What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-07-31 compared with 2020-05-04 · 193 added, 119 removed, 234 unchanged (57% of the section changed)

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Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2019, and also under “Item 1A.

Risk Factors” in this Quarterly Report on Form 10-Q.

Risk Factors” in our Quarterly Report on Form 10-Q for the period ended March 31, 2020.

These factors (among others) could affect our financial condition, business activities, results of operations, cash flows or overall financial performance and could cause our actual results and business activities to differ materially from historical periods and those presently anticipated and projected.

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In addition, we offer centralized capabilities to our Affiliates across a variety of areas, including strategy, marketing and distribution, and product development.

As of March 31, 2020 , our aggregate assets under management were $599.9 billion, across a broad range of active, return-oriented strategies.

D uring the first quarter of 2020, the novel coronavirus global pandemic (“COVID-19”), has had a significant impact on the global economy, which is likely to continue for months to come.

As of June 30, 2020 , our aggregate assets under management were $638.4 billion, across a broad range of active, return-oriented strategies.

D uring the six months ended June 30, 2020, the pandemic caused by the novel coronavirus (“COVID-19”), had a significant impact on the global economy, which may continue for months to come.

The overall extent and duration of COVID-19 on businesses and economic activity generally remains unclear.

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Given the nature of our decentralized operations and our entrepreneurial culture, we and our Affiliates remain fully operational and have experienced minimal disruption in continuing to serve our key stakeholders, most importantly our clients.

We continue to monitor the economic uncertainty and market volatility related to COVID-19, which has impacted the investment management industry in which we and our Affiliates operate.

The extent of the impact on our business operations and financial results will depend on a number of factors and future developments, which are uncertain and cannot be predicted.

See “Item 1A.

Risk Factors” in Part II — Other Information contained elsewhere in this Quarterly Report on Form 10-Q.

We continue to monitor the economic uncertainty related to COVID-19, and the extent of the impact on our business operations and financial results will depend on a number of factors and future developments, which are uncertain and cannot be predicted.

Operating Performance Measures

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The following table presents our key aggregate operating performance measures:

As of and for the Three Months Ended March 31,

As of and for the Three Months Ended June 30,

As of and for the Six Months Ended June 30,

(in billions, except as noted)

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Aggregate fees (in millions)

As of and for the three months ended March 31, 2019, assets under management and, therefore average assets under management, include the assets under management of all our consolidated and equity method Affiliates.

As of and for the three months ended March 31, 2020 , assets under management and, therefore average assets under management, exclude the assets under management of certain Affiliates in which we have repositioned or are repositioning our interests and that are not significant to our operating performance measures or our results of operations.

As of and for the three and six months ended June 30, 2020 , assets under management and average assets under management exclude the assets under management of certain Affiliates in which we have repositioned or are repositioning our interests.

These Affiliates are not significant to our operating performance measures or our results of operations.

Assets under management is presented on a current basis without regard to the timing of the inclusion of an Affiliate’s financial results in our operating performance measures and Consolidated Financial Statements.

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Average assets under management for mutual funds and similar retail investment products represents an average of the daily net assets under management, while for institutional and high net worth clients, average assets under management represents an average of the assets at the beginning or end of each month during the applicable period.

For the three months ended March 31, 2019 and 2020 , aggregate fees consists of the total asset and performance based fees earned by all of our consolidated and equity method Affiliates, and includes the aggregate fees of certain Affiliates in which we have repositioned or are repositioning our interests and that are not significant to our operating performance measures or our results of operations.

For the three and six months ended June 30, 2019 and 2020 , aggregate fees consists of the total asset and performance based fees earned by all of our consolidated and equity method Affiliates, and includes the aggregate fees of certain Affiliates in which we have repositioned or are repositioning our interests.

These Affiliates are not significant to our operating performance measures or our results of operations.

For certain of our Affiliates accounted for under the equity method, we report aggregate fees and the Affiliate’s financial results in our Consolidated Financial Statements one quarter in arrears.

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Through our Affiliates, we provide a comprehensive and diverse range of active, return-oriented strategies designed to assist institutional, retail and high net worth clients worldwide in achieving their investment objectives.

The outbreak of COVID-19 has created significant volatility in financial markets and disruption in economic activity, which has impacted the investment management industry.

The impact of the COVID-19 outbreak on our Affiliates and their clients is currently uncertain, and could result in changes in investor demand for our strategies in ways that cannot be predicted but could vary from recent trends.

During the three months ended March 31, 2020, we experienced a decline in assets under management and asset based fees and if financial markets remain depressed for a prolonged period or worsen as a result of COVID-19, the Company’s assets under management and asset based fees would be adversely affected.

The following charts present information regarding the composition of our assets under management by active, return-oriented strategy and client type as of March 31, 2020 :

We continue to see demand for active, return-oriented strategies, particularly in illiquid alternative and multi-asset and fixed income strategies, reflecting continued investor demand for returns that are less correlated to traditional equity markets, while we are experiencing outflows in quantitative strategies across alternative strategies and equities strategies.

We believe the best performing active equity managers (whether global-, regional-, or country-specific) will continue to have significant opportunities to grow as a result of net client cash inflows.

We believe we are well-positioned to benefit from these trends.

The outbreak of COVID-19 has created significant disruption in economic activity.

The impact of the COVID-19 outbreak on our Affiliates and their clients’ demand for investment strategies is currently uncertain, and could result in changes in investor demand for our strategies in ways that cannot be predicted but could vary from recent trends.

During the six months ended June 30, 2020 , we experienced a decline in average assets under management and, therefore, asset based fees as a result of COVID-19.

If financial markets were to worsen as a result of COVID-19 or other factors, the Company’s average assets under management and asset based fees could be adversely impacted.

The following charts present information regarding the composition of our assets under management by active, return-oriented strategy and client type as of June 30, 2020 :

Assets Under Management (in billions)

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Alternatives include illiquid alternative strategies, which accounted for 17% of our assets under management as of March 31, 2020 .

Global equities include emerging markets strategies, which accounted for 7% of our assets under management as of March 31, 2020 .

The following tables present changes in our assets under management by active, return-oriented strategy and client type for the three months ended March 31, 2020 :

Alternatives include illiquid alternative strategies, which accounted for 16% of our assets under management as of June 30, 2020 .

Global equities include emerging markets strategies, which accounted for 8% of our assets under management as of June 30, 2020 .

The following tables present changes in our assets under management by active, return-oriented strategy and client type for the three months ended June 30, 2020 :

By Strategy - Quarter to Date

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Multi-Asset & Fixed Income

December 31, 2019

March 31, 2020

Client cash inflows and commitments

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Net client cash flows

New investments

Market changes

1 unchanged sentence

Realizations and distributions (net)

March 31, 2020

June 30, 2020

By Client Type - Quarter to Date

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High Net Worth

March 31, 2020

Client cash inflows and commitments

Client cash outflows

Net client cash flows

Market changes

Foreign exchange (1)

Realizations and distributions (net)

June 30, 2020

By Strategy - Year to Date

Global Equities

Multi-Asset & Fixed Income

December 31, 2019

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Realizations and distributions (net)

March 31, 2020

June 30, 2020

By Client Type - Year to Date

Institutional

High Net Worth

December 31, 2019

Client cash inflows and commitments

Client cash outflows

Net client cash flows

New investments

Market changes

Foreign exchange (1)

Realizations and distributions (net)

June 30, 2020

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Performance based fees are based on investment performance, typically on an absolute basis or relative to a benchmark, and are recognized when they are earned (i.e., when they become billable to customers and are not subject to claw-back).

Performance based fees are generally billed less frequently than asset based fees, and although performance based

fees inherently depend on investment performance and will vary from period to period, we anticipate performance based fees will be a recurring component of our aggregate fees.

Performance based fees are generally billed less frequently than asset based fees, and although performance based fees inherently depend on investment performance and will vary from period to period, we anticipate performance based fees will be a recurring component of our aggregate fees.

Aggregate fees is generally determined by the level of our average assets under management, the composition of these assets across our active, return-oriented strategies that realize different asset based fee ratios, and performance based fees.

Our asset based fee ratio is calculated as asset based fees divided by average assets under management.

Aggregate fees were $1,253.1 million for the three months ended March 31, 2020 , an increase of $1.1 million as compared to the three months ended March 31, 2019 .

The increase in our aggregate fees was due to a $107.6 million or 9% increase from performance based fees, offset by a $106.5 million or 9% decrease from asset based fees.

The decrease in asset based fees was due to a 9% decrease in our average assets under management as adjusted to remove Affiliates in which we have repositioned or are repositioning our interests for the period ended March 31, 2019.

This decline, which was principally in our alternative strategies and global equity strategies, was primarily due to declines in the financial markets as a result of COVID-19 as well as net client cash outflows.

Aggregate fees were $960.9 million for the three months ended June 30, 2020 , a decrease of $202.2 million or 17% as compared to the three months ended June 30, 2019 .

The decrease in our aggregate fees was due to a $191.9 million or 16% decrease from asset based fees and a $10.3 million or 1% decrease from performance based fees.

The decrease in asset based fees was due to a decrease in our average assets under management, principally in our alternative strategies and global equity strategies due to net client cash outflows, and a change in the composition of our assets under management.

Aggregate fees were $2,214.0 million for the six months ended June 30, 2020 , a decrease of $201.1 million or 8% as compared to the six months ended June 30, 2019 .

The decrease in our aggregate fees was due to a $298.4 million or 12% decrease from asset based fees, offset by a $97.3 million or 4% increase from performance based fees.

Financial and Supplemental Financial Performance Measures

The following table presents our key financial and supplemental financial performance measures:

For the Three Months Ended March 31,

For the Three Months Ended June 30,

For the Six Months Ended June 30,

(in millions)

Net loss (controlling interest)

Net income (loss) (controlling interest)

Adjusted EBITDA (controlling interest) (1)

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Adjusted EBITDA (controlling interest) and Economic net income (controlling interest) are non-GAAP performance measures and are discussed in “Supplemental Financial Performance Measures.”

Percentage change is not meaningful.

Adjusted EBITDA (controlling interest) is an important supplemental financial performance measure for management as it provides a comprehensive view of our share of the financial performance of our business.

While aggregate fees increased $1.1 million in the three months ended March 31, 2020 , our Adjusted EBITDA (controlling interest) decreased $15.2 million or 7% , primarily due to a decline in earnings at certain Affiliates in which we share in revenue less agreed-upon expenses and the recognition of performance fees at Affiliates in which we hold less of an economic interest.

These decreases were partially offset by a $5.8 million increase in Investment and other income attributable to the controlling interest.

While Adjusted EBITDA (controlling interest) decreased $15.2 million or 7% , for the three months ended March 31, 2020 , our Net loss (controlling interest) decreased $185.2 million or 92% , primarily due to a $258.9 million decrease in equity method intangible amortization and impairments.

These decreases were partially offset by a $65.0 million increase in income tax expense due to a decrease in loss before income taxes attributable to the controlling interest.

We believe Economic net income (controlling interest) is an important supplemental financial measure because it represents our performance before non-cash expenses relating to the acquisition of interests in Affiliates and improves comparability of performance between periods.

In the three months ended March 31, 2020 , our Economic net income (controlling interest) decreased $17.7 million or 10% .

This decrease was primarily due to a $15.2 million decrease in Adjusted EBITDA (controlling interest), due to a decline in earnings at certain Affiliates in which we share in revenue less agreed-upon expenses and a decrease due to the recognition of performance fees at Affiliates in which we hold less of an economic interest.

These decreases were partially offset by a $5.8 million increase in Investment and other income attributable to the controlling interest.

While aggregate fees decreased $202.2 million or 17% in the three months ended June 30, 2020 , our Adjusted EBITDA (controlling interest) decreased $57.2 million or 26% .

Adjusted EBITDA (controlling interest) decreased more than aggregate fees on a percentage basis due to a decline in earnings at certain Affiliates in which we share in revenue less agreed-upon expenses and the recognition of performance based fees at Affiliates in which we hold less of an economic interest.

The decrease was also due to a $12.3 million increase in share-based compensation primarily due to an event that accelerated certain share-based compensation.

While aggregate fees decreased $201.1 million or 8% in the six months ended June 30, 2020 , our Adjusted EBITDA (controlling interest) decreased $72.4 million or 17% .

The decrease was also due to an $11.7 million increase in share-based compensation primarily due to an event that accelerated certain share-based compensation.

While Adjusted EBITDA (controlling interest) decreased $57.2 million or 26% , for the three months ended June 30, 2020 , our Net income (controlling interest) decreased $77.0 million or 71% .

The decline in Net income (controlling interest) was

greater than the decline in Adjusted EBITDA (controlling interest) primarily due to a $33.0 million increase in Intangible amortization and impairments attributable to the controlling interest and a $22.6 million increase in Investment and other expense attributable to the controlling interest.

These decreases were partially offset by a $32.3 million reduction in Income tax expense attributable to the controlling interest.

While Adjusted EBITDA (controlling interest) decreased $72.4 million or 17% , for the six months ended June 30, 2020 , our Net income (controlling interest) increased $108.2 million .

The increase in Net income (controlling interest) was primarily due to a $260.9 million decrease in equity method intangible amortization and impairments.

This increase was partially offset by a $27.8 million increase in Intangible amortization and impairments attributable to the controlling interest, and a $32.7 million increase in Income tax expense attributable to the controlling interest.

We believe Economic net income (controlling interest) is an important supplemental financial performance measure because it represents our performance before non-cash expenses relating to the acquisition of interests in Affiliates and improves comparability of performance between periods.

In the three months ended June 30, 2020 , our Economic net income (controlling interest) decreased $40.5 million or 24% .

This decrease was primarily due to a $57.2 million decrease in Adjusted EBITDA (controlling interest), partially offset by a $22.6 million decrease in current and other deferred taxes.

In the six months ended June 30, 2020 , our Economic net income (controlling interest) decreased $58.2 million or 17% .

This decrease was primarily due to a $72.4 million decrease in Adjusted EBITDA (controlling interest), partially offset by a $20.3 million decrease in current and other deferred taxes.

Results of Operations

The following discussion includes the key operating performance measures and financial results of our consolidated and equity method Affiliates.

Our consolidated Affiliates’ financial results are included in our Consolidated revenue, Consolidated expenses, and Investment and other income, and our share of our equity method Affiliates’ financial results is reported, net of intangible amortization and impairments, in Equity method loss (net).

Our consolidated Affiliates’ financial results are included in our Consolidated revenue, Consolidated expenses, and Investment and other income (expense), and our share of our equity method Affiliates’ financial results is reported, net of intangible amortization and impairments, in Equity method income (loss) (net).

Consolidated Revenue

The following table presents our consolidated Affiliate average assets under management and Consolidated revenue:

For the Three Months Ended March 31,

For the Three Months Ended June 30,

For the Six Months Ended June 30,

(in millions, except as noted)

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Consolidated revenue

Our Consolidated revenue decreased $35.8 million or 7% for the three months ended March 31, 2020 , due to a $37.0 million or 7% decrease from asset based fees, partially offset by a $1.2 million increase from performance based fees.

The decrease in asset based fees was primarily due to a 2% decrease in consolidated Affiliate average assets under management as adjusted to remove Affiliates in which we have repositioned or are repositioning our interests for the period ended March 31, 2019.

This decline, which was principally in our global equity strategies and U.S.

equity strategies, was primarily due to declines in the financial markets as a result of COVID-19 as well as net client cash outflows.

The decline in asset based fees was also attributable to a 5% decrease in our consolidated Affiliate asset based fee ratio, principally due to a change in the composition of assets under management.

Our Consolidated revenue decreased $120.8 million or 20% for the three months ended June 30, 2020 , due to an $84.4 million or 14% decrease from asset based fees and a $36.4 million or 6% decrease from performance based fees.

The decrease in asset based fees was due to a decrease in consolidated Affiliate average assets under management, principally in our alternative strategies and equities strategies due to net client cash outflows, and a change in the composition of our assets under management.

Our Consolidated revenue decreased $156.8 million or 14% for the six months ended June 30, 2020 , due to a $121.5 million or 11% decrease from asset based fees and a $35.3 million or 3% decrease from performance based fees.

Consolidated Expenses

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The following table presents our Consolidated expenses:

For the Three Months Ended March 31,

For the Three Months Ended June 30,

For the Six Months Ended June 30,

(in millions)

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Total consolidated expenses

Compensation and related expenses decreased $20.4 million or 9% for the three months ended March 31, 2020 , primarily due to a $24.5 million decrease in bonus and salary expenses as a result of the decline in Consolidated revenue and headcount repositioning in 2019.

This decrease was partially offset by a $5.9 million increase in Affiliate equity compensation expense.

Selling, general and administrative expenses decreased $5.3 million or 6% for the three months ended March 31, 2020 , primarily due to a $4.5 million decrease from sub-advisory and distribution expenses related to a decrease in consolidated Affiliate average assets under management, a $3.5 million decrease in renewal commissions, and a $1.4 million decrease in travel-related expenses.

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Percentage change is not meaningful.

Compensation and related expenses decreased $41.5 million or 16% for the three months ended June 30, 2020 , primarily due to a $50.7 million decrease in bonus and salary expenses, principally as a result of the decline in Consolidated revenue and headcount repositioning in 2019.

This decrease was partially offset by a $12.3 million increase in share-based compensation primarily due to an event that accelerated certain share-based compensation.

Compensation and related expenses decreased $61.8 million or 13% for the six months ended June 30, 2020 , primarily due to a $75.6 million decrease in bonus and salary expenses, principally as a result of the decline in Consolidated revenue and headcount repositioning in 2019.

This decrease was partially offset by an $11.7 million increase in share-based compensation primarily due to an event that accelerated certain share-based compensation, and a $3.8 million increase in Affiliate equity compensation expense.

Selling, general and administrative expenses decreased $22.6 million or 23% for the three months ended June 30, 2020 , primarily due to a $6.3 million decrease from sub-advisory and distribution expenses related to a decrease in consolidated Affiliate average assets under management, a $5.4 million decrease in travel-related expenses, a $3.8 million decrease in renewal commissions, and a $3.5 million decrease in professional fees.

Selling, general and administrative expenses decreased $28.0 million or 15% for the six months ended June 30, 2020 , primarily due to a $10.8 million decrease from sub-advisory and distribution expenses related to a decrease in consolidated Affiliate average assets under management, a $7.5 million decrease in renewal commissions, a $6.8 million decrease in travel-related expenses, and a $3.8 million decrease in professional fees.

These decreases were partially offset by a $4.4 million increase in reserves on notes receivable.

Intangible amortization and impairments decreased $9.0 million or 30% for the three months ended March 31, 2020 , primarily due to an $8.4 million reduction in amortization expense related to a decrease in actual and expected client attrition for certain definite-lived acquired client relationships.

Interest expense increased $1.3 million or 7% for the three months ended March 31, 2020 , primarily due to a $4.2 million increase from our junior subordinated notes issued in March 2019.

This increase was partially offset by a $2.2 million decrease due to lower borrowings on our senior unsecured multicurrency revolving credit facility (the “revolver”) and a $1.0 million decrease from lower interest rates on our senior unsecured term loan facility (the “term loan”).

There were no significant changes in Depreciation and other amortization and Other expenses (net) for the three months ended March 31, 2020 .

Equity Method Loss (Net)

Intangible amortization and impairments increased $59.7 million for the three months ended June 30, 2020 , primarily due to a $60.3 million expense to reduce the carrying value of certain acquired client relationships at one of our Affiliates to zero.

See Note 9 of our Consolidated Financial Statements.

Intangible amortization and impairments increased $50.6 million or 99% for the six months ended June 30, 2020 , primarily due to a $60.3 million expense to reduce the carrying value of certain acquired client relationships at one of our Affiliates to zero.

See Note 9 of our Consolidated Financial Statements.

This increase was partially offset by an $8.4 million reduction in amortization expense related to a decrease in actual and expected client attrition for certain definite-lived acquired client relationships.

Interest expense increased $2.6 million or 13% for the three months ended June 30, 2020 , primarily due to a $3.5 million increase due to the termination of our pound sterling-denominated forward foreign currency contracts in March 2020.

This increase was partially offset by a $2.2 million decrease from lower interest rates on our senior unsecured term loan facility (the “term loan”).

Interest expense increased $3.9 million or 10% for the six months ended June 30, 2020 , primarily due to a $4.3 million increase from our junior subordinated notes issued in March 2019 and a $4.1 million increase due to the termination of our pound sterling-denominated forward foreign currency contracts in March 2020.

These increases were partially offset by a $3.2 million decrease from lower interest rates on our term loan and a $1.8 million decrease due to lower borrowings and interest rates on our senior unsecured multicurrency revolving credit facility (the “revolver”).

There were no significant changes in Depreciation and other amortization or Other expenses (net) for the three and six months ended June 30, 2020 .

Equity Method Income (Loss) (Net)

For a majority of our Affiliates accounted for under the equity method, we use structured partnership interests in which we contractually share in the Affiliate’s revenue less agreed-upon expenses.

We also use structured partnership interests in which we contractually share in the Affiliate’s revenue without regard to expenses.

Our share of earnings or losses from Affiliates accounted for under the equity method, net of amortization and impairments, is included in Equity method loss (net).

The following table presents equity method Affiliate average assets under management and equity method revenue, as well as equity method earnings and equity method intangible amortization and impairments, which in aggregate form Equity method loss (net):

For the Three Months Ended March 31,

Our share of earnings or losses from Affiliates accounted for under the equity method, net of amortization and impairments, is included in Equity method income (loss) (net).

For the Three Months Ended June 30,

For the Six Months Ended June 30,

(in millions, except as noted)

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Equity method intangible amortization and impairments

Equity method loss (net)

Our equity method revenue increased $36.9 million or 5% for the three months ended March 31, 2020 , due to a $106.5 million or 15% increase from performance based fees, offset by a $69.6 million or 10% decrease from asset based fees.

The decrease in asset based fees was primarily due to a 17% decrease in equity method Affiliate average assets under management.

This decline, which was principally in our alternative strategies, was primarily due to declines in the financial markets as a result of COVID-19 as well as net client cash outflows.

This decrease was partially offset by a 7% increase in our equity method asset based fee ratio, principally due to the disposition of certain Affiliates with lower asset based fee ratios and a change in the composition of assets under management.

While equity method revenue increased $36.9 million or 5% for the three months ended March 31, 2020 , equity method earnings decreased $14.0 million or 17% .

Equity method earnings decreased due to a decline in earnings at certain Affiliates in which we share in revenue less agreed-upon expenses and the recognition of performance fees at Affiliates in which we hold less of an economic interest as compared to the three months ended March 31, 2019.

Equity method intangible amortization and impairments decreased $258.9 million or 59% for the three months ended March 31, 2020 , primarily due to a $275.0 million decrease in expenses to reduce the carrying value to fair value of certain Affiliates.

Equity method income (loss) (net)

Our equity method revenue decreased $81.4 million or 14% for the three months ended June 30, 2020 , due to a $107.5 million or 19% decrease from asset based fees, offset by a $26.1 million or 5% increase from performance based fees.

The decrease in asset based fees was primarily due to a decrease in equity method Affiliate average assets under management, principally in our alternative strategies and global equity strategies due to net client cash outflows.

While equity method revenue decreased $81.4 million or 14% for the three months ended June 30, 2020 , equity method earnings decreased $14.0 million or 20% .

Equity method earnings decreased more than equity method revenue on a percentage basis due to a decline in earnings at certain Affiliates in which we share in revenue less agreed-upon expenses.

There was no significant change in equity method intangible amortization and impairments for the three months ended June 30, 2020 .

Our equity method revenue decreased $44.3 million or 3% for the six months ended June 30, 2020 , due to a $177.0 million or 14% decrease from asset based fees, partially offset by a $132.7 million or 11% increase from performance based fees.

While equity method revenue decreased $44.3 million or 3% for the six months ended June 30, 2020 , equity method earnings decreased $27.9 million or 19% .

Equity method earnings decreased more than equity method revenue on a percentage basis due to a decline in earnings at certain Affiliates in which we share in revenue less agreed-upon expenses.

Equity method intangible amortization and impairments decreased $ 260.9 million or 55% for the six months ended June 30, 2020 , primarily due to a $275.0 million decrease in expenses to reduce the carrying value to fair value of certain Affiliates.

See Note 10 of our Consolidated Financial Statements.

This decrease was partially offset by a $15.5 million increase in amortization expense due to an increase in actual and expected client attrition for certain definite-lived acquired client relationships.

Investment and Other Income

The following table presents our Investment and other income:

For the Three Months Ended March 31,

Investment and Other Income (Expense)

The following table presents our Investment and other income (expense):

For the Three Months Ended June 30,

For the Six Months Ended June 30,

(in millions)

Investment and other income

Investment and other income decreased $5.6 million or 70% for the three months ended March 31, 2020 , primarily due to a $12.0 million net decrease from the valuation and realized gains on sales of Investments in marketable securities, partially offset by a $6.9 million increase from foreign currency translation.

Investment and other income (expense)

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Percentage change is not meaningful.

Investment and other expense increased $19.3 million for the three months ended June 30, 2020 , primarily due to a $19.1 million increase in net unrealized losses on Investments in marketable securities and Other investments.

Investment and other expense increased $24.9 million for the six months ended June 30, 2020 , primarily due to a $24.4 million increase in net unrealized losses on Other investments.

Income Tax Expense (Benefit)

The following table presents our Income tax expense (benefit):

For the Three Months Ended March 31,

For the Three Months Ended June 30,

For the Six Months Ended June 30,

(in millions)

2 unchanged sentences

Percentage change is not meaningful.

Income tax expense increased $64.0 million for the three months ended March 31, 2020 , primarily due to a decrease in losses before income taxes attributable to the controlling interest, principally due to a $244.9 million decrease in Equity method loss (net).

Income tax expense decreased $32.4 million or 91% for the three months ended June 30, 2020 , primarily due to a decrease in Income before income taxes attributable to the controlling interest, a $5.5 million benefit related to the release of an uncertain tax position, and a $4.1 million capital loss benefit for an amount carried back a year prior to the effective date of the Tax Cuts and Jobs Act.

Income tax expense increased $31.6 million for the six months ended June 30, 2020 , primarily due to an increase in Income before income taxes attributable to the controlling interest, partially offset by a $5.5 million benefit related to the release of an uncertain tax position, and a $4.1 million capital loss benefit for an amount carried back a year prior to the effective date of the Tax Cuts and Jobs Act.

Net Income (Loss)

The following table presents Net income (loss), Net income (non-controlling interests) and Net loss (controlling interest):

For the Three Months Ended March 31,

The following table presents Net income, Net income (non-controlling interests) and Net income (loss) (controlling interest):

For the Three Months Ended June 30,

For the Six Months Ended June 30,

(in millions)

Net income (loss)

Net income (non-controlling interests)

Net loss (controlling interest)

Net income (loss) (controlling interest)

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Percentage change is not meaningful.

Net loss (controlling interest) decreased $185.2 million or 92% for the three months ended March 31, 2020 , primarily due to a $244.9 million decrease in Equity method loss (net) and a $5.2 million decrease in consolidated intangible amortization and impairments expense attributable to the controlling interest.

These decreases were partially offset by a $65.0 million increase in Income tax expense attributable to the controlling interest.

Net income (controlling interest) decreased $77.0 million or 71% for the three months ended June 30, 2020 , primarily due to a $33.0 million increase in Intangible amortization and impairments attributable to the controlling interest, a $22.6 million increase in Investment and other expense attributable to the controlling interest, and a $12.0 million decrease in Equity method income (net).

These decreases to Net income (controlling interest) were partially offset by a $32.3 million decrease in Income tax expense attributable to the controlling interest.

Net income (controlling interest) increased $108.2 million for the six months ended June 30, 2020 , primarily due to a $233.0 million decrease in Equity method loss partially offset by a $32.7 million increase in Income tax expense attributable to

the controlling interest, a $27.8 million increase in Intangible amortization and impairments attributable to the controlling interest, and a $16.8 million increase to Investment and other expense attributable to the controlling interest.

Supplemental Financial Performance Measures

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This non-GAAP performance measure is provided in addition to, but not as a substitute for, Net income (loss) (controlling interest) or other GAAP performance measures.

The following table presents a reconciliation of Net loss (controlling interest) to Adjusted EBITDA (controlling interest):

For the Three Months Ended March 31,

The following table presents a reconciliation of Net income (loss) (controlling interest) to Adjusted EBITDA (controlling interest):

For the Three Months Ended June 30,

For the Six Months Ended June 30,

(in millions)

Net loss (controlling interest)

Net income (loss) (controlling interest)

Interest expense

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For our Affiliates accounted for under the equity method, we do not separately report intangible amortization and impairments in our Consolidated Statements of Income.

Our share of these Affiliates’ amortization is reported in Equity method loss (net).

Our share of these Affiliates’ amortization is reported in Equity method income (loss) (net).

The following table presents the Intangible amortization and impairments shown above:

For the Three Months Ended March 31,

For the Three Months Ended June 30,

For the Six Months Ended June 30,

(in millions)

Consolidated intangible amortization and impairments

Consolidated intangible amortization (non-controlling interests)

Consolidated intangible amortization and impairments (non-controlling interests)

Equity method intangible amortization and impairments

For the three months ended March 31, 2019 and 2020 , equity method intangible amortization and impairments includes $415.0 million and $140.0 million, respectively, of non-cash expenses to reduce the carrying value to fair value of certain Affiliates.

Other items includes depreciation and adjustments to contingent payment arrangements.

Beginning with the three months ended March 31, 2020, other items also includes certain Affiliate equity expenses and gains and losses on general partner and seed capital investments.

Beginning with the first quarter of 2020, other items also includes certain Affiliate equity expenses and gains and losses on general partner and seed capital investments.

These changes were made to improve the comparability of performance between periods.

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Economic net income (controlling interest) and Economic earnings per share are used by our management and Board of Directors as our principal performance benchmarks, including as one of the measures for aligning executive compensation with stockholder value.

These non-GAAP performance measures are provided in addition to, but not as substitutes for, Net income (loss) (controlling interest) and Earnings per share (diluted) or other GAAP performance measures.

non-GAAP performance measures are provided in addition to, but not as substitutes for, Net income (loss) (controlling interest) and Earnings per share (diluted) or other GAAP performance measures.

We adjust Net income (loss) (controlling interest) to calculate Economic net income (controlling interest) by adding back our share of pre-tax intangible amortization and impairments attributable to intangible assets (including the portion attributable to equity method investments in Affiliates) because these expenses do not correspond to the changes in the value of these assets, which do not diminish predictably over time.

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This method does not take into account any increase or decrease in our cost of capital in an assumed conversion.

The following table presents a reconciliation of Net loss (controlling interest) to Economic net income (controlling interest) and Economic earnings per share:

For the Three Months Ended March 31,

The following table presents a reconciliation of Net income (loss) (controlling interest) to Economic net income (controlling interest) and Economic earnings per share:

For the Three Months Ended June 30,

For the Six Months Ended June 30,

(in millions, except per share data)

Net loss (controlling interest)

Net income (loss) (controlling interest)

Intangible amortization and impairments (1)

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See note (1) to the table in “Adjusted EBITDA (controlling interest).”

For the three months ended March 31, 2019 and 2020 , intangible-related deferred taxes decreased $103.8 million and $35.0 million, respectively, as a result of expenses to reduce the carrying value to fair value as described in note (1) to the table in “Adjusted EBITDA (controlling interest).”

For the three months ended March 31, 2019 and 2020 , other economic items were net of income tax expense of $0.2 million and $1.1 million, respectively.

Other economic items includes non-cash imputed interest (principally related to the accounting for convertible securities and contingent payment arrangements), tax windfalls and shortfalls from share-based compensation and certain Affiliate equity expenses.

Beginning with the three months ended March 31, 2020, other economic items also includes gains and losses on general partner and seed capital investments.

Beginning with the first quarter of 2020, other economic items also includes gains and losses on general partner and seed capital investments.

These changes were made to improve the comparability of performance between periods.

Prior periods have not been revised as the amounts were not significant.

For the three and six months ended June 30, 2019 and 2020 , other economic items were net of income tax expense (benefit) of $0.1 million and $0.3 million, respectively, and $(4.3) million and $(3.2) million, respectively.

Liquidity and Capital Resources

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We then return capital to shareholders through share repurchases and the payment of cash dividends on our common stock while maintaining a conservative capital structure consistent with an investment grade rating.

Cash and cash equivalents were $592.2 million as of March 31, 2020 and were attributable to both the controlling and non-controlling interests.

For the three months ended March 31, 2020 , we met our cash requirements primarily through cash generated by operating activities.

Our principal uses of cash during the quarter were for investments in existing Affiliates primarily through repurchases of Affiliate equity interests, the return of capital through share repurchases and the payment of cash dividends on our common stock and distributions to non-controlling interests.

We expect the primary uses of capital for the foreseeable future to be for investments in new Affiliates, investments in existing Affiliates through repurchases of Affiliate equity interests, the return of capital through share repurchases, distributions to non-controlling interests and the repayment of debt.

Cash and cash equivalents were $681.6 million as of June 30, 2020 and were attributable to both the controlling and non-controlling interests.

For the six months ended June 30, 2020 , we met our cash requirements primarily through cash generated by operating activities.

Our principal uses of cash during the quarter were for repayment of debt, investments in existing Affiliates primarily through repurchases of Affiliate equity interests, the return of capital through share repurchases and the payment of cash dividends on our common stock, and distributions to non-controlling interests.

We expect the primary uses of capital for the foreseeable future to be for investments in new Affiliates, investments in existing Affiliates through repurchases

of Affiliate equity interests, the return of capital through share repurchases, distributions to non-controlling interests and the repayment of debt.

We anticipate that cash flows from operations, together with borrowings under our revolver, will be sufficient to support our cash flow needs.

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The following table presents operating, investing and financing cash flow activities:

For the Three Months Ended March 31,

For the Six Months Ended June 30,

(in millions)

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Operating cash flows are calculated by adjusting Net income for other significant sources and uses of cash, significant non-cash items, and timing differences in the cash settlement of assets and liabilities.

For the three months ended March 31, 2020 , Cash flows from operating activities were $85.6 million , primarily from Net income of $40.0 million, adjusted for distributions of earnings received from equity method investments of $124.4 million, Equity method loss (net) of $113.2 million and non-cash expenses for share-based compensation and Affiliate equity expense of $24.8 million and Intangible amortization and impairments of $20.6 million.

These items were partially offset by timing differences in the cash settlement of payables, accrued liabilities and other liabilities of $209.6 million, primarily due to the payment of incentive compensation.

For the six months ended June 30, 2020 , Cash flows from operating activities were $375.4 million , primarily from Net income of $103.4 million, adjusted for Distributions of earnings received from equity method investments of $160.2 million, Equity method loss (net) of $95.8 million, non-cash expenses for Intangible amortization and impairments of $101.5 million, and Share-based compensation and Affiliate equity expense of $57.5 million.

These items were partially offset by timing differences in the cash settlement of assets and liabilities of $155.4 million, primarily due to the payment of incentive compensation.

For the six months ended June 30, 2020, operating cash flows were primarily attributable to the controlling interest.

Investing Cash Flow

For the three months ended March 31, 2020 , Cash flows from investing activities were $15.9 million , principally due to sales of investment securities of $31.1 million, partially offset by purchases of investment securities of $11.9 million.

For the six months ended June 30, 2020 , Cash flows from investing activities were $3.1 million , principally due to the sale of investment securities, net of purchases of $10.0 million, partially offset by purchases of fixed assets of $4.5 million.

These activities were primarily attributable to the controlling interest.

Financing Cash Flow

For the three months ended March 31, 2020 , Cash flows used in financing activities were $37.7 million , primarily due to $99.6 million of distributions to non-controlling interests, the return of $95.5 million of capital to shareholders through share repurchases and dividends on our common stock and $84.4 million of Affiliate equity repurchases, net of issuances.

Cash flows used in financing activities is partially offset by the receipt of $250.0 million of borrowings under our revolver.

For the six months ended June 30, 2020 , Cash flows used in financing activities were $226.3 million , primarily due to $171.7 million of distributions to non-controlling interests, $143.5 million of Affiliate equity repurchases, net of issuances, the return of $129.1 million of capital to shareholders through share repurchases and dividends on our common stock, and a $100.0 million paydown of our term loan.

Cash flows used in financing activities was partially offset by the receipt of $349.8 million of proceeds from the issuance of senior notes.

These activities were primarily attributable to the controlling interest.

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Affiliate equity holders are also permitted to sell their equity interests to other individuals or entities in certain cases, subject to our approval or other restrictions.

As of March 31, 2020 , our current redemption value of $581.8 million for these interests (including $18.6 million of consolidated Affiliate sponsored investment products primarily attributable to third-party investors) has been presented as Redeemable non-controlling interests.

Although the timing and amounts of these purchases are difficult to predict, we paid $84.4 million for Affiliate equity repurchases, net of issuances during the three months ended March 31, 2020 , and we expect to repurchase approximately $135 million of Affiliate equity during the remainder of 2020 .

In the event of a repurchase, we become the owner of the cash flow associated with the repurchased equity.

As of June 30, 2020 , our current redemption value of $682.1 million for these interests (including $20.7 million of consolidated Affiliate sponsored investment products primarily attributable to third-party investors) has been presented as Redeemable non-controlling interests.

Although the timing and amounts of these purchases are difficult to predict, we paid $143.5 million for Affiliate equity repurchases, net of issuances during the six months ended June 30, 2020 , and we expect net repurchases of approximately $110 million of Affiliate equity during the remainder of 2020 .

In the event of a repurchase, we

become the owner of the cash flow associated with the repurchased equity.

See Notes 13 and 14 of our Consolidated Financial Statements.

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Purchases may be made from time to time, at management’s discretion, in the open market or in privately negotiated transactions, including through the use of derivative financial instruments and accelerated share repurchase programs.

During the three months ended March 31, 2020 , we repurchased 0.9 million shares of our common stock, at an average price per share of $78.27 .

As of March 31, 2020 , there were a total of 6.0 million shares available for repurchase under our October 2019 and January 2019 share repurchase programs.

During the three and six months ended June 30, 2020 , we repurchased 0.6 million and 1.5 million shares, respectively, of our common stock, at an average price per share of $72.85 and $76.03 , respectively.

As of June 30, 2020 , we had repurchased all of the shares of the January 2019 authorized amount, and there were a total of 5.4 million shares available for repurchase under our October 2019 share repurchase program.

The following table presents the carrying value of our outstanding indebtedness.

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December 31, 2019

March 31, 2020

Senior bank debt

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Subject to certain conditions, we may increase the commitments under the revolver by up to an additional $500.0 million and may borrow up to an additional $75.0 million under the term loan.

As of March 31, 2020, we had outstanding borrowings under the revolver of $250.0 million.

As of March 31, 2020 , we were in compliance with all terms of our credit facilities and had $1.0 billion of remaining capacity under our revolver, all of which we could borrow and remain in compliance with our credit facilities.

As of June 30, 2020 , we had no outstanding borrowings under the revolver, and could borrow all capacity and remain in compliance with our credit facilities.

On June 5, 2020, we issued $350.0 million aggregate principal amount of 3.3% senior unsecured notes due June 15, 2030 (the “2030 senior notes”).

The 2030 senior notes pay interest semi-annually and may be redeemed at any time, in whole or in part, at a make-whole redemption price plus accrued and unpaid interest.

In addition to customary event of default provisions, the indenture governing the 2030 senior notes limits our ability to consolidate, merge or sell all or substantially all of our assets and requires us to make an offer to repurchase the 2030 senior notes upon certain change of control triggering events.

We used $250.0 million of the net proceeds from the 2030 senior notes to repay all of the outstanding indebtedness under our revolver, and $100.0 million of the remaining net proceeds to repay a portion of the outstanding indebtedness under the term loan.

Equity Distribution Program

We have equity distribution and forward equity agreements with several major securities firms under which we may, from time to time, issue and sell shares of our common stock (immediately or on a forward basis) having an aggregate sales price of up to $500.0 million (the “equity distribution program”).

As of March 31, 2020 , no sales had occurred under the equity distribution program.

In March 2020, we entered into an interest rate swap contract (the “interest rate swap”) with a financial institution, which will expire in March 2023.

As of June 30, 2020 , no sales had occurred under the equity distribution program.

In the first quarter of 2020, we entered into an interest rate swap contract (the “interest rate swap”) with a financial institution, which will expire in March 2023.

The interest rate swap, which is designated as a cash flow hedge, is used to exchange our LIBOR-based interest payments for fixed rate payments.

Under the contract, we receive payments based on a one month LIBOR and make payments based on an annual fixed rate of 0.5135% on a notional amount of $250.0 million .

In March 2020, we terminated our forward contracts and corresponding collar contracts entered into in 2018, and we received net proceeds of $24.9 million upon settlement.

Under the contract, we receive payments based on one month LIBOR and make payments based on an annual fixed rate of 0.5135% on a notional amount of $250.0 million .

In the first quarter of 2020, we terminated our forward contracts and corresponding collar contracts entered into in 2018, and we received net proceeds of $24.9 million upon settlement.

See Note 6 of our Consolidated Financial Statements.

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Contractual Obligations

The following table summarizes our contractual obligations as of March 31, 2020 .

The following table summarizes our contractual obligations as of June 30, 2020 .

Contractual debt obligations include the cash payment of fixed interest.

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The total controlling interest portion is $53.5 million ( $6.3 million through 2020, $22.1 million in 2021-2022, $16.5 million in 2023-2024 and $8.6 million thereafter).

The Affiliate equity repurchase obligations disclosed in the table represent the fair value of obligations put to us and outstanding as of March 31, 2020 .

The other obligations disclosed in the table represent obligations to make investments in an Affiliate and for liabilities at certain consolidated Affiliates as of March 31, 2020 .

The contingent payment arrangements disclosed in the table represent the expected settlement amounts.

Affiliate equity repurchase obligations represent the fair value of obligations put to us and outstanding as of June 30, 2020 .

Other obligations represent obligations to make investments in an Affiliate and for liabilities at certain consolidated Affiliates as of June 30, 2020 .

Contingent payment arrangements represent the expected settlement amounts.

The maximum contingent obligation that may become payable is $150.0 million in 2021, $77.5 million in 2022 and $62.5 million from 2023 through 2025.

The table above does not include liabilities for commitments to co-invest in certain Affiliate sponsored investment products or uncertain tax positions of $135.3 million and $61.0 million , respectively.

This table also does not include potential obligations relating to our derivative financial instruments.

See Note 6 of our Consolidated Financial Statements.

These items are excluded as we cannot predict the timing of when such obligations will be paid.

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Our 2019 Annual Report on Form 10‑K includes additional information about our Critical Accounting Estimates and Judgments, and should be read in conjunction with this Quarterly Report on Form 10‑Q.

Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes to our Quantitative and Qualitative Disclosures About Market Risk for the three

months ended June 30, 2020 .

Please refer to Item 7A of our 2019 Annual Report on Form 10-K.

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