What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-10-30 compared with 2020-07-31 · 169 added, 163 removed, 264 unchanged (56% of the section changed)

14 unchanged sentences

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

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.

As of September 30, 2020, our aggregate assets under management were $653.5 billion, across a broad range of active, return-oriented strategies.

D uring the nine months ended September 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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The following table presents our key aggregate operating performance measures:

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)

As of and for the Three Months Ended September 30, As of and for the Nine Months Ended September 30,

(in billions, except as noted) 2019 2020 % Change 2019 2020 % Change

Assets under management $ 750.7 $ 653.5 (13) % $ 750.7 $ 653.5 (13) %

1 unchanged sentence

Aggregate fees (in millions) 1,130.5 961.7 (15) % 3,545.6 3,175.7 (10) %

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.

As of and for the three and nine months ended September 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.

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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 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.

For the three and nine months ended September 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.

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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 :

If financial markets were to worsen as a result of COVID-19 or other factors, our 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 September 30, 2020:

Assets Under Management (in billions)

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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 :

(1) Alternatives include illiquid alternative strategies, which accounted for 15% of our assets under management as of September 30, 2020.

(2) Global equities include emerging markets strategies, which accounted for 8% of our assets under management as of September 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 September 30, 2020:

By Strategy - Quarter to Date

(in billions)

Global Equities

Multi-Asset & Fixed Income

March 31, 2020

(in billions) Alternatives Global Equities U.S.

Equities Multi-Asset & Fixed Income Total

June 30, 2020 $ 220.5 $ 229.2 $ 84.0 $ 104.7 $ 638.4

Client cash inflows and commitments 6.3 7.7 3.1 5.8 22.9

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Foreign exchange (1)

1.7 2.3 0.2 0.5 4.7

Realizations and distributions (net) (0.7) (0.1) — — (0.8)

June 30, 2020

(0.1) — — (0.1) (0.2)

September 30, 2020 $ 219.1 $ 240.7 $ 84.3 $ 109.4 $ 653.5

By Client Type - Quarter to Date

(in billions)

Institutional

High Net Worth

March 31, 2020

(in billions) Institutional Retail High Net Worth Total

June 30, 2020 $ 364.9 $ 161.8 $ 111.7 $ 638.4

Client cash inflows and commitments 9.1 8.9 4.9 22.9

3 unchanged sentences

Foreign exchange (1)

2.5 2.0 0.2 4.7

Realizations and distributions (net) (0.7) (0.1) — (0.8)

June 30, 2020

— (0.2) — (0.2)

September 30, 2020 $ 370.4 $ 167.2 $ 115.9 $ 653.5

By Strategy - Year to Date

Global Equities

Multi-Asset & Fixed Income

Alternatives Global Equities U.S.

Equities Multi-Asset & Fixed Income Total

December 31, 2019 $ 241.2 $ 274.9 $ 100.0 $ 106.4 $ 722.5

5 unchanged sentences

Foreign exchange (1)

(1.3) (2.8) (0.2) (0.9) (5.2)

Realizations and distributions (net) (1.4) (0.1) — (0.2) (1.7)

June 30, 2020

(0.3) (0.3) (0.9) 0.2 (1.3)

September 30, 2020 $ 219.1 $ 240.7 $ 84.3 $ 109.4 $ 653.5

By Client Type - Year to Date

Institutional

High Net Worth

Institutional Retail High Net Worth Total

December 31, 2019 $ 407.2 $ 198.1 $ 117.2 $ 722.5

5 unchanged sentences

Foreign exchange (1)

(2.6) (2.3) (0.3) (5.2)

Realizations and distributions (net) (1.4) (0.2) (0.1) (1.7)

June 30, 2020

(0.5) (0.7) (0.1) (1.3)

September 30, 2020 $ 370.4 $ 167.2 $ 115.9 $ 653.5

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(1) Foreign exchange reflects the impact of translating into U.S.

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

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.

Aggregate fees were $961.7 million for the three months ended September 30, 2020, a decrease of $168.8 million or 15% as compared to the three months ended September 30, 2019.

The decrease in our aggregate fees was due to a $165.5 million or 15% decrease from asset based fees and a $3.3 million or less than 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 equities strategies due to net client cash outflows and a change in the composition of our assets under management.

Aggregate fees were $3,175.7 million for the nine months ended September 30, 2020, a decrease of $369.9 million or 10% as compared to the nine months ended September 30, 2019.

The decrease in our aggregate fees was due to a $464.1 million or 13% decrease from asset based fees, partially offset by a $94.2 million or 3% increase 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.

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

For the Three Months Ended June 30,

For the Six Months Ended June 30,

(in millions)

Net income (loss) (controlling interest)

For the Three Months Ended September 30, For the Nine Months Ended September 30,

(in millions) 2019 2020 % Change 2019 2020 % Change

Net income (loss) (controlling interest) $ 86.3 $ 71.3 (17) % $ (6.8) $ 86.3 N.M.

Adjusted EBITDA (controlling interest) (2)

206.5 181.2 (12) % 641.3 543.6 (15) %

Economic net income (controlling interest) (2)

159.4 152.1 (5) % 498.5 433.0 (13) %

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

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(1) Percentage change is not meaningful.

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

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 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% .

For the three months ended September 30, 2020, our Adjusted EBITDA (controlling interest) decreased $25.3 million or 12%, primarily due to a $168.8 million or 15% decrease in aggregate fees.

While aggregate fees decreased $369.9 million or 10% in the nine months ended September 30, 2020, our Adjusted EBITDA (controlling interest) decreased $97.7 million or 15%.

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 $15.7 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 .

For the three months ended September 30, 2020, our Net income (controlling interest) decreased $15.0 million or 17%, primarily due to a $25.3 million decrease from the decline in Adjusted EBITDA (controlling interest), partially offset by a $9.3 million decrease in Intangible amortization and impairments attributable to the controlling interest.

While Adjusted EBITDA (controlling interest) decreased $97.7 million or 15%, for the nine months ended September 30, 2020, our Net income (controlling interest) increased $93.1 million.

The increase in Net income (controlling interest) was primarily due to a $278.6 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.

This increase was partially offset by a $36.2 million increase in Intangible amortization and impairments, and a $36.8 million increase in Income tax expense, both 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.

In the three months ended September 30, 2020, our Economic net income (controlling interest) decreased $7.3 million or 5%.

This decrease was primarily due to a $25.3 million decrease in Adjusted EBITDA (controlling interest), partially offset by a $19.3 million decrease in current and other deferred taxes attributable to the controlling interest.

In the nine months ended September 30, 2020, our Economic net income (controlling interest) decreased $65.5 million or 13%.

This decrease was primarily due to a $97.7 million decrease in Adjusted EBITDA (controlling interest), partially offset by a $39.7 million decrease in current and other deferred taxes attributable to the controlling interest.

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 (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).

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 income (loss) (net).

Consolidated Revenue

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

For the Three Months Ended June 30,

For the Six Months Ended June 30,

(in millions, except as noted)

For the Three Months Ended September 30, For the Nine Months Ended September 30,

(in millions, except as noted) 2019 2020 % Change 2019 2020 % Change

Consolidated Affiliate average assets under management (in billions) $ 400.3 $ 365.2 (9) % $ 402.3 $ 352.3 (12) %

Consolidated revenue $ 549.0 $ 494.8 (10) % $ 1,684.0 $ 1,473.2 (13) %

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.

Our Consolidated revenue decreased $54.2 million or 10% for the three months ended September 30, 2020, due to a $51.3 million or 9% decrease from asset based fees and a $2.9 million or 1% 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 U.S.

equity strategies due to net client cash outflows and a change in the composition of our assets under management.

Our Consolidated revenue decreased $210.8 million or 13% for the nine months ended September 30, 2020, due to a $172.5 million or 11% decrease from asset based fees and a $38.3 million or 2% 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 U.S.

equity strategies due to net client cash outflows and a change in the composition of our assets under management.

Consolidated Expenses

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The following table presents our Consolidated expenses:

For the Three Months Ended June 30,

For the Six Months Ended June 30,

For the Three Months Ended September 30, For the Nine Months Ended September 30,

% Change % Change

(in millions) 2019 2020 2019 2020

6 unchanged sentences

Total consolidated expenses $ 373.4 $ 359.2 (4) % $ 1,173.8 $ 1,123.1 (4) %

___________________________

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 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.

Compensation and related expenses decreased $9.5 million or 4% for the three months ended September 30, 2020, primarily due to a $13.9 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 $4.0 million increase in share-based compensation expense.

Compensation and related expenses decreased $71.3 million or 10% for the nine months ended September 30, 2020, primarily due to a $91.2 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 $15.7 million increase in share-based compensation, primarily due to an event that accelerated certain share-based compensation and a $4.1 million increase in Affiliate equity compensation expense.

Selling, general and administrative expenses decreased $17.4 million or 19% for the three months ended September 30, 2020, primarily due to a $5.4 million decrease in travel-related expenses, a $4.6 million decrease from sub-advisory and distribution expenses related to a decrease in consolidated Affiliate average assets under management, and a $3.6 million decrease in renewal commissions.

Selling, general and administrative expenses decreased $45.4 million or 16% for the nine months ended September 30, 2020, primarily due to a $15.3 million decrease from sub-advisory and distribution expenses related to a decrease in consolidated Affiliate average assets under management, a $13.6 million decrease in travel-related expenses, an $11.1 million decrease in renewal commissions, and a $4.6 million decrease in costs due to the impact of office closures.

Intangible amortization and impairments increased $10.8 million or 51% for the three months ended September 30, 2020, primarily due to a $24.9 million expense to reduce the carrying value of acquired client relationships at certain of our Affiliates to fair value.

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.

These increases were partially offset by a $14.2 million reduction in amortization expense related to certain definite-lived assets being fully amortized.

Intangible amortization and impairments increased $61.4 million or 85% for the nine months ended September 30, 2020, primarily due to an $85.2 million expense to reduce the carrying value of acquired client relationships at certain of our Affiliates to fair value.

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 .

These increases were partially offset by a $19.5 million reduction in amortization expense related to certain definite-lived assets being fully amortized and a $4.4 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 $4.3 million or 22% for the three months ended September 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 and a $2.9 million increase from our 3.3% senior unsecured notes due June 15, 2030 issued in June 2020 (the “2030 senior notes”).

These increases were partially offset by a $2.4 million decrease from lower interest rates and lower borrowings on our senior unsecured term loan facility (the “term loan”).

Interest expense increased $8.2 million or 14% for the nine months ended September 30, 2020, primarily due to a $7.6 million increase due to the termination of our pound sterling-denominated forward foreign currency contracts in March 2020, a $4.3 million increase from our 5.875% junior subordinated notes issued in March 2019, and a $3.8 million increase from our 2030 senior notes.

These increases were partially offset by a $7.6 million decrease from lower interest rates and lower borrowings on our term loan and 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 nine months ended September 30, 2020.

Equity Method Income (Loss) (Net)

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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 income (loss) (net):

For the Three Months Ended June 30,

For the Six Months Ended June 30,

(in millions, except as noted)

For the Three Months Ended September 30, For the Nine Months Ended September 30,

(in millions, except as noted) 2019 2020 % Change 2019 2020 % Change

Operating Performance Measures

5 unchanged sentences

Equity method income (loss) (net) $ 10.3 $ 17.0 65 % $ (318.5) $ (78.8) (75) %

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% .

Our equity method revenue decreased $114.6 million or 20% for the three months ended September 30, 2020, primarily due to a $114.2 million or 20% decrease from asset 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 due to net client cash outflows and a change in the composition of our assets under management.

For the three months ended September 30, 2020, equity method earnings decreased $11.1 million or 18%, primarily due to a $114.6 million or 20% decrease in equity method revenue.

Equity method intangible amortization and impairments decreased $17.8 million or 34% for the three months ended September 30, 2020, primarily due to a $10.0 million decrease in expenses to reduce the carrying value of an Affiliate to fair value.

See Note 10 of our Consolidated Financial Statements.

The decrease was also due to a $7.5 million reduction in amortization expense related to a decrease in actual and expected client attrition for certain definite-lived acquired client relationships.

Our equity method revenue decreased $159.1 million or 9% for the nine months ended September 30, 2020, due to a $291.4 million or 16% decrease from asset based fees, partially offset by a $132.3 million or 7% increase from performance based fees.

While equity method revenue decreased $159.1 million or 9% for the nine months ended September 30, 2020, equity method earnings decreased $38.9 million or 18%.

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.

Equity method intangible amortization and impairments decreased $278.6 million or 53% for the nine months ended September 30, 2020, primarily due to a $285.0 million decrease in expenses to reduce the carrying value of certain Affiliates to fair value.

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 (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 (expense)

___________________________

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 June 30,

For the Six Months Ended June 30,

(in millions)

Income tax expense (benefit)

This decrease was partially offset by an $8.0 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 September 30, For the Nine Months Ended September 30,

(in millions) 2019 2020 % Change 2019 2020 % Change

Investment and other income $ 6.7 $ 12.7 90 % $ 22.0 $ 2.9 (87) %

Investment and other income increased $6.0 million or 90% for the three months ended September 30, 2020, primarily due to a $5.4 million increase in net unrealized gains on Other investments.

Investment and other income decreased $19.1 million or 87% for the nine months ended September 30, 2020, primarily due to a $22.9 million net decrease from the valuation and realized gains on sales of Investments in marketable securities and Other investments, partially offset by a $5.5 million increase from foreign currency translation.

Income Tax Expense

The following table presents our Income tax expense:

For the Three Months Ended September 30, For the Nine Months Ended September 30,

(in millions) 2019 2020 % Change 2019 2020 % Change

Income tax expense $ 30.5 $ 37.5 23 % $ 4.4 $ 43.0 N.M.

___________________________

(1) Percentage change is not meaningful.

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.

Income tax expense increased $7.0 million or 23% for the three months ended September 30, 2020, primarily due to a $10.1 million increase in deferred tax expense resulting from the revaluation of certain of our deferred tax liabilities due to an increase in the UK tax rate during the period and a $6.4 million increase in a valuation allowance against certain foreign net operating losses.

These increases were partially offset by a $6.4 million capital loss benefit for an amount carried back to a year prior to the effective date of the Tax Cuts and Jobs Act and a $3.2 million decrease in estimated Global Intangible Low Tax Income (“GILTI”) expense as a result of regulatory guidance issued during the period.

Income tax expense increased $38.6 million for the nine months ended September 30, 2020, primarily due to a $129.9 million increase in Income before income taxes attributable to the controlling interest, a $10.1 million increase in deferred tax expense resulting from the revaluation of certain of our deferred tax liabilities due to an increase in the UK tax rate during the period and a $10.7 million increase in valuation allowances against certain state and foreign loss carryforwards.

These increases were partially offset by $10.5 million of capital loss benefits for amounts carried back to years prior to the effective date of the Tax Cuts and Jobs Act and a $3.2 million decrease in estimated GILTI expense as a result of regulatory guidance issued during the period.

Net Income (Loss)

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)

For the Three Months Ended September 30, For the Nine Months Ended September 30,

(in millions) 2019 2020 % Change 2019 2020 % Change

Net income $ 162.1 $ 127.8 (21) % $ 209.3 $ 231.2 10 %

Net income (non-controlling interests) 75.8 56.5 (25) % 216.1 144.9 (33) %

Net income (loss) (controlling interest)

Net income (loss) (controlling interest) 86.3 71.3 (17) % (6.8) 86.3 N.M.

___________________________

(1) Percentage change is not meaningful.

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.

Net income (controlling interest) decreased $15.0 million or 17% for the three months ended September 30, 2020, primarily due to a decrease in Consolidated revenue and increases in consolidated Intangible amortization and impairments, Interest expense and Income tax expense, partially offset by an increase in Equity method income (net).

Net income (controlling interest) increased $93.1 million for the nine months ended September 30, 2020, primarily due to a decrease in Equity method loss (net), partially offset by a decrease in Consolidated revenue and increases in Income tax expense and consolidated Intangible amortization and impairments.

Supplemental Financial Performance Measures

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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,

For the Three Months Ended September 30, For the Nine Months Ended September 30,

(in millions) 2019 2020 2019 2020

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Interest expense 19.5 23.8 57.4 65.6

Income taxes 28.3 32.5 (3.1) 33.7

Intangible amortization and impairments (1)

68.4 59.1 583.5 341.1

Other items (2)

4.0 (5.5) 10.3 16.9

Adjusted EBITDA (controlling interest) $ 206.5 $ 181.2 $ 641.3 $ 543.6

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

For the Three Months Ended June 30,

For the Six Months Ended June 30,

For the Three Months Ended September 30, For the Nine Months Ended September 30,

(in millions) 2019 2020 2019 2020

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Equity method intangible amortization and impairments 52.1 34.3 529.1 250.5

Total $ 68.4 $ 59.1 $ 583.5 $ 341.1

(2) Other items includes depreciation and adjustments to contingent payment arrangements.

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We believe Economic net income (controlling interest) and Economic earnings per share are important measures because they represent our performance before non-cash expenses relating to the acquisition of interests in Affiliates and improve comparability of performance between periods.

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.

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.

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.

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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Further, we add back other economic items to improve comparability of performance between periods.

Economic earnings per share represents Economic net income (controlling interest) divided by the Average shares

outstanding (adjusted diluted).

Economic earnings per share represents Economic net income (controlling interest) divided by the Average shares outstanding (adjusted diluted).

In this calculation, the potential share issuance in connection with our junior convertible securities is measured using a “treasury stock” method.

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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,

For the Three Months Ended September 30, For the Nine Months Ended September 30,

(in millions, except per share data) 2019 2020 2019 2020

1 unchanged sentence

Intangible amortization and impairments (1)

68.4 59.1 583.5 341.1

Intangible-related deferred taxes 3.5 27.0 (83.6) (7.1)

Other economic items (2)

1.2 (5.3) 5.4 12.7

Economic net income (controlling interest) $ 159.4 $ 152.1 $ 498.5 $ 433.0

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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.

For the three and nine months ended September 30, 2019 and 2020, other economic items were net of income tax expense (benefit) of $0.3 million and $0.7 million, respectively, and $2.3 million and $(0.8) 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 $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.

Cash and cash equivalents were $929.4 million as of September 30, 2020 and were attributable to both the controlling and non-controlling interests.

In the nine months ended September 30, 2020, we met our cash requirements through cash generated

by operating activities.

Our principal uses of cash during the nine months ended September 30, 2020 were, and for the foreseeable future are expected to be, for investments in new Affiliates, investments in existing Affiliates primarily through repurchases of Affiliate equity interests, repayment of debt, the return of capital through share repurchases and the payment of cash dividends on our common stock, distributions to Affiliate equity holders, and general working capital purposes.

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

In addition, we may draw funding from the debt and equity capital markets, and our credit ratings, among other factors, allow us to access these sources of funding on favorable terms.

1 unchanged sentence

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

For the Six Months Ended June 30,

For the Nine Months Ended September 30,

(in millions) 2019 2020

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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 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.

For the nine months ended September 30, 2020, Cash flows from operating activities were $626.8 million, primarily from Net income adjusted for non-cash items of $571.7 million and Distributions of earnings received from equity method investments of $197.2 million.

These items were partially offset by timing differences in the cash settlement of assets and liabilities of $136.2 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.

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

Investing Cash Flow

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.

For the nine months ended September 30, 2020, Cash flows from investing activities were $8.0 million, primarily due to the purchases of fixed assets of $6.8 million.

Financing Cash Flow

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.

For the nine months ended September 30, 2020, Cash flows used in financing activities were $221.5 million, primarily due to $249.1 million of distributions to non-controlling interests, $232.5 million of Affiliate equity repurchases, net of issuances, the return of $229.3 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 2030 senior notes and $275.0 million of proceeds from the issuance of our junior subordinated notes with a maturity date of September 30, 2060 (the “2060 junior subordinated notes”).

Affiliate Equity

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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 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.

As of September 30, 2020, our current redemption value of $652.0 million for these interests (including $25.5 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 $232.5 million for Affiliate equity repurchases, net of issuances during the nine months ended September 30, 2020, and we expect net repurchases of approximately $65 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 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.

During the three and nine months ended September 30, 2020, we repurchased 1.3 million and 2.8 million shares, respectively, of our common stock, at an average price per share of $67.82 and $72.22, respectively.

As of September 30, 2020, we had repurchased all of the shares of the January 2019 authorized amount, and there were a total of 4.1 million shares available for repurchase under our October 2019 share repurchase program.

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

See Note 5 of our Consolidated Financial Statements:

(in millions)

December 31, 2019

(in millions) December 31, 2019 September 30, 2020

Senior bank debt $ 450.0 $ 350.0

Senior notes 746.8 1,097.2

Junior convertible securities 315.4 317.7

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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 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.

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

In the second quarter of 2020, we issued $350.0 million of senior unsecured notes with a maturity date of June 15, 2030.

The 2030 senior notes bear interest at a fixed rate of 3.3% per annum.

Interest is payable semi-annually, and we have the right to redeem the 2030 senior notes 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.

In the second quarter of 2020, 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.

Junior Subordinated Notes

In September 2020, we issued $275.0 million of junior subordinated notes.

The 2060 junior subordinated notes bear interest at a fixed rate of 4.750% per annum.

Interest is payable quarterly, commencing on December 30, 2020, and we have the right to defer interest payments in accordance with the terms of the notes.

The 2060 junior subordinated notes were issued at 100% of the principal amount and rank junior and subordinate in right of payment and upon liquidation to all of our current and future senior indebtedness.

On or after September 30, 2025, at our option, the 2060 junior subordinated notes may be redeemed in whole or in part, at 100% of the principal amount, plus any accrued and unpaid interest.

Prior to September 30, 2025, at our option, the 2060 junior subordinated notes may be redeemed in whole but not in part, at 100% of the principal amount, plus any accrued and unpaid interest, if certain changes in tax laws, regulations or interpretations occur;

or at 102% of the principal amount, plus any accrued and unpaid interest, if a rating agency makes certain changes relating to the equity credit criteria for securities with features similar to the 2060 junior subordinated notes.

We intend to use the net proceeds from the 2060 junior subordinated notes for general corporate purposes, which may include the repayment of indebtedness, share repurchases and investments in new and existing boutique investment management firms.

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

As of September 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.

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Contractual Obligations

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

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

Contractual debt obligations include the cash payment of fixed interest.

(in millions)

Remainder of 2020

(in millions) Total Remainder of 2020 2021-2022 2023-2024 Thereafter

Contractual Obligations

Senior bank debt $ 350.0 $ — $ — $ 350.0 $ —

Senior notes 1,336.6 6.1 81.6 473.1 775.8

Junior convertible securities 813.5 5.5 44.4 44.4 719.2

Junior subordinated notes 1,776.5 8.0 61.4 61.4 1,645.7

228.6 10.8 75.6 56.2 86.0

Affiliate equity repurchase obligations (2)

69.9 64.7 5.2 — —

Other obligations (3)

73.7 35.0 38.7 — —

Total contractual obligations $ 4,648.8 $ 130.1 $ 306.9 $ 985.1 $ 3,226.7

2 unchanged sentences

$ 52.5 $ — $ 40.0 $ 12.5 $ —

___________________________

(1) The total controlling interest portion is $50.4 million ($3.2 million through 2020, $22.1 million in 2021-2022, $16.5 million in 2023-2024 and $8.6 million thereafter).

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 .

(2) Affiliate equity repurchase obligations represent the fair value of obligations put to us and outstanding as of September 30, 2020.

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

(4) Contingent payment arrangements represent the expected settlement amounts.

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

months ended June 30, 2020 .

months ended September 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