What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2023-02-17 compared with 2022-02-18 · 139 added, 105 removed, 396 unchanged (38% of the section changed)

1 unchanged sentence

The following executive overview, which summarizes the significant trends affecting our results of operations and financial condition, as well as the remainder of this Management’s Discussion and Analysis of Financial Condition and Results of Operations of Affiliated Managers Group, Inc.

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

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

Our discussion and analysis of the key operating performance measures and financial results for fiscal year 2022 compared to fiscal year 2021 is included herein.

1 unchanged sentence

Executive Overview

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 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.

AMG is a leading partner to independent investment management firms globally.

Our strategy is to generate long-term value by investing in a diverse array of high-quality independent partner-owned 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, 2021, our aggregate assets under management were approximately $814 billion across a broad range of return-oriented strategies.

New Investments

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.

In addition, we offer our Affiliates growth capital, 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, 2022, our aggregate assets under management were approximately $651 billion across a broad range of differentiated investment strategies.

In the first quarter of 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.

In the fourth quarter of 2022, we completed a minority investment in Peppertree Capital Management, Inc.

(“Peppertree”), a private markets firm specializing in communications infrastructure.

The financial results will be recognized in the Consolidated Financial Statements one quarter in arrears.

We account for this investment under the equity method of accounting.

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

In the fourth quarter of 2022, we completed the previously announced sale of our equity interest in Baring Private Equity Asia (“BPEA”), our Affiliate, to EQT AB (“EQT”), a public company listed on Nasdaq Stockholm (EQT.ST), (the “BPEA Transaction”) in connection with the strategic combination of BPEA and EQT.

Pursuant to the terms of the Securities Purchase and Merger Agreement with EQT under which we and each of the other owners agreed to sell our respective equity interests in BPEA, we received $223.6 million in cash, net of transaction costs, and 28.68 million EQT ordinary shares (25% of which are subject to a six-month lock-up, which expires in April 2023), and other investments.

Our gain on the transaction was $641.9 million.

The transaction was taxable at closing.

For the year ended December 31, 2022, we recorded realized and unrealized gains on EQT ordinary shares of $43.8 million and $57.9 million, respectively.

During the fourth quarter of 2022 and through February 15, 2023, we have sold 17.4 million EQT ordinary shares.

Operating Performance Measures

5 unchanged sentences

The following table presents our key aggregate operating performance measures:

Tab l e of Contents

As of and for the Years Ended December 31,

6 unchanged sentences

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

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

Average assets under management for mutual funds and similar investment products generally 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.

2 unchanged sentences

Assets Under Management

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.

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.

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.

Our Affiliates provide a diverse range of differentiated return streams through their specialized investment processes.

We continue to see demand for alternative strategies, as evidenced by our net inflows in this category for the year ended December 31, 2022.

At the same time, we experienced outflows in equity strategies, particularly in global equities, in line with de-risking trends across the industry.

We continue to invest in areas of long-term client demand — including private markets, liquid alternatives, sustainable strategies, wealth management, and Asia — through new and existing Affiliates, to better position AMG to benefit from industry growth trends.

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 additional high-quality firms across the global investment management industry.

The following charts present information regarding the composition of our assets under management by strategy as of December 31, 2021 and 2022:

1 unchanged sentence

__________________________

(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% and 6% of our assets under management as of December 31, 2020 and 2021, respectively.

(1) Alternatives include private markets strategies, which accounted for 15% of our assets under management as of December 31, 2021 and 2022.

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

Tab l e of Contents

(in billions) Alternatives Global Equities U.S.

5 unchanged sentences

New investments 3.3 — — — 3.3

(31.6) — — — (31.6)

Market changes 2.6 (43.3) (26.0) (12.4) (79.1)

5 unchanged sentences

__________________________

(1) Assets under management attributable to BPEA as of the BPEA Transaction closing date.

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

4 unchanged sentences

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

Tab l e of Contents

(in billions) Institutional Retail High Net Worth Total

4 unchanged sentences

New investments 3.3 — — 3.3

(31.6) — — (31.6)

Market changes (27.1) (35.3) (16.7) (79.1)

5 unchanged sentences

__________________________

(1) Assets under management attributable to BPEA as of the BPEA Transaction closing date.

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

13 unchanged sentences

IRR Latest Vintage IRR Last Three Vintages

Illiquid alternatives (4)

Private markets (4)

15 % 86 % 82 %

12 unchanged sentences

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.

Tab l e of Contents

(4) For private markets 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.

In order to illustrate the performance of our private markets 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.

2 unchanged sentences

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.

Asset-based fees are generally impacted by the level of average assets under management and the composition of these assets across our strategies with different asset-based fee ratios.

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

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

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;

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

As of December 31, 2022, approximately 27% 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 $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.

These percentages were approximately 12% and 48% of our assets under management for our consolidated Affiliates and Affiliates accounted for under the equity method, respectively.

Aggregate fees were $5,560.5 million in 2022, a decrease of $50.9 million or 1% as compared to 2021.

The decrease in our aggregate fees was due to a $171.6 million or 3% decrease from asset-based fees, offset by a $120.7 million or 2% increase from performance-based fees primarily in our liquid alternative and private markets strategies.

The decrease in asset-based fees was due to a decrease in average assets under management, primarily in our global equity strategies driven by equity markets, offset by new Affiliate investments in the fourth quarter of 2021 and changes in the composition of our assets under management.

Financial and Supplemental Financial Performance Measures

3 unchanged sentences

Net income (controlling interest) $ 202.2 $ 565.7 N.M.

$ 1,145.9 N.M.

Adjusted EBITDA (controlling interest) (2)

6 unchanged sentences

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.

Adjusted EBITDA (controlling interest) increased $1.7 million in 2022, primarily due to the impact of new Affiliate investments in the fourth quarter of 2021

Tab l e of Contents

and the recognition of performance-based fees earned by Affiliates in which we hold more of an economic interest, partially offset by the impact of the decline in markets.

Net income (controlling interest) increased $580.2 million in 2022.

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.

This increase was primarily due to a $641.9 million gain from the BPEA Transaction, partially offset by a $117.8 million increase in Income tax expense attributable to the controlling interest, primarily due to the BPEA Transaction.

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) 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.

Economic net income (controlling interest) increased $22.3 million or 3% in 2022 primarily due to a $29.3 million decrease in current and other deferred taxes primarily attributable to the controlling interest excluding the impact of the BPEA Transaction and a $1.7 million increase in Adjusted EBITDA (controlling interest), partially offset by a $3.0 million increase in Interest expense attributable to the controlling interest.

Results of Operations

4 unchanged sentences

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

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

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

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

3 unchanged sentences

Consolidated revenue $ 2,027.5 $ 2,412.4 19 % $ 2,329.6 (3) %

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.

Our Consolidated revenue decreased $82.8 million or 3% in 2022, primarily due to a $149.1 million or 6% decrease from asset-based fees, partially offset by a $66.3 million or 3% increase from performance-based fees primarily in our private markets strategies.

The decrease in asset-based fees was due to a decrease in consolidated Affiliate average assets under management in our global equity strategies driven by equity markets, partially offset by increases in our U.S.

equity strategies, driven by new Affiliate investments in the fourth quarter of 2021.

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, 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.

Our Consolidated expenses are primarily attributable to the non-controlling interests of our consolidated Affiliates.

The following table presents our Consolidated expenses:

Tab l e of Contents

For the Years Ended December 31,

7 unchanged sentences

Total consolidated expenses $ 1,509.8 $ 1,631.4 8 % $ 1,673.5 3 %

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.

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.

Compensation and related expenses increased $24.4 million or 2% in 2022, primarily due to a $131.6 million increase in compensation as a result of new Affiliate investments in the fourth quarter of 2021.

This increase was partially offset by a $94.4 million decrease in compensation correlated to the decrease in Consolidated revenue and an $11.9 million decrease in Affiliate equity compensation expense.

Selling, general and administrative expenses increased $38.4 million or 11% in 2022, primarily due to a $36.0 million increase in distribution- and investment-related expenses principally as a result of new Affiliate investments in the fourth quarter of 2021 and a $10.0 million increase in travel-related expenses.

These increases were partially offset by a $14.7 million decrease in sub-advisory expenses related to the changes to our distribution platform.

Intangible amortization and impairments increased $15.9 million or 45% in 2022, primarily due to an $18.3 million increase in amortization expense due to new Affiliate investments in the fourth quarter of 2021.

Interest expense increased $3.0 million or 3% in 2022, primarily due to a $4.7 million increase due to higher interest rates on our senior unsecured term loan facility (the “term loan”) and a $4.5 million increase from our debt securities issued in 2021.

These increases were partially offset by a $5.5 million decrease from our junior convertible debt securities due to lower principal balance resulting from repurchases and lower accretion expense after the adoption of ASU 2020-06 in the first quarter of 2022.

There were no significant changes in Depreciation and other amortization in 2022.

Other expenses (net) decreased $38.8 million or 53% in 2022, primarily due to a $39.7 million decrease in expenses related to changes in the values of contingent payment obligations and Affiliate equity purchase obligations.

Equity Method Income (Loss) (Net)

5 unchanged sentences

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.

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 with different asset-based fee ratios and performance-based fees.

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

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

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

Tab l e of Contents

For the Years Ended December 31,

10 unchanged sentences

(1) Percentage change is not meaningful.

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.

Our equity method revenue increased $31.9 million or 1% in 2022, due to a $54.4 million or 2% increase from performance-based fees, primarily in our liquid alternative strategies, partially offset by a $22.5 million or 1% decrease from asset-based fees.

The decrease in asset-based fees was due to a decrease in equity method Affiliate average assets under management, primarily in our global equity strategies driven by equity markets, offset by changes in the composition of our assets under management.

Equity method earnings increased $79.7 million or 19% in 2022, while equity method revenue increased $31.9 million or 1%.

Equity method earnings increased more than equity method revenue on a percentage basis primarily due to the recognition of performance-based fees earned by Affiliates in which we hold more of an economic interest and the impact of our additional investment in Systematica.

Equity method intangible amortization decreased $13.9 million or 11% in 2022, primarily due to a $43.2 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.

This decrease was partially offset by a $19.4 million increase in amortization expense due to an increase in actual and expected client attrition for certain definite-lived acquired client relationships and a $10.7 million increase in amortization expense due to investments in new and existing Affiliates.

Equity method intangible impairments decreased $2.0 million or 4% in 2022.

See Note 10 of our Consolidated Financial Statements.

BPEA Transaction Gain

For the year ended December 31, 2022, we recorded a $641.9 million gain on the BPEA Transaction.

See Note 10 of our Consolidated Financial Statements.

Investment and Other Income

4 unchanged sentences

$ 110.3 (6) %

__________________________

(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.

Investment and other income decreased $7.3 million or 6% in 2022, primarily due to a $106.3 million decrease in net realized and unrealized gains on Other investments, offset by an $82.8 million increase in realized and unrealized gains on Investments in marketable securities.

Income Tax Expense

Tab l e of Contents

The following table presents our Income tax expense:

4 unchanged sentences

(1) Percentage change is not meaningful.

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.

Income tax expense increased $107.3 million or 43% in 2022, primarily due to a $117.8 million increase in taxes attributable to the controlling interest, offset by a $10.5 million decrease in taxes attributable to the non-controlling interest.

The increase in taxes attributable to the controlling interest was primarily due to a $167.6 million tax expense related to the BPEA Transaction, partially offset by a $19.1 million deferred tax expense resulting from an increase in the UK tax rate enacted in the second quarter of 2021 that did not reoccur and an $11.8 million increase in tax benefits from foreign operations.

The decrease in taxes attributable to the non-controlling interest was primarily due to a $6.0 million deferred tax expense resulting from the aforementioned UK tax rate change in 2021.

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

2 unchanged sentences

Net income $ 427.0 $ 890.1 N.M.

$ 1,388.1 56 %

Net income (non-controlling interests) 224.8 324.4 44 % 242.2 (25) %

2 unchanged sentences

(1) Percentage change is not meaningful.

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.

Net income (controlling interest) increased $580.2 million in 2022, primarily due to the gain from the BPEA Transaction, partially offset by an increase in Income tax expense attributable to the controlling interest, primarily due to the BPEA Transaction.

Supplemental Financial Performance Measures

1 unchanged sentence

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, certain gains and losses, including on general partner and seed capital investments, and adjustments to our contingent payment obligations.

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 expense, income taxes, depreciation, amortization, impairments, gains and losses related to the BPEA Transaction, certain Affiliate equity expenses, certain gains and losses, including on general partner and seed capital investments, certain non-income based taxes, 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.

1 unchanged sentence

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

Tab l e of Contents

For the Years Ended December 31,

5 unchanged sentences

427.7 199.9 195.0

BPEA Transaction (2)

Other items (3)

12 unchanged sentences

Total $ 427.7 $ 199.9 $ 195.0

(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.

(2) Includes BPEA Transaction gain of $641.9 million and realized and unrealized gains on EQT ordinary shares of $43.8 million and $57.9 million, respectively.

(3) Other items include depreciation, adjustments to contingent payment obligations, certain Affiliate equity expenses, certain gains and losses, including on general partner and seed capital investments, and certain non-income based taxes.

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

5 unchanged sentences

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

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

Further, we add back gains and losses related to the BPEA Transaction, net of tax and other economic items to improve comparability of performance between periods.

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

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

In this calculation, we exclude the potential shares issued upon settlement of Redeemable non-controlling interests from Average shares outstanding (adjusted diluted) because we intend to settle those obligations without issuing shares, consistent with all prior Affiliate equity purchase transactions.

The potential share issuance in connection with our junior convertible securities is measured using a “treasury stock” method.

Under this method, only the net number of shares of common stock equal to the value of these junior convertible securities in excess of par, if any, is deemed to be outstanding.

We believe the inclusion of net shares under a treasury stock method best reflects the benefit of the increase in available capital resources (which could be used to repurchase shares of common stock) that occurs when these securities are converted and we are relieved of our debt obligation.

We believe the inclusion of net shares under a treasury stock method best reflects the benefit of the increase in

Tab l e of Contents

available capital resources (which could be used to repurchase shares of common stock) that occurs when these securities are converted and we are relieved of our debt obligation.

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

6 unchanged sentences

Intangible-related deferred taxes (2)

(9.9) 52.5 45.5

BPEA Transaction (3)

Other economic items (4)

2 unchanged sentences

Average shares outstanding (diluted) 46.7 44.8 49.0

Hypothetical issuance of shares to settle Redeemable non-controlling interests — — (7.4)

Assumed issuance of junior convertible securities shares — (2.1) (1.8)

3 unchanged sentences

(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 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.

(2) For the year ended December 31, 2022, intangible-related deferred taxes have been adjusted to eliminate a $13.5 million benefit related to the BPEA Transaction.

(3) Includes BPEA Transaction gain of $641.9 million and realized and unrealized gains on EQT ordinary shares of $43.8 million and $57.9 million, respectively, net of $167.6 million of income tax expense.

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

For the years ended December 31, 2020, 2021, and 2022, other economic items were net of income tax expense (benefit) of $2.6 million, $21.8 million, and $(6.4) million, respectively.

Liquidity and Capital Resources

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

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

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

1 unchanged sentence

Cash and cash equivalents were $429.2 million as of December 31, 2022 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.

Our principal uses of cash in 2022 were for investments in new and existing Affiliates, purchases of marketable securities, and the return of excess capital through share repurchases.

In 2022, we met our cash requirements primarily through cash generated by operating activities and proceeds from the BPEA Transaction.

Between January 1, 2023 and February 15, 2023, we have sold $196.0 million of EQT ordinary shares.

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.

We anticipate that our current cash balance, cash flows from operations, proceeds from sales of our marketable securities, 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.

Tab l e of Contents

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.

11 unchanged sentences

Investing Cash Flow

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.

For the year ended December 31, 2022, Cash flows used in investing activities were $109.9 million, primarily due to $312.0 million of purchases of investment securities, principally U.S.

Treasury Notes, $291.1 million of investments in Affiliates, and $11.4 million purchases of fixed assets.

Cash flows used in investing activities were partially offset by $280.2 million sales of investment securities principally from the sale of EQT ordinary shares, and $223.6 million of cash proceeds from the BPEA Transaction.

In 2022, investing cash flows were primarily attributable to the controlling interest.

Financing Cash Flow

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.

For the year ended December 31, 2022, Cash flows used in financing activities were $1,402.9 million, primarily due to the return of $718.0 million of capital to shareholders, principally through share repurchases of our common stock, $341.9 million of distributions to non-controlling interests, $201.0 million of settlement of deferred payment obligations (net of $49.8 million contributed from a co-investor), $60.8 million of repurchases of our junior convertible securities, $50.5 million of other financing items, and $46.3 million of Affiliate equity purchases, net of issuances.

Cash flows used in financing activities were partially offset by $13.0 million of subscriptions to consolidated funds, net of redemptions.

Affiliate Equity

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.

We have the right to settle a portion of these purchases in shares of our common stock.

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

2 unchanged sentences

As of December 31, 2022, the current redemption value of Affiliate equity interests was $489.9 million, of which $465.4 million was presented as Redeemable non-controlling interests (including $20.1 million of consolidated Affiliate sponsored investment products primarily attributable to third-party investors), and $24.5 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.

Although the timing and amounts of these purchases are difficult to predict, we paid $61.5 million for Affiliate equity purchases and received $15.2 million for Affiliate equity issuances during 2022, and we expect net purchases of approximately $125 million of Affiliate equity in 2023.

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

1 unchanged sentence

Share Repurchases

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.

Tab l e of Contents

Our Board of Directors authorized share repurchase programs in October 2022, January 2022, and January 2021, to repurchase up to 3.0 million, 2.0 million, and 5.0 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, 2022, we repurchased 4.5 million shares of our common stock at an average price per share of $144.45.

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.

As of December 31, 2022, we had repurchased all of the shares of the January 2021 authorized amount, and there were a total of 3.9 million shares available for repurchase under our October 2022 and January 2022 share repurchase programs.

In December 2022, we entered into an accelerated share repurchase agreement to repurchase shares of our common stock in exchange for an upfront payment of $225.0 million.

We received an initial share delivery of 1.1 million shares in December 2022, which represents 80% of the upfront payment based on the closing price of our common stock on the agreement date.

The total number of shares to be repurchased will be based on volume-weighted average prices of our common stock during the term of the agreement less a discount and subject to adjustments pursuant to the terms and conditions of such agreement.

The final settlement of this transaction is expected to be completed in the second or third quarter of 2023.

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

6 unchanged sentences

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.

Effective January 1, 2022, we adjusted the carrying value of our junior convertible securities (see Note 1 of our Consolidated Financial Statements).

Senior Bank Debt

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

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.

On November 18, 2022, we (i) amended the revolver, extending the maturity date of the revolver by one year to October 25, 2027, and (ii) further amended the revolver and amended the term loan, replacing the London Interbank Offered Rate (“LIBOR”) with a term Secured Overnight Financing Rate (“SOFR”)-based rate as an applicable benchmark for each facility.

The term loan matures on October 23, 2026.

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

5 unchanged sentences

As of December 31, 2022, we had no outstanding borrowings under the revolver and could borrow all capacity and remain in compliance with our credit facilities.

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

As of December 31, 2022, we had senior notes outstanding, the respective principal terms of which are presented below:

Tab l e of Contents

Senior Notes 2025

7 unchanged sentences

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:

As of December 31, 2022, we had junior subordinated notes outstanding, the respective principal terms of which are presented below:

Junior Subordinated Notes 2060

8 unchanged sentences

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.

As of December 31, 2022, we had $341.7 million of principal outstanding in our 5.15% junior convertible trust preferred securities outstanding (the “junior convertible securities”) maturing in 2037.

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

3 unchanged sentences

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.

3 unchanged sentences

We estimate that these deductions will generate annual deferred tax liabilities of approximately $8 million.

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.

During the years ended December 31, 2021 and 2022, we repurchased a portion of our junior convertible securities for a purchase price of $33.0 million and $60.9 million, respectively, and as a result of these repurchases, we also reduced our Deferred income tax liability (net) by $7.0 million and $11.4 million, respectively.

Equity Distribution Program

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

In the second quarter of 2022, we entered into equity distribution and forward equity agreements with several major securities firms under which we may, from time to time, issue and sell shares of our common stock (immediately or on a forward basis) having an aggregate sales price of up to $500.0 million (the “equity distribution program”).

This equity distribution program superseded and replaced our prior equity distribution program.

As of December 31, 2022, no sales had occurred under the equity distribution program.

See Note 7 of our Consolidated Financial Statements.

Tab l e of Contents

See Note 8 of our Consolidated Financial Statements.

Other Contingent Obligations

Other Contingent Commitments

See Notes 4 and 8 of our Consolidated Financial Statements.

11 unchanged sentences

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 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.

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 purchase 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.

9 unchanged sentences

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

Tab l e of Contents

Indefinite-Lived Acquired Client Relationships

20 unchanged sentences

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

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

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

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

4 unchanged sentences

and certain foreign jurisdictions.

Our income tax expense, deferred tax assets and liabilities, and liabilities for unrecognized tax benefits reflect management’s best estimate of current and future taxes to be paid.

Our income tax expense,

Tab l e of Contents

deferred tax assets and liabilities, and liabilities for unrecognized tax benefits reflect management’s best estimate of current and future taxes to be paid.

Deferred income taxes arise from temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements, which will result in taxable or deductible amounts in the future.

25 unchanged sentences

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