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Item 2. Management’s Discussion and Analysis

2021-05-07 compared with 2020-11-06 · 292 added, 572 removed, 800 unchanged (52% 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 Quarterly Report on Form 10-Q to “BrightSphere” or “BSIG” refer to BrightSphere Investment Group Inc., references to the “Company” refer to BSIG, and references to “we,” “our” and “us” refer to BSIG and its consolidated subsidiaries and equity-accounted Affiliates, excluding discontinued operations.

References to the holding company or “Center” excluding the Affiliates refer to BrightSphere Inc., or “BSUS,” a Delaware corporation and wholly owned subsidiary of BSIG.

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

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

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

GAAP Results of Operations for the Three Months Ended March 31, 2021 and 2020 includes an explanation of changes in our U.S.

GAAP revenue, expense and other items for the three months ended March 31, 2021 and 2020, as well as key U.S.

GAAP operating metrics.

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This section also provides a reconciliation between U.S.

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

GAAP net income attributable to controlling interests and ENI for the three months ended March 31, 2021 and 2020 as well as a reconciliation of key ENI operating items including ENI revenue and ENI operating expenses.

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

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

We operate our business through three business segments:

• Quant & Solutions —comprised of versatile, often highly-tailored strategies that leverage data and technology in a computational, factor-based investment process across a range of asset classes and geographies, including Global, non-U.S., emerging markets and managed volatility equities, as well as multi-asset products.

• Alternatives —comprised of illiquid and differentiated liquid investment strategies that include private equity, real estate and real assets, including forestry, as well as a growing suite of liquid alternative capabilities in areas such as long/short, market neutral and absolute return.

• Liquid Alpha (1) —comprised of specialized investment strategies with a focus on alpha-generation across market cycles in long-only small-, mid-, and large-cap U.S., global, non-U.S.

and emerging markets equities, as well as fixed income.

(1) In July 2020, we completed the sale of Copper Rock Capital Partners LLC (“Copper Rock”) and announced the divestiture of Barrow Hanley Mewhinney & Strauss, LLC (“Barrow Hanley”), which is expected to close in the fourth quarter of 2020, see "Recent Developments" herein.

Within our three segments, we have five (1) affiliate firms to whom we refer in this Quarterly Report as our Affiliates.

We operate our business through the following business segments (1) :

• 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 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.

equities, as well as fixed income.

Within our segments, we have three affiliate firms (2) to whom we refer in this Quarterly Report as our Affiliates.

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

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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.

(1) In July 2020, we completed the sale of Copper Rock and announced divestiture of Barrow Hanley, which is expected to close in the fourth quarter of 2020.

This number gives effect to these divestitures.

See "Recent Developments" herein.

Our Affiliates within each business segment and their principal strategies include:

Quant & Solutions

Our Affiliates (2) and their principal strategies include:

• Acadian Asset Management LLC (“Acadian”) —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.

Acadian is included within the Quant & Solutions segment.

• 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.

◦ Barrow, Hanley, Mewhinney & Strauss, LLC (“Barrow Hanley”) (2) —a widely recognized value-oriented investment manager of U.S., international and global equities, fixed income and a range of balanced investment management strategies.

Campbell Global is included within the Other segment.

• Thompson, Siegel & Walmsley LLC (“TSW”) —a value-oriented investment manager focused on small- and mid-cap U.S.

equity, international equity and fixed income strategies.

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

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

(2) In July 2020, we announced the divestiture of Barrow Hanley.

TSW is included within the Liquid Alpha segment.

(1) In March 2021, we announced the divestiture of Landmark Partners, LLC (“Landmark”), which is expected to close in the second quarter of 2021.

As a result, Landmark is reported within discontinued operations and the Alternatives segment no longer constitutes a reportable segment.

The remaining portion of the Alternatives segment, including Campbell Global, has been reclassified to “Other”.

See “Recent Developments” herein.

We have presented operational information (including AUM and flow data) including Barrow Hanley for all periods.

GAAP, financial results continue to include Barrow Hanley until the transaction closes, which is expected to be in the fourth quarter of 2020.

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

(2) In the first quarter of 2021, BrightSphere announced the divestitures of Investment Counselors of Maryland (“ICM”) and Landmark.

These transactions are expected to close in the second quarter of 2021.

This information gives effect to these divestitures.

See “Recent Developments” herein.

Recent Developments

Divestiture of Barrow Hanley and Copper Rock

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

The transaction resulted in a $7.2 million gain which is reflected on our Condensed Consolidated Statement of Operations for the three and nine months ended September 30, 2020.

On July 26, 2020, we entered into a purchase and sale agreement with Perpetual U.S.

Holdings Company Inc.

to sell all our interests in Barrow Hanley in exchange for $319 million of cash consideration, on a cash-free, debt-free basis, subject to certain customary closing and post-closing adjustments.

The transaction is expected to close in the fourth quarter of 2020.

Divestiture of Landmark Partners and Investment Counselors of Maryland

On March 30, 2021, we entered into an agreement to sell all of our equity interests in Landmark, an Affiliate formerly included in the Alternatives segment, to Ares Management Corporation in exchange for approximately $690 million in cash.

Ares has also agreed to acquire our co-investments in Landmark’s funds for approximately $34 million, subject to adjustment for certain related cashflow.

As a result, Landmark is reported within discontinued operations and the Alternatives segment no longer constitutes a reportable segment.

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

On February 6, 2021, we entered into a definitive agreement to sell all of our interests in ICM, an equity-accounted Affiliate within the Liquid Alpha segment, in exchange for approximately $19 million of cash consideration, subject to certain customary closing and post-closing adjustments.

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

COVID-19 Impact

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Our Affiliates earn management fees based on assets under management.

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

Approximately 80% of our management fees for the three months ended March 31, 2021 are calculated based on average AUM (calculated on either a daily or monthly basis) with the remainder of our management fees calculated based on period-end AUM or other measuring methods.

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

Our Affiliates may also earn performance fees, or adjust management fees, when certain accounts differ in relation to relevant benchmarks or exceed or fail to exceed required returns.

Approximately $18.0 billion, or 10% of our AUM in consolidated Affiliates, are in accounts with incentive fee or carried interest features in which we participate in the performance fee.

The majority of these incentive fees are calculated based on value added over the relevant benchmarks on a rolling three-year basis.

Carried interests are features of private equity funds, which are calculated based on long-term cumulative returns.

Approximately $18.3 billion, or 13%, of our AUM in consolidated Affiliates, are in accounts with incentive fee in which we participate in the performance fee.

The majority of these incentive fees are calculated based on value added over the relevant benchmarks on a rolling one-year and three-year basis.

Our largest expense item is compensation and benefits paid to our and our Affiliates’ employees, which consists of both fixed and variable components.

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(i) the calculation of variable compensation and (ii) the level of each Affiliate’s equity or profit interests distribution to its employees.

Variable compensation is the portion of earnings that is contractually allocated to Affiliate employees as a bonus pool, typically representing a fixed percentage of earnings before variable compensation, which is measured as revenues less fixed compensation and benefits and other operating and administrative expenses.

Variable compensation is the portion of earnings that is contractually

allocated to Affiliate employees as a bonus pool, typically representing a fixed percentage of earnings before variable compensation, which is measured as revenues less fixed compensation and benefits and other operating and administrative expenses.

Profits after variable compensation are shared between us and Affiliate key employee equity holders according to our respective equity or profit interests ownership.

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How We Measure Performance

We manage our business based on three business segments, reflecting how our management assesses the performance of our business.

We manage our business based on two business segments, reflecting how our management assesses the performance of our business.

In measuring and monitoring the key components of our earnings, our management uses a non-GAAP financial measure, ENI, to evaluate the financial performance of, and to make operational decisions for, our business.

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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 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.

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 stockholders.

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.

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Expenses included within ENI differ from U.S.

GAAP expenses in that they exclude amounts from consolidated Funds which are not attributable to our stockholders, revaluations of Affiliate key employee owned equity and profit interests, amortization and impairment of acquired intangibles and other acquisition-related items, the impact of a one-time compensation arrangement entered into that includes advances against future compensation payments, costs we paid on behalf of our customers which were subsequently reimbursed and certain other non-cash expenses.

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, 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.

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Summary Results of Operations

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

($ in millions, unless otherwise noted) Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 vs.

The following table summarizes our unaudited results of operations for the three months ended March 31, 2021 and 2020:

($ in millions, unless otherwise noted) Three Months Ended March 31,

2021 2020 2021 vs.

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GAAP operating margin (1)

22.2 % 26.2 % (403) bps 26.1 % 27.2 % (111) bps

28.3 % 35.1 % (683) bps

Earnings per share, basic ($) $ 0.34 $ 0.38 $ (0.04)

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ENI operating margin (6)

36.4 % 34.7 % 166 bps 34.6 % 34.6 % (2) bps

36.5 % 30.4 % 607 bps

Economic net income (7)

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

(3) Excludes restructuring costs at the Center and Affiliates of $1.4 million and $4.8 million, costs associated with the transfer of an insurance policy from our former Parent of $0.4 million and $1.0 million, costs relating to the impact of a one-time compensation arrangement entered into that includes advances against future compensation payments of $3.2 million and $13.9 million, and the gain on sale of Copper Rock of $7.2 million and $7.2 million for the three and nine ended September 30, 2020, respectively.

Excludes restructuring costs at the Center of $0.1 million and $4.6 million and costs associated with the redomicile to the U.S.

of $0.9 million and $2.0 million for the three and nine months ended September 30, 2019, respectively.

(3) Excludes income from discontinued operations, as well as restructuring costs at the Center and Affiliates of $1.5 million, costs associated with the transfer of an insurance policy from our former parent of $0.3 million, and the loss on sale of subsidiary of $1.3 million for the three months ended March 31, 2021.

Excludes income from discontinued operations, as well as restructuring costs at the Center of $0.4 million and costs associated with the transfer of an insurance policy from our former parent of $0.3 million for the three months ended March 31, 2020.

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

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

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

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 our equity-accounted Affiliate.

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

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Assets Under Management

On July 24, 2020, we completed the sale of all of our equity interests in Copper Rock, a former Affiliate, to Spouting Rock.

Unless specifically noted, flow information from Copper Rock is included up to June 30, 2020, but excluded thereafter, and AUM data at September 30, 2020 excludes the Copper Rock AUM.

On July 26, 2020, we entered into a purchase and sale agreement to sell our interests in Barrow Hanley to Perpetual in exchange for $319 million of cash consideration, on a cash-free, debt-free basis, subject to certain customary closing and post-closing adjustments.

The transaction is expected to close in the fourth quarter of 2020.

Barrow Hanley will continue to contribute to our financial results until the transaction closes.

Unless specifically noted, flow information includes flows from Barrow Hanley, and AUM data at September 30, 2020 includes the Barrow Hanley AUM.

In March 2021, we announced the divestiture of Landmark.

As a result, Landmark is reported within discontinued operations and the Alternatives segment no longer constitutes a reportable segment.

AUM and flow information from Landmark is excluded from all periods presented.

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

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

($ in billions) March 31, 2021 December 31, 2020

Acadian Asset Management $ 111.5 $ 108.1

Barrow, Hanley, Mewhinney & Strauss 44.6 51.7

Campbell Global 4.7 4.7

Copper Rock Capital Partners (1)

Investment Counselors of Maryland (1)

Landmark Partners 18.1 18.3

Thompson, Siegel & Walmsley 24.9 22.3

Total assets under management $ 184.8 $ 204.4

(1) On July 24, 2020, we completed the sale of all of our equity interests in Copper Rock to Spouting Rock.

Total assets under management excluding discontinued operations 145.1 * 138.3

Landmark Partners (2)

Total assets under management including discontinued operations $ 163.3 $ 156.7 *

*Reported AUM.

(1) In February 2021, we announced the divestiture of ICM, which is expected to close in the second quarter of 2021, see “Recent Developments” herein.

(2) In March 2021, we announced the divestiture of Landmark, which is expected to close in the second quarter of 2021, see “Recent Developments” herein.

Our strategies include:

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Fixed income, which includes government bonds, corporate bonds and other fixed income investments in the United States;

Alternatives, which consist of illiquid and differentiated liquid investment strategies that include private equity, real estate and real assets, including forestry, as well as a growing suite of liquid alternative capabilities in areas such as long/short, market neutral and absolute return.

Alternatives, which consist of illiquid and differentiated liquid investment strategies that include forestry, as well as a growing suite of liquid alternative capabilities in areas such as long/short, market neutral and absolute return.

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

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

($ in billions) March 31, 2021 December 31, 2020

equity, small/smid cap value $ 5.3 $ 4.4

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

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

($ in billions) March 31, 2021 December 31, 2020

AUM % of total AUM % of total

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

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

($ in billions) March 31, 2021 December 31, 2020

AUM % of total AUM % of total

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

Realizations include distributions related to the sale of alternative assets, which represent a return on investment.

In the following table, we present our asset flows and market appreciation (depreciation) by segment.

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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 Affiliate.

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 our equity-accounted Affiliate.

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

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

Three Months Ended September 30, Nine Months Ended September 30,

Three Months Ended March 31,

($ in billions, unless otherwise noted) 2021 2020

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Gross outflows (0.6) (4.3)

Reinvested income and distributions 0.1 0.4

Net flows 1.2 (1.1)

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

Realizations and other (2)

(0.7) (0.8) (1.0) (1.1)

Market appreciation (depreciation) 2.2 (19.1)

Ending balance $ 28.9 $ 58.5

Average AUM $ 27.1 $ 71.1

$ 23.9 $ 23.2 $ 24.0 $ 23.6

Liquid Alpha (3)

Average AUM of consolidated Affiliates $ 23.6 $ 69.0

Beginning balance $ 5.8 $ 5.4

Sale of Affiliate (1.7) — (1.7) —

Gross inflows — 0.4

Gross outflows — (0.1)

Reinvested income and distributions 0.4 0.6 1.3 2.2

Net flows — 0.3

Market appreciation (depreciation) 2.2 1.0 (8.5) 12.6

Market appreciation — 0.1

Ending balance $ 4.7 $ 5.8

Average AUM (2)

Average AUM of consolidated Affiliates $ 63.0 $ 97.6 $ 65.4 $ 99.1

Beginning balance $ 138.3 $ 186.0

Sale of Affiliate (1.7) — (1.7) —

Gross inflows 3.9 6.9

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Market appreciation (depreciation) 9.2 (43.4)

Realizations and other (2)

Ending balance excluding discontinued operations $ 145.1 $ 143.3

Discontinued operations (3)

$ 18.2 $ 18.5

Ending balance $ 184.8 $ 216.8 $ 184.8 $ 216.8

Ending balance including discontinued operations $ 163.3 $ 161.8

Average AUM $ 141.1 $ 169.6

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Annualized revenue impact of net flows ($ in millions) $ (4.6) $ (2.9)

(1) AUM representing liquid alternative and solution strategies previously excluded from the Quant & Solutions segment have been reclassified in the three months ended March 31, 2021.

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

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

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

(3) The following table summarizes our asset flows and market appreciation (depreciation) for the Liquid Alpha segment excluding Barrow Hanley and Copper Rock for the periods indicated:

Three Months Ended September 30, Nine Months Ended September 30,

($ in billions) 2020 2019 2020 2019

Beginning balance $ 19.1 $ 22.8 $ 23.1 $ 21.3

Net flows 1.1 (0.6) 0.5 (1.3)

Market appreciation (depreciation) 0.7 — (2.7) 2.2

Ending balance $ 20.9 $ 22.2 $ 20.9 $ 22.2

Average AUM of consolidated Affiliates $ 18.0 $ 20.1 $ 17.9 $ 20.6

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

Three Months Ended September 30, Nine Months Ended September 30,

($ in billions) 2020 2019 2020 2019

Beginning balance $ 135.2 $ 143.9 $ 148.8 $ 130.3

Net flows (0.5) — 1.4 2.9

Market appreciation (depreciation) 6.2 (2.2) (9.0) 8.8

Realizations and other (0.7) (0.8) (1.0) (1.1)

Ending balance $ 140.2 $ 140.9 $ 140.2 $ 140.9

Average AUM of consolidated Affiliates $ 137.6 $ 139.3 $ 135.1 $ 138.3

(3) Our reportable segments reflect the announced divestiture of Landmark.

As a result of this divestiture, Landmark, previously included in the Alternatives segment, is now reported within discontinued operations and the Alternatives segment no longer constitutes a reportable segment.

The remaining portion of the Alternatives segment, including Campbell Global, has been reclassified to “Other.”

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

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

($ in billions) Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

($ in billions) Three Months Ended March 31,

Beginning balance $ 23.6 $ 40.5

Sale of Affiliate (0.2) — (0.2) —

Gross inflows 0.9 2.1

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Reinvested income and distributions 0.1 0.2

0.2 0.4 0.7 1.3

Net flows 0.2 (0.1)

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Beginning balance $ 105.4 $ 134.0

Sale of Affiliate (1.4) — (1.4) —

Gross inflows 2.4 4.3

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Reinvested income and distributions 0.6 1.0

0.7 0.8 2.6 2.8

Net flows (2.8) 0.7

Market appreciation (depreciation) 6.7 (30.2)

Realizations and other (2)

(0.7) (0.8) (1.0) (1.1)

Ending balance $ 109.3 $ 104.5

Beginning balance $ 9.3 $ 11.5

Sale of Affiliate (0.1) — (0.1) —

Gross inflows 0.6 0.5

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Reinvested income and distributions — 0.1

0.1 0.1 0.2 0.2

Net flows 0.2 0.1

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Beginning balance $ 138.3 $ 186.0

Sale of Affiliate (1.7) — (1.7) —

Gross inflows 3.9 6.9

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Reinvested income and distributions 0.7 1.3

1.0 1.3 3.5 4.3

Net flows (2.4) 0.7

Market appreciation (depreciation) 9.2 (43.4)

Realizations and other (2)

(0.7) (0.8) (1.0) (1.1)

Ending balance $ 184.8 $ 216.8 $ 184.8 $ 216.8

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

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

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

Ending balance excluding discontinued operations 145.1 143.3

Discontinued operations (1)

Ending balance including discontinued operations $ 163.3 $ 161.8

(1) Reflects the announced divestiture of Landmark.

As a result of this divestiture, Landmark is reported within discontinued operations.

It is a strategic objective to increase our percentage of assets under management sourced from non-U.S.

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

($ in billions) Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

($ in billions) Three Months Ended March 31,

Beginning balance $ 101.1 $ 135.1

Sale of Affiliate (0.5) — (0.5) —

Gross inflows 3.3 5.1

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Reinvested income and distributions 0.5 0.9

0.7 1.0 2.5 3.3

Net flows (0.7) 1.2

Market appreciation (depreciation) 7.1 (31.5)

Realizations and other (2)

(0.7) (0.7) (0.9) (0.9)

Ending balance $ 107.5 $ 104.8

Beginning balance $ 37.2 $ 50.9

Sale of Affiliate (1.2) — (1.2) —

Gross inflows 0.6 1.8

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Reinvested income and distributions 0.2 0.4

0.3 0.3 1.0 1.0

Net flows (1.7) (0.5)

Market appreciation (depreciation) 2.1 (11.9)

Realizations and other (2)

— (0.1) (0.1) (0.2)

Ending balance $ 37.6 $ 38.5

Beginning balance $ 138.3 $ 186.0

Sale of Affiliate (1.7) — (1.7) —

Gross inflows 3.9 6.9

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Reinvested income and distributions 0.7 1.3

1.0 1.3 3.5 4.3

Net flows (2.4) 0.7

Market appreciation (depreciation) 9.2 (43.4)

Realizations and other (2)

(0.7) (0.8) (1.0) (1.1)

Ending balance $ 184.8 $ 216.8 $ 184.8 $ 216.8

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

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

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

At September 30, 2020, our total assets under management were $184.8 billion, an increase of $3.8 billion, or 2.1%, compared to $181.0 billion at June 30, 2020 and a decrease of $(32.0) billion, or (14.8)%, compared to $216.8 billion at September 30, 2019.

The change in assets under management during the three months ended September 30, 2020 reflects net market appreciation of $7.7 billion from continued market recovery, partially offset by net flows of $(1.5) billion and the sale of Copper Rock of $(1.7) billion.

The change in assets under management during the nine months ended September 30, 2020 reflects net market depreciation of $(14.7) billion, driven by the COVID-19 pandemic that caused significant market disruption in the first quarter of 2020, realizations and other of $(1.0) billion, net flows of $(2.2) billion including reinvested income and distributions of $3.5 billion, and the sale of Copper Rock of $(1.7) billion.

For the three months ended September 30, 2020, our net flows were $(1.5) billion compared to $(1.7) billion for the three months ended June 30, 2020 and $(6.2) billion for the three months ended September 30, 2019.

Net flows for the three months ended September 30, 2020 inc luded $(1.0) billion related to Barrow Hanley and Copper Rock.

Reinvested income and distributions of $1.0 billion, $1.2 billion and $1.3 billion are reflected in the net flows for the three months ended September 30, 2020, June 30, 2020 and September 30, 2019, respectively.

For the three months ended September 30, 2020, the annualized revenue impact of the net flows was $(0.5) million.

This is compared to the annualized revenue impact of net flows of $(13.4) million for the three months ended June 30, 2020 and $(16.2) million for the three months ended September 30, 2019.

Gross inflows of $6.4 billion during the three-month period yielded approximately 42 bps, and gross outflows in the same period of $(8.9) billion yielded approximately 34 bps.

For the nine months ended September 30, 2020, our net flows were $(2.2) billion compared to $(7.6) billion for the nine months ended September 30, 2019.

The improvement in net flows during the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019 was primarily due to improvement of the Liquid Alpha segment.

Net flows during the nine months ended September 30, 2020 included $(3.6) billion related to Barrow Hanley and Copper Rock.

Reinvested income and distributions of $3.5 billion, and $4.3 billion are reflected in the net flows for the nine months ended September 30, 2020 and September 30, 2019, respectively.

For the nine months ended September 30, 2020, the annualized revenue impact of the net flows was $(14.1) million compared to $(24.4) million for the nine months ended September 30, 2019 due to lower net outflows in 2020.

Gross inflows of $19.4 billion in the nine months ended September 30, 2020 yielded approximately 37 bps compared to $16.6 billion yielding approximately 35 bps in the year-ago period.

Gross outflows of $(25.1) billion yielded approximately 39 bps in the nine months ended September 30, 2020 compared to $(28.5) billion yielding approximately 34 bps in the year-ago period.

GAAP Results of Operations for the Three and Nine Months Ended September 30, 2020 and 2019

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

Three Months Ended September 30, Nine Months Ended September 30,

Ending balance excluding discontinued operations 145.1 143.3

Discontinued operations (1)

Adjusted ending balance including discontinued operations $ 163.3 $ 161.8

(1) Reflects the announced divestiture of Landmark.

As a result, Landmark is included in discontinued operations.

At March 31, 2021, our total assets under management were $145.1 billion, an increase of $6.8 billion, or 4.9%, compared to $138.3 billion at December 31, 2020 and an increase of $1.8 billion, or 1.3%, compared to $143.3 billion at March 31, 2020.

The change in assets under management during the three months ended March 31, 2021 reflects net market appreciation of $9.2 billion from continued market recovery, partially offset by net outflows of $(2.4) billion.

For the three months ended March 31, 2021, our net flows were $(2.4) billion compared to $0.7 billion for the three months ended March 31, 2020.

The change in net flows during the three months ended March 31, 2021 compared to the three months ended March 31, 2020 was primarily due to re-balancing and asset reallocation in select Quant & Solutions strategies.

Reinvested income and distributions of $0.7 billion and $1.3 billion are reflected in the net flows for the three months ended March 31, 2021 and March 31, 2020, respectively.

For the three months ended March 31, 2021, the annualized revenue impact of the net flows was $(4.6) million compared to $(2.9) million for the three months ended March 31, 2020 due to an increase in Quant & Solutions net outflows in select strategies.

Gross inflows of $3.9 billion in the three months ended March 31, 2021 yielded approximately 44 bps compared to $6.9 billion yielding approximately 34 bps in the year-ago period.

Gross outflows of $(7.0) billion yielded approximately 35 bps in the three months ended March 31, 2021 compared to $(7.5) billion yielding approximately 41 bps in the year-ago period.

GAAP Results of Operations for the Three Months Ended March 31, 2021 and 2020

GAAP results of operations were as follows for the three months ended March 31, 2021 and 2020:

Three Months Ended March 31,

($ in millions, unless otherwise noted) 2021 2020 Increase

(Decrease) 2020 2019 Increase

GAAP Statement of Operations

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— 16.4 (16.4)

Amortization of acquired intangibles

1.6 1.6 — 5.1 4.9 0.2

Depreciation and amortization 5.6 5.1 0.5

Consolidated Funds’ expense — 0.2 (0.2) 0.2 0.4 (0.2)

Total operating expenses 94.1 95.2 (1.1)

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Interest expense (6.2) (7.8) 1.6

Gain on sale of Affiliate 7.2 — 7.2 7.2 — 7.2

Net consolidated Funds’ investment gains 2.1 4.7 (2.6) 20.5 13.8 6.7

Loss on sale of Affiliate (1.3) — (1.3)

Net consolidated Funds’ investment gains (losses) — (17.2) 17.2

Income from continuing operations before taxes

32.2 13.1 19.1

Income tax expense (benefit) 12.8 (32.0) 44.8 33.7 3.7 30.0

Income tax expense 10.3 6.4 3.9

Income from continuing operations 21.9 6.7 15.2

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

Income from discontinued operations, net of tax 18.5 15.4 3.1

40.4 22.1 18.3

Net income attributable to non-controlling interests in consolidated Funds (3.2) 7.6 (10.8) 21.3 9.6 11.7

Net income (loss) attributable to non-controlling interests in consolidated Funds 13.4 (10.5) 23.9

Net income attributable to controlling interests

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($ in millions) Three Months Ended

September 30, Nine Months Ended

September 30,

GAAP Statement of Operations 2021 2020

Net income attributable to controlling interests $ 27.0 $ 32.6

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

(Income) loss on discontinued operations attributable to controlling interests, net of tax (5.1) (15.3)

Net income from continuing operations attributable to controlling interests

37.2 75.4 88.7 156.1

Income tax expense 10.3 6.4

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management fees earned based on our overall weighted average fee rate charged to our clients and the level of assets under management;

performance fees earned or management fee adjustments when our Affiliates’ investment performance over agreed time periods for certain clients has differed from pre-determined hurdles;

performance fees earned when our Affiliates’ investment performance over agreed time periods for certain clients has differed from pre-determined hurdles;

other revenue, consisting primarily of consulting services as well as reimbursement of certain Fund expenses our Affiliates paid on behalf of our 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 Affiliate, average basis points earned on average assets under management were 38.8 bps and 38.6 bps for the three and nine months ended September 30, 2020, respectively, and 35.9 bps and 37.6 bps for the three and nine months ended September 30, 2019, respectively.

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

Excluding assets managed by our equity-accounted Affiliate, average basis points earned on average assets under management were 36.9 bps for the three months ended March 31, 2021, and 34.3 bps for the three months ended March 31, 2020.

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

Our average basis points by segment (including only consolidated Affiliates that are included in management fee revenue, unless indicated) over each of the periods indicated were:

($ in millions,

except AUM data in billions) Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

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

except AUM data in billions) Three Months Ended March 31,

Revenue Basis Pts Revenue Basis Pts

Quant & Solutions $ 98.9 37 $ 85.2 37

Alternatives $ 43.2 72 $ 37.2 64 126.4 70 124.5 71

Liquid Alpha 21.5 37 51.9 30

Other 4.9 42 5.5 40

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

$ 125.3 36.9 $ 142.6 34.3

Average AUM excluding equity-accounted Affiliates $ 182.6 $ 216.8 $ 182.5 $ 216.8

Average AUM including equity-accounted Affiliates & weighted average fee rate $ 184.8 39.0 $ 219.0 36.2 $ 184.6 38.8 $ 218.9 37.8

Average AUM excluding equity-accounted Affiliate $ 137.6 $ 167.5

Average AUM including equity-accounted Affiliate & weighted average fee rate $ 141.1 37.5 $ 169.6 34.5

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

(See “ENI Revenues”)

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

Management fees decreased $(18.2) million, or (9.3)%, from $196.4 million for the three months ended September 30, 2019 to $178.2 million for the three months ended September 30, 2020.

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

Average assets under management excluding our equity-accounted Affiliate decreased (15.8)%, from $216.8 billion for the three months ended September 30, 2019 to $182.6 billion for the three months ended September 30, 2020, mainly due to the equity market decline during the first quarter of 2020 driven by the COVID-19 pandemic and the impact of the $(22.8) billion reallocation of several Vanguard subadvisory strategies in the fourth quarter of 2019.

Nine months ended September 30, 2020 compared to nine months ended September 30, 2019:

Management fees decreased $(82.4) million, or (13.5)%, from $609.8 million for the nine months ended September 30, 2019 to $527.4 million for the nine months ended September 30, 2020.

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

Average assets under management excluding equity-accounted Affiliate decreased (15.8)%, from $216.8 billion for the nine months ended September 30, 2019 to $182.5 billion for the nine months ended September 30, 2020, mainly due to the equity market decline during the nine months ended September 30, 2020 driven by the COVID-19 pandemic and the impact of the $(22.8) billion reallocation of several Vanguard subadvisory strategies in the fourth quarter of 2019.

Three months ended March 31, 2021 compared to three months ended March 31, 2020:

Management fees decreased $(17.3) million, or (12.1)%, from $142.6 million for the three months ended March 31, 2020 to $125.3 million for the three months ended March 31, 2021.

The decrease was primarily attributable to a decrease in average assets under management, partially offset by positive market returns.

Average assets under management excluding equity-accounted Affiliate decreased (17.9)%, from $167.5 billion for the three months ended March 31, 2020 to $137.6 billion for the three months ended March 31, 2021, mainly due to the dispositions of Barrow Hanley and Copper Rock in the second half of 2020.

Performance Fees

Approximately $18.0 billion, or 10% of our AUM in consolidated Affiliates, were in accounts with incentive fee or carried interest features in which we participate.

Approximately $18.3 billion, or 13% of our AUM in consolidated Affiliates, were in accounts with incentive fee features in which we participate.

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

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

Performance fees improved $3.1 million, from $(1.9) million for the three months ended September 30, 2019 to $1.2 million for the three months ended September 30, 2020.

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

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

Nine months ended September 30, 2020 compared to nine months ended September 30, 2019:

Performance fees improved $9.4 million, from $(6.9) million for the nine months ended September 30, 2019 to $2.5 million for the nine months ended September 30, 2020.

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

Three months ended March 31, 2021 compared to three months ended March 31, 2020:

Performance fees improved $3.6 million, from $1.0 million for the three months ended March 31, 2020 to $4.6 million for the three months ended March 31, 2021 due to out-performance in certain non-U.S.

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

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

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

These projections are based on market conditions and investment performance as of March 31, 2021.

Other Revenue

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

Other revenue increased $0.2 million, from $1.4 million for the three months ended September 30, 2019 to $1.6 million for the three months ended September 30, 2020.

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

Nine months ended September 30, 2020 compared to nine months ended September 30, 2019:

Other revenue increased $0.9 million, from $4.3 million for the nine months ended September 30, 2019 to $5.2 million for the nine months ended September 30, 2020.

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

Three months ended March 31, 2021 compared to three months ended March 31, 2020:

Other revenue decreased $(0.3) million, from $1.6 million for the three months ended March 31, 2020 to $1.3 million for the three months ended March 31, 2021.

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 three months ended March 31, 2021.

GAAP Expenses

GAAP expenses principally consist of:

compensation paid to our investment professionals and other employees, including base salary, benefits, sales-based compensation, variable compensation, Affiliate distributions, revaluation of key employee owned Affiliate equity and profit interests, and the amortization of pre-acquisition employee equity;

compensation paid to our investment professionals and other employees, including base salary, benefits, sales-based compensation, variable compensation, Affiliate distributions, and revaluation of key employee owned Affiliate equity and profit interests;

general and administrative expenses;

impairment of goodwill;

amortization of acquired intangible assets;

depreciation and amortization charges.

expenses of consolidated Funds, a portion of which is attributable to the holders of non-controlling interests in consolidated Funds.

Compensation and Benefits Expense

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The following table presents the components of U.S.

GAAP compensation expense for the three and nine months ended September 30, 2020 and 2019:

Three Months Ended September 30, Nine Months Ended September 30,

GAAP compensation expense for the three months ended March 31, 2021 and 2020:

Three Months Ended March 31,

($ in millions) 2021 2020

2 unchanged sentences

Sales-based compensation (2)

2.0 2.7 6.2 8.5

Variable compensation (3)

44.5 44.1 137.7 145.8

Affiliate key employee distributions (4)

11.0 12.6 31.8 39.8

Non-cash Affiliate key employee equity revaluations (5)

6.6 (14.7) (31.8) (27.7)

Amortization of pre-acquisition employee equity (6)

1.6 15.6 4.6 19.5

GAAP compensation and benefits expense

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

For the three and nine months ended September 30, 2020, $42.8 million and $132.2 million, respectively, of fixed compensation and benefits (of the $44.0 million and $135.5 million above) are included within economic net income, which excludes Fund expenses initially paid by our Affiliates on the Fund’s behalf and subsequently reimbursed.

For the three and nine months ended September 30, 2019, $46.7 million and $143.7 million, respectively, of fixed compensation and benefits (of the $47.7 million and $146.9 million above) are included within economic net income, which excludes Fund expenses initially paid by our Affiliates on the Fund’s behalf and subsequently reimbursed.

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

For the three months ended March 31, 2021 , $28.8 million of fixed compensation and benefits (of the $29.8 million above) are included within economic net income, which excludes Fund expenses initially paid by our Affiliates on the Fund’s behalf and subsequently reimbursed.

For the three months ended March 31, 2020, $38.8 million of fixed compensation and benefits (of the $39.8 million above) are included within economic net income, which excludes Fund expenses initially paid by our Affiliates on the Fund’s behalf and subsequently reimbursed.

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

Its variability is based upon the structure of sales-based compensation due on inflows of assets under management and market-based movement in both current and prior periods.

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

Three Months Ended September 30, Nine Months Ended September 30,

Three Months Ended March 31,

($ in millions) 2021 2020

1 unchanged sentence

Non-cash equity-based award amortization

3.7 4.2 12.0 14.5

Total variable compensation (a)

$ 28.4 $ 31.3

(a) For the three and nine months ended September 30, 2020, $41.2 million and $120.3 million, respectively, of variable compensation expense (of the $44.5 million and $137.7 million above) are included within economic net income, which excludes $0.1 million and $3.5 million of variable compensation associated with restructuring at the Center and Affiliates and $3.2 million and $13.9 million of a one-time compensation arrangement entered into that includes advances against future compensation payments.

For the three and nine months ended September 30, 2019, $44.1 million and $141.2 million, respectively, of variable compensation expense (of the $44.1 million and $145.8 million above) are included within economic net income, which excludes $0.1 million and $4.6 million, respectively, of variable compensation associated with restructuring at the Center.

(a) For the three months ended March 31, 2021, $27.9 million of variable compensation expense (of the $28.4 million above) are included within economic net income, which excludes $0.5 million of variable compensation associated with restructuring at the Affiliates.

For the three months ended March 31, 2020, $30.9 million of variable compensation expense (of the $31.3 million above) are included within economic net income, which excludes $0.4 million of variable compensation associated with restructuring at an Affiliate.

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

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Our Affiliate equity and profit interest plans have been designed to ensure BSUS is not required to repurchase more equity than we can reasonably recycle through variable compensation awards in any given twelve month period.

(6) Amortization of pre-acquisition employee equity represents amortization of the value of employee equity owned prior to the acquisition of Landmark.

This is included in U.S.

GAAP compensation expense as a result of ongoing service requirements for employee recipients.

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

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

Compensation and benefits expense increased $1.7 million, or 1.6%, from $108.0 million for the three months ended September 30, 2019 to $109.7 million for the three months ended September 30, 2020.

Fixed compensation and benefits decreased $(3.7) million, or (7.8)%, from $47.7 million for the three months ended September 30, 2019 to $44.0 million for the three months ended September 30, 2020, primarily reflecting cost savings from the restructuring at the Center and the Affiliates.

Variable compensation increased $0.4 million, or 0.9%, from $44.1 million for the three months ended September 30, 2019 to $44.5 million for the three months ended September 30, 2020.

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

Sales-based compensation decreased $(0.7) million, or (25.9)%, from $2.7 million for the three months ended September 30, 2019 to $2.0 million for the three months ended September 30, 2020, as a result of the structure of sales-based compensation programs, driven by the timing of asset inflows which trigger sales-based compensation in both current and prior periods.

Affiliate key employee distributions decreased $(1.6) million, or (12.7)%, from $12.6 million for the three months ended September 30, 2019 to $11.0 million for the three months ended September 30, 2020 as a result of lower underlying operating earnings at the consolidated Affiliates.

Revaluations of Affiliate equity increased by $21.3 million reflecting revaluations of key employee ownership interests at our consolidated Affiliates as the value of Affiliate equity decreased $(14.7) million for the three months ended September 30, 2019 and increased $6.6 million for the three months ended September 30, 2020.

Amortization of pre-acquisition equity decreased by $(14.0) million from $15.6 million for the three months ended September 30, 2019 to $1.6 million for the three months ended September 30, 2020 as a result of vesting of the employee equity in the prior year period.

Nine months ended September 30, 2020 compared to nine months ended September 30, 2019:

Compensation and benefits expense decreased $(48.8) million, or (14.7)%, from $332.8 million for the nine months ended September 30, 2019 to $284.0 million for the nine months ended September 30, 2020.

Fixed compensation and benefits decreased $(11.4) million, or (7.8)%, from $146.9 million for the nine months ended September 30, 2019 to $135.5 million for the nine months ended September 30, 2020, primarily reflecting cost savings from the restructuring at the Center and Affiliates.

Variable compensation decreased $(8.1) million, or (5.6)%, from $145.8 million for the nine months ended September 30, 2019 to $137.7 million for the nine months ended September 30, 2020.

Three months ended March 31, 2021 compared to three months ended March 31, 2020:

Compensation and benefits expense increased $18.5 million, or 37.4%, from $49.4 million for the three months ended March 31, 2020 to $67.9 million for the three months ended March 31, 2021.

Fixed compensation and benefits decreased $(10.0) million, or (25.1)%, from $39.8 million for the three months ended March 31, 2020 to $29.8 million for the three months ended March 31, 2021, primarily reflecting disposition of Affiliates and cost savings from the restructuring at the Center and Affiliates.

Variable compensation decreased $(2.9) million, or (9.3)%, from $31.3 million for the three months ended March 31, 2020 to $28.4 million for the three months ended March 31, 2021.

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

Sales-based compensation decreased $(2.3) million, or (27.1)%, from $8.5 million for the nine months ended September 30, 2019 to $6.2 million for the nine months ended September 30, 2020, as a result of the structure of sales-based compensation programs, driven by the timing of asset inflows which trigger sales-based compensation in both current and prior periods.

Affiliate key employee distributions decreased $(8.0) million, or (20.1)%, from $39.8 million for the nine months ended September 30, 2019 to $31.8 million for the nine months ended September 30, 2020, primarily as a result of lower earnings before Affiliate key employee distributions at the consolidated Affiliates.

Revaluations of Affiliate equity decreased by $(4.1) million, reflecting revaluations of key employee ownership interests at our consolidated Affiliates, as the value of Affiliate equity decreased $(27.7) million for the nine months ended September 30, 2019 and decreased $(31.8) million for the nine months ended September 30, 2020.

Amortization of pre-acquisition equity decreased $(14.9) million, or (76.4)% from $19.5 million for the nine months ended September 30, 2019 to $4.6 million for the nine months ended September 30, 2020, as a result of vesting of the employee equity in the prior year period.

Sales-based compensation increased $0.1 million, or 4.8%, from $2.1 million for the three months ended March 31, 2020 to $2.2 million for the three months ended March 31, 2021, as a result of the structure of sales-based compensation programs, driven by the timing of asset inflows which trigger sales-based compensation in both current and prior periods.

Affiliate key employee distributions decreased $(0.1) million, or (2.5)%, from $4.0 million for the three months ended March 31, 2020 to $3.9 million for the three months ended March 31, 2021, primarily as a result of lower earnings before Affiliate key employee distributions at the consolidated Affiliates.

Revaluations of Affiliate equity reflect the revaluations of key employee ownership interests at our consolidated Affiliates, as the value of Affiliate equity decreased $(27.8) million for the three months ended March 31, 2020 and increased $3.6 million for the three months ended March 31, 2021.

General and Administrative Expense

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

General and administrative expense decreased $(6.3) million, or (19.9)%, from $31.7 million for the three months ended September 30, 2019 to $25.4 million for the three months ended September 30, 2020.

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

Nine months ended September 30, 2020 compared to nine months ended September 30, 2019:

General and administrative expense decreased $(17.7) million, or (18.6)%, from $95.3 million for the nine months ended September 30, 2019 to $77.6 million for the nine months ended September 30, 2020.

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

Three months ended March 31, 2021 compared to three months ended March 31, 2020:

General and administrative expense decreased $(3.7) million, or (15.2)%, from $24.3 million for the three months ended March 31, 2020 to $20.6 million for the three months ended March 31, 2021.

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

Impairment of Goodwill

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

No goodwill impairment charge was recorded in either the three months ended September 30, 2019 or 2020.

Nine months ended September 30, 2020 compared to nine months ended September 30, 2019:

No goodwill impairment charge was recorded in the nine months ended September 30, 2019.

Impairment of goodwill was $16.4 million for the nine months ended September 30, 2020.

The increase was the result of an impairment charge recorded for the Copper Rock reporting unit which was included within the Liquid Alpha segment prior to its disposition in the nine months ended September 30, 2020.

In the first half of 2020, we performed a quantitative impairment test of Copper Rock due to the decline in assets under management and the fair value of the Copper Rock reporting unit did not exceed its carrying value.

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

In July 2020, we completed the sale of our equity interests in Copper Rock to Spouting Rock.

See "Recent Developments" herein.

Amortization of Acquired Intangibles Expense

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

Amortization of acquired intangibles expense was unchanged, at $1.6 million for the three months ended September 30, 2019 and $1.6 million for the three months ended September 30, 2020.

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

Nine months ended September 30, 2020 compared to nine months ended September 30, 2019:

Amortization of acquired intangibles expense increased $0.2 million, or 4.1%, from $4.9 million for the nine months ended September 30, 2019 to $5.1 million for the nine months ended September 30, 2020.

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

Three months ended March 31, 2021 compared to three months ended March 31, 2020:

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

No goodwill impairment charge was recorded in the three months ended March 31, 2021.

The change was the result of the impairment charge recorded in the first quarter of 2020 for the Copper Rock reporting unit which was included within the Liquid Alpha segment prior to its disposition in the third quarter of 2020.

Depreciation and Amortization Expense

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

Depreciation and amortization expense increased $0.8 million, or 18.2%, from $4.4 million for the three months ended September 30, 2019 to $5.2 million for the three months ended September 30, 2020.

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

Nine months ended September 30, 2020 compared to nine months ended September 30, 2019:

Depreciation and amortization expense increased $3.4 million, or 27.9%, from $12.2 million for the nine months ended September 30, 2019 to $15.6 million for the nine months ended September 30, 2020.

Three months ended March 31, 2021 compared to three months ended March 31, 2020:

Depreciation and amortization expense increased $0.5 million, or 9.8%, from $5.1 million for the three months ended March 31, 2020 to $5.6 million for the three months ended March 31, 2021.

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

4 unchanged sentences

interest expense;

gain (loss) on sale of subsidiary.

Investment Income

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

Investment income increased $1.6 million, from $2.3 million for the three months ended September 30, 2019 to $3.9 million for the three months ended September 30, 2020, reflecting an increase in returns in the current period generated by seed capital investments as the market recovered from declines in the first quarter of 2020.

Nine months ended September 30, 2020 compared to nine months ended September 30, 2019:

Investment income decreased $(14.6) million, from $11.4 million for the nine months ended September 30, 2019 to $(3.2) million for the nine months ended September 30, 2020.

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

Three months ended March 31, 2021 compared to three months ended March 31, 2020:

Investment income increased $16.3 million, from $(13.7) million for the three months ended March 31, 2020 to $2.6 million for the three months ended March 31, 2021.

The increase is primarily due to an increase in returns generated by seed capital investments driven by continued market recovery in 2021 compared to the market decline in the three months ended March 31, 2020.

Interest Income

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

Interest income decreased $(0.4) million, from $0.4 million for the three months ended September 30, 2019 to $0.0 million for the three months ended September 30, 2020.

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

Nine months ended September 30, 2020 compared to nine months ended September 30, 2019:

Interest income decreased $(1.3) million, from $1.8 million for the nine months ended September 30, 2019 to $0.5 million for the nine months ended September 30, 2020.

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

Three months ended March 31, 2021 compared to three months ended March 31, 2020:

Interest income decreased $(0.3) million, from $0.3 million for the three months ended March 31, 2020 to $0.0 million for the three months ended March 31, 2021.

The decrease was due to decreases in short-term investment returns in 2021.

Interest Expense

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

Interest expense decreased $(1.4) million, or (16.9)%, from $8.3 million for the three months ended September 30, 2019 to $6.9 million for the three months ended September 30, 2020, reflecting a lower quarterly average balance in 2020 on our revolving credit and non-recourse seed capital facilities.

We repaid the balance on our non-recourse seed capital facility, and paid down a portion of the balance on our revolving credit facility in the three months ended September 30, 2020.

Nine months ended September 30, 2020 compared to nine months ended September 30, 2019:

Interest expense decreased $(2.0) million, or (8.3)%, from $24.1 million for the nine months ended September 30, 2019 to $22.1 million for the nine months ended September 30, 2020, primarily reflecting a lower balance drawn on the non-recourse seed capital and revolving credit facilities in the current year.

We repaid the balance on our non-recourse seed capital facility, and paid down a portion of the balance on our revolving credit facility in the nine months ended September 30, 2020.

Three months ended March 31, 2021 compared to three months ended March 31, 2020:

Interest expense decreased $(1.6) million, or (20.5)%, from $7.8 million for the three months ended March 31, 2020 to $6.2 million for the three months ended March 31, 2021, primarily reflecting a lower balance drawn on the revolving credit facility in 2021 and the pay down of the non-recourse seed capital facility during the third quarter of 2020.

Loss on Sale of Subsidiary

Three months ended March 31, 2021 compared to three months ended March 31, 2020:

No loss on sale of a subsidiary was recorded in the three months ended March 31, 2020.

Loss on sale of a subsidiary was $(1.3) million for the three months ended March 31, 2021, representing the loss on disposition of a business unit during the three months ended March 31, 2021.

GAAP Income Tax Expense (Benefit)

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

Our effective tax rate could be impacted in the future by these items as well as further changes in tax laws and regulations in jurisdictions in which we operate.

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

Our Condensed Consolidated Balance Sheet reflects the benefit of a provision that increased the business interest limitation under IRC Section 163(j) from 30% to 50% for tax years 2019 and 2020.

This provision will allow us to utilize more of the deferred tax asset related to IRC Section 163(j).

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

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

Income tax expense (benefit) increased $44.8 million, from a benefit of $(32.0) million for the three months ended September 30, 2019 to an expense of $12.8 million for the three months ended September 30, 2020.

The increase in income tax expense relates to the reductions to liabilities for uncertain tax positions and the revaluation of certain deferred tax assets in connection with the Redomestication in the three months ended September 30, 2019 that did not occur in the three months ended September 30, 2020, In addition, the gain from the disposition of Copper Rock also contributed to the increase in income tax expense in the three months ended September 30, 2020.

Nine months ended September 30, 2020 compared to nine months ended September 30, 2019 :

Income tax expense increased $30.0 million, from $3.7 million for the nine months ended September 30, 2019 to $33.7 million for the nine months ended September 30, 2020.

This increase is partially offset by a decrease in income from continuing operations as of September 30, 2020 as compared to September 30, 2019.

Gain on Sale of Affiliate

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

No gain on sale of Affiliate was recorded in the three months ended September 30, 2019.

Gain on sale of Affiliate was $7.2 million for the three months ended September 30, 2020, representing our gain on the sale of our equity interests in Copper Rock.

Nine months ended September 30, 2020 compared to nine months ended September 30, 2019:

No gain on sale of an Affiliate was recorded in the nine months ended September 30, 2019.

Gain on sale of Affiliate was $7.2 million for the nine months ended September 30, 2020, representing our gain on the sale of our equity interests in Copper Rock.

Three months ended March 31, 2021 compared to three months ended March 31, 2020 :

Income tax expense increased $3.9 million, from $6.4 million for the three months ended March 31, 2020 to $10.3 million for the three months ended March 31, 2021.

The increase in income tax expense relates to an increase in income from continuing operations during the three months ended March 31, 2021 as compared to the three months ended March 31, 2020 as well as an increase in state tax obligations.

GAAP Consolidated Funds

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

Consolidated Funds’ revenue decreased $(0.5) million, from $1.9 million for the three months ended September 30, 2019 to $1.4 million for the three months ended September 30, 2020.

Consolidated Funds’ expense decreased $(0.2) million for the three months ended September 30, 2020 compared to the three months ended September 30, 2019.

Net consolidated Funds’ investment gain (loss) decreased $(2.6) million, from $4.7 million for the three months ended September 30, 2019 to $2.1 million for the three months ended September 30, 2020.

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

Nine months ended September 30, 2020 compared to nine months ended September 30, 2019:

Consolidated Funds’ revenue decreased $(0.3) million, from $4.9 million for the nine months ended September 30, 2019 to $4.6 million for the nine months ended September 30, 2020.

Consolidated Funds’ expense decreased $(0.2) million, from $0.4 million for the nine months ended September 30, 2019 to $0.2 million for the nine months ended September 30, 2020.

Net consolidated Funds’ investment gain (loss) increased $6.7 million, from $13.8 million for the nine months ended September 30, 2019 to $20.5 million for the nine months ended September 30, 2020.

Three months ended March 31, 2021 compared to three months ended March 31, 2020:

Consolidated Funds’ revenue was $1.5 million for the three months ended March 31, 2020.

There was no consolidated Funds’ revenue for the three months ended March 31, 2021.

Net consolidated Funds’ investment loss was $(17.2) million for the three months ended March 31, 2020.

There was no net consolidated Funds’ investment loss for the three months ended March 31, 2021.

As a result of the announced divestiture of Landmark during the three months ended March 31, 2021, consolidated Funds of Landmark are included in discontinued operations for the three months ended March 31, 2021 and 2020.

Discontinued Operations

On March 30, 2021, we entered into an agreement with Landmark to sell all our equity interest in Landmark to Ares Management Corporation.

The transaction is expected to close in the second quarter of 2021.

As a result, Landmark is reported within discontinued operations and the Alternatives segment no longer constitutes a reportable segment.

Three months ended March 31, 2021 compared to three months ended March 31, 2020:

Income from discontinued operations was $15.4 million for the three months ended March 31, 2020 representing the income from Landmark including consolidated Landmark Funds.

Income from discontinued operations was $18.5 million for the three months ended March 31, 2021, representing the income from Landmark including consolidated Landmark Funds.

The increase is driven by the increase in investment gains from the consolidated Landmark Funds in the current year.

GAAP Operating Metrics

The following table shows our key U.S.

GAAP operating metrics for the three and nine months ended September 30, 2020 and 2019.

GAAP operating metrics for the three months ended March 31, 2021 and 2020.

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

Three Months Ended September 30, Nine Months Ended September 30,

Three Months Ended March 31,

($ in millions) 2021 2020

6 unchanged sentences

Total operating expenses $ 94.1 $ 95.2

$ 141.9 $ 145.7 $ 398.7 $ 445.2

Management fee revenue

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Affiliate key employee distributions

$ 11.0 $ 12.6 $ 31.8 $ 39.8

Operating income before Affiliate key employee distributions (3)(4)

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GAAP Affiliate key employee distributions ratio (2)

22.0 % 20.1 % 18.9 % 19.7 %

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

GAAP operating margin is 21.6% for the three months ended September 30, 2020, 25.6% for the three months ended September 30, 2019, 25.5% for the nine months ended September 30, 2020, and 26.7% for the nine months ended September 30, 2019.

(2) Excludes consolidated Funds expense of $0.0 million for the three months ended September 30, 2020, $0.2 million for the three months ended September 30, 2019, $0.2 million for the nine months ended September 30, 2020 and $0.4 million for the nine months ended September 30, 2019.

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

(4) Excludes consolidated Funds revenue of $1.4 million for the three months ended September 30, 2020, $1.9 million for the three months ended September 30, 2019, $4.6 million for the nine months ended September 30, 2020 and $4.9 million for the nine months ended September 30, 2019.

GAAP operating margin is 28.3% for the three months ended March 31, 2021 and 34.4% for the three months ended March 31, 2020.

(2) Excludes the effect of Funds consolidation for the three months ended March 31, 2021 and 2020.

(3) Excludes consolidated Funds’ revenue of $1.5 million for the three months ended March 31, 2020.

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

Three Months Ended September 30, Nine Months Ended September 30,

Three Months Ended March 31,

($ in millions) 2021 2020

2 unchanged sentences

Affiliate key employee distributions

11.0 12.6 31.8 39.8

Operating income of consolidated Funds (1.4) (1.7) (4.4) (4.5)

Operating (income) loss of consolidated Funds — (1.5)

Operating income before Affiliate key employee distributions

50.1 62.8 168.2 201.8

Variable compensation 28.4 31.3

2 unchanged sentences

Effects of Inflation

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

For the three months ended March 31, 2021 and 2020, inflation did not have a material effect on our consolidated results of operations.

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

8 unchanged sentences

For a further discussion of how we use ENI and why ENI is useful to investors, see “—Overview—How We Measure Performance.”

In the first quarter of 2020, we refined our definition of economic net income in light of a one-time compensation arrangement entered into that includes advance against future contractual compensation payments.

To calculate economic net income, we re-categorize certain line items on our Condensed Consolidated Statements of Operations to reflect the following:

14 unchanged sentences

We exclude non-cash amortization or impairment expenses related to acquired goodwill and other intangibles as these are non-cash charges that do not result in an outflow of tangible economic benefits from the business.

We also exclude the amortization of acquisition-related contingent consideration, as well as the value of employee equity owned pre-acquisition, as occurred as a result of the Landmark transaction, where such items have been included in compensation expense as a result of ongoing service requirements for certain employees.

Please note that the revaluations related to these acquisition-related items are included in (i) above.

We exclude capital transaction costs, including the costs of raising debt or equity, gains or losses realized as a result of redeeming debt or equity and direct incremental costs associated with acquisitions of businesses or assets.

2 unchanged sentences

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, 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 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 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.

1 unchanged sentence

Reconciliation of U.S.

GAAP Net Income to Economic Net Income for the Three and Nine Months Ended September 30, 2020 and 2019

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

Three Months Ended September 30, Nine Months Ended September 30,

GAAP Net Income to Economic Net Income for the Three Months Ended March 31, 2021 and 2020

The following table reconciles net income attributable to controlling interests to economic net income for the three months ended March 31, 2021 and 2020:

Three Months Ended March 31,

($ in millions) 2021 2020

4 unchanged sentences

Capital transaction costs

0.1 0.9 0.6 2.5

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

(8.2) 1.9 6.4 (11.1)

Tax benefit of goodwill and acquired intangibles deductions 0.3 0.4

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

(2.2) 1.0 12.6 6.6

Discontinued operations and restructuring (2)

ENI tax normalization

(1.3) (44.9) (0.7) (41.7)

Tax effect of above adjustments, as applicable (3)

0.1 (1.8) (3.8) 1.4

Economic net income

$ 28.2 $ 25.9

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

Three Months Ended September 30, Nine Months Ended September 30,

(1) The net return on seed/co-investment (gains) losses and financings for the three months ended March 31, 2021 and 2020 is shown in the following table:

Three Months Ended March 31,

($ in millions) 2021 2020

6 unchanged sentences

* 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.

(2) The three months ended September 30, 2020 includes $1.4 million of restructuring costs at the Center and Affiliates, $0.4 million costs associated with the transfer of an insurance policy from our former Parent, $3.2 million costs relating to the impact of a one-time compensation arrangement entered into that includes advances against future compensation payments, and the gain on sale of Copper Rock of $7.2 million.

The nine months ended September 30, 2020 includes $4.8 million of restructuring costs at the Center and Affiliates, $1.0 million costs associated with the transfer of an insurance policy from our former Parent, $13.9 million costs relating to the impact of a one-time compensation arrangement entered into that includes advances against future compensation payment, and the gain on sale of Copper Rock of $7.2 million.

The three months ended September 30, 2019 includes $0.1 million of restructuring costs at the Center and $0.9 million associated with the redomicile to the U.S.

The nine months ended September 30, 2019 includes $4.6 million of restructuring costs at the Center and $2.0 million associated with the redomicile to the U.S.

(2) The three months ended March 31, 2021 includes income from discontinued operations attributable to controlling interests of $(2.0) million, as well as $1.5 million of restructuring costs at the Center and Affiliates, $0.3 million costs associated with the transfer of an insurance policy from our former parent, and the loss on sale of subsidiary of $1.3 million.

The three months ended March 31, 2020 includes income from discontinued operations attributable to controlling interests of $(15.5) million, as well as $0.4 million of restructuring costs at the Center and $0.3 million costs associated with the transfer of an insurance policy from our former parent.

Seed/Co-investment (gains) losses from discontinued operations are included in item iv.

above for all periods.

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

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The following table reconciles U.S.

GAAP revenue to ENI revenue for the three and nine months ended September 30, 2020 and 2019:

Three Months Ended September 30, Nine Months Ended September 30,

GAAP revenue to ENI revenue for the three months ended March 31, 2021 and 2020:

Three Months Ended March 31,

($ in millions) 2021 2020

1 unchanged sentence

Include investment return on equity-accounted Affiliate

0.9 0.8 2.1 2.1

Exclude revenue from consolidated Funds attributable to non-controlling interests

(1.4) (1.9) (4.6) (4.9)

Exclude Fund expenses reimbursed by customers

(1.1) (0.9) (3.3) (3.2)

ENI revenue $ 131.3 $ 144.7

The following table identifies the components of ENI revenue:

Three Months Ended September 30, Nine Months Ended September 30,

Three Months Ended March 31,

($ in millions) 2021 2020

2 unchanged sentences

Performance fees (2)

1.2 (1.9) 2.5 (6.9)

Other income, including equity-accounted Affiliate (3)

1.4 1.3 4.0 3.2

ENI revenue $ 131.3 $ 144.7

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

GAAP, plus our earnings from our equity-accounted Affiliate of $0.9 million and $0.8 million for the three months ended September 30, 2020 and September 30, 2019, respectively.

For the nine months ended September 30, 2020 and September 30, 2019, our earnings from our equity-accounted Affiliate were $2.1 million and $2.1 million, respectively.

GAAP, plus our earnings from our equity-accounted Affiliate of $1.1 million and $0.6 million for the three months ended March 31, 2021 and March 31, 2020, respectively.

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

Three Months Ended September 30, Nine Months Ended September 30,

Three Months Ended March 31,

($ in millions) 2021 2020

2 unchanged sentences

Exclude Fund expenses reimbursed by customers

(1.1) (0.9) (3.3) (3.2)

ENI other income $ 1.4 $ 1.1

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As shown in the following reconciliation, we exclude the impact of key employee equity revaluations.

We also exclude the amortization of pre-acquisition equity owned by employees, with a service requirement, associated with the Landmark acquisition.

Variable compensation and Affiliate key employee distributions are also segregated out of U.S.

1 unchanged sentence

The following table reconciles U.S.

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

Three Months Ended September 30, Nine Months Ended September 30,

GAAP operating expense to ENI operating expense for the three months ended March 31, 2021 and 2020.

Three Months Ended March 31,

($ in millions) 2021 2020

1 unchanged sentence

items excluded from economic net income

Amortization of pre-acquisition employee equity

(1.6) (15.6) (4.6) (19.5)

Non-cash key employee equity and profit interest revaluations

(6.6) 14.7 31.8 27.7

Goodwill impairment and amortization of acquired intangible assets — (16.4)

Capital transaction costs (0.4) —

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

(5.0) (1.0) (19.8) (6.6)

Restructuring costs (1)

Fund expenses reimbursed by customers (1.0) (1.1)

5 unchanged sentences

ENI operating expense $ 55.5 $ 69.8

(1) The three months ended September 30, 2020 includes $1.4 million of restructuring costs at the Center and Affiliates, $0.4 million costs associated with the transfer of an insurance policy from our former Parent, and $3.2 million costs relating to the impact of a one-time compensation arrangement entered into that includes advances against future compensation payments.

The nine months ended September 30, 2020 includes $4.8 million of restructuring costs at the Center and Affiliates, $1.0 million costs associated with the transfer of an insurance policy from our former Parent, and $13.9 million costs relating to the impact of a one-time compensation arrangement entered into that includes advances against future compensation payments.

The three months ended September 30, 2019 includes $0.1 million of restructuring costs at the Center and $0.9 million costs associated with the redomicile to the U.S.

The nine months ended September 30, 2019 includes $4.6 million of restructuring costs at the Center and $2.0 million associated with the redomicile to the U.S.

(1) The three months ended March 31, 2021 includes $1.5 million of restructuring costs at the Center and Affiliates, and $0.3 million costs associated with the transfer of an insurance policy from our former parent.

The three months ended March 31, 2020 includes $0.4 million of restructuring costs and costs associated with the transfer of an insurance policy from our former parent of $0.3 million.

The following table identifies the components of ENI operating expense:

Three Months Ended September 30, Nine Months Ended September 30,

Three Months Ended March 31,

($ in millions) 2021 2020

2 unchanged sentences

General and administrative expenses (2)

25.8 32.6 81.2 99.3

Depreciation and amortization 5.6 5.1

2 unchanged sentences

The following table reconciles U.S.

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

Three Months Ended September 30, Nine Months Ended September 30,

GAAP compensation and benefits expense for the three months ended March 31, 2021 and 2020 to ENI fixed compensation and benefits expense:

Three Months Ended March 31,

($ in millions) 2021 2020

1 unchanged sentence

$ 67.9 $ 49.4

Amortization of pre-acquisition employee equity

(1.6) (15.6) (4.6) (19.5)

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

(6.6) 14.7 31.8 27.7

Sales-based compensation reclassified to ENI general & administrative expenses

(2.0) (2.7) (6.2) (8.5)

Affiliate key employee distributions

(11.0) (12.6) (31.8) (39.8)

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

(3.4) (0.1) (17.4) (4.6)

Restructuring expenses (a)

Variable compensation

1 unchanged sentence

Fund expenses reimbursed by customers

(1.1) (0.9) (3.3) (3.2)

ENI fixed compensation and benefits $ 28.8 $ 38.8

(a) The three months ended September 30, 2020 includes $0.2 million of restructuring costs at the Center and $3.2 million costs relating to the impact of a one-time compensation arrangement entered into that includes advances against future compensation payments.

The nine months ended September 30, 2020 includes $3.5 million of restructuring costs at the Center and Affiliates and $13.9 million costs relating to the impact of a one-time compensation arrangement entered into that includes advances against future compensation payments.

The three months ended September 30, 2019 includes $0.1 million of restructuring costs at the Center.

The nine months ended September 30, 2019 includes $4.6 million of restructuring costs at the Center.

(a) The three months ended March 31, 2021 includes $0.5 million of restructuring costs at the Affiliates.

The three months ended March 31, 2020 includes $0.4 million of restructuring costs at the Center and Affiliates.

(2) The following table reconciles U.S.

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

Three Months Ended September 30, Nine Months Ended September 30,

Three Months Ended March 31,

($ in millions) 2021 2020

6 unchanged sentences

Key Non-GAAP Operating Metrics

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

The following table shows our key non-GAAP operating metrics for the three months ended March 31, 2021 and 2020.

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

1 unchanged sentence

GAAP measure:

Three Months Ended September 30, Nine Months Ended September 30,

Three Months Ended March 31,

($ in millions) 2021 2020

17 unchanged sentences

Affiliate key employee distributions

$ 11.0 $ 12.6 $ 31.8 $ 39.8

ENI operating earnings (1)

1 unchanged sentence

ENI Affiliate key employee distributions ratio (7)

16.7 % 18.5 % 17.2 % 19.0 %

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

2 unchanged sentences

GAAP operating income to ENI operating earnings:

Three Months Ended September 30, Nine Months Ended September 30,

Three Months Ended March 31,

($ in millions) 2021 2020

1 unchanged sentence

Include earnings from equity-accounted Affiliate

0.9 0.8 2.1 2.1

Exclude the impact of:

Affiliate key employee-owned equity and profit interest revaluations

6.6 (14.7) (31.8) (27.7)

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

3.2 17.2 26.1 24.4

Capital transaction costs 0.4 —

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

5.0 1.0 19.8 6.6

Restructuring costs (a)

Affiliate key employee distributions 3.9 4.0

Variable compensation

41.2 44.1 120.3 141.2

Funds’ operating income (1.4) (1.7) (4.4) (4.5)

Funds’ operating (income) loss — (1.5)

ENI earnings before variable compensation

107.0 112.1 304.9 350.9

ENI variable compensation (27.9) (30.9)

1 unchanged sentence

ENI Affiliate key employee distributions

(11.0) (12.6) (31.8) (39.8)

ENI earnings after Affiliate key employee distributions

$ 44.0 $ 40.0

(a) The three months ended September 30, 2020 includes $1.4 million of restructuring costs at the Center and Affiliates, $0.4 million costs associated with the transfer of an insurance policy from our former Parent, and $3.2 million costs relating to the impact of a one-time compensation arrangement entered into that includes advances against future compensation payments.

The nine months ended September 30, 2020 includes $4.8 million of restructuring costs at the Center and Affiliates, $1.0 million costs associated with the transfer of an insurance policy from our former Parent, and $13.9 million costs relating to the impact of a one-time compensation arrangement entered into that includes advances against future compensation payments.

The three months ended September 30, 2019 includes $0.1 million of restructuring costs at the Center and $0.9 million associated with the redomicile to the U.S.

The nine months ended September 30, 2019 includes $4.6 million of restructuring costs at the Center and $2.0 million associated with the redomicile to the U.S.

(a) The three months ended March 31, 2021 includes $1.5 million of restructuring costs at the Center and Affiliates, $0.3 million costs associated with the transfer of an insurance policy from our former parent.

The three months ended March 31, 2020 includes $0.4 million of restructuring costs and costs associated with the transfer of an insurance policy from our former parent of $0.3 million.

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

1 unchanged sentence

GAAP operating margin.

GAAP operating margin, excluding the effect of consolidated Funds, is 21.6% for the three months ended September 30, 2020, 25.6% for the three months ended September 30, 2019, 25.5% for the nine months ended September 30, 2020, and 26.7% for the nine months ended September 30, 2019.

GAAP operating margin, excluding the effect of consolidated Funds, is 28.3% for the three months ended March 31, 2021, and 34.4% for the three months ended March 31, 2020.

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

25 unchanged sentences

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

Three Months Ended September 30, Nine Months Ended September 30,

Three Months Ended March 31,

($ in millions) 2021 2020

2 unchanged sentences

Intercompany interest expense deductible for U.S.

— (2.2) — (35.4)

Taxable economic net income 38.6 34.4

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

Three Months Ended September 30, Nine Months Ended September 30,

Three Months Ended March 31,

($ in millions) 2021 2020

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Other ENI interest expense exclusions (a)

1.6 2.2 5.1 6.9

ENI net interest expense (5.4) (5.6)

ENI earnings after Affiliate key employee distributions (b)

54.8 55.4 152.8 169.9

Pre-tax economic net income

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Segment Analysis

We conduct our operations through three business segments:

• Quant & Solutions —comprised of versatile, often highly-tailored strategies that leverage data and technology in a computational, factor based investment process across a range of asset classes and geographies, including Global, non-U.S., emerging markets and managed volatility equities, as well as multi-asset products.

• Liquid Alpha (1) —comprised of specialized investment strategies with a focus on alpha-generation across market cycles in long-only small-, mid-, and large-cap U.S., global, non-U.S.

and emerging markets equities, as well as fixed income.

(1) In July 2020, we completed the sale of Copper Rock and announced the divestiture of Barrow Hanley, expected to close in the fourth quarter of 2020.

We conduct our operations through two (1) 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., and emerging markets equities, as well as multi-asset products.

• Liquid Alpha (2) —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.

(1) In March 2021, we announced the divestiture of Landmark, expected to close in the second quarter of 2021.

As a result, Landmark is reported within discontinued operations and the Alternatives segment no longer constitutes a reportable segment.

The remaining portion of the Alternatives segment, including Campbell Global, has been reclassified to “Other.” See “Recent Developments” herein.

(2) In February 2021 we entered into a definitive agreement to sell all of our interests in ICM, an equity-accounted Affiliate within the Liquid Alpha segment.

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

See “Recent Developments” herein.

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

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

The corporate head office supports the segments by providing infrastructure and administrative support in the areas of accounting/finance, operations, information technology, strategy and relationship management, legal, compliance and human resources.

The corporate head office expenses are not allocated to our three reportable segments but the CODM does consider the cost structure of the corporate head office when evaluating the financial performance of the segments.

The corporate head office expenses are not allocated to our two reportable segments but the CODM does consider the cost structure of the corporate head office when evaluating the financial performance of the segments

The primary measure used by the CODM in measuring performance and allocating resources to the segments is Economic Net Income (“ENI”).

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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 the value of employee equity owned pre-acquisition that occurred as a result of the Landmark transaction, impairment of goodwill, the impact of a one-time compensation arrangement entered into that includes advances against future compensation payments, and the separate expenses recorded under U.S.

GAAP, adjusted to exclude non-cash expenses representing changes in the value of Affiliate equity and profit interests held by Affiliate key employees, impairment of goodwill, and the separate expenses recorded under U.S.

GAAP for certain Fund expenses reimbursed to our Affiliates.

Additionally, variable compensation and Affiliate key employee distributions are segregated from ENI operating expenses.

ENI segment results are also adjusted to exclude the portion of consolidated Fund revenues, expenses and investment return recorded under U.S.

ENI segment results are also adjusted to exclude the portion of consolidated Funds’ revenues, expenses and investment return recorded under U.S.

Refer to the reconciliations of U.S.

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Segment ENI Revenue

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

Three Months Ended September 30,

($ in millions) 2020 2019

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

Management fees $ 87.9 $ 43.2 $ 47.1 $ — $ 178.2 $ 92.7 $ 37.2 $ 66.5 $ — $ 196.4

Performance fees

1.2 — — — 1.2 0.4 (0.2) (2.1) — (1.9)

Other income, including equity-accounted subsidiaries

(0.1) 0.6 0.8 0.1 1.4 — 0.4 0.8 0.1 1.3

ENI revenue $ 89.0 $ 43.8 $ 47.9 $ 0.1 $ 180.8 $ 93.1 $ 37.4 $ 65.2 $ 0.1 $ 195.8

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

Nine Months Ended September 30,

The following table identifies the components of segment ENI revenue for the three months ended March 31, 2021 and 2020:

Three Months Ended March 31,

($ in millions) 2021 2020

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

Quant & Solutions Liquid Alpha Other Total Quant & Solutions Liquid Alpha Other Total

Management fees $ 98.9 $ 21.5 $ 4.9 $ 125.3 $ 85.2 $ 51.9 $ 5.5 $ 142.6

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4.6 — — 4.6 1.0 — — 1.0

Other income, including equity-accounted subsidiaries

(0.1) 1.8 2.0 0.3 4.0 — 0.8 2.1 0.3 3.2

Other income, including equity-accounted subsidiary — 1.1 0.3 1.4 (0.1) 0.6 0.6 1.1

ENI revenue $ 103.5 $ 22.6 $ 5.2 $ 131.3 $ 86.1 $ 52.5 $ 6.1 $ 144.7

Quant & Solutions Segment ENI Revenue

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

Quant & Solutions ENI revenue decreased $(4.1) million, or (4.4)%, from $93.1 million for three months ended September 30, 2019 to $89.0 million for the three months ended September 30, 2020.

The decrease was attributable to (5.2)% lower management fees driven by lower average AUM primarily resulting from the equity market decline in the first quarter of 2020.

Nine months ended September 30, 2020 compared to nine months ended September 30, 2019:

Quant & Solutions ENI revenue decreased $(19.4) million, or (7.0)%, from $277.3 million for the nine months ended September 30, 2019 to $257.9 million for the nine months ended September 30, 2020.

The decrease was attributable to (7.8)% lower management fees, driven by lower average AUM primarily resulting from the equity market decline in the current year.

Alternatives Segment ENI Revenue

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

Alternatives ENI revenue increased $6.4 million, or 17.1%, from $37.4 million for three months ended September 30, 2019 to $43.8 million for the three months ended September 30, 2020.

The increase was attributable to 16.1% higher management fees resulting from inflows and change in net catch-up fees.

Nine months ended September 30, 2020 compared to nine months ended September 30, 2019:

Alternatives ENI revenue increased $2.5 million, or 2.0%, from $125.7 million for the nine months ended September 30, 2019 to $128.2 million for the nine months ended September 30, 2020.

The increase was attributable to inflows and change in net catch-up fees.

Three months ended March 31, 2021 compared to three months ended March 31, 2020:

Quant & Solutions ENI revenue increased $17.4 million, or 20.2%, from $86.1 million for the three months ended March 31, 2020 to $103.5 million for the three months ended March 31, 2021.

The increase was attributable to 16.1% higher management fees, driven by higher average AUM primarily resulting from the equity market increase over the last twelve months.

Liquid Alpha Segment ENI Revenue

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

Liquid Alpha ENI revenue decreased $(17.3) million, or (26.5)%, from $65.2 million for three months ended September 30, 2019 to $47.9 million for the three months ended September 30, 2020.

The decrease was attributable to (29.2)% lower management fees driven by lower average AUM resulting from the equity market decline and net outflows over the last twelve months, as well as the Vanguard reallocation in the fourth quarter of 2019.

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

Nine months ended September 30, 2020 compared to nine months ended September 30, 2019:

Liquid Alpha ENI revenue decreased $(55.3) million, or (27.3)%, from $202.8 million for the nine months ended September 30, 2019 to $147.5 million for the nine months ended September 30, 2020.

The decrease was attributable to (30.1)% lower management fees, driven by lower average AUM resulting from the equity market decline and net outflows over the last twelve months, as well as the Vanguard reallocation in the fourth quarter of 2019.

The change in performance fees was primarily due to fulcrum fees recorded in nine months ended September 30, 2019 that did not repeat in the nine months ended September 30, 2020.

Three months ended March 31, 2021 compared to three months ended March 31, 2020:

Liquid Alpha ENI revenue decreased $(29.9) million, or (57.0)%, from $52.5 million for the three months ended March 31, 2020 to $22.6 million for the three months ended March 31, 2021.

The decrease was attributable to (58.6)% lower management fees, driven by lower average AUM caused by the disposition of Barrow Hanley in the fourth quarter of 2020.

Other ENI Revenue

Three months ended March 31, 2021 compared to three months ended March 31, 2020:

Other ENI revenue decreased $(0.9) million, or (14.8)%, from $6.1 million for the three months ended March 31, 2020 to $5.2 million for the three months ended March 31, 2021.

The decrease was driven by (10.9)% lower management fees.

Segment ENI Expense

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

Three Months Ended September 30,

($ in millions) 2020 2019

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

Fixed compensation & benefits

$ 18.5 $ 10.9 $ 10.9 $ 2.5 $ 42.8 $ 20.4 $ 10.8 $ 11.9 $ 3.6 $ 46.7

14.3 3.9 4.5 3.1 25.8 16.5 5.0 6.5 4.6 32.6

Depreciation and amortization

4.4 0.5 0.1 0.2 5.2 3.9 0.3 0.1 0.1 4.4

Total ENI Operating Expenses

$ 37.2 $ 15.3 $ 15.5 $ 5.8 $ 73.8 $ 40.8 $ 16.1 $ 18.5 $ 8.3 $ 83.7

Variable compensation

18.0 10.1 12.3 0.8 41.2 18.8 7.8 15.6 1.9 44.1

Affiliate key employee distributions

0.8 7.3 2.9 — 11.0 1.5 5.0 6.1 — 12.6

Total Expenses $ 56.0 $ 32.7 $ 30.7 $ 6.6 $ 126.0 $ 61.1 $ 28.9 $ 40.2 $ 10.2 $ 140.4

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

Nine Months Ended September 30,

The following table identifies the components of segment ENI expense for the three months ended March 31, 2021 and 2020:

Three Months Ended March 31,

($ in millions) 2021 2020

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

Quant & Solutions Liquid Alpha Other Total Quant & Solutions Liquid Alpha Other Total

Fixed compensation & benefits

$ 18.6 $ 4.6 $ 5.6 $ 28.8 $ 18.3 $ 13.1 $ 7.4 $ 38.8

41.5 12.8 16.5 10.4 81.2 49.3 15.5 21.1 13.4 99.3

General and administrative expense 15.3 2.1 3.7 21.1 14.1 6.6 5.2 25.9

Depreciation and amortization

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Quant & Solutions Segment ENI Expense

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

Quant & Solutions ENI operating expense decreased $(3.6) million, or (8.8)%, from $40.8 million for the three months ended September 30, 2019 to $37.2 million for the three months ended September 30, 2020.

The decrease was driven by (9.3)% lower ENI fixed compensation and benefits expense resulting from headcount reduction, and (13.3)% lower ENI general and administrative expense resulting from cost saving initiatives.

Quant & Solutions ENI variable compensation expense, which is based on contractual arrangements, decreased (4.3)%, as a result of change in the mix of cash and non-cash variable compensation.

Affiliate key employee distributions attributable to Quant & Solutions decreased (46.7)%, primarily due to the leveraged nature of the profit-sharing agreement .

Nine months ended September 30, 2020 compared to nine months ended September 30, 2019:

Quant & Solutions ENI operating expense decreased $(11.1) million, or (9.2)%, from $120.4 million for the nine months ended September 30, 2019 to $109.3 million for the nine months ended September 30, 2020.

The decrease was driven by (10.3)% lower ENI fixed compensation and benefits expense resulting from headcount reduction, and (15.8)% lower ENI general and administrative expense resulting from cost saving initiatives.

Quant & Solutions ENI variable compensation expense, which is based on contractual arrangements, decreased (8.5)%, as a result of lower earnings before variable compensation.

Affiliate key employee distributions attributable to Quant & Solutions decreased (29.3)%, primarily due to lower Quant & Solutions ENI earnings after variable compensation.

Alternatives Segment ENI Expense

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

Alternatives ENI operating expense decreased $(0.8) million, or (5.0)%, from $16.1 million for three months ended September 30, 2019 to $15.3 million for the three months ended September 30, 2020.

The decrease was driven by (22.0)% lower ENI general and administrative related to outside services, partially offset by 0.9% higher ENI fixed compensation and benefits expense.

Alternatives ENI variable compensation expense, which is based on contractual arrangements, increased 29.5%, as a result of higher earnings before variable compensation.

Affiliate key employee distributions attributable to Alternatives increased 46.0%, primarily driven by higher Alternatives ENI earnings after variable compensation.

Nine months ended September 30, 2020 compared to nine months ended September 30, 2019:

Alternatives ENI operating expense decreased $(1.8) million, or (3.6)%, from $49.4 million for the nine months ended September 30, 2019 to $47.6 million for the nine months ended September 30, 2020.

The decrease was driven by (17.4)% lower ENI general and administrative expense resulting from lower consulting costs.

Alternatives ENI variable compensation expense, which is based on contractual arrangements, increased 3.6%, as a result of higher earnings before variable compensation.

Affiliate key employee distributions attributable to Alternatives increased 17.0%, primarily driven by higher Alternatives ENI earnings after variable compensation.

Three months ended March 31, 2021 compared to three months ended March 31, 2020:

Quant & Solutions ENI operating expense increased $2.0 million, or 5.4%, from $37.1 million for the three months ended March 31, 2020 to $39.1 million for the three months ended March 31, 2021.

The increase was driven by 1.6% higher ENI fixed compensation and benefits expense driven by higher costs related to employee benefits and 8.5% higher ENI general and administrative expense primarily resulting from increased portfolio administrative and foreign currency exchange impact.

Quant & Solutions ENI variable compensation expense, which is based on contractual arrangements, increased 32.9%, as a result of higher earnings before variable compensation.

Affiliate key employee distributions attributable to Quant & Solutions increased 87.5%, primarily due to higher Quant & Solutions ENI earnings after variable compensation.

Liquid Alpha Segment ENI Expense

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

Liquid Alpha ENI operating expense decreased $(3.0) million, or (16.2)%, from $18.5 million for the three months ended September 30, 2019 to $15.5 million for the three months ended September 30, 2020.

The decrease was driven by (8.4)% lower ENI fixed compensation and benefits expense resulting from headcount reduction and (30.8)% lower ENI general and administrative expense resulting from cost-saving initiatives.

Liquid Alpha ENI variable compensation expense, which is based on contractual arrangements, decreased (21.2)%, as a result of lower pre-variable compensation earnings.

Affiliate key employee distributions attributable to Liquid Alpha decreased (52.5)%, primarily driven by lower Liquid Alpha ENI earnings after variable compensation.

Nine months ended September 30, 2020 compared to nine months ended September 30, 2019:

Liquid Alpha ENI operating expense decreased $(7.3) million, or (12.2)%, from $60.0 million for the nine months ended September 30, 2019 to $52.7 million for the nine months ended September 30, 2020.

The decrease was driven by (6.8)% lower ENI fixed compensation and benefits expense resulting from headcount reduction and (21.8)% lower ENI general and administrative expense resulting from cost-saving initiatives.

Liquid Alpha ENI variable compensation expense, which is based on contractual arrangements, decreased (25.2)%, as a result of lower pre-variable compensation earnings.

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

Three months ended March 31, 2021 compared to three months ended March 31, 2020:

Liquid Alpha ENI operating expense decreased $(13.0) million, or (65.7)%, from $19.8 million for the three months ended March 31, 2020 to $6.8 million for the three months ended March 31, 2021.

The decrease was driven by (64.9)% lower ENI fixed compensation and benefits and (68.2)% lower ENI general and administrative expense resulting from the Barrow Hanley and Copper Rock dispositions in the second half of 2020.

Liquid Alpha ENI variable compensation expense, which is based on contractual arrangements, decreased (64.8)%, as a result of lower pre-variable compensation earnings due to dispositions.

Affiliate key employee distributions attributable to Liquid Alpha decreased (18.8)%, primarily driven by lower Liquid Alpha ENI earnings after variable compensation due to dispositions.

Other ENI Expense

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

Other ENI operating expense decreased $(2.5) million or (30.1)%, from $8.3 million for the three months ended September 30, 2019 to $5.8 million for the three months ended September 30, 2020.

The decrease was driven by (30.6)% lower fixed compensation and benefit expense resulting from a reduction in headcount, and (32.6)% lower general and administrative expense resulting from cost-saving initiatives.

Other ENI variable compensation expense decreased (57.9)% which was driven by a reduction in headcount.

Nine months ended September 30, 2020 compared to nine months ended September 30, 2019:

Other ENI operating expense decreased $(6.0) million, or (23.6)%, from $25.4 million for the nine months ended September 30, 2019 to $19.4 million for the nine months ended September 30, 2020.

The decrease was driven by (26.5)% lower fixed compensation and benefit expense resulting from a reduction in headcount, and (22.4)% lower general and administrative expense resulting from cost-saving initiatives.

Other ENI variable compensation expense decreased (65.3)% due to a reduction in headcount.

Three months ended March 31, 2021 compared to three months ended March 31, 2020:

Other ENI operating expense decreased $(3.3) million, or (25.6)%, from $12.9 million for the three months ended March 31, 2020 to $9.6 million for the three months ended March 31, 2021.

The decrease was driven by (24.3)% lower fixed compensation and benefit expense and (28.8)% lower general and administrative expense resulting from adjustments.

Other ENI variable compensation expense decreased (35.7)% due to lower pre-variable compensation earnings.

Capital Resources and Liquidity

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All amounts presented exclude consolidated Funds:

Nine Months Ended September 30,

Three Months Ended March 31,

($ in millions) 2021 2020

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

Comparison for the nine months ended September 30, 2020 and 2019

Net cash provided by operating activities from continuing operations increased $294.6 million, from net cash used of $149.9 million for the nine months ended September 30, 2019 to net cash provided of $144.7 million for the nine months ended September 30, 2020, driven by the change in operating liabilities as a result of the Landmark earnout that was settled in the nine months ended September 30, 2019.

In the nine months ended September 30, 2020, net cash provided by investing activities of continuing operations increased $31.1 million, from $4.6 million used in the nine months ended September 30, 2019 to $26.5 million provided in the nine months ended September 30, 2020, driven primarily by increased sales of investment securities in the nine months ended September 30, 2020.

Net cash used in financing activities of continuing operations increased $71.0 million, from $69.6 million used in the nine months ended September 30, 2019 to $140.6 million used in the nine months ended September 30, 2020, primarily due to a lower drawdown on the revolving credit facility, the pay down and termination of the non-recourse seed facility and decreased share repurchases in the nine months ended September 30, 2020 compared to 2019.

Comparison for the three months ended March 31, 2021 and 2020

Net cash from operating activities from continuing operations increased $7.1 million, from net cash used of $27.3 million for the three months ended March 31, 2020 to net cash used of $20.2 million for the three months ended March 31, 2021, driven by net income offset by changes in operating assets and liabilities period over period.

The payout of annual accrued incentive compensation balances in the first quarter of each year is the driver of the cash used in operating activities for both years.

In the three months ended March 31, 2021, net cash provided by investing activities of continuing operations decreased $(0.4) million, from $1.4 million provided in the three months ended March 31, 2020 to $1.0 million provided in the three months ended March 31, 2021, driven primarily by decreased sales of investment securities in the three months ended March 31, 2021.

Net cash provided by financing activities of continuing operations increased $37.3 million, from $41.1 million provided in the three months ended March 31, 2020 to $78.4 million provided in the three months ended March 31, 2021, primarily due to a higher drawdown on the revolving credit facility and fewer share repurchases in the three months ended March 31, 2021 compared to 2020.

Supplemental Liquidity Measure — Adjusted EBITDA

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We believe Adjusted EBITDA is a useful liquidity metric because it indicates our ability to make further investments in our business, service debt and meet working capital requirements.

It is also encapsulated in our line of credit as part of our liquidity covenants.

The following table reconciles our U.S.

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

Three Months Ended September 30, Nine Months Ended September 30,

GAAP net income attributable to controlling interests to EBITDA to Adjusted EBITDA to economic net income for the three months ended March 31, 2021 and 2020.

Three Months Ended March 31,

($ in millions) 2021 2020

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

12.8 (32.0) 33.7 3.7

Depreciation and amortization (including intangible assets) and goodwill impairment

6.8 6.0 37.1 17.1

Depreciation and amortization (including intangible assets and discontinued operations) and goodwill impairment 7.5 23.3

EBITDA $ 52.4 $ 77.0

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

7.1 (14.7) (29.6) (27.7)

Amortization of pre-acquisition employee equity

1.6 15.6 4.6 19.5

EBITDA of discontinued operations attributable to controlling interests (5.3) (24.4)

(Gain) loss on seed and co-investments (4.6) 19.6

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

(2.2) 1.0 12.6 6.6

Restructuring expenses (1)

Capital transaction costs 0.4 —

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Depreciation and amortization (2)

(5.7) (4.4) (17.8) (12.2)

Tax on economic net income (10.4) (8.5)

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$ 28.2 $ 25.9

(1) The three months ended September 30, 2020 includes $1.4 million of restructuring costs at the Center and Affiliates, $0.4 million costs associated with the transfer of an insurance policy from our former Parent, $3.2 million costs relating to the impact of a one-time compensation arrangement entered into that includes advances against future compensation payments, and the gain on sale of Copper Rock of $7.2 million.

The nine months ended September 30, 2020 includes $4.8 million of restructuring costs at the Center and Affiliates, $1.0 million costs associated with the transfer of an insurance policy from our former Parent, $13.9 million costs relating to the impact of a one-time compensation arrangement entered into that includes advances against future compensation payments, and the gain on sale of Copper Rock of $7.2 million.

The three months ended September 30, 2019 includes $0.1 million of restructuring costs at the Center and $0.9 million associated with the redomicile to the U.S.

The nine months ended September 30, 2019 includes $4.6 million of restructuring costs at the Center and $2.0 million associated with the redomicile to the U.S.

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

(1) The three months ended March 31, 2021 includes $1.5 million of restructuring costs at the Center and Affiliates, $0.3 million costs associated with the transfer of an insurance policy from our former parent, and the loss on sale of subsidiary of $1.3 million.

The three months ended March 31, 2020 includes $0.4 million of restructuring costs and costs associated with the transfer of an insurance policy from our former parent of $0.3 million.

(2) Includes non-cash equity-based award amortization expense.

Limitations of Adjusted EBITDA

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

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

We also expect to realize future proceeds from the sale of our equity interests in Landmark and ICM during the second quarter of 2021.

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

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

($ in millions) September 30,

($ in millions) March 31,

2021 December 31,

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5.125% Senior Notes Due 2031 121.6 121.5 5.125% August 1, 2031

Total third party borrowings $ 474.2 $ 533.8

Non-recourse borrowing:

Non-recourse seed capital facility (2)

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

Total non-recourse borrowing $ — $ 35.0

Total borrowings $ 475.5 $ 394.3

(1) We entered into an amendment on September 3, 2020 to the revolving credit facility to reduce the revolving credit facility to $150 million upon the consummation of sale of our equity interests in Barrow Hanley.

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

(1) On February 23, 2021, the Company’s $150 million revolving credit facility was assigned to Acadian and amended to reduce the facility to $125 million.

Revolving Credit Facility

On August 20, 2019, we entered into a $450.0 million senior unsecured revolving credit facility with Citibank, as administrative agent and issuing bank, and RBC Capital Markets and BMO Capital Markets Corp.

as joint lead arrangers and joint book runners (the “Credit Facility”).

Subject to certain conditions, we may borrow up to an additional $150.0 million under the Credit Facility.

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

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

Borrowings under the Credit Facility bear interest, at our option, at either the per annum rate equal to (a) the greatest of (i) the prime rate, (ii) the federal funds effective rate plus 0.5% and (iii) the one month Adjusted LIBO Rate plus 1.0%, plus, in each case an additional amount based on our credit rating or (b) the London interbank offered rate for a period, at our election, equal to one, two, three or six months plus an additional amount ranging from 1.125% to 2.00%, with such additional amount based on our credit rating.

In addition, we are charged a commitment fee based on the average daily unused portion of the Credit Facility at a per annum rate ranging from 0.125% to 0.45%, with such amount based on our credit rating.

On September 3, 2020, we along with the Royal Bank of Canada, BMO Harris Bank, N.A., Bank of China, New York Branch, Wells Fargo Bank, National Association, Barclays Bank PLC, Morgan Stanley Bank, N.A., Bank of America N.A., the Bank of New York Mellon and Citibank, N.A., as an issuing bank and administrative agent (collectively, the “Lenders”), entered into an amendment (the “Amendment”) to the Revolving Credit Agreement dated as of August 20, 2019 (the “Credit Agreement”).

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

Under the Credit Agreement, the Barrow Hanley Sale required consent of the Lenders given that Barrow Hanley accounted for more

than 10% of our consolidated Adjusted EBITDA.

The Amendment provides that, effective immediately upon the consummation of the Barrow Hanley Sale, the Lenders commitments under the Credit Agreement shall be $150 million.

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

At September 30, 2020, our ratio of third party borrowings to trailing twelve months Adjusted EBITDA was 2.0x and our interest coverage ratio was 8.1x.

At September 30, 2020, our ratio of third party borrowings net of total cash and cash equivalents to trailing twelve months Adjusted EBITDA was 1.5x.

Moody’s Investor Service, Inc.

and Standard & Poor’s have each assigned an investment-grade rating to our senior, unsecured long-term indebtedness.

As a result of the assignment of the credit ratings, our interest rate on outstanding borrowings was set at LIBOR + 1.50% and the commitment fee on the unused portion of the revolving credit facility was set at 0.20%.

Non-recourse seed capital facility

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

At September 30, 2020, amounts outstanding under this non-recourse seed capital facility amounted to $0.0 million.

During the three months ended September 30, 2020, we paid down and terminated the non-recourse seed capital facility that was set to expire on January 15, 2021.

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

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

On September 3, 2020, the Company, 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”).

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 election 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 and the ratio of Acadian’s trailing twelve months Adjusted EBITDA to Acadian’s interest expense (the “Interest Coverage Ratio”) must be not less than 4.0x.

At March 31, 2021, Acadian’s Leverage Ratio was 0.6x and Acadian’s Interest Coverage Ratio was 184.2x.

Other Compensation Liabilities

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The following table summarizes our other long-term liabilities:

September 30,

2021 December 31,

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(1) Total other compensation liabilities excludes balance of Affiliate other compensation liabilities classified as held for sale on the Condensed Consolidated Balance Sheet.

See discussion of Divestitures and Held for Sale in Note 3 of the accompanying Condensed Consolidated Financial Statements.

See discussion of Divestitures, Held for Sale and Discontinued Operations in Note 3 of the accompanying Condensed Consolidated Financial Statements.

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

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Forward Looking Statements

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

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

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

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

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

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

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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-Q

Item 2. Management’s Discussion and Analysis