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Item 7. Management’s Discussion and Analysis

2022-02-18 compared with 2021-02-19 · 175 added, 135 removed, 326 unchanged (49% of the section changed)

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

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

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

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

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

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

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

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

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

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

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

As of December 31, 2021, our aggregate assets under management were approximately $814 billion across a broad range of return-oriented strategies.

New Investments

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

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

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

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

In 2021, we completed majority investments in Parnassus Investments, a leading independent ESG-dedicated fund manager, and Abacus Capital Group LLC, a high-quality real estate investment firm focused on the U.S.

multi-family sector.

We also completed minority investments in Boston Common Asset Management LLC, a pioneer in global sustainable and impact investing, and OCP Asia Limited, a leading alternative manager in private markets, providing customized secured lending solutions across the Asia-Pacific region, both of which are accounted for under the equity method of accounting.

Following the close of these transactions, Affiliate partners continue to hold a substantial portion of the equity in their respective business and direct its day-to-day operations.

In January 2022, we completed an additional investment in Systematica Investments (“Systematica”), an innovative technology-driven systematic manager.

Following the close of the transaction, our investment continues to be accounted for under the equity method of accounting and Systematica partners continue to hold a majority of the equity of the business and direct its day-to-day operations.

Operating Performance Measures

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Whether we consolidate an Affiliate or use the equity method of accounting, we maintain the same innovative partnership approach and provide support and assistance in substantially the same manner for all of our Affiliates.

Furthermore, all of our Affiliates are boutique investment managers and are impacted by similar marketplace factors and industry trends.

Furthermore, all of our Affiliates are investment managers and are impacted by similar marketplace factors and industry trends.

Therefore, our key aggregate operating performance measures are important in providing management with a more comprehensive view of the operating performance and material trends across our entire business.

The following table presents our key aggregate operating performance measures:

For the Years Ended December 31,

As of and for the Years Ended December 31,

(in billions, except as noted) 2019 2020 % Change 2021 % Change

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Aggregate fees (in millions) 4,962.7 4,626.4 (7) % 5,611.4 21 %

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

Assets under management, and therefore average assets under management, include the assets under management of our consolidated and equity method Affiliates.

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

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

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

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

Aggregate fees consist of the total asset- and performance-based fees earned by all of our consolidated and equity method Affiliates.

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

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Assets Under Management

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

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

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

We continue to see demand for return-oriented strategies, and have been experiencing net inflows in areas of secular growth, including private markets, liquid alternatives, Asia, wealth management, and ESG.

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

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

However, we believe the best performing and most differentiated active equity managers (whether global-, regional-, or country-specific) will continue to have significant opportunities to grow as a result of performance and client demand trends.

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

The following charts present information regarding the composition of our assets under management by active, return-oriented strategy as of December 31, 2019 and 2020:

In some cases, if product returns exceed certain performance thresholds, we will participate in performance-based fees;

however, we do not anticipate these fees will be a significant component of our Consolidated revenue as these fees are predominantly earned by our Affiliates accounted for under the equity method.

We also anticipate that independent investment firms will continue to seek access to an evolving range of partnership solutions, and that we have a significant opportunity to invest in outstanding firms across the global asset management industry.

While the ongoing COVID-19 pandemic continued to have a significant impact on the global economy, we and our Affiliates remained fully operational and experienced minimal disruption in our ability to serve our key stakeholders, most importantly our clients.

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

The following charts present information regarding the composition of our assets under management by strategy as of December 31, 2020 and 2021:

Assets Under Management by Strategy

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(1) Alternatives include illiquid alternative strategies, which accounted for 14% and 15% of our assets under management as of December 31, 2020 and 2021, respectively.

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

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

(2) Global equities include emerging markets strategies, which accounted for 9% and 6% of our assets under management as of December 31, 2020 and 2021, respectively.

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

(in billions) Alternatives Global Equities U.S.

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

The following tables present performance of our investment strategies, where available, measured by the percentage of assets under management ahead of their relevant benchmark:

AUM Weight % of AUM Ahead of Benchmark (1)

3-year 5-year 10-year

Liquid alternatives (2)

14 % 78 % 60 % 74 %

Global equity (2)

34 % 57 % 48 % 72 %

21 % 56 % 72 % 77 %

Multi-asset and fixed income (3)

16 % N/A N/A N/A

AUM Weight % of AUM Ahead of Benchmark (1)

IRR Latest Vintage IRR Last Three Vintages

Illiquid alternatives (4)

15 % 79 % 83 %

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(1) Past performance is not indicative of future results.

Performance and AUM information is as of December 31, 2021 and is based on data available at the time of calculation.

Product returns are sourced from Affiliates while benchmark returns are generally sourced via third-party subscriptions.

(2) For liquid alternative, global equity, and U.S.

equity products, performance is reported as the percentage of assets that have outperformed benchmarks across the indicated periods, and excludes market-hedging products.

For purposes of investment performance comparisons, products are an aggregation of portfolios (separate accounts, investment funds, and other products) that each represent a particular investment objective, using the most representative portfolio for the performance comparison.

Performance is presented for products with a three-, five-, and/or ten-year track record and is measured on a consistent basis relative to the most appropriate benchmarks.

Benchmark appropriateness is generally reviewed annually to reflect any changes in how underlying portfolios/mandates are managed.

Product and benchmark performance is reflected as total return and is annualized.

Reported product performance is gross-of-fees for institutional and high-net-worth separate accounts, and generally net-of-fees across retail funds and other commingled vehicles such as hedge funds.

(3) Multi-asset and fixed income products are mainly our wealth management and solutions offerings.

These investment products are primarily customized toward wealth preservation, estate planning, and liability and tax management, and therefore are typically not measured against a benchmark.

(4) For illiquid alternative products, performance is reported as the percentage of assets that have outperformed benchmarks on a since-inception internal rate of return basis.

Benchmarks utilized include a combination of public market equivalents, peer medians, and absolute returns where benchmarks are not available.

For purposes of investment performance comparisons, the latest vintage comparison includes the most recent vehicles and strategies (traditional long-duration investment funds, customized vehicles, and other evergreen vehicles and product structures) where meaningful performance is available and calculable.

In order to illustrate the performance of our illiquid product category over a longer period of history, the last three vintages comparison incorporates the latest vintage vehicles and the prior two vintages for traditional long-duration investment funds, as well as additional vehicles and strategies launched during the equivalent time period as the last three vintages of traditional long duration investment funds.

Due to the nature of these investments and vehicles, reported performance is typically on a three- to six-month lag basis.

Aggregate Fees

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

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

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

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

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

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

As of December 31, 2021, approximately 25% of our total assets under management could potentially earn performance-based fees.

These percentages were approximately 11% and 46% of our assets under management for our consolidated Affiliates and Affiliates account for under the equity method, respectively.

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

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

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

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

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

Aggregate fees were $5,611.4 million in 2021, an increase of $985.0 million or 21% as compared to 2020.

The increase in our aggregate fees was due to a $512.9 million or 11% increase in performance-based fees, primarily in liquid alternative strategies, and a $472.1 million or 10% increase in asset-based fees.

The increase in asset-based fees was due to an increase in our average assets under management, primarily in our global equity strategies and U.S.

equity strategies, driven by strong Affiliate investment performance and market appreciation, and investments in new Affiliates.

These increases were partially offset by net client cash outflows.

Financial and Supplemental Financial Performance Measures

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

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

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

The increase in Net income (controlling interest) was primarily due to a $300.0 million decrease in equity method intangible amortization and impairments, partially offset by a $78.6 million increase in Income tax expense attributable to the controlling interest.

Adjusted EBITDA (controlling interest) increased $259.8 million or 33% in 2021.

The increase was primarily due to a $985.0 million or 21% increase in aggregate fees.

Adjusted EBITDA (controlling interest) increased more than aggregate fees on a percentage basis due to the recognition of performance-based fees at Affiliates in which we hold a greater economic interest and net gains on strategic investments.

Net income (controlling interest) increased $363.5 million in 2021.

The increase in Net income (controlling interest) was greater than the increase in Adjusted EBITDA (controlling interest) primarily due to a $227.8 million decrease in intangible amortization and impairments attributable to the controlling interest, partially offset by a $160.1 million increase in Income tax expense attributable to the controlling interest and a $19.1 million increase in Interest expense attributable to the controlling interest.

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

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

Economic net income (controlling interest) increased $155.4 million or 25% in 2021, primarily due to a $259.8 million increase in Adjusted EBITDA (controlling interest), partially offset by a $97.7 million increase in current and other deferred taxes, in part driven by tax benefits realized in 2020 related to an Affiliate divestment that did not recur, and a $19.1 million increase in Interest expense, both attributable to the controlling interest.

Results of Operations

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

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

Consolidated Revenue

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Consolidated revenue $ 2,239.6 $ 2,027.5 (9) % $ 2,412.4 19 %

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

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

Our Consolidated revenue increased $384.9 million or 19% in 2021, due to a $360.8 million or 18% increase in asset-based fees and, to a lesser extent, a $24.1 million or 1% increase in performance-based fees.

The increase in asset-based fees was due to an increase in consolidated Affiliate average assets under management, primarily in our global equity strategies and U.S.

equity strategies, driven by strong Affiliate investment performance and market appreciation, and investments in new Affiliates.

These increases were partially offset by a change in the composition of our assets under management.

Consolidated Expenses

Our Consolidated expenses are primarily attributable to the non-controlling interests of our consolidated Affiliates in which we share in revenue without regard to expenses.

For these Affiliates, the amount of expenses attributable to the non-controlling interests, including compensation, is generally determined by the percentage of revenue allocated to expenses as part of the structured partnership interests in place at the respective Affiliate.

Accordingly, increases in revenue generally will increase a consolidated Affiliate’s expenses attributable to the non-controlling interests and decreases in revenue will generally decrease a consolidated Affiliate’s expenses attributable to the non-controlling interests.

For these Affiliates, the amount of expenses attributable to the non-controlling interests, primarily compensation, is generally determined by the percentage of revenue allocated to expenses as part of the structured partnership interests in place at the respective Affiliate.

Accordingly, increases in revenue generally will increase a consolidated Affiliate’s expenses attributable to the non-controlling interests and decreases in revenue generally will decrease a consolidated Affiliate’s expenses attributable to the non-controlling interests.

The following table presents our Consolidated expenses:

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Total consolidated expenses $ 1,618.8 $ 1,509.8 (7) % $ 1,631.4 8 %

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

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

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

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

These decreases were partially offset by a $34.1 million increase in expenses to reduce the carrying value of acquired client relationships at certain of our Affiliates to fair value.

Compensation and related expenses increased $163.4 million or 18% in 2021, primarily due to a $155.9 million increase in compensation correlated to the increase in Consolidated revenue, and an $11.5 million increase in Affiliate equity compensation expense.

These increases were partially offset by a $4.0 million decrease in share-based compensation expense.

Selling, general and administrative expenses increased $25.7 million or 8% in 2021, primarily due to a $27.8 million increase in distribution and investment-related expenses principally as a result of an increase in average assets under management on which these expenses are incurred, a $7.9 million increase in acquisition-related costs, and a $4.4 million increase in fees related to the previously announced changes to our distribution platform in 2021.

These increases were partially offset by a $6.3 million decrease in sub-advisory expenses related to the changes to our distribution platform, a $5.8 million decrease in travel-related expenses as a result of reduced travel during the COVID-19 pandemic, and a $3.0 million decrease in reserves on notes receivable.

Intangible amortization and impairments decreased $104.8 million or 75% in 2021, primarily due to an $85.2 million decrease in expenses to reduce the carrying value of acquired client relationships at certain of our Affiliates to fair value.

See Note 10 of our Consolidated Financial Statements.

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

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

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

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

The decrease was also due to a $27.2 million reduction in amortization expense related to certain definite-lived assets being fully amortized.

These decreases were partially offset by a $4.7 million increase due to actual and expected client attrition for certain definite-lived acquired client relationships and a $2.9 million increase in amortization expenses due to investments in new Affiliates.

Interest expense increased $19.1 million or 21% in 2021, primarily due to an $18.6 million increase from our debt securities issued in 2020 and 2021, and a $2.8 million increase from the termination of our pound sterling-denominated forward foreign currency contracts, which occurred in the first quarter of 2020.

These increases were partially offset by a $2.3 million decrease from lower interest rates and lower borrowings on our senior unsecured term loan facility (the “term loan”).

Other expenses (net) increased $20.7 million or 39% in 2021, primarily due to a $19.5 million increase in expenses related to changes in the values of contingent payment and Affiliate equity purchase obligations.

There were no significant changes in Depreciation and other amortization in 2021.

Equity Method Loss (Net)

Equity Method Income (Loss) (Net)

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

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

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

For a majority of these Affiliates, we use structured partnership interests in which we contractually share in the Affiliate’s revenue less agreed-upon expenses.

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

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

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

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

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

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

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

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

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

For the Years Ended December 31,

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Equity method earnings $ 289.4 $ 288.6 (0 )% $ 417.5 45 %

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

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

$ (43.4) (87) %

Equity method intangible amortization (140.1) (147.0) 5 % (123.0) (16) %

Equity method intangible impairments (487.3) (185.0) (62) % (52.0) (72) %

Equity method income (loss) (net) $ (338.0) $ (43.4) (87) % $ 242.5 N.M.

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(1) Percentage change is not meaningful.

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

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

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

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

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

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

Our equity method revenue increased $600.1 million or 23% in 2021, due to a $488.8 million or 19% increase in performance-based fees, primarily in liquid alternative strategies, and a $111.3 million or 4% increase in asset-based fees.

The increase in asset-based fees was due to an increase in equity method Affiliate average assets under management, primarily in global equity strategies driven by strong Affiliate investment performance and market appreciation, and investments in new Affiliates.

These increases were partially offset by net client cash outflows.

Equity method earnings increased $128.9 million or 45% in 2021, primarily due to a $600.1 million or 23% increase in equity method revenue.

Equity method earnings increased more than equity method revenue on a percentage basis, primarily due to the recognition of performance-based fees at Affiliates in which we hold more of an economic interest.

Equity method intangible amortization decreased $24.0 million or 16% in 2021, primarily due to a $54.2 million decrease in amortization expense related to certain definite-lived assets being fully amortized.

This decrease was partially offset by a $21.3 million increase in amortization expense due to an increase in actual and expected client attrition for certain definite-lived acquired client relationships, and an $8.9 million increase in amortization expense due to investments in new Affiliates.

Equity method intangible impairments decreased $133.0 million or 72% in 2021, due to expenses recorded in the respective periods to reduce the carrying values of certain Affiliates to fair value.

See Note 11 of our Consolidated Financial Statements.

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

Investment and Other Income

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(in millions) 2019 2020 % Change 2021 % Change

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

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

Investment and other income $ 25.2 $ 34.1 35 % $ 117.6 N.M.

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(1) Percentage change is not meaningful.

Investment and other income increased $83.5 million in 2021, primarily due to an $82.1 million increase from net unrealized gains on Other investments.

Income Tax Expense

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(1) Percentage change is not meaningful.

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

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

Income tax expense increased $169.6 million in 2021, primarily due to a $523.6 million increase in income before income taxes attributable to the controlling interest, a $13.7 million decrease in tax benefits attributable to the controlling interest in 2021 due to Affiliate divestments and changes in the U.S.

tax laws relating to the taxation of foreign income in 2020 that did not recur, an $11.1 million increase in deferred tax expense attributable to the controlling interest resulting from the revaluation of certain deferred tax liabilities due to an increase in the UK tax rate enacted during 2021, and a $9.5 million increase in taxes attributable to the non-controlling interest.

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

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(in millions) 2019 2020 % Change 2021 % Change

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

Net income $ 305.1 $ 427.0 40 % $ 890.1 N.M.

Net income (non-controlling interests) 289.4 224.8 (22) % 324.4 44 %

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(1) Percentage change is not meaningful.

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

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

Net income (controlling interest) increased $363.5 million in 2021, primarily due to an increase in Equity method income (net), an increase in Consolidated revenue, an increase in Investment and other income attributable to the controlling interest, and a decrease in Intangible amortization and impairments attributable to the controlling interest.

These increases were partially offset by increases in Income tax expense and Interest expense, both attributable to the controlling interest.

Supplemental Financial Performance Measures

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

Adjusted EBITDA (controlling interest) is an important supplemental financial performance measure for management as it provides a comprehensive view of our share of the financial performance of our business before interest, taxes, depreciation, amortization, impairments, certain Affiliate equity expenses, gains and losses on general partner and seed capital investments, and adjustments to contingent payment arrangements.

Adjusted EBITDA (controlling interest) is an important supplemental financial performance measure for management as it provides a comprehensive view of our share of the financial performance of our business before interest, taxes, depreciation, amortization, impairments, certain Affiliate equity expenses, certain gains and losses, including on general partner and seed capital investments, and adjustments to our contingent payment obligations.

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

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

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

The following table presents the Intangible

amortization and impairments shown above:

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

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

For the Years Ended December 31,

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Total $ 745.8 $ 427.7 $ 199.9

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

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

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

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

(2) Other items include depreciation, adjustments to contingent payment obligations, certain Affiliate equity expenses, and certain gains and losses, including on general partner and seed capital investments.

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

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Other economic items (2)

10.0 4.4 (38.3)

Economic net income (controlling interest) $ 720.2 $ 624.4 $ 779.8

Average shares outstanding (diluted) 50.6 46.7 44.8

Stock options and restricted stock units — — —

Assumed issuance of junior convertible securities shares — — (2.1)

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

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

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

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

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

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

(2) Other economic items include non-cash imputed interest (principally related to the accounting for convertible securities and contingent payment obligations), tax windfalls and shortfalls from share-based compensation, certain Affiliate equity expenses, and certain gains and losses, including on general partner and seed capital investments.

For the years ended December 31, 2019, 2020, and 2021, other economic items were net of income tax expense of $0.7 million, $2.6 million, and $21.8 million, respectively.

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

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

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

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

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

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

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

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

Cash and cash equivalents were $908.5 million as of December 31, 2021 and were attributable to both our controlling and the non-controlling interests.

In 2021, we met our cash requirements primarily through cash generated by operating activities and proceeds from the issuance of our junior subordinated notes.

Our principal uses of cash in 2021 were for investments in new Affiliates, share repurchases, and investments in existing Affiliates through purchases of Affiliate equity interests.

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

We anticipate that our current cash balance, cash flows from operations, and borrowings under our senior unsecured multicurrency revolving credit facility (the “revolver”) will be sufficient to support our uses of cash for the foreseeable future.

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

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

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

For the year ended December 31, 2021, Cash flows from operating activities were $1,259.2 million, primarily from Net income of $890.1 million adjusted for non-cash items of $36.8 million, $337.5 million of distributions of earnings received from equity method investments, and timing differences in the cash settlement of receivables, other assets, and payables, accrued liabilities, and other liabilities of $120.0 million.

These items were partially offset by net purchases of securities by consolidated sponsored investment products of $51.6 million.

In 2021, operating cash flows were primarily attributable to the controlling interest.

Investing Cash Flow

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

For the year ended December 31, 2021, Cash flows used in investing activities were $583.7 million, primarily due to $562.6 million of investments in new Affiliates and $17.1 million of net purchases of investment securities.

In 2021, investing cash flows were primarily attributable to the controlling interest.

Financing Cash Flow

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

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

For the year ended December 31, 2021, Cash flows used in financing activities were $798.3 million, primarily due to the return of $598.9 million of capital to shareholders, through share repurchases of our common stock, $334.3 million of distributions to non-controlling interests, $150.5 million of Affiliate equity purchases, $33.0 million of repurchases of our junior convertible securities, and $19.9 million of taxes paid from shares withheld related to the issuances our common stock.

Cash flows used in financing activities were partially offset by $200.0 million of proceeds from borrowings of junior debt, $117.7 million of proceeds from Affiliate equity issuances (including $99.6 million from a co-investor), and receipt of $40.9 million of subscriptions to consolidated funds, net of redemptions.

Affiliate Equity

We periodically repurchase Affiliate equity from and issue Affiliate equity to our consolidated Affiliate partners and our officers, under agreements that provide us with a conditional right to call and Affiliate equity holders with a conditional right to put their Affiliate equity interests to us at certain intervals.

We periodically purchase Affiliate equity from and issue Affiliate equity to our consolidated Affiliate partners and other parties, under agreements that provide us with a conditional right to call and Affiliate equity holders with a conditional right to put their Affiliate equity interests to us at certain intervals.

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

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

As of December 31, 2020, the current redemption value of $671.5 million for these interests (including $35.4 million of consolidated Affiliate sponsored investment products primarily attributable to third-party investors) has been presented as Redeemable non-controlling interests.

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

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

As of December 31, 2021, the current redemption value of Affiliate equity interests was $686.5 million, of which $673.9 million was presented as Redeemable non-controlling interests (including $25.0 million of consolidated Affiliate sponsored investment products primarily attributable to third-party investors), and $12.6 million was presented as Other liabilities.

Although the timing and amounts of these purchases are difficult to predict, we paid $150.5 million for Affiliate equity purchases and received $117.7 million for Affiliate equity issuances (including $99.6 million from a co-investor) during 2021, and we expect net purchases of approximately $125 million of Affiliate equity in 2022.

In the event of a purchase, we become the owner of the cash flow associated with the purchased equity.

See Notes 18 and 19 of our Consolidated Financial Statements.

Share Repurchases

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

Our Board of Directors authorized share repurchase programs in January 2022, January 2021, and October 2019, to repurchase up to 2.0 million, 5.0 million, and 6.0 million shares of our common stock, respectively, and these authorizations have no expiry.

Purchases may be made from time to time, at management’s discretion, in the open market or in privately negotiated transactions, including through the use of trading plans, as well as pursuant to accelerated share repurchase programs or other share repurchase strategies that may include derivative financial instruments.

For the year ended December 31, 2021, we repurchased 3.5 million shares of our common stock at an average price per share of $146.54.

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

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

As of December 31, 2021, we had repurchased all of the shares of the October 2019 program.

As of February 16, 2022, there were a total of 4.7 million shares available for repurchase under our January 2022 and January 2021 share repurchase programs.

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

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Senior notes 746.8 1,097.3 1,098.0

Junior convertible securities 312.5 315.4 318.4

Junior subordinated notes 290.7 565.7 765.8

Junior convertible securities 315.4 318.4 299.5

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

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

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

We amended and restated the revolver in October 2021, extending the maturity from January 18, 2024 to October 23, 2026, and amended the term loan in January 2021 and June 2021, and further amended the restated the term loan in October 2021, extending the maturity from January 18, 2023 to October 23, 2026.

Through these amendments, we also reduced applicable rates for the revolver and the term loan, and provided for customary LIBOR succession provisions.

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

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As of December 31, 2021, we had no outstanding borrowings under the revolver, and could borrow all capacity and remain in compliance with our credit facilities.

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

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

Senior Notes and Junior Subordinated Notes

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

Senior Notes 2025

As of December 31, 2021, we had the following senior notes outstanding, the respective principal terms of which are presented below:

Senior Notes 2025

Senior Notes 2030

Issue date February 2014 February 2015 June 2020

Maturity date February 2024 August 2025 June 2030

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

Stated coupon 4.25 % 3.50 % 3.30 %

Coupon frequency Semi-annually Semi-annually Semi-annually

Potential call date Any time Any time Any time

Junior Subordinated Notes

As of December 31, 2021, we had the following junior subordinated notes outstanding, the respective principal terms of which are presented below:

Junior Subordinated Notes 2060

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

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

Junior Subordinated Notes 2061

Junior Subordinated Notes

Issue date March 2019 September 2020 July 2021

Maturity date March 2059 September 2060 September 2061

Par value (in millions) $ 300.0 $ 275.0 $ 200.0

Stated coupon 5.875 % 4.75 % 4.20 %

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

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

In the second quarter of 2020, we used $250.0 million of the net proceeds from the 2030 senior notes to repay all of the outstanding indebtedness under our revolver, and the remaining net proceeds of $100.0 million to repay a portion of the outstanding indebtedness under the term loan.

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

Coupon frequency Quarterly Quarterly Quarterly

Potential call date March 2024 September 2025 September 2026

Listing NYSE NYSE NYSE

The majority of the net proceeds from the 2061 junior subordinated notes were retained for general corporate purposes.

Junior Convertible Securities

As of December 31, 2021, we had 5.15% junior convertible trust preferred securities outstanding (the “junior convertible securities”) with a carrying value of $299.5 million.

The carrying value is accreted to the principal amount at maturity ($430.8 million) over a remaining life of approximately 17 years.

The junior convertible securities were issued by AMG Capital Trust II, a Delaware statutory trust, in October 2007.

Each of the junior convertible securities represents an undivided beneficial interest in the assets of the trust.

The trust’s only assets are junior subordinated convertible debentures issued to it by us, and have substantially the same payment terms as the junior convertible securities.

We own all of the trust’s common securities, and have fully and unconditionally guaranteed, on a subordinated basis, the payment obligations on the junior convertible securities.

We do not consolidate the trust’s financial results into our Consolidated Financial Statements.

The carrying value of the junior convertible securities is accreted to the principal amount at maturity ($401.0 million) over a remaining life of approximately 16 years.

Holders of the junior convertible securities have no rights to put these securities to us.

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

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

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

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

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

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

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

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

During the year ended December 31, 2021, we paid $33.0 million to repurchase a portion of our junior convertible securities, resulting in reductions of $29.9 million and $7.1 million in Debt and Additional paid-in capital, respectively.

As a result of these repurchases, we also reduced our Deferred income tax liability (net) by $7.0 million.

Equity Distribution Program

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As of December 31, 2021, no sales had occurred under the equity distribution program.

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

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

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

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

See Note 7 of our Consolidated Financial Statements.

See Note 8 of our Consolidated Financial Statements.

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

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

Other Contingent Obligations

See Notes 4, 9, and 11 of our Consolidated Financial Statements.

As of December 31, 2021, our lease obligations were $39.3 million through 2022, $73.3 million from 2023 through 2024, $51.1 million from 2025 through 2026, and $79.6 million thereafter.

The portion of these lease obligations attributable to the controlling interest were $8.7 million through 2022, $18.7 million from 2023 through 2024, $12.8 million from 2025 through 2026, and $10.4 million thereafter.

See Note 12 of our Consolidated Financial Statements.

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These standards establish a fair value hierarchy that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs.

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

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

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

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

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

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

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

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

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

See Note 9 of our Consolidated Financial Statements.

For the year ended December 31, 2021, we completed our annual assessment of our other indefinite-lived acquired client relationships and only a significant decline in the fair values of these assets would result in an impairment.

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

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

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

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

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

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

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

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

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

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

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

For the year ended December 31, 2021, we recorded a $52.0 million expense to reduce the carrying value of an Affiliate to fair value.

See Note 11 of our Consolidated Financial Statements.

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For all other arrangements, we recognize expense based on the number of awards expected to vest on a straight-line basis for each separately vesting portion of the award.

From time to time, we grant equity interests in our Affiliates to consolidated Affiliate partners and our officers, with vesting, forfeiture, and repurchase terms established at the date of grant.

From time to time, we grant equity interests in our Affiliates to consolidated Affiliate partners and other parties, with vesting, forfeiture, and repurchase terms established at the date of grant.

The fair value of the equity interests is determined as of the date of grant using a discounted cash flow analysis.

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

What changed 10-K

Item 7. Management’s Discussion and Analysis