What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2022-07-28 compared with 2022-05-03 · 179 added, 158 removed, 422 unchanged (44% of the section changed)

28 unchanged sentences

These arrangements could change in the future.

As further noted in the “Risk Factors” section of our Annual Report on Form 10-K for the fiscal year 2021, the outbreak and spread of contagious diseases such as the coronavirus disease 2019 (“COVID-19”), a highly transmissible and pathogenic disease, has adversely affected, and may continue to adversely affect, our business, financial condition and results of operations.

Ongoing global health concerns, and uncertainty regarding the impact of COVID-19, could lead to further and/or increased volatility in global capital and credit markets, adversely affect our key executives and other personnel, clients, investors, providers, suppliers, lessees, and other third parties, and negatively impact our AUM, revenues, income, business and operations.

As of the time of this filing, as the COVID-19 pandemic continues to evolve, it is not possible to predict the full extent to which the pandemic may adversely impact our business, liquidity, capital resources, financial results and operations, which impacts will depend on numerous developing factors that remain uncertain and subject to change.

During our second fiscal quarter, global equity markets declined driven by concerns about the global economic impacts of the Russian invasion of Ukraine, rising inflation and central banks’ monetary policies, including expectations about the pace of future interest rate increases.

The S&P 500 Index and MSCI World Index decreased 4.6% and 5.0% for the quarter, and increased 5.9% and 2.4% for the fiscal year to date.

The global bond markets had negative returns, with the Bloomberg Global Aggregate Index decreasing 6.2% during the quarter and 6.8% for the fiscal year to date, as the Federal Reserve and other developed market central banks began increasing interest rates in an effort to combat inflation.

Our total AUM at March 31, 2022 was $1,477.5 billion, 3% lower than at September 30, 2021 and 1% lower than at March 31, 2021.

Monthly average AUM (“average AUM”) for the three and six months ended March 31, 2022 increased 1% and 4% from the same periods in the prior fiscal year.

During our third fiscal quarter, global equity markets remained challenged amid continued concerns about further interest rate increases, the global economic growth outlook and the risk of a recession.

The S&P 500 Index and MSCI World Index each decreased 16.1% for the quarter, and decreased 11.1% and 14.0% for the fiscal year to date.

The global bond markets had negative returns, with the Bloomberg Global Aggregate Index decreasing 8.3% during the quarter and 14.5% for the fiscal year to date, as the Federal Reserve and other developed market central banks continued to increase interest rates in an effort to combat inflation.

Our total AUM at June 30, 2022 was $1,379.8 billion, 10% lower than at September 30, 2021 and 11% lower than at June 30, 2021.

Monthly average AUM (“average AUM”) for the three and nine months ended June 30, 2022 decreased 6% and increased 1% from the same periods in the prior fiscal year.

On April 1, 2022, we acquired all of the outstanding ownership interests in Lexington Partners L.P.

(“Lexington”), a leading global manager of secondary private equity and co-investment funds, for cash consideration of $1.0 billion and additional payments totaling $750.0 million to be paid in cash over the next three years.

In connection with the acquisition, we are granting a 25% ownership stake in Lexington and performance-based cash retention awards that both vest over approximately five years.

In connection with the acquisition, we granted a 25% ownership stake in Lexington and performance-based cash retention awards that both vest over approximately five years.

On December 31, 2021, we acquired all of the outstanding ownership interest in O’Shaughnessy Asset Management, LLC (“OSAM”), a leading quantitative asset management firm, for cash consideration paid of approximately $300 million, excluding future payments to be made subject to the attainment of certain performance measures.

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Three Months Ended

March 31, Percent

Change Six Months Ended

March 31, Percent

June 30, Percent

Change Nine Months Ended

June 30, Percent

(in millions, except per share data) 2022 2021 2022 2021

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AUM by asset class was as follows:

(in billions) March 31,

2022 March 31,

(in billions) June 30,

2022 June 30,

Fixed Income $ 536.3 $ 658.1 (19 %)

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Change Mix of Average AUM

for the three months ended March 31, 2022 2021 2022 2021

for the three months ended June 30, 2022 2021 2022 2021

Fixed Income $ 563.4 $ 651.5 (14 %) 39 % 42 %

6 unchanged sentences

Change Mix of Average AUM

for the six months ended March 31, 2022 2021 2022 2021

for the nine months ended June 30, 2022 2021 2022 2021

Fixed Income $ 606.2 $ 657.5 (8 %) 40 % 44 %

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(in billions) Three Months Ended

March 31, Percent

Change Six Months Ended

March 31, Percent

June 30, Percent

Change Nine Months Ended

June 30, Percent

2022 2021 2022 2021

2 unchanged sentences

Long-term outflows (97.2) (90.3) 8 % (267.9) (296.8) (10 %)

Long-term net flows (11.7) (4.2) 179 % 12.4 (8.7) NM

Long-term net flows (19.8) (6.6) 200 % (7.4) (15.3) (52%)

Cash management net flows 0.4 (2.2) NM (0.9) (11.2) (92%)

Total net flows (18.8) (3.0) 527 % 11.1 (17.7) NM

Total net flows (19.4) (8.8) 120 % (8.3) (26.5) (69%)

Acquisitions 57.2 — NM 64.9 — NM

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for the three months ended

March 31, 2022

AUM at January 1, 2022 $ 642.1 $ 563.4 $ 154.3 $ 154.0 $ 64.3 $ 1,578.1

June 30, 2022

AUM at April 1, 2022 $ 595.0 $ 515.4 $ 157.9 $ 151.9 $ 57.3 $ 1,477.5

Long-term inflows 35.2 24.5 5.9 11.8 — 77.4

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Total net flows (14.3) (9.2) 2.1 1.6 0.4 (19.4)

Acquisition — — 57.2 — — 57.2

Net market change, distributions and other

(44.4) (81.3) 7.6 (17.3) (0.1) (135.5)

AUM at March 31, 2022 $ 595.0 $ 515.4 $ 157.9 $ 151.9 $ 57.3 $ 1,477.5

AUM decreased $100.6 billion or 6% during the three months ended March 31, 2022 due to $81.8 billion of net market change, distributions and other, $11.7 billion of long-term net outflows and $7.1 billion of cash management net outflows.

Net market change, distributions and other primarily consists of $77.0 billion of market depreciation and $4.6 billion of long-term distributions.

The market depreciation occurred primarily in the equity and fixed income asset classes.

AUM at June 30, 2022 $ 536.3 $ 424.9 $ 224.8 $ 136.2 $ 57.6 $ 1,379.8

AUM decreased $97.7 billion, or 7%, during the three months ended June 30, 2022 due to the negative impact of $135.5 billion of net market change, distributions and other and $19.8 billion of long-term net outflows, partially offset by an acquisition of $57.2 billion and $0.4 billion of cash management net inflows.

Net market change, distributions and other primarily consists of $117.3 billion of market depreciation, a $10.3 billion decrease from foreign exchange revaluation and $7.9 billion of long-term distributions.

The market depreciation occurred in all long-term asset classes with the exception of the alternative asset class.

Foreign exchange revaluation from AUM in products that are not U.S.

dollar denominated, which represented 10% of total AUM as of June 30, 2022, was primarily due to a stronger U.S.

dollar compared to the Australian dollar, Japanese Yen, Pound sterling and Euro.

AUM decreased $172.3 billion, or 11%, as compared to the prior year period.

Long-term inflows decreased 25% to $76.1 billion, driven by lower inflows in fixed income institutional separate accounts and equity and fixed income open-end funds.

Long-term outflows decreased 17% to $87.8 billion driven by lower redemptions in fixed income institutional separate accounts related to a single fixed income institutional redemption of nearly $6 billion and $1.3 billion of outflows from our India credit funds that did not earn management fees, which are in the process of winding up.

Long-term inflows decreased 8% to $77.4 billion, driven by lower inflows in fixed income, equity and alternative open-end funds and equity investment trusts,

partially offset by higher inflows in multi-asset open end funds, alternative private closed-end funds and multi-asset and equity sub-advised mutual funds.

Long-term outflows increased 8% to $97.2 billion driven by higher redemptions in fixed income open-end funds and institutional separate accounts, multi-asset sub-advised mutual funds, and equity retail separate accounts, partially offset by lower redemptions in equity sub-advised mutual funds, open-end funds and institutional separate accounts.

(in billions) Fixed Income Equity Alternative Multi-Asset Cash

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for the three months ended

March 31, 2021

AUM at January 1, 2021 $ 669.9 $ 495.7 $ 127.1 $ 141.1 $ 64.2 $ 1,498.0

June 30, 2021

AUM at April 1, 2021 $ 642.3 $ 511.9 $ 131.1 $ 148.2 $ 65.4 $ 1,498.9

Long-term inflows 40.2 29.1 5.8 8.6 — 83.7

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Net market change, distributions and other 13.7 36.5 6.6 5.1 0.1 62.0

(25.0) 21.8 1.1 6.0 — 3.9

AUM at March 31, 2021 $ 642.3 $ 511.9 $ 131.1 $ 148.2 $ 65.4 $ 1,498.9

AUM increased $0.9 billion during the three months ended March 31, 2021 due to $3.9 billion of net market change, distributions and other, and $1.2 billion of cash management net inflows, partially offset by $4.2 billion of long-term net outflows.

Net market change, distributions and other consists of $12.7 billion of market appreciation, partially offset by a $4.8 billion decrease from foreign exchange revaluation and $4.0 billion of long-term distributions.

The market appreciation occurred primarily in the equity and multi-asset asset classes, partially offset by depreciation in the fixed income asset class, and reflected positive returns in global equity markets and negative returns in fixed income markets.

Long-term outflows included outflows of $8.6 billion from three institutional products, including a single fixed income institutional redemption of $5.9 billion, $2.7 billion from two equity funds, $2.7 billion from six fixed income funds, including $1.3 billion from five India credit funds that were non-management fee earning which are in the process of winding up and $1.7 billion from a multi-asset fund, partially offset by inflows of $3.0 billion in a multi-asset fund, $1.8 billion in a fixed income fund, $1.1 billion in an equity fund and $1.1 billion in an institutional separate account.

Additionally, long-term outflows in the equity asset class included $2.1 billion of exchanges that are included as long-term inflows in the multi-asset asset class.

The foreign exchange revaluation was primarily due to the strengthening of the U.S.

dollar against the Japanese Yen, Euro and Brazilian Real.

AUM at June 30, 2021 $ 658.1 $ 536.9 $ 140.8 $ 153.0 $ 63.3 $ 1,552.1

AUM increased $53.2 billion, or 4%, during the three months ended June 30, 2021 due to $62.0 billion of net market change, distributions and other, partially offset by $6.6 billion of long-term net outflows and $2.2 billion of cash management net outflows.

Net market change, distributions and other consists of $66.1 billion of market appreciation and a $1.5 billion increase from foreign exchange revaluation, partially offset by $5.6 billion of long-term distributions.

The market appreciation occurred in all long-term asset classes, most significantly in the equity and fixed income asset classes, and reflected positive returns in global equity and fixed income markets.

Foreign exchange revaluation was primarily due to a weaker U.S.

dollar compared to the Brazilian Real, Canadian dollar and Euro, partially offset by a stronger U.S.

dollar compared to the Australian dollar.

Long-term outflows included outflows of $7.0 billion from three institutional products, including two equity redemptions of $3.7 billion and $2.2 billion, and $2.5 billion from six fixed income funds, including $1.2 billion from five India credit funds that were non-management fee earning which are in the process of winding up.

Long-term outflows were partially offset by inflows of $3.8 billion in two fixed income funds, including the $1.0 billion launch of a closed-end fund.

(in billions) Fixed Income Equity Alternative Multi-Asset Cash

Management Total

for the six months ended

March 31, 2022

for the nine months ended

June 30, 2022

AUM at October 1, 2021 $ 650.3 $ 523.6 $ 145.2 $ 152.4 $ 58.6 $ 1,530.1

7 unchanged sentences

(99.9) (100.7) 16.5 (22.7) (0.1) (206.9)

AUM at March 31, 2022 $ 595.0 $ 515.4 $ 157.9 $ 151.9 $ 57.3 $ 1,477.5

AUM decreased $52.6 billion or 3% during the six months ended March 31, 2022 due to $71.4 billion of net market change, distributions and other and $1.3 billion of cash management net outflows, partially offset by $12.4 billion of long-term net inflows and $7.7 billion from acquisitions.

Net market change, distributions and other primarily consists of $35.2 billion of market depreciation, $34.7 billion of long-term distributions.

The market depreciation occurred primarily in the fixed income and equity asset classes, partially offset by appreciation in the alternative asset class.

Long-term inflows decreased 7% to $183.1 billion, as compared to the prior-year period, driven by lower inflows in the equity and fixed income asset classes related to decreased sales in institutional separate accounts and open-end funds, partially offset by higher reinvested distributions in equity and multi-asset open-end funds.

Long-term outflows decreased 17% to $170.7 billion due to lower outflows in fixed income institutional separate accounts.

AUM at June 30, 2022 $ 536.3 $ 424.9 $ 224.8 $ 136.2 $ 57.6 $ 1,379.8

AUM decreased $150.3 billion, or 10%, during the nine months ended June 30, 2022 due to the negative impact of $206.9 billion of net market change, distributions and other, $7.4 billion of long-term net outflows and $0.9 billion of cash management net outflows, partially offset by $64.9 billion from acquisitions.

Net market change, distributions and other primarily consists of $152.5 billion of market depreciation, $42.6 billion of long-term distributions and $11.8 billion decrease from foreign exchange revaluation.

The market depreciation occurred in all asset classes with the exception of the alternative asset class.

Foreign exchange revaluation from AUM in products that are not U.S.

dollar denominated was primarily due to a stronger U.S.

dollar compared to the Japanese Yen, Euro, Pound Sterling and Australian dollar.

Long-term inflows decreased 7% to $260.5 billion, as compared to the prior-year period, driven by lower inflows in fixed income open-end funds and institutional separate accounts, partially offset by higher inflows for alternative private closed end funds.

Long-term outflows decreased 10% to $267.9 billion due to lower outflows in fixed income institutional separate accounts and equity open-end funds, partially offset by higher outflows for multi-asset sub-advised mutual funds.

(in billions) Fixed Income Equity Alternative Multi-Asset Cash

Management Total

for the six months ended

March 31, 2021

for the nine months ended

June 30, 2021

AUM at October 1, 2020 $ 656.9 $ 438.1 $ 122.1 $ 129.4 $ 72.4 $ 1,418.9

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7.6 114.6 12.3 23.1 2.1 159.7

AUM at March 31, 2021 $ 642.3 $ 511.9 $ 131.1 $ 148.2 $ 65.4 $ 1,498.9

AUM increased $80.0 billion or 6% during the six months ended March 31, 2021 due to $97.7 billion of net market change, distributions and other, partially offset by $9.0 billion of cash management net outflows and $8.7 billion of long-term net outflows.

AUM at June 30, 2021 $ 658.1 $ 536.9 $ 140.8 $ 153.0 $ 63.3 $ 1,552.1

AUM increased $133.2 billion, or 9%, during the nine months ended June 30, 2021 due to $159.7 billion of net market change, distributions and other, partially offset by $15.3 billion of long-term net outflows and $11.2 billion of cash management net outflows.

Net market change, distributions and other consists of $179.9 billion of market appreciation and a $4.9 billion increase from foreign exchange revaluation, partially offset by $25.1 billion of long-term distributions.

The market appreciation occured primarily in the equity and multi-asset asset classes, and reflected positive returns in global equity markets.

Long-term net outflows included outflows of $19.8 billion from eight institutional products, including a single fixed income institutional redemption of $5.9 billion, $7.1 billion from seven fixed income funds, including $1.3 billion from five India credit funds that were non-management fee earning which are in the process of winding up, $3.2 billion from two equity funds and $3.1 billion from a multi-asset fund, partially offset by inflows of $6.3 billion in two fixed income funds, $5.3 billion in two institutional separate accounts, $3.1 billion in a multi-asset fund and $2.4 billion in an equity fund.

The market appreciation occurred in all asset classes, most significantly in the equity and multi-asset asset classes, and reflected positive returns in global equity markets.

Foreign exchange revaluation was primarily due to a weaker U.S.

dollar compared to the Canadian dollar, Australian dollar, Pound Sterling and Brazilian Real, partially offset by a stronger U.S.

dollar compared to the Japanese Yen.

Long-term outflows included outflows of $26.9 billion from eleven institutional products, including a single fixed income redemption of $5.9 billion, and two equity redemptions of $3.7 billion and $2.2 billion, $10.2 billion from seven fixed income funds, including $2.5 billion from five India credit funds that were non-management fee earning which are in the process of winding up, $3.6 billion from two equity funds and $3.1 billion from a multi-asset fund.

Long-term outflows were partially offset by inflows of $10.6 billion in three fixed income funds, including the $1.0 billion launch of a closed-end fund, $5.3 billion in two institutional separate accounts, $3.1 billion in a multi-asset fund and $3.0 billion in an equity fund.

Additionally, long-term outflows in the equity asset class included $2.1 billion of exchanges that are included as long-term inflows in the multi-asset asset class.

The foreign exchange revaluation was primarily due to weakening of the U.S.

dollar against the Australian dollar, Canadian dollar and Pound Sterling, partially offset by strengthening of the U.S.

dollar against the Japanese Yen.

AUM by sales region was as follows:

(in billions) March 31,

2022 March 31,

(in billions) June 30,

2022 June 30,

United States $ 1,034.3 $ 1,151.2 (10 %)

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We compare the relative performance of our mutual funds against peers, and of our strategy composites against benchmarks.

More than half of our total mutual fund AUM exceeded the peer group median comparison for the 1-, 5- and 10-year periods and more than half of our total strategy composite AUM exceeded the benchmark for the 3-, 5- and 10-year periods.

The performance of our mutual fund products against peer group medians and of our strategy composites against benchmarks is presented in the table below.

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Exceeding Benchmark

as of March 31, 2022 1-Year 3-Year 5-Year 10-Year 1-Year 3-Year 5-Year 10-Year

as of June 30, 2022 1-Year 3-Year 5-Year 10-Year 1-Year 3-Year 5-Year 10-Year

Fixed Income 38 % 38 % 32 % 68 % 18 % 48 % 84 % 95 %

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1 Mutual fund performance is sourced from Morningstar and measures the percent of ranked AUM in the top two quartiles versus peers.

Total mutual fund AUM measured for the 1-, 3-, 5- and 10-year periods represents 41%, 41%, 40% and 38% of our total AUM as of March 31, 2022.

Total mutual fund AUM measured for the 1-, 3-, 5- and 10-year periods represents 37%, 37%, 37% and 35% of our total AUM as of June 30, 2022.

2 Strategy composite performance measures the percent of composite AUM beating its benchmark.

The benchmark comparisons are based on each account’s/composite’s (strategy composites may include retail separately managed accounts and mutual fund assets managed as part of the same strategy) return as compared to a market index that has been selected to be generally consistent with the asset class of the account/composite.

Total strategy composite AUM measured for the 1-, 3-, 5- and 10-year periods represents 68%, 68%, 67% and 63% of our total AUM as of March 31, 2022.

Total strategy composite AUM measured for the 1-, 3-, 5- and 10-year periods represents 65%, 64%, 64% and 59% of our total AUM as of June 30, 2022.

3 Total mutual fund AUM includes performance of our alternative and multi-asset funds, and total strategy composite AUM includes performance of our alternative composites.

Alternative and multi-asset AUM represent 11% and 10% of our total AUM at March 31, 2022.

Alternative and multi-asset AUM represent 16% and 10% of our total AUM at June 30, 2022.

Mutual fund performance data includes U.S.

and cross-border domiciled mutual funds and exchange-traded funds, and excludes cash management and fund of funds.

These results assume the reinvestment of dividends, are based on data available as of April 8, 2022, and are subject to revision.

These results assume the reinvestment of dividends, are based on data available as of July 10, 2022, and are subject to revision.

Past performance is not indicative of future results.

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(in millions) Three Months Ended

March 31, Percent

Change Six Months Ended

March 31, Percent

June 30, Percent

Change Nine Months Ended

June 30, Percent

2022 2021 2022 2021

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Investment Management Fees

Investment management fees increased $50.8 million and $270.9 million for the three and six months ended March 31, 2022 primarily due to higher performance fees and, for the six-month period, a 4% increase in average AUM.

The increase in average AUM occurred primarily in the equity, alternative and multi-asset asset classes, partially offset by decreases in the fixed income asset class.

Our effective investment management fee rate excluding performance fees (annualized investment management fees excluding performance fees divided by average AUM) were 41.3 and 41.5 basis points for the three and six months ended March 31, 2022, and 42.1 and 41.7 basis points for the same periods in the prior fiscal year.

The decreases were due to a shift in assets from higher-fee international sales regions to the lower-fee U.S.

sales region.

Performance-based investment management fees were $105.1 million and $245.0 million for the three and six months ended March 31, 2022, and $45.3 million and $87.1 million for the same periods in the prior fiscal year, with the increase due to strong performance by our alternative specialist investment managers reflecting strong markets.

Investment management fees decreased $61.2 million for the three months ended June 30, 2022 primarily due to a 6% decrease in average AUM, partially offset by higher performance fees.

The decrease in average AUM occurred primarily in the fixed income and equity asset classes, partially offset by an increase in the alternative asset class that includes the acquisition of Lexington.

Investment management fees increased $209.7 million for the nine months ended June 30, 2022 primarily due to higher performance fees and a 1% increase in average AUM.

The increase in average AUM occurred primarily in the alternative and equity asset classes, partially offset by decreases in the fixed income asset class.

Our effective investment management fee rate excluding performance fees (annualized investment management fees excluding performance fees divided by average AUM) increased to 42.3 and 41.8 basis points for the three and nine months ended June 30, 2022, from 41.8 and 41.7 basis points for the same periods in the prior fiscal year.

The increases were primarily due to the acquisition of Lexington, partially offset by a shift in assets from higher-fee products to lower-fee products in the fixed income and equity asset classes.

Performance fees were $119.3 million and $364.3 million for the three and nine months ended June 30, 2022, and $102.6 million and $189.7 million for the same periods in the prior fiscal year, with the increase due to strong performance by our alternative specialist investment managers.

Sales and Distribution Fees

1 unchanged sentence

(in millions) Three Months Ended

March 31, Percent

Change Six Months Ended

March 31, Percent

June 30, Percent

Change Nine Months Ended

June 30, Percent

2022 2021 2022 2021

3 unchanged sentences

Sales and Distribution Fees $ 335.6 $ 416.9 (20 %) $ 1,104.0 $ 1,227.4 (10 %)

Asset-based distribution fees decreased $26.1 million and $21.2 million for the three and six months ended March 31, 2022 primarily due to $13.4 million and $24.9 million from a higher mix of lower-fee assets and for the three-month period $9.8 million from a 3% decrease in the related average AUM.

Sales-based fees decreased $15.8 million and $16.8 million for the three and six months ended March 31, 2022 primarily due to $16.7 million and $19.8 million from lower commissionable sales, partially offset by $3.0 million from a higher mix of equity sales for the six-month period, which typically generate higher sales fees than fixed income products.

Other revenue increased $9.8 million for the six months ended March 31, 2022 primarily due to an increase in real estate transaction fees earned by certain of our alternative asset managers.

Asset-based distribution fees decreased $59.5 million and $80.7 million for the three and nine months ended June 30, 2022 primarily due to $44.9 million and $41.2 million from decreases of 15% and 5% in the related average AUM, and $9.4 million and $30.4 million from a higher mix of lower-fee assets.

Sales-based fees decreased $21.5 million and $38.3 million for the three and nine months ended June 30, 2022 primarily due to $22.6 million and $42.3 million from lower commissionable sales, partially offset by $1.2 million and $4.2 million from a higher mix of equity sales, which typically generate higher sales fees than fixed income products.

Other revenue increased $4.5 million and $14.3 million for the three and nine months ended June 30, 2022 primarily due to an increase in real estate transaction fees earned by certain of our alternative asset managers.

OPERATING EXPENSES

1 unchanged sentence

Three Months Ended

March 31, Percent

Change Six Months Ended

March 31, Percent

June 30, Percent

Change Nine Months Ended

June 30, Percent

(in millions) 2022 2021 2022 2021

9 unchanged sentences

Three Months Ended

March 31, Percent

Change Six Months Ended

March 31, Percent

June 30, Percent

Change Nine Months Ended

June 30, Percent

(in millions) 2022 2021 2022 2021

2 unchanged sentences

Acquisition-related retention 44.2 39.1 13 % 118.4 129.2 (8 %)

Special termination benefits 4.4 10.5 (58 %) 7.1 17.9 (60 %)

(8.3) 13.5 NM (12.3) 45.7 NM

Compensation and Benefits Expenses $ 766.7 $ 771.4 (1 %) $ 2,321.8 $ 2,229.2 4 %

Salaries, wages and benefits decreased $15.1 million for the six months ended March 31, 2022 primarily due to a decrease of $14.0 million related to lower termination benefits in the current year.

Incentive compensation increased $41.8 million and $139.1 million for the three and six months ended March 31, 2022 primarily due to increases of $33.3 million and $83.4 million related to higher bonuses at the specialist investment managers due to higher revenue, $8.3 million and $28.5 million in stock and stock unit award amortization and $15.3 million related to bonus expense primarily due to stronger performance in the six-month period.

Acquisition-related retention expenses decreased $12.4 million and $15.9 million for the three and six months ended March 31, 2022.

Special termination benefits decreased $6.1 million and $10.8 million for the three and six months ended March 31, 2022 primarily due to workforce optimization initiatives related to the acquisition of Legg Mason, Inc.

_______________

1 Includes impact of gains and losses on investments related to deferred compensation plans and seed investments, which is offset in investment and other income (losses), net, minority interests in certain subsidiaries, which is offset in net income (loss) attributable to redeemable noncontrolling interests and special termination benefits.

Salaries, wages and benefits remained flat for the three months ended June 30, 2022 and decreased $12.2 million for the nine months ended June 30, 2022, as the impact of headcount reductions associated with strategic initiatives and a $15.5 million decrease in termination benefits for the nine-month period, were substantially offset by salaries, wages and benefits expense due to the acquisitions of Lexington and OSAM.

Incentive compensation increased $12.2 million for the three months ended June 30, 2022 primarily due to an increase of approximately $50.0 million at alternative specialist investment managers, including the acquisition of Lexington, partially offset by lower incentive compensation at other specialist investment managers and declines in our sales-based and discretionary incentive expense.

Incentive compensation increased $173.6 million for the nine months ended June 30, 2022 primarily due to a $142.0 million increase related to higher incentive compensation at the specialist investment managers, driven by higher performance fees and the acquisition of Lexington, and an increase of $39.1 million in stock and stock unit award amortization.

Acquisition-related retention expenses increased $5.1 million for the three months ended June 30, 2022, primarily due to the acquisition of Lexington.

Other compensation and benefits was $(8.3) million and $13.5 million for the three months ended June 30, 2022 and 2021, and $(12.3) million and $45.7 million for the nine months ended June 30, 2022 and 2021.

The changes for both periods were primarily related to market adjustments on investments related to our deferred compensation plans and compensation related to minority interests.

Special termination benefits also decreased $3.2 million and $14.0 million for the three and nine months ended ended June 30, 2022 primarily due to workforce optimization initiatives related to the acquisition of Legg Mason, Inc.

(“Legg Mason”) in the prior year periods.

We expect to incur additional acquisition-related retention expenses of approximately $60 million during the remainder of the current fiscal year, and annual amounts beginning at approximately $230 million in the fiscal year ending September 30, 2023 and decreasing over the following two fiscal years by approximately $30 million and $70 million.

At March 31, 2022, our global workforce had decreased to approximately 9,500 employees from approximately 11,100 at March 31, 2021.

At June 30, 2022, our global workforce had decreased to approximately 9,800 employees from approximately 10,600 at June 30, 2021.

Sales, Distribution and Marketing

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Three Months Ended

March 31, Percent

Change Six Months Ended

March 31, Percent

June 30, Percent

Change Nine Months Ended

June 30, Percent

(in millions) 2022 2021 2022 2021

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Sales, Distribution and Marketing $ 440.3 $ 531.0 (17 %) $ 1,432.8 $ 1,579.3 (9 %)

Asset-based expenses decreased $41.1 million and $35.8 million for the three and six months ended March 31, 2022 primarily due to $11.9 million and $18.2 million from a higher mix of lower-fee assets and, for the three-month period, $15.4 million from a 4% decrease in related average AUM.

Asset-based expenses decreased $63.7 million and $99.5 million for the three and nine months ended June 30, 2022 primarily due to $42.0 million and $33.0 million from decreases of 12% and 3% in related average AUM, and $23.7 million and $48.1 million from a higher mix of lower-fee assets.

Distribution expenses are generally not directly correlated with distribution fee revenues due to certain fee structures that do not provide full recovery of distribution costs.

Sales-based expenses decreased $15.5 million and $16.6 million for the three and six months ended March 31, 2022 substantially all due to lower commissionable sales.

Sales-based expenses decreased $21.2 million and $37.8 million for the three and nine months ended June 30, 2022 substantially all due to lower commissionable sales.

Information Systems and Technology

Information systems and technology expenses increased $9.4 million and $16.7 million for the three and six months ended March 31, 2022 primarily due to higher costs incurred for consulting and software.

Information systems and technology expenses increased $4.1 million and $20.8 million for the three and nine months ended June 30, 2022, primarily due to higher costs incurred for consulting and software.

Amortization of intangible assets

Amortization of intangible assets increased $23.8 million and $26.4 million for the three and nine months ended June 30, 2022, primarily related to intangible assets recognized as part of the acquisition of Lexington.

General, Administrative and Other

General, administrative and other operating expenses increased $25.9 million and $17.5 million for the three and six months ended March 31, 2022, primarily due to $15.7 million in non-recurring costs incurred in connection with the outsourcing of our global transfer agent functions, as well as increases of $11.4 million and $14.3 million in advertising and promotion expenses, largely related to our global brand campaign, offset in part by a $10.3 million credit adjustment to increase the fair value of a contingent consideration asset.

General, administrative and other operating expenses increased $0.1 million and $17.6 million for the three and nine months ended June 30, 2022, primarily due increases of $14.1 million and $7.8 million in professional fees, largely related to acquisition-related costs, as well as increases of $10.0 million and $24.3 million in advertising and promotion expenses primarily related to our global brand campaign and $12.2 million and $23.6 million in travel and entertainment expenses.

The nine months ended June 30, 2022, also included $15.7 million of non-recurring costs incurred in connection with the outsourcing of our global transfer agent functions.

The increases for both the three- and nine-month periods were partially offset by $43.0 million of closed-end fund product launch costs incurred in the prior year and the increase for the nine-month period was also partially offset by a net $7.7 million credit to adjust the fair value of our contingent consideration asset and liabilities recognized in the current year.

OTHER INCOME (EXPENSES)

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Three Months Ended

March 31, Percent

Change Six Months Ended

March 31, Percent

June 30, Percent

Change Nine Months Ended

June 30, Percent

(in millions) 2022 2021 2022 2021

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Interest expense (28.9) (25.7) 12 % (71.1) (71.3) 0 %

Investment and other income of consolidated investment products, net 3.0 111.2 (97 %) 107.7 202.3 (47 %)

Investment and other income (losses) of consolidated investment products, net (74.4) 61.0 NM 33.3 263.3 (87 %)

Expenses of consolidated investment products (1.3) (10.9) (88 %) (10.1) (26.5) (62 %)

Other Income, Net $ 3.2 $ 157.2 (98 %) $ 141.4 $ 285.4 (50 %)

Investment and other income, net decreased $39.4 million and $59.6 million for the three and six months ended March 31, 2022 primarily due to the impact of declines in market valuations amid global market volatility in the current year periods.

Income from equity method investees decreased $18.9 million and $32.7 million for the three and six months ended March 31, 2022, primarily due to losses in the three-month period, as compared to gains in the prior year, and lower income in the six-month period, largely related to various global equity and alternative funds.

The decrease in both periods was partially offset by a $52.6 million gain recognized on the sale of our investment in Embark in the current year.

Investments held by the Company generated net losses of $23.1 million for the three-month period as compared to net gains of $10.2 million in the prior year, and for the six-month period generated net gains of $2.7 million as compared to net gains of $58.9 million in the prior year, primarily from assets invested for deferred compensation plans, separate accounts and nonconsolidated funds, partially offset in the six-month period by gains from investments measured at cost adjusted for observable price changes.

Net foreign currency exchange gains were $9.7 million for the six months ended March 31, 2022, as compared to net losses of $10.0 million for the six months ended March 31, 2021.

The increase was primarily due to the impact of the strengthening of the U.S.

dollar against the Euro on cash and cash equivalents denominated in U.S.

dollars held in Europe.

Derivatives generated $6.7 million of gains and $2.3 million of losses for the three- and six-month periods ended March 31, 2022 as compared to losses of $6.1 million and $16.1 million in the prior year three- and six-month periods.

Interest expense increased $7.0 million for the three months ended March 31, 2022 and decreased $3.4 million for the six months ended March 31, 2022.

The increase for the three-month period was primarily due to $3.0 million of interest expense recognized on the senior unsecured unsubordinated notes issued in August 2021 and a $3.0 million increase in interest recognized on tax reserves in the current year period.

The decrease for the six-month period was primarily due to the redemptions in fiscal year 2021 of the junior notes issued by Legg Mason, partially offset by interest expense recognized on the senior unsecured unsubordinated notes issued in August 2021.

Investment and other income of consolidated investment products, net, decreased $108.2 million and $94.6 million for the three and six months ended March 31, 2022.

Investments held by CIPs generated losses of $14.2 million in the three-month period, as compared to gains of $88.7 million in the prior year period, and for the six-month period generated gains of $74.5 million, as compared to gains of $149.6 million in the prior year period, largely related to losses on holdings of various equity funds and fixed income funds, partially offset by higher gains on holdings of various alternative funds.

The three-month period included $17.2 million of dividend and interest income of CIPs, as compared to $22.5 million in the prior year period, and the six-month period included $33.2 million, as compared to $52.7 million in the prior year period.

Expenses of consolidated investments products decreased $6.8 million for the six months ended March 31, 2022, primarily due to lower expenses incurred by an alternative fund.

Our cash, cash equivalents and investments portfolio by asset class and accounting classification at March 31, 2022, excluding third-party assets of CIPs, was as follows:

Other Income (Expenses), Net $ (91.6) $ 77.3 NM $ 49.8 $ 362.7 (86 %)

Investment and other income, net decreased $39.9 million and $99.5 million for the three and nine months ended June 30, 2022 primarily due to the impact of market declines in the current year periods.

Equity method investees generated net losses of $0.1 million for the three months ended June 30, 2022, as compared to income of $39.4 million in the prior year, and for the nine-month periods generated income of $51.6 million and $123.8 million, largely related to various global equity and alternative funds.

The nine-month period in the current year also reflects a $52.6 million gain recognized on the sale of our investment in Embark.

Investments held by the Company generated net losses of $35.6 million and $32.9 million for the three and nine months ended June 30, 2022, as compared to net gains of $17.3 million and $76.2 million in the prior year periods, primarily from investments in nonconsolidated funds and separate accounts and assets invested for deferred compensation plans, partially offset by net gains from investments measured at cost adjusted for observable price changes.

Net foreign currency exchange gains were $14.5 million and $24.2 million for the three and nine months ended June 30, 2022, as compared to net losses of $7.2 million and $17.2 million for the three and nine months ended June 30, 2021.

The increases were primarily due to the impact of the strengthening of the U.S.

dollar against the Euro and British Pound.

Derivatives generated $17.5 million and $15.2 million of gains for the three and nine months ended June 30, 2022 as compared to losses of $9.1 million and $25.2 million in the prior year periods.

Interest expense increased $3.2 million for the three months ended June 30, 2022 and decreased $0.2 million for the nine months ended June 30, 2022.

The increase for the three-month period was primarily due to $6.1 million of accretion on the Lexington deferred consideration and $3.1 million of interest expense recognized on the senior unsecured unsubordinated notes issued in August 2021, offset in part by a $6.8 million decrease due to the redemption in September 2021 of the junior notes issued by Legg Mason.

Investments held by consolidated investment products (“CIPs”) generated losses of $78.5 million and $4.0 million in the three and nine months ended June 30, 2022, as compared to gains of $33.2 million and $182.8 million in the prior year periods, largely related to losses on holdings of various equity, fixed income and alternative funds for the three month-period, and losses on holdings of various equity and fixed income funds, partially offset by higher gains on holdings of various alternative funds for the nine-month period.

Dividend and interest income of CIPs was $4.1 million and $37.3 million for the three and nine months ended June 30, 2022, as compared to $27.8 million and $80.5 million in the prior year periods.

Expenses of consolidated investments products decreased $9.6 million and $16.4 million for the three- and nine- months ended June 30, 2022, primarily due to lower expenses incurred by an alternative fund.

Our cash, cash equivalents and investments portfolio by asset class and accounting classification at June 30, 2022, excluding third-party assets of CIPs, was as follows:

Accounting Classification 1

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2 Total cash and cash equivalents and investments includes $3,620.8 million used for operational activities, including investments in sponsored funds and other products, and $229.7 million necessary to comply with regulatory requirements.

3 Total cash and cash equivalents and investments includes $308.7 million attributable to employee-owned and other third-party investments made through partnerships which are offset in nonredeemable noncontrolling interests.

TAXES ON INCOME

Our effective income tax rate was 23.0% and 22.2% for the three and six months ended March 31, 2022, as compared to 20.9% and 23.5% for the three and six months ended March 31, 2021.

The rate increase for three-month period was primarily due to a decrease in net income attributable to noncontrolling interests and a decrease in foreign earnings.

The rate decrease for the six-month period was primarily due to tax benefits from stock-based compensation and the release of tax reserves due to statute of limitation expiration partially offset by a decrease in net income from noncontrolling interests.

Our effective income tax rate was 28.6% and 23.6% for the three and nine months ended June 30, 2022, as compared to 15.1% and 20.8% for the three and nine months ended June 30, 2021.

The rate increase for three-month period was primarily due to net losses on investments held by CIPs for which there are no related tax benefits, benefits in the prior year from the release of the valuation allowance for interest expense carryforward and a decrease in foreign earnings.

The rate increase for the nine-month period was primarily due to a decrease in foreign earnings.

Our effective income tax rate reflects the relative contributions of earnings in the jurisdictions in which we operate, which have varying tax rates.

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Management believes these non-GAAP measures are useful indicators of our financial performance and may be helpful to investors in evaluating our relative performance against industry peers as these measures exclude the impact of CIPs and mitigate the margin variability related to sales and distribution revenues and expenses across multiple distribution channels globally.

These measures also exclude performance-based investment management fees which are fully passed through as compensation and benefits expense per the terms of a previous acquisition by Legg Mason and have no impact on net income.

These non-GAAP measures also exclude acquisition-related expenses, certain items which management considers to be nonrecurring, unrealized investment gains and losses included in investment and other income (losses), net, and the related income tax effect of these adjustments, as applicable.

These non-GAAP measures also exclude the impact on compensation and benefits expense from gains and losses on investments made to fund deferred compensation plans and on seed investments under certain historical revenue sharing arrangements, which is offset in investment and other income (losses), net.

These measures also exclude performance-based investment management fees which are fully passed through as compensation and benefits expense per the terms of certain acquisitions and have no impact on net income.

These measures also exclude acquisition-related expenses, certain items which management considers to be nonrecurring, unrealized investment gains and losses included in investment and other income (losses), net, and the related income tax effect of these adjustments, as applicable.

These measures also exclude the impact on compensation and benefits expense from arrangements which are offset in investment and other income (loss), net or net income (loss) attributable to noncontrolling interests.

“Adjusted operating income,” “adjusted operating margin,” “adjusted net income” and “adjusted diluted earnings per share” are defined below, followed by reconciliations of operating income, operating margin, net income attributable to Franklin Resources, Inc.

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• Special termination benefits related to workforce optimization initiatives related to past acquisitions and specific initiatives announced by the Company.

• Impact on compensation and benefits expense related to minority interests in certain subsidiaries, which is offset in net income (loss) attributable to redeemable noncontrolling interests.

Adjusted Operating Margin

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• Interest expense for amortization of Legg Mason debt premium from acquisition-date fair value adjustment.

• Net compensation and benefits expense related to minority interests in certain subsidiaries not offset by net income (loss) attributable to redeemable noncontrolling interests.

• Net income tax expense of the above adjustments based on the respective blended rates applicable to the adjustments.

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We adjust for special termination benefits related to workforce optimization initiatives related to past acquisitions and specific initiatives announced by the Company because these items are deemed nonrecurring.

In calculating adjusted net income and adjusted diluted earnings per share, we adjust for unrealized investment gains and losses included in investment and other income (losses), net and net gains or losses on investments related to deferred compensation plans which are not offset by compensation and benefits expense because these items primarily relate to seed and strategic investments which have been and are generally expected to be held long term.

(loss) attributable to redeemable noncontrolling interests because these items relate to profits interest shares and net gains or losses on investments related to deferred compensation plans which are not offset by compensation and benefits expense because these items primarily relate to seed and strategic investments which have been and are generally expected to be held long term.

The calculations of adjusted operating income, adjusted operating margin, adjusted net income and adjusted diluted earnings per share are as follows:

(in millions) Three Months Ended

March 31, Six Months Ended

June 30, Nine Months Ended

2022 2021 2022 2021

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0.7 3.9 7.8 21.8

Compensation and benefits expense related to minority interests in certain subsidiaries 10.3 — 10.3 —

Adjusted operating income $ 566.9 $ 601.2 $ 1,829.4 $ 1,732.2

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(in millions, except per share data) Three Months Ended

March 31, Six Months Ended

June 30, Nine Months Ended

2022 2021 2022 2021

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Interest expense for amortization of debt premium (6.3) (6.4) (18.9) (29.3)

Net compensation and benefits expense related to minority interests in certain subsidiaries not offset by net income (loss) attributable to redeemable noncontrolling interests 0.5 — 0.5 —

Net income tax expense of adjustments (43.9) (14.9) (101.4) (37.1)

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__________________

1 The impact of CIPs is summarized as follows:

(in millions) Three Months Ended

March 31, Six Months Ended

June 30, Nine Months Ended

2022 2021 2022 2021

Elimination of operating revenues upon consolidation $ (13.0) $ (5.2) $ (38.5) $ (16.7)

Other income, net 9.9 95.6 82.4 115.9

Other income (expenses), net (33.6) 13.1 48.8 129.0

income (loss) attributable to noncontrolling interests (53.4) 7.3 13.6 126.6

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Cash flows were as follows:

Six Months Ended

Nine Months Ended

(in millions) 2022 2021

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Financing cash flows 1,489.2 1,542.9

Net cash provided by operating activities decreased during the six months ended March 31, 2022 primarily due to payments of accrued compensation and benefits and decreases in accounts payable, accrued expenses and other liabilities as compared to increases in the prior year.

Net cash used in investing activities decreased primarily due to net liquidations of our investments as compared net purchases in the prior year, partially offset by cash paid for acquisitions in the current year.

Net cash provided by financing activities decreased primarily due to proceeds from the issuance of debt in the prior year, partially offset by higher net proceeds from the debt of CIPs, a prior-year debt payment and higher net subscriptions in CIPs by noncontrolling interests.

Net cash provided by operating activities increased during the nine months ended June 30, 2022 primarily due to adjustments for losses from CIPs as compared to gains in the prior year, increases in acquisition-related accrued compensation and benefits, lower net purchases of investments by CIPs and net losses on investments as compared to net gains in the prior year, partially offset by lower net income.

Net cash used in investing activities increased primarily due to cash paid for acquisitions in the current year, partially offset by net liquidations of our investments as compared to net purchases in the prior year.

Net cash provided by financing activities decreased primarily due to proceeds from the issuance of debt in the prior year, partially offset by higher net proceeds from the debt of CIPs.

The assets and liabilities of CIPs attributable to third-party investors do not impact our liquidity and capital resources.

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Our liquid assets and debt consisted of the following:

(in millions) March 31,

(in millions) June 30,

2022 September 30,

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Liquid assets consist of cash and cash equivalents, receivables and certain investments.

Cash and cash equivalents at March 31, 2022 primarily consist of money market funds and deposits with financial institutions.

Cash and cash equivalents at June 30, 2022 primarily consist of money market funds and deposits with financial institutions.

Liquid investments consist of investments in sponsored and other funds, direct investments in redeemable CIPs, other equity and debt securities, and time deposits with maturities greater than three months.

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Certain of our subsidiaries are required by our internal policy or regulation to maintain minimum levels of cash and/or capital, and may be restricted in their ability to transfer cash to their parent companies.

Should we require more capital than is available for use, we could elect to reduce the level of discretionary activities, such as share repurchases or investments in sponsored and other products, we could raise capital through debt or equity issuance, or utilize our revolving credit facility.

These alternatives could result in increased interest expense, decreased dividend or interest income, or other dilution to our earnings.

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In prior fiscal years, we issued senior unsecured unsubordinated notes for general corporate purposes and to redeem outstanding notes.

At March 31, 2022, Franklin’s outstanding senior notes had an aggregate principal amount due of $1,900.0 million.

At June 30, 2022, Franklin’s outstanding senior notes had an aggregate principal amount due of $1,900.0 million.

The notes have fixed interest rates from 1.600% to 2.950% with interest paid semi-annually and have an aggregate carrying value, inclusive of unamortized discounts and debt issuance costs, of $1,882.7 million.

At March 31, 2022, Legg Mason’s outstanding senior notes had an aggregate principal amount due of $1,250.0 million.

The notes have fixed interest rates from 3.950% to 5.625% with interest payable semi-annually for senior notes, and have an aggregate carrying value, inclusive of unamortized premium and debt issuance costs, of $1,505.8 million at March 31, 2022.

We are considering repaying the $300.0 million 2.800% senior notes due September 2022 by refinancing or using existing cash.

At June 30, 2022, Legg Mason’s outstanding senior notes had an aggregate principal amount due of $1,250.0 million.

Effective August 2, 2021, Franklin agreed to unconditionally and irrevocably guarantee all of the outstanding notes issued by Legg Mason.

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In addition, the indentures include requirements that must be met if we consolidate or merge with, or sell all of our assets to, another entity.

We were in compliance with all debt covenants at March 31, 2022.

At March 31, 2022, we had $500.0 million of short-term commercial paper available for issuance under an uncommitted private placement program which has been inactive since 2012 and is unrated.

We were in compliance with all debt covenants at June 30, 2022.

At June 30, 2022, we had $500.0 million of short-term commercial paper available for issuance under an uncommitted private placement program which has been inactive since 2012 and is unrated.

Our ability to access the capital markets in a timely manner depends on a number of factors, including our credit rating, the condition of the global economy, investors’ willingness to purchase our securities, interest rates, credit spreads and the valuation levels of equity markets.

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We typically declare cash dividends on a quarterly basis, subject to approval by our Board of Directors.

We declared regular dividends of $0.58 per share during the six months ended March 31, 2022 and $0.56 per share during the six months ended March 31, 2021.

We declared regular dividends of $0.87 per share during the nine months ended June 30, 2022 and $0.84 per share during the nine months ended June 30, 2021.

We currently expect to continue paying comparable regular dividends on a quarterly basis to holders of our common stock depending upon earnings and other relevant factors.

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The size and timing of these purchases will depend on business conditions, price, market and other factors.

During the three and six months ended March 31, 2022, we repurchased 2.7 million and 3.4 million shares of our common stock at a cost of $80.8 million and $102.5 million.

At March 31, 2022, 27.5 million shares remained available for repurchase under the authorization of 80.0 million shares approved by our Board of Directors in April 2018.

During the three and six months ended March 31, 2021, we repurchased 1.7 million and 3.8 million shares of our common stock at a cost of $45.8 million and $91.4 million.

We redeemed $122.6 million, net of investments, into our sponsored products during the six months ended March 31, 2022 and invested $171.9 million, net of redemptions, in the prior year period.

During the three and nine months ended June 30, 2022, we repurchased 2.0 million and 5.4 million shares of our common stock at a cost of $51.0 million and $153.5 million.

At June 30, 2022, 25.4 million shares remained available for repurchase under the authorization of 80.0 million shares approved by our Board of Directors in April 2018.

During the three and nine months ended June 30, 2021, we repurchased 1.4 million and 5.2 million shares of our common stock at a cost of $46.4 million and $137.8 million.

We invested $19.7 million and $199.2 million, net of redemptions, into our sponsored products during the nine months ended June 30, 2022 and 2021.

On May 31, 2022, we entered into an acquisition agreement to acquire all of the outstanding ownership interests in BNY Alcentra Group Holdings, Inc.

from BNY Mellon for cash consideration of approximately $350 million to be paid at closing and up to $350 million in contingent consideration to be paid upon on the achievement of certain performance thresholds over the next four years.

The acquisition is expected to be funded from our existing balance sheet resources.

On April 1, 2021, we acquired all of the outstanding ownership interests in Lexington, a leading global manager of secondary private equity and co-investment funds, for cash consideration of approximately $1.0 billion, excluding future payments to be made subject to the attainment of certain performance measures.

In connection with the acquisition, we are granting a 25% ownership stake in Lexington and performance-based cash retention awards that both vest over approximately five years.

In connection with the acquisition, we granted a 25% profits interest in Lexington and performance-based cash retention awards that both vest over approximately five years.

We paid the purchase price from our existing cash.

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See Note 16 – Commitments and Contingencies in the notes to consolidated financial statements in Item 8 of Part II of our Annual Report on Form 10-K for fiscal year 2021 for further information.

We did not provide financial or other support to our sponsored funds during the six months ended March 31, 2022.

We did not provide financial or other support to our sponsored funds during the nine months ended June 30, 2022.

CRITICAL ACCOUNTING POLICIES

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These estimates, judgments and assumptions are affected by our application of accounting policies.

Further, global concerns about the Russian invasion of Ukraine and the COVID-19 pandemic have adversely affected, and may continue to adversely affect, our business, financial condition and results of operations including the estimates and assumptions made by management.

Further, global concerns about the the global economic growth outlook and the risk of a recession as well as the ongoing COVID-19 pandemic have adversely affected, and may continue to adversely affect, our business, financial condition and results of operations including the estimates and assumptions made by management.

Actual results could differ from the estimates.

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Our VIEs are primarily investment products and our variable interests consist of our equity ownership interests in and investment management fees earned from these products.

As of March 31, 2022, we were the primary beneficiary of 55 investment product VIEs.

As of June 30, 2022, we were the primary beneficiary of 51 investment product VIEs.

Business Combinations

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We also monitored fluctuations of our common stock per share price to evaluate our market capitalization relative to the reporting unit as a whole.

During the six months ended March 31, 2022, there were no events or circumstances which would indicate that goodwill, indefinite-lived intangible assets or definite-lived intangible assets might be impaired.

During the nine months ended June 30, 2022, there were no events or circumstances which would indicate that goodwill, indefinite-lived intangible assets or definite-lived intangible assets might be impaired.

While we believe that the assumptions used to estimate fair value in our impairment tests are reasonable and appropriate, future changes in the assumptions could result in recognition of impairment.

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We use a three-level fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value based on whether the inputs to those valuation techniques are observable or unobservable.

As of March 31, 2022, Level 3 assets represented 10% of total assets measured at fair value, which primarily related to CIPs’ investments in equity and debt securities.

There were insignificant transfers into and out of Level 3 during the six months ended March 31, 2022.

As of June 30, 2022, Level 3 assets represented 10% of total assets measured at fair value, which primarily related to CIPs’ investments in equity and debt securities.

There were insignificant transfers into and out of Level 3 during the nine months ended June 30, 2022.

Quantitative and Qualitative Disclosures About Market Risk.

During the six months ended March 31, 2022, there were no material changes from the market risk disclosures in our Form 10‑K for the fiscal year ended September 30, 2021.

During the nine months ended June 30, 2022, there were no material changes from the market risk disclosures in our Form 10‑K for the fiscal year ended September 30, 2021.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis