended December 31, 2020.

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

Year ended December 31, 2019 compared to year ended December 31, 2018:

Performance fees decreased $(9.9) million, or (101.0)%, from $9.8 million for the year ended December 31, 2018 to $(0.1) million for the year ended December 31, 2019.

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

The decrease was primarily attributable to performance fees earned on certain products in 2017 that were not repeated in 2018.

The liquidation of an alternative product may result in the recognition of a performance fee.

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Year ended December 31, 2020 compared to year ended December 31, 2019:

Other revenue decrease d $(3.6) million , or (37.5)% , from $9.6 million for the year ended December 31, 2018 to $6.0 million for the year ended December 31, 2019 .

The decrease was primarily attributable to the decrease in revenue recorded for certain Fund expenses paid by our Affiliates and subsequently reimbursed by the Fund for the year ended December 31, 2019 .

Other revenue increased $1.3 million, or 21.7%, from $6.0 million for the year ended December 31, 2019 to $7.3 million for the year ended December 31, 2020.

The increase was primarily attributable to an increase in consulting performed by an Affiliate for the year ended December 31, 2020.

Year ended December 31, 2019 compared to year ended December 31, 2018:

Other revenue increase d $8.4 million , or 700.0% , from $1.2 million for the year ended December 31, 2017 to $9.6 million for the year ended December 31, 2018 .

The increase was primarily attributable to the adoption of new accounting rules effective January 1, 2018 related to revenue recognition that require us to record as separate revenue and expense certain Fund expenses paid by our Affiliates and subsequently reimbursed by the Fund.

These reimbursed costs, amounting to $8.0 million for the year ended December 31, 2018, were recorded on a net basis in prior years.

Other revenue decreased $(3.6) million, or (37.5)%, from $9.6 million for the year ended December 31, 2018 to $6.0 million for the year ended December 31, 2019.

GAAP Expenses

2 unchanged sentences

general and administrative expenses;

impairment of goodwill;

amortization of acquired intangible assets;

8 unchanged sentences

Fixed compensation and benefits (1)

$ 177.6 $ 194.1 $ 188.7

Sales-based compensation (2)

8.8 11.2 17.4

Variable compensation (3)

180.7 199.4 235.9

Affiliate key employee distributions (4)

41.5 45.1 76.6

Non-cash Affiliate key employee equity revaluations (5)(6)

(26.1) (65.9) 107.2

Amortization of acquisition-related consideration and pre-acquisition employee equity (7)

6.2 32.3 70.6

GAAP compensation and benefits expense $ 388.7 $ 416.2 $ 696.4

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

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

For the year ended December 31, 2020, $173.3 million of fixed compensation and benefits (of the $177.6 million above) is included within economic net income, which excludes Fund expenses initially paid by our Affiliates on the Fund’s behalf and subsequently reimbursed.

For the year ended December 31, 2018 , $181.4 million of fixed compensation and benefits (of the $188.7 million above) is included within economic net income, which excludes Fund expenses initially paid by our Affiliates on the Fund’s behalf and subsequently reimbursed and also excludes the compensation and benefits associated with the 2018 CEO transition.

For the year ended December 31, 2017 , $172.4 million of fixed compensation and benefits (of the $172.9 million above) is included within economic net income, which excludes the compensation and benefits associated with the 2017 CEO transition.

For the year ended December 31, 2019, $189.7 million of fixed compensation and benefits (of the $194.1 million above) is included within economic net income, which excludes Fund expenses initially paid by our Affiliates on the Fund’s behalf and subsequently reimbursed.

For the year ended December 31, 2018, $181.4 million of fixed compensation and benefits (of the $188.7 million above) is included within economic net income, which excludes Fund expenses initially paid by our Affiliates on the Fund’s behalf and subsequently reimbursed, as well as the compensation and benefits associated with the 2018 CEO transition.

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

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Total variable compensation (a)

$ 180.7 $ 199.4 $ 235.9

(a) For the year ended December 31, 2020, $159.6 million of variable compensation expense (of the $180.7 million above) is included within economic net income, which excludes the variable compensation associated with restructuring at the Center and the Affiliates, variable compensation subsequently reimbursed by Funds, and a one-time compensation arrangement entered into that includes advances against future compensation payments.

For the year ended December 31, 2019, $184.7 million of variable compensation expense (of the $199.4 million above) is included within economic net income, which excludes the variable compensation associated with restructuring at the Center and the Affiliates, as well as variable compensation subsequently reimbursed by Funds.

For the year ended December 31, 2018, $230.7 million of variable compensation expense (of the $235.9 million above) is included within economic net income, which excludes the variable compensation associated with the 2018 CEO transition costs and variable compensation subsequently reimbursed by Funds.

For the year ended December 31, 2017 , $243.4 million of variable compensation expense (of the $252.2 million above) is included within economic net income, which excludes the variable compensation associated with the 2017 CEO transition costs.

(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.

For the year ended December 31, 2019 , Affiliate key employee distributions included within economic net income is $53.1 million , which includes an adjustment of $8.0 million of variable compensation related to restructuring at an Affiliate that will be reimbursed through a reduction of Affiliate key employee distributions.

For the year ended December 31, 2019, Affiliate key employee distributions included within economic net income was $53.1 million, which included an adjustment of $8.0 million of variable compensation related to restructuring at an Affiliate that will be reimbursed through a reduction of Affiliate key employee distributions.

The Affiliate key employee distribution ratio at each Affiliate is calculated as Affiliate key employee distributions divided by ENI operating earnings at that Affiliate.

5 unchanged sentences

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.

Included in non-cash Affiliate key employee equity revaluations are revaluations as a result of the Landmark transaction related to contingent consideration amounting to $0.0 million for the year ended December 31, 2019 , $95.3 million for the year ended December 31, 2018 and $24.3 million for the year ended December 31, 2017 , along with the revaluations of Landmark employee equity owned pre-acquisition amounting to $13.3 million for the year ended December 31, 2019 , $37.9 million for the year ended December 31, 2018 and $25.9 million for the year ended December 31, 2017 .

Acquisition-related consideration and pre-acquisition employee equity represents the amortization of acquisition-related contingent consideration created as a result of the Landmark transaction amounting to $0.0 million for the year ended December 31, 2019 , $37.1 million for the year ended December 31, 2018 and $37.1 million in the year ended December 31, 2017 , along with the amortization of employee equity owned pre-acquisition amounting to $32.3 million for the year ended December 31, 2019 , $33.5 million for the year ended December 31, 2018 and $33.5 million for the year ended December 31, 2017 .

(6) Included in non-cash Affiliate key employee equity revaluations are revaluations as a result of the Landmark transaction related to contingent consideration amounting to $95.3 million for the year ended December 31, 2018, along with the revaluations of Landmark employee equity owned pre-acquisition amounting to $(6.0) million for the year ended December 31, 2020, $13.3 million for the year ended December 31, 2019 and $37.9 million for the year ended December 31, 2018.

(7) Acquisition-related consideration and pre-acquisition employee equity represents the amortization of acquisition-related contingent consideration created as a result of the Landmark transaction amounting to $37.1 million in the year ended December 31, 2018, along with the amortization of employee equity owned pre-acquisition amounting to $6.2 million for the year ended December 31, 2020, $32.3 million for the year ended December 31, 2019 and $33.5 million for the year ended December 31, 2018.

These items have been included in U.S.

2 unchanged sentences

Year ended December 31, 2020 compared to year ended December 31, 2019:

Compensation and benefits expense decrease d $(280.2) million , or (40.2)% , from $696.4 million for the year ended December 31, 2018 to $416.2 million for the year ended December 31, 2019 .

Compensation and benefits expense decreased $(27.5) million, or (6.6)%, from $416.2 million for the year ended December 31, 2019 to $388.7 million for the year ended December 31, 2020.

Fixed compensation and benefits decreased $(16.5) million, or (8.5)%, from $194.1 million for the year ended December 31, 2019 to $177.6 million for the year ended December 31, 2020.

This decrease reflects the cost savings from the restructuring at the Center and Affiliates, as well as the disposition of Barrow Hanley and Copper Rock in 2020.

Variable compensation decreased $(18.7) million, or (9.4)%, from $199.4 million for the year ended December 31, 2019 to $180.7 million for the year ended December 31, 2020.

The decrease was attributable to lower pre-variable compensation earnings in 2020, offset by the impact of a one-time compensation arrangement entered into that includes advances against future compensation payments.

Sales-based compensation decreased $(2.4) million, or (21.4)%, from $11.2 million for the year ended December 31, 2019 to $8.8 million for the year ended December 31, 2020, as a result of the structure of sales-based compensation programs, driven by the timing of asset inflows triggering sales-based compensation in both current and prior periods.

Affiliate key employee distributions decreased $(3.6) million, or (8.0)%, from $45.1 million for the year ended December 31, 2019 to $41.5 million for the year ended December 31, 2020 as a result of lower earnings before Affiliate key employee distributions at the consolidated Affiliates.

Revaluations of Affiliate key employee equity changed $39.8 million in 2020, reflecting revaluations of key employee ownership interests at our consolidated Affiliates, as the value of Affiliate equity decreased $(65.9) million for the year ended December 31, 2019 and decreased $(26.1) million for the year ended December 31, 2020.

Amortization of acquisition-related consideration and pre-acquisition equity decreased $(26.1) million, or (80.8)% from $32.3 million for the year ended December 31, 2019 to $6.2 million for the year ended December 31, 2020, as a result of employee equity vesting in the prior year.

Year ended December 31, 2019 compared to year ended December 31, 2018:

Compensation and benefits expense decreased $(280.2) million, or (40.2)%, from $696.4 million for the year ended December 31, 2018 to $416.2 million for the year ended December 31, 2019.

Fixed compensation and benefits increased $5.4 million, or 2.9%, from $188.7 million for the year ended December 31, 2018 to $194.1 million for the year ended December 31, 2019.

6 unchanged sentences

The decrease in the revaluations of Affiliate equity was driven by lower earnings at the Affiliates in 2019, while the reduction in the amortization of acquisition-related consideration and pre-acquisition equity was primarily due to the Landmark contingent consideration arrangement that was fully accrued as of December 31, 2018.

Year ended December 31, 2018 compared to year ended December 31, 2017 :

Compensation and benefits expense increased $13.6 million , or 2.0% , from $682.8 million for the year ended December 31, 2017 to $696.4 million for the year ended December 31, 2018 .

Fixed compensation and benefits increased $15.8 million , or 9.1% , from $172.9 million for the year ended December 31, 2017 to $188.7 million for the year ended December 31, 2018 .

This increase reflects the growth of the investment teams at our Affiliates and cost of living increases.

Variable compensation decreased $(16.3) million , or (6.5)% , from $252.2 million for the year ended December 31, 2017 to $235.9 million for the year ended December 31, 2018 due to lower pre-variable compensation earnings in the current period, as well as the impact of higher severance-related payments in the prior year.

Sales-based compensation decreased $(1.2) million , or (6.5)% , from $18.6 million for the year ended December 31, 2017 to $17.4 million for the year ended December 31, 2018 , as a result of the structure of sales-based compensation and the timing of asset inflows triggering sales-based compensation in both current and prior periods.

Affiliate key employee distributions increased $3.5 million , or 4.8% , from $73.1 million for the year ended December 31, 2017 to $76.6 million for the year ended December 31, 2018 as a result of higher underlying operating earnings and the levered structure of distributions at certain Affiliates.

Revaluations of Affiliate equity increased $11.8 million , reflecting the appreciation of key employee ownership interests at certain Affiliates.

Acquisition-related consideration and pre-acquisition equity remained unchanged at $70.6 million for the years ended December 31, 2018 and December 31, 2017 , and represents amortization of the value of contingent consideration and employee-owned equity, related to Landmark, recorded as compensation under U.S.

GAAP due to certain service requirements associated with the arrangements.

General and Administrative Expense

Year ended December 31, 2020 compared to year ended December 31, 2019:

General and administrative expense decreased $(22.8) million, or (17.7)%, from $128.8 million for the year ended December 31, 2019 to $106.0 million for the year ended December 31, 2020.

The decrease was primarily due to cost saving initiatives at the Center and Affiliates and the disposition of Barrow Hanley and Copper Rock in 2020.

Year ended December 31, 2019 compared to year ended December 31, 2018:

General and administrative expense increased $2.8 million, or 2.2%, from $126.0 million for the year ended December 31, 2018 to $128.8 million for the year ended December 31, 2019.

The increase in general and administrative expenses primarily reflects new initiatives, additional system costs and continued investment in the business.

Impairment of Goodwill

Year ended December 31, 2020 compared to year ended December 31, 2019:

General and administrative expense increased $13.1 million , or 11.6% , from $112.9 million for the year ended December 31, 2017 to $126.0 million for the year ended December 31, 2018 .

The increase in general and administrative expenses primarily reflects new initiatives and additional system costs.

No goodwill impairment charge was recorded in the year ended December 31, 2019.

A goodwill impairment charge of $16.4 million was recorded for the year ended December 31, 2020 with respect to the Copper Rock reporting unit which was included within the Liquid Alpha segment prior to its disposition in July 2020.

See “Recent Developments” herein.

In the first quarter 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 year ended December 31, 2020.

Year ended December 31, 2019 compared to year ended December 31, 2018:

No goodwill impairment charge was recorded in either the year ended December 31, 2019 or December 31, 2018.

Amortization of Acquired Intangibles Expense

Year ended December 31, 2020 compared to year ended December 31, 2019:

Amortization of acquired intangibles expense was unchanged at $6.6 million for the year ended December 31, 2019 and $6.6 million for the year ended December 31, 2018 .

Amortization of acquired intangibles expense increased $0.1 million, or 1.5%, from $6.6 million for the year ended December 31, 2019 to $6.7 million for the year ended December 31, 2020.

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

4 unchanged sentences

Year ended December 31, 2020 compared to year ended December 31, 2019:

Depreciation and amortization expense increase d $2.7 million , or 18.6% , from $14.5 million for the year ended December 31, 2018 to $17.2 million for the year ended December 31, 2019 .

Depreciation and amortization expense increased $3.8 million, or 22.1%, from $17.2 million for the year ended December 31, 2019 to $21.0 million for the year ended December 31, 2020.

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

7 unchanged sentences

interest expense;

We recorded $20.0 million in the year ended December 31, 2018 , and $51.8 million in the year ended December 31, 2017 of non-operating income associated with the revaluation of our DTA deed with OM plc, discussed further in “—U.S.

GAAP Income Tax Expense” below.

The DTA deed was fully settled in 2019 at the amount recognized as of December 31, 2018, as such, no additional amounts were recorded in 2019.

gain on sale of Affiliates

Investment Income

Year ended December 31, 2020 compared to year ended December 31, 2019:

Investment income decreased $(11.9) million, or (70.8)%, from $16.8 million for the year ended December 31, 2019 to $4.9 million for the year ended December 31, 2020.

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

Year ended December 31, 2019 compared to year ended December 31, 2018:

Investment income decreased $(49.7) million, or (74.7)%, from $66.5 million for the year ended December 31, 2018 to $16.8 million for the year ended December 31, 2019, primarily due to a $65.7 million gain from the sale of our stake in Heitman that was included in 2018 results and not repeated in 2019.

Excluding the gain from the sale of our stake in Heitman, investment income increased $16.0 million as a result of higher returns on co-investments and seed capital investments in 2019.

Year ended December 31, 2018 compared to year ended December 31, 2017 :

Investment income increased $39.1 million , or 142.7% , from $27.4 million for the year ended December 31, 2017 to $66.5 million for the year ended December 31, 2018 , primarily due to a $65.7 million gain from the sale of our stake in Heitman on January 5, 2018, offset by lower earnings from equity-accounted Affiliates as a result of the Heitman sale, and lower returns on co-investments and seed capital investments in 2018.

Interest Income

Year ended December 31, 2020 compared to year ended December 31, 2019:

Interest income decreased $(1.0) million , or (31.3)% , from $3.2 million for the year ended December 31, 2018 to $2.2 million for the year ended December 31, 2019 , principally due to lower average cash balances and a decrease in short-term investment returns in 2019.

Interest income decreased $(1.6) million, or (72.7)%, from $2.2 million for the year ended December 31, 2019 to $0.6 million for the year ended December 31, 2020, principally due to a decrease in short-term investment returns in 2020.

Year ended December 31, 2019 compared to year ended December 31, 2018:

Interest income increased $2.4 million , or 300.0% , from $0.8 million for the year ended December 31, 2017 to $3.2 million for the year ended December 31, 2018 , principally due to higher average cash balances in 2018 .

Interest income decreased $(1.0) million, or (31.3)%, from $3.2 million for the year ended December 31, 2018 to $2.2 million for the year ended December 31, 2019, principally due to lower average cash balances and a decrease in short-term investment returns in 2019.

Interest Expense

Year ended December 31, 2020 compared to year ended December 31, 2019:

Interest expense decreased $3.7 million, or (11.5)%, from $32.2 million for the year ended December 31, 2019 to $28.5 million for the year ended December 31, 2020, primarily reflecting a lower balance drawn on the non-recourse seed capital and revolving credit facilities during 2020.

We paid down the balance on our non-recourse seed capital facility, and paid down the balance on our revolving credit facility in the year ended December 31, 2020.

Year ended December 31, 2019 compared to year ended December 31, 2018:

Interest expense increased $7.3 million, or 29.3%, from $24.9 million for the year ended December 31, 2018 to $32.2 million for the year ended December 31, 2019, primarily reflecting the utilization of our revolving credit facility and non-recourse seed capital facility during 2019.

Gain on Sale of Affiliates

Year ended December 31, 2020 compared to year ended December 31, 2019:

Interest expense increased $0.4 million , or 1.6% , from $24.5 million for the year ended December 31, 2017 to $24.9 million for the year ended December 31, 2018 , reflecting higher drawdowns on the non-recourse seed capital facility during 2018 .

Gain on sale of Affiliate was $241.3 million for the year ended December 31, 2020, representing a gain of $7.2 million on the sale of our equity interests in Copper Rock, a gain of $231.2 million on the sale of our equity interests in Barrow Hanley and a gain of $2.9 million on a previously disposed Affiliate.

No gain on sale of Affiliate was recorded in the year ended December 31, 2019.

Year ended December 31, 2019 compared to year ended December 31, 2018:

No gain on sale of an Affiliate was recorded in either the year ended December 31, 2019 or December 31, 2018.

GAAP Income Tax Expense

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 has been impacted by changes in liabilities for uncertain tax positions, tax effects of stock-based compensation, sale of Affiliates, limitations on executive compensation, the mix of income earned in the United States versus lower-taxed foreign jurisdictions and benefits from intercompany financing arrangements which ended in 2019.

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.

Tax law changes in both the U.S.

during the fourth quarter of 2017 contributed to the differences in the effective tax rate in 2018 compared to 2017.

In addition, the reduction of liabilities for uncertain tax positions in 2019 and 2018 represents the significant portion of the company’s liabilities for uncertain tax positions.

As of December 31, 2020, a significant portion of the Company’s liabilities for uncertain tax positions have been reduced due to the lapse of statutes of limitation.

The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) contains numerous income tax provisions including some that are effective retroactively.

Our 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 allowed us to utilize more of the deferred tax asset related to interest expense.

Year ended December 31, 2020 compared to year ended December 31, 2019:

Income tax expense increased $94.1 million, from $18.0 million for the year ended December 31, 2019 to $112.1 million for the year ended December 31, 2020.

The increase in income tax expense relates to the increase in income from continuing operations for the year ended December 31, 2020 driven by the gain on sale of Affiliates, in addition to the reductions to liabilities for uncertain tax positions due to the lapse of statues of limitation and adjustments to deferred tax assets in 2020 compared to 2019.

Deferred tax assets have been adjusted primarily for changes in the Company's state tax rates and an increase in state tax obligations.

Year ended December 31, 2019 compared to year ended December 31, 2018:

Income tax expense increased $13.0 million, from $5.0 million for the year ended December 31, 2018 to $18.0 million for the year ended December 31, 2019, primarily due to the increase in the income from continuing operations before taxes.

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These increases to the effective tax rate were partially reduced by the impact of the deferred tax adjustments described above.

Year ended December 31, 2018 compared to year ended December 31, 2017 :

Income tax expense decreased $(127.8) million , or (96.2)% , from $132.8 million for the year ended December 31, 2017 to $5.0 million for the year ended December 31, 2018 .

The decrease relates primarily to the impact of U.S.

tax law changes recorded in 2017, the lower U.S.

corporate tax rate in 2018 and the reduction to liabilities for uncertain tax positions in 2018 due to lapses of statutes of limitation.

These decreases were partially offset by a reduction to interest expense in the fourth quarter of 2017 due to U.K.

tax law changes.

The effective tax rate decreased to 3.7% for the year ended December 31, 2018 from 93.5% for the year ended December 31, 2017 due to the impacts of 2017 U.K, and U.S.

tax law changes and adjustments to liabilities for uncertain tax positions in 2018.

In 2018, the Company agreed to terminate the DTA Deed with OM plc.

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Year ended December 31, 2020 compared to year ended December 31, 2019:

Consolidated Funds’ revenue increased $2.8 million , from $3.8 million for the year ended December 31, 2018 to $6.6 million for the year ended December 31, 2019 .

Consolidated Funds’ revenue decreased $(1.1) million, from $6.6 million for the year ended December 31, 2019 to $5.5 million for the year ended December 31, 2020.

Consolidated Funds’ expense decreased $(0.1) million, from $0.4 million for the year ended December 31, 2019 to $0.3 million for the year ended December 31, 2020.

The increase in consolidated Funds’ revenue and decrease in Consolidated Funds’ expense is due to changes in the population of consolidated Funds during the year ended December 31, 2019 .

The decrease in Consolidated Funds’ revenue and decrease in Consolidated Funds’ expense is due to changes in the population of Consolidated Funds during the year ended December 31, 2020, including the deconsolidation of Funds due to redemption of seed investments in Barrow Hanley Consolidated Funds following the sale of our equity interests in Barrow Hanley in November 2020.

Consolidated Funds’ investment gain (loss) increased $9.0 million from $20.9 million for the year ended December 31, 2019 to $29.9 million for the year ended December 31, 2020.

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Consolidated Funds’ expense decreased $(0.5) million, from $0.9 million for the year ended December 31, 2018 to $0.4 million for the year ended December 31, 2019.

The increase in consolidated Funds’ revenue and decrease in Consolidated Funds’ expense is due to changes in the population of consolidated Funds during the twelve months ended December 31, 2018 .

Consolidated Funds’ investment gain (loss) decreased $(28.9) million from $15.5 million for the year ended December 31, 2017 to $(13.4) million for the year ended December 31, 2018 .

The increase in consolidated Funds’ revenue and decrease in Consolidated Funds’ expense is due to changes in the population of consolidated Funds during the year ended December 31, 2019.

Consolidated Funds’ investment gain (loss) increased $34.3 million from $(13.4) million for the year ended December 31, 2018 to $20.9 million for the year ended December 31, 2019.

GAAP Operating Metrics

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Operating income

$ 179.4 $ 250.3 $ 83.8

Total revenue

$ 718.5 $ 819.5 $ 928.2

GAAP operating margin (1)

25.0 % 30.5 % 9.0 %

Total operating expenses (2)

$ 538.8 $ 568.8 $ 843.5

Management fee revenue

$ 697.9 $ 807.0 $ 905.0

GAAP operating expense / management fee revenue (3)

77.2 % 70.5 % 93.2 %

Variable compensation

$ 180.7 $ 199.4 $ 235.9

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

$ 396.4 $ 488.6 $ 393.4

GAAP variable compensation ratio (3)

45.6 % 40.8 % 60.0 %

Affiliate key employee distributions

$ 41.5 $ 45.1 $ 76.6

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

$ 215.7 $ 289.2 $ 157.5

GAAP Affiliate key employee distributions ratio (3)

19.2 % 15.6 % 48.6 %

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

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(3) Excludes the effect of Funds consolidation for the years ended December 31, 2020, 2019 and 2018.

Excludes consolidated Funds revenue of $6.6 million for the year ended December 31, 2019 and $3.8 million for the year ended December 31, 2018 and $1.7 million for the year ended December 31, 2017 .

(4) Excludes consolidated Funds’ revenue of $5.5 million for the year ended December 31, 2020, $6.6 million for the year ended December 31, 2019 and $3.8 million for the year ended December 31, 2018.

(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:

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Operating income

$ 179.4 $ 250.3 $ 83.8

Affiliate key employee distributions

41.5 45.1 76.6

Operating (income) loss of consolidated Funds

(5.2) (6.2) (2.9)

Operating income before Affiliate key employee distributions

$ 215.7 $ 289.2 $ 157.5

Variable compensation 180.7 199.4 235.9

Operating income before variable compensation and Affiliate key employee distributions

$ 396.4 $ 488.6 $ 393.4

Effects of Inflation

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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 advances against future contractual compensation payments.

To calculate economic net income, we re-categorize certain line items on our 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 shareholders.

• 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.

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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.

We exclude the results of discontinued operations attributable to controlling interests since they are not part of our ongoing business, and restructuring costs incurred in continuing operations.

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.

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.

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Non-cash key employee-owned equity and profit interest revaluations (26.1) (65.9) 107.2

Amortization of acquired intangible assets, acquisition-related consideration and pre-acquisition employee equity (2)

Goodwill impairment and amortization of acquired intangible assets, acquisition-related consideration and pre-acquisition employee equity 29.3 38.9 77.2

Capital transaction costs 0.8 2.9 1.6

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

(2.5) (16.2) 14.5

Tax benefit of goodwill and acquired intangibles deductions 9.2 9.3 5.7

Discontinued operations and restructuring (4)

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

(213.2) 9.2 (79.4)

ENI tax normalization (3)

1.6 (49.8) (30.3)

Tax effect of above adjustments (4)

57.8 8.5 (33.1)

Economic net income $ 143.6 $ 160.8 $ 199.8

Included in non-cash key employee-owned equity and profit interest revaluations are revaluations as a result of the Landmark transaction related to contingent consideration amounting to $0.0 million for the year ended December 31, 2019 , $95.3 million for the year ended December 31, 2018 and $24.3 million for the year ended December 31, 2017 , along with revaluations of Landmark employee equity owned pre-acquisition amounting to $13.3 million for the year ended December 31, 2019 , $37.9 million for the year ended December 31, 2018 and $25.9 million for the year ended December 31, 2017 .

Acquisition-related consideration and pre-acquisition employee equity includes the amortization of acquisition-related contingent consideration created as a result of the Landmark transaction amounting to $37.1 million for the year ended December 31, 2018 and $37.1 million for the year ended December 31, 2017 .

It also includes the value of employee equity owned pre-acquisition amounting to $32.3 million for the year ended December 31, 2019 , $33.5 million for the year ended December 31, 2018 and $33.5 million for the year ended December 31, 2017 .

The table below summarizes the Landmark-related components included in items (i) and (ii) of the above reconciliation:

Years ended December 31,

($ in millions)

Landmark contingent consideration

Landmark pre-acquisition employee equity

Landmark-related total

Other Affiliate equity and amortization of intangible assets

(1) The net return on seed/co-investment (gains) losses and financings for the years ended December 31, 2020, 2019 and 2018 are shown in the following table.

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Net seed/co-investment (gains) losses and financing

$ (2.5) $ (16.2) $ (1.7)

* 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.

Included in discontinued operations and restructuring for the year ended December 31, 2019 are costs related to restructuring at the Center and the Affiliates of $6.7 million , as well as costs associated with the redomicile to the U.S.

(2) For the year ended December 31, 2020, includes $17.0 million costs relating to the impact of a one-time compensation arrangement entered into that includes advances against future compensation payments and restructuring costs which include $1.6 million costs associated with the transfer of an insurance policy from our former Parent, $9.4 million of restructuring costs at the Center and Affiliates, and the gain on sale of Affiliates of $241.3 million.

For the year ended December 31, 2019, includes costs related to restructuring at the Center and the Affiliates of $6.7 million, as well as costs associated with the redomicile to the U.S.

of $2.5 million.

Included in discontinued operations and restructuring for the year ended December 31, 2018 is the gain on sale of Heitman of $(65.7) million, a gain related to the Company’s agreement to terminate its deferred tax asset deed with OM plc of $(20.0) million, CEO transition costs of $4.8 million , comprised of $0.1 million of fixed compensation and benefits, $4.4 million of variable compensation and $0.4 million of other CEO transition costs and restructuring costs associated with its redomicile to the U.S.

For the year ended December 31, 2018, includes the gain on sale of Heitman of $(65.7) million, a gain related to the Company’s agreement to terminate its deferred tax asset deed with OM plc of $(20.0) million, CEO transition costs of $4.8 million, comprised of $0.1 million of fixed compensation and benefits, $4.4 million of variable compensation and $0.4 million of other CEO transition costs and restructuring costs associated with its redomicile to the U.S.

of $1.6 million.

Included in discontinued operations and restructuring for the year ended December 31, 2017 is $1.0 million related to the Heitman transaction and $9.8 million related to CEO transition costs, comprised of $0.5 million of fixed compensation and benefits, $8.8 million of variable compensation and $0.5 million of recruiting costs.

Includes an adjustment of $40.8 million in the year ended December 31, 2019 to remove the tax benefit resulting from the reduction in liabilities for uncertain tax positions recorded during the year.

(3) Includes an adjustments of $8.7 million and $40.8 million to remove the tax benefit resulting from the reduction in liabilities for uncertain tax positions recorded during the years ended December 31, 2020 and 2019, respectively.

Includes an adjustment of $44.0 million in the year ended December 31, 2018 to remove the tax benefit resulting from the reduction in liabilities for uncertain tax positions recorded during the year, partially offset by non-taxable gains resulting from the agreement to terminate the Deferred Tax Asset Deed at a discount.

Includes $51.8 million in the year ended December 31, 2017 related to the revaluation of the Deferred Tax Asset Deed with OM plc offset by the $122.7 million impact of the Tax Act.

(4) Reflects the sum of line items (i), (ii), (iii), (iv) and the restructuring portion of line item (vi) taxed at the 27.3% U.S.

statutory rate in 2019 and 2018 (including state tax) and the 40.2% U.S.

statutory rate in 2017 (including state tax).

statutory rate (including state tax).

The restructuring portion of line item (vi) amounted to $(213.2) million for the year ended December 31, 2020, $9.2 million for the year ended December 31, 2019 and $(79.3) million for the year ended December 31, 2018.

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Years ended December 31,

($) 2020 2019 2018

GAAP net income per share $ 3.49 $ 2.45 $ 1.26

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Non-cash key employee-owned equity and profit interest revaluations (0.32) (0.72) 1.00

Amortization of acquired intangible assets, acquisition-related consideration and pre-acquisition employee equity

Goodwill impairment and amortization of acquired intangible assets, acquisition-related consideration and pre-acquisition employee equity 0.36 0.43 0.72

Capital transaction costs 0.02 0.04 0.02

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Tax benefit of goodwill and acquired intangibles deductions 0.11 0.10 0.05

Discontinued operations and restructuring

Discontinued operations, restructuring and the impact of a one-time compensation arrangement that includes advances against future compensation payments (2.60) 0.10 (0.74)

ENI tax normalization 0.02 (0.55) (0.28)

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($ in millions) 2020 2019 2018

Include earnings from equity-accounted Affiliates (1)

GAAP Revenue $ 718.5 $ 819.5 $ 928.2

Include earnings from equity-accounted Affiliate 2.9 2.8 2.7

Exclude revenue from consolidated Funds attributable to non-controlling interests

(5.5) (6.6) (3.8)

Exclude Fund expenses reimbursed by customers (4.6) (4.4) (8.0)

Other reconciling items

Includes $ 12.0 million related to Heitman for the year ended December 31, 2017.

ENI Revenue $ 711.3 $ 811.3 $ 919.1

The following table identifies the components of ENI revenue:

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Management fees (1)

$ 697.9 $ 807.0 $ 905.0

Performance fees (2)

Other income, including equity-accounted Affiliates (3)

7.8 (0.1) 9.8

Other income, including equity-accounted Affiliate(3) 5.6 4.4 4.3

ENI Revenue $ 711.3 $ 811.3 $ 919.1

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

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

GAAP, plus our earnings from equity-accounted Affiliates of $2.8 million for the year ended December 31, 2019 , $2.7 million for the year ended December 31, 2018 and $14.5 million for the year ended December 31, 2017 .

GAAP, plus our earnings from equity-accounted Affiliate of $2.9 million for the year ended December 31, 2020, $2.8 million for the year ended December 31, 2019 and $2.7 million for the year ended December 31, 2018.

Other income also excludes certain Fund expenses initially paid by our Affiliates on the Funds’ behalf that are subsequently reimbursed.

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GAAP other revenue $ 7.3 $ 6.0 $ 9.6

Earnings from equity-accounted Affiliates (a)

Earnings from equity-accounted Affiliate 2.9 2.8 2.7

Exclude Fund expenses reimbursed by customers (4.6) (4.4) (8.0)

Other reconciling items

ENI other income $ 5.6 $ 4.4 $ 4.3

Includes $ 12.0 million related to Heitman for the year ended December 31, 2017.

ENI Operating Expenses

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Amortization of acquisition-related consideration and pre-acquisition employee equity

(6.2) (32.3) (70.6)

Non-cash Affiliate key employee equity and profit interest revaluations

Amortization of acquired intangible assets

26.1 65.9 (107.2)

Goodwill impairment and amortization of acquired intangible assets (23.1) (6.6) (6.6)

Capital transaction costs (0.2) (2.7) (1.6)

Restructuring costs (1)

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

(28.2) (9.2) (6.5)

Fund expenses reimbursed by customers (4.6) (4.4) (8.0)

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Variable compensation (2)

(159.6) (184.7) (230.7)

Affiliate key employee distributions (3)

(41.5) (53.1) (76.6)

ENI operating expense $ 301.5 $ 341.7 $ 335.7

Included in restructuring for the year ended December 31, 2019 are restructuring costs at the Center and the Affiliates of $6.7 million and costs associated with the redomicile to the U.S.

(1) For the year ended December 31, 2020, includes $17.0 million costs relating to the impact of a one-time compensation arrangement entered into that includes advances against future compensation payments and restructuring costs which include $1.6 million costs associated with the transfer of an insurance policy from our former Parent and $9.4 million of restructuring costs at the Center and Affiliates.

For the year ended December 31, 2019, includes restructuring costs at the Center and the Affiliates of $6.7 million and costs associated with the redomicile to the U.S.

of $2.5 million.

Included in restructuring for the year ended December 31, 2018 are $1.6 million of costs associated with the planned redomicile to the U.S.

For the year ended December 31, 2018, includes $1.6 million of costs associated with the redomicile to the U.S.

and 2018 CEO transition costs of $4.8 million.

Included in restructuring for the year ended December 31, 2017 is $1.0 million related to the Heitman transaction and 2017 CEO transition costs of $9.8 million .

(2) For the year ended December 31, 2020, excludes variable compensation related to restructuring at the Center and the Affiliates of $20.8 million that is included within Restructuring costs, and Fund expenses reimbursed by customers of $0.3 million.

For the year ended December 31, 2019, excludes variable compensation related to restructuring at the Center and the Affiliates of $6.7 million that is included within Restructuring costs, as well as $8.0 million variable compensation related to restructuring at an Affiliate that will be reimbursed through a reduction of Affiliate key employee distributions.

For the year ended December 31, 2018, excludes variable compensation amounts related to CEO transition of $4.4 million that is included within Restructuring costs, and Fund expenses reimbursed by customers of $0.8 million.

For the year ended December 31, 2017 , excludes variable compensation amounts related to CEO transition of $8.8 million that is included within Restructuring costs.

(3) For the year ended December 31, 2019, includes an adjustment of $8.0 million, representing the amount of variable compensation related to restructuring at an Affiliate that will be reimbursed through a reduction in Affiliate key employee distributions.

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Fixed compensation & benefits (1)

$ 173.3 $ 189.7 $ 181.4

General and administrative expenses (2)

107.2 134.8 139.8

Depreciation and amortization 21.0 17.2 14.5

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The following table reconciles U.S.

GAAP compensation expense for the years ended December 31, 2019 , 2018 and 2017 to ENI fixed compensation and benefits expense:

GAAP compensation expense to ENI fixed compensation and benefits expense for the years ended December 31, 2020, 2019 and 2018:

Years ended December 31,

($ in millions) 2020 2019 2018

GAAP compensation expense

GAAP compensation and benefits expense $ 388.7 $ 416.2 $ 696.4

Amortization of acquisition-related consideration and pre-acquisition employee equity

(6.2) (32.3) (70.6)

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

26.1 65.9 (107.2)

Sales-based compensation reclassified to ENI general & administrative expenses

(8.8) (11.2) (17.4)

Affiliate key employee distributions (41.5) (53.1) (76.6)

Compensation related to restructuring expenses (a)

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

(20.8) (6.7) (4.5)

Variable compensation (159.6) (184.7) (230.7)

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ENI fixed compensation and benefits $ 173.3 $ 189.7 $ 181.4

Compensation related to restructuring for the year ended December 31, 2019 is comprised of $6.7 million of variable compensation associated with restructuring at the Center and the Affiliates.

Compensation related to restructuring for the year ended December 31, 2018 is comprised of $4.5 million of compensation associated with the 2018 CEO transition, which includes $0.1 million of fixed compensation and benefits and $4.4 million of variable compensation.

Compensation related to restructuring for the year ended December 31, 2017 is comprised of $9.3 million of compensation associated with the 2017 CEO transition, which includes $0.5 million of fixed compensation and benefits and $8.8 million of variable compensation.

(a) For the year ended December 31, 2020, includes $17.0 million costs relating to the impact of a one-time compensation arrangement entered into that includes advances against future compensation payments and $3.8 million of restructuring costs at the Center and Affiliates.

For the year ended December 31, 2019, includes $6.7 million of variable compensation associated with restructuring at the Center and the Affiliates.

For the year ended December 31, 2018, includes $4.5 million of compensation associated with the 2018 CEO transition, which includes $0.1 million of fixed compensation and benefits and $4.4 million of variable compensation.

(2) The following table reconciles U.S.

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Restructuring costs (a)

(7.3) (2.5) (2.0)

Additional ENI adjustments (0.1) — —

ENI general and administrative expense $ 107.2 $ 134.8 $ 139.8

(a) Reflects $5.6 million related to restructuring at the Center and $1.6 million of costs associated with the transfer of an insurance policy from our former Parent for the year ended December 31, 2020.

Reflects $2.5 million related to our redomicile to the U.S.

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and $0.4 million of CEO transition costs in the year ended December 31, 2018.

Reflects $1.0 million related to the Heitman transaction and $0.5 million of CEO recruiting costs in the year ended December 31, 2017 .

Key Non-GAAP Operating Metrics

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ENI operating earnings (1)

$ 250.2 $ 284.9 $ 352.7

$ 711.3 $ 811.3 $ 919.1

ENI operating margin (2)

35.2 % 35.1 % 38.4 %

ENI operating expense

$ 301.5 $ 341.7 $ 335.7

ENI management fee revenue (3)

$ 697.9 $ 807.0 $ 905.0

ENI operating expense ratio (4)

43.2 % 42.3 % 37.1 %

ENI variable compensation

$ 159.6 $ 184.7 $ 230.7

ENI earnings before variable compensation (1)(5)

$ 409.8 $ 469.6 $ 583.4

ENI variable compensation ratio (6)

38.9 % 39.3 % 39.5 %

Affiliate key employee distributions

$ 41.5 $ 53.1 $ 76.6

ENI operating earnings (1)

$ 250.2 $ 284.9 $ 352.7

ENI Affiliate key employee distributions ratio (7)

16.6 % 18.6 % 21.7 %

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

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GAAP operating income $ 179.4 $ 250.3 $ 83.8

Include earnings from equity-accounted Affiliates

Include earnings from equity-accounted Affiliate 2.9 2.8 2.7

Exclude the impact of:

Affiliate key employee-owned equity and profit interest revaluations

Amortization of acquired intangible assets, acquisition-related consideration

(26.1) (65.9) 107.2

Goodwill impairment and the amortization of acquired intangible assets, acquisition-related consideration 29.3 38.9 77.2

Capital transaction costs

Restructuring costs (a)

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

Affiliate key employee distributions 41.5 53.1 76.6

Variable compensation

Funds’ operating (income) loss

159.6 184.7 230.7

Funds’ operating income (5.2) (6.2) (2.9)

ENI earnings before variable compensation

409.8 469.6 583.4

ENI variable compensation (159.6) (184.7) (230.7)

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ENI earnings after Affiliate key employee distributions

Included in restructuring for the year ended December 31, 2019 are $6.7 million of restructuring costs at the Center and the Affiliates and $2.5 million of costs incurred in connection with the redomicile to the U.S.

Included in restructuring for the year ended December 31, 2018 is $4.8 million related to 2018 CEO transition costs and $1.6 million of costs incurred in connection with the redomicile to the U.S.

Included in restructuring for the year ended December 31, 2017 is $1.0 million related to the Heitman transaction and $9.8 million related to the 2017 CEO transition costs, comprised of $0.5 million of fixed compensation and benefits, $8.8 million of variable compensation and $0.5 million of recruiting costs.

$ 208.7 $ 231.8 $ 276.1

(a) For the year ended December 31, 2020, includes $17.0 million related to the impact of a one-time compensation arrangement entered into that includes advances against future compensation payments, restructuring costs of $1.6 million associated with the transfer of an insurance policy from our former Parent and $9.4 million of restructuring costs at the Center and Affiliates.

For the year ended December 31, 2019, includes $6.7 million of restructuring costs at the Center and the Affiliates and $2.5 million of costs incurred in connection with the redomicile to the U.S.

For the year ended December 31, 2018.

includes $4.8 million related to 2018 CEO transition costs and $1.6 million of costs incurred in connection with the redomicile to the U.S.

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

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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 at BSIG because in our profit sharing economic model, scale benefits both the Affiliate employees and BSIG shareholders.

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

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

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Pre-tax economic net income (1)

$ 187.1 $ 210.8 $ 262.5

Intercompany interest expense deductible for U.S.

tax purposes — (35.5) (75.4)

Taxable economic net income 187.1 175.3 187.1

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federal and state statutory rates (2)

(51.1) (47.9) (51.1)

Other reconciling tax adjustments 7.6 (2.1) (11.6)

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Economic net income effective tax rate (3)

23.2 % 23.7 % 23.9 %

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

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ENI earnings after Affiliate key employee distributions (b)

208.7 231.8 276.1

Pre-tax economic net income

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

$ 187.1 $ 210.8 $ 262.5

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

Other ENI interest expense includes $5.7 million related to the cost of seed and co-investment financing and $0.6 million related to the amortization of debt issuance costs for the year ended December 31, 2020.

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.

(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.

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(2) Taxed at U.S.

Federal and State statutory rate of 27.3% for the years ended December 31, 2019 and 2018 , and 40.2% for the year ended December 31, 2017 .

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.

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We conduct our operations through three business segments:

Quant & Solutions, Alternatives and Liquid Alpha.

Effective for the third quarter 2019, we began reporting the following 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.

• 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., and emerging markets equities, as well as multi-asset and managed volatility products.

Liquid Alpha —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.

• Liquid Alpha —comprised of specialized investment strategies with a focus on alpha-generation across market cycles in long-only small-, mid-, and large-cap U.S.

equities, as well as fixed income.

We have a corporate head office that is included in “Other”.

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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 acquisition-related contingent consideration, as well as the value of employee equity owned pre-acquisition that occurred as a result of the Landmark transaction, goodwill impairment and amortization of acquired intangible assets, capital transaction costs, restructuring costs, 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.

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($ in millions) 2020 2019

Quant & Solutions

Alter-natives

Quant & Solutions

Alter-natives

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

Management fees $ 346.8 $ 170.6 $ 180.5 $ — $ 697.9 $ 370.8 $ 165.0 $ 271.2 $ — $ 807.0

Performance fees

Other income, including equity-accounted subsidiaries

8.0 — (0.2) — 7.8 9.8 0.3 (10.2) — (0.1)

Other income, including equity-accounted subsidiary — 2.2 3.0 0.4 5.6 — 1.2 2.8 0.4 4.4

ENI revenue $ 354.8 $ 172.8 $ 183.3 $ 0.4 $ 711.3 $ 380.6 $ 166.5 $ 263.8 $ 0.4 $ 811.3

Year ended December 31,

($ in millions) 2018

Quant & Solutions

Quant & Solutions Alternatives Liquid Alpha Other Total

Management fees $ 377.4 $ 208.3 $ 319.3 $ — $ 905.0

Performance fees

Other income, including equity-accounted subsidiaries

11.6 8.5 (10.3) — 9.8

Other income, including equity-accounted subsidiary — 1.3 2.6 0.4 4.3

ENI revenue $ 389.0 $ 218.1 $ 311.6 $ 0.4 $ 919.1

Quant & Solutions Segment ENI Revenue

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Quant & Solutions ENI revenue decreased $(25.8) million, or (6.8)%, from $380.6 million for the year ended December 31, 2019 to $354.8 million for the year ended December 31, 2020.

The decrease was attributable to (6.5)% lower management fees driven by lower average AUM primarily resulting from the equity market decline in the first quarter of 2020.

Year ended December 31, 2019 compared to year ended December 31, 2018:

Quant & Solutions ENI revenue decreased $(8.4) million, or (2.2)%, from $389.0 million for the year ended December 31, 2018 to $380.6 million for the year ended December 31, 2019.

The decrease was attributable to (1.7)% lower management fees, driven by lower average AUM resulting from the fourth quarter 2018 non-U.S.

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strategies in the year ended December 31, 2019.

Year ended December 31, 2018 compared to year ended December 31, 2017 :

Quant & Solutions ENI revenue increased $20.5 million , or 5.6% , from $368.5 million for the year ended December 31, 2017 to $389.0 million for the year ended December 31, 2018 .

The increase was attributable to 9.4% higher management fees, driven by higher average AUM resulting from 2017 equity market appreciation.

The increase in management fees was slightly offset by the (50.6)% decrease in performance fees driven by large incentive fees for certain strategies not repeating during the year ended December 31, 2018 .

Alternatives Segment ENI Revenue

Year ended December 31, 2020 compared to year ended December 31, 2019:

Alternatives ENI revenue increased $6.3 million, or 3.8%, from $166.5 million for the year ended December 31, 2019 to $172.8 million for the year ended December 31, 2020.

The increase was attributable to 3.4% higher management fees resulting from inflows and change in net catch-up fees.

Year ended December 31, 2019 compared to year ended December 31, 2018:

Alternatives ENI revenue decreased $(51.6) million, or (23.7)%, from $218.1 million for the year ended December 31, 2018 to $166.5 million for the year ended December 31, 2019.

The decrease was attributable to (20.8)% lower management fees mainly resulting from placement agent fees paid in 2019, and (96.5)% lower performance fees during the year ended December 31, 2019 due to the real assets strategy as the valuation for certain properties increased in the year ended December 31, 2018, but stayed generally flat in the year ended December 31, 2019.

Year ended December 31, 2018 compared to year ended December 31, 2017 :

Alternatives ENI revenue increased $32.0 million , or 17.2% , from $186.1 million for the year ended December 31, 2017 to $218.1 million for the year ended December 31, 2018 .

The increase was attributable to 21.3% higher management fees resulting from net catch-up fees associated with assets earned in 2018 and the continued shift to higher fee-rate products.

The increase was partially offset by (28.0)% lower performance fees during the year ended December 31, 2018 due to performance fees earned on a product in 2017 that was not repeated in 2018.

Liquid Alpha Segment ENI Revenue

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Liquid Alpha ENI revenue decreased $(80.5) million, or (30.5)%, from $263.8 million for the year ended December 31, 2019 to $183.3 million for the year ended December 31, 2020.

The decrease was attributable to (15.1)% lower management fees driven by fourth quarter 2018 equity market decline and net outflows in 2019.

Performance fees were relatively flat for the year ended December 31, 2019 compared to the year ended December 31, 2018 .

The decrease was attributable to (33.4)% lower management fees driven by lower average AUM resulting from the disposition of Copper Rock and Barrow Hanley, equity market decline in the first quarter of 2020, and net outflows over the last twelve months.

The change in performance fees was primarily due to fulcrum fees recorded in the year ended December 31, 2019 that did not repeat in the year ended December 31, 2020.

Year ended December 31, 2019 compared to year ended December 31, 2018:

Liquid Alpha ENI revenue decreased $(47.8) million, or (15.3)%, from $311.6 million for the year ended December 31, 2018 to $263.8 million for the year ended December 31, 2019.

The decrease was attributable to (6.4)% lower management fees driven by lower average AUM.

Performance fees decreased (17.0)% for the year ended December 31, 2018 compared to the year ended December 31, 2017 largely due to lower performance fees from certain sub-advisory accounts.

The decrease was attributable to (15.1)% lower management fees driven by fourth quarter 2018 equity market decline and net outflows in 2019.

Performance fees were relatively flat for the year ended December 31, 2019 compared to the year ended December 31, 2018.

Segment ENI Expense

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($ in millions) 2020 2019

Quant & Solutions

Alter-natives

Quant & Solutions

Alter-natives

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

Fixed compensation & benefits

$ 73.7 $ 45.7 $ 43.1 $ 10.8 $ 173.3 $ 79.4 $ 44.4 $ 50.3 $ 15.6 $ 189.7

General and administrative expense

56.9 17.2 19.9 13.2 107.2 66.0 21.5 27.9 19.4 134.8

Depreciation and amortization

18.4 1.7 0.5 0.4 21.0 15.2 1.0 0.6 0.4 17.2

Total ENI Operating Expenses

$ 149.0 $ 64.6 $ 63.5 $ 24.4 $ 301.5 $ 160.6 $ 66.9 $ 78.8 $ 35.4 $ 341.7

Variable compensation

72.8 39.2 44.0 3.6 159.6 75.6 36.7 62.4 10.0 184.7

Affiliate key employee distributions

4.3 25.1 12.1 — 41.5 6.4 23.0 23.7 — 53.1

Total Expenses $ 226.1 $ 128.9 $ 119.6 $ 28.0 $ 502.6 $ 242.6 $ 126.6 $ 164.9 $ 45.4 $ 579.5

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($ in millions) 2018

Quant & Solutions

Quant & Solutions Alternatives Liquid Alpha Other Total

Fixed compensation & benefits

$ 72.8 $ 38.1 $ 51.2 $ 19.3 $ 181.4

General and administrative expense

60.9 22.8 32.6 23.5 139.8

Depreciation and amortization

12.6 0.9 0.7 0.3 14.5

Total ENI Operating Expenses

$ 146.3 $ 61.8 $ 84.5 $ 43.1 $ 335.7

Variable compensation

86.2 58.9 73.9 11.7 230.7

Affiliate key employee distributions

9.5 34.1 33.0 — 76.6

Total Expenses $ 242.0 $ 154.8 $ 191.4 $ 54.8 $ 643.0

1 unchanged sentence

Year ended December 31, 2020 compared to year ended December 31, 2019:

Quant & Solutions ENI operating expense decreased $(11.6) million, or (7.2)%, from $160.6 million for the year ended December 31, 2019 to $149.0 million for the year ended December 31, 2020.

The decrease was driven by (7.2)% lower ENI fixed compensation and benefits expense resulting from headcount reduction and (13.8)% lower ENI general and administrative expense such as travel reflecting the impact of COVID-19 and cost-saving initiatives.

Quant & Solutions ENI variable compensation expense, which is based on contractual arrangements, decreased (3.7)% as a result of lower earnings before variable compensation.

Affiliate key employee distributions attributable to Quant & Solutions decreased (32.8)%, primarily due to lower Quant & Solutions ENI earnings after variable compensation.

Year ended December 31, 2019 compared to year ended December 31, 2018:

Quant & Solutions ENI operating expense increased $14.3 million, or 9.8%, from $146.3 million for the year ended December 31, 2018 to $160.6 million for the year ended December 31, 2019.

1 unchanged sentence

Quant & Solutions ENI variable compensation expense, which is based on contractual arrangements, decreased (12.3)%, as a result of lower pre-variable compensation earnings.

Affiliate key employee distributions attributable to Quant & Solutions decreased (32.6)% , largely driven by levered distribution structures at certain Affiliates.

Year ended December 31, 2018 compared to year ended December 31, 2017 :

Quant & Solutions ENI operating expense increased $19.7 million , or 15.6% , from $126.6 million for the year ended December 31, 2017 to $146.3 million for the year ended December 31, 2018 .

The increase was driven by 11.0% higher ENI fixed compensation and benefits expense resulting from new hires for initiatives and annual cost of living increases, and 17.8% higher ENI general and administrative expense resulting from new initiatives, additional system costs and the overall growth of the business.

Quant & Solutions ENI variable compensation expense, which is based on contractual arrangements, increased 8.8% , as a result of higher pre-variable compensation earnings.

Affiliate key employee distributions attributable to Quant & Solutions increased 10.5% , largely driven by higher profit after variable compensation.

Affiliate key employee distributions attributable to Quant & Solutions decreased (32.6)%, largely driven by levered distribution structures.

Alternatives Segment ENI Expense

Year ended December 31, 2020 compared to year ended December 31, 2019:

Alternatives ENI operating expense decreased $(2.3) million, or (3.4)%, from $66.9 million for the year ended December 31, 2019 to $64.6 million for the year ended December 31, 2020.

The decrease was driven by (20.0)% lower ENI general and administrative expenses such as travel reflecting the impact of the COVID-19 pandemic.

Alternatives ENI variable compensation expense, which is based on contractual arrangements, increased 6.8% as a result of higher earnings before variable compensation.

Affiliate key employee distributions attributable to Alternatives increased 9.1%, primarily driven by higher Alternatives ENI earnings after variable compensation.

Year ended December 31, 2019 compared to year ended December 31, 2018:

Alternatives ENI operating expense increased $5.1 million, or 8.3%, from $61.8 million for the year ended December 31, 2018 to $66.9 million for the year ended December 31, 2019.

The increase was driven by 16.5% higher ENI fixed compensation and benefits expense resulting from new hires and annual cost of living increases.

Alternatives ENI variable compensation expense, which is based on contractual arrangements, decreased (37.7)% , as a result of lower pre-variable compensation earnings.

Alternatives ENI variable compensation expense, which is based on contractual arrangements, decreased (37.7)%, as a result of lower earnings before variable compensation.

Affiliate key employee distributions attributable to Alternatives decreased (32.6)%, largely driven by lower profit after variable compensation.

Year ended December 31, 2018 compared to year ended December 31, 2017 :

Alternatives ENI operating expense increased $4.4 million , or 7.7% , from $57.4 million for the year ended December 31, 2017 to $61.8 million for the year ended December 31, 2018 .

The increase was driven by 2.7% higher ENI fixed compensation and benefits expense resulting from new hires and annual cost of living increases and by 20.6% higher ENI general and administrative expense resulting from higher system costs.

Alternatives ENI variable compensation expense, which is based on contractual arrangements, increased 20.9% , as a result of higher pre-variable compensation earnings.

Affiliate key employee distributions attributable to Alternatives increased 27.2% , largely driven by higher profit after variable compensation.

Liquid Alpha Segment ENI Expense

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Liquid Alpha ENI operating expense decreased $(15.3) million, or (19.4)%, from $78.8 million for the year ended December 31, 2019 to $63.5 million for the year ended December 31, 2020.

The decrease was driven by (1.8)% lower ENI fixed compensation and benefits expense resulting from headcount reduction and (14.4)% lower ENI general and administrative expense mainly resulting from lower commissions and other general expenses.

The decrease was driven by (14.3)% lower ENI fixed compensation and benefits expense and (28.7)% lower ENI general and administrative expense driven by the Barrow Hanley and Copper Rock dispositions.

Liquid Alpha ENI variable compensation expense, which is based on contractual arrangements, decreased (29.5)%, as a result of lower pre-variable compensation earnings.

Affiliate key employee distributions attributable to Liquid Alpha decreased (28.2)% , largely driven by lower profit after variable compensation.

Affiliate key employee distributions attributable to Liquid Alpha decreased (48.9)%, primarily driven by dispositions and lower Liquid Alpha ENI earnings after variable compensation.

Year ended December 31, 2019 compared to year ended December 31, 2018:

Liquid Alpha ENI operating expense increased $2.4 million , or 2.9% , from $82.1 million for the year ended December 31, 2017 to $84.5 million for the year ended December 31, 2018 .

The increase was driven by 9.2% higher ENI fixed compensation and benefits expense resulting from headcount increase slightly offset by (5.5)% lower ENI general and administrative expense resulting from lower commissions and other general expenses.

Liquid Alpha ENI operating expense decreased $(5.7) million, or (6.7)%, from $84.5 million for the year ended December 31, 2018 to $78.8 million for the year ended December 31, 2019.

Liquid Alpha ENI variable compensation expense, which is based on contractual arrangements, decreased (15.6)%, as a result of lower pre-variable compensation earnings.

Affiliate key employee distributions attributable to Liquid Alpha decreased (12.5)% , largely driven by levered distribution structures at certain Affiliates.

Affiliate key employee distributions attributable to Liquid Alpha decreased (28.2)%, largely driven by lower profit after variable compensation.

Other ENI Expense

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Other ENI operating expense decreased $(11.0) million or (31.1)%, from $35.4 million for the year ended December 31, 2019 to $24.4 million for the year ended December 31, 2020.

The decrease was driven by (19.2)% lower fixed compensation and benefit

expense resulting from a reduction in headcount, and (17.4)% lower general and administrative expense resulting from cost-saving initiatives.

Other ENI variable compensation expense decreased (14.5)% which was driven by a reduction in headcount.

The decrease was driven by (30.8)% lower ENI fixed compensation and benefits expense resulting from a reduction in headcount and (32.0)% lower ENI general and administrative expense resulting from cost-saving initiatives.

Other ENI variable compensation expense decreased (64.0)% due to a reduction in headcount.

Year ended December 31, 2019 compared to year ended December 31, 2018:

1 unchanged sentence

The decrease was driven by (19.2)% lower fixed compensation and benefit expense resulting from a reduction in headcount, and (17.4)% lower general and administrative expense resulting from cost-saving initiatives.

Other ENI variable compensation expense decreased (59.1)% due to lower pre-variable compensation earnings in the year ended December 31, 2018 , as well as the impact of higher severance-related payments in the year ended December 31, 2017 .

Other ENI variable compensation expense decreased (14.5)% which was driven by a reduction in headcount.

Capital Resources and Liquidity

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

Our most significant uses of cash include third-party interest payments, repurchases of shares, payments made to OM plc under the Deferred Tax Asset Deed, seed capital purchased from OM plc, dividends and compensation and general and administrative expenses.

Our most significant uses of cash include repayment of third-party borrowings, third-party interest payments, repurchases of shares, payments made to OM plc under the Deferred Tax Asset Deed, seed capital investments, dividends and compensation and general and administrative expenses.

Comparison for the Years Ended December 31, 2020, 2019 and 2018

Net cash (used in) provided by operating activities of continuing operations excluding consolidated Funds decreased $(358.9) million , or (142.3)% , from $252.3 million for the year ended December 31, 2018 to $(106.6) million for the year ended December 31, 2019 .

The decrease was primarily driven by a decrease in operating liabilities as the Landmark earnout was settled in the year ended December 31, 2019 .

Net cash provided by operating activities of continuing operations excluding consolidated Funds increased $27.4 million , from $224.9 million for the year ended December 31, 2017 to $252.3 million for the year ended December 31, 2018 .

The increase was primarily driven by net income and non-cash charges, offset by gain on the sale of Heitman and changes in operating assets and liabilities.

Net cash (used in) provided by investing activities was $17.7 million , $57.6 million and $(10.8) million for the years ended December 31, 2019 , 2018 and 2017 , respectively.

Net cash (used in) provided by operating activities of continuing operations excluding consolidated Funds increased $272.4 million, or 255.5%, from $(106.6) million used in the year ended December 31, 2019 to $165.8 million provided by the year ended December 31, 2020.

The increase was primarily driven by a decrease in operating liabilities as a result of the Landmark earnout that was settled in the year ended December 31, 2019.

Net cash provided by operating activities of continuing operations excluding consolidated Funds decreased $(358.9) million, from $252.3 million for the year ended December 31, 2018 to $(106.6) million for the year ended December 31, 2019.

The decrease was primarily driven by a decrease in operating liabilities as a result of the Landmark earnout that was settled in the year ended December 31, 2019.

Net cash provided by investing activities was $358.6 million, $17.7 million and $57.6 million for the years ended December 31, 2020, 2019 and 2018, respectively.

Net cash (used in) received from the (purchase) and sale of investments was $90.6 million, $46.6 million and $(25.7) million for the years ended December 31, 2020, 2019 and 2018, respectively.

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Net cash used in the purchase of fixed assets was $(27.2) million, $(33.9) million and $(21.7) million for the years ended December 31, 2020, 2019 and 2018, respectively.

Proceeds received from the sale of investments in Affiliates was $295.2 million, $5.0 million and $105.0 million for the years ended December 31, 2020, 2019 and 2018, respectively.

Net cash used in financing activities, excluding consolidated Funds, consists of share repurchases, payments made to OM plc, third-party borrowings and dividends paid.

Cash used in financing activities was $(232.2) million, $(140.4) million and $(155.6) million for the years ended December 31, 2020, 2019 and 2018, respectively.

We drew net $175.0 million against third party borrowings in 2019 , we paid down $(33.5) million against third party borrowings in 2018 and we drew net $ 33.5 million against third party borrowings in 2017 .

We paid down $(175.0) million against third party borrowings in 2020, we drew net $175.0 million against third party borrowings in 2019 and we paid down $(33.5) million against third party borrowings in 2018.

In 2020 we made payments of $(0.3) million against amounts previously owed to OM plc for the co-investment arrangement, funded $(46.0) million for share repurchases and paid out $(10.9) million in dividends.

In 2018 we paid $(3.9) million against amounts previously owed to OM plc for the co-investment arrangement, funded $(71.2) million for share repurchases, and paid out $(42.5) million in dividends.

In 2017 we paid $(42.5) million against third party borrowings, $(50.4) million against amounts previously owed to OM plc (including $(45.6) million for the deferred tax arrangement and $(4.8) million for the co-investment arrangement), funded $ (74.1) million for share repurchases and paid out $(38.8) million in dividends.

In 2019 we made payments of $(37.8) million against amounts previously owed to OM plc for the DTA deed and co-investment arrangement, funded $(239.8) million for share repurchases, and paid out $(36.0) million in dividends.

In 2018 we paid $(3.9) million against amounts previously owed to OM plc, funded $(71.2) million for share repurchases and paid out $(42.5) million in dividends.

Working Capital and Long-Term Debt

7 unchanged sentences

Investment advisory fees receivable 112.8 151.9 159.1

Investments 70.3 124.7 125.7

Total current assets 585.0 387.9 625.4

3 unchanged sentences

Other short-term liabilities (2)

20.3 3.7 232.8

Total current liabilities 174.6 183.0 458.1

13 unchanged sentences

Amounts outstanding at

($ in millions)

December 31, 2019

December 31, 2018

Interest rate

($ in millions) December 31, 2020 December 31, 2019 Interest rate Maturity

Third party borrowings:

1 unchanged sentence

$ — $ 140.0 LIBOR + 1.50% plus

0.20% commitment fee

August 22, 2022

4.80% Senior Notes Due 2026

July 27, 2026

5.125% Senior Notes Due 2031

August 1, 2031

0.20% commitment fee August 22, 2022

4.80% Senior Notes Due 2026 272.8 272.4 4.80% July 27, 2026

5.125% Senior Notes Due 2031 121.5 121.4 5.125% August 1, 2031

Total third party borrowings

$ 394.3 $ 533.8

Non-recourse borrowing:

Non-recourse seed capital facility (2)

LIBOR + 1.55% plus 0.95% commitment fee

January 15, 2021

— 35.0 LIBOR + 1.55% plus 0.95% commitment fee N/A

Total non-recourse borrowing $ — $ 35.0

Total borrowings $ 394.3 $ 568.8

(1) An amendment to the $450 million revolving credit facility was made on November 17, 2020 to reduce the revolving credit facility to $150 million upon consummation of the sale of the Company's equity interests in Barrow Hanley.

(2) We paid down and terminated the non-recourse seed capital facility in the third quarter that was set to expire on January 15, 2021.

Third party borrowings

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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 million under the Credit Facility.

The Credit Facility has a maturity date of August 22, 2022.

as joint lead arrangers and joint book runners.

The previous revolving credit facility with Citibank with maturity date of October 15, 2019 was terminated.

Upon entry into the Credit Facility, we made an initial drawdown of $210.0 million under the Credit Facility to fully repay the $210.0 million outstanding under its existing credit facility.

We paid down $70.0 million of the amount outstanding under the Credit Facility during the third and fourth quarters of 2019.

Borrowings under the Credit Facility bear interest, at our option, are 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 its credit rating or (b) the London interbank offered rate for a period, at our, equal to one, two, three or six months plus an additional amount ranging from 1.125% to 2.0% , with such additional amount based on its 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.

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

At December 31, 2019 , our ratio of third-party borrowings to trailing twelve months Adjusted EBITDA was 2.1 x and our interest coverage ratio was 7.7 x.

At December 31, 2019 our ratio of third party borrowings net of total cash and cash equivalents to trailing twelve months Adjusted EBITDA was 1.7x .

Moody’s Investor Service, Inc.

and Standard & Poor’s each assigned an initial 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% .

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 “Original Credit Agreement”, and as amended by the Amendment, the “Amended Credit Agreement”).

The Amendment included changes to the Original Credit Agreement to permit the sale of the Company's equity interests in Barrow Hanley (the “Barrow Hanley Sale”).

Under the Original Credit Agreement, the Barrow Hanley Sale required consent of the Lenders’ given that Barrow Hanley accounted for more than 10% of our consolidated Adjusted EBITDA.

The Amendment provided that, effective immediately upon the consummation of the Barrow Hanley Sale, the Lenders’ commitments under the Amended Credit Agreement would be $150 million.

The Barrow Hanley Sale was consummated on November 17, 2020 and the Lenders’ commitments under the Amended Credit Agreement were reduced to $150 million from thereon.

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

Adjusted EBITDA defined by the Amended Credit Agreement represents Adjusted EBITDA, as defined in the “—Supplemental Liquidity Measure—Adjusted EBITDA” section below, adjusted for the pro forma

effect of acquisitions and dispositions.

At December 31, 2020, our ratio of third-party borrowings to trailing twelve months Adjusted EBITDA as defined by the Amended Credit Agreement was 2.0x and our interest coverage ratio was 7.1x.

On February 23, 2021, we along with the Lenders, entered into an assignment and assumption and amendment agreement (the “Assignment”) to the Amended Credit Agreement.

Pursuant to the Assignment, the Amended Credit Agreement was assigned to and assumed by Acadian and the Amended Credit Agreement was amended (the Amended Credit Agreement, as amended by the Assignment, the “Acadian Credit Agreement”) to, among other things, reduce the Lenders’ commitments thereunder to $125 million.

The Acadian Credit Agreement has a maturity date of August 22, 2022.

Borrowings under the Acadian Credit Agreement bear interest, at Acadian’s 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 its credit rating or (b) the London interbank offered rate for a period, at our, equal to one, three or six months plus an additional amount ranging from 1.5% to 2.0%, with such additional amount based on Acadian’s Leverage Ratio (as defined below).

In addition, Acadian is charged a commitment fee based on the average daily unused portion of the revolving credit facility under the Acadian Credit Agreement at a per annum rate ranging from 0.25% to 0.375%, with such amount based on Acadian’s Leverage Ratio.

Under the Acadian Credit Agreement, the ratio of Acadian’s third-party borrowings to Acadian’s trailing twelve months Adjusted EBITDA, as defined by the Acadian Credit Agreement (the “Leverage Ratio”), cannot exceed 2.5x.

In July 2016, we issued $275.0 million of 4.80% Senior Notes due 2026 (the “2026 Notes”) and $125.0 million of 5.125% Senior Notes due 2031 (the “2031 Notes”).

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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 December 31, 2019 , amounts outstanding under this non-recourse seed capital facility amounted to $35.0 million .

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

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

The non-recourse seed capital facility was set to expire January 15, 2021 and was paid down in the third quarter and terminated.

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

Other Long-term Liabilities

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Voluntary deferral plan liability 72.8 88.3

Total $ 328.0 $ 404.9

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

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Net interest expense to third parties 27.9 30.0 21.7

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

Depreciation and amortization (including intangible assets)

Non-cash compensation costs associated with revaluation of Affiliate key employee-owned equity and profit-sharing interests

Amortization of acquisition-related consideration and pre-acquisition employee equity

Income tax expense (including tax expenses related to discontinued operations) 112.1 18.0 5.0

Depreciation and amortization (including intangible assets) and goodwill impairment 44.1 23.8 21.1

EBITDA $ 470.8 $ 295.7 $ 184.2

Non-cash compensation costs, including revaluation of Affiliate key employee-owned equity and profit interests (23.4) (65.9) 107.2

Amortization of pre-acquisition employee equity 6.1 32.3 70.6

EBITDA of discontinued operations attributable to controlling interests — — (0.1)

(Gain) loss on seed and co-investments and investment changes attributable to controlling interests

(Gain) loss on seed and co-investments (8.2) (25.0) 6.4

Deferred tax asset deed revaluation — — (20.0)

Restructuring (1)

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

(213.2) 9.2 (59.3)

Custody fees on seed portfolio 0.1 — —

Capital transaction costs 0.2 2.7 1.6

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Depreciation and amortization (2)

(23.7) (17.2) (14.5)

Tax on economic net income (43.5) (50.0) (62.7)

Economic net income $ 143.6 $ 160.8 $ 199.8

(1) Included in restructuring for the year ended December 31, 2020 are $9.4 million of restructuring costs at the Center and Affiliates, $1.6 million costs associated with the transfer of an insurance policy from our former Parent, $17.0 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 Affiliates of $241.3 million.

Included in restructuring for the year ended December 31, 2019 are $6.7 million of restructuring costs at the Center and Affiliates and $2.5 million of costs incurred in connection with our redomicile to the U.S.

Included in restructuring for the year ended December 31, 2018 is the gain on the sale of Heitman of $65.7 million, $1.6 million of costs associated with our redomicile and $4.8 million related to the 2018 CEO transition.

Included in restructuring for the year ended December 31, 2017 is $1.0 million related to the Heitman transaction and $9.8 million related to CEO transition costs, comprised of $0.5 million of fixed compensation and benefits, $8.8 million of variable compensation and $0.5 million of recruiting costs.

(2) The year ended December 31, 2020 includes non-cash equity-based award amortization expense.

For a full discussion regarding the items excluded from Adjusted EBITDA above and the calculation of economic net income, refer to “—Non-GAAP Supplemental Performance Measure—Economic Net Income and Segment Analysis.”

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Payments due by period

($ in millions)

($ in millions) Total Less than

1 year 1 - 3 years 3 - 5 years More than

Contractual Obligations

Amounts due to OM plc (1)

Non-recourse borrowings

$ 3.4 $ 2.8 $ — $ 0.6 $ —

Other third party borrowings 400.0 — — — 400.0

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Other liabilities (2)

1.2 0.1 0.1 0.1 0.9

Maximum Affiliate equity and profits interests repurchase obligations (3)

66.4 5.1 10.2 10.2 40.9

Total contractual obligations $ 636.2 $ 50.4 $ 34.9 $ 31.7 $ 519.2

(1) Amounts due to OM plc is comprised of $3.4 million owed under the co-investment deed.

Includes an operating lease for office space with expected lease obligations of approximately $7.5 million that was entered into during the fourth quarter of 2019, but has not yet commenced.

See Item 8, Financial Statements and Supplementary Data - Note 8, “ Leases”.

(2) Represents the mortgage on a building owned by an Affiliate.

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Goodwill is tested annually for impairment.

If, after assessing qualitative and quantitative

factors, we believe that it is more likely than not that the fair value of the reporting unit is less than its carrying value, we will record the amount of goodwill impairment as the excess of the carrying amount over the fair value.

If, after assessing qualitative and quantitative factors, we believe that it is more likely than not that the fair value of the reporting unit is less than its carrying value, we will record the amount of goodwill impairment as the excess of the carrying amount over the fair value.

In the quantitative impairment test, fair value of the reporting units is generally determined using an income approach where estimated future cash flows are discounted to arrive at a single present value amount.

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The most sensitive of these assumptions are the estimated cash flows and the use of a weighted average cost of capital as the discount rate to determine present value.

We completed our annual goodwill impairment test as of the first business day of the fourth quarter and no impairment was identified.

Due to the decline in the Company’s assets under management during the three months ended March 31, 2020, management determined that an interim impairment assessment was necessary as of March 31, 2020.

In the first quarter of 2020, the Company performed a quantitative impairment test for the Copper Rock reporting unit which was included within the Liquid Alpha segment prior to its disposition in July 2020.

The quantitative impairment test concluded that the fair value of the reporting unit did not exceed its carrying value.

Accordingly, the Company recognized a goodwill impairment charge of $16.4 million for the year ended December 31, 2020.

We also completed our annual goodwill impairment test as of the first business day of the fourth quarter and no impairment was identified.

While we believe all assumptions utilized in our assessment are reasonable and appropriate, changes in these estimates could produce different fair value amounts and therefore different goodwill impairment assessments.

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

What changed 10-K

Item 7. Management’s Discussion and Analysis