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Item 7. Management’s Discussion and Analysis

2021-02-19 compared with 2020-02-28 · 186 added, 184 removed, 275 unchanged (57% of the section changed)

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and its subsidiaries, should be read in conjunction with the “Forward-Looking Statements” section set forth in Part I and the “Risk Factors” section set forth in Item 1A of Part I of this Annual Report on Form 10-K and in any more recent filings with the SEC, and with our Consolidated Financial Statements and the notes thereto contained elsewhere in this Annual Report on Form 10-K.

Our discussion and analysis of the key operating performance measures and financial results for fiscal year 2020 compared to fiscal year 2019 is included herein.

For discussion and analysis of fiscal year 2019 compared to fiscal year 2018, please refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7 of Part II in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019, which was filed with the SEC on February 28, 2020.

Executive Overview

We are a global asset management company with equity investments in high-quality boutique investment management firms, which we call our “Affiliates.” Our strategy is to generate long-term value by investing in leading independent active investment managers, through a proven partnership approach, and allocating resources across our unique opportunity set to the areas of highest growth and return.

Through our innovative partnership approach, each Affiliate’s management team retains significant equity ownership in their firm while maintaining operational autonomy.

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

As of December 31, 2019 , our aggregate assets under management were approximately $726 billion, pro forma for a new Affiliate investment which has since been completed, across a broad range of active, return-oriented strategies.

New and Pending Investments

On July 5, 2019, we completed our investment in Garda Capital Partners LP (“Garda”), an alternative investment manager specializing in fixed income relative value strategies.

We account for our investment in Garda under the equity method of accounting.

Following the close of this transaction, Affiliate management continues to hold a significant portion of the equity in their business and directs the day-to-day operations.

On February 18, 2020, we announced the completion of our investment in Comvest Partners (“Comvest”), a leading middle-market private equity and credit investment firm.

We will account for our investment in Comvest under the equity method of accounting.

The financial results of this investment will be included in the Company’s Consolidated Financial Statements one quarter in arrears.

Following the close of this transaction, Affiliate management continues to hold a significant portion of the equity in their business and directs the day-to-day-operations.

We are a leading partner to independent active investment management firms globally.

Our strategy is to generate long-term value by investing in a diverse array of excellent partner-owned investment firms, which we call our “Affiliates,” through a proven partnership approach, and allocating resources across our unique opportunity set to the areas of highest growth and return.

Our innovative partnership approach enables each Affiliate’s management team to own significant equity in their firm while maintaining operational and investment autonomy.

In addition, we offer our Affiliates growth capital, global distribution, and other strategic value-added capabilities, which enhance the long-term growth of these independent businesses and enable them to align equity incentives across generations of principals to build enduring franchises.

As of December 31, 2020, our aggregate assets under management were approximately $716 billion across a broad range of active, return-oriented strategies.

For the year ended December 31, 2020, the ongoing pandemic caused by the novel coronavirus (“COVID-19”) had a significant impact on the global economy.

The overall extent and duration of COVID-19, including the timing and effectiveness of vaccines, and its impact on businesses and economic activity going forward, remains difficult to predict.

We and our Affiliates remain focused on the health and well-being of the individuals and families at AMG, our Affiliates, and the community at large.

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

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.

New Investments

In 2020, we completed minority investments in Comvest Partners, a leading middle-market private equity and credit investment firm, Inclusive Capital Partners LP, a newly founded investment firm focused on responsible capitalism and the advancement of economic and social inclusion and environmental stewardship, and Jackson Square Partners LLC, an investment manager specializing in long-only, growth-oriented equity strategies.

On February 1, 2021, we completed a minority investment in Boston Common Asset Management LLC, a women-owned leader in sustainable and impact investing.

We account for these investments under the equity method of accounting.

Following the close of each transaction, Affiliate management continues to hold a significant portion of the equity in their business and directs the day-to-day-operations.

Operating Performance Measures

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For the Years Ended December 31,

(in billions, except as noted)

(in billions, except as noted) 2018 2019 % Change 2020 % Change

Assets under management $ 736.0 $ 722.5 (2) % $ 716.2 (1) %

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Aggregate fees (in millions) 5,442.4 4,962.7 (9) % 4,626.4 (7) %

Assets under management and, therefore average assets under management, include the assets under management of our consolidated and equity method Affiliates, and as of October 1, 2019, exclude the assets under management of certain Affiliates in which we are repositioning our interests and that are not significant to our results of operations.

Assets under management and, therefore average assets under management, include the assets under management of our consolidated and equity method Affiliates, and as of October 1, 2019, exclude the assets under management of certain Affiliates in which we have repositioned our interests and that 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.

Average assets under management reflects the timing of the inclusion of an Affiliate’s financial results in our operating performance measures and Consolidated Financial Statements.

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.

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 are repositioning our interests and that are not significant to our aggregate fees or our results of operations.

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 generally represents an average of the assets at the beginning or end of each month during the applicable period.

Aggregate fees consist of the total asset and performance based fees earned by all of our consolidated and equity method Affiliates, and include the aggregate fees of certain Affiliates in which we have repositioned 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.

Aggregate fees is provided in addition to, but not as a substitute for, Consolidated revenue or other GAAP performance measures.

Aggregate fees are provided in addition to, but not as a substitute for, Consolidated revenue or other GAAP performance measures.

Assets Under Management

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.

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 global equities and in quantitative strategies across liquid alternatives.

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 liquid alternative strategies and equity strategies.

In addition, investor demand for passively-managed products, including exchange traded funds has continued, and we have experienced outflows in certain equity strategies, consistent with this industry-wide trend.

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(1) Alternatives include illiquid alternative strategies, which accounted for 13% and 14% of our assets under management as of December 31, 2019 and 2020, respectively.

Global equities include emerging markets strategies, which accounted for 8% and 9% of our assets under management as of December 31, 2018 and 2019 , respectively.

(2) Global equities include emerging markets strategies, which accounted for 9% of our assets under management as of both December 31, 2019 and 2020.

The following table presents changes in our assets under management by active, return-oriented strategy:

(in billions)

Global Equities

Multi-Asset & Fixed Income

(in billions) Alternatives Global Equities U.S.

Equities Multi-Asset & Fixed Income Total

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

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Foreign exchange (1)

0.9 1.3 0.3 0.2 2.7

Realizations and distributions (net) (2.6) (0.2) (0.2) (0.2) (3.2)

Strategic repositioning (2)

(1.2) (0.2) (1.0) 0.1 (2.3)

December 31, 2020 $ 216.5 $ 278.5 $ 103.5 $ 117.7 $ 716.2

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dollars the assets under management of our Affiliates whose functional currency is not the U.S.

Strategic repositioning includes assets under management attributable to Affiliates that are not significant to our results of operations, or those in which we have divested of our interest.

(2) Other includes assets under management attributable to product transitions and reclassifications.

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The following table presents changes in our assets under management by client type:

(in billions)

Institutional

High Net Worth

(in billions) Institutional Retail High Net Worth Total

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

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Foreign exchange (1)

1.4 1.1 0.2 2.7

Realizations and distributions (net) (2.6) (0.5) (0.1) (3.2)

Strategic repositioning (2)

(1.1) (0.9) (0.3) (2.3)

December 31, 2020 $ 401.0 $ 189.3 $ 125.9 $ 716.2

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dollars the assets under management of our Affiliates whose functional currency is not the U.S.

Strategic repositioning includes assets under management attributable to Affiliates that are not significant to our results of operations, or those in which we have divested of our interest.

(2) Other includes assets under management attributable to product transitions and reclassifications.

Aggregate Fees

Aggregate fees consists of asset and performance based fees.

Aggregate fees consist of asset and performance based fees of our consolidated and equity method Affiliates.

Asset based fees include advisory and other fees earned by our Affiliates for services provided to their clients and are typically determined as a percentage of the value of a client’s assets under management.

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 based on investment performance, typically on an absolute basis or relative to a benchmark, and are generally recognized when it is improbable that there will be a significant reversal in the amount of revenue recognized.

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.

Aggregate fees are generally determined by the level of our average assets under management and the composition of these assets across our 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 was $4,962.7 million in 2019 , a decrease of $479.7 million or 9% as compared to 2018 .

The decrease in aggregate fees was primarily due to a $486.2 million decrease in asset based fees.

The decrease in asset based fees was due to an 8% decrease in our average assets under management, primarily in alternative strategies and global equities strategies, and a 2% decline in our asset based fee ratio, principally due to a change in the composition of our assets under management.

Aggregate fees were $4,626.4 million in 2020, a decrease of $336.3 million or 7% as compared to 2019.

The decrease in our aggregate fees was due to a $525.0 million or 11% decrease in asset based fees, partially offset by a $188.7 million or 4% increase in performance based fees.

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

Financial and Supplemental Financial Performance Measures

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For the Years Ended December 31,

(in millions)

Net income (controlling interest)

(in millions) 2018 2019 % Change 2020 % Change

Net income (controlling interest) $ 243.6 $ 15.7 (94) % $ 202.2 N.M.

Adjusted EBITDA (controlling interest) (2)

961.8 841.6 (12) % 798.8 (5) %

Economic net income (controlling interest) (2)

780.7 720.2 (8) % 624.4 (13) %

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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 before interest, taxes, depreciation, amortization, impairments and adjustments to our contingent payment arrangements.

Adjusted EBITDA (controlling interest) was $841.6 million in 2019, a decrease of $120.2 million or 12% as compared to 2018.

The decrease in Adjusted EBITDA (controlling interest) was primarily due to a 9% decrease in aggregate fees and a decline in earnings at certain Affiliates in which we share in revenue less agreed-upon expenses.

Net income (controlling interest) was $15.7 million in 2019 , a decrease of $227.9 million or 94% , as compared to 2018.

The decrease in Net income (controlling interest) was primarily due to a $290.9 million increase in intangible amortization and impairments, including a $256.6 million increase in equity method intangible amortization and impairments and a $34.3 million increase in consolidated intangible amortization and impairments expense attributable to the controlling interest.

The decrease was also the result of a $120.2 million decrease in Adjusted EBITDA (controlling interest), primarily due to a decline in aggregate fees.

These decreases were partially offset by a $178.5 million decrease in Income tax expense, primarily due to a decline in income before income taxes (controlling interest).

Adjusted EBITDA (controlling interest) decreased $42.8 million or 5% in 2020.

The decrease in Adjusted EBITDA (controlling interest) was primarily due to a $336.3 million or 7% decrease in aggregate fees and a $17.5 million increase in share-based compensation principally due to an event that accelerated certain share-based compensation, partially offset by a $6.0 million decrease in travel-related expenses attributable to the controlling interest.

While Adjusted EBITDA (controlling interest) decreased $42.8 million or 5% in 2020, our Net income (controlling interest) increased $186.5 million.

The increase in Net income (controlling interest) was primarily due to a $300.0 million decrease in equity method intangible amortization and impairments, partially offset by a $78.6 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 our acquisition of interests in Affiliates and improves comparability of performance between periods.

Economic net income (controlling interest) was $720.2 million in 2019 , a decrease of $60.5 million or 8% as compared to 2018.

The decrease in Economic net income (controlling interest) was primarily due to a $120.2 million decrease in Adjusted EBITDA (controlling interest), primarily from a decrease in aggregate fees, partially offset by a $60.9 million cash tax benefit recognized on the sale of an Affiliate.

Economic net income (controlling interest) decreased $95.8 million or 13% in 2020, primarily due to a $42.8 million decrease in Adjusted EBITDA (controlling interest), a $37.2 million increase in current and other deferred taxes primarily attributable to the controlling interest and a $16.1 million increase in Interest expense attributable to the controlling interest.

Results of Operations

Our discussion and analysis of the key operating performance measures and financial results for fiscal year 2019 compared to fiscal year 2018 is included herein.

For discussion and analysis of fiscal year 2018 compared to fiscal year 2017, please refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7 of Part II in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018, which was filed with the SEC on February 22, 2019.

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 income (loss) (net).

Consolidated Revenue

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For these Affiliates, we typically use structured partnership interests in which we contractually share in the Affiliate’s revenue without regard to expenses.

Consolidated revenue is generally determined by the level of our consolidated Affiliate average assets under management, the composition of these assets across our Affiliate sponsored investment products and client accounts that realize different asset based fee ratios, and performance based fees.

Consolidated revenue is generally determined by the level of our consolidated Affiliate average assets under management and the composition of these assets across our strategies that realize different asset based fee ratios and performance based fees.

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

For the Years Ended December 31,

(in millions, except as noted)

(in millions, except as noted) 2018 2019 % Change 2020 % Change

Consolidated Affiliate average assets under management (in billions) $ 419.6 $ 395.1 (6) % $ 362.6 (8) %

Consolidated revenue $ 2,378.4 $ 2,239.6 (6) % $ 2,027.5 (9) %

Our Consolidated revenue decreased $138.8 million or 6% in 2019 , due to a $187.5 million decrease from asset based fees, partially offset by a $48.7 million increase from performance based fees.

The decrease in asset based fees was primarily due to a 6% decrease in consolidated Affiliate average assets under management, primarily in U.S.

equity strategies and global equity strategies, and a 2% decline in our consolidated Affiliate asset based fee ratio, principally due to a change in the composition of our assets under management.

Our Consolidated revenue decreased $212.1 million or 9% in 2020, due to a $191.2 million or 9% decrease in asset based fees and a $20.9 million or less than 1% decrease in performance based fees.

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

Consolidated Expenses

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For the Years Ended December 31,

(in millions)

(in millions) 2018 2019 % Change 2020 % Change

Compensation and related expenses $ 987.2 $ 943.0 (4) % $ 883.7 (6) %

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Total consolidated expenses $ 1,692.0 $ 1,618.8 (4) % $ 1,509.8 (7) %

Compensation and related expenses decreased $44.2 million or 4% in 2019 , primarily due to a $30.8 million decrease in bonus and salary expenses as a result of a decline in the percentage of revenue allocated to expenses as part of the structured partnership interests in place at our consolidated Affiliates, and a $15.9 million decrease in Affiliate equity compensation expense.

The decrease was also due to a $6.3 million decline in pound sterling-denominated expenses due to changes in foreign currency exchange rates.

These decreases were offset by a $5.5 million increase in compensation related to headcount repositioning in 2019.

Selling, general and administrative expenses decreased $40.9 million or 10% in 2019 , primarily due to a $28.9 million decrease from sub-advisory and distribution expenses related to a decrease in consolidated Affiliate average assets under management and a decrease of $5.3 million in travel-related, marketing, and notes receivable reserve expenses.

The decrease was also due to a $4.8 million decline in pound sterling-denominated expenses due to changes in foreign currency exchange rates.

Intangible amortization and impairments increased $29.7 million or 26% in 2019 , primarily due to a $35.0 million expense to reduce the carrying value to fair value of an indefinite-lived acquired client relationship at one of our Affiliates, and a $16.1 million expense to reduce the carrying value to zero of certain indefinite-lived acquired client relationships due to the closure of certain retail investment products on our U.S.

retail distribution platform.

These increases were partially offset by a $19.4 million reduction in amortization expense related to a decrease in actual and expected client attrition for certain definite-lived acquired client relationships.

Interest expense decreased $4.4 million or 5% in 2019 , primarily due to a $10.1 million decrease due to our pound sterling-denominated forward foreign currency contracts and a $7.5 million decrease primarily due to lower borrowings on our senior unsecured multicurrency revolving credit facility (the “revolver”).

These decreases were partially offset by a $13.4 million increase due to our junior subordinated notes issued in March 2019.

Compensation and related expenses decreased $59.3 million or 6% in 2020, primarily due to an $88.1 million decrease in bonus and salary expenses, principally as a result of a decline in Consolidated revenue and headcount repositioning in 2019.

This decrease was partially offset by a $17.5 million increase in share-based compensation, primarily due to an event that accelerated certain share-based compensation and an $11.3 million increase in Affiliate equity compensation expense.

Selling, general and administrative expenses decreased $55.4 million or 15% in 2020, primarily due to a $21.7 million decrease in travel-related expenses, a $17.5 million decrease in sub-advisory and distribution expenses related to a decrease in certain assets under management, and a $12.1 million decrease in renewal commissions.

Intangible amortization and impairments decreased $4.0 million or 3% in 2020, primarily due to a $33.8 million reduction in amortization expense related to certain definite-lived assets being fully amortized and a $4.3 million reduction in amortization expense related to a decrease in actual and expected client attrition.

These decreases were partially offset by a $34.1 million increase in expenses 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.

Interest expense increased $16.1 million or 21% in 2020, primarily due to an $11.1 million increase from the termination of our pound sterling-denominated forward foreign currency contracts, a $10.3 million increase from our debt securities issued in 2020 and a $4.3 million increase from our debt securities issued in 2019.

These increases were partially offset by a $9.5 million decrease from lower interest rates and lower borrowings on our senior unsecured term loan facility (the “term loan”) and senior unsecured multicurrency revolving credit facility (the “revolver” and, together with the term loan, the “credit facilities”).

Other expenses (net) decreased $4.2 million or 7% in 2020, primarily due to an $8.1 million expense recorded in 2019 to reduce certain right-of use assets to their fair value, related to the reduction in leased office space which did not reoccur and a $2.4 million gain recorded in 2020 related to changes in the value of Affiliate equity repurchase obligations.

These decreases were partially offset by a $5.7 million expense recorded in 2020 related to the early termination of a lease.

There were no significant changes in Depreciation and other amortization in 2020.

Other expenses (net) decreased $12.7 million or 18% in 2019 , primarily due to a $19.5 million decrease in charitable contributions, partially offset by an $8.1 million expense to reduce certain right-of-use assets to their fair value, related to a reduction in leased office space.

Equity Method Income (Loss) (Net)

Equity Method Loss (Net)

When we do not own a controlling equity interest in an Affiliate, but have significant influence, we account for our interest in the Affiliate under the equity method.

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) in our Consolidated Statements of Income.

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) in our Consolidated Statements of Income.

For a majority of these Affiliates, 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, and in this type of partnership interest, our contractual share of revenue generally has priority over distributions to Affiliate management.

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).

Our equity method revenue is derived primarily from asset and performance based fees from investment management services.

Equity method revenue incorporates the total asset and performance based fees earned by all of our Affiliates accounted for under the equity method and is generally determined by the level of our equity method Affiliate average assets under management, the composition of these assets across our Affiliate sponsored investment products and client accounts that realize different asset based fee ratios, and performance based fees.

Our Affiliates accounted for under the equity method manage a greater proportion of assets subject to performance based fees than our consolidated Affiliates and, as a result, equity method revenue will generally have more performance based fees than Consolidated revenue.

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):

Equity method revenue incorporates the total asset and performance based fees earned by all of our Affiliates accounted for under the equity method and is generally determined by the level of our equity method Affiliate average assets under management and the composition of these assets across our strategies that realize different asset based fee ratios and performance based fees.

Our Affiliates accounted for under the equity method manage a greater proportion of assets subject to

performance based fees than our consolidated Affiliates and, as a result, equity method revenue will generally have more performance based fees than Consolidated revenue.

For the Years Ended December 31,

(in millions, except as noted)

(in millions, except as noted) 2018 2019 % Change 2020 % Change

Operating Performance Measures

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Equity method intangible amortization and impairments (370.8) (627.4) 69 % (332.0) (47) %

Equity method income (loss) (net)

Equity method loss (net) $ (0.2) $ (338.0) N.M.

$ (43.4) (87) %

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(1) Percentage change is not meaningful.

Our equity method revenue decreased $340.9 million or 11% in 2019 , due to a $298.8 million decrease from asset based fees and a $42.1 million decrease from performance based fees.

The decrease in asset based fees was primarily due to a 9% decrease in equity method Affiliate average assets under management, primarily in alternative strategies, and a 3% decline in our equity method asset based fee ratio, principally due to a change in the composition of our assets under management.

While equity method revenue decreased $340.9 million or 11% in 2019 , equity method earnings decreased $81.2 million or 22% .

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

The expense bases of these Affiliates are generally less variable and in 2019 include expenses related to headcount repositioning and a reduction in leased office space.

Equity method intangible amortization and impairments increased $256.6 million or 69% in 2019 , primarily due to a $485.0 million expense in 2019 to reduce the carrying value to fair value of certain Affiliates, as compared to a $273.3 million expense in 2018 to reduce the carrying value to fair value of certain Affiliates.

Our equity method revenue decreased $124.2 million or 5% in 2020, due to a $333.8 million or 13% decrease in asset based fees, partially offset by a $209.6 million or 8% increase in performance based fees.

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

These decreases were partially offset by the impact of new investments, which had higher asset based fee ratios than our average asset based fee ratio.

While equity method revenue decreased $124.2 million or 5% in 2020, equity method earnings decreased $0.8 million or less than 1%.

Equity method earnings decreased less than equity method revenue on a percentage basis due to the recognition of performance based fees at Affiliates in which we hold more of an economic interest, partially offset by a decline in earnings at certain Affiliates in which we share in revenue less agreed-upon expenses.

Equity method intangible amortization and impairments decreased $295.4 million or 47% in 2020, primarily due to a $300.0 million decrease in expenses to reduce the carrying value of certain Affiliates to fair value.

See Note 10 of our Consolidated Financial Statements.

The increase was also due to a $45.7 million increase in amortization expense due to an increase in actual and expected client attrition for certain definite-lived acquired client relationships.

This decrease was partially offset by a $6.4 million increase in amortization expense due to investments in new Affiliates.

Investment and other income

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For the Years Ended December 31,

(in millions)

(in millions) 2018 2019 % Change 2020 % Change

Investment and other income $ 27.4 $ 25.2 (8) % $ 34.1 35 %

Investment and other income decreased $2.2 million or 8% in 2019 , primarily due to a $12.8 million decrease from the valuation of Other investments, primarily attributable to general partner investments in private equity funds, partially offset by a $9.6 million net increase from the valuation and realized gains on sales of Investments in marketable securities.

Investment and other income increased $8.9 million or 35% in 2020, primarily due to a $10.8 million increase in foreign currency gains, partially offset by a $1.4 million decrease in interest income.

Income Tax Expense

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For the Years Ended December 31,

(in millions)

Income tax expense

(in millions) 2018 2019 % Change 2020 % Change

Income tax expense $ 181.3 $ 2.9 (98) % $ 81.4 N.M.

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(1) Percentage change is not meaningful.

Income tax expense decreased $178.4 million or 98% in 2019 , primarily due to a $406.4 million decrease in income before income taxes (controlling interest) in 2019, and a $240.0 million expense recorded to reduce the carrying value to fair value of an Affiliate for which we did not recognize an income tax benefit in 2018.

Income tax expense increased $78.5 million in 2020, primarily due to a $265.1 million increase in income before income taxes attributable to the controlling interest and an $ 18.7 million increase in valuation allowances against certain state and foreign loss carryforwards.

These increases were partially offset by a $3.4 million decrease in stock compensation tax shortfalls during 2020.

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

For the Years Ended December 31,

(in millions)

(in millions) 2018 2019 % Change 2020 % Change

Net income $ 532.3 $ 305.1 (43) % $ 427.0 40 %

Net income (non-controlling interests) 288.7 289.4 0 % 224.8 (22) %

Net income (controlling interest)

Net income (controlling interest) decreased $227.9 million or 94% in 2019, primarily due to a $337.8 million increase in Equity method loss (net), a decrease in Consolidated revenue, and a $34.3 million increase in consolidated intangible amortization and impairments expense attributable to the controlling interest.

These increases were partially offset by a $178.5 million decrease in Income tax expense attributable to the controlling interest.

Net income (controlling interest) 243.6 15.7 (94) % 202.2 N.M.

__________________________

(1) Percentage change is not meaningful.

Net income (controlling interest) increased $186.5 million in 2020, primarily due to a decrease in Equity method loss (net).

This increase was partially offset by an increase in Income tax expense attributable to the controlling interest, an increase in share-based compensation attributable to the controlling interest and a decrease in Consolidated revenue.

Supplemental Financial Performance Measures

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As supplemental information, we provide a non-GAAP measure that we refer to as Adjusted EBITDA (controlling interest).

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 before interest, taxes, depreciation, amortization, impairments, certain Affiliate equity expenses, gains and losses on general partner and seed capital investments, and adjustments to contingent payment arrangements.

We believe that many investors use this measure when assessing the financial performance of companies in the investment management industry.

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Intangible amortization and impairments (1)

454.9 745.8 427.7

Other items (2)

13.3 13.0 7.1

Adjusted EBITDA (controlling interest) $ 961.8 $ 841.6 $ 798.8

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For the year ended December 31, 2017, Income taxes includes a one-time net benefit of $194.1 million from changes in U.S.

Intangible amortization and impairments in our Consolidated Statements of Income includes amortization attributable to our non-controlling interests.

(1) Intangible amortization and impairments in our Consolidated Statements of Income include amortization attributable to the non-controlling interests of our consolidated Affiliates.

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 income (loss) (net).

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

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

The following table presents the Intangible

amortization and impairments shown above:

For the Years Ended December 31,

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Consolidated intangible amortization and impairments $ 114.8 $ 144.5 $ 140.5

Consolidated intangible amortization (non-controlling interests)

Consolidated intangible amortization and impairments (non-controlling interests) (30.7) (26.1) (44.8)

Equity method intangible amortization and impairments 370.8 627.4 332.0

For the year ended December 31, 2019, consolidated intangible amortization and impairments includes $51.1 million of non-cash expenses to reduce the carrying value to fair value of an indefinite-lived acquired client relationship at one of our Affiliates and to reduce the carrying value to zero of certain indefinite-lived acquired client relationships due to the closure of certain retail investment products on our U.S.

retail distribution platform.

For the years ended December 31, 2017 , 2018 and 2019 , equity method intangible amortization and impairments includes $93.1 million, $273.3 million and $485.0 million, respectively, of non-cash expenses to reduce the carrying value to fair value of certain Affiliates.

Total $ 454.9 $ 745.8 $ 427.7

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

Beginning with the first quarter of 2020, other items also include 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.

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

Economic Net Income (controlling interest) and Economic Earnings Per Share

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

We adjust Net income (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 because these expenses do not correspond to the changes in the value of these assets, which do not diminish predictably over time.

We adjust Net income (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.

We also add back the deferred taxes attributable to intangible assets because we believe it is unlikely these accruals will be used to settle material tax obligations.

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Intangible amortization and impairments (1)

454.9 745.8 427.7

Intangible-related deferred taxes 79.7 (51.3) (9.9)

Other economic items (2)

Changes in U.S.

Economic net income (controlling interest) $ 780.7 $ 720.2 $ 624.4

Average shares outstanding (diluted) 53.8 50.6 46.7

Stock options and restricted stock units — — —

Assumed issuance of junior convertible securities shares — — —

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

For the years ended December 31, 2017 and 2019 , intangible-related deferred taxes decreased $35.7 million and $76.6 million, respectively, as a result of expenses to reduce the carrying value to fair value as described in note (2) to the table in “Adjusted EBITDA (controlling interest).” For the year ended December 31, 2018, intangible-related deferred taxes increased $19.9 million due to Affiliate divestments.

For the years ended December 31, 2017, 2018 and 2019 , Other economic items were net of income tax expense of $5.8 million, $0.8 million and $0.7 million, respectively.

Beginning January 1, 2019 , other economic items include tax windfalls and shortfalls from share-based compensation.

(2) Other economic items include non-cash imputed interest (principally related to the accounting for convertible securities and contingent payment arrangements) and certain Affiliate equity expenses.

Beginning with the first quarter of 2019, other economic items also include tax windfalls and shortfalls from share-based compensation.

Beginning with the first quarter of 2020, other economic items also include 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 years ended December 31, 2018, 2019 and 2020, other economic items were net of income tax expense of $0.8 million, $0.7 million and $2.6 million, respectively.

Liquidity and Capital Resources

We generate long-term value by investing in new Affiliates, investing in existing Affiliates, and investing in centralized capabilities through which we can leverage our scale and resources to benefit our Affiliates and enhance their long-term growth prospects.

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 $539.6 million as of December 31, 2019 and were primarily attributable to the non-controlling interest.

We generate long-term value by investing in new Affiliate partnerships, investing in existing Affiliates, and investing in centralized capabilities through which we can leverage our scale and resources to benefit our Affiliates and enhance their long-term growth prospects.

Given our annual cash generation from operations, in addition to investing for growth in our business, we are also able to return excess capital to shareholders primarily through share repurchases.

We continue to manage our capital structure consistent with an investment grade company and are currently rated A3 by Moody’s Investors Service and BBB+ by S&P Global Ratings.

Cash and cash equivalents were $1,039.7 million as of December 31, 2020, and were attributable to both the controlling and non-controlling interests.

In 2020, we met our cash requirements primarily through cash generated by operating activities.

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

We expect these will be the primary uses of capital for the foreseeable future.

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

Our principal uses of cash in 2020 were for share repurchases, investments in existing Affiliates through repurchases of Affiliate equity interests, and investments in new Affiliates.

Additionally, in 2020, we issued debt securities to enhance our balance sheet through extending duration and lower interest rates.

The net cash proceeds from debt securities issued in 2020 were used to pay down outstanding indebtedness on our revolver and term loan, with a majority of the remainder retained for general corporate purposes and included in our Cash and cash equivalents balance in the Consolidated Balance Sheets as of December 31, 2020.

We expect investments in new Affiliates, investments in existing Affiliates, primarily through repurchases of Affiliate equity interests and general partner and seed capital investments, the return of capital through share repurchases, the payment of cash dividends on our common stock, repayment of debt, distributions to Affiliate equity holders, and general working capital to be the primary uses of cash for the foreseeable future.

We anticipate that our current cash balance, cash flows from operations, and borrowings under our revolver, will be sufficient to support our uses of cash 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.

We are currently rated A3 by Moody’s Investors Service and BBB+ by S&P Global Ratings.

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

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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 year ended December 31, 2019 , Cash flows from operating activities were $929.1 million , primarily from Net income of $305.1 million, adjusted for non-cash intangible amortization and impairments of $771.9 million, including $627.4 million for our Affiliates accounted for under the equity method and included in Equity method income (loss) (net) and $144.5 million for acquired client relationships at consolidated Affiliates.

These items were partially offset by timing differences in the cash settlement of assets and liabilities, which reduced operating cash flow by $149.1 million on a net basis.

In 2019, approximately 70% of the Cash flows from operating activities were attributable to the controlling interest.

For the year ended December 31, 2020, Cash flows from operating activities were $1,009.3 million, primarily from Net income of $427.0 million adjusted for non-cash items of $346.0 million and $236.8 million of distributions of earnings received from equity method investments.

In 2020, operating cash flows were primarily attributable to the controlling interest.

Investing Cash Flow

For the year ended December 31, 2019 , Cash flows used in investing activities were $24.4 million , primarily due to investments in new and existing Affiliates of $162.3 million, partially offset by the receipt of sales proceeds of $117.7 million from the divestment of certain Affiliates.

These activities were primarily attributable to the controlling interest.

For the year ended December 31, 2020, Cash flows used in investing activities were $53.7 million, primarily due to investments in new Affiliates of $44.5 million and purchases of fixed assets of $8.5 million.

Financing Cash Flow

For the year ended December 31, 2019 , Cash flows used in financing activities were $934.7 million , primarily due to the return of $421.4 million of capital to shareholders through share repurchases and dividends on our common stock and $135.5 million of Affiliate equity repurchases and issuances (net).

Cash flows used in financing activities also includes the repayment of $39.3 million on a net basis of outstanding debt.

These activities were attributable to the controlling interest.

Cash flows used in financing activities also includes $347.9 million of distributions attributable to the non-controlling interests.

For the year ended December 31, 2020, Cash flows used in financing activities were $455.4 million, primarily due to the return of $351.9 million of capital to shareholders through share repurchases and dividends on our common stock, $306.3 million of distributions to non-controlling interests, $294.9 million of Affiliate equity repurchases, net of issuances, and a $100.0 million paydown of our term loan.

Cash flows used in financing activities were partially offset by the receipt of $624.8 million of proceeds from the issuance of debt securities in 2020.

Affiliate Equity

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As of December 31, 2020, the current redemption value of $671.5 million for these interests (including $35.4 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 $146.0 million for repurchases and received $10.5 million for issuances of Affiliate equity during 2019 , and we expect to repurchase a total of approximately $190 million of Affiliate equity in 2020.

Although the timing and amounts of these purchases are difficult to predict, we paid $294.9 million for Affiliate equity repurchases, net of issuances during 2020, and we expect net repurchases of approximately $125 million of Affiliate equity in 2021.

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

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Share Repurchases

Our Board of Directors authorized share repurchase programs in October 2019, January 2019 and January 2018, authorizing us to repurchase up to 6.0 million , 3.3 million and 3.4 million shares of our common stock, respectively, and these authorizations have no expiry.

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.

For the year ended December 31, 2019 , we repurchased 4.1 million shares of our common stock, at an average price

per share of $88.73 .

As of December 31, 2019 , there were a total of 6.9 million shares available for repurchase under our October 2019 and January 2019 share repurchase programs and no shares remained under the January 2018 program.

Our Board of Directors authorized share repurchase programs in January 2021, October 2019, and January 2019 to repurchase up to 5.0 million, 6.0 million, and 3.3 million shares of our common stock, respectively, and these authorizations have no expiry.

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 trading plans as well as pursuant to accelerated share repurchase programs or other share repurchase strategies that may include derivative financial instruments.

For the year ended December 31, 2020, we repurchased 5.0 million shares of our common stock, at an average price per share of $86.35.

As of December 31, 2020, we had repurchased all of the shares of the January 2019 program.

As of the January 2021 authorization, there were a total of 6.9 million shares available for repurchase under our January 2021 and October 2019 share repurchase programs.

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

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Senior bank debt $ 780.0 $ 450.0 $ 350.0

Senior notes 746.2 746.8 1,097.3

Junior convertible securities 312.5 315.4 318.4

Junior subordinated notes — 290.7 565.7

The carrying value of long-term debt differs from the amount reported in the notes to our Consolidated Financial Statements, as the carrying value of the long-term debt in the table above is not reduced for debt issuance costs.

The carrying value of our debt differs from the amount reported in the notes to our Consolidated Financial Statements, as the carrying value of our debt in the table above is not reduced for debt issuance costs.

Senior Bank Debt

We have a $1.25 billion revolver and a $450.0 million senior unsecured term loan facility (the “term loan” and, together with the revolver, the “credit facilities”).

The revolver matures on January 18, 2024, and the term loan matures on January 18, 2023.

We have a $1.25 billion revolver and a $350.0 million term loan.

The revolver matures on January 18, 2024, and the term loan, as amended, matures on January 18, 2026.

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.

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The second covenant is a minimum EBITDA to cash interest expense ratio of 3.00x (the “bank interest coverage ratio”).

For purposes of calculating these ratios, share-based compensation and Affiliate equity expense are added back to EBITDA.

For purposes of calculating these ratios, share-based compensation and certain Affiliate equity expenses are added back to Adjusted EBITDA.

As of December 31, 2020, our bank leverage and bank interest coverage ratios were 1.6x and 10.1x, respectively, and we were in compliance with all of the terms of our credit facilities.

As of December 31, 2019 , we had no borrowings outstanding under our revolver, and could borrow all capacity and remain in compliance with our credit facilities.

As of December 31, 2020, we had no outstanding borrowings under the revolver, and could borrow all capacity and remain in compliance with our credit facilities.

On January 8, 2021, we amended and refinanced the term loan to adjust the marginal rate by 0.075% to 0.950% and to extend the maturity by three years from January 18, 2023 to January 18, 2026.

The commercial terms of the term loan otherwise remained the same.

Senior Notes and Junior Subordinated Notes

As of December 31, 2020, we had the following senior notes and junior subordinated notes outstanding, the respective principal terms of which are presented below.

Senior Notes 2025

Senior Notes 2030

Senior Notes 2059

Junior Subordinated Notes 2060

February 2014

February 2015

Maturity date

February 2024

Junior Subordinated Notes

Issue date February 2014 February 2015 June 2020 March 2019 September 2020

Maturity date February 2024 August 2025 June 2030 March 2059 September 2060

Par value (in millions) $ 400.0 $ 350.0 $ 350.0 $ 300.0 $ 275.0

Stated coupon 4.25 % 3.50 % 3.30 % 5.875 % 4.750 %

Coupon frequency

Semi-annually

Potential call date

We used a majority of the net proceeds from the junior subordinated notes, issued in 2019, to repay outstanding indebtedness under the revolver, with the remaining proceeds used for other general corporate purposes.

Coupon frequency Semi-annually Semi-annually Semi-annually Quarterly Quarterly

Potential call date Any time Any time Any time March 2024 September 2025

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 the remaining net proceeds of $100.0 million to repay a portion of the outstanding indebtedness under the term loan.

The majority of the net proceeds from the 2060 junior subordinated notes were retained for general corporate purposes, which may include the repayment of indebtedness, share repurchases, investments in new independent investment management firms, and investments in our existing Affiliates, and were included in our Cash and cash equivalents balance as of December 31, 2020.

Junior Convertible Securities

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Upon conversion, holders will receive cash or shares of our common stock, or a combination thereof, at our election.

We may redeem the junior convertible securities, subject to our stock trading at or above certain specified levels over specified times periods, and may also repurchase junior subordinated notes in the open market or in privately negotiated transactions from time to time at management’s discretion.

The junior convertible securities are considered contingent payment debt instruments under federal income tax regulations, which require us to deduct interest in an amount greater than our reported interest expense.

These deductions will generate annual deferred tax liabilities of $8.4 million .

These deferred tax liabilities will be reclassified directly to stockholders’ equity if our common stock is trading above certain thresholds at the time of the conversion of the securities.

We estimate that these deductions will generate annual deferred tax liabilities of approximately $9 million.

Assuming no redemptions or repurchases, these deferred tax liabilities will be reclassified directly to stockholders’ equity if our common stock is trading above certain thresholds at the time of the conversion of the securities.

If we redeem the securities or repurchase the notes at a price below such thresholds, all or a portion of these deferred tax liabilities may be reclassified to income taxes payable which is presented within Other liabilities on our Consolidated Balance Sheets.

In August 2019, in accordance with the convertible securities indenture, we adjusted the conversion rate of the junior convertible securities as a result of the cumulative declared dividends on our common stock.

Equity Distribution Program

We have entered into 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”).

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 December 31, 2020, no sales had occurred under the equity distribution program.

In 2018, we entered into two separate pound sterling-denominated forward foreign currency contracts (the “forward contracts”) with a large financial institution (the “counterparty”) to access lower interest rates, and concurrently entered into two separate collar contracts with the same counterparty for the same notional amounts and expiration dates as the forward contracts.

Certain of our Affiliates also use foreign currency contracts to hedge the risk of foreign exchange rate movements.

In 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 a portion of our LIBOR-based interest payments for fixed rate interest payments.

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 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 7 of our Consolidated Financial Statements.

See Note 8 of our Consolidated Financial Statements.

Contractual Obligations

The following table presents our contractual obligations as of December 31, 2019 .

Contractual debt obligations include the cash payment of fixed interest.

(in millions)

Contractual Obligations

Senior bank debt

Junior convertible securities

Junior subordinated notes

Affiliate equity repurchase obligations (2)

Total contractual obligations

Contingent Obligations

Contingent payment arrangements (3)

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The total controlling interest portion is $62.6 million ( $13.0 million through 2020 , $23.1 million in 2021-2022 , $17.4 million in 2023-2024 and $9.1 million thereafter).

The Affiliate equity repurchase obligations disclosed in the table represent the fair value of obligations put to us and outstanding as of December 31, 2019.

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

The maximum settlement amount through 2021 is $150.0 million , and through 2022 is $40.0 million .

The table above does not include liabilities for commitments to co-invest in certain Affiliate sponsored investment products or uncertain tax positions of $127.2 million and $65.4 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 amount or timing of when such obligations will be paid.

As of December 31, 2020, our lease obligations were $40.7 million through 2021, $69.1 million in 2022-2023, $47.4 million in 2024-2025 and $59.6 million thereafter.

The portion of these lease obligations attributable to the controlling interest were $11.9 million through 2021, $19.8 million in 2022-2023, $13.5 million in 2024-2025 and $2.3 million thereafter.

See Note 11 of our Consolidated Financial Statements.

Recent Accounting Developments

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We make judgments to determine the fair value of certain assets, liabilities, and equity interests when allocating the purchase price of our new investments, when revaluing our contingent payment arrangements, when we issue or repurchase Affiliate equity interests and when we test our goodwill, indefinite and definite-lived acquired client relationships, or equity method investments for impairment.

In determining fair values that reflect our own assumptions concerning unobservable inputs, we typically use valuation techniques, including discounted cash flow analyses, where we make assumptions about growth rates of assets under management, client attrition, asset and performance based fee rates and expenses.

In determining fair values that reflect our own assumptions concerning unobservable inputs, we typically use valuation techniques, including probability-weighted discounted cash flow analyses, where we make assumptions about growth rates of assets under management, client attrition, asset and performance based fee rates, and expenses.

In these analyses, we also consider historical and current market multiples, tax benefits, credit risk, interest rates, tax rates, discount rates, and discounts for lack of marketability.

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We completed our annual goodwill impairment assessment as of September 30, 2020 and no impairment was indicated.

For purposes of our assessment, we considered various qualitative and quantitative factors and determined that the fair value of our reporting unit was substantially greater than its respective carrying amount, including goodwill.

Based on our assessment, the fair value of our reporting unit was substantially greater than its respective carrying amount, including goodwill.

Indefinite-Lived Acquired Client Relationships

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Because these contracts are with the investment products themselves, and not with the underlying investors, and the contracts between our Affiliates and the investment products are typically renewed on an annual basis, industry practice under GAAP is to consider the contract life to be indefinite and, as a result, not amortizable.

We perform indefinite-lived acquired client relationship impairment assessments annually, or more frequently should circumstances suggest fair value has declined below the related carrying value.

For purposes of our assessments, we consider various qualitative factors (including market multiples) and determine if it is more-likely-than-not that the fair value of each asset group is greater than its carrying amount.

If we determine that the fair value has declined below our related carrying value, we perform discounted cash flow analyses to determine the fair value of the asset group and record an expense in Intangible amortization and impairments to reduce the carrying value to its fair value.

For the year ended December 31, 2019, we completed our annual assessment and recorded a $35.0 million expense to reduce the carrying value to fair value of an indefinite-lived acquired client relationship.

We perform indefinite-lived acquired client relationship impairment assessments annually, or more frequently should circumstances indicate fair value has declined below the related carrying value.

For purposes of our assessments, we consider various qualitative and quantitative factors (including market multiples) and determine if it is more-likely-than-not that the fair value of each asset group is greater than its carrying amount.

If we determine that it is likely that the fair value has declined below our related carrying value, we perform discounted cash flow analyses to determine the fair value of the asset group and record an expense in Intangible amortization and impairments to reduce the carrying value to its fair value.

For the year ended December 31, 2020, we recorded $45.3 million of expense attributable to the controlling interest ($70.7 million in aggregate) to reduce the carrying values of the assets to fair value.

See Note 9 of our Consolidated Financial Statements.

No other impairments were indicated.

For the year ended December 31, 2020, we completed our annual assessment of our other indefinite-lived acquired client relationships and only a significant decline in the fair values of these assets would result in an impairment.

Definite-Lived Acquired Client Relationships

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Significant judgment is required to estimate the period that these assets will contribute to our cash flows and the pattern over which these assets will provide an economic benefit.

Formally, on an annual basis, or more frequently should client attrition trends warrant a potential revision, we review historical and projected attrition rates and other events that may influence our projections of the future period of economic benefit that we will derive from these relationships.

Formally, on an annual basis, or more frequently should client attrition trends warrant a potential revision,

we review historical and projected attrition rates and other events that may influence our projections of the future period of economic benefit that we will derive from these relationships.

Changes in the expected period of economic benefit of these assets may warrant changes in the period over which the assets are amortized.

We perform definite-lived acquired client relationship impairment assessments annually, or more frequently should client attrition trends suggest fair value has declined below the related carrying value.

We perform definite-lived acquired client relationship impairment assessments annually, or more frequently should client attrition trends indicate fair value has declined below the related carrying value.

If we determine that the fair value has declined below our related carrying value, an expense is recorded in Intangible amortization and impairments to reduce the carrying value to its fair value.

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Equity Method Investments in Affiliates

We periodically perform assessments to determine if fair value may have declined below related carrying value for our equity method investments in Affiliates for a period that we consider to be other-than-temporary.

Where we believe that such decline may have occurred, we determine the amount of impairment using valuation methods, such as discounted cash flow techniques.

Impairments are recorded as an expense in Equity method income (loss) (net) to reduce the carrying value of the Affiliate to its fair value.

We make judgments to determine fair value when we test our equity method investments for impairment, and use valuation techniques that include discounted cash flow analyses, where we make assumptions about growth rates of projected assets under management, client attrition, asset and performance based fees and expenses.

We periodically perform assessments to determine if the fair value of an investment may have declined below its related carrying value for our Affiliates accounted for under the equity method for a period that we consider to be other-than-temporary.

Where we believe that such declines may have occurred, we determine the amount of impairment using valuation methods, such as discounted cash flow analyses.

Impairments are recorded as an expense in Equity method loss (net) to reduce the carrying value of the Affiliate to its fair value.

When we test our equity method investments for impairment, we make assumptions about growth rates of projected assets under management, client attrition, asset and performance based fees, and expenses.

In these analyses, we also make judgments about tax benefits, tax rates and discount rates.

We consider the reasonableness of our assumptions by comparing our valuation conclusions to observed market transactions and, in certain instances, by consulting with third-party valuation firms.

Changes in these assumptions could significantly impact the respective fair value of an equity method investment in an Affiliate.

For the year ended December 31, 2019 , we recorded $485.0 million of expenses to reduce the carrying value to fair value of certain Affiliates.

Changes in these assumptions could significantly impact the respective fair value of an Affiliate.

For the year ended December 31, 2020, we recorded $185.0 million of expenses to reduce the carrying value of an Affiliate to fair value.

See Note 10 of our Consolidated Financial Statements.

For the year ended December 31, 2020, we completed our annual assessment of our other investments in Affiliates accounted for under the equity method and no other impairments were identified.

We and our Affiliates are subject to income taxes in the U.S.

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We measure our deferred taxes based on enacted tax rates and projected state apportionment percentages for the years in which the differences are expected to reverse.

The effect on deferred tax assets and liabilities of a change in tax rates is recorded in income tax expense in the period in which the change in tax rates is enacted.

The effect on deferred tax assets and liabilities of a change in tax rates is recorded in Income tax expense in the Consolidated Statement of Income in the period in which the change in tax rates is enacted.

Our principal deferred tax assets relate to deferred compensation, state and foreign loss carryforwards, and the indirect benefits of uncertain foreign tax positions.

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We determine the fair value of our share-based compensation arrangements on their grant date and record compensation expense based on the number of awards expected to vest.

For restricted stock units, we determine the fair value of the units using our share price on the date of grant.

For restricted stock units, we determine the fair value of the units using our share price on the date of grant and the number of shares expected to vest.

For stock options, we estimate the fair value using the Black-Scholes option pricing model, which requires us to make assumptions about the volatility and dividend yield of our common stock and the expected life of our stock options.

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Key valuation assumptions include projected assets under management, asset and performance based fees, tax rates, discount rates and discounts for lack of marketability.

The use of different assumptions could change the value of these interests, including the amount of compensation expense, if any, that we may report upon their transfer or repurchase.

Redeemable non-controlling interests represent the currently redeemable value of Affiliate equity interests.

We may pay for these Affiliate equity purchases in cash, shares of our common stock or other forms of consideration, at our election.

We generally value these interests upon their transfer or repurchase by applying market multiples to cash flows, which is intended to represent fair value.

The use of different assumptions could change the value of these interests, including the amount of compensation expense, if any, that we may report upon their transfer or repurchase.

See Notes 16, 17 and 18 of our Consolidated Financial Statements.

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-K

Item 7. Management’s Discussion and Analysis