Acadian Asset Management Inc. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. Unless we state otherwise or the context otherwise requires, references in this Quarterly Report on Form 10-Q to the “Company”, “BrightSphere” or “BSIG” refer to BrightSphere Investment Group Inc., and references to “we,” “our” and “us” refer to BSIG and its consolidated subsidiaries, excluding discontinued operations. References to the holding company or “Center” excluding the Affiliates refer to BrightSphere Inc., or “BSUS,” a Delaware corporation and wholly owned subsidiary of BSIG. Unless we state otherwise or the context otherwise requires, references in this Quarterly Report on Form 10-Q to “Affiliates” or an “Affiliate” refer to the asset management firms in which we have or previously had an ownership interest. References in this Quarterly Report on Form 10-Q to “OM plc” refer to Old Mutual plc, our former parent. None of the information in this Quarterly Report on Form 10-Q constitutes either an offer or a solicitation to buy or sell Acadian’s products or services, nor is any such information a recommendation for Acadian’s products or services. The following discussion of our financial condition and results of operations should be read in conjunction with our Condensed Consolidated Financial Statements and related notes which appear in this Quarterly Report on Form 10-Q in Item 1, Financial Statements. This discussion contains forward-looking statements that involve risks and uncertainties. See “Forward-Looking Statements” at the end of this Item 2 for more information. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those discussed below. This Management’s Discussion and Analysis of Financial Condition and Results of Operations, or MD&A, is designed to provide a reader of our financial statements with a narrative from the perspective of our management on our financial condition, results of operations, liquidity and certain other factors that may affect our future results. Our MD&A is presented in five sections: • Overview provides a brief description of our business. It includes information on our reporting segment and underlying Affiliate, a summary of The Economics of Our Business and an explanation of How We Measure Performance using a non-GAAP measure which we refer to as economic net income, or ENI. This section also provides a Summary Results of Operations and information regarding our Assets Under Management by strategy, client type and client location, and net flows by segment, client type and client location. • U.S. GAAP Results of Operations for the Three Months Ended March 31, 2024 and 2023 includes an explanation of changes in our U.S. GAAP revenue, expense and other items for the three months ended March 31, 2024 and 2023, as well as key U.S. GAAP operating metrics. • Non-GAAP Supplemental Performance Measure — Economic Net Income and Segment Analysis includes an explanation of the key differences between U.S. GAAP net income and ENI, the key measure management uses to evaluate our performance. This section also provides a reconciliation between U.S. GAAP net income attributable to controlling interests and ENI for the three months ended March 31, 2024 and 2023, 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. In addition, this section provides segment analysis for our business segment. • Capital Resources and Liquidity discusses our key balance sheet data. This section discusses Cash Flows from the business; Adjusted EBITDA; Future Capital Needs; Borrowings and Long-Term Debt. The discussion of Adjusted EBITDA includes an explanation of how we calculate Adjusted EBITDA and a reconciliation of U.S. GAAP net income attributable to controlling interests to Adjusted EBITDA. • Critical Accounting Policies and Estimates provides a discussion of the key accounting policies and estimates that we believe are the most critical to an understanding of our results of operations and financial condition. These accounting policies and estimates require complex management judgment regarding matters that are highly uncertain at the time the policies were applied and estimates were made. 26 Table of Contents Overview We are a global asset management holding company headquartered in Boston, Massachusetts. We operate a differentiated investment management business through our majority owned subsidiary, Acadian Asset Management LLC (“Acadian” or the “Affiliate”), a leading systematic manager of active global, international equity and alternative strategies. Acadian comprises our 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, equity alternatives including macro, and credit strategies. This segment is comprised of our interest in our sole Affiliate, Acadian. Through Acadian, we offer a diverse range of actively-managed investment strategies and products to institutional investors around the globe. The corporate head office is included within the Other category. 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 our segment. Under U.S. GAAP, Acadian is consolidated into our financial statements. We may also be required to consolidate Acadian’s 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. The Economics of Our Business Our profitability is affected by a variety of factors including the level and composition of our average assets under management, or AUM, fee rates charged on AUM and our expense structure. We earn management fees based on assets under management. Approximately 80% of our management fees for the three months ended March 31, 2024 were 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. Changes in the levels of our AUM are driven by market investment performance and net client cash flows. We may also earn performance fees when certain accounts differ in relation to relevant benchmarks or exceed or fail to exceed required returns. Approximately $15 billion, or 14%, of our AUM are in accounts with incentive fee features in which we participate in the performance fee. The majority of these performance fees are calculated based on value added over the relevant benchmarks on a rolling one-year basis. Our largest expense item is compensation and benefits paid to our employees, which consists of both fixed and variable components. Fixed compensation and benefits represents base salaries and wages, payroll taxes and the costs of our employee benefit programs. Variable compensation, calculated as described below, may be awarded in cash, equity, or profit interests. The arrangement in place with Acadian results in the sharing of economics between BSUS and Acadian’s key management personnel using a profit-sharing model. Profit sharing affects two elements within our earnings: (i) the calculation of variable compensation and (ii) the level of Acadian’s equity or profit interests distribution to its employees. Variable compensation is the portion of earnings that is contractually allocated to Acadian employees as a bonus pool, typically representing a 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 Acadian key employee equity holders according to our respective equity or profit interests ownership. The sharing of profits in this manner ensures that the economic interests of Acadian key employees and those of BSUS are aligned, both in terms of generating strong annual earnings as well as investing those earnings back into the business in order to generate growth over the long term. We view profit sharing as an 27 Table of Contents attractive operating model, as it allows us to share in the benefits of operating leverage as the business grows, and ensures all equity and profit interests holders are incentivized to achieve that growth. Equity or profit interests owned by Acadian key employees are awarded as part of their variable compensation arrangement. Over time, Acadian key employee-owned equity or profit interests are recycled from one generation of employee-owners to the next, either by the next generation purchasing equity or profit interests directly from retiring principals, or by Acadian key employees forgoing cash bonuses in exchange for the equivalent value in Acadian equity or profit interests. The recycling of equity or profit interests is often facilitated by BSUS; see “—U.S. GAAP Results of Operations—U.S. GAAP Expenses—Compensation and Benefits Expense” for a further discussion. How We Measure Performance We manage our business based on one segment, reflecting how our management assesses the performance of our business. In measuring and monitoring the key components of our earnings, our management uses a non-GAAP financial measure, ENI, to evaluate the financial performance of, and to make operational decisions for, our business. We also use ENI to make resource allocation decisions, determine appropriate levels of investment or dividend payout, manage balance sheet leverage, determine variable compensation and Affiliate equity distributions, and incentivize management. It is an important measure in evaluating our financial performance because we believe it most accurately represents our operating performance and cash generation capability. ENI differs from net income determined in accordance with U.S. GAAP as a result of both the reclassification of certain income statement items and the exclusion of certain non-cash or non-recurring income statement items. In particular, ENI excludes non-cash charges representing the changes in the value of Affiliate equity and profit interests held by Affiliate key employees, the 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. Revenue included within ENI differs from U.S. GAAP revenue in that it excludes amounts from consolidated Funds which are not attributable to our stockholders. ENI expenses are calculated to reflect all usual expenses from ongoing continuing operations attributable to our stockholders. Expenses included within ENI differ from U.S. GAAP expenses in that they exclude amounts from consolidated Funds which are not attributable to our stockholders, revaluations of Affiliate key employee owned equity and profit interests, amortization and impairment of acquired intangibles and other acquisition-related items, and certain other non-cash expenses. “Non-controlling interests” is a concept under U.S. GAAP that identifies net components of revenues and expenses that are not attributable to our stockholders. For example, the portion of the net income (loss) of any consolidated Fund that is attributable to the outside investors or clients of the consolidated Fund is included in “Non-controlling interests” in our Condensed Consolidated Financial Statements. Conversely, “controlling interests” is the portion of revenue or expense that is attributable to our stockholders. For a more detailed discussion of the differences between U.S. GAAP net income and economic net income, see “—Non-GAAP Supplemental Performance Measure — Economic Net Income and Segment Analysis.” 28 Table of Contents Summary Results of Operations The following table summarizes our unaudited results of operations for the three months ended March 31, 2024 and 2023: ($ in millions, unless otherwise noted) Three Months Ended March 31, 2024 2023 2024 vs. 2023 U.S. GAAP Basis Revenue $ 105.7 $ 91.8 $ 13.9 Pre-tax income attributable to controlling interests 20.7 17.1 3.6 Net income attributable to controlling interests 14.6 12.0 2.6 U.S. GAAP operating margin (1) 21.7 % 21.6 % 10 bps Earnings per share, basic ($) $ 0.37 $ 0.29 $ 0.08 Earnings per share, diluted ($) $ 0.37 $ 0.28 $ 0.09 Basic shares outstanding (in millions) 39.1 41.4 (2.3) Diluted shares outstanding (in millions) 39.7 42.7 (3.0) Economic Net Income Basis (2)(3) (Non-GAAP measure used by management) ENI revenue (4) $ 105.3 $ 91.1 $ 14.2 Pre-tax economic net income (5) 24.0 16.2 7.8 Adjusted EBITDA 31.9 23.6 8.3 ENI operating margin (6) 27.7 % 22.8 % 490 bps Economic net income (7) 17.4 11.8 5.6 ENI diluted EPS ($) $ 0.44 $ 0.28 $ 0.16 Other Operational Information Assets under management (AUM) at period end (in billions) $ 110.4 $ 97.5 $ 12.9 Net client cash flows (in billions) 0.4 0.1 0.3 Annualized revenue impact of net flows (8) (0.2) 1.0 (1.2) (1) U.S. GAAP operating margin equals operating income divided by total revenue. (2) Economic net income is a non-GAAP measure we use to evaluate the performance of our business. For a reconciliation to U.S. GAAP financial information and a further discussion of economic net income refer to “—Non-GAAP Supplemental Performance Measure—Economic Net Income and Segment Analysis.” (3) Excludes severance-related items at Acadian of $(0.2) million and costs associated with the transfer of an insurance policy from our former parent of $0.2 million for the three months ended March 31, 2024. Excludes costs associated with the transfer of an insurance policy from our former parent of $0.4 million for the three months ended March 31, 2023. (4) ENI revenue is the ENI measure which corresponds to U.S. GAAP revenue. (5) Pre-tax economic net income is the ENI measure which corresponds to U.S. GAAP pre-tax income attributable to controlling interests. (6) ENI operating margin is a non-GAAP efficiency measure, calculated based on ENI operating earnings divided by ENI revenue. ENI operating earnings is calculated as ENI revenue, less ENI operating expense, less ENI variable compensation. The ENI operating margin is most directly comparable to our U.S. GAAP operating margin (excluding the effect of consolidated Funds). (7) Economic net income is the non-GAAP measure which is most directly comparable to U.S. GAAP net income attributable to controlling interests. 29 Table of Contents (8) Annualized revenue impact of net flows represents annualized management fees expected to be earned on new accounts and net assets contributed to existing accounts, less the annualized management fees lost on terminated accounts or net assets withdrawn from existing accounts, plus revenue impact from reinvested income and distributions. The annualized management fees are calculated by multiplying the annual gross fee rate for the relevant account by the net assets gained in the account in the event of a positive flow, excluding any current or future market appreciation or depreciation, or the net assets lost in the account in the event of an outflow, excluding any current or future market appreciation or depreciation. In addition, reinvested income and distributions are multiplied by the average fee rate to compute the revenue impact. For a further discussion of the uses and limitations of the annualized revenue impact of net flows, see “Assets Under Management” herein. Assets Under Management The following table presents our assets under management as of each of the dates indicated: ($ in billions) March 31, 2024 December 31, 2023 Acadian Asset Management $ 110.4 $ 103.7 Our strategies include: i. Developed Markets equity, which includes Quant & Solutions U.S., global and international equities; and ii. Emerging Markets equity, which includes Quant & Solutions equity investments in the emerging and frontier markets. The following table presents our assets under management by strategy as of each of the dates indicated: ($ in billions) March 31, 2024 December 31, 2023 Developed Markets $ 87.2 $ 80.7 Emerging Markets 23.2 23.0 Total assets under management $ 110.4 $ 103.7 30 Table of Contents The following table shows assets under management by client type as of each of the dates indicated: ($ in billions) March 31, 2024 December 31, 2023 AUM % of total AUM % of total Public/Government $ 47.0 42.6 % $ 43.7 42.1 % Commingled Trust/UCITS 27.1 24.5 % 25.2 24.3 % Corporate/Union 13.2 12.0 % 12.0 11.6 % Sub-advisory 13.0 11.8 % 12.8 12.3 % Endowment/Foundation 3.3 3.0 % 3.4 3.3 % Mutual Fund 0.7 0.6 % 0.7 0.7 % Other 6.1 5.5 % 5.9 5.7 % Total assets under management $ 110.4 $ 103.7 The following table shows assets under management by client location as of each of the dates indicated: ($ in billions) March 31, 2024 December 31, 2023 AUM % of total AUM % of total U.S. $ 73.0 66.1 % $ 69.9 67.4 % Europe 18.0 16.3 % 16.6 16.0 % Asia 5.4 4.9 % 4.4 4.2 % Australia 7.2 6.5 % 6.5 6.3 % Other 6.8 6.2 % 6.3 6.1 % Total assets under management $ 110.4 $ 103.7 AUM flows and the annualized revenue impact of net flows Net client cash flows and revenue impact of net client cash flows for all periods include reinvested income and distributions. Reinvested income and distributions represent investment yield that is reinvested back into the portfolios as opposed to distributed as cash. In the following table, we present our asset flows and market appreciation (depreciation) by segment. We also present a key metric used to better understand our asset flows, the annualized revenue impact of net client cash flows. Annualized revenue impact of net flows represents annualized management fees expected to be earned on new accounts and net assets contributed to existing accounts (inflows), less the annualized management fees lost on terminated accounts or net assets withdrawn from existing accounts (outflows), plus revenue impact from reinvested income and distributions. Annualized management fee for client flow is calculated by multiplying the annual gross fee rate for the relevant account with the inflow or the outflow. In addition, reinvested income and distributions is multiplied by the average fee rate to compute the revenue impact. The annualized revenue impact of net flows metric is designed to provide investors with a better indication of the potential financial impact of net client cash flows, however it has certain limitations. For instance, it does not include assumptions for the next twelve months' market appreciation or depreciation and investment performance associated with the assets gained or lost. Nor does it account for factors such as future client terminations or additional contributions or withdrawals over the next twelve months. Additionally, the basis points reported are fee rates based on the asset levels at the time of the transactions and do not consider the fact that client fee rates may change over the next twelve months. 31 Table of Contents The following table summarizes our asset flows and market appreciation (depreciation) by segment for each of the periods indicated: Three Months Ended March 31, ($ in billions, unless otherwise noted) 2024 2023 Quant & Solutions Beginning balance $ 103.7 $ 93.6 Gross inflows 4.3 2.2 Gross outflows (4.7) (3.0) Reinvested income and distributions 0.8 0.9 Net flows 0.4 0.1 Market appreciation 6.3 3.8 Ending balance $ 110.4 $ 97.5 Average AUM $ 107.6 $ 96.4 Annualized basis points: inflows 40.0 41.3 Annualized basis points: outflows 44.0 38.9 Annualized revenue impact of net flows ($ in millions) $ (0.2) $ 1.0 32 Table of Contents We also analyze our asset flows by client type and client location. Our client types include: i. Sub-advisory, which includes assets managed for underlying mutual fund and variable insurance products which are sponsored by insurance companies and mutual fund platforms, where the end client is typically retail; ii. Institutional, which includes assets managed for public/government pension funds, including U.S. state and local government funds and non-U.S. sovereign wealth, local government and national pension funds; also includes corporate and union-sponsored pension plans; and iii. Retail/other, which includes assets managed for mutual funds sponsored by our Affiliate, defined contribution plans and accounts managed for high net worth clients. The following table summarizes our asset flows by client type for each of the periods indicated: ($ in billions) Three Months Ended March 31, 2024 2023 Sub-advisory Beginning balance $ 12.8 $ 11.8 Gross inflows 0.3 0.4 Gross outflows (0.8) (0.7) Reinvested income and distributions 0.1 0.1 Net flows (0.4) (0.2) Market appreciation 0.6 0.3 Ending balance $ 13.0 $ 11.9 Institutional Beginning balance $ 84.3 $ 77.2 Gross inflows 3.9 1.7 Gross outflows (3.3) (2.2) Reinvested income and distributions 0.6 0.7 Net flows 1.2 0.2 Market appreciation 5.1 3.4 Ending balance $ 90.6 $ 80.8 Retail/Other Beginning balance $ 6.6 $ 4.6 Gross inflows 0.1 0.1 Gross outflows (0.6) (0.1) Reinvested income and distributions 0.1 0.1 Net flows (0.4) 0.1 Market appreciation 0.6 0.1 Ending balance $ 6.8 $ 4.8 Total Beginning balance $ 103.7 $ 93.6 Gross inflows 4.3 2.2 Gross outflows (4.7) (3.0) Reinvested income and distributions 0.8 0.9 Net flows 0.4 0.1 Market appreciation 6.3 3.8 Ending balance 110.4 97.5 33 Table of Contents Our categorization of assets under management by client location includes: i. U.S.-based clients, where the contracting client is based in the United States, and ii. Non-U.S.-based clients, where the contracting client is based outside the United States. The following table summarizes asset flows by client location for each of the periods indicated: ($ in billions) Three Months Ended March 31, 2024 2023 U.S. Beginning balance $ 69.9 $ 62.7 Gross inflows 1.7 1.2 Gross outflows (3.3) (2.1) Reinvested income and distributions 0.5 0.6 Net flows (1.1) (0.3) Market appreciation 4.2 2.6 Ending balance $ 73.0 $ 65.0 Non-U.S. Beginning balance $ 33.8 $ 30.9 Gross inflows 2.6 1.0 Gross outflows (1.4) (0.9) Reinvested income and distributions 0.3 0.3 Net flows 1.5 0.4 Market appreciation 2.1 1.2 Ending balance $ 37.4 $ 32.5 Total Beginning balance $ 103.7 $ 93.6 Gross inflows 4.3 2.2 Gross outflows (4.7) (3.0) Reinvested income and distributions 0.8 0.9 Net flows 0.4 0.1 Market appreciation 6.3 3.8 Ending balance $ 110.4 $ 97.5 At March 31, 2024, our total assets under management were $110.4 billion, an increase of $6.7 billion, or 6.5%, compared to $103.7 billion at December 31, 2023 and an increase of $12.9 billion, or 13.2%, compared to $97.5 billion at March 31, 2023. The increase in assets under management compared to March 31, 2023 was driven by the equity market appreciation in the last twelve months. The change in assets under management during the three months ended March 31, 2024 reflects net market appreciation of $6.3 billion and net inflows of $0.4 billion. Market appreciation or depreciation reported in current and prior periods includes changes in equity prices, as well as the impact from exchange rate fluctuations on our foreign-denominated AUM. Given a substantial portion of our AUM is denominated in foreign currencies, foreign exchange rate movements during the period can impact AUM when the strength of the U.S. dollar changes relative to other currencies. 34 Table of Contents For the three months ended March 31, 2024, our net flows were $0.4 billion compared to $0.1 billion for the three months ended March 31, 2023. The change in net flows during the three months ended March 31, 2024 compared to the three months ended March 31, 2023 was primarily driven by increased sales in the three months ended March 31, 2024. Reinvested income and distributions of $0.8 billion and $0.9 billion are reflected in the net flows for the three months ended March 31, 2024 and March 31, 2023, respectively. For the three months ended March 31, 2024, the annualized revenue impact of the net flows was $(0.2) million compared to $1.0 million for the three months ended March 31, 2023. Gross inflows of $4.3 billion in the three months ended March 31, 2024 yielded approximately 40 bps compared to $2.2 billion yielding approximately 41 bps in the year-ago period. Gross outflows of $(4.7) billion yielded approximately 44 bps in the three months ended March 31, 2024 compared to $(3.0) billion yielding approximately 39 bps in the year-ago period. U.S. GAAP Results of Operations for the Three Months Ended March 31, 2024 and 2023 Our U.S. GAAP results of operations were as follows for the three months ended March 31, 2024 and 2023: Three Months Ended March 31, ($ in millions, unless otherwise noted) 2024 2023 Increase (Decrease) U.S. GAAP Statement of Operations (1) Management fees $ 102.2 $ 90.6 $ 11.6 Performance fees 3.1 0.5 2.6 Consolidated Funds’ revenue 0.4 0.7 (0.3) Total revenue 105.7 91.8 13.9 Compensation and benefits 58.1 49.1 9.0 General and administrative expense 20.0 18.4 1.6 Depreciation and amortization 4.6 3.8 0.8 Consolidated Funds’ expense 0.1 0.7 (0.6) Total operating expenses 82.8 72.0 10.8 Operating income 22.9 19.8 3.1 Investment income 0.9 0.3 0.6 Interest income 1.3 1.1 0.2 Interest expense (5.0) (4.9) (0.1) Net consolidated Funds’ investment gains 1.7 0.8 0.9 Income before income taxes 21.8 17.1 4.7 Income tax expense 6.1 5.1 1.0 Net income 15.7 12.0 3.7 Net income attributable to non-controlling interests in consolidated Funds 1.1 — 1.1 Net income attributable to controlling interests $ 14.6 $ 12.0 $ 2.6 Basic earnings per share ($) $ 0.37 $ 0.29 $ 0.08 Diluted earnings per share ($) 0.37 0.28 0.09 Weighted average shares of common stock outstanding—basic 39.1 41.4 (2.3) Weighted average shares of common stock outstanding—diluted 39.7 42.7 (3.0) U.S. GAAP operating margin (2) 21.7 % 21.6 % (1) Certain Funds have been consolidated due to our seed capital investments in the Funds. (2) U.S. GAAP operating margin equals operating income divided by total revenue. 35 Table of Contents The following table reconciles our net income attributable to controlling interests to our pre-tax income attributable to controlling interests: ($ in millions) Three Months Ended March 31, U.S. GAAP Statement of Operations 2024 2023 Net income attributable to controlling interests $ 14.6 $ 12.0 Add: Income tax expense 6.1 5.1 Pre-tax income attributable to controlling interests $ 20.7 $ 17.1 U.S. GAAP Revenues Our U.S. GAAP revenues principally consist of: i. management fees earned based on our overall weighted average fee rate charged to our clients and the level of assets under management; ii. performance fees earned when our Affiliate’s investment performance over agreed time periods for certain clients has differed from pre-determined hurdles; and iii. revenue from consolidated Funds, a portion of which is attributable to the holders of non-controlling interests in consolidated Funds. Management Fees Our management fees are a function of the fee rates charged to our clients, which are typically expressed in basis points, and the levels of our assets under management. Average basis points earned on average assets under management were 38.2 bps for the three months ended March 31, 2024 and 38.1 bps for the three months ended March 31, 2023. The overall weighted average fee rate increase for the three months ended March 31, 2024 is the result of changes in the mix of assets under management caused by market movements and client flows. Three months ended March 31, 2024 compared to three months ended March 31, 2023: Management fees increased $11.6 million, or 12.8%, from $90.6 million for the three months ended March 31, 2023 to $102.2 million for the three months ended March 31, 2024. The increase was due to higher levels of average assets under management. Average assets under management increased 11.6%, from $96.4 billion for the three months ended March 31, 2023 to $107.6 billion for the three months ended March 31, 2024, mainly due to the positive equity market in the past twelve months. Performance Fees Approximately $15 billion, or 14% of our AUM, were in accounts with performance 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 March 31, 2024 compared to three months ended March 31, 2023: Performance fees increased $2.6 million, from $0.5 million for the three months ended March 31, 2023 to $3.1 million for the three months ended March 31, 2024, primarily due to strong performance relative to market in certain strategies. Performance fees are variable and are contractually triggered based on investment performance results over agreed upon time periods. 36 Table of Contents U.S. GAAP Expenses Our U.S. GAAP expenses principally consist of: i. compensation paid to our investment professionals and other employees, including base salary, benefits, sales-based compensation, variable compensation, Affiliate distributions, and revaluation of key employee owned Affiliate equity and profit interests; ii. general and administrative expenses; iii. amortization of acquired intangible assets; iv. depreciation and amortization charges; and v. expenses of consolidated Funds, a portion of which is attributable to the holders of non-controlling interests in consolidated Funds. Compensation and Benefits Expense Our most significant category of expense is compensation and benefits awarded to our and our Affiliate’s employees. The following table presents the components of U.S. GAAP compensation expense for the three months ended March 31, 2024 and 2023: Three Months Ended March 31, ($ in millions) 2024 2023 Fixed compensation and benefits (1) $ 23.5 $ 23.4 Sales-based compensation (2) 1.6 1.9 Variable compensation (3) 26.4 23.2 Affiliate key employee distributions (4) 2.2 1.2 Non-cash Affiliate key employee equity revaluations (5) 4.4 (0.6) Total U.S. GAAP compensation and benefits expense $ 58.1 $ 49.1 (1) Fixed compensation and benefits includes base salaries, payroll taxes and the cost of benefit programs provided. (2) Sales-based compensation is paid to our Affiliate’s sales and distribution teams and represents compensation earned by our sales professionals, paid over a multi-year period, related to revenue earned on new sales. Its variability is based upon the structure of sales-based compensation due on inflows of assets under management and market-based movement in both current and prior periods. (3) Variable compensation is contractually set and calculated individually for our Affiliate, plus Center bonuses. Variable compensation is usually awarded based on a contractual percentage of Affiliate ENI profits before variable compensation and may be paid in the form of cash or non-cash Affiliate equity or profit interests. With our Affiliate, we have a contractual split of performance fees between Affiliate employees and BSUS. The Affiliate’s share of performance fees, which ranges between 60%-75% of the total, is allocated entirely to variable compensation. The variable compensation earned on performance fees vests over three-years and compensation expense is recognized over that service period. Center variable compensation includes cash and our equity. Non-cash variable compensation awards typically vest over several years and are recognized as compensation expense over that service period. 37 Table of Contents Three Months Ended March 31, ($ in millions) 2024 2023 Cash variable compensation $ 24.7 $ 21.6 Non-cash equity-based award amortization 1.7 1.6 Total variable compensation (a) $ 26.4 $ 23.2 (a) For the three months ended March 31, 2024, $26.6 million of variable compensation expense (of the $26.4 million above) is included within economic net income, which excludes $(0.2) million of variable compensation associated with restructuring at Acadian. (4) Affiliate key employee distributions represent the share of Affiliate profits after variable compensation that is attributable to Affiliate key employee equity and profit interests holders, according to their ownership interests. The Affiliate key employee distribution ratio at our Affiliate is calculated as Affiliate key employee distributions divided by ENI operating earnings at the Affiliate. Within our Affiliate we have a tiered equity structure, where BSUS and other classes of employee equity holders are entitled to an initial proportionate preference over profits after variable compensation, structured such that before a preference threshold is reached, there would be no required key employee distributions to the tiered equity holders, whereas for profits above the threshold, the key employee distribution amount to the tiered equity holders would be calculated based on the tiered key employee ownership percentages. (5) Non-cash Affiliate key employee equity revaluations represent changes in the value of Affiliate equity and profit interests held by Affiliate key employees. These ownership interests may in certain circumstances be repurchased by BSUS at a value based on a pre-determined fixed multiple of twelve-month earnings and as such a liability is carried on our balance sheet based on the expected cash to be paid. However, any equity or profit interests repurchased by BSUS can be used to fund a portion of future variable compensation awards, resulting in savings in cash variable compensation that offset the negative cash effect of repurchasing the equity. Our Affiliate equity and profit interest plans have been designed to ensure BSUS is not required to repurchase more equity than we can reasonably recycle through variable compensation awards in any given twelve-month period. Fluctuations in compensation and benefits expense for the periods presented are discussed below. Three months ended March 31, 2024 compared to three months ended March 31, 2023: Compensation and benefits expense increased $9.0 million, or 18.3%, from $49.1 million for the three months ended March 31, 2023 to $58.1 million for the three months ended March 31, 2024. Fixed compensation and benefits increased $0.1 million, or 0.4%, from $23.4 million for the three months ended March 31, 2023 to $23.5 million for the three months ended March 31, 2024, primarily reflecting cost of living increases and the cost of new hires supporting our growth initiatives, partially offset by cost savings realized from restructuring at our Affiliate in late 2023. Variable compensation increased $3.2 million, or 13.8%, from $23.2 million for the three months ended March 31, 2023 to $26.4 million for the three months ended March 31, 2024. The increase was primarily attributable to higher pre-bonus profits in the three months ended March 31, 2024. Sales-based compensation decreased $(0.3) million or (15.8)% from $1.9 million for the three months ended March 31, 2023 to $1.6 million for the three months ended March 31, 2024, 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 increased $1.0 million, or 83.3%, from $1.2 million for the three months ended March 31, 2023 to $2.2 million for the nine months ended March 31, 2024, driven by higher operating earnings in the three months ended March 31, 2024. Revaluations of Affiliate equity changed $5.0 million, reflecting fluctuations in the value of key employee ownership interests at our consolidated Affiliate, as the value of Affiliate equity decreased $(0.6) million for the three months ended March 31, 2023 and increased $4.4 million for the three months ended March 31, 2024. 38 Table of Contents General and Administrative Expense Three months ended March 31, 2024 compared to three months ended March 31, 2023: General and administrative expense increased $1.6 million, or 8.7%, from $18.4 million for the three months ended March 31, 2023 to $20.0 million for the three months ended March 31, 2024. The increase was primarily due to higher systems, outside services and portfolio administrative costs, as well as our continued investment in growth initiatives and capabilities. Depreciation and Amortization Expense Three months ended March 31, 2024 compared to three months ended March 31, 2023: Depreciation and amortization expense increased $0.8 million, or 21.1%, from $3.8 million for the three months ended March 31, 2023 to $4.6 million for the three months ended March 31, 2024. The increase was primarily attributable to additional software and technology investments in the business. U.S. GAAP Other Non-Operating Items of Income and Expense Other non-operating items of income and expense consist of: i. investment income; ii. interest income; and iii. interest expense. Investment Income Three months ended March 31, 2024 compared to three months ended March 31, 2023: Investment income increased $0.6 million, from $0.3 million for the three months ended March 31, 2023 to $0.9 million for the three months ended March 31, 2024, reflecting an increase in returns generated by seed capital investments due to market appreciation. Interest Income Three months ended March 31, 2024 compared to three months ended March 31, 2023: Interest income increased $0.2 million, or 18.2%, from $1.1 million for the three months ended March 31, 2023 compared to $1.3 million for the three months ended March 31, 2024. The increase was due to an increases in short-term investment returns in the three months ended March 31, 2024. Interest Expense Three months ended March 31, 2024 compared to three months ended March 31, 2023: Interest expense increased $0.1 million, or 2.0%, from $4.9 million for the three months ended March 31, 2023 to $5.0 million for the three months ended March 31, 2024, reflecting an increase in interest rates on the revolving credit facility in the three months ended March 31, 2024. U.S. GAAP Income Tax Expense Our effective tax rate has been impacted by state and local tax obligations, changes in liabilities for uncertain tax positions, tax effects of stock-based compensation, limitations on executive compensation, and the mix of income earned in the United States versus foreign jurisdictions. 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. 39 Table of Contents Three months ended March 31, 2024 compared to three months ended March 31, 2023 : Income tax expense increased $1.0 million, from $5.1 million for the three months ended March 31, 2023 to $6.1 million for the three months ended March 31, 2024. The increase in income tax expense primarily relates to the increase in income before income taxes during the three months ended March 31, 2024. U.S. GAAP Consolidated Funds 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 Consolidated Financial Statements and is not included in net income attributable to controlling interests or in management fees. Three months ended March 31, 2024 compared to three months ended March 31, 2023 : Consolidated Funds’ revenue decreased $(0.3) million, from $0.7 million for the three months ended March 31, 2023 to $0.4 million for the three months ended March 31, 2024. Consolidated Funds’ expense decreased $(0.6) million, from $0.7 million for the three months ended March 31, 2023 to $0.1 million for the three months ended March 31, 2024. Net consolidated Funds’ investment gain increased $0.9 million from $0.8 million for the three months ended March 31, 2023 to $1.7 million for the three months ended March 31, 2024. Key U.S. GAAP Operating Metrics The following table shows our key U.S. GAAP operating metrics for the three months ended March 31, 2024 and 2023. Three Months Ended March 31, ($ in millions) 2024 2023 Numerator: Operating income $ 22.9 $ 19.8 Denominator: Total revenue $ 105.7 $ 91.8 U.S. GAAP operating margin (1) 21.7 % 21.6 % Numerator: Total operating expenses (2) $ 82.7 $ 71.3 Denominator: Management fee revenue $ 102.2 $ 90.6 U.S. GAAP operating expense / management fee revenue (3) 80.9 % 78.7 % Numerator: Variable compensation $ 26.4 $ 23.2 Denominator: Operating income before variable compensation and Affiliate key employee distributions (2)(4)(5) $ 51.2 $ 44.2 U.S. GAAP variable compensation ratio (3) 51.6 % 52.5 % Numerator: Affiliate key employee distributions $ 2.2 $ 1.2 Denominator: Operating income before Affiliate key employee distributions (2)(4)(5) $ 24.8 $ 21.0 U.S. GAAP Affiliate key employee distributions ratio (3) 8.9 % 5.7 % (1) Excluding the effect of Funds’ consolidation in the applicable periods, the U.S. GAAP operating margin is 21.5% for the three months ended March 31, 2024, and 21.7% for the three months ended March 31, 2023. (2) Excludes consolidated Funds’ expense of $0.1 million for the three months ended March 31, 2024, and $0.7 million for the three months ended March 31, 2023. (3) Excludes the effect of Funds consolidation for the three months ended March 31, 2024 and 2023. (4) Excludes consolidated Funds’ revenue of $0.4 million for the three months ended March 31, 2024, and $0.7 million for the three months ended March 31, 2023. 40 Table of Contents (5) The following table identifies the components of operating income before variable compensation and Affiliate key employee distributions, as well as operating income before Affiliate key employee distributions: Three Months Ended March 31, ($ in millions) 2024 2023 Operating income $ 22.9 $ 19.8 Affiliate key employee distributions 2.2 1.2 Operating (income) loss of consolidated Funds (0.3) — Operating income before Affiliate key employee distributions 24.8 21.0 Variable compensation 26.4 23.2 Operating income before variable compensation and Affiliate key employee distributions $ 51.2 $ 44.2 Non-GAAP Supplemental Performance Measure — Economic Net Income and Segment Analysis As supplemental information, we provide a non-GAAP performance measure that we refer to as economic net income, or ENI, which represents our management’s view of the underlying economic earnings generated by us. We define economic net income as ENI revenue less (i) ENI operating expenses, (ii) variable compensation, (iii) key employee distributions, (iv) net interest and (v) taxes, each as further discussed in this section. ENI adjustments to U.S. GAAP include both reclassifications of U.S. GAAP revenue and expense items, as well as adjustments to U.S. GAAP results, primarily to exclude non-cash, non-economic expenses, or to reflect cash benefits not recognized under U.S. GAAP. ENI is an important measure to investors because it is used by us to make resource allocation decisions, determine appropriate levels of investment or dividend payout, manage balance sheet leverage, determine Affiliate variable compensation and equity distributions, and incentivize management. It is also an important measure because it assists management in evaluating our operating performance and is presented in a way that most closely reflects the key elements of our profit share operating model with our Affiliate. For a further discussion of how we use ENI and why ENI is useful to investors, see “—Overview—How We Measure Performance.” To calculate economic net income, we re-categorize certain line items on our Condensed Consolidated Statements of Operations to reflect the following: • We exclude the effect of Funds’ consolidation by removing the portion of Fund revenues, expenses and investment return which were not attributable to our stockholders. • We include within management fee revenue any fees paid to Affiliate by consolidated Funds. • We include our share of earnings from our equity-accounted Affiliate within other income in ENI revenue, rather than investment income. • We treat sales-based compensation as a general and administrative expense, rather than part of fixed compensation and benefits. • We identify separately from operating expenses variable compensation and Affiliate key employee distributions, which represent Affiliate earnings shared with Affiliate key employees. 41 Table of Contents We also make the following adjustments to U.S. GAAP results to more closely reflect our economic results: i. We exclude non-cash expenses representing changes in the value of Affiliate equity and profit interests held by Affiliate key employees. These ownership interests may in certain circumstances be repurchased by BSUS at a value based on a pre-determined fixed multiple of trailing earnings and as such this value is carried on our balance sheet as a liability. Non-cash movements in the value of this liability are treated as compensation expense under U.S. GAAP. However, any equity or profit interests repurchased by BSUS can be used to fund a portion of future variable compensation awards, resulting in savings in cash variable compensation that offset the negative cash effect of repurchasing the equity. Our Affiliate equity and profit interest plans have been designed to ensure BSUS is never required to repurchase more equity than we can reasonably recycle through variable compensation awards in any given twelve-month period. ii. We exclude non-cash amortization or impairment expenses related to acquired goodwill and other intangibles as these are non-cash charges that do not result in an outflow of tangible economic benefits from the business. iii. We exclude capital transaction costs, including the costs of raising debt or equity, gains or losses realized as a result of redeeming debt or equity and direct incremental costs associated with acquisitions of businesses or assets. iv. We exclude seed capital and co-investment gains, losses, and related financing costs. The net returns on these investments are considered and presented separately from ENI because ENI is primarily a measure of our earnings from managing client assets, which therefore differs from earnings generated by our investments in Affiliate products, which can be variable from period to period. v. We include cash tax benefits associated with deductions allowed for acquired intangibles and goodwill that may not be recognized or have timing differences compared to U.S. GAAP. vi. We exclude the results of discontinued operations attributable to controlling interests since they are not part of our ongoing business and restructuring costs incurred in continuing operations. vii. We exclude deferred tax resulting from changes in tax law and expiration of statutes, adjustments for uncertain tax positions, deferred tax attributable to intangible assets and other unusual items not related to current operating results to reflect ENI tax normalization. We also adjust our income tax expense to reflect any tax impact of our ENI adjustments. 42 Table of Contents Reconciliation of U.S. GAAP Net Income to Economic Net Income for the Three Months Ended March 31, 2024 and 2023 The following table reconciles net income attributable to controlling interests to economic net income for the three months ended March 31, 2024 and 2023: Three Months Ended March 31, ($ in millions) 2024 2023 U.S. GAAP net income attributable to controlling interests $ 14.6 $ 12.0 Adjustments to reflect the economic earnings of the Company: i. Non-cash key employee-owned equity and profit interest revaluations 4.4 (0.6) ii. Amortization of acquired intangible assets — — iii. Capital transaction costs 0.1 0.1 iv. Seed/Co-investment (gains) losses and financings (1) (1.2) (0.8) v. Tax benefit of goodwill and acquired intangibles deductions 0.4 0.4 vi. Discontinued operations attributable to controlling interests and restructuring (2) — 0.4 vii. ENI tax normalization — 0.1 Tax effect of above adjustments, as applicable (3) (0.9) 0.2 Economic net income $ 17.4 $ 11.8 (1) The net return on seed/co-investment (gains) losses and financings for the three months ended March 31, 2024 and 2023 is shown in the following table: Three Months Ended March 31, ($ in millions) 2024 2023 Seed/Co-investment gains $ (1.8) $ (1.1) Financing costs: Seed/Co-investment average balance 36.2 19.1 Blended interest rate* 6.5 % 6.5 % Financing costs 0.6 0.3 Net seed/co-investment gains and financing $ (1.2) $ (0.8) * The blended rate is based on the weighted average rate of the long-term debt. (2) The three months ended March 31, 2024 includes severance-related items at Acadian of $(0.2) million and costs associated with the transfer of an insurance policy from our former parent of $0.2 million. The three months ended March 31, 2023 includes costs associated with the transfer of an insurance policy from our former parent of $0.4 million. (3) Reflects the sum of lines (i), (ii), (iii), (iv) and the restructuring component of line (vi) multiplied by the 27.3% U.S. statutory tax rate (including state tax). 43 Table of Contents Limitations of Economic Net Income Economic net income is the key measure our management uses to evaluate the financial performance of, and make operational decisions for, our business. Economic net income is not audited and is not a substitute for net income or other performance measures that are derived in accordance with U.S. GAAP. Furthermore, our calculation of economic net income may differ from similarly titled measures provided by other companies. Because the calculation of economic net income excludes certain ongoing expenses, including amortization expense and certain compensation costs, it has certain material limitations and should not be viewed in isolation or as a substitute for U.S. GAAP measures of earnings. ENI Revenues The following table reconciles U.S. GAAP revenue to ENI revenue for the three months ended March 31, 2024 and 2023: Three Months Ended March 31, ($ in millions) 2024 2023 U.S. GAAP revenue $ 105.7 $ 91.8 Exclude revenue from consolidated Funds attributable to non-controlling interests (0.4) (0.7) ENI revenue $ 105.3 $ 91.1 The following table identifies the components of ENI revenue: Three Months Ended March 31, ($ in millions) 2024 2023 Management fees (1) $ 102.2 $ 90.6 Performance fees (2) 3.1 0.5 ENI revenue $ 105.3 $ 91.1 (1) ENI management fees correspond to U.S. GAAP management fees. (2) ENI performance fees correspond to U.S. GAAP performance fees. ENI Operating Expenses The largest difference between U.S. GAAP operating expense and ENI operating expense relates to compensation. As shown in the following reconciliation, we exclude the impact of key employee equity revaluations. Variable compensation and Affiliate key employee distributions are also segregated out of U.S. GAAP operating expense in order to align with the manner in which these items are contractually calculated at the Affiliate level. 44 Table of Contents The following table reconciles U.S. GAAP operating expense to ENI operating expense for the three months ended March 31, 2024 and 2023. Three Months Ended March 31, ($ in millions) 2024 2023 U.S. GAAP operating expense $ 82.8 $ 72.0 Less: items excluded from economic net income Non-cash key employee equity and profit interest revaluations (4.4) 0.6 Restructuring costs (1) — (0.4) Funds’ operating expense (0.1) (0.7) Less: items segregated out of U.S. GAAP operating expense Variable compensation (2) (26.6) (23.2) Affiliate key employee distributions (2.2) (1.2) ENI operating expense $ 49.5 $ 47.1 (1) The three months ended March 31, 2024 includes $(0.2) million of severance-related items at Acadian and $0.2 million of costs associated with the transfer of an insurance policy from our former parent. The three months ended March 31, 2023 includes $0.4 million costs associated with the transfer of an insurance policy from our former parent. (2) The three months ended March 31, 2024 excludes $(0.2) million severance-related items at Acadian that is included within Restructuring costs. The following table identifies the components of ENI operating expense: Three Months Ended March 31, ($ in millions) 2024 2023 Fixed compensation & benefits (1) $ 23.5 $ 23.4 General and administrative expenses (2) 21.4 19.9 Depreciation and amortization 4.6 3.8 ENI operating expense $ 49.5 $ 47.1 (1) Fixed compensation and benefits include base salaries, payroll taxes and the cost of benefit programs provided. The following table reconciles U.S. GAAP compensation and benefits expense for the three months ended March 31, 2024 and 2023 to ENI fixed compensation and benefits expense: Three Months Ended March 31, ($ in millions) 2024 2023 Total U.S. GAAP compensation and benefits expense $ 58.1 $ 49.1 Non-cash key employee equity and profit interest revaluations excluded from ENI (4.4) 0.6 Sales-based compensation reclassified to ENI general & administrative expenses (1.6) (1.9) Affiliate key employee distributions (2.2) (1.2) Restructuring expenses 0.2 — Variable compensation (26.6) (23.2) ENI fixed compensation and benefits $ 23.5 $ 23.4 45 Table of Contents The following table reconciles U.S. GAAP general and administrative expense to ENI general and administrative expense: Three Months Ended March 31, ($ in millions) 2024 2023 U.S. GAAP general and administrative expense $ 20.0 $ 18.4 Sales-based compensation 1.6 1.9 Restructuring costs (0.2) (0.4) ENI general and administrative expense $ 21.4 $ 19.9 Key Non-GAAP Operating Metrics The following table shows our key non-GAAP operating metrics for the three months ended March 31, 2024 and 2023. We present these metrics because they are the measures our management uses to evaluate the profitability of our business and are useful to investors because they represent the key drivers and measures of economic performance within our business model. Please see the footnotes below for an explanation of each ratio, its usefulness in measuring the economics and operating performance of our business, and a reference to the most closely related U.S. GAAP measure: Three Months Ended March 31, ($ in millions) 2024 2023 Numerator: ENI operating earnings (1) $ 29.2 $ 20.8 Denominator: ENI revenue $ 105.3 $ 91.1 ENI operating margin (2) 27.7 % 22.8 % Numerator: ENI operating expense $ 49.5 $ 47.1 Denominator: ENI management fee revenue (3) $ 102.2 $ 90.6 ENI operating expense ratio (4) 48.4 % 52.0 % Numerator: ENI variable compensation $ 26.6 $ 23.2 Denominator: ENI earnings before variable compensation (1)(5) $ 55.8 $ 44.0 ENI variable compensation ratio (6) 47.7 % 52.7 % Numerator: Affiliate key employee distributions $ 2.2 $ 1.2 Denominator: ENI operating earnings (1) $ 29.2 $ 20.8 ENI Affiliate key employee distributions ratio (7) 7.5 % 5.8 % (1) ENI operating earnings represents ENI earnings before Affiliate key employee distributions and is calculated as ENI revenue, less ENI operating expense, less ENI variable compensation. It differs from economic net income because it does not include the effects of Affiliate key employee distributions, net interest expense or income tax expense. 46 Table of Contents The following table reconciles U.S. GAAP operating income to ENI operating earnings: Three Months Ended March 31, ($ in millions) 2024 2023 U.S. GAAP operating income $ 22.9 $ 19.8 Exclude the impact of: Affiliate key employee-owned equity and profit interest revaluations 4.4 (0.6) Goodwill impairment and amortization of acquired intangible assets — — Restructuring costs (a) — 0.4 Affiliate key employee distributions 2.2 1.2 Variable compensation 26.6 23.2 Funds’ operating (income) loss (0.3) — ENI earnings before variable compensation 55.8 44.0 Less: ENI variable compensation (b) (26.6) (23.2) ENI operating earnings 29.2 20.8 Less: ENI Affiliate key employee distributions (2.2) (1.2) ENI earnings after Affiliate key employee distributions $ 27.0 $ 19.6 (a) The three months ended March 31, 2024 includes $(0.2) million of severance-related items at Acadian and $0.2 million of costs associated with the transfer of an insurance policy from our former parent. The three months ended March 31, 2023 includes $0.4 million of costs associated with the transfer of an insurance policy from our former parent. (b) The three months ended March 31, 2024 excludes $(0.2) million severance-related items at Acadian. (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. The ENI operating margin is most comparable to our U.S. GAAP operating margin. Our U.S. GAAP operating margin, excluding the effect of consolidated Funds, is 21.5% for the three months ended March 31, 2024, and 21.7% for the three months ended March 31, 2023. 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 our Affiliate. Management and investors use this ratio when comparing our profitability relative to our peer group and evaluating our ability to manage the cost structure and profitability of our business under different operating environments. (3) ENI management fee revenue corresponds to U.S. GAAP management fee revenue. (4) The ENI operating expense ratio is used by management and is useful to investors to evaluate the level of operating expense as measured against our recurring management fee revenue. We have provided this ratio since many operating expenses, including fixed compensation and benefits and general and administrative expense, are generally linked to the overall size of the business. We track this ratio as a key measure of scale economies because in our profit-sharing economic model, scale benefits both the Affiliate employees and our stockholders. The ENI operating expense ratio is most comparable to the U.S. GAAP operating expense / management fee revenue ratio. (5) ENI earnings before variable compensation is calculated as ENI revenue, less ENI operating expense. 47 Table of Contents (6) The ENI variable compensation ratio is used by management and is useful to investors to evaluate consolidated variable compensation as measured against our ENI earnings before variable compensation. Variable compensation is contractually set and calculated individually at our Affiliate, plus Center bonuses. Variable compensation is usually awarded based on a contractual percentage of our Affiliate’s ENI earnings before variable compensation and may be paid in the form of cash or non-cash Affiliate equity or profit interests. Center variable compensation includes cash and our equity. Non-cash variable compensation awards typically vest over several years and are recognized as compensation expense over that service period. The variable compensation ratio at our Affiliate is calculated as variable compensation divided by ENI earnings before variable compensation. The ENI variable compensation ratio is most comparable to the U.S. GAAP variable compensation ratio. (7) The ENI Affiliate key employee distribution ratio is used by management and is useful to investors to evaluate Affiliate key employee distributions as measured against our ENI operating earnings. Affiliate key employee distributions represent the share of Affiliate profits after variable compensation that is attributable to Affiliate key employee equity and profit interests holders, according to their ownership interests. The Affiliate key employee distribution ratio at our Affiliate is calculated as Affiliate key employee distributions divided by ENI operating earnings at that Affiliate. Within our Affiliate, we have a tiered equity structure, where BSUS and other classes of employee equity holders are entitled to an initial proportionate preference over profits after variable compensation, structured such that before a preference threshold is reached, there would be no required key employee distributions to the tiered equity holders, whereas for profits above the threshold the key employee distribution amount to the tiered equity holders would be calculated based on the tiered key employee ownership percentages. The ENI Affiliate key employee distributions ratio is most comparable to the U.S. GAAP Affiliate key employee distributions ratio. Tax on Economic Net Income The following table reconciles the United States statutory tax to tax on economic net income: Three Months Ended March 31, ($ in millions) 2024 2023 Pre-tax economic net income (1) $ 24.0 $ 16.2 Taxes at the U.S. federal and state statutory rates (2) (6.6) (4.4) Other reconciling tax adjustments — — Tax on economic net income (6.6) (4.4) Economic net income $ 17.4 $ 11.8 Economic net income effective tax rate (3) 27.5 % 27.2 % (1) Includes interest income and third-party ENI interest expense, as shown in the following table: Three Months Ended March 31, ($ in millions) 2024 2023 U.S. GAAP interest income $ 1.3 $ 1.1 U.S. GAAP interest expense (5.0) (4.9) U.S. GAAP net interest expense (3.7) (3.8) Other ENI interest expense exclusions (a) 0.7 0.4 ENI net interest expense (3.0) (3.4) ENI earnings after Affiliate key employee distributions (b) 27.0 19.6 Pre-tax economic net income $ 24.0 $ 16.2 48 Table of Contents (a) Other ENI interest expense exclusions represent cost of financing on seed capital and co-investments and amortization of debt issuance costs. (b) ENI earnings after Affiliate key employee distributions is calculated as ENI operating income (ENI revenue, less ENI operating expense, less ENI variable compensation), less Affiliate key employee distributions. Refer to “—Key Non-GAAP Operating Metrics” for a reconciliation from U.S. GAAP operating income (loss) to ENI earnings after Affiliate key employee distributions. (2) Taxed at U.S. Federal and State statutory rate of 27.3%. (3) The economic net income effective tax rate is calculated by dividing the tax on economic net income by pre-tax economic net income. Investments The value of our seed capital investments was $43.2 million as of March 31, 2024 and $41.4 million as of December 31, 2023, including direct investments in consolidated Funds. Total seed capital investments represents our seed capital invested within our Affiliate’s investment products. The following table reconciles the investments balance per our Condensed Consolidated Balance Sheets to the total value of our seed capital investments as of each of the dates indicated: ($ in millions) December 31, 2023 December 31, 2023 Investments per Consolidated Balance Sheets $ 67.0 $ 64.7 Seed capital investment in consolidated Funds 22.4 21.4 Investments related to long-term incentive compensation plans (46.2) (44.7) Total seed capital investments $ 43.2 $ 41.4 Segment Analysis We operate our business through 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, equity alternatives including macro, and credit strategies. This segment is comprised of our interest in Acadian. The corporate head office is included within the Other category. The corporate head office expenses are not allocated to the Company’s business segment but the CODM does consider the cost structure of the corporate head office when evaluating the financial performance of our segment. The primary measure used by the CODM in measuring performance and allocating resources to the segments is ENI. We define economic net income for the segments as ENI revenue less (i) ENI operating expenses, (ii) variable compensation and (iii) key employee distributions. The ENI adjustments to U.S. GAAP include both reclassifications of U.S. GAAP revenue and expense items, as well as adjustments to U.S. GAAP results, primarily to exclude non-cash, non-economic expenses, or to reflect cash benefits not recognized under U.S. GAAP. ENI revenue includes management fees, performance fees and other revenue under U.S. GAAP, adjusted to include management fees paid to our Affiliate by consolidated Funds. 49 Table of Contents 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, capital transaction costs, and restructuring costs. 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 Funds’ revenues, expenses and investment return recorded under U.S. GAAP. Refer to the reconciliations of U.S. GAAP revenue to ENI revenue, U.S. GAAP Operating expense to ENI Operating expense, variable compensation and Affiliate key employee distributions disclosed previously within this section. Segment ENI Revenue The following table identifies the components of segment ENI revenue for the three months ended March 31, 2024 and 2023: Three Months Ended March 31, ($ in millions) 2024 2023 Quant & Solutions Total Quant & Solutions Total Management fees $ 102.2 $ 102.2 $ 90.6 $ 90.6 Performance fees 3.1 3.1 0.5 0.5 ENI revenue $ 105.3 $ 105.3 $ 91.1 $ 91.1 Quant & Solutions Segment ENI Revenue Three months ended March 31, 2024 compared to three months ended March 31, 2023: Quant & Solutions ENI revenue increased $14.2 million, or 15.6%, from $91.1 million for the three months ended March 31, 2023 to $105.3 million for the three months ended March 31, 2024. The increase was attributable to 12.8% higher management fees, driven by higher average AUM and higher performance fees that are variable and are contractually triggered based on investment performance results over agreed upon time periods. Segment ENI Expense The following table identifies the components of segment ENI expense for the three months ended March 31, 2024 and 2023: Three Months Ended March 31, ($ in millions) 2024 2023 Quant & Solutions Other Total Quant & Solutions Other Total Fixed compensation & benefits $ 21.6 $ 1.9 $ 23.5 $ 21.6 $ 1.8 $ 23.4 General and administrative expense 19.5 1.9 21.4 18.2 1.7 19.9 Depreciation and amortization 4.6 — 4.6 3.8 — 3.8 Total ENI operating expenses $ 45.7 $ 3.8 $ 49.5 $ 43.6 $ 3.5 $ 47.1 Variable compensation 26.0 0.6 26.6 22.5 0.7 23.2 Affiliate key employee distributions 2.2 — 2.2 1.2 — 1.2 Total expenses $ 73.9 $ 4.4 $ 78.3 $ 67.3 $ 4.2 $ 71.5 50 Table of Contents Quant & Solutions Segment ENI Expense Three months ended March 31, 2024 compared to three months ended March 31, 2023: Quant & Solutions ENI operating expense increased $2.1 million, or 4.8%, from $43.6 million for the three months ended March 31, 2023 to $45.7 million for the three months ended March 31, 2024. The increase was driven by 7.1% higher ENI general and administrative expense primarily due to higher systems, outside services, and portfolio administrative costs and continued investment in growth initiatives and capabilities. Quant & Solutions ENI fixed compensation and benefits expense was unchanged at $21.6 million for the three months ended March 31, 2024 and 2023, respectively, reflecting cost of living increases and the cost of new hires supporting our growth initiatives, offset by cost savings realized from restructuring in late 2023. Quant & Solutions ENI variable compensation expense is based on contractual percentage of earnings before variable compensation, and also includes a formulaic split of performance fee revenue that gets deferred and recognized as variable compensation expense over a three-year vesting period. Quant & Solutions ENI variable compensation expense increased 15.6% as a result of higher earnings before variable compensation in the three months ended March 31, 2024. Affiliate key employee distributions attributable to Quant & Solutions increased 83.3%, as a result of higher operating earnings, impacted by the leveraged nature of the distribution share. Other ENI Expense Three months ended March 31, 2024 compared to three months ended March 31, 2023: Other ENI operating expense increased $0.3 million, or 8.6%, from $3.5 million for the three months ended March 31, 2023 to $3.8 million for the three months ended March 31, 2024. The increase was driven by 5.6% higher fixed compensation and benefit expense due to cost of living and employee benefit increases driven by inflation and 11.8% higher general and administrative expense driven by an increase in rent expense. Other ENI variable compensation expense decreased (14.3)% due to lower non-cash equity compensation amortization at the corporate head office. Capital Resources and Liquidity Cash Flows The following table summarizes certain key financial data relating to cash flows. All amounts presented exclude consolidated Funds: Three Months Ended March 31, ($ in millions) 2024 2023 Cash provided by (used in) (1) Operating activities $ (39.3) $ (34.3) Investing activities (1.4) (5.6) Financing activities (3.7) 85.5 (1) Excludes consolidated Funds. Comparison for the three months ended March 31, 2024 and 2023 Net cash from operating activities decreased $(5.0) million, from net cash used of $34.3 million for the three months ended March 31, 2023 to net cash used of $39.3 million for the three months ended March 31, 2024, driven by changes in net income offset by changes in operating assets and liabilities period-over-period. In the three months ended March 31, 2024, net cash from investing activities increased by $4.2 million, from $(5.6) million used in the three months ended March 31, 2023 to $(1.4) million used in the three months ended March 31, 2024, driven by higher net sales of investment securities and lower fixed asset additions in the three months ended March 31, 2024. Net cash from financing activities decreased $89.2 million, from $85.5 million provided in the three months ended March 31, 2023 to $(3.7) million used in the three months ended March 31, 2024, primarily due to the repayment of third party borrowings and higher share repurchases in the three months ended March 31, 2024. 51 Table of Contents Supplemental Liquidity Measure — Adjusted EBITDA As supplemental information, we provide information regarding Adjusted EBITDA, which we define as economic net income before net interest, income taxes, depreciation, and amortization. Adjusted EBITDA is a non-GAAP liquidity measure that we provide in addition to, but not as a substitute for, cash flows from operating activities. It should be noted that our calculation of Adjusted EBITDA may not be consistent with Adjusted EBITDA as calculated by other companies. We believe Adjusted EBITDA is a useful liquidity metric because it indicates our ability to make further investments in our business, service debt and meet working capital requirements. The following table reconciles our U.S. GAAP net income attributable to controlling interests to EBITDA to Adjusted EBITDA to economic net income for the three months ended March 31, 2024 and 2023. Three Months Ended March 31, ($ in millions) 2024 2023 Net income attributable to controlling interests $ 14.6 $ 12.0 Net interest expense to third parties 3.7 3.8 Income tax expense 6.1 5.1 Depreciation and amortization (including intangible assets) 4.6 3.8 EBITDA $ 29.0 $ 24.7 Non-cash compensation costs, including revaluation of Affiliate key employee-owned equity and profit interests 4.7 (0.4) Gain on seed and co-investments (1.8) (1.1) Restructuring expenses (1) — 0.4 Capital transaction costs — — Adjusted EBITDA $ 31.9 $ 23.6 ENI net interest expense to third parties (3.0) (3.4) Depreciation and amortization (2) (4.9) (4.0) Tax on economic net income (6.6) (4.4) Economic net income $ 17.4 $ 11.8 (1) The three months ended March 31, 2024 includes $(0.2) million of severance-related items at Acadian and $0.2 million of costs associated with the transfer of an insurance policy from our former parent. The three months ended March 31, 2023 includes costs associated with the transfer of an insurance policy from our former parent of $0.4 million. (2) Includes non-cash equity-based award amortization expense. Limitations of Adjusted EBITDA As a non-GAAP, unaudited liquidity measure and derivation of EBITDA, Adjusted EBITDA has certain material limitations. It does not include cash costs associated with capital transactions and excludes certain U.S. GAAP expenses that fall outside the definition of EBITDA. Each of these categories of expense represents costs to us of doing business, and therefore any measure that excludes any or all of these categories of expense has material limitations. 52 Table of Contents Future Capital Needs We believe that our available cash and cash equivalents to be generated from operations, supplemented by short-term and long-term financing, as necessary, will be sufficient to fund current operations and capital requirements for at least the next twelve months, as well as our day-to-day operations and future investment requirements. Our ability to secure short-term and long-term financing in the future will depend on several factors, including our future profitability, our relative levels of debt and equity and the overall condition of the credit markets. Borrowings and Long-Term Debt The following table summarizes our financing arrangements as of the dates indicated: ($ in millions) March 31, 2024 December 31, 2023 Interest rate Maturity Revolving credit facility: $125 million revolving credit facility $ 73.0 $ — Variable rate March 7, 2025 Total revolving credit facility $ 73.0 $ — Third party borrowings: 4.80% Senior Notes Due 2026 $ 274.0 $ 273.9 4.80% July 27, 2026 Total third party borrowings $ 274.0 $ 273.9 Revolving Credit Facility On March 7, 2022, Acadian, 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 (“Acadian Credit Agreement”), which replaced our 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 the Original Credit Agreement was August 22, 2022, and the maturity date of the Acadian Credit Agreement is March 7, 2025. 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 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 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, 2024, Acadian’s Leverage Ratio was 0.5x and Acadian’s Interest Coverage Ratio was 57.6x. 53 Table of Contents Other Compensation Liabilities Other compensation liabilities principally consist of cash-settled Affiliate equity and profit interests liabilities held by certain Affiliate key employees, and voluntary deferred compensation plans. The following table summarizes our other long-term liabilities as of each of the dates indicated: March 31, 2024 December 31, 2023 ($ in millions) Share-based payments liability $ 22.3 $ 23.0 Affiliate profit interests liability 4.3 — Employee equity 26.6 23.0 Voluntary deferral plan liability 46.1 44.5 Total $ 72.7 $ 67.5 Share-based payments liability represents the value of Affiliate key employee-owned equity that may under certain circumstances be repurchased by us that is considered an equity award under U.S. GAAP based on the terms and conditions attached to these interests. Affiliate profit interests liability represents the value of Affiliate key employee-owned equity that may under certain circumstances be repurchased by us that is not considered an equity award under U.S. GAAP, but rather a form of compensation arrangement, based on the terms and conditions attached to these interests. Our obligation in any given period in respect of funding these potential repurchases of Affiliate equity is limited to only that portion that may be put to us by Affiliate key employees, which is typically capped annually under the terms of these arrangements such that we are not required to repurchase more than we can reasonably recycle by re-granting the interests in lieu of cash variable compensation owed to Affiliate key employees. Certain of our and Acadian’s key employees are eligible to participate in our voluntary deferral plan, or VDP, which provides our senior personnel the opportunity to voluntarily defer a portion of their compensation. There is a voluntary deferral plan investment balance included in investments on the Condensed Consolidated Balance Sheets that corresponds to this deferral liability. Additionally, we have recorded accrued incentive compensation of $30.2 million and $101.3 million on the Condensed Consolidated Balance Sheets as of March 31, 2024 and December 31, 2023, respectively. Included within the accrued incentive compensation balance is the vested portion of Acadian’s deferred compensation pool. Acadian’s deferred compensation pool is based on a contractual percentage of Acadian performance fee revenues and post-bonus profits, and is subject to a three-year vesting period. Compensation expense is recognized over the requisite service period. Unamortized compensation expense related to the unvested portion of the deferred compensation pool of $14.4 million, $10.7 million and $0.5 million is expected to be recognized in the years ending December 31, 2024, 2025 and 2026, respectively. Critical Accounting Policies and Estimates There have been no significant changes to the critical accounting policies and estimates disclosed in our most recent Form 10-K for the year ended December 31, 2023. Critical accounting policies and estimates are those that require management’s most difficult, subjective or complex judgments and would therefore be deemed the most critical to an understanding of our results of operations and financial condition. Recent Accounting Developments See discussion of Recent Accounting Developments in Note 2 of the accompanying Condensed Consolidated Financial Statements. 54 Table of Contents Forward Looking Statements This Quarterly Report on Form 10-Q includes forward-looking statements, which may include, from time to time, anticipated revenues, margins, cash flows or earnings, anticipated future performance of our business, our expected future net cash flows, our anticipated expense levels, capital management, 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,” “plan,” “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 February 28, 2024, and subsequent SEC filings. Due to such risks and uncertainties and other factors, we caution each person receiving such forward-looking information not to place undue reliance on such statements. Further, such forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q and we undertake no obligations to update any forward looking statement to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect the occurrence of unanticipated events. 55 Table of Contents