Quantitative and Qualitative Disclosures About Market Risk
−Removed: Our exposure to market risk is directly related to the role of our Affiliates as asset managers.
−Removed: Substantially all of our investment management revenues are derived from our Affiliates’ agreements with their clients.
+Added: Our exposure to market risk is directly related to our role as an asset manager.
+Added: Substantially all of our investment management revenues are derived from our agreements with our clients.
Under these agreements, the revenues we receive are based on the value of our assets under management or the investment performance on client accounts for which we earn performance fees.
4 unchanged sentences
Therefore, market-driven changes in performance fees, which are typically based on relative performance versus market indices, reflect changes in the underlying AUM used in the calculation rather than differences in relative performance as a result of a changed market environment.
+Added: The impact that market changes have on performance fee eligible accounts varies due to high-water marks and other measurement hurdles which are not factored in this analysis.
+Added: Changes in performance fees revenues could be significant in each period.
The basis for the analysis is performance fees earned for the twelve months ended December 31, 2021.
Our profit sharing economic structure, described more fully in “Management’s Discussion and Analysis of Financial Condition and Results of Operation—The Economics of Our Business,” results in a sharing of market risk between us and our employees.
−Removed: Almost 50% of our ENI cost structure is variable, representing variable compensation and Affiliate key employee distributions.
+Added: Almost 40% of our ENI cost structure is variable, representing variable compensation and Acadian key employee distributions.
These variable expenses generally are linked in a formulaic manner to the profitability of the business after covering operating expenses, which include base compensation and benefits, general and administrative expenses, and depreciation and amortization.
−Removed: In modeling the impact of market risk, we assume that these operating expenses remain unchanged, but the resulting impact on profit driven by increases or decreases in revenue will change variable compensation and Affiliate key employee distributions in line with their formulaic calculations.
+Added: In modeling the impact of market risk, we assume that these operating expenses remain unchanged, but the resulting impact on profit driven by increases or decreases in revenue will change variable compensation and Acadian key employee distributions in line with their formulaic calculations.
Any change in pre-tax profit is tax-effected at our statutory combined state and federal rate of approximately 27.3% to calculate profit after tax.
The value of our assets under management was $117.2 billion as of December 31, 2021.
−Removed: A 10% increase or decrease in the value of our assets under management, if proportionally distributed over all of our investment strategies, asset classes and client relationships, would cause an annualized increase or decrease in our gross management fee revenues of approximately $67.7 million, including equity-accounted Affiliate, based on our current weighted average fee rate of approximately 43 basis points, including equity-accounted Affiliate.
−Removed: Approximately $18.0 billion, or 11%, of our AUM, including equity-accounted Affiliate, are in accounts subject to performance fees.
−Removed: Of these assets, approximately 70% are in accounts for which performance fees, or management fee adjustments, are calculated based on investment return that differs from the relative benchmark returns.
−Removed: Assuming the market change does not impact our relative performance and high-water mark status of our alternative assets, a 10% increase or decrease in AUM would have no impact to our gross performance fees based on our trailing twelve month performance fees of $7.8 million as of December 31, 2020.
+Added: A 10% increase or decrease in the value of our assets under management, if proportionally distributed over all of our investment strategies, asset classes and client relationships, would cause an annualized increase or decrease in our gross management fee revenues of approximately $43.4 million based on our current weighted average fee rate of approximately 37 basis points.
+Added: Approximately $15.0 billion, or 13%, of our AUM, are in accounts subject to performance fees.
+Added: Of these assets, the majority are in accounts for which performance fees, or management fee adjustments, are calculated based on investment return that differs from the relative benchmark returns.
+Added: Assuming the market change does not impact our relative performance, a 10% increase or decrease in AUM would have a $6.9 million impact to our gross performance fees based on our trailing twelve month performance fees of $68.7 million from the Quant & Solutions segment as of December 31, 2021.
The combined impact on our management fees and performance fees would have a direct impact on our earnings and result in an annual change of approximately $18.7 million in our post-tax economic net income, given our current cost structure and operating model.
Equity market risk, interest rate risk, and foreign currency risk are the market risks that could have the greatest impact on our management fees, performance fees and our business profitability.
−Removed: Impacts on our management and performance fees can be calculated based on the percentage of AUM constituting equity investments, fixed income investments, or foreign currency denominated investments, respectively, multiplied by the relevant weighted average management fee and performance fee attributable to that asset class.
+Added: Impacts on our management and performance fees can be calculated based on the percentage of AUM constituting equity investments, or foreign currency denominated investments, respectively, multiplied by the relevant weighted average management fee and performance fee attributable to that asset class.
• Our equity markets-based AUM includes U.S.
4 unchanged sentences
Approximately $14.5 billion, or 13%, of our equity markets-based AUM are in accounts subject to performance fees.
−Removed: Of these assets, almost all are in accounts for which performance fees are calculated based on investment return in excess of the relative benchmark returns.
−Removed: Assuming the market change does not impact our relative performance, a 10% change in equity markets would have no material impact from performance fees on our post-tax economic net income, given our current cost structure and operating model.
+Added: Of these assets, the majority are in accounts for which performance fees are calculated based on investment return in excess of the relative benchmark returns.
+Added: Assuming the market change does not impact our relative performance, a 10% change in equity markets would have an approximate incremental $1.9 million impact from performance fees on our post-tax economic net income, given our current cost structure and operating model.
• Foreign currency AUM includes equity and alternative instruments denominated in foreign currencies.
2 unchanged sentences
Approximately $13.5 billion, or 14%, of our foreign currency denominated AUM are in accounts subject to performance fees.
−Removed: Of these assets, approximately 85% are in accounts for which performance fees are calculated based on investment return in excess of the relative benchmark returns.
−Removed: Assuming the market change does not impact our relative performance, a 10% change in foreign currency exchange rates would have an immaterial impact from performance fees on our post-tax economic net income, given our current cost structure and operating model.
−Removed: • Fixed income AUM includes instruments in government bonds, corporate bonds and other fixed income investments in the United States.
−Removed: A change in interest rates, resulting in a 10% increase or decrease in the value of our total fixed income AUM of $1.9 billion, would cause AUM to rise or fall by approximately $0.2 billion.
−Removed: Based on our fixed income weighted average fee rates of 26 basis points, annualized management fees would change by $0.5 million and post-tax economic net income would change by $0.2 million annually.
−Removed: There are currently no material fixed income assets earning performance fees as of the year ended December 31, 2020.
−Removed: Our investment income primarily represents investments in Affiliates accounted for under the equity method.
−Removed: Exposure to market risks for Affiliates accounted for under the equity method is immaterial and is included in the analysis above.
+Added: Of these assets, the majority are in accounts for which performance fees are calculated based on investment return in excess of the relative benchmark returns.
+Added: Assuming the market change does not impact our relative performance, a 10% change in foreign currency exchange rates would have an approximate incremental $1.5 million impact from performance fees on our post-tax economic net income, given our current cost structure and operating model.
While the analysis above assumes that market changes occur in a uniform manner across the relevant portfolio, because of our declining fee rates for larger relationships and differences in our fee rates across asset classes, a change in the composition of our assets under management, in particular an increase in the proportion of our total assets under management attributable to strategies, clients or relationships with lower effective fee rates, could have a material negative impact on our overall weighted average fee rate.
3 unchanged sentences
Interest Rate Risk
−Removed: We are exposed to interest rate risks primarily through borrowings under our Credit Facility.
−Removed: Interest on borrowings under the Credit Facility is based upon variable interest rates.
−Removed: Borrowings under our Credit Facility were $0.0 million as of December 31, 2020.
+Added: We are exposed to interest rate risks primarily through borrowings under our revolving credit facility.
+Added: Interest on borrowings under the revolving credit facility is based upon variable interest rates.
+Added: Borrowings under our revolving credit facility were $0.0 million as of December 31, 2021.
We currently do not hedge against this interest rate risk.
−Removed: As of December 31, 2020, a hypothetical 10% change in interest rates would have resulted in a $0.4 million change to our interest expense during the twelve months ended December 31, 2020.
+Added: As of December 31, 2021, a hypothetical 10% change in interest rates would have no material impact to our interest expense during the twelve months ended December 31, 2021.
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.