Acadian Asset Management Inc. 10-Q

Item 1. Financial Statements. BrightSphere Investment Group Inc. Condensed Consolidated Balance Sheets (in millions, except for share and per share data, unaudited) September 30, 2022 December 31, 2021 Assets Cash and cash equivalents $ 101.4 $ 252.1 Investment advisory fees receivable 91.1 167.1 Income taxes receivable 16.1 4.9 Fixed assets, net 47.9 50.2 Right of use assets 61.2 65.1 Investments 45.9 54.5 Goodwill 20.3 20.3 Other assets 28.1 28.2 Deferred tax assets 62.7 72.4 Total assets $ 474.7 $ 714.8 Liabilities and stockholders’ equity Accounts payable and accrued expenses $ 22.9 $ 35.2 Accrued incentive compensation 64.6 117.4 Other compensation liabilities 60.7 103.7 Accrued income taxes 2.7 1.1 Operating lease liabilities 75.3 77.6 Other liabilities 1.2 2.5 Debt: Revolving credit facility 29.0 — Third party borrowings 273.4 394.9 Total liabilities 529.8 732.4 Commitments and contingencies Equity: Common stock (par value $ 0.001 ; 41,433,855 and 45,397,260 shares, respectively, issued) — — Additional paid-in capital 0.9 — Retained deficit ( 42.4 ) ( 6.8 ) Accumulated other comprehensive loss ( 13.6 ) ( 10.8 ) Total equity ( 55.1 ) ( 17.6 ) Total liabilities and equity $ 474.7 $ 714.8 See Notes to Condensed Consolidated Financial Statements 3 Table of Contents BrightSphere Investment Group Inc. Condensed Consolidated Statements of Operations (in millions except for per share data, unaudited) Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Revenue: Management fees $ 85.7 $ 111.4 $ 281.4 $ 326.8 Performance fees 1.1 3.4 13.1 28.4 Other revenue — 3.1 — 5.7 Total revenue 86.8 117.9 294.5 360.9 Operating expenses: Compensation and benefits 34.9 67.2 108.7 193.2 General and administrative expense 17.5 16.5 50.9 53.6 Depreciation and amortization 4.2 5.4 14.8 16.7 Amortization of acquired intangibles 0.1 0.1 0.1 0.1 Total operating expenses 56.7 89.2 174.5 263.6 Operating income 30.1 28.7 120.0 97.3 Non-operating income and (expense): Investment income (loss) ( 0.4 ) 0.3 ( 1.2 ) 7.6 Interest income 0.2 — 0.3 0.1 Interest expense ( 4.6 ) ( 6.2 ) ( 15.9 ) ( 18.7 ) Loss on extinguishment of debt — — ( 3.2 ) — Gain on sale of subsidiaries — 34.6 — 33.3 Total non-operating income (loss) ( 4.8 ) 28.7 ( 20.0 ) 22.3 Income from continuing operations before taxes 25.3 57.4 100.0 119.6 Income tax expense 7.5 14.5 29.8 33.5 Income from continuing operations 17.8 42.9 70.2 86.1 Income from discontinued operations, net of tax — 1.2 — 76.5 Gain on disposal of discontinued operations, net of tax — 185.4 — 694.6 Net income 17.8 229.5 70.2 857.2 Net income attributable to non-controlling interests in consolidated Funds — — — 68.0 Net income attributable to controlling interests $ 17.8 $ 229.5 $ 70.2 $ 789.2 Earnings per share (basic) attributable to controlling interests $ 0.43 $ 2.88 $ 1.66 $ 9.93 Earnings per share (diluted) attributable to controlling interests 0.42 2.76 1.62 9.53 Continuing operations earnings per share (basic) attributable to controlling interests 0.43 0.54 1.66 1.08 Continuing operations earnings per share (diluted) attributable to controlling interests 0.42 0.52 1.62 1.04 Weighted average common stock outstanding 41.4 79.6 42.3 79.4 Weighted average diluted common stock outstanding 42.4 83.2 43.4 82.8 See Notes to Condensed Consolidated Financial Statements 4 Table of Contents BrightSphere Investment Group Inc. Condensed Consolidated Statements of Comprehensive Income (in millions, unaudited) Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Net income $ 17.8 $ 229.5 $ 70.2 $ 857.2 Other comprehensive income (loss): Amortization related to derivative securities, net of tax 0.6 0.6 2.8 1.8 Foreign currency translation adjustment ( 2.5 ) ( 0.9 ) ( 5.6 ) 0.3 Total other comprehensive income (loss) ( 1.9 ) ( 0.3 ) ( 2.8 ) 2.1 Comprehensive income attributable to non-controlling interests in consolidated Funds — — — 68.0 Total comprehensive income attributable to controlling interests $ 15.9 $ 229.2 $ 67.4 $ 791.3 See Notes to Condensed Consolidated Financial Statements 5 Table of Contents BrightSphere Investment Group Inc. Condensed Consolidated Statements of Changes in Stockholders’ Equity For the three months ended September 30, 2022 and 2021 ($ in millions except share data, unaudited) Common stock (millions) Common stock, par value Additional paid-in capital Retained earnings (deficit) Accumulated other comprehensive income (loss) Total stockholders’ equity Non- controlling interests Non-controlling interests in consolidated Funds Total equity June 30, 2021 79.4 $ 0.1 $ 493.4 $ 381.6 $ ( 11.2 ) $ 863.9 $ — $ — $ 863.9 Issuance of common stock 0.4 — 0.1 — — 0.1 — — 0.1 Equity-based compensation — — 0.4 — — 0.4 — — 0.4 Foreign currency translation adjustment — — — — ( 0.9 ) ( 0.9 ) — — ( 0.9 ) Amortization related to derivatives securities, net of tax — — — — 0.6 0.6 — — 0.6 Withholding tax related to stock option exercise — — ( 8.9 ) — — ( 8.9 ) — — ( 8.9 ) Dividends ($ 0.01 per share) — — — ( 0.7 ) — ( 0.7 ) — — ( 0.7 ) Net income — — — 229.5 — 229.5 — — 229.5 September 30, 2021 79.8 $ 0.1 $ 485.0 $ 610.4 $ ( 11.5 ) $ 1,084.0 $ — $ — $ 1,084.0 June 30, 2022 41.4 $ — $ 0.5 $ ( 59.8 ) $ ( 11.7 ) $ ( 71.0 ) $ — $ — $ ( 71.0 ) Equity-based compensation — — 0.4 — — 0.4 — — 0.4 Foreign currency translation adjustment — — — — ( 2.5 ) ( 2.5 ) — — ( 2.5 ) Amortization related to derivatives securities, net of tax — — — — 0.6 0.6 — — 0.6 Dividends ($ 0.01 per share) — — ( 0.4 ) — ( 0.4 ) — — ( 0.4 ) Net income — — — 17.8 — 17.8 — — 17.8 September 30, 2022 41.4 $ — $ 0.9 $ ( 42.4 ) $ ( 13.6 ) $ ( 55.1 ) $ — $ — $ ( 55.1 ) See Notes to Condensed Consolidated Financial Statements 6 Table of Contents BrightSphere Investment Group Inc. Condensed Consolidated Statements of Changes in Stockholders’ Equity For the nine months ended September 30, 2022 and 2021 ($ in millions except share data, unaudited) Common stock (millions) Common stock, par value Additional paid-in capital Retained earnings (deficit) Accumulated other comprehensive income (loss) Total stockholders’ equity Non- controlling interests Non-controlling interests in consolidated Funds Total equity December 31, 2020 79.4 $ 0.1 $ 492.4 $ ( 176.5 ) $ ( 13.6 ) $ 302.4 $ 1.7 $ 80.3 $ 384.4 Issuance of common stock 0.4 — 0.2 — — 0.2 — — 0.2 Capital contributions — — — — — — 3.8 29.7 33.5 Equity-based compensation — — 1.3 — — 1.3 — — 1.3 Foreign currency translation adjustment — — — — 0.3 0.3 — — 0.3 Amortization related to derivatives securities, net of tax — — — — 1.8 1.8 — — 1.8 Withholding tax related to stock option exercise ( 8.9 ) ( 8.9 ) ( 8.9 ) Other changes in non-controlling interests — — — — — — ( 5.5 ) — ( 5.5 ) Net de-consolidation of Funds — — — — — — — ( 178.0 ) ( 178.0 ) Dividends ($ 0.03 per share) — — — ( 2.3 ) — ( 2.3 ) — — ( 2.3 ) Net income — — — 789.2 — 789.2 — 68.0 857.2 September 30, 2021 79.8 $ 0.1 $ 485.0 $ 610.4 $ ( 11.5 ) $ 1,084.0 $ — $ — $ 1,084.0 December 31, 2021 45.4 $ — $ — $ ( 6.8 ) $ ( 10.8 ) $ ( 17.6 ) $ — $ — $ ( 17.6 ) Issuance of common stock 0.2 — — — — — — — — Repurchase of common stock ( 4.2 ) — — ( 103.2 ) — ( 103.2 ) — — ( 103.2 ) Equity-based compensation — — 1.8 — — 1.8 — — 1.8 Foreign currency translation adjustment — — — — ( 5.6 ) ( 5.6 ) — — ( 5.6 ) Amortization related to derivative securities, net of tax — — — — 2.8 2.8 — — 2.8 Withholding tax related to stock option exercise — — ( 0.9 ) ( 1.4 ) — ( 2.3 ) — — ( 2.3 ) Dividends ($ 0.03 per share) — — — ( 1.2 ) — ( 1.2 ) — — ( 1.2 ) Net income — — — 70.2 — 70.2 — — 70.2 September 30, 2022 41.4 $ — $ 0.9 $ ( 42.4 ) $ ( 13.6 ) $ ( 55.1 ) $ — $ — $ ( 55.1 ) See Notes to Condensed Consolidated Financial Statements 7 Table of Contents BrightSphere Investment Group Inc. Condensed Consolidated Statements of Cash Flows (in millions, unaudited) Nine Months Ended September 30, 2022 2021 Cash flows from operating activities: Net income 70.2 857.2 Less: Income from discontinued operations, net of tax — ( 76.5 ) Adjustments to reconcile net income to net cash flows from operating activities from continuing operations: Amortization of acquired intangibles 0.1 0.1 Gain on disposal of discontinued operations, net of tax — ( 694.6 ) Loss on extinguishment of debt 3.2 — Gain on sale of subsidiaries — ( 33.3 ) Depreciation and other amortization 14.8 16.7 Amortization of debt-related costs 4.6 3.4 Amortization and revaluation of non-cash compensation awards ( 27.4 ) 23.8 Net earnings from Affiliate accounted for using the equity method — ( 2.6 ) Distributions received from equity method Affiliate — 4.4 Distributions from discontinued operations — 52.7 Deferred income taxes 8.6 3.3 (Gains) losses on other investments 5.3 ( 6.6 ) Changes in operating assets and liabilities (excluding discontinued operations): (Increase) decrease in investment advisory fees receivable 75.9 ( 33.7 ) Increase in other receivables, prepayments, deposits and other assets ( 4.9 ) ( 0.1 ) Decrease in accrued incentive compensation, operating lease liabilities and other liabilities ( 65.1 ) ( 3.5 ) Decrease in accounts payable, accrued expenses and accrued income taxes ( 22.0 ) ( 88.4 ) Net cash flows from operating activities of continuing operations 63.3 22.3 Net cash flows from operating activities of discontinued operations — ( 7.2 ) Total net cash flows from operating activities 63.3 15.1 Cash flows from investing activities: Additions of fixed assets, excluding discontinued operations ( 12.7 ) ( 11.1 ) Cash proceeds from sale of discontinued operations — 950.2 Cash proceeds from sale of subsidiaries — 46.2 Purchase of investment securities ( 5.3 ) ( 2.3 ) Sale of investment securities 8.7 26.0 Net cash flows from investing activities of continuing operations ( 9.3 ) 1,009.0 Net cash flows from investing activities of discontinued operations — 3.1 Total net cash flows from investing activities ( 9.3 ) 1,012.1 See Notes to Condensed Consolidated Financial Statements 8 Table of Contents BrightSphere Investment Group Inc. Condensed Consolidated Statements of Cash Flows (in millions, unaudited) Nine Months Ended September 30, 2022 2021 Cash flows from financing activities: Proceeds from revolving credit facility 202.0 176.0 Repayment of third party borrowings and revolving credit facility ( 298.0 ) ( 143.0 ) Payment for debt issuance costs ( 0.9 ) ( 0.4 ) Proceeds from stock issuance — 0.2 Payment to OM plc for co-investment redemptions ( 1.1 ) ( 1.5 ) Dividends paid to stockholders ( 0.8 ) ( 1.5 ) Dividends paid to related parties ( 0.4 ) ( 0.9 ) Repurchases of common stock ( 103.2 ) — Withholding tax payments related to stock option exercise ( 2.3 ) ( 8.9 ) Net cash flows from financing activities of continuing operations ( 204.7 ) 20.0 Net cash flows from financing activities of discontinued operations — ( 27.2 ) Total net cash flows from financing activities ( 204.7 ) ( 7.2 ) Effect of foreign exchange rate changes on cash and cash equivalents — — Net increase (decrease) in cash and cash equivalents ( 150.7 ) 1,020.0 Cash and cash equivalents at beginning of period $ 252.1 $ 372.9 Cash and cash equivalents at beginning of period classified within assets held for sale $ — $ 31.2 Cash and cash equivalents at end of period from continuing operations $ 101.4 $ 1,424.1 Supplemental disclosure of cash flow information: Interest paid $ 15.7 $ 18.0 Income taxes paid 34.7 114.0 See Notes to Condensed Consolidated Financial Statements 9 Table of Contents BrightSphere Investment Group Inc. Notes to Condensed Consolidated Financial Statements (unaudited) 1) Organization and Description of the Business BrightSphere Investment Group Inc. (“BrightSphere”, “BSIG” or the “Company”), through its subsidiaries, is a global asset management company. The Company provides investment management services globally to predominantly institutional investors. The Company historically held interests in a diverse group of investment management firms (the “Affiliates”) individually headquartered in the United States. The Company completed the disposition of certain Affiliates and currently operates the business through one Affiliate, Acadian Asset Management LLC (“Acadian”), within its Quant & Solutions reportable segment: • 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 in developed and emerging markets, including global, non-U.S. and small-cap equities, as well as managed volatility, ESG, multi-asset, equity alternatives, and long/short strategies. Acadian is organized as a limited liability company. Fees for services are largely asset-based and, as a result, the Company’s revenue fluctuates based on the performance of financial markets and investors’ asset flows in and out of the Company’s products. The Company utilizes a profit-sharing model in structuring its compensation and ownership with Acadian. Variable compensation is based on the firm’s profitability. BSIG and Acadian key employees share in profits after variable compensation according to their respective ownership interests. The profit-sharing model results in the alignment of BSIG and Acadian key employee economic interests, which is critical to the Company’s talent management strategy and long-term growth of the business. The corporate head office is included within the Other category, along with the Company’s previously disposed affiliates, Campbell Global, LLC (“Campbell Global”) and Investment Counselors of Maryland (“ICM”), for the prior year period. Prior to 2014, the Company was a wholly-owned subsidiary of Old Mutual plc (“OM plc”), an international long-term savings, protection, and investment group, listed on the London Stock Exchange. On October 15, 2014, the Company completed the initial public offering (the “Offering”) by OM plc pursuant to the Securities Act of 1933, as amended. Additionally, between the Offering and February 25, 2019, the Company, OM plc and/or HNA Capital U.S. (“HNA”) completed a series of transactions in the Company’s shares, including a two-step transaction announced on March 25, 2017 for a sale by OM plc of a 24.95 % shareholding in the Company to HNA and a two-step transaction announced on November 19, 2018 for a sale of the substantial majority of the shares held by HNA of the Company to Paulson & Co. Inc. (“Paulson”). On February 25, 2019, this transaction was completed and Paulson held approximately 21.7 % of the shares of the Company. The remaining shares held by HNA were bought back by the Company in the first quarter of 2019. For the three months ended September 30, 2022, the Company did not repurchase any shares of common stock. For the nine months ended September 30, 2022, the Company repurchased 4,147,450 shares of common stock at an average price of $ 24.09 per share, or approximately $ 100 million in total, including commissions. For the three and nine months ended September 30, 2021, the Company did no t repurchase any shares of common stock. 10 Table of Contents BrightSphere Investment Group Inc. Notes to Condensed Consolidated Financial Statements (unaudited) 2) Basis of Presentation and Significant Accounting Policies The Company’s significant accounting policies are as follows: Basis of presentation These unaudited Condensed Consolidated Financial Statements reflect the historical balance sheets, statements of operations, comprehensive income, changes in stockholders’ equity and cash flows of the Company. Within these Condensed Consolidated Financial Statements, Paulson and its related entities, as defined above, are referred to as “related parties.” The Condensed Consolidated Financial Statements are prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). In the opinion of management, all normal and recurring adjustments considered necessary for a fair presentation of the Company’s Condensed Consolidated Financial Statements have been included. All dollar amounts, except per-share data in the text and tables herein, are stated in millions unless otherwise indicated. Transactions between the Company and its related parties are included in the Condensed Consolidated Financial Statements, however, material intercompany balances and transactions among the Company, its consolidated Affiliates and consolidated Funds are eliminated in consolidation. The Notes to the Condensed Consolidated Financial Statements are presented on a continuing operations basis unless otherwise noted. See Note 3, Discontinued Operations for additional information. Certain disclosures included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 (annual report on Form 10-K) are not required to be included on an interim basis in the Company’s quarterly reports on Form 10-Q. The Company has condensed or omitted these disclosures. These unaudited Condensed Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and notes thereto for the year ended December 31, 2021 included in the Company’s Annual Report on Form 10-K as filed with the Securities and Exchange Commission (“SEC”) on February 28, 2022. The Company’s significant accounting policies, which have been consistently applied, are summarized in those financial statements. Use of estimates The preparation of these Condensed Consolidated Financial Statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. Actual results could differ from such estimates, and the differences may be material to the Condensed Consolidated Financial Statements. New accounting standards not yet adopted The Company has considered all newly issued accounting guidance that is applicable to the Company’s operations and the preparation of the unaudited Condensed Consolidated Financial Statements, including those that have not yet been adopted. The Company does not believe that any such guidance has or will have a material effect on its Condensed Consolidated Financial Statements and related disclosures. 11 Table of Contents BrightSphere Investment Group Inc. Notes to Condensed Consolidated Financial Statements (unaudited) 3) Discontinued Operations Landmark Partners On March 30, 2021, the Company entered into a definitive agreement with Ares Holdings L.P. (“Ares”), pursuant to which Ares agreed to purchase all of the Company’s interests in Landmark Partners LLC (“Landmark”) and the Company’s co-investments in Landmark funds. On June 2, 2021, the Company completed the sale of all its interests in Landmark to Ares for cash consideration of $ 690.0 million, adjusted for customary closing adjustments. The Company recognized a gain on disposal of discontinued operations of $ 509.2 million, net of tax of $ 176.6 million for the nine months ended September 30, 2021. The divestiture of Landmark met the discontinued operations criteria as it represented a strategic shift that had a major effect on the Company’s operations and financial results. The Company redeemed co-investments of $ 31.5 million in Landmark’s funds as of June 2, 2021 upon consummation of the sale. Thompson, Siegel & Walmsley, LLC On May 9, 2021, the Company entered into an agreement with Pendal Group Limited (“Pendal”), to sell all of the Company’s interests in Thompson, Siegel & Walmsley, LLC (“TSW”) and the Company’s seed investment in TSW strategies. On July 22, 2021, the Company completed the sale of all its interests in TSW to Pendal for cash consideration of $ 240.0 million. The Company recognized a gain on disposal of discontinued operations of $ 185.4 million net of tax of $ 74.0 million for the three and nine months ended September 30, 2021. The divestiture of TSW met the discontinued operations criteria as it represented a strategic shift that has a major effect on the Company’s operations and financial results. 12 Table of Contents BrightSphere Investment Group Inc. Notes to Condensed Consolidated Financial Statements (unaudited) 3) Discontinued Operations (cont.) The major classes of revenue and expenses constituting net income from discontinued operations attributable to controlling interests for Landmark and TSW in the Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2022 and 2021 are as follows (in millions): Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Revenues $ — $ 5.6 $ — $ 115.1 Operating expenses: Compensation and benefits — 3.6 — 91.2 General and administrative expenses — 0.4 — 8.1 Amortization of intangibles — — — 2.7 Depreciation and amortization — — — 0.5 Consolidated Funds’ expense — — — 0.1 Total operating expenses — 4.0 — 102.6 Operating income — 1.6 — 12.5 Investment gains of consolidated Funds — — — 68.1 Income from discontinued operations before taxes — 1.6 — 80.6 Income tax expense — 0.4 — 4.1 Income from discontinued operations, net of tax — 1.2 — 76.5 Gain on disposal, net of tax of $ 0.0 , $ 74.0 , $ 0.0 , and $ 250.6 — 185.4 — 694.6 Total discontinued operations — 186.6 — 771.1 Income from discontinued operations attributable to non-controlling interests — — — 68.0 Net income from discontinued operations attributable to controlling interests $ — $ 186.6 $ — $ 703.1 Consolidated Funds In connection with the sale of Landmark on June 2, 2021, the Company transferred its co-investment interests in Landmark funds to Ares for $ 31.5 million. The redemption resulted in the de-consolidation of consolidated Funds that were considered to be variable interest entities (“VIEs”) as of June 2, 2021 upon consummation of the sale. The criteria for discontinued operations accounting treatment were met. 13 Table of Contents BrightSphere Investment Group Inc. Notes to Condensed Consolidated Financial Statements (unaudited) 4) Investments Investments are comprised of the following as of the dates indicated (in millions): September 30, 2022 December 31, 2021 Other investments $ 7.8 $ 9.5 Investments related to long-term incentive compensation plans 38.1 45.0 Total investments per Condensed Consolidated Balance Sheets $ 45.9 $ 54.5 Investment income (loss) is comprised of the following for the three and nine months ended September 30 (in millions): Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Realized and unrealized gains (losses) on other investments held at fair value $ ( 0.4 ) $ 0.1 $ ( 1.2 ) $ 5.0 Earnings from equity-accounted investment in Affiliate — 0.2 — 2.6 Total investment income (loss) per Condensed Consolidated Statements of Operations $ ( 0.4 ) $ 0.3 $ ( 1.2 ) $ 7.6 14 Table of Contents BrightSphere Investment Group Inc. Notes to Condensed Consolidated Financial Statements (unaudited) 5) Fair Value Measurements The following table summarizes the Company’s assets that are measured at fair value on a recurring basis at September 30, 2022 (in millions): Quoted prices in active markets (Level I) Significant other observable inputs (Level II) Significant unobservable inputs (Level III) Uncategorized Total value, September 30, 2022 Assets (1) Investments in separate accounts (2) 3.8 — — — 3.8 Investments related to long-term incentive compensation plans (3) 38.1 — — — 38.1 Investments in unconsolidated Funds (4) — — — 4.0 4.0 Total fair value assets $ 41.9 $ — $ — $ 4.0 $ 45.9 The following table summarizes the Company’s assets that are measured at fair value on a recurring basis at December 31, 2021 (in millions): Quoted prices in active markets (Level I) Significant other observable inputs (Level II) Significant unobservable inputs (Level III) Uncategorized Total value December 31, 2021 Assets (1) Investments in separate accounts (2) 4.6 — — — 4.6 Investments related to long-term incentive compensation plans (3) 45.0 — — — 45.0 Investments in unconsolidated Funds (4) — — — 4.9 4.9 Total fair value assets $ 49.6 $ — $ — $ 4.9 $ 54.5 (1) Assets measured at fair value are comprised of financial investments managed by the Company's Affiliates. Equity securities, including common and preferred stock and short-term investment funds which are traded on a national securities exchange are stated at the last reported sales price on the day of valuation. To the extent these securities are actively traded and valuation adjustments are not applied, they are classified as Level I. The securities that trade in markets that are not considered to be active but are valued based on quoted market prices, dealer quotations or alternative pricing sources supported by observable inputs obtained by the Company from independent pricing services are classified as Level II. The Company obtains prices from independent pricing services that may utilize broker quotes, but generally the independent pricing services will use various other pricing techniques which take into account appropriate factors such as yield, quality, coupon rate, maturity, type of issue, trading characteristics and other data. The Company has not made adjustments to the prices provided. 15 Table of Contents BrightSphere Investment Group Inc. Notes to Condensed Consolidated Financial Statements (unaudited) 5) Fair Value Measurements (cont.) If the pricing services are only able to (a) obtain a single broker quote or (b) utilize a pricing model, such securities are classified as Level III. If the pricing services are unable to provide prices, the Company attempts to obtain one or more broker quotes directly from a dealer or values such securities at the last bid price obtained. In either case, such securities are classified as Level III. The Company performs due diligence procedures over third party pricing vendors to understand their methodology and controls to support their use in the valuation process to ensure compliance with required accounting disclosures. (2) Investments in separate accounts of $ 3.8 million at September 30, 2022 consist of 100 % equity securities and other investments. Investments in separate accounts of $ 4.6 million at December 31, 2021 consist of approximately 100 % of equity securities and other investments. The Company values these using the published price of the underlying securities (classified as Level I) or quoted price supported by observable inputs as of the measurement date (classified as Level II). (3) Investments related to long-term incentive compensation plans of $ 38.1 million and $ 45.0 million at September 30, 2022 and December 31, 2021, respectively, were investments in publicly registered daily redeemable funds (some managed by Affiliates), which the Company has classified as trading securities and valued using the published price as of the measurement dates. Accordingly, the Company has classified these investments as Level I. (4) The uncategorized amounts of $ 4.0 million and $ 4.9 million at September 30, 2022 and December 31, 2021, respectively, relate to investments in unconsolidated Funds which consist primarily of investments in Funds and are valued using NAV which the Company relies on to determine their fair value as a practical expedient and has therefore not classified these investments in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to amounts presented in the Condensed Consolidated Balance Sheets. These unconsolidated Funds consist primarily of real estate investment Funds, UCITS and other investment vehicles. The NAVs that have been provided by investees have been derived from the fair values of the underlying investments as of the measurement dates. UCITS and other investment vehicles are not subject to redemption restrictions. The real estate investment Funds of $ 3.9 million and $ 4.8 million at September 30, 2022 and December 31, 2021, respectively, are subject to longer than quarterly redemption restrictions, and due to their nature, distributions are received only as cash flows are generated from underlying assets over the life of the Funds. The range of time over which the underlying assets are expected to be liquidated by the investees is approximately one year from September 30, 2022. The valuation process for the underlying real estate investments held by the real estate investment Funds begins with each property or loan being valued by the investment teams. The valuations are then reviewed and approved by the valuation committee, which consists of senior members of the portfolio management, acquisitions, and research teams. For certain properties and loans, the valuation process may also include a valuation by independent appraisers. In connection with this process, changes in fair value measurements from period to period are evaluated for reasonableness, considering items such as market rents, capitalization and discount rates, and general economic and market conditions. 16 Table of Contents BrightSphere Investment Group Inc. Notes to Condensed Consolidated Financial Statements (unaudited) 5) Fair Value Measurements (cont.) The following table reconciles the opening balances of Level III financial assets to closing balances at the end of the period (in millions): Three Months Ended September 30, Nine Months Ended September 30, Investments in unconsolidated Funds 2022 2021 2022 2021 Level III financial assets At beginning of the period $ — $ — $ — $ 2.5 Additions (redemptions) — — — ( 0.1 ) Disposals — — — ( 2.7 ) Total net fair value gains/losses recognized in net income — — — 0.3 Total Level III financial assets $ — $ — $ — $ — There were no significant transfers of financial assets or liabilities between Levels II or III during the three and nine months ended September 30, 2022 and 2021, respectively. 17 Table of Contents BrightSphere Investment Group Inc. Notes to Condensed Consolidated Financial Statements (unaudited) 6) Variable Interest Entities The Company, through its Affiliate, sponsors the formation of various entities considered to be VIEs. These VIEs are primarily Funds managed by the Company’s Affiliate and other partnership interests typically owned entirely by third party investors. Certain Funds may be capitalized with seed capital investments from the Company and may be owned partially by Affiliate key employees and/or individuals that own non-controlling interests in the Affiliate. The Company’s determination of whether it is the primary beneficiary of a Fund that is a VIE is based in part on an assessment of whether or not the Company and its related parties are exposed to more than an insignificant amount of the risks and rewards of the entity. Typically, the Fund’s investors are entitled to substantially all of the economics of these VIEs with the exception of the management fees and performance fees, if any, earned by the Company or any investment the Company has made into the Funds. The Company generally is not the primary beneficiary of Fund VIEs created to manage assets for clients unless the Company’s ownership interest, including interests of related parties, is substantial. The Company did not consolidate any funds that are VIEs as of September 30, 2022 and December 31, 2021. The Company’s involvement with Funds that are VIEs and not consolidated by the Company is generally limited to that of an investment manager and its investment in the unconsolidated VIE, if any. The Company’s investment in any unconsolidated VIE generally represents an insignificant interest of the Fund’s net assets and assets under management, such that the majority of the VIEs results are attributable to third parties. The Company’s exposure to risk in these entities is generally limited to any capital contribution it has made or is required to make and any earned but uncollected management fees. The Company has not issued any investment performance guarantees to these VIEs or their investors. The following information pertains to unconsolidated VIEs for which the Company holds a variable interest (in millions): September 30, 2022 December 31, 2021 Unconsolidated VIE assets $ 673.6 $ 795.5 Unconsolidated VIE liabilities $ 277.0 $ 323.6 Equity interests on the Condensed Consolidated Balance Sheets $ 3.9 $ 4.8 Maximum risk of loss (1) $ 3.9 $ 5.0 (1) Includes equity investments the Company has made or is required to make. 18 Table of Contents BrightSphere Investment Group Inc. Notes to Condensed Consolidated Financial Statements (unaudited) 7) Borrowings and Debt The Company’s borrowings and long-term debt was comprised of the following as of the dates indicated (in millions): September 30, 2022 December 31, 2021 (in millions) Carrying Value Fair Value Fair Value Level Carrying Value Fair Value Fair Value Level Revolving credit facility: $ 125 million revolving credit facility expiring March 7, 2025 (1) $ 29.0 $ 29.0 2 $ — $ — Total revolving credit facility $ 29.0 $ 29.0 $ — $ — Third party borrowings: $ 275 million 4.80 % Senior Notes Due July 27, 2026 (2) $ 273.4 $ 246.0 2 $ 273.1 $ 286.5 2 $ 125 million 5.125 % Senior Notes Due August 1, 2031 (2)(3) — — 121.8 126.4 2 Total third party borrowings $ 273.4 $ 246.0 $ 394.9 $ 412.9 (1) Fair value approximates carrying value because the credit facility has variable interest rates based on selected short term market rates. (2) The difference between the principal amounts and the carrying values of the senior notes in the table above reflects the unamortized debt issuance costs and discounts. (3) On January 18, 2022, the Company completed the full redemption of the $ 125 million aggregate principal amount outstanding of its 5.125 % Senior Notes due August 1, 2031. As a result of this transaction, the Company recorded a $ 3.2 million loss on extinguishment of debt within the Condensed Consolidated Statements of Operations for the nine months ended September 30, 2022. Revolving Credit Facility On March 7, 2022, the Company, Royal Bank of Canada, BMO Harris Bank, N.A., Goldman Sachs Bank USA, 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 a new revolving credit facility agreement (the “Acadian Credit Agreement”), which replaced the Company’s revolving credit facility dated as of August 20, 2019 (as amended by an amendment dated September 3, 2020 and an assignment and assumption and amendment agreement dated February 23, 2021, the “Original Credit Agreement”). The maturity date of this Original Credit Agreement was August 22, 2022, and the maturity date of the Acadian Credit Agreement is March 7, 2025. 19 Table of Contents BrightSphere Investment Group Inc. Notes to Consolidated Financial Statements (unaudited) 7) Borrowings and Debt (cont.) Borrowings under the Acadian Credit Agreement bear interest, at Acadian’s option, at the per annum rate equal to either (a) the greatest of (i) the prime rate, (ii) the federal funds effective rate plus 0.5 % and (iii) the secured overnight financing rate for a one month period plus a credit spread adjustment of 0.10 % (“Adjusted Term SOFR”) plus 1 %, plus, in each case, an additional amount ranging from 0.5 % to 1.0 %, with such additional amount based on Acadian’s Leverage Ratio (as defined below) or (b) Adjusted Term SOFR for plus an additional amount ranging from 1.5 % to 2.0 %, with such additional amount based on Acadian’s Leverage Ratio. 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 Acadian interest coverage ratio must not be less than 4.0 x. 8) Leases The Company has operating leases for corporate offices, data centers and certain equipment. The operating leases have remaining lease terms of less than 1 year to 12 years, some of which include options to extend the leases for up to 5 years. The following table summarizes information about the Company’s operating leases for the three and nine months ended September 30 (in millions): Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Operating lease cost $ 2.5 $ 2.8 $ 7.5 $ 8.6 Variable lease cost — — 0.1 0.1 Sublease income ( 0.1 ) $ — ( 0.4 ) ( 0.4 ) Total operating lease expense $ 2.4 $ 2.8 $ 7.2 $ 8.3 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases $ 1.3 $ 2.5 $ 5.7 $ 8.6 Right of use assets obtained in exchange for new operating lease liabilities — — 1.8 1.6 In determining the incremental borrowing rate, the Company considered the interest rate yield for the specific interest rate environment and the Company’s credit spread at the inception of the lease. For the nine months ended September 30, 2022 and 2021, the weighted average remaining lease term was 10.7 years and 11.6 years, respectively, and the weighted average discount rate was 3.39 % and 3.34 %, respectively. 20 Table of Contents BrightSphere Investment Group Inc. Notes to Condensed Consolidated Financial Statements (unaudited) 8) Leases (cont.) Maturities of operating lease liabilities were as follows (in millions): Operating Leases Year Ending December 31, 2022 (excluding the nine months ended September 30, 2022) $ 0.7 2023 8.8 2024 8.3 2025 8.1 2026 8.1 Thereafter 56.5 Total lease payments $ 90.5 Less imputed interest ( 15.2 ) Total $ 75.3 9) Commitments and Contingencies Operational commitments A number of our subsidiaries operate under regulatory authorities that require that they maintain minimum financial or capital requirements. Management is not aware of any violations of such financial requirements occurring during the period. Included in cash and cash equivalents is $ 1.5 million pertaining to the wind-down of BrightSphere Investment U.K., Ltd. Guaranty The Company entered into a guaranty for an office space security deposit in the amount of $ 2.5 million in January 2020. This represents the maximum potential amount of future (undiscounted) payments that the Company could be required to make under the guaranty in the event of default by the guaranteed parties. This guaranty expires in 2033. There are no liabilities recorded on the Condensed Consolidated Balance Sheet as of September 30, 2022 related to this guaranty. Litigation The Company is subject to claims, legal proceedings, and other contingencies in the ordinary course of its business activities. Each of these matters is subject to various uncertainties, and it is possible that some of these matters may be resolved in a manner unfavorable to the Company. The Company establishes accruals for matters for which the outcome is probable and can be reasonably estimated. If an insurance claim or other indemnification for a litigation accrual is available to the Company, the associated gain will not be recognized until all contingencies related to the gain have been resolved. As of September 30, 2022, there were no material accruals for claims, legal proceedings, or other contingencies. 21 Table of Contents BrightSphere Investment Group Inc. Notes to Condensed Consolidated Financial Statements (unaudited) 9) Commitments and Contingencies (cont.) Indemnifications In the normal course of business, such as through agreements to enter into business combinations and divestitures of Affiliates, the Company enters into contracts that contain a variety of representations and warranties and which provide general indemnifications. The Company’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Company that have not yet occurred. Foreign tax contingency The Company has clients in non-U.S. jurisdictions which require entities that are conducting certain business activities in such jurisdictions to collect and remit tax assessed on certain fees paid for goods and services provided. The Company does not believe this requirement is applicable based on its limited business activities in these jurisdictions. However, given the fact that uncertainty exists around the requirement, the Company has chosen to evaluate its potential exposure related to non-collection and remittance of these taxes. At September 30, 2022, management of the Company has estimated the potential maximum exposure and concluded that it is not material. No accrual for the potential exposure has been recorded as the probability of incurring any potential liability relating to this exposure is not probable at September 30, 2022. Considerations of credit risk Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash, cash equivalents, restricted cash and investments. The Company maintains cash and cash equivalents and short term investments with various financial institutions. These financial institutions are typically located in cities in which the Company and its Affiliate operate. For the Company and its Affiliate, cash deposits at a financial institution may exceed Federal Deposit Insurance Corporation insurance limits. At September 30, 2022, approximately $ 45.7 million of the Company’s cash and cash equivalents were invested in money market funds. Additionally, the Company holds insurance policies which cover historical and future tax benefits relating to certain of its deferred tax assets. The insurers of the policies are considered a significant counterparty to the Company. 22 Table of Contents BrightSphere Investment Group Inc. Notes to Condensed Consolidated Financial Statements (unaudited) 10) Earnings Per Share Basic earnings per share is calculated by dividing net income attributable to controlling interests by the weighted-average number of shares of common stock outstanding. Diluted earnings per share is similar to basic earnings per share, but is adjusted for the effect of potentially issuable common stock, except when inclusion is antidilutive. The calculation of basic and diluted earnings per share of common stock is as follows (dollars in millions, except per share data): Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Numerator: Income from continuing operations attributable to controlling interests $ 17.8 $ 42.9 $ 70.2 $ 86.1 Income from discontinued operations attributable to controlling interests (Note 3) — 186.6 — 703.1 Net income attributable to controlling interests $ 17.8 $ 229.5 $ 70.2 $ 789.2 Less: Total income available to participating unvested securities (1) — — — ( 0.1 ) Net income attributable to common stock $ 17.8 $ 229.5 $ 70.2 $ 789.1 Denominator: Weighted-average shares of common stock outstanding—basic 41,431,729 79,606,810 42,266,420 79,427,030 Potential shares of common stock: Restricted stock units 14,294 34,587 10,542 31,177 Employee stock options 907,419 3,603,178 1,113,540 3,373,301 Weighted-average shares of common stock outstanding—diluted 42,353,442 83,244,575 43,390,502 82,831,508 Earnings per share of common stock attributable to controlling interests: Basic Continuing operations $ 0.43 $ 0.54 $ 1.66 $ 1.08 Discontinued operations — 2.34 — 8.85 Basic earnings per share of common stock attributable to controlling interests $ 0.43 $ 2.88 $ 1.66 $ 9.93 Diluted Continuing operations $ 0.42 $ 0.52 $ 1.62 $ 1.04 Discontinued operations — 2.24 — 8.49 Diluted earnings per share of common stock attributable to controlling interests $ 0.42 $ 2.76 $ 1.62 $ 9.53 (1) Income available to participating unvested securities includes dividends paid on unvested restricted shares and their proportionate share of undistributed earnings. 23 Table of Contents BrightSphere Investment Group Inc. Notes to Condensed Consolidated Financial Statements (unaudited) 11) Revenue Management fees The Company’s management fees are a function of the fee rates the Affiliates charge to their clients, which are typically expressed in basis points, and the levels of the Company’s assets under management. The most significant driver of increases or decreases in this average fee rate is changes in the mix of the Company’s assets under management caused by net inflows or outflows in certain asset classes or disproportionate market movements. Performance fees The Company’s products subject to performance fees earn these fees upon exceeding high-water mark performance thresholds or outperforming a hurdle rate. Performance fees are recorded in revenues when the contractual performance criteria have been met and when it is probable that a significant reversal of revenue recognized will not occur in future reporting periods. Other revenue Included in other revenue are certain payroll and benefits costs and expenses paid on behalf of Funds by the Company’s Affiliates. In instances where a customer reimburses the Company for a cost paid on the customer’s behalf, the Company is acting as a principal and the reimbursement is accrued on a gross basis at cost as the corresponding reimbursable expenses are incurred. There was no revenue from expense reimbursements for the three and nine months ended September 30, 2022. Revenue from expense reimbursements amounted to $ 0.7 million for the three months ended September 30, 2021. Revenue from expense reimbursements amounted to $ 2.9 million for the nine months ended September 30, 2021. Revenue is recorded in other revenue in the Company’s Condensed Consolidated Statements of Operations. Other revenue may also consist of other miscellaneous revenue, consisting primarily of administration and consulting services. Disaggregation of management fee revenue The geographic disaggregation of management fee revenue for the three and nine months ended September 30 (in millions) are presented below: Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Quant & Solutions U.S. $ 64.9 $ 80.3 $ 213.1 $ 234.7 Non-U.S. 20.8 27.7 68.3 78.2 Other (1) U.S. — 2.4 — 10.2 Non-U.S. — 1.0 — 3.7 Management fee revenue $ 85.7 $ 111.4 $ 281.4 $ 326.8 (1) The Company’s previously divested Affiliates, Campbell Global and ICM, are included within the Other category for the three and nine months ended September 30, 2021. 24 Table of Contents BrightSphere Investment Group Inc. Notes to Condensed Consolidated Financial Statements (unaudited) 12) Accumulated Other Comprehensive Income (Loss) The components of accumulated other comprehensive income (loss), net of tax, for the three months ended September 30, 2022 and 2021 are as follows (in millions): Foreign currency translation adjustment Valuation and amortization of derivative securities Total Balance, as of June 30, 2022 $ 1.7 $ ( 13.4 ) $ ( 11.7 ) Foreign currency translation adjustment ( 2.5 ) — ( 2.5 ) Amortization related to derivatives securities, before tax — 0.8 0.8 Tax impact — ( 0.2 ) ( 0.2 ) Other comprehensive income (loss) ( 2.5 ) 0.6 ( 1.9 ) Balance, as of September 30, 2022 $ ( 0.8 ) $ ( 12.8 ) $ ( 13.6 ) Foreign currency translation adjustment Valuation and amortization of derivative securities Total Balance, as of June 30, 2021 $ 5.6 $ ( 16.8 ) $ ( 11.2 ) Foreign currency translation adjustment ( 0.9 ) — ( 0.9 ) Amortization related to derivatives securities, before tax — 0.8 0.8 Tax impact — ( 0.2 ) ( 0.2 ) Other comprehensive income (loss) ( 0.9 ) 0.6 ( 0.3 ) Balance, as of September 30, 2021 $ 4.7 $ ( 16.2 ) $ ( 11.5 ) The components of accumulated other comprehensive income (loss), net of tax, for the nine months ended September 30, 2022 and 2021 are as follows (in millions): Foreign currency translation adjustment Valuation and amortization of derivative securities Total Balance, as of December 31, 2021 $ 4.8 $ ( 15.6 ) $ ( 10.8 ) Foreign currency translation adjustment ( 5.6 ) — ( 5.6 ) Amortization related to derivatives securities, before tax (1) — 3.8 3.8 Tax impact — ( 1.0 ) ( 1.0 ) Other comprehensive income (loss) ( 5.6 ) 2.8 ( 2.8 ) Balance, as of September 30, 2022 $ ( 0.8 ) $ ( 12.8 ) $ ( 13.6 ) 25 Table of Contents BrightSphere Investment Group Inc. Notes to Condensed Consolidated Financial Statements (unaudited) 12) Accumulated Other Comprehensive Income (Loss) (cont.) Foreign currency translation adjustment Valuation and amortization of derivative securities Total Balance, as of December 31, 2020 $ 4.4 $ ( 18.0 ) $ ( 13.6 ) Foreign currency translation adjustment 0.3 — 0.3 Amortization related to derivatives securities, before tax — 2.4 2.4 Tax impact — ( 0.6 ) ( 0.6 ) Other comprehensive income 0.3 1.8 2.1 Balance, as of September 30, 2021 $ 4.7 $ ( 16.2 ) $ ( 11.5 ) (1) On January 18, 2022, the Company completed the full redemption of the $ 125 million aggregate principal amount outstanding of its 5.125 % Senior Notes due August 1, 2031. As a result of this transaction, the Company recorded $ 1.3 million of amortization expense included in Amortization related to derivatives securities, before tax. 13) Derivatives and Hedging Cash flow hedge In July 2015, the Company entered into a series of $ 300.0 million notional Treasury rate lock contracts which were designated and qualified as cash flow hedges. The Company documented its hedging strategy and risk management objective for this contract in anticipation of a future debt issuance. The Treasury rate lock contract eliminated the impact of fluctuations in the underlying benchmark interest rate for future forecasted debt issuances. The Company assessed the effectiveness of the hedging contract at inception and on a quarterly basis thereafter. The forecasted debt issuances occurred in July 2016 and the Treasury rate lock, which had an accumulated fair value of $( 34.4 ) million, was settled. Refer to Note 7, Borrowings and Debt, for additional information on the debt issuances. As of September 30, 2022, the balance recorded in accumulated other comprehensive income (loss) was $( 12.8 ) million, net of tax. This balance will be reclassified to earnings through interest expense over the life of the issued debt. The Company reclassified $ 0.8 million for each of the three months ended September 30, 2022 and 2021. Amounts of $ 3.8 million and $ 2.4 million have been reclassified for the nine months ended September 30, 2022 and 2021, respectively. During the next twelve months the Company expects to reclassify approximately $ 3.4 million to interest expense. On January 18, 2022, the Company completed the full redemption of the $ 125 million aggregate principal amount outstanding of its 5.125 % Senior Notes due August 1, 2031. As a result of this transaction, amortization expense of $ 1.3 million (of the $ 3.8 million interest expense reclassified to earnings for the nine months ended September 30, 2022) was reclassified to earnings as interest expense. 26 Table of Contents BrightSphere Investment Group Inc. Notes to Condensed Consolidated Financial Statements (unaudited) 14) Segments The Company has the following reportable segment: • 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 in developed and emerging markets, including global, non-U.S. and small-cap equities, as well as managed volatility, ESG, multi-asset, equity alternatives, and long/short strategies. This segment is comprised of the Company’s interest in Acadian. The corporate head office is included within the Other category, along with our previously disposed Affiliates, Campbell Global and ICM, for the three and nine months ended September 30, 2021. We completed the sale of our equity interests in ICM in July 2021. We completed the sale of our equity interests in Campbell Global in August 2021. The corporate head office expenses are not allocated to the Company’s business segment but the Chief Operating Decision Maker (“CODM”) does consider the cost structure of the corporate head office when evaluating the financial performance of the segment. Performance Measure The primary measure used by the CODM in measuring performance and allocating resources to the segments is Economic Net Income (“ENI”). The Company defines ENI for the segments as ENI revenue less (i) ENI operating expenses, (ii) variable compensation and (iii) key employee distributions. The ENI adjustments to U.S. GAAP include both reclassifications of U.S. GAAP revenue and expense items, as well as adjustments to U.S. GAAP results, primarily to exclude non-cash, non-economic expenses, or to reflect cash benefits not recognized under U.S. GAAP. This measure supplements and should be considered in addition to, and not in lieu of, the Condensed Consolidated Statements of Operations prepared in accordance with U.S. GAAP. The Company does not disclose total asset information for its reportable segment as the information is not reviewed by the CODM. ENI revenue includes management fees, performance fees and other revenue under U.S. GAAP, adjusted to include management fees paid to Affiliates by consolidated Funds and the Company’s share of earnings from equity-accounted Affiliate. ENI revenue is also adjusted to exclude the separate revenues recorded under U.S. GAAP for certain Fund expenses reimbursed to our Affiliates. ENI operating expenses include compensation and benefits, general and administrative expense, and depreciation and amortization under U.S. GAAP, adjusted to exclude non-cash expenses representing changes in the value of Affiliate equity and profit interests held by Affiliate key employees, goodwill impairment and amortization of acquired intangible assets, capital transaction costs, restructuring costs, and the separate expenses recorded under U.S. GAAP for certain Fund expenses reimbursed to Affiliates. Additionally, variable compensation and Affiliate key employee distributions are segregated from ENI operating expenses. ENI segment results are also adjusted to exclude the portion of consolidated Fund revenues, expenses and investment return recorded under U.S. GAAP. 27 Table of Contents BrightSphere Investment Group Inc. Notes to Condensed Consolidated Financial Statements (unaudited) 14) Segments (cont.) Segment Presentation The following tables set forth summarized operating results for the Company’s segments and related adjustments necessary to reconcile the segment economic net income to arrive at the Company’s consolidated U.S. GAAP net income (loss): The following table presents the financial data for the Company’s segment for the three months ended September 30, 2022 (in millions): Three Months Ended September 30, 2022 Quant & Solutions Other Reconciling Adjustments Total U.S. GAAP (1) ENI revenue $ 86.8 $ — $ — $ 86.8 ENI operating expenses 40.4 4.1 ( 8.7 ) (a) 35.8 Earnings before variable compensation 46.4 ( 4.1 ) 8.7 51.0 Variable compensation 18.9 0.9 — 19.8 ENI operating earnings (after variable comp) 27.5 ( 5.0 ) 8.7 31.2 Affiliate key employee distributions 1.1 — — 1.1 Earnings after Affiliate key employee distributions 26.4 ( 5.0 ) 8.7 30.1 Net interest expense — ( 4.3 ) ( 0.1 ) (b) ( 4.4 ) Net investment loss — — ( 0.4 ) (c) ( 0.4 ) Income tax expense — ( 4.6 ) ( 2.9 ) (d) ( 7.5 ) Economic net income $ 26.4 $ ( 13.9 ) $ 5.3 $ 17.8 28 Table of Contents BrightSphere Investment Group Inc. Notes to Condensed Consolidated Financial Statements (unaudited) 14) Segments (cont.) The following table presents the financial data for the Company’s segments for the three months ended September 30, 2021 (in millions): Three Months Ended September 30, 2021 Quant & Solutions Other Reconciling Adjustments Total U.S. GAAP (1) ENI revenue $ 110.6 $ 6.8 $ 0.5 (e) $ 117.9 ENI operating expenses 39.4 7.6 10.1 (a) 57.1 Earnings before variable compensation 71.2 ( 0.8 ) ( 9.6 ) 60.8 Variable compensation 23.5 3.5 0.1 (f) 27.1 ENI operating earnings (after variable comp) 47.7 ( 4.3 ) ( 9.7 ) 33.7 Affiliate key employee distributions 3.8 1.2 — 5.0 Earnings after Affiliate key employee distributions 43.9 ( 5.5 ) ( 9.7 ) 28.7 Net interest expense — ( 5.8 ) ( 0.4 ) (b) ( 6.2 ) Net investment income — — 0.3 (c) 0.3 Gain on sale of subsidiaries — — 34.6 (c) 34.6 Income tax expense — ( 9.0 ) ( 5.5 ) (d) ( 14.5 ) Income from discontinued operations, net of tax — — 1.2 (c) 1.2 Gain on disposal of discontinued operations, net of tax — — 185.4 (g) 185.4 Economic net income $ 43.9 $ ( 20.3 ) $ 205.9 $ 229.5 29 Table of Contents BrightSphere Investment Group Inc. Notes to Condensed Consolidated Financial Statements (unaudited) 14) Segments (cont.) The following table presents the financial data for the Company’s segment for the nine months ended September 30, 2022 (in millions): Nine Months Ended September 30, 2022 Quant & Solutions Other Reconciling Adjustments Total U.S. GAAP (1) ENI revenue $ 294.5 $ — $ — $ 294.5 ENI operating expenses 121.2 13.0 ( 33.6 ) (a) 100.6 Earnings before variable compensation 173.3 ( 13.0 ) 33.6 193.9 Variable compensation 66.9 3.5 — 70.4 ENI operating earnings (after variable comp) 106.4 ( 16.5 ) 33.6 123.5 Affiliate key employee distributions 3.5 — — 3.5 Earnings after Affiliate key employee distributions 102.9 ( 16.5 ) 33.6 120.0 Net interest expense — ( 13.5 ) ( 2.1 ) (b) ( 15.6 ) Net investment loss — — ( 1.2 ) (c) ( 1.2 ) Loss on extinguishment of debt — — ( 3.2 ) (c) ( 3.2 ) Income tax expense — ( 19.7 ) ( 10.1 ) (d) ( 29.8 ) Economic net income $ 102.9 $ ( 49.7 ) $ 17.0 $ 70.2 30 Table of Contents BrightSphere Investment Group Inc. Notes to Condensed Consolidated Financial Statements (unaudited) 14) Segments (cont.) The following table presents the financial data for the Company’s segments for the nine months ended September 30, 2021 (in millions): Nine Months Ended September 30, 2021 Quant & Solutions Other Reconciling Adjustments Total U.S. GAAP (1) ENI revenue $ 325.2 $ 35.4 $ 0.3 (e) $ 360.9 ENI operating expenses 116.8 26.8 26.7 (a) 170.3 Earnings before variable compensation 208.4 8.6 ( 26.4 ) 190.6 Variable compensation 68.1 14.8 0.9 (f) 83.8 ENI operating earnings (after variable comp) 140.3 ( 6.2 ) ( 27.3 ) 106.8 Affiliate key employee distributions 8.4 1.1 — 9.5 Earnings after Affiliate key employee distributions 131.9 ( 7.3 ) ( 27.3 ) 97.3 Net interest expense — ( 16.6 ) ( 2.0 ) (b) ( 18.6 ) Net investment income — — 7.6 (c) 7.6 Gain on sale of subsidiaries — — 33.3 (c) 33.3 Net loss attributable to non-controlling interests in consolidated Funds — — ( 68.0 ) (c) ( 68.0 ) Income tax expense — ( 29.0 ) ( 4.5 ) (d) ( 33.5 ) Income from discontinued operations, net of tax — — 76.5 (c) 76.5 Gain on disposal of discontinued operations, net of tax — — 694.6 (g) 694.6 Economic net income $ 131.9 $ ( 52.9 ) $ 710.2 $ 789.2 (1) The most directly comparable U.S. GAAP measure of ENI revenue is U.S. GAAP revenue. The most directly comparable U.S. GAAP measure of ENI operating expenses is U.S. GAAP operating expenses, which is comprised of ENI operating expenses, variable compensation, and Affiliate key employee distributions above. The most directly comparable U.S. GAAP measure of earnings after Affiliate key employee distributions is U.S. GAAP operating income. The most directly comparable U.S. GAAP measure of ENI is U.S. GAAP net income attributable to controlling interests. Reconciling Adjustments: a. Adjusted to include non-cash expenses for key employee equity and profit interest revaluations, capital transaction costs, and amortization of acquired intangible assets, restructuring costs and the Fund expenses reimbursed by customers, each of which are included in U.S. GAAP operating expenses. b. Adjusted to include the cost of seed financing, which is included in U.S. GAAP interest expense. c. Adjusted to include net investment income (loss), the loss on extinguishment of debt, net loss attributable to non-controlling interests in consolidated Funds, the gain on sale of subsidiaries, and the results of discontinued operations, net of tax, all of which are included in U.S. GAAP net income attributable to controlling interests. 31 Table of Contents BrightSphere Investment Group Inc. Notes to Condensed Consolidated Financial Statements (unaudited) 14) Segments (cont.) d. Adjusted to include the impact of deferred tax attributable to the amortization of goodwill and acquired intangibles. Also adjusted to include the tax impact of certain ENI adjustments; exclude the tax expense or benefits relating to uncertain tax positions, and exclude the tax impact of other unusual items that are not related to current operating results for ENI purposes. e. Adjusted to exclude earnings from equity-accounted Affiliate, which are included in U.S. GAAP investment income, and to include the separate revenues recorded for certain Fund expenses reimbursed by customers, which are included in U.S. GAAP revenue. f. Adjusted to include restructuring costs which are included in U.S. GAAP compensation expense. g. Adjusted to include the gain on disposal of discontinued operations, net of tax, which is included in U.S. GAAP net income attributable to controlling interests. 32 Table of Contents