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Item 8. Financial Statements and Supplementary Data

2021-02-19 compared with 2020-02-28 · 523 added, 435 removed, 777 unchanged (55% of the section changed)

14 unchanged sentences

We have audited the accompanying consolidated balance sheets of Affiliated Managers Group, Inc.

and its subsidiaries (the “Company”) as of December 31, 2019 and 2018, and the related consolidated statements of income, comprehensive income, changes in equity and cash flows for each of the three years in the period ended December 31, 2019, including the related notes and financial statement schedule listed in the index appearing under Item 15(a)(2) (collectively referred to as the “consolidated financial statements”).

and its affiliates (the “Company”) as of December 31, 2020 and 2019, and the related consolidated statements of income, of comprehensive income, of changes in equity and of cash flows for each of the three years in the period ended December 31, 2020, including the related notes and financial statement schedule listed in the index appearing under Item 15(a)(2) (collectively referred to as the “consolidated financial statements”).

We also have audited the Company's internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

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Impairment Evaluation for Equity Method Investments in Affiliates

As described in Notes 1 and 10 to the consolidated financial statements, the Company’s consolidated equity method investments in affiliates balance was $2,195.6 million as of December 31, 2019.

As described in Notes 1 and 10 to the consolidated financial statements, the Company’s equity method investments in affiliates balance was $2,074.8 million as of December 31, 2020.

Management periodically evaluates its equity method investments in affiliates for impairment by performing assessments to determine if fair value may have declined below related carrying value for a period that they consider to be other-than-temporary.

Where management believes that such decline may have occurred, they make judgments to determine the fair value of an investment and use valuation techniques, including discounted cash flow analyses that require assumptions such as growth rates of assets under management, client attrition, asset and performance based fee rates, expenses, tax benefits, tax rates and discount rates.

In the first and fourth quarters of 2020, management concluded that due to declines in assets under management and reductions in projected growth that there were $140.0 million and $45.0 million impairments, respectively, to reduce the carrying value of an affiliate to fair value.

The fair value of the investment was determined using probability-weighted discounted cash flow analyses that require assumptions such as growth rates of assets under management, client attrition, asset and performance based fee rates, expenses, tax benefits, tax rates and discount rates.

The principal considerations for our determination that performing procedures relating to the impairment evaluation for equity method investments in affiliates is a critical audit matter are;

(i) there was significant judgment by management to evaluate the significant assumptions used in the discounted cash flow analysis to determine the fair value of the investment which was used to determine the amount that fair value had declined below its related carrying value for a period considered to be other-than-temporary, which in turn led to a high degree of auditor judgment, subjectivity and effort in performing procedures related to the growth rates of assets under management and discount rates used in the impairment evaluation, and (ii) the audit effort involved the use of professionals with specialized skill and knowledge to assist in evaluating the audit evidence obtained from these procedures.

(i) the significant judgment by management to evaluate the significant assumptions used in the discounted cash flow analyses to determine the fair value of the investment which was used to determine the amount that fair value had declined below its related carrying value for a period considered to be other-than-temporary, which in turn led to a high degree of auditor judgment, subjectivity and effort in performing procedures related to the growth rates of assets under management and discount rates used in the impairment evaluation, and (ii) the audit effort involved the use of professionals with specialized skill and knowledge to assist in evaluating the audit evidence obtained from these procedures.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements.

These procedures included testing the effectiveness of controls relating to management’s impairment evaluation for equity method investments in affiliates, including controls over the discounted cash flow analysis and significant assumptions used to determine the fair value of equity method investments in affiliates.

These procedures also included, among others, testing management’s process for determining the fair value of its equity method investments in affiliates, including evaluating the appropriateness of the discounted cash flow analysis, testing the completeness and accuracy of the underlying data used in the discounted cash flow analysis, and evaluating the reasonableness of the significant assumptions used by management in developing the fair value measurement, including the growth rates of assets under management and discount rate s.

These procedures also included, among others, testing management’s process for determining the fair value of its equity method investments in affiliates, including evaluating the appropriateness of the discounted cash flow analysis, testing the completeness and accuracy of the underlying data used in the discounted cash flow analysis, and evaluating the reasonableness of the significant assumptions used by management in developing the fair value measurement, related to the growth rates of assets under management and discount rate s.

Evaluating the reasonableness of the growth rates of assets under management involved considering (i) the consistency with external market and industry data, (ii) the consistency with past performance of the affiliate, and (iii) whether the growth rates were consistent with evidence obtained in other areas of the audit.

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For the Years Ended December 31,

2018 2019 2020

Consolidated revenue $ 2,378.4 $ 2,239.6 $ 2,027.5

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Total consolidated expenses 1,692.0 1,618.8 1,509.8

Equity method income (loss) (net)

Equity method loss (net) ( 0.2 ) ( 338.0 ) ( 43.4 )

Investment and other income 27.4 25.2 34.1

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Income tax expense 181.3 2.9 81.4

Net income 532.3 305.1 427.0

Net income (non-controlling interests) ( 288.7 ) ( 289.4 ) ( 224.8 )

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For the Years Ended December 31,

2018 2019 2020

Net income $ 532.3 $ 305.1 $ 427.0

Other comprehensive income (loss), net of tax:

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Change in net realized and unrealized gain (loss) on derivative financial instruments ( 0.1 ) 1.7 ( 1.5 )

Change in net unrealized loss on investment securities

Other comprehensive income (loss), net of tax ( 102.2 ) 12.6 13.7

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Cash and cash equivalents $ 539.6 $ 1,039.7

Receivables 417.1 421.6

Investments in marketable securities 59.4 74.9

Goodwill 2,651.7 2,661.4

Acquired client relationships (net) 1,182.0 1,048.8

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Other investments 211.8 257.2

Other assets 304.0 230.9

Total assets $ 7,653.5 $ 7,888.9

Liabilities and Equity

Payable and accrued liabilities $ 634.6 $ 712.4

Debt 1,793.8 2,312.1

Deferred income tax liability (net) 450.2 423.4

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Retained earnings 3,819.8 4,005.5

4,418.8 4,636.7

Treasury stock, at cost ( 10.4 shares in 2019 and 14.5 shares in 2020)

( 1,481.3 ) ( 1,857.0 )

Total stockholders' equity 2,937.5 2,779.7

Non-controlling interests 561.6 537.6

Total equity 3,499.1 3,317.3

Total liabilities and equity $ 7,653.5 $ 7,888.9

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Total Stockholders’ Equity

Stock Additional

Capital Accumulated

Comprehensive

Income (Loss)

Income (Loss) Retained

Earnings Treasury

Interests Total

December 31, 2017 $ 0.6 $ 808.6 $ ( 21.8 ) $ 3,698.5 $ ( 663.7 ) $ 756.3 $ 4,578.5

Other comprehensive income

Net income — — — 243.6 — 288.7 532.3

Other comprehensive loss, net of tax — — ( 87.2 ) — — ( 15.0 ) ( 102.2 )

Share-based compensation — 44.7 — — — — 44.7

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Dividends ($ 1.20 per share)

— — — ( 65.3 ) — — ( 65.3 )

Issuance costs and other — ( 0.5 ) — — — — ( 0.5 )

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Affiliate equity compensation — 16.7 — — — 39.7 56.4

Issuances — ( 6.8 ) — — — 14.3 7.5

Repurchases — 15.3 — — — ( 9.0 ) 6.3

Changes in redemption value of Redeemable non-controlling interests — ( 30.8 ) — — — — ( 30.8 )

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December 31, 2018 $ 0.6 $ 835.6 $ ( 109.0 ) $ 3,876.8 $ ( 1,146.6 ) $ 677.5 $ 4,134.9

Other comprehensive loss

Impact of adoption of new accounting standard (ASU 2018-02) — — — ( 6.6 ) — — ( 6.6 )

Net income — — — 15.7 — 289.4 305.1

Other comprehensive income, net of tax — — 0.2 — — 12.4 12.6

Share-based compensation — 49.9 — — — — 49.9

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Dividends ($ 1.28 per share)

— — — ( 66.1 ) — — ( 66.1 )

Issuance costs and other — 0.1 — — — — 0.1

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Affiliate equity compensation — 9.6 — — — 30.9 40.5

Issuances — ( 3.7 ) — — — 14.9 11.2

Repurchases — 13.2 — — — ( 10.3 ) 2.9

Changes in redemption value of Redeemable non-controlling interests — ( 166.0 ) — — — — ( 166.0 )

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December 31, 2019 $ 0.6 $ 707.2 $ ( 108.8 ) $ 3,819.8 $ ( 1,481.3 ) $ 561.6 $ 3,499.1

Impact of adoption of new accounting standards (See Note 22)

Other comprehensive income

Net income — — — 202.2 — 224.8 427.0

Other comprehensive income, net of tax — — 10.5 — — 3.2 13.7

Share-based compensation — 67.4 — — — — 67.4

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Dividends ($ 0.35 per share)

— — — ( 16.5 ) — — ( 16.5 )

Issuance costs and other — — — — — — —

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Affiliate equity compensation — 20.9 — — — 30.9 51.8

Issuances — ( 5.1 ) — — — 25.2 20.1

Repurchases — 58.7 — — — ( 14.5 ) 44.2

Changes in redemption value of Redeemable non-controlling interests — ( 59.4 ) — — — — ( 59.4 )

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For the Years Ended December 31,

2018 2019 2020

Cash flow from (used in) operating activities:

Net income $ 532.3 $ 305.1 $ 427.0

Adjustments to reconcile Net income to cash flow from (used in) operating activities:

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Deferred income tax expense (benefit) 51.9 ( 55.8 ) 26.8

Equity method (income) loss (net)

Equity method loss (net) 0.2 338.0 43.4

Distributions of earnings received from equity method investments 466.3 252.4 236.8

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Sales of securities by consolidated Affiliate sponsored investment products 49.6 16.5 99.6

(Increase) decrease in receivables

Increase in other assets

Increase (decrease) in payables, accrued liabilities and other liabilities

Decrease (increase) in receivables 14.4 ( 15.8 ) 1.1

(Increase) decrease in other assets ( 11.7 ) ( 51.4 ) 73.1

Decrease in payables, accrued liabilities and other liabilities ( 6.8 ) ( 56.1 ) ( 64.2 )

Cash flow from operating activities 1,140.6 929.1 1,009.3

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Sale of investment securities 48.6 72.9 47.0

Cash flow from (used in) investing activities

Cash flow used in investing activities ( 18.2 ) ( 24.4 ) ( 53.7 )

Cash flow from (used in) financing activities:

Borrowings of debt

Repayments of debt

Borrowings of senior bank debt, senior notes and junior subordinated notes 1,150.0 470.7 874.8

Repayments of senior bank debt ( 1,180.6 ) ( 510.0 ) ( 350.0 )

Repurchase of common stock (net) ( 496.1 ) ( 356.1 ) ( 335.1 )

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Distributions to non-controlling interests ( 370.5 ) ( 347.9 ) ( 306.3 )

Affiliate equity repurchases and issuances (net)

Affiliate equity (repurchases) / issuances (net) ( 113.7 ) ( 135.5 ) ( 294.9 )

Subscriptions to consolidated Affiliate sponsored investment products, net of redemptions 132.8 19.0 12.9

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Interest paid $ 76.9 $ 84.1 $ 88.3

Income taxes paid

Income taxes paid (refunds received), net 160.2 102.7 ( 12.4 )

Lease liabilities paid — 35.4 39.1

Supplemental disclosure of non-cash financing activities:

Supplemental disclosure of non-cash investing and financing activities:

Payables recorded for Affiliate equity repurchases 36.2 19.8 22.0

Payables recorded for share repurchases 6.9 10.6 105.6

Payables recorded for contingent payment arrangements — — 40.0

Payables recorded for investments in Affiliates — — 69.2

Stock issued upon vesting of restricted stock units 4.7 32.7 35.6

Stock received for tax withholdings on share-based payments 14.7 6.4 6.7

Stock received for the exercise of stock options

Right-of-use assets obtained in exchange for new operating leases — 189.7 24.4

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Business and Summary of Significant Accounting Policies

Organization and Nature of Operations

(a) Organization and Nature of Operations

Affiliated Managers Group, Inc.

(“AMG” or the “Company”) is a global asset management company with equity investments in high-quality boutique investment management firms, referred to as “Affiliates.” The Company’s Affiliates provide a comprehensive and diverse range of active, return-oriented strategies designed to assist institutional, retail and high net worth clients worldwide in achieving their investment objectives.

(the “Company”) is a leading partner to independent active investment management firms globally.

AMG’s strategy is to generate long-term value by investing in a diverse array of partner-owned investment firms, referred to as “Affiliates.” The Company’s Affiliates provide a comprehensive and diverse range of active, return-oriented strategies designed to assist institutional, retail, and high net worth clients worldwide in achieving their investment objectives.

The Company operates in one segment, global asset management.

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For a majority of Affiliates, the Company uses structured partnership interests in which the Company contractually shares in the Affiliate’s revenue without regard to expenses.

In this type of structured partnership interest, the Affiliate allocates a specified percentage of its revenue to the Company and Affiliate management, while using the remainder of its revenue for operating expenses and for distributions to Affiliate management.

The Company and Affiliate management, therefore, participate in any increase or decrease in revenue and only Affiliate management participates in any increase or decrease in expenses.

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For other Affiliates, the Company uses structured partnership interests in which the Company contractually shares in the Affiliate’s revenue less agreed-upon expenses.

Basis of Presentation and Use of Estimates

The financial statements are prepared in accordance with accounting principles generally accepted in the U.S.

This type of partnership interest allows the Company to benefit from any increase in revenue or any decrease in the agreed-upon expenses, but also exposes the Company to any decrease in revenue or any increase in such expenses.

The degree of the Company’s exposure to expenses from these structured partnership interests varies by Affiliate and includes Affiliates in which the Company fully shares in the expenses of the business.

(b) Basis of Presentation and Use of Estimates

The Consolidated Financial Statements of the Company have been prepared in accordance with accounting principles generally accepted in the U.S.

All dollar amounts, except per share data in the text and tables herein, are stated in millions unless otherwise indicated.

All intercompany balances and transactions have been eliminated.

Reclassifications have been made to the prior period’s financial statements to conform to the current period’s presentation.

Certain reclassifications have been made to the prior period’s financial statements to conform to the current period’s presentation.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements.

Actual results could differ from those estimates.

Principles of Consolidation

In evaluating whether an investment must be consolidated, the Company evaluates the risk, rewards, and significant terms of each of its Affiliates and other investments to determine if an investment is considered a voting rights entity (“VRE”) or a variable interest entity (“VIE”).

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The Company consolidates VREs when it has control over significant operating, financial, and investing decisions of the entity.

When the Company lacks such control, but is deemed to have significant influence, the Company accounts for the entity under the equity method.

Other investments in which the Company does not have rights to exercise significant influence are recorded at fair value, with changes in fair value reflected within Investment and other income on the Consolidated Statements of Income.

When the Company lacks such control, but is deemed to have significant influence, the Company accounts for the VRE under the equity method.

Other investments in which the Company does not have rights to exercise significant influence are recorded at fair value on the Consolidated Balance Sheets, with changes in fair value included in Investment and other income on the Consolidated Statements of Income.

The Company consolidates VIEs when it is the primary beneficiary of the entity, which is defined as having the power to direct the activities that most significantly impact the VIE’s economic performance and the obligation to absorb losses of, or the right to receive benefits from, the entity that could potentially be significant to the VIE.

Substantially all of the Company’s

AFFILIATED MANAGERS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

consolidated Affiliates considered VIEs are controlled because the Company holds a majority of the voting interests or it is the managing member or general partner.

Substantially all of the Company’s consolidated Affiliates considered VIEs are controlled because the Company holds a majority of the voting interests or it is the managing member or general partner.

Furthermore, an Affiliate’s assets can be used for purposes other than the settlement of the respective Affiliate’s obligations.

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The Company periodically issues, sells, and repurchases the equity of its consolidated Affiliates.

Because these transactions take place between entities under common control, any gains or losses attributable to these transactions are required to be included within Additional paid-in capital on the Consolidated Balance Sheets, net of any related income tax effects in the period the transaction occurs.

When an Affiliate is accounted for under the equity method, the Company’s share of an Affiliate’s earnings or losses, net of amortization and impairments, is included in Equity method income (loss) (net) in the Consolidated Statements of Income and the carrying value of the Affiliate is reported in Equity method investments in Affiliates (net) in the Consolidated Balance Sheets.

Any deferred taxes recorded upon acquisition of an Affiliate accounted for under the equity method are presented on a gross basis within Equity method investments in Affiliates (net) and Deferred income tax liability (net) in the Consolidated Balance Sheets.

The Company’s share of income taxes incurred directly by Affiliates accounted for under the equity method is recorded within Income tax expense in the Consolidated Statements of Income.

The Company periodically performs assessments to determine if fair value may have declined below related carrying value for its Affiliates accounted for under the equity method for a period that the Company considers to be other-than temporary.

Where the Company believes that such declines may have occurred, the Company determines 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.

Because these transactions take place between entities under common control, any gains or losses attributable to these transactions are required to be included in Additional paid-in capital on the Consolidated Balance Sheets, net of any related income tax effects in the period the transaction occurs.

When an Affiliate is accounted for under the equity method, the Company’s share of an Affiliate’s earnings or losses, net of amortization and impairments, is included in Equity method loss (net) in the Consolidated Statements of Income and the carrying value of the Affiliate is reported in Equity method investments in Affiliates (net) in the Consolidated Balance Sheets.

Deferred taxes recorded on intangible assets upon acquisition of an Affiliate accounted for under the equity method are presented on a gross basis within Equity method investments in Affiliates (net) and Deferred income tax liability (net) in the Consolidated Balance Sheets.

The Company’s share of income taxes incurred directly by Affiliates accounted for under the equity method is recorded in Income tax expense in the Consolidated Statements of Income.

The Company periodically performs assessments to determine if fair value of an investment may have declined below its related carrying value for its Affiliates accounted for under the equity method for a period that the Company considers to be other-than temporary.

Where the Company believes that such declines may have occurred, the Company determines 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.

Affiliate Sponsored Investment Products

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As a result, the Company does not generally consolidate these products unless the Company’s or its consolidated Affiliates’ interest in the product is considered substantial.

When the Company’s or its consolidated Affiliates’ interests are considered substantial and the products are consolidated, the Company retains the specialized investment company accounting principles of the underlying products, and all of the underlying investments are carried at fair value in Investments in marketable securities in the Consolidated Balance Sheets, with corresponding changes in the investments’ fair values reflected in Investment and other income.

Purchases and sales of securities are presented within purchases and sales by consolidated Affiliate sponsored investment products in the Consolidated Statements of Cash Flows and the third-party investors’ interest is recorded in Redeemable non-controlling interests.

When the Company or its consolidated Affiliates no longer control these products, due to a reduction in ownership or other reasons, the products are deconsolidated with only the Company’s or its consolidated Affiliate’s investment in the product reported from the date of deconsolidation.

Cash and Cash Equivalents

AFFILIATED MANAGERS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(d) Cash and Cash Equivalents

The Company considers all highly liquid investments, including money market mutual funds, with original maturities of three months or less to be cash equivalents.

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Money market mutual funds with a floating net asset value (“NAV”) would not meet the definition of a cash equivalent if the fund has enacted liquidity fees or redemption gates.

(e) Receivables

The Company’s Affiliates earn asset and performance based fees, which are billed based on the terms of the related contracts.

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The gross presentation of these receivables and offsetting payables reflects the legal relationship between the underlying investor, the Company’s Affiliates and the sponsored investment products.

Investments in Marketable Securities

(f) Investments in Marketable Securities

Realized and unrealized gains or losses on investments in marketable securities are reported within Investment and other income.

Realized gains and losses are recorded on the trade date on a specific identified basis, except for consolidated Affiliate sponsored investment products, which use an average cost basis.

Fair Value Measurements

(g) Fair Value Measurements

The Company determines the fair value of certain investment securities and other financial and non-financial assets and liabilities.

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These inputs require significant management judgment and reflect the Company’s assumptions that the Company believes market participants would use in pricing the asset or liability.

Acquired Client Relationships and Goodwill

(h) Acquired Client Relationships and Goodwill

Each Affiliate in which the Company makes an investment has identifiable assets arising from contractual or other legal rights with their clients (“acquired client relationships”).

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The Company has determined that certain of its acquired client relationships meet the criteria to be considered definite-lived assets, including investment advisory contracts between our Affiliates and their underlying investors, and are amortized over their expected period of economic benefit.

The Company has determined that certain of its acquired client relationships meet the criteria to be considered definite-lived assets, including investment advisory contracts between its Affiliates and their underlying investors, and are amortized over their expected period of economic benefit.

The expected period of economic benefit of definite-lived acquired client relationships is a judgment based on the historical and projected attrition rates of each Affiliate’s existing clients, and other factors that may influence the expected future economic benefit the Company will derive from these relationships.

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The Company performs an impairment assessment annually or more frequently whenever events or circumstances occur indicating that the carrying value of its single reporting unit is in excess of its fair value.

In this assessment, the Company typically measures the fair value of our reporting unit using various qualitative and quantitative factors (including the Company’s market capitalization and market multiples for asset management businesses).

In this assessment, the Company typically measures the fair value of its reporting unit using various qualitative and quantitative factors (including the Company’s market capitalization and market multiples for asset management businesses).

If a potential impairment is more-likely-than-not, then the Company will perform a single step assessment with any excess of carrying value over fair value recorded as an expense in Intangible amortization and impairments.

(i) Fixed Assets

Fixed assets are recorded at cost and depreciated using the straight-line method over their estimated useful lives.

The estimated useful lives of office equipment and furniture and fixtures range from three years to ten years .

Computer software developed or obtained for internal use is amortized over the estimated useful life of the software, generally three years to five years .

The estimated useful lives of office equipment and furniture and fixtures range from two years to ten years .

Computer software developed or obtained for internal use is amortized over the estimated useful life of the software, generally two years to five years .

Leasehold improvements are amortized over the shorter of their estimated useful lives or the term of the lease.

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artwork is included in Other assets on the Consolidated Balance Sheets.

In the first quarter of 2019, the Company and its consolidated Affiliates adopted Accounting Standard Update (“ASU”) 2016-02, Leases (and related ASUs), using a modified retrospective method and, as a result, recorded a lease liability of $ 190.8 million and after certain reclassifications, primarily related to accrued lease payments and unamortized lease incentives, a right-of-use asset of $ 163.6 million .

Additionally, the Company elected the transition practical expedients provided by ASU 2016-02, which allowed the Company to carry forward its historical lease classification.

Leases are classified as either operating leases or finance leases.

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Whether a lease is classified as an operating lease or a finance lease, the Company and its Affiliates must record a right-of-use asset and a lease liability at the commencement date of the lease, other than for leases with an initial term of 12 months or less.

As permitted under ASU 2016-02, the Company and its Affiliates elect not to record short-term leases with an initial lease term less than 12 months on the Company’s Consolidated Balance Sheets.

As permitted under Accounting Standard Update (“ASU”) 2016-02 Leases (and related ASUs), the Company and its Affiliates elect not to record short-term leases with an initial lease term less than 12 months on the Company’s Consolidated Balance Sheets.

Right-of-use assets and lease liabilities are reported in Other assets and Other liabilities, respectively, on the Consolidated Balance Sheets.

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The Company and its Affiliates test for possible impairments of right-of-use assets annually or more frequently whenever events or changes in circumstances indicate that the carrying value of a right-of-use asset may exceed its fair value.

If the carrying value of the right-of-use asset exceeds its fair

If the carrying value of the right-of-use asset exceeds its fair value, then the carrying value of the right-of-use asset is reduced to its fair value and the expense is recorded in Other expenses (net) on the Consolidated Statements of Income.

Subsequent to an impairment, the carrying value of the right-of-use asset is amortized on a straight-line basis over the remaining lease term.

AFFILIATED MANAGERS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

value, then the carrying value of the right-of-use asset is reduced to its fair value and the expense is recorded in Other expenses (net) on the Consolidated Statements of Income.

Subsequent to an impairment, the carrying value of the right-of-use asset is amortized on a straight-line basis over the remaining lease term.

Lease liabilities and right-of-use assets based on variable lease payments that depend on an index or rate are initially measured using the index or rate at the commencement date with any subsequent changes in variable lease payments reported in Other expenses (net) as incurred.

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Sublease income is reported in Investment and other income.

Issuance Costs

(k) Issuance Costs

Issuance costs related to the Company’s senior bank debt are amortized over the remaining term of the senior unsecured multicurrency revolving credit facility (the “revolver”) and the senior unsecured term loan facility (the “term loan” and, together with the revolver, the “credit facilities”), which approximates the effective interest method.

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The expense resulting from the amortization of these issuance costs is reported in Interest expense in the Consolidated Statements of Income.

Derivative Financial Instruments

(l) Derivative Financial Instruments

The Company and its Affiliates may use derivative financial instruments to offset exposure to changes in interest rates, foreign currency exchange rates and markets.

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If the Company’s or its Affiliates’ derivative financial instruments qualify as cash flow or net investment hedges, the effective portion of the unrealized gain or loss is recorded in Other comprehensive income (loss) as a separate component of stockholders’ equity and reclassified to earnings with the hedged item.

For cash flow hedges, hedge effectiveness is generally measured by comparing the present value of the cumulative change in the expected future cash flows of the hedged contract with the present value of the cumulative change in the expected future cash flows of the hedged item.

The Company assesses hedge effectiveness on a quarterly basis.

For interest rate swaps designated as cash flow hedges, we use a qualitative method of assessing hedge effectiveness by comparing the notional amount, timing of payments, and interest rates of the swap to the interest payments hedged.

If the qualitative assessment indicates ineffectiveness, then we perform a quantitative assessment which is generally measured by comparing the present value of the cumulative change in the expected future cash flows of the hedged contract with the present value of the cumulative change in the expected future cash flows of the hedged item.

For net investment hedges, hedge effectiveness is measured using the spot rate method.

For fair value hedges, the entire change in the fair value of the hedging instrument is presented in earnings with the hedged item, unless the changes in fair value are not equal, which would result in hedge ineffectiveness which is presented in Investment and other income.

For fair value hedges, the entire change in the fair value of the hedging instrument is presented within earnings with the hedged item, unless the changes in fair value are not equal, which would result in hedge ineffectiveness which is presented within Investment and other income.

Changes in the fair values of cash flow hedges are reported in Change in net realized and unrealized gain (loss) on derivative financial instruments in the Consolidated Statements of Comprehensive Income.

Upon termination of cash flow hedges, any gain or loss recognized will be reclassified into earnings.

Changes in the fair values of the effective net investment hedges are reported in Foreign currency translation gain (loss) in the Consolidated Statements of Comprehensive Income.

The Company assesses hedge effectiveness on a quarterly basis.

Upon the sale or liquidation of the underlying investment, any gain or loss remaining in Accumulated other comprehensive loss will be reclassified to earnings.

Changes in fair value of a hedging instrument that are excluded from the assessment of hedge effectiveness, also known as excluded components, are recorded in earnings and amortized on a straight-line basis over the respective period of the contracts as a reduction to Interest expense.

Revenue Recognition

(m) Revenue Recognition

Consolidated revenue primarily represents asset and performance based fees earned by the Company and its Affiliates for managing the assets of clients.

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Investment management, broker-dealer, and administrative services are performed and consumed simultaneously and, therefore, the Company recognizes these asset based fees ratably over time.

Substantially all the Company’s asset based fees for services are based on the value of client assets over

Substantially all the Company’s asset based fees for services are based on the value of client assets over time, which are typically determined using observable market data.

Services may be invoiced in advance or in arrears and are

AFFILIATED MANAGERS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

time, which are typically determined using observable market data.

Services may be invoiced in advance or in arrears and are payable upon receipt.

payable upon receipt.

Any asset based fees collected in advance are deferred and recognized as the services are performed and consumed.

4 unchanged sentences

Fees received and expenses incurred under these arrangements are primarily based on the value of client assets over time.

Distribution-related fees are presented in Consolidated revenue gross of any related expenses when the Company and its Affiliates are the principal in their role as primary obligor under their distribution-related services arrangements.

Distribution-related fees are presented within Consolidated revenue gross of any related expenses when the Company and its Affiliates are the principal in their role as primary obligor under their distribution-related services arrangements.

Distribution-related expenses are presented within Selling, general and administrative expenses in the Consolidated Statements of Income.

2 unchanged sentences

Any expenses paid in advance are capitalized and amortized on a systematic basis, consistent with the transfer of services, which is the equivalent of recognizing the costs as incurred.

Contingent Payment Arrangements

(n) Contingent Payment Arrangements

The Company periodically enters into contingent payment arrangements in connection with its investments in Affiliates.

3 unchanged sentences

If the Company’s expected payment amount subsequently changes, the obligation is reduced or increased in the current period resulting in a gain or loss, respectively.

Gains and losses resulting from changes to expected payments are reflected in Other expenses (net) and the accretion of these obligations to their expected payment amounts are reflected within Interest expense.

Gains and losses resulting from changes to expected payments are included in Other expenses (net) and the accretion of these obligations to their expected payment amounts are included in Interest expense.

For Affiliates accounted for under the equity method of accounting, the Company records a liability in Payables and accrued liabilities when a payment becomes probable, with a corresponding increase to the carrying value of the Affiliate in Equity method investments in Affiliates (net).

(o) Income Taxes

The Company accounts for income taxes using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of differences between the financial reporting bases of assets and liabilities and their respective tax bases, using tax rates in effect for the year in which the differences are expected to reverse.

7 unchanged sentences

Interest and penalties related to unrecognized tax benefits are also recorded in Income tax expense.

AFFILIATED MANAGERS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The Company has elected to treat taxes due on U.S.

inclusions in taxable income related to Global Intangible Low Taxed Income (“GILTI”) as a current period expense when incurred (the “period cost method”).

Foreign Currency Translation

AFFILIATED MANAGERS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(p) Foreign Currency Translation

Assets and liabilities denominated in a functional currency other than the U.S.

5 unchanged sentences

Because of the long-term nature of the Company’s investments in its Affiliates, net translation exchange gains and losses resulting from foreign currency translation are recorded in Accumulated other comprehensive loss as a separate component of stockholders’ equity on the Consolidated Balance Sheets.

Foreign currency transaction gains and losses are reflected in Investment and other income.

Concentration of Credit Risk

Foreign currency transaction gains and losses are included in Investment and other income.

(q) Concentration of Credit Risk

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash investments and derivative financial instruments.

2 unchanged sentences

For the Company and certain of its Affiliates, cash deposits at a financial institution may exceed Federal Deposit Insurance Corporation insurance limits.

Earnings Per Share

(r) Earnings Per Share

The calculation of Earnings per share (basic) is based on the weighted average number of shares of the Company’s common stock outstanding during the period.

4 unchanged sentences

Issuable shares for these securities and related interest expense are excluded from the calculation if an assumed conversion would be anti-dilutive to diluted earnings per share.

Share-Based Compensation Plans

The Company had share-based compensation awards outstanding during the periods presented with vesting provisions subject to certain performance conditions.

These awards are excluded from the calculation of Earnings per share (diluted) if the performance condition has not been met as of the end of the reporting period.

(s) Share-Based Compensation Plans

The Company recognizes expenses for all share-based compensation arrangements based on the number of awards expected to vest.

3 unchanged sentences

Taxes paid by the Company when it withholds shares to satisfy tax withholding obligations are classified as a financing activity in the Consolidated Statements of Cash Flows.

Recent Accounting Developments

Effective January 1, 2019, the Company adopted the following ASUs:

ASU 2016-02, Leases (and related ASUs);

ASU 2018-02, Income Statement - Reporting Comprehensive Income:

Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income;

ASU 2014-09, Revenue from Contracts with Customers (and related ASUs, effective for the Company’s Affiliates accounted for under the equity method)

While the Company and its consolidated Affiliates adopted ASU 2016-02 (and related ASUs) on January 1, 2019, the standard is effective for the Company’s equity method Affiliates for interim and annual periods beginning after December 15,

(t) Recent Accounting Developments

Effective January 1, 2020, the Company adopted ASU 2016-13, Measurement of Credit Losses on Financial Instruments issued by the Financial Accounting Standards Board (“FASB”).

The adoption of this standard did not have a significant impact on the Company’s Consolidated Financial Statements.

In August 2020, the FASB issued ASU 2020-06, Debt with Conversion and Other Options and Derivatives and Hedging - Contracts in Entity’s Own Equity.

The standard is effective for interim and annual periods beginning after December 15, 2021 for the Company and its consolidated Affiliates, and is effective for interim and annual periods beginning after December 15, 2023 for the Company’s Affiliates accounted for under the equity method.

This standard requires use of the if-converted method for convertible instruments and the inclusion of instruments where the Company has an option to settle in cash or shares in its calculation of Earnings per share (diluted).

The Company is evaluating the impact of this standard on its Consolidated Financial Statements.

AFFILIATED MANAGERS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The Company does not expect the adoption of this standard by its equity method investments to have a significant impact to its Consolidated Financial Statements.

In June 2020, the FASB extended the effective date of ASU 2016-02, Leases for the Company’s Affiliates accounted for under the equity method.

After the extension, ASU 2016-02 is effective for annual periods beginning after December 15, 2021 and interim periods beginning after December 15, 2022.

The Company does not expect the adoption of this standard by its equity method investments to have a significant impact on its Consolidated Financial Statements.

In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes.

The standard is effective for interim and annual periods beginning after December 15, 2020 for the Company and its consolidated Affiliates, and is effective for annual periods beginning after December 15, 2021 and interim periods beginning after December 15, 2022 for the Company’s Affiliates accounted for under the equity method.

The Company does not expect the adoption of this standard to have a significant impact on its Consolidated Financial Statements.

Investments in Marketable Securities

The following is a summary of the cost, gross unrealized gains, unrealized losses, and fair value of Investments in marketable securities:

Cost $ 57.9 $ 69.4

Unrealized gains 2.1 5.5

Unrealized losses ( 0.6 ) ( 0.0 )

For the years ended December 31, 2018 and 2019 , the Company received proceeds of $ 81.4 million and $ 38.0 million , respectively, from the sale of investments in marketable securities and recorded net gains of $ 6.9 million and $ 1.1 million , respectively.

As of December 31, 2018 and 2019 , Investments in marketable securities includes consolidated Affiliate sponsored investment products with fair values of $ 105.1 million and $ 38.1 million , respectively.

Fair value $ 59.4 $ 74.9

As of December 31, 2019 and 2020, Investments in marketable securities include consolidated Affiliate sponsored investment products with fair values of $ 38.1 million and $ 52.3 million, respectively.

Other Investments

Other investments consist of investments in funds advised by the Company’s Affiliates that are carried at net asset value (“NAV”) as a practical expedient.

Other investments consist of investments in funds advised by the Company’s Affiliates that are carried at NAV as a practical expedient and investments without readily determinable fair values.

The income or loss related to these investments is recorded in Investment and other income.

Investments Measured at NAV as a Practical Expedient

The Company’s Affiliates sponsor investment products in which the Company and its consolidated Affiliates may make general partner and seed capital investments.

The Company uses the NAV of these investments as a practical expedient for their fair values.

The following table summarizes the fair values of these investments and any related unfunded commitments:

December 31, 2019 December 31, 2020

Category of Investment Fair Value Unfunded

Commitments Fair Value Unfunded

Private equity funds (1)

$ 203.3 $ 127.2 $ 235.4 $ 122.2

Investments in other strategies (2)

$ 211.8 $ 127.2 $ 243.4 $ 122.2

__________________________

(1) The Company accounts for its interests in private equity funds under the equity method of accounting and, therefore, uses NAV as a practical expedient, one quarter in arrears (adjusted for current period calls and distributions) to determine the fair value.

These funds primarily invest in a broad range of third-party funds and direct investments.

Distributions will be received as the underlying assets are liquidated over the life of the funds, which is generally up to 15 years.

(2) These are multi-disciplinary funds that invest across various asset classes and strategies, including equity, credit, and real estate.

Investments are generally redeemable on a daily, monthly or quarterly basis.

(3) Fair value attributable to the controlling interest was $ 137.6 million and $ 164.4 million as of December 31, 2019 and 2020, respectively.

As of December 31, 2019 and 2020, the Company held investments without readily determinable fair values of zero and $ 13.8 million, respectively.

The carrying value of these investments included an upward adjustment of $ 5.3 million based on an observable price change during the fourth quarter of 2020.

AFFILIATED MANAGERS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Fair Value Measurements

The following tables summarize the Company’s financial assets and liabilities that are measured at fair value on a recurring basis:

Fair Value Measurements

December 31, 2019

Level 1 Level 2 Level 3

Financial Assets

Investments in marketable securities $ 59.4 $ 24.4 $ 35.0 $ —

Derivative financial instruments (1)

Financial Liabilities (2)

Affiliate equity repurchase obligations $ 19.8 $ — $ — $ 19.8

Derivative financial instruments 1.0 — 1.0 —

Fair Value Measurements

December 31, 2020

Level 1 Level 2 Level 3

Financial Assets

Investments in marketable securities $ 74.9 $ 25.7 $ 49.2 $ —

Derivative financial instruments (1)

Financial Liabilities (2)

Affiliate equity repurchase obligations $ 22.0 $ — $ — $ 22.0

Derivative financial instruments 4.2 — 4.2 —

__________________________

(1) Amounts are presented within Other assets.

(2) Amounts are presented within Other liabilities.

Level 3 Financial Assets and Liabilities

The following table presents the changes in level 3 assets and liabilities for Affiliate equity repurchase obligations:

For the Years Ended December 31,

Balance, beginning of period $ 36.2 $ 19.8

Net realized and unrealized (gains) losses (1)

Purchases and issuances (2)

Settlements and reductions ( 135.1 ) ( 304.1 )

Balance, end of period $ 19.8 $ 22.0

Net change in unrealized (gains) losses relating to instruments still held at the reporting date $ — $ —

__________________________

(1) Accretion expense for these arrangements and obligations is recorded in Interest expense.

(2) Includes transfers from Redeemable non-controlling interests.

The following table presents certain quantitative information about the significant unobservable inputs used in valuing the Company’s recurring level 3 fair value measurements:

Quantitative Information About Level 3 Fair Value Measurements

December 31, 2019 December 31, 2020

Techniques Unobservable Input Fair Value Range Weighted Average (1)

Fair Value Range Weighted Average (1)

Affiliate equity repurchase obligations Discounted cash flow Growth rates (2)

$ 19.8 ( 9 )% - 7 %

5 % $ 22.0 ( 5 )% - 8 %

Discount rates 14 % - 17 %

15 % 14 % - 16 %

__________________________

(1) Calculated by comparing the relative fair value of an obligation to its respective total.

(2) Represents growth rates of asset and performance based fees.

Affiliate equity repurchase obligations include agreements to repurchase Affiliate equity.

As of December 31, 2020, there were no changes to growth or discount rates that had a significant impact to Affiliate equity repurchase obligations recorded in prior periods.

Other Financial Assets and Liabilities Not Carried at Fair Value

The Company has other financial assets and liabilities, which are not required to be carried at fair value, but the Company is required to disclose their fair values.

The carrying amount of Cash and cash equivalents, Receivables, and Payables and accrued liabilities approximates fair value because of the short-term nature of these instruments.

The carrying value of notes receivable, which is reported in Other assets, approximates fair value because interest rates and other terms are at market rates.

The carrying value of the credit facilities approximates fair value because the credit facilities have variable interest based on selected short-term rates.

The following table summarizes the Company’s other financial liabilities not carried at fair value:

December 31, 2019 December 31, 2020

Carrying Value Fair Value Carrying Value Fair Value Fair Value Hierarchy

Senior notes $ 746.8 $ 797.4 $ 1,097.3 $ 1,206.6 Level 2

Junior convertible securities 315.4 415.7 318.4 427.6 Level 2

Junior subordinated notes 290.7 327.7 565.7 623.1 Level 2

Investments in Affiliates and Affiliate Sponsored Investment Products

3 unchanged sentences

The unconsolidated assets, net of liabilities and non-controlling interests of Affiliates accounted for under the equity method considered VIEs, and the Company’s carrying value and maximum exposure to loss, were as follows:

December 31, 2018

December 31, 2019

December 31, 2019 December 31, 2020

Unconsolidated

VIE Net Assets

Carrying Value and

VIE Net Assets Carrying Value and

Maximum Exposure

Unconsolidated

VIE Net Assets

Carrying Value and

to Loss Unconsolidated

VIE Net Assets Carrying Value and

Maximum Exposure

2 unchanged sentences

Affiliate Sponsored Investment Products

The Company’s carrying value, and maximum exposure to loss from unconsolidated Affiliate sponsored investment products, is its or its consolidated Affiliate’s interest in the unconsolidated net assets of the respective products.

The net assets of unconsolidated VIEs attributable to Affiliate sponsored investment products, and the Company’s carrying value and

AFFILIATED MANAGERS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

maximum exposure to loss, were as follows:

December 31, 2018

December 31, 2019

The Company’s carrying value, and maximum exposure to loss from unconsolidated Affiliate sponsored investment products is its, or its consolidated Affiliates’, interest in the unconsolidated net assets of the respective products.

The net assets of unconsolidated VIEs attributable to Affiliate sponsored investment products, and the Company’s carrying value and maximum exposure to loss, were as follows:

December 31, 2019 December 31, 2020

Unconsolidated

VIE Net Assets

Carrying Value and

VIE Net Assets Carrying Value and

Maximum Exposure

Unconsolidated

VIE Net Assets

Carrying Value and

to Loss Unconsolidated

VIE Net Assets Carrying Value and

Maximum Exposure

2 unchanged sentences

Senior bank debt $ 449.7 $ 349.8

Senior notes 743.8 1,091.9

Junior convertible securities 310.6 314.0

Junior subordinated notes 289.7 556.4

Long-term debt is carried at amortized cost.

Unamortized discounts and debt issuance costs related to long-term debt are presented in the Consolidated Balance Sheets as an adjustment to the carrying value of the associated long-term debt.

Debt $ 1,793.8 $ 2,312.1

The Company’s senior notes, junior convertible securities, and junior subordinated notes are carried at amortized cost.

Unamortized discounts and debt issuance costs are presented within the Consolidated Balance Sheets as an adjustment to the carrying value of the associated debt.

As of December 31, 2020, Debt with a par value of $ 400.0 million and $ 350.0 million matures in 2024 and 2025, respectively.

Senior Bank Debt

In 2019, the Company amended and restated its existing credit facilities to provide for a $ 1.25 billion senior unsecured multicurrency revolving credit facility and a $ 450.0 million senior unsecured term loan facility.

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

The Company has a $ 1.25 billion senior unsecured multicurrency revolving credit facility and a $ 350.0 million senior unsecured term loan facility.

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

Subject to certain conditions, the Company 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.

2 unchanged sentences

The credit facilities contain financial covenants with respect to leverage and interest coverage, as well as customary affirmative and negative covenants, including limitations on priority indebtedness, asset dispositions and fundamental corporate changes, and certain customary events of default.

As of December 31, 2018 , the Company had outstanding borrowings under the revolver of $ 330.0 million , and the weighted-average interest rate on outstanding borrowings was 3.92 % .

As of December 31, 2019 , the Company had no outstanding borrowings under the revolver.

As of December 31, 2018 and 2019 , the Company had outstanding borrowings under the term loan of $ 450.0 million , and the weighted-average interest rate on outstanding borrowings was 3.33 % and 2.66 % , respectively.

As of December 31, 2019 and 2020, the Company had no outstanding borrowings under the revolver.

As of December 31, 2019 and 2020, the Company had outstanding borrowings under the term loan of $ 450.0 million and $ 350.0 million, respectively, and the weighted-average interest rate on outstanding borrowings was 2.66 % and 1.02 %, respectively.

The Company pays commitment fees on the unused portion of its revolver.

For the years ended December 31, 2018 and 2019 , these fees amounted to $ 1.6 million and $ 1.5 million , respectively.

For the years ended December 31, 2019 and 2020, these fees amounted to $ 1.5 million.

On January 8, 2021, the Company 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, the Company had senior notes and junior subordinated notes outstanding.

The carrying value of the senior notes and junior subordinated notes is accreted to the principal amount at maturity over the remaining life of the

underlying instrument.

The carrying value of the senior notes and junior subordinated notes is accreted to the principal amount at maturity over the remaining life of the underlying instrument.

The principal terms of the senior notes and junior subordinated notes were as follows:

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

Coupon frequency Semi-annually Semi-annually Semi-annually Quarterly (3)

Quarterly (3)

Potential call date

Potential call date Any time (1)

March 2024 (2)

September 2025 (2)

Call price As defined (1)

As defined (1)

1 unchanged sentence

As defined (2)

__________________________

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

The junior subordinated notes may be redeemed at any time, in whole or in part, on or after March 30, 2024, at 100 % of the principal amount of the notes being redeemed plus any accrued and unpaid interest thereon.

Prior to March 30, 2024, the junior subordinated notes may also 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 junior subordinated notes.

(1) The 2024, 2025 and 2030 senior notes may be redeemed, in whole or in part, at any time, in the case of the 2024 and 2025 senior notes, and at any time prior to March 15, 2030, in the case of the 2030 senior notes.

In each case, the senior notes may be redeemed at a make-whole redemption price plus accrued and unpaid interest.

The make-whole redemption price, in each case, is equal to the greater of 100 % of the principal amount of the notes to be redeemed and the remaining principal and interest payments on the notes being redeemed (excluding accrued but unpaid interest to, but not including, the redemption date) discounted to their present value as of the redemption date at the applicable treasury rate plus 0.25 %, in the case of the 2024 and the 2025 senior notes, and to their present value as of the redemption date on a semi-annual basis at the applicable treasury rate plus 0.40 %, in the case of the 2030 senior notes.

(2) The 2059 and 2060 junior subordinated notes may be redeemed at any time, in whole or in part, on or after March 30, 2024, in the case of the 2059 junior subordinated notes, and on or after September 30, 2025, in the case of the 2060 junior subordinated notes.

In each case, the junior subordinated notes may be redeemed at 100 % of the principal amount of the notes being redeemed plus any accrued and unpaid interest thereon.

Prior to the applicable redemption date, at the Company’s option, the applicable junior subordinated notes may also 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;

(3) The Company may, at its option, and subject to certain conditions and restrictions, defer interest payments subject to the terms of the junior subordinated notes.

As of December 31, 2019 , the effective interest rates of the 2024 senior notes, the 2025 senior notes and the 2059 junior subordinated notes were 4.42 % , 3.66 % and 5.96 % , respectively.

As of December 31, 2020, the effective interest rates of the 2024, the 2025 and the 2030 senior notes were 4.42 %, 3.66 % and 3.39 %, respectively.

As of December 31, 2020, the effective interest rates of the 2059 and the 2060 junior subordinated notes were 5.90 % and 4.83 %, respectively.

Junior Convertible Securities

1 unchanged sentence

The carrying value and principal amount at maturity of the junior convertible securities were as follows:

December 31, 2018

December 31, 2019

Principal Amount

December 31, 2019 December 31, 2020

Value Principal Amount

at Maturity Carrying

Value Principal Amount

Junior convertible securities (1)

$ 315.4 $ 430.8 $ 318.4 $ 430.8

__________________________

(1) The carrying value is accreted to the principal amount at maturity over a remaining life of 17 years.

2 unchanged sentences

Upon conversion, holders will receive cash or shares of common stock, or a combination thereof, at the Company’s election.

The junior convertible securities are considered contingent payment debt instruments under federal income tax regulations, which require the Company to deduct interest in an amount greater than its 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 the Company’s common stock is trading above certain thresholds at the time of the conversion of the securities.

In August 2019, in accordance with the

The Company may redeem the junior convertible securities, subject to the stock trading at or above certain specified levels over specified times periods, and may also

AFFILIATED MANAGERS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

convertible securities indenture, the Company adjusted the conversion rate of the junior convertible securities to 0.2558 shares of common stock per $ 50.00 junior convertible security, equivalent to an adjusted conversion price of $ 195.47 per share of common stock.

repurchase junior subordinated notes in the open market or in privately negotiated transactions from time to time at management’s discretion.

The Company estimates 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 the Company’s common stock is trading above certain thresholds at the time of the conversion of the securities.

If the Company redeems the securities or repurchases 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.

In August 2019, in accordance with the convertible securities indenture, the Company adjusted the conversion rate of the junior convertible securities to 0.2558 shares of common stock per $ 50.00 junior convertible security, equivalent to an adjusted conversion price of $ 195.47 per share of common stock.

The adjustment was the result of the Company’s cumulative declared dividends on its common stock since the prior adjustment.

The Company may red eem the junior convertible securities if the closing price of its common stock exceeds $ 254.10 per share for 20 trading days in a period of 30 consecutive trading days.

The Company may redeem the junior convertible securities if the closing price of its common stock exceeds $ 254.10 per share for 20 trading days in a period of 30 consecutive trading days.

Derivative Financial Instruments

The Company and its Affiliates may use derivative financial instruments to offset exposure to changes in interest rates, foreign currency exchange rates and markets.

In 2018, the Company entered into two separate pound sterling-denominated forward foreign currency contracts (the “forward contracts”) with a large financial institution (the “counterparty”).

Concurrent to entering into each of the forward contracts, the Company also entered into two separate collar contracts (the “collar contracts”) with the same counterparty for the same notional amounts and expiration dates as each of the forward contracts.

Under one of the forward contracts, the Company will deliver £ 325.3 million for $ 450.0 million in June 2021 and under the other forward contract, the Company will deliver £ 285.8 million for $ 400.0 million in February 2024.

Under the collar contract expiring in 2021, the Company sold a put option with a lower strike price of 1.318 U.S.

dollars per one pound sterling and purchased a call option with an upper strike price of 1.448 U.S.

dollars per one pound sterling.

Under the collar contract expiring in 2024, the Company sold a put option with a lower strike price of 1.288 U.S.

dollars per one pound sterling and purchased a call option with an upper strike price of 1.535 U.S.

dollars per one pound sterling.

The combinations of the forward contracts and the collar contracts were designated as net investment hedges against fluctuations in foreign currency exchange rates on certain of the Company’s investments in Affiliates with the pound sterling as their functional currency.

Changes in the fair values of the effective net investment hedges are reported in Foreign currency translation gain (loss) in the Consolidated Statements of Comprehensive Income.

The Company assesses hedge effectiveness on a quarterly basis.

Certain of the Company’s Affiliates use forward foreign currency contracts to hedge the risk of foreign currency exchange rate movements, which were not significant for the years ended December 31, 2018 and 2019 , respectively.

In the first quarter of 2020, the Company terminated the forward contracts and the corresponding collar contracts, and upon settlement received net proceeds of $ 24.9 million.

The net proceeds from the termination of the contracts are presented within sale of investment securities in the Consolidated Statements of Cash Flows.

The Company’s forward contracts and collar contracts with the counterparty were governed by an International Swaps and Derivative Association Master Agreement, which provided for legally enforceable rights to set-off.

The terms of the contracts also required the Company and the counterparty to post cash collateral in certain circumstances throughout the duration of the contracts.

As of December 31, 2019, the Company held $ 8.7 million of cash collateral from the counterparty, and the counterparty held no cash collateral from the Company.

In the first quarter of 2020, the Company entered into an interest rate swap contract (the “interest rate swap”) with a large financial institution (the “swap counterparty”), 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 the Company’s LIBOR-based interest payments for fixed rate interest payments.

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

The terms of the contract also require the Company and the swap counterparty to post cash collateral in certain circumstances throughout the duration of the contract.

As of December 31, 2020, the Company held no cash collateral from the swap counterparty, and the swap counterparty held $ 2.2 million of cash collateral from the Company.

Certain of the Company’s Affiliates use forward foreign currency contracts to hedge the risk of foreign currency exchange rate movements, which were not significant.

The following table summarizes the Company’s and its Affiliates’ derivative financial instruments measured at fair value on a recurring basis:

December 31, 2018

December 31, 2019

December 31, 2019 December 31, 2020

Assets Liabilities Assets Liabilities

Forward contracts $ 23.8 $ ( 1.0 ) $ 3.5 $ ( 2.3 )

The Company’s forward contracts and collar contracts with the counterparty are governed by an International Swaps and Derivative Association Master Agreement, which provides for legally enforceable rights to set-off.

Given the contracts include this set-off right, the Company’s forward contracts and collar contracts were presented on a net basis in Other assets and were $ 4.9 million and $ 5.6 million , as of December 31, 2018 and 2019 , respectively.

Certain of the Company’s consolidated Affiliates have entered into contracts that do not have set-off rights and are, therefore, presented on a gross basis in Other assets and Other liabilities and were $ 0.9 million and $ 1.4 million , respectively, as of December 31, 2018, and $ 2.2 million and $ 1.0 million , respectively, as of December 31, 2019 .

The following table summarizes the effect of the derivative financial instruments on the Consolidated Statements of Comprehensive Income and the Consolidated Statements of Income.

For the year ended December 31, 2017, the Company and its Affiliates did not have any significant derivative financial instruments.

Put options — ( 31.0 ) — —

Call options 15.1 — — —

Interest rate swap — — — ( 1.9 )

Total $ 38.9 $ ( 32.0 ) $ 3.5 $ ( 4.2 )

The forward and collar contracts entered into in 2018 included a set-off right and were therefore, presented on a net basis in Other assets;

they were $ 5.7 million as of December 31, 2019.

The Company and certain of its consolidated Affiliates have also entered into contracts that do not include set-off rights and are, therefore, presented on a gross basis in Other assets and

AFFILIATED MANAGERS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the Year Ended December 31,

Gain (Loss) Recorded in Other Comprehensive Income

Loss Reclassified from Accumulated Other Comprehensive Loss into Earnings

Gain Recorded in Earnings from Excluded Components (1)

Gain (Loss) Recorded in Other Comprehensive Income

Gain Reclassified from Accumulated Other Comprehensive Income into Earnings

Gain Recorded in Earnings from Excluded Components (1)

Other liabilities;

they were $ 2.2 million and $ 1.0 million, respectively, as of December 31, 2019, and $ 3.5 million and $ 4.2 million, respectively, as of December 31, 2020.

The following table summarizes the effect of the derivative financial instruments on the Consolidated Statements of Comprehensive Income and the Consolidated Statements of Income:

For the Years Ended December 31,

Gain (Loss) Recorded in Other Comprehensive Income Gain Reclassified from Accumulated Other Comprehensive Income into Earnings Gain Recorded in Earnings from Excluded Components (1)

Gain (Loss) Recorded in Other Comprehensive Income (Loss) Gain Reclassified from Accumulated Other Comprehensive Loss into Earnings Gain Recorded in Earnings from Excluded Components (1)

Forward contracts $ ( 21.7 ) $ 0.5 $ 13.9 $ 65.4 $ 0.6 $ 2.8

Put options 29.3 — — ( 47.7 ) — —

Call options ( 19.0 ) — — ( 1.3 ) — —

Interest rate swap — — — ( 1.9 ) — —

Total $ ( 11.4 ) $ 0.5 $ 13.9 $ 14.5 $ 0.6 $ 2.8

__________________________

(1) The excluded components of the forward contracts are recorded in earnings on a straight-line basis over the respective period of the contracts as a reduction to Interest expense.

The terms of the Company’s forward contracts and collar contracts require the Company and the counterparty to post cash collateral in certain circumstances throughout the duration of the contracts.

As of December 31, 2018 and 2019, the Company held $ 3.1 million and $ 8.7 million of cash collateral from the counterparty, respectively, and the counterparty held $ 28.0 million and no cash collateral from the Company, respectively.

The Company also actively monitors its counterparty credit risk related to derivative financial instruments.

The Company’s derivative contracts include provisions to protect against counterparty rating downgrades, which, in certain cases, may give the Company a termination right.

The Company considers set-off rights and counterparty credit risk in the valuation of its positions and recognizes a credit valuation adjustment as appropriate.

The Company’s forward contracts and collar contracts include contingent features that could give rise to termination rights, if certain specified rating downgrades were to occur.

As of December 31, 2019 , there were no derivative arrangements with a contingent feature that were in a net liability position.

(1) The excluded components of the forward contracts were recognized in earnings on a straight-line basis over the respective period of the contracts as a reduction to Interest expense.

Commitments and Contingencies

4 unchanged sentences

As of December 31, 2020, these unfunded commitments were $ 122.2 million and may be called in future periods.

As of December 31, 2019 , the Company was contingently liable to make payments of $ 150.0 million through 2021 and $ 40.0 million through 2022, related to the achievement of specified financial targets by certain of its Affiliates accounted for under the equity method.

In addition, as of December 31, 2020, the Company was contingently liable to make payments related to the achievement of specified financial targets by certain of its Affiliates accounted for under the equity method, of which, $ 37.5 million may become payable in 2022 and $ 77.5 million from 2023 through 2025.

As of December 31, 2020, the Company expected to make payments of approximately $ 13 million.

The Company expected to make no payments in 2020.

Affiliate equity interests provide holders with a conditional right to put their interests to the Company over time.

In connection with one of the Company’s investments in an Affiliate, a minority owner has the right to elect to sell a portion of its ownership interest in the Affiliate to the Company annually.

In the fourth quarter of 2019, the Company was notified by the minority owner that it had elected to sell a 5 % ownership interest in the Affiliate to the Company.

The transaction is expected to be completed during the first half of 2020;

In the event certain financial targets are not met at one of the Company’s Affiliates, the Company may receive payments of up to $ 12.5 million and also has the option to reduce its ownership interest and receive an incremental payment of $ 25.0 million.

Affiliate equity interests provide holders at consolidated Affiliates with a conditional right to put their interests to the Company over time.

In connection with one of the Company’s investments in an Affiliate accounted for under the equity method, a minority owner has the right to elect to sell a portion of its ownership interest in the Affiliate to the Company annually.

As of December 31, 2020, the minority owner maintains a 14 % ownership interest in the Affiliate.

In the fourth quarter of 2020, the Company was notified by the minority owner that it may, after determining the fair market value of its interest, elect to sell a 5 % ownership interest in the Affiliate to the Company.

If the minority owner elects to sell this interest, the transaction is expected to close in the first half of 2021;

however, the Company cannot currently predict the amount that may be paid to settle this commitment.

If the Company acquires the minority owner’s interest, it will continue to account for the Affiliate under the equity method.

If the minority owners sells its interest to the Company, then the Company will continue to account for the Affiliate under the equity method.

The Company and certain of its consolidated Affiliates operate under regulatory authorities that require the maintenance of minimum financial or capital requirements.

Management is not aware of any significant violations of such requirements.

AFFILIATED MANAGERS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Fair Value Measurements

The following tables summarize the Company’s financial assets and liabilities that are measured at fair value on a recurring basis:

Fair Value Measurements

December 31, 2018

Financial Assets

Investments in marketable securities

Derivative financial instruments (1)

Financial Liabilities (2)

Contingent payment arrangements

Affiliate equity repurchase obligations

Derivative financial instruments

Fair Value Measurements

December 31, 2019

Financial Assets

Investments in marketable securities

Derivative financial instruments (1)

Financial Liabilities (2)

Affiliate equity repurchase obligations

Derivative financial instruments

__________________________

Amounts are presented within Other assets.

Amounts are presented within Other liabilities.

Level 3 Financial Assets and Liabilities

The following table presents the changes in level 3 liabilities:

For the Years Ended December 31,

Contingent Payment Arrangements

Affiliate Equity Repurchase Obligations

Contingent Payment Arrangements

Affiliate Equity Repurchase Obligations

Balance, beginning of period

Net realized and unrealized losses (1)

Purchases and issuances (2)

Settlements and reductions

Balance, end of period

Net change in unrealized losses relating to instruments still held at the reporting date

__________________________

Accretion expense for these arrangements is recorded in Interest expense.

Includes transfers from Redeemable non-controlling interests.

AFFILIATED MANAGERS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following table presents certain quantitative information about the significant unobservable inputs used in valuing the Company’s recurring level 3 fair value measurements:

Quantitative Information About Level 3 Fair Value Measurements

December 31, 2018

December 31, 2019

Unobservable Input

Weighted Average (1)

Contingent payment arrangements

Discounted cash flow

Growth rates (2)

Discount rates

Affiliate equity repurchase obligations

Discounted cash flow

Growth rates (2)

Discount rates

__________________________

Calculated by comparing the relative fair value of an arrangement or obligation to its respective total.

Represents growth rates of asset and performance based fees.

Contingent payment arrangements represents the present value of the expected future settlement amounts related to the Company’s investments in consolidated Affiliates.

Affiliate equity repurchase obligations include agreements to repurchase Affiliate equity.

As of December 31, 2019 , there were no changes to growth or discount rates that had a significant impact to Affiliate equity repurchase obligations recorded in prior periods.

Investments Measured at NAV as a Practical Expedient

The Company’s Affiliates sponsor investment products in which the Company and its Affiliates may make general partner and seed capital investments.

The Company uses the NAV of these investments as a practical expedient for their fair value and reports these products within Other investments.

The following table summarizes the fair values of these investments and unfunded commitments:

December 31, 2018

December 31, 2019

Category of Investment

Private equity (1)

Other funds (2)

Other investments (3)

__________________________

The Company uses NAV as a practical expedient one quarter in arrears (adjusted for current period calls and distributions) to determine the fair value.

These funds primarily invest in a broad range of third-party funds and direct investments.

Distributions will be received as the underlying assets are liquidated over the life of the funds, which is generally up to 15 years .

These are multi-disciplinary funds that invest across various asset classes and strategies, including equity, credit and real estate.

Investments are generally redeemable on a daily, monthly or quarterly basis.

Fair value attributable to the controlling interest was $ 123.2 million and $ 137.6 million as of December 31, 2018 and 2019 , respectively.

Other Financial Assets and Liabilities Not Carried at Fair Value

The Company has other financial assets and liabilities, which are not required to be carried at fair value, but the Company is required to disclose their fair values.

The carrying amount of Cash and cash equivalents, Receivables, and Payables and accrued liabilities approximates fair value because of the short-term nature of these instruments.

The carrying value of notes receivable, which is reported in Other assets, approximates fair value because interest rates and other terms are at market rates.

Goodwill and Acquired Client Relationships

AFFILIATED MANAGERS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The carrying value of the credit facilities approximates fair value because the credit facilities have variable interest based on selected short-term rates.

The following table summarizes the Company’s other financial liabilities not carried at fair value:

December 31, 2018

December 31, 2019

Carrying Value

Fair Value Hierarchy

Junior convertible securities

Junior subordinated notes

Goodwill and Acquired Client Relationships

The following tables present the changes in the Company’s consolidated Affiliates’ Goodwill and components of Acquired client relationships (net):

1 unchanged sentence

Foreign currency translation 18.3 11.6

Other — ( 1.9 )

Balance, end of period $ 2,651.7 $ 2,661.4

1 unchanged sentence

Acquired Client Relationships (Net)

Definite-lived

Indefinite-lived

Definite-lived Indefinite-lived Total

Value Accumulated

Amortization Net Book

Value Net Book

Balance, as of December 31, 2018 $ 1,279.8 $ ( 976.2 ) $ 303.6 $ 1,006.3 $ 1,309.9

1 unchanged sentence

Foreign currency translation 5.1 ( 5.5 ) ( 0.4 ) 17.0 16.6

Transfers (1)

( 36.1 ) 36.1 — — —

Balance, as of December 31, 2019 $ 1,248.8 $ ( 1,039.0 ) $ 209.8 $ 972.2 $ 1,182.0

2 unchanged sentences

Transfers (1)

( 85.7 ) 85.7 — — —

Balance, as of December 31, 2020 $ 1,166.6 $ ( 1,026.8 ) $ 139.8 $ 909.0 $ 1,048.8

__________________________

Transfers includes acquired client relationships at Affiliates that were deconsolidated during the period.

(1) Transfers include acquired client relationships at Affiliates that were deconsolidated during the period.

Definite-lived acquired client relationships at the Company’s consolidated Affiliates are amortized over their expected period of economic benefit.

The Company recorded amortization expense in Intangible amortization and impairments for these relationships of $ 114.4 million, $ 93.4 million and $ 55.3 million for the years ended December 31, 2018, 2019 and 2020, respectively.

Based on relationships existing as of December 31, 2019 , the Company estimates that its consolidated annual amortization expense will be approximately $ 60 million in 2020, approximately $ 30 million in each of 2021, 2022 and 2023, and approximately $ 20 million in 2024.

In the fourth quarter of 2019 , the Company completed its impairment assessment of its indefinite-lived acquired client relationships and determined that the fair value of an indefinite-lived acquired client relationship at one of its Affiliates had declined below its carrying value.

Accordingly, the Company recorded an expense in Intangible amortization and impairments of $ 35.0 million ( $ 31.2 million attributable to the controlling interest) to reduce the carrying value to fair value of the asset.

Based on relationships existing as of December 31, 2020, the Company estimates that its consolidated amortization expense will be approximately $ 30 million in each of 2021, 2022, and 2023, approximately $ 20 million in 2024 and approximately $ 10 million in 2025.

In the fourth quarter of 2019, the Company completed an impairment assessment of the indefinite-lived acquired client relationships at one of its Affiliates, and determined that the fair value of the asset had declined below its carrying value.

Accordingly, the Company recorded an expense in Intangible amortization and impairments of $ 31.2 million attributable to the controlling interest ($ 35.0 million in aggregate) to reduce the carrying value of the asset to fair value.

The decline in the fair value was a result of a projected decline in assets under management that decreased the forecasted revenue associated with the asset.

The fair value of the asset was determined using a discounted cash flow analysis, a level 3 fair value measurement that included a projected growth rate of ( 9 )% for assets under management, discount rate of 14.5 % for

AFFILIATED MANAGERS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

asset based fees, and a market participant tax rate of 25 % .

The fair value of the asset was determined using a probability-weighted discounted cash flow analysis, a level 3 fair value measurement that included a projected growth rate of ( 9 )% for assets under management, discount rate of 14.5 % for asset based fees, and a market participant tax rate of 25 %.

No other impairments of indefinite-lived acquired client relationships were indicated.

In addition, the Company recorded an expense in Intangible amortization and impairments of $ 16.1 million to reduce the carrying value to zero of certain indefinite-lived acquired client relationships due to the closure of certain retail investment products on its U.S.

In addition, in the fourth quarter of 2019, the Company recorded an expense in Intangible amortization and impairments of $ 16.1 million attributable to the controlling interest and in aggregate to reduce the carrying value of an indefinite-lived acquired client relationship to zero due to the closure of certain retail investment products on its U.S.

retail distribution platform.

In the second quarter of 2020, the Company agreed with a consolidated Affiliate to strategically reposition their business and to sell its equity interest in the Affiliate.

The Company recorded an expense in Intangible amortization and impairments of $ 32.8 million attributable to the controlling interest ($ 60.3 million in aggregate) to reduce the carrying value of the Affiliate’s acquired client relationships to zero as of June 30, 2020.

In the third quarter of 2020, the Company sold its interest in the Affiliate and the Company recorded no significant gain or loss on the transaction.

AFFILIATED MANAGERS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

In the third quarter of 2020, the Company completed an impairment assessment of the indefinite-lived acquired client relationships at one of its Affiliates, and determined that the fair value of the asset had declined below its carrying value.

Accordingly, the Company recorded an expense in Intangible amortization and impairments of $ 12.5 million attributable to the controlling interest ($ 14.0 million in aggregate) to reduce the carrying value of the asset to fair value.

The decline in the fair value was a result of a projected decline in assets under management that decreased the forecasted revenue associated with the asset.

The fair value of the asset was determined using a probability-weighted discounted cash flow analysis, a level 3 fair value measurement that included a projected growth rate of ( 14 )% for assets under management, discount rate of 15 % for asset based fees, and a market participant tax rate of 25 %.

In addition, in the third quarter of 2020, the Company recorded an expense in Intangible amortization and impairments of $ 7.4 million attributable to the controlling interest ($ 10.9 million in aggregate) to reduce the carrying value of an indefinite-lived acquired client relationship to zero due to the closure of one of its Affiliate’s retail investment products.

As of December 31, 2020, no other impairments of indefinite-lived acquired client relationships were indicated.

If financial markets become depressed for a prolonged period as a result of the novel coronavirus global pandemic (“COVID-19”) or other factors, the fair values of these assets could drop below their carrying values resulting in future impairments.

Equity Method Investments in Affiliates

In July 2019, the Company completed a minority investment in Garda Capital Partners LP.

The Company’s purchase price allocation was measured using financial models that included assumptions of expected market performance, net client cash flows and discount rates.

The majority of the consideration paid is deductible for U.S.

In the first, third and fourth quarters of 2020, the Company completed minority investments in Comvest Partners, Inclusive Capital Partners LP and Jackson Square Partners LLC (“Jackson Square”), respectively.

The majority of the consideration paid for Jackson Square is deductible for U.S.

tax purposes over a 15 year life.

The Company’s purchase price allocation for each investment was measured using financial models that included assumptions of expected market performance, net client cash flows, and discount rates.

The financial results of certain Affiliates accounted for under the equity method are recognized in the Consolidated Financial Statements one quarter in arrears.

The following table presents the change in Equity method investments in Affiliates (net):

1 unchanged sentence

Balance, beginning of period $ 2,791.0 $ 2,195.6

Earnings 289.4 288.6

Intangible amortization and impairments ( 627.4 ) ( 332.0 )

3 unchanged sentences

Divestments of Affiliates ( 117.7 ) —

Other ( 9.6 ) 25.6

Balance, end of period $ 2,195.6 $ 2,074.8

Definite-lived acquired client relationships at the Company’s Affiliates accounted for under the equity method are amortized over their expected period of economic benefit.

The Company recorded amortization expense for these relationships of $ 106.1 million , $ 97.5 million and $ 142.4 million , respectively, for the years ended December 31, 2017 , 2018 and 2019 .

The Company recorded amortization expense for these relationships of $ 97.5 million, $ 142.4 million and $ 147.0 million for the years ended December 31, 2018, 2019 and 2020, respectively.

Based on relationships existing as of December 31, 2020, the Company estimates the annual amortization expense attributable to its Affiliates will be approximately $ 120 million in 2021 and approximately $ 50 million in each of 2022, 2023, 2024 and 2025.

In the second quarter of 2018, the Company recorded a $ 33.3 million expense to reduce the carrying value to zero of an Affiliate as the business was in liquidation.

In the fourth quarter of 2018, the Company recorded a $ 240.0 million expense to reduce the carrying value to fair value of an Affiliate.

The decline in the fair value of the Affiliate was due to a decline in assets under management as a result of client redemptions, coupled with recent negative investment returns, which resulted in the decrease of forecasted performance based fees.

The fair value of the investment was determined using a discounted cash flow analysis, a level 3 fair value measurement that included a projected future growth rate of 2.5 % , discount rates of 11.0 % and 20.0 % for asset and performance based fees, respectively, and a market participant tax rate of 25.0 % .

Based on the discounted cash flow analysis, the Company concluded that the fair value of its investment had declined below its carrying value and that the decline was other-than-temporary.

In connection with one of the Company’s investments in an Affiliate, a minority owner has the right to elect to sell a portion of its ownership interest in the Affiliate to the Company annually.

In the second quarter of 2019 , the minority owner elected to sell a 5 % ownership interest in the Affiliate to the Company for $ 25.7 million , which settled during the year.

In the fourth quarter of 2019, the Company was notified by the minority owner that it had elected to sell an additional 5 % ownership interest in the Affiliate to the Company, which is expected to be completed in the first half of 2020.

As of December 31, 2019 , the minority owner maintains a 14 % interest in the Affiliate.

In the first quarter of 2019 , the Company recorded a $ 415.0 million expense to reduce the carrying value to fair value of an Affiliate.

A series of precipitating events led the Company to conclude in March 2019 that the growth expectations of the

In the first quarter of 2019, the Company recorded a $ 415.0 million expense to reduce the carrying value of an Affiliate to fair value.

In March 2019, the Company concluded that the growth expectations of the Affiliate had declined and determined that the estimated fair value of the Affiliate had also declined meaningfully.

Therefore, the Company performed a valuation to determine whether the fair value of the Affiliate had declined below its carrying value.

The fair value of the investment was determined using a probability-weighted discounted cash flow analysis, a level 3 fair value measurement, that included a projected compounded asset based fee growth over the first five years of ( 13 )%, discount rates of 11 % and 20 % for asset and performance based fees, respectively, and a market participant tax rate of 25 %.

Based on the probability-weighted discounted

AFFILIATED MANAGERS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Affiliate had declined significantly, which the Company determined constituted a triggering event.

The Affiliate’s flagship product had underperformed.

The cumulative effect of associated redemptions and scaled-down fundraising expectations reduced expected asset and performance based fees and operating margin at the Affiliate.

This led to a significant decrease in projected operating cash flows available to fund the Affiliate’s growth strategy, prompting a change in the strategic objectives of the Affiliate, including exiting the systematic equity business and reducing the number of new investment strategies being pursued.

The Company determined that the estimated fair value of the Affiliate had declined meaningfully.

Therefore, the Company performed a valuation to determine whether the fair value of the Affiliate had declined below its carrying value.

The fair value of the investment was determined using a discounted cash flow analysis, a level 3 fair value measurement, that included a projected compounded asset based fee growth over the first five years of ( 13 )% , discount rates of 11 % and 20 % for asset and performance based fees, respectively, and a market participant tax rate of 25 % .

Based on the discounted cash flow analysis, the Company concluded that the fair value of its investment had declined below its carrying value and that the decline was other-than-temporary.

Subsequently, the Company sold its interest in the Affiliate on October 1, 2019, and the Company recorded no significant gain or loss on the transaction.

In the third quarter of 2019 , the Company recorded a $ 10.0 million expense to reduce the carrying value to fair value of another Affiliate.

The fair value of the investment was determined using a discounted cash flow analysis, a level 3 fair value measurement that included a projected growth rate of ( 20 )% , discount rates of 11 % and 20 % for asset and performance based fees, respectively, and a market participant tax rate of 25 % .

cash flow analysis, the Company concluded that the fair value of its investment had declined below its carrying value and that the decline was other-than-temporary.

In October 2019, the Company sold its interest in the Affiliate.

In the third quarter of 2019, the Company recorded a $ 10.0 million expense to reduce the carrying value of an Affiliate to fair value.

The fair value of the investment was determined using a probability-weighted discounted cash flow analysis, a level 3 fair value measurement, that included a projected growth rate of ( 20 )%, discount rates of 11 % and 20 % for asset and performance based fees, respectively, and a market participant tax rate of 25 %.

Based on the discounted cash flow analysis, the Company concluded that the fair value of its investment had declined below its carrying value and that the decline was other-than-temporary.

In the fourth quarter of 2019, the Company recorded a $ 60.0 million expense to reduce the carrying value to fair value of an additional Affiliate.

In the fourth quarter of 2019, the Company recorded a $ 60.0 million expense to reduce the carrying value of an Affiliate to fair value.

The decline in the fair value was a result of a decline in assets under management and a reduction in projected growth, which decreased the forecasted revenue associated with the investment.

1 unchanged sentence

Based on the discounted cash flow analysis, the Company concluded that the fair value of its investment had declined below its carrying value and that the decline was other-than-temporary.

The Company completed its other annual evaluations of equity method investments in Affiliates as of December 31, 2019 , and no other impairments were indicated.

In the first and fourth quarters of 2020, the Company recorded expenses of $ 140.0 million and $ 45.0 million, respectively, to reduce the carrying value of an Affiliate to fair value.

The decline in the fair values was a result of declines in assets under management and reductions in projected growth, which decreased the forecasted revenues associated with the investment.

The fair values of the investment were determined using probability-weighted discounted cash flow analyses, level 3 fair value measurements that included projected compounded growth in assets under management over the first five years of ( 2 )% and ( 5 )% for the first and fourth quarters of 2020, respectively, discount rates of 11 % for asset based fees, discount rates of 20 % for performance based fees, and market participant tax rates of 25 %.

Based on the discounted cash flow analyses, the Company concluded that the fair value of its investment had declined below its carrying value at each of the respective measurement dates and that the decline was other-than-temporary.

For the year ended December 31, 2020, the Company completed its annual assessme nt of its investments in Affiliates accounted for under the equity method and no other impairments were indicated.

If financial markets become depressed for a prolonged period as a result of COVID-19 or other factors, or the financial performance of an Affiliate worsens as a result of net client cash outflows or performance, regardless of the performance of financial markets, the fair values of these assets could drop below their carrying values for periods considered other than temporary, resulting in future impairments.

In connection with one of the Company’s investments in an Affiliate, a minority owner has the right to elect to sell a portion of its ownership interest in the Affiliate to the Company annually.

In the second quarter of 2019, the minority owner sold a 5 % ownership interest in the Affiliate to the Company for $ 25.7 million.

In the fourth quarter of 2020, the Company recorded a liability in Other liabilities of $ 40.0 million, with a corresponding increase to the carrying value of the Affiliate in Equity method investments in Affiliates (net), related to the achievement of specified financial targets by the Affiliate.

This payment is expected to settle in 2022.

As of December 31, 2020, the Company was obligated to make payments related to an investment in an Affiliate accounted for under the equity method.

The maximum the company is obligated to pay is $ 35.0 million in 2021 and $ 37.5 million in 2022.

The following table presents summarized financial information for Affiliates accounted for under the equity method:

For the Years Ended December 31,

2018 2019 2020

$ 3,231.7 $ 2,760.9 $ 2,659.7

Net income (1)

1,286.1 1,061.3 1,061.8

Assets $ 2,718.5 $ 2,958.9

Liabilities and Non-controlling interests 1,212.7 1,245.5

__________________________

Revenue and net income include asset and performance based fees, the impact of consolidated sponsored investment products and investments in new Affiliates for the full-year, regardless of the date of the Company’s investment.

The Company’s share of undistributed earnings from equity method investments is recorded in Equity method investments in Affiliates (net) and was $ 115.0 million as of December 31, 2019 .

Under Rule 3-09 of Regulation S-X, the Company determined that one of its Affiliates accounted for under the equity method was significant for the years ended December 31, 2017 and 2018, and was not significant for the year ended December 31, 2019.

This Affiliate reported revenue and net income of $ 844.8 million and $ 228.5 million , respectively, for the year ended December 31, 2019.

This Affiliate’s total assets and total liabilities were $ 392.9 million and $ 299.8 million , respectively, as of December 31, 2019.

This Affiliate’s cash flows from operating activities, cash flows used in investing activities and cash flows

AFFILIATED MANAGERS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

used in financing activities were $ 308.7 million , $ 7.4 million and $ 313.1 million , respectively, for the year ended December 31, 2019.

(1) Revenue and net income include asset and performance based fees, the impact of consolidated sponsored investment products and investments in new Affiliates for the full-year, regardless of the date of the Company’s investment.

The Company’s share of undistributed earnings from equity method investments is recorded in Equity method investments in Affiliates (net) and was $ 170.6 million as of December 31, 2020.

Lease Commitments

The Company and its Affiliates currently lease office space and equipment under various operating leasing arrangements.

The following table presents total lease costs (net):

For the Year Ended December 31, 2019

For the year ended December 31, 2018, consolidated lease costs were $ 40.5 million.

The following table presents total lease costs (net) for 2019 and 2020:

For the Years Ended December 31,

Operating lease costs $ 41.7 $ 37.6

3 unchanged sentences

Total lease costs (net) $ 39.5 $ 33.4

For the year ended December 31, 2019 , new right-of-use assets obtained in exchange for lease liabilities were $ 26.1 million .

As of December 31, 2019 , the Company’s and its Affiliates’ weighted average operating lease term was eight years and the weighted average operating lease discount rate was 4 % .

As of December 31, 2019 , the maturity of lease liabilities were as follows:

Operating Leases

For the years ended December 31, 2019 and 2020, new right-of-use assets obtained in exchange for lease liabilities were $ 26.1 million and $ 24.4 million, respectively.

As of December 31, 2019 and 2020, the Company’s and its Affiliates’ weighted average operating lease term was eight years and seven years , respectively, and the weighted average operating lease discount rate was 4 % as of both December 31, 2019 and 2020.

As of December 31, 2020, the maturities of lease liabilities were as follows:

Year Operating Leases

Thereafter 59.6

Total undiscounted lease liabilities (1)

2 unchanged sentences

Both amounts exclude leases with initial terms of 12 months or less and leases that have not yet commenced.

In connection with the Company’s adoption of ASU 2016-02, the Company was not required to, and did not, update prior period disclosures from the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018.

The Company’s reported aggregate required minimum payments for operating leases having initial or non-cancelable lease terms greater than one year under the old standard as of December 31, 2018 were as follows:

Required Minimum

Consolidated rent expense for 2017 , 2018 and 2019 was $ 37.5 million , $ 40.5 million and $ 45.3 million , respectively, including an $ 8.1 million expense to reduce the carrying value to fair value of certain of the Company’s right-of-use assets

In the fourth quarter of 2019, the Company recorded an $ 8.1 million expense to reduce the carrying value to fair value of certain of the Company’s right-of-use assets related to a reduction in leased office space.

The fair values of the right-of-use assets were determined using a discounted cash flow analysis, a Level 3 fair value measurement that included market rental rates ranging from $ 13 to $ 68 per square foot (a weighted-average of $ 46 per square foot), weighted-average discount rates ranging from 3.3 % to 5.5 % and a market participant tax rate of 25 %.

In 2020, no impairments of right-of-use assets were indicated.

AFFILIATED MANAGERS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

related to a reduction in leased office space in the fourth quarter of 2019.

The fair values of the right-of-use assets were determined using a discounted cash flow analysis, a Level 3 fair value measurement that included market rental rates ranging from $ 13 to $ 68 per square foot (weighted-average of $ 46 per square foot), weighted-average discount rates ranging from 3.3 % to 5.5 % and a market participant tax rate of 25 % .

No other impairments of right-of-use assets were indicated.

Fixed assets (net) consisted of the following:

Building and leasehold improvements

Buildings and leasehold improvements $ 116.3 $ 116.5

Software 52.6 55.3

Equipment 43.0 44.3

Furniture and fixtures 21.3 21.0

6 unchanged sentences

Accrued compensation $ 421.5 $ 400.0

Other 213.1 312.4

Payables and accrued liabilities $ 634.6 $ 712.4

1 unchanged sentence

A prior owner of one of the Company’s consolidated Affiliates retains interests in certain of the Affiliate’s private equity partnerships and, as a result, is a related party of the Company.

The prior owner’s interests are presented in Other liabilities and were $ 49.7 million and $ 38.5 million as of December 31, 2018 and 2019 , respectively.

The Company and its Affiliates earn asset and performance based fees and incur distribution and other expenses for services provided to Affiliate sponsored investment products.

In addition, Affiliate management owners and the Company’s officers may serve as trustees or directors of certain investment vehicles from which the Company or an Affiliate earns fees.

The Company has related party transactions in association with its Affiliate equity transactions, as more fully described in Notes 17 and 18.

The Company’s executive officers and directors may invest from time to time in funds advised by its Affiliates on substantially the same terms as other investors.

The prior owner’s interests are presented within Other liabilities and were $ 38.5 million and $ 35.4 million as of December 31, 2019 and 2020, respectively.

The Company may invest from time to time in funds or products advised by its Affiliates.

The Company’s executive officers and directors may invest from time to time in funds advised or products offered by its Affiliates on substantially the same terms as other investors.

In addition, the Company and its Affiliates earn asset and performance based fees and incur distribution and other expenses for services provided to Affiliate sponsored investment products.

Affiliate management owners and the Company’s officers may serve as trustees or directors of certain investment vehicles from which the Company or an Affiliate earns fees.

The Company has related party transactions in association with its contingent payment arrangements and Affiliate equity transactions, as more fully described in Notes 8, 10, 17 and 18.

Stockholders’ Equity

The Company is authorized to issue up to 150.0 million shares of voting common stock and 3.0 million shares of class B non-voting common stock.

The Company is party to an equity distribution program under which the Company may sell shares of its common stock.

The Company’s Board of Directors authorized share repurchase programs in October 2019 and January 2019 to repurchase up to 6.0 million and 3.3 million shares of its 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.

As of December 31, 2020, the Company had repurchased all of the shares of the January 2019 program, and there were a total of 1.9 million shares available for repurchase under the Company’s October 2019 share repurchase program.

AFFILIATED MANAGERS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The Company’s Board of Directors authorized share repurchase programs in October 2019, January 2019 and January 2018, authorizing the Company to repurchase up to 6.0 million , 3.3 million and 3.4 million shares of its 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.

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

The following is a summary of the Company’s share repurchase activity:

Repurchased Average

2018 3.3 $ 150.31

2019 4.1 88.73

2020 5.0 86.35

Between January 1 and February 18, 2021, the Company repurchased 1.2 million shares of its common stock for $ 151.9 million, including shares repurchased in the open market, through a 10b5-1 trading plan, and pursuant to an accelerated share repurchase program.

Equity Distribution Program

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

The Company has equity distribution and forward equity agreements with several major securities firms under which it may, from time to time, issue and sell shares of its 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.

11 unchanged sentences

Dividends may accrue in cash or may be reinvested in the Company’s common stock.

The total fair value of share-based compensation awards that vested was $ 59.4 million , $ 5.9 million and $ 18.9 million during the years ended December 31, 2017 , 2018 and 2019 , respectively.

Share-Based Compensation

The following table presents share-based compensation expense:

AFFILIATED MANAGERS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The excess tax benefit (deficiency) recognized from share-based incentive plans was $ 10.9 million , $ 0.7 million and ($ 3.2 ) million , respectively, for the years ended December 31, 2017, 2018 and 2019.

Year Share-Based

Expense Tax Benefit

2018 $ 44.7 $ 11.2

2019 49.9 8.2

2020 67.4 10.3

The excess tax benefit (deficiency) recognized from share-based incentive plans was $ 0.7 million, $( 3.2 ) million, and $( 3.9 ) million, for the years ended December 31, 2018, 2019, and 2020, respectively.

As of December 31, 2019, the Company had unrecognized share-based compensation expense of $ 106.6 million.

1 unchanged sentence

Restricted Stock

AFFILIATED MANAGERS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following table summarizes transactions in the Company’s restricted stock units:

Stock Units Weighted

Unvested units—December 31, 2019 1.1 $ 123.70

Units granted 0.4 73.75

Units vested ( 0.4 ) 141.67

Units forfeited ( 0.0 ) 134.52

Performance condition changes 0.1 105.92

Unvested units—December 31, 2020 1.2 99.46

The Company granted restricted stock unit awards with fair values of $ 37.7 million, $ 59.7 million, and $ 31.8 million for the years ended December 31, 2018, 2019, and 2020, respectively.

These restricted stock units were valued based on the closing price of the Company’s common stock on the grant date and the number of shares expected to be delivered.

These restricted stock units were valued based on the closing price of the Company’s common stock on the grant date and the number of shares expected to vest.

Restricted stock units containing vesting conditions generally require service over a period of three years to four years and may also require the satisfaction of certain performance conditions.

For certain of the Company’s awards with performance conditions, the number of restricted stock units expected to vest may change over time depending upon the performance level achieved.

For the year ended December 31, 2019 , units granted includes a 0.1 million increase in the Company’s estimate of the number of shares expected to vest.

For awards with performance conditions, the number of restricted stock units expected to vest may change over time depending upon the performance level achieved.

The total fair value of shares vested was $ 5.9 million, $ 18.9 million, and $ 24.1 million during the years ended December 31, 2018, 2019, and 2020, respectively.

As of December 31, 2020, the Company had 3.3 million shares available for grant under its plans.

1 unchanged sentence

The following table summarizes transactions in the Company’s stock options:

Options Weighted

Price Weighted

Unexercised options outstanding—December 31, 2019 2.3 $ 85.58

2 unchanged sentences

Options forfeited ( 0.0 ) 147.77

Performance condition changes 0.4 74.42

Unexercised options outstanding—December 31, 2020 2.9 82.14 5.1

4 unchanged sentences

Substantially all of the Company’s outstanding stock options contain both service and performance conditions.

For certain of the Company’s awards with performance conditions, the number of stock options expected to vest may change over time depending upon the performance level achieved.

For the year ended December 31, 2019 , there were no changes in the Company’s estimate of the number of stock options expected to vest.

For awards with performance conditions, the number of stock options expected to vest may change over time depending upon the performance level achieved.

The Company generally uses treasury stock to settle stock option exercises.

The total intrinsic value of stock options exercised during the years ended December 31, 2018, 2019, and 2020 was $ 8.2 million, $ 0.2 million, and $ 0.0 million, respectively.

The cash received for stock options exercised was $ 41.9 million , $ 9.7 million and $ 0.9 million during the years

AFFILIATED MANAGERS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

ended December 31, 2017 , 2018 and 2019 , respectively.

As of December 31, 2019 , the exercisable stock options outstanding had no intrinsic value and 0.3 million options were available for grant under the Company’s option plans.

The cash received for stock options exercised was $ 9.7 million, $ 0.9 million, and zero during the years ended December 31, 2018, 2019, and 2020, respectively.

As of December 31, 2020, the intrinsic value of exercisable stock options outstanding was $ 0.5 million, and 1.2 million options were available for grant under the Company’s option plans.

The weighted average fair value of stock options was $ 48.64 , $ 18.36 , and $ 18.33 , per option, for the years ended December 31, 2018, 2019, and 2020, respectively.

2 unchanged sentences

For the Years Ended December 31,

2018 2019 2020

Dividend yield 0.8 % 1.7 % 1.6 %

Expected volatility (1)

25.5 % 29.4 % 30.5 %

Risk-free interest rate (2)

2.8 % 1.5 % 0.9 %

Expected life of stock options (in years) (3)

7 unchanged sentences

Affiliate equity interests provide holders with an equity interest in one of the Company’s Affiliates, consistent with the structured partnership interests in place at the respective Affiliate.

Affiliate equity holders generally have a conditional right to put their interests to the Company at certain intervals (between five years and 15 years from the date the equity interest is received or on an annual basis following an Affiliate equity holder’s departure).

Affiliate equity holders generally have a conditional right to put their interests to the Company at certain intervals (between five years and 15 years from the date the equity interest is received by the Affiliate equity holder or on an annual basis following an Affiliate equity holder’s departure).

Prior to becoming redeemable, the value of the Company’s Affiliate equity is presented within Non-controlling interests.

5 unchanged sentences

Balance, beginning of period (1)

Changes attributable to consolidated Affiliate sponsored investment products

$ 833.7 $ 916.7

(Decreases) increases attributable to consolidated Affiliate sponsored investment products ( 69.4 ) 13.8

Transfers to Other liabilities ( 118.6 ) ( 310.6 )

Transfers from Non-controlling interests

Transfers from (to) Non-controlling interests 105.0 ( 7.8 )

Changes in redemption value 166.0 59.4

1 unchanged sentence

$ 916.7 $ 671.5

As of December 31, 2018 and 2019 , Redeemable non-controlling interests includes consolidated Affiliate sponsored investment products primarily attributable to third-party investors of $ 91.0 million and $ 21.6 million , respectively.

__________________________

(1) As of December 31, 2019 and 2020, Redeemable non-controlling interests include consolidated Affiliate sponsored investment products primarily attributable to third-party investors of $ 21.6 million and $ 35.4 million, respectively.

Affiliate Equity

2 unchanged sentences

Distributions paid to Affiliate equity holders (non-controlling interests) were $ 370.5 million, $ 347.9 million, and $ 306.3 million for the years ended December 31, 2018, 2019, and 2020, respectively.

Affiliate equity interests provide the Company a conditional right to call (on an annual basis following an Affiliate equity holder’s departure) and Affiliate equity holders have a conditional right to put their interests at certain intervals (between five years and 15 years from the date the equity interest is received by the Affiliate equity holder or on an annual basis following an Affiliate equity holder’s departure).

For Affiliates accounted for under the equity method, we do not typically have such put and call arrangements.

The purchase price of these conditional purchases are generally calculated based upon a multiple of cash flow distributions, which is intended to represent fair value.

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

AFFILIATED MANAGERS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Affiliate equity interests provide the Company a conditional right to call (on an annual basis following an Affiliate equity holder’s departure) and Affiliate equity holders have a conditional right to put their interests at certain intervals (between five years and 15 years from the date the equity interest is received or on an annual basis following an Affiliate equity holder’s departure).

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

The purchase price of these conditional purchases are generally calculated based upon a multiple of cash flow distributions, which is intended to represent fair value.

The Company, at its option, may pay for Affiliate equity purchases in cash, shares of its common stock or other forms of consideration, and can consent to the transfer of these interests to other individuals or entities.

The Company periodically repurchases Affiliate equity from and issues Affiliate equity to the Company’s consolidated Affiliate partners and its officers under agreements that provide the Company with a conditional right to call and Affiliate equity holders with a conditional right to put their Affiliate equity interests to the Company at certain intervals.

at its option, may pay for Affiliate equity purchases in cash, shares of its common stock or other forms of consideration, and can consent to the transfer of these interests to other individuals or entities.

The Company periodically repurchases Affiliate equity from and issues Affiliate equity to the Company’s consolidated Affiliate partners and its officers.

The amount of cash paid for repurchases was $ 120.0 million, $ 146.0 million, and $ 315.1 million for the years ended December 31, 2018, 2019, and 2020, respectively.

5 unchanged sentences

For the Years Ended December 31,

2018 2019 2020

Controlling interest $ 16.7 $ 9.6 $ 20.9

Non-controlling interests 39.7 30.9 30.9

Total $ 56.4 $ 40.5 $ 51.8

The following table presents unrecognized Affiliate equity compensation expense:

Controlling Interest

Remaining Life

Non-controlling Interests

Remaining Life

Year Controlling Interest Remaining Life Non-controlling Interests Remaining Life

2018 $ 38.7 5 years $ 118.3 6 years

2019 40.9 4 years 124.6 6 years

2020 35.9 4 years 109.7 5 years

The Company records amounts receivable from, and payable to, Affiliate equity holders in connection with the transfer of Affiliate equity interests that have not settled at the end of the period and other related transactions.

5 unchanged sentences

No gain or loss related to these transactions is recorded in the Consolidated Statements of Income or the Consolidated Statements of Comprehensive Income.

While the Company presents the current redemption value of Affiliate equity within Redeemable non-controlling interests, with changes in the current redemption value increasing or decreasing the controlling interest’s equity over time, the following table presents the cumulative effect that ownership changes had on the controlling interest’s equity related only to Affiliate

AFFILIATED MANAGERS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

equity transactions that settled during the applicable periods:

For the Years Ended December 31,

2018 2019 2020

Net income (controlling interest) $ 243.6 $ 15.7 $ 202.2

Decrease in controlling interest paid-in capital from Affiliate equity issuances

(Decrease) increase in controlling interest paid-in capital from Affiliate equity issuances ( 5.0 ) ( 3.1 ) 1.1

Decrease in controlling interest paid-in capital from Affiliate equity repurchases ( 67.9 ) ( 50.8 ) ( 239.1 )

1 unchanged sentence

Benefit Plans

AFFILIATED MANAGERS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The Company has a defined contribution plan that is a qualified employee profit-sharing plan, covering substantially all of its employees.

Under this plan, the Company is able to make discretionary contributions for the benefit of its employees that are qualified plan participants, up to Internal Revenue Service limits.

The Company’s consolidated Affiliates have their own qualified defined contribution retirement plans covering their respective employees or, for several Affiliates, have their employees covered under the Company’s plan.

The Company’s consolidated Affiliates generally have their own qualified defined contribution retirement plans covering their respective employees or, for several Affiliates, have their employees covered under the Company’s plan.

In each case, the relevant Affiliate is able to make discretionary contributions for the benefit of its employees, as applicable, that are qualified plan participants, up to Internal Revenue Service limits.

4 unchanged sentences

For the Years Ended December 31,

2018 2019 2020

Controlling interest:

11 unchanged sentences

41.0 % ( 137.0 ) % 25.6 %

__________________________

(1) Taxes attributable to the controlling interest divided by income before income taxes (controlling interest).

The consolidated provision for income taxes consisted of the following:

AFFILIATED MANAGERS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the Years Ended December 31,

2018 2019 2020

Federal $ 52.2 $ ( 18.2 ) $ ( 9.6 )

State 28.6 ( 8.8 ) 17.0

Foreign 48.6 85.7 47.2

Total current 129.4 58.7 54.6

Federal $ 51.3 $ ( 23.9 ) $ 20.1

State 13.2 3.4 5.4

Foreign ( 12.6 ) ( 35.3 ) 1.3

Total deferred 51.9 ( 55.8 ) 26.8

1 unchanged sentence

For financial reporting purposes, Income before income taxes consisted of the following:

AFFILIATED MANAGERS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the Years Ended December 31,

2018 2019 2020

Domestic $ 637.3 $ 152.2 $ 446.1

International 76.3 155.8 62.2

Total $ 713.6 $ 308.0 $ 508.3

The following table reconciles the U.S.

1 unchanged sentence

For the Years Ended December 31,

2018 2019 2020

Statutory U.S.

4 unchanged sentences

Changes in tax laws — — 3.0

Changes in valuation allowances

Change in valuation allowances 0.0 ( 107.2 ) 6.9

Unrecognized tax benefits 0.5 420.4 ( 1.1 )

3 unchanged sentences

tax provision to return ( 1.0 ) ( 195.7 ) 0.8

Other 0.9 72.0 0.4

Effective tax rate (controlling interest) 41.0 % ( 137.0 ) % 25.6 %

1 unchanged sentence

Effective tax rate 25.4 % 0.9 % 16.0 %

The effective tax rate (controlling interest) in 2017 is lower than the marginal tax rate primarily due to a $ 194.1 million tax benefit due to changes in U.S.

The effective tax rate (controlling interest) in 2018 is higher than the marginal tax rate primarily due to a $ 240.0 million expense recorded to reduce the carrying value to fair value of one of the Company’s Affiliates for which the Company did not recognize an income tax benefit.

The Company’s effective tax rate (controlling interest) in 2018 is higher than the marginal tax rate primarily due to a $ 240.0 million expense recorded to reduce the carrying value of one of the Company’s Affiliates to fair value for which the Company did not recognize an income tax benefit.

The effective tax rate (controlling interest) in 2019 is lower than the marginal tax rate primarily due to lower Income before income taxes, as a result of increased Intangible amortization and impairments expense, and tax benefits related to an Affiliate divestment.

AFFILIATED MANAGERS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The effective tax rate (controlling interest) in 2020 is not significantly different from the marginal tax rate.

Deferred income tax liability (net) reflects the expected future tax consequences of temporary differences between the financial reporting bases and tax bases of the Company’s assets and liabilities.

The significant components of the Company’s Deferred income tax liability (net) are as follows:

AFFILIATED MANAGERS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Deferred Tax Assets

Deferred compensation $ 13.8 $ 15.4

State net operating loss carryforwards

State loss carryforwards 15.9 17.0

Foreign loss carryforwards 17.7 19.7

2 unchanged sentences

Lease liabilities 12.3 10.0

Foreign tax credits — 8.2

Total deferred tax assets 92.7 96.6

6 unchanged sentences

Right-of-use assets ( 10.3 ) ( 7.3 )

Deferred income — ( 10.7 )

Other ( 4.1 ) ( 8.5 )

Total deferred tax liabilities ( 510.6 ) ( 478.0 )

1 unchanged sentence

$ ( 434.8 ) $ ( 417.0 )

As of December 31, 2019, t he foreign loss carryforwards of $ 17.7 million , net of a $ 2.3 million valuation allowance, are presented in Other assets as they represent a net deferred tax asset position in a foreign jurisdiction.

__________________________

(1) As of December 31, 2019 and 2020, foreign loss carryforwards of $ 17.7 million and $ 19.7 million, respectively, net of a $ 2.3 million and a $ 13.3 million valuation allowance, respectively, are presented within Other assets as they represent a net deferred tax asset in a foreign jurisdiction.

As of December 31, 2020, the Company had available state net operating loss carryforwards of $ 243.7 million, a majority of which will expire over ten years to 15 years.

As of December 31, 2019, the Company had foreign loss carryforwards of $ 66.9 million , of which $ 57.6 million will expire over 20 years and $ 9.3 million will carry forward indefinitely.

The Company believed it was more-likely-than-not that the benefit from certain state and foreign loss carryforwards would not be fully realized, and, as of December 31, 2019, had valuation allowances of $ 12.0 million and $ 2.3 million on the state and foreign loss carryforwards, respectively.

For the years ended December 31, 2018 and 2019 , there was no change and a $ 7.2 million reduction in the valuation allowances, respectively.

As of December 31, 2020, the Company had foreign loss carryforwards of $ 74.2 million, of which $ 64.6 million will expire over 11 years to 19 years and $ 9.6 million will carry forward indefinitely.

As of December 31, 2020, the Company had foreign tax credit carryforwards of $ 8.2 million which will expire over eight years to ten years .

The Company believed it was more-likely-than-not that the benefit from certain state and foreign loss carryforwards and foreign tax credit carryforwards would not be fully realized, and, as of December 31, 2020, had valuation allowances of $ 14.1 million, $ 13.3 million, and $ 8.2 million on the state and foreign loss carryforwards and the foreign tax credit carryforwards, respectively.

For the years ended December 31, 2019 and 2020, there was a $ 7.2 million reduction and an $ 18.7 million increase in the valuation allowances, respectively.

The Company’s estimates and assumptions regarding the realization of its state and foreign loss carryforwards do not contemplate certain changes in ownership of the Company’s stock which could limit the utilization of these carryforwards.

8 unchanged sentences

For the Years Ended December 31,

2018 2019 2020

Balance, beginning of period $ 32.4 $ 33.1 $ 65.4

2 unchanged sentences

Reduction for prior years’ tax positions ( 2.0 ) ( 3.5 ) ( 0.4 )

Reductions related to lapses of statutes of limitations

Additions (reductions) related to foreign exchange rates

Lapse of the statute of limitations ( 6.3 ) ( 4.0 ) ( 7.6 )

Settlements ( 1.3 ) ( 0.4 ) —

Foreign currency translation ( 0.5 ) ( 2.8 ) 3.3

Balance, end of period $ 33.1 $ 65.4 $ 63.5

14 unchanged sentences

For the Years Ended December 31,

2018 2019 2020

Net income (controlling interest) $ 243.6 $ 15.7 $ 202.2

6 unchanged sentences

Average shares outstanding (diluted) 53.8 50.6 46.7

Average shares outstanding (diluted) in the table above excludes share-based awards that have not satisfied applicable performance conditions and the anti-dilutive effect of the following:

Average shares outstanding (diluted) in the table above excludes stock options and restricted stock units that have not met certain performance conditions and items that have an anti-dilutive effect on Earnings per share (diluted).

The following is a summary of items excluded from the denominator in the table above:

AFFILIATED MANAGERS GROUP, INC.

1 unchanged sentence

For the Years Ended December 31,

2018 2019 2020

Stock options and restricted stock units 0.2 2.6 2.9

5 unchanged sentences

For the Year Ended December 31, 2018

Tax Benefit (Expense)

Foreign currency translation adjustment

Change in net realized and unrealized loss on derivative financial instruments

Change in net unrealized gain (loss) on investment securities

Other comprehensive income

For the Year Ended December 31, 2018

Foreign currency translation adjustment

Pre-Tax Tax Expense Net of Tax

Foreign currency translation loss $ ( 87.0 ) $ ( 15.1 ) $ ( 102.1 )

Change in net realized and unrealized loss on derivative financial instruments ( 0.1 ) — ( 0.1 )

1 unchanged sentence

For the Year Ended December 31, 2019

Tax Benefit (Expense)

Foreign currency translation adjustment

Pre-Tax Tax Benefit Net of Tax

Foreign currency translation gain (loss) $ ( 11.4 ) $ 22.3 $ 10.9

Change in net realized and unrealized gain on derivative financial instruments 1.7 — 1.7

Other comprehensive income (loss) $ ( 9.7 ) $ 22.3 $ 12.6

For the Year Ended December 31, 2020

Pre-Tax Tax (Expense) Benefit Net of Tax

Foreign currency translation gain (loss) $ 25.5 $ ( 10.3 ) $ 15.2

Change in net realized and unrealized gain (loss) on derivative financial instruments ( 1.9 ) 0.4 ( 1.5 )

Other comprehensive income (loss) $ 23.6 $ ( 9.9 ) $ 13.7

The components of accumulated other comprehensive income (loss), net of taxes, were as follows:

Foreign Currency Translation Adjustment

Realized and Unrealized Gains (Losses) on Derivative Financial Instruments

Unrealized Gains (Losses) on Investment Securities

Balance, as of December 31, 2017

Other comprehensive loss before reclassifications

Amounts reclassified

Net other comprehensive loss

Foreign Currency Translation Adjustment Realized and Unrealized Gains (Losses) on Derivative Financial Instruments Total

Balance, as of December 31, 2018 $ ( 188.0 ) $ ( 0.5 ) $ ( 188.5 )

3 unchanged sentences

Balance, as of December 31, 2019 $ ( 177.1 ) $ 1.2 $ ( 175.9 )

AFFILIATED MANAGERS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Other comprehensive income (loss) before reclassifications 15.2 ( 0.9 ) 14.3

Amounts reclassified — ( 0.6 ) ( 0.6 )

Net other comprehensive income (loss) 15.2 ( 1.5 ) 13.7

Balance, as of December 31, 2020 $ ( 161.9 ) $ ( 0.3 ) $ ( 162.2 )

In connection with the adoption of ASU 2018-02 in 2019, the Company elected to reclassify to Retained earnings $ 6.6 million of tax effects stranded in Accumulated other comprehensive loss as a result of the enactment of the Tax Cuts and Jobs Act on December 22, 2017.

Selected Quarterly Financial Data (Unaudited)

The following is a summary of the quarterly results of operations of the Company for the years ended December 31, 2018 and 2019 :

Consolidated revenue

Income (loss) before income taxes

Net income (loss)

Net income (loss) (controlling interest)

Earnings (loss) per share (diluted)

Consolidated revenue

Income (loss) before income taxes

Net income (loss)

Net income (loss) (controlling interest)

Earnings (loss) per share (diluted)

__________________________

In the second and fourth quarter of 2018, the Company recorded $ 33.3 million and $ 240.0 million of expenses, respectively, to reduce the carrying value to fair value of certain of its Affiliates.

In the first, third and fourth quarters of 2019, the Company recorded $ 415.0 million , $ 10.0 million and $ 60.0 million of expenses, respectively, to reduce the carrying value to fair value of certain of its Affiliates.

In the fourth quarter of 2019, the Company recorded $ 35.0 million of expenses to reduce the carrying value to fair value of certain of its indefinite-lived acquired client relationships 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.

Geographic Information

AFFILIATED MANAGERS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following table presents Consolidated revenue and Fixed assets (net) of the Company by geographic location.

This information is primarily based on the location of the headquarters of the Affiliate.

For Affiliates, this information is primarily based on the location of the Affiliates’ headquarters.

For the Years Ended December 31,

2018 2019 2020

Consolidated revenue

1 unchanged sentence

United Kingdom 628.8 515.2 462.3

AFFILIATED MANAGERS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Other 137.9 82.2 41.2

Total $ 2,378.4 $ 2,239.6 $ 2,027.5

Fixed assets (net)

1 unchanged sentence

United Kingdom 15.8 14.6

Subsequent Events

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

The Company will account for its 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.

Other 0.9 0.8

Total $ 92.3 $ 79.6

AFFILIATED MANAGERS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Valuation and Qualifying Accounts

(in millions)

(in millions) Balance

Period Additions

Charged to Costs

Other Accounts

and Expenses Additions

Other Accounts Deductions Balance

End of Period

1 unchanged sentence

Year Ending December 31,

2020 $ 16.9 $ 18.4 $ 0.3 $ — $ 35.6

2019 24.1 4.9 — 12.1 16.9

2018 24.1 0.6 — 0.6 24.1

Other Allowances (1)

1 unchanged sentence

2020 $ 4.1 $ 3.8 $ — $ 3.1 $ 4.8

2019 5.0 1.0 — 1.9 4.1

2018 3.6 6.4 — 5.0 5.0

__________________________

(1) Other allowances represented reserves on notes received in connection with transfers of our interests in certain Affiliates, as well as other receivable amounts, which we considered uncollectible.

Deductions represented the reversal of such reserves upon collection of the amounts due.

AFFILIATED MANAGERS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

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 8. Financial Statements and Supplementary Data