What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-11-06 compared with 2023-08-07 · 140 added, 122 removed, 355 unchanged (42% of the section changed)

15 unchanged sentences

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 June 30, 2023, our aggregate assets under management were approximately $674 billion across a broad range of differentiated investment strategies.

In June 2023, we entered into an agreement to acquire a minority equity interest in Forbion Group Holding B.V.

(“Forbion”), a pan-European venture capital and growth equity firm focused on investing in high-quality life sciences companies.

Following the close of the transaction, Forbion partners will continue to hold a significant majority of the equity of the business and direct its day-to-day operations.

The transaction is expected to close during the second half of 2023, and is subject to customary closing conditions.

In July 2023, we entered into an agreement with a third party and one of our consolidated Affiliates, under which the third party will acquire 100% of the outstanding equity interests in the Affiliate.

Pursuant to the terms of the agreement, we will receive gross cash proceeds of approximately $ 294 million.

The Affiliate will continue to be included in our results until closing of the transaction, which is expected to occur in the second half of 2023, and is subject to customary closing conditions.

As of September 30, 2023, our aggregate assets under management were approximately $636 billion across a broad range of differentiated investment strategies.

In August 2023, we completed our minority investment in Forbion Group Holding B.V.

(“Forbion”), a leading European private markets firm focused on investing in high-quality life sciences companies.

Following the close of the transaction, Forbion partners continue to hold a significant majority of the equity of the business and direct its day-to-day operations.

In September 2023, we completed our previously announced agreement with a third party and Veritable, LP (“Veritable”), one of our consolidated Affiliates, under which the third party acquired 100% of the outstanding equity interests in Veritable (the “Veritable Transaction”).

Pursuant to the terms of the agreement, we received $287.4 million in cash, net of transaction costs of $6.6 million.

Our gain on the transaction was $133.1 million and our after-tax net cash proceeds were $225.1 million.

In October 2023, we completed our minority investment in Ara Partners Group, LLC (“Ara Partners”), a private markets firm specializing in industrial decarbonization.

Following the close of the transaction, Ara Partners’ management continues to hold a significant majority of the equity of the business and directs its day-to-day operations.

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

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 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:

As of and for the Three Months Ended June 30, As of and for the Six Months Ended June 30,

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

(in billions, except as noted) 2022 2023 % Change 2022 2023 % Change

11 unchanged sentences

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

We continue to see client demand for alternative strategies, as evidenced by our net inflows in this category for the three and six months ended June 30, 2023.

We continue to see client demand for alternative strategies, as evidenced by our net inflows in this category for the three and nine months ended September 30, 2023.

At the same time, our equity strategies saw outflows, particularly in global equities, in line with client cash flow trends across the industry.

1 unchanged sentence

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 and client type as of June 30, 2023:

The following charts present information regarding the composition of our assets under management by strategy and client type as of September 30, 2023:

Assets Under Management

___________________________

(1) Alternatives include private markets strategies, which accounted for 15% of our assets under management as of June 30, 2023.

The following tables present changes in our assets under management by strategy and client type for the three and six months ended June 30, 2023:

(1) Alternatives include private markets strategies, which accounted for 16% of our assets under management as of September 30, 2023.

The following tables present changes in our assets under management by strategy and client type for the three and nine months ended September 30, 2023:

By Strategy - Quarter to Date

1 unchanged sentence

Equities Multi-Asset & Fixed Income Total

March 31, 2023 $ 223.7 $ 192.6 $ 137.0 $ 114.7 $ 668.0

June 30, 2023 $ 225.7 $ 190.5 $ 140.7 $ 117.0 $ 673.9

Client cash inflows and commitments 6.8 3.8 3.9 4.9 19.4

1 unchanged sentence

Net client cash flows 2.9 (9.4) (3.3) 0.4 (9.4)

New investments 3.0 — — — 3.0

Veritable (1)

(0.2) — — (17.6) (17.8)

Market changes 3.9 (5.3) (3.6) (1.5) (6.5)

3 unchanged sentences

(0.2) — 0.1 0.0 (0.1)

June 30, 2023 $ 225.7 $ 190.5 $ 140.7 $ 117.0 $ 673.9

September 30, 2023 $ 231.2 $ 173.4 $ 133.4 $ 97.8 $ 635.8

By Client Type - Quarter to Date

(in billions) Institutional Retail High Net Worth Total

March 31, 2023 $ 337.9 $ 196.6 $ 133.5 $ 668.0

June 30, 2023 $ 339.2 $ 199.2 $ 135.5 $ 673.9

Client cash inflows and commitments 8.2 6.6 4.6 19.4

1 unchanged sentence

Net client cash flows (2.8) (6.4) (0.2) (9.4)

New investments 2.8 — 0.2 3.0

Veritable (1)

(0.2) — (17.6) (17.8)

Market changes (0.4) (3.9) (2.2) (6.5)

3 unchanged sentences

0.1 (0.1) (0.1) (0.1)

June 30, 2023 $ 339.2 $ 199.2 $ 135.5 $ 673.9

September 30, 2023 $ 333.9 $ 186.8 $ 115.1 $ 635.8

By Strategy - Year to Date

5 unchanged sentences

Net client cash flows 7.0 (22.2) (8.7) 0.8 (23.1)

New investments 3.0 — — — 3.0

Veritable (1)

(0.2) — — (17.6) (17.8)

Market changes 5.5 9.9 8.8 4.3 28.5

3 unchanged sentences

(0.4) (0.3) 0.1 0.2 (0.4)

June 30, 2023 $ 225.7 $ 190.5 $ 140.7 $ 117.0 $ 673.9

September 30, 2023 $ 231.2 $ 173.4 $ 133.4 $ 97.8 $ 635.8

By Client Type - Year to Date

4 unchanged sentences

Net client cash flows (11.0) (11.4) (0.7) (23.1)

New investments 2.8 — 0.2 3.0

Veritable (1)

(0.2) — (17.6) (17.8)

Market changes 13.1 10.1 5.3 28.5

3 unchanged sentences

(0.1) (0.0 ) (0.3) (0.4)

June 30, 2023 $ 339.2 $ 199.2 $ 135.5 $ 673.9

September 30, 2023 $ 333.9 $ 186.8 $ 115.1 $ 635.8

___________________________

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

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

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

Performance and AUM information is as of June 30, 2023 and is based on data available at the time of calculation.

Performance and AUM information is as of September 30, 2023 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.

10 unchanged sentences

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

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.

8 unchanged sentences

Performance-based fees are generally billed less frequently than asset-based fees and will vary from period to period because they inherently depend on investment performance.

As of June 30, 2023, approximately 26% of our total assets under management could potentially earn performance-based fees.

As of September 30, 2023, approximately 28% of our total assets under management could potentially earn performance-based fees.

These percentages were approximately 13% and 47% of our assets under management for our consolidated Affiliates and Affiliates accounted for under the equity method, respectively.

1 unchanged sentence

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

Aggregate fees were $1,003.1 million for the three months ended June 30, 2023, a decrease of $176.5 million or 15% as compared to the three months ended June 30, 2022.

The decrease in our aggregate fees was due to a $128.3 million or 11% decrease from asset-based fees and a $48.2 million or 4% decrease from performance-based fees, primarily in our liquid alternative and private markets strategies.

Aggregate fees were $997.5 million for the three months ended September 30, 2023, a decrease of $168.0 million or 14% as compared to the three months ended September 30, 2022.

The decrease in our aggregate fees was due to a $101.0 million or 8% decrease from performance-based fees, primarily in our liquid alternative and private markets strategies, and a $67.0 million or 6% decrease from asset-based fees.

The decrease in asset-based fees was principally due to a decrease in our average assets under management, primarily in our global equity strategies, and the impact of the BPEA Transaction (as defined in “Supplemental Financial Performance Measures”).

Aggregate fees were $2,508.2 million for the six months ended June 30, 2023, a decrease of $1.8 million as compared to the six months ended June 30, 2022.

Aggregate fees were $3,505.7 million for the nine months ended September 30, 2023, a decrease of $169.9 million or 5% as compared to the nine months ended September 30, 2022.

The decrease in our aggregate fees was due to a $383.2 million or 11% decrease from asset-based fees, offset by a $213.3 million or 6% increase from performance-based fees, primarily in our liquid alternative strategies.

2 unchanged sentences

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

For the Three Months Ended June 30, For the Six Months Ended June 30,

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

(in millions) 2022 2023 % Change 2022 2023 % Change

7 unchanged sentences

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.

Our Adjusted EBITDA (controlling interest) decreased $0.6 million in the three months ended June 30, 2023 primarily due to a $176.5 million or 15% decrease in aggregate fees.

Our Adjusted EBITDA (controlling interest) decreased $12.8 million or 6% in the three months ended September 30, 2023 primarily due to a $168.0 million or 14% decrease in aggregate fees.

Adjusted EBITDA decreased less than aggregate fees on a percentage basis primarily due to the recognition of performance-based fees earned by Affiliates in which we hold a greater economic interest.

For the six months ended June 30, 2023, our Adjusted EBITDA (controlling interest) decreased $23.8 million or 5%, primarily due to the recognition of performance-based fees in the three months ended March 31, 2023 earned by Affiliates in which we hold less of an economic interest, and the impact of the BPEA Transaction.

For the three months ended June 30, 2023, our Net income (controlling interest) increased $15.9 million or 15%.

This increase was primarily due to a $29.7 million increase in Investment and other income attributable to the controlling interest and a $25.3 million increase in Equity method income (net).

These increases were partially offset by a $91.6 million, or 15% decrease in Consolidated revenue and an increase in Other expenses (net) attributable to the controlling interest, primarily due to a $17.7 million increase in expenses related to changes in the values of contingent payment obligations.

For the six months ended June 30, 2023, our Net income (controlling interest) increased $4.4 million or 2%.

This increase was primarily due to a $43.2 million increase in Investment and other income attributable to the controlling interest and a $35.4 million increase in Equity method income (net).

These increases were partially offset by a $181.5 million, or 15%, decrease in Consolidated revenue and an increase in Other expenses (net) attributable to the controlling interest, primarily due to a $28.5 million increase in expenses related to changes in the values of contingent payment obligations.

For the nine months ended September 30, 2023, our Adjusted EBITDA (controlling interest) decreased $36.5 million or 5%, primarily due to a $169.9 million or 5% decrease in aggregate fees and the impact of the BPEA Transaction.

For the three months ended September 30, 2023, our Net income (controlling interest) increased $104.4 million or 93%.

This increase was primarily due to a $133.1 million gain on the Veritable Transaction and an $18.6 million increase in Investment and other income attributable to the controlling interest, partially offset by a $41.1 million increase in Income tax expense attributable to the controlling interest, primarily due to the Veritable Transaction.

For the nine months ended September 30, 2023, our Net income (controlling interest) increased $108.8 million or 30%.

This increase was primarily due to a $133.1 million gain on the Veritable Transaction, a $73.2 million increase in Investment and other income attributable to the controlling interest, and a $30.4 million increase in Equity method income (net).

These increases were partially offset by a $234.7 million decrease in Consolidated revenue, a $28.8 million increase in Income tax expense attributable to the controlling interest, primarily due to the Veritable Transaction, and an increase in Other expenses (net) attributable to the controlling interest, primarily due to an $18.2 million increase in expenses related to changes in the values of contingent payment obligations.

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

For the three months ended June 30, 2023, our Economic net income (controlling interest) increased $5.7 million or 4%, primarily due to a $6.5 million decrease in current and other deferred taxes.

For the six months ended June 30, 2023, our Economic net income (controlling interest) decreased $14.7 million or 4%, primarily due to a $23.8 million decrease in Adjusted EBITDA (controlling interest), partially offset by a $13.6 million decrease in current and other deferred taxes.

For the three months ended September 30, 2023, our Economic net income (controlling interest) decreased $17.5 million or 10%, primarily due to a $12.8 million decrease in Adjusted EBITDA (controlling interest) and a $2.8 million increase in Interest expense attributable to the controlling interest.

For the nine months ended September 30, 2023, our Economic net income (controlling interest) decreased $32.2 million or 6%, primarily due to a $36.5 million decrease in Adjusted EBITDA (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 income (net).

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

Consolidated Revenue

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

For the Three Months Ended June 30, For the Six Months Ended June 30,

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

(in millions, except as noted) 2022 2023 % Change 2022 2023 % Change

1 unchanged sentence

Consolidated revenue $ 578.6 $ 525.2 (9) % $ 1,789.9 $ 1,555.2 (13) %

Our Consolidated revenue decreased $91.6 million or 15% for the three months ended June 30, 2023, due to a $47.1 million or 8% decrease from performance-based fees, primarily in our private markets strategies, and a $44.5 million or 7% decrease from asset-based fees.

Our Consolidated revenue decreased $53.4 million or 9% for the three months ended September 30, 2023, due to a $47.1 million or 8% decrease from performance-based fees, primarily in our private markets strategies, and a $6.3 million or 1% decrease from asset-based fees.

Our Consolidated revenue decreased $234.7 million or 13% for the nine months ended September 30, 2023, due to a $141.4 million or 8% decrease from asset-based fees and a $93.3 million or 5% decrease from performance-based fees, primarily in our private markets strategies.

The decrease in asset-based fees was principally due to a decrease in consolidated Affiliate average assets under management, primarily in our global equity strategies.

Our Consolidated revenue decreased $181.5 million or 15% for the six months ended June 30, 2023, due to a $135.3 million or 11% decrease from asset-based fees and a $46.2 million or 4% decrease 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, primarily in our global equity strategies.

Consolidated Expenses

1 unchanged sentence

The following table presents our Consolidated expenses:

For the Three Months Ended June 30, For the Six Months Ended June 30,

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

% Change % Change

6 unchanged sentences

Other expenses (net) 11.9 7.9 (34) % 12.3 36.2 N.M.

0.4 28.3 N.M.

Total consolidated expenses $ 425.4 $ 357.4 (16) % $ 1,221.0 $ 1,112.5 (9) %

1 unchanged sentence

(1) Percentage change is not meaningful.

Compensation and related expenses decreased $39.3 million or 15% for the three months ended June 30, 2023, primarily due to a $45.2 million decrease in compensation correlated to the decrease in Consolidated revenue, partially offset by a $6.7 million increase in Affiliate equity compensation expense.

Compensation and related expenses decreased $72.0 million or 14% for the six months ended June 30, 2023, primarily due to a $72.1 million decrease in compensation correlated to the decrease in Consolidated revenue.

Selling, general and administrative expenses decreased $7.9 million or 8% for the three months ended June 30, 2023, primarily due to a $5.6 million decrease in distribution and investment-related expenses principally as a result of a decrease in average assets under management on which these expenses are incurred and a $3.0 million decrease in professional fees.

Selling, general and administrative expenses decreased $0.3 million for the six months ended June 30, 2023, primarily due to a $7.4 million decrease in distribution and investment-related expenses principally as a result of a decrease in average assets under management on which these expenses are incurred.

Compensation and related expenses decreased $62.0 million or 23% for the three months ended September 30, 2023, primarily due to a $63.9 million decrease in compensation correlated to the decrease in Consolidated revenue, partially offset by a $2.5 million increase in Affiliate equity compensation expense.

Compensation and related expenses decreased $134.0 million or 17% for the nine months ended September 30, 2023, primarily due to a $136.0 million decrease in compensation correlated to the decrease in Consolidated revenue, partially offset by a $3.6 million increase in Affiliate equity compensation expense.

There were no significant changes in Selling, general and administrative expenses for the three months ended September 30, 2023.

Selling, general and administrative expenses decreased $2.3 million or 1% for the nine months ended September 30, 2023, primarily due to a $9.0 million decrease in distribution and investment-related expenses principally as a result of a decrease in average assets under management on which these expenses are incurred.

This decrease was partially offset by a $3.1 million increase in professional fees and a $3.0 million increase in travel-related expenses.

There were no significant changes in Intangible amortization and impairments for the three and six months ended June 30, 2023.

Interest expense increased $3.6 million or 13% for the three months ended June 30, 2023, primarily due to a $3.8 million increase resulting from higher interest rates on our term loan.

Interest expense increased $4.9 million or 9% for the six months ended June 30, 2023, primarily due to a $7.7 million increase resulting from higher interest rates on our term loan.

There were no significant changes in Intangible amortization and impairments for the three and nine months ended September 30, 2023.

Interest expense increased $2.8 million or 10% for the three months ended September 30, 2023, due to higher interest rates on our term loan.

Interest expense increased $7.7 million or 9% for the nine months ended September 30, 2023, primarily due to a $10.5 million increase resulting from higher interest rates on our term loan.

This increase was partially offset by a $2.9 million decrease resulting from repurchases of our junior convertible securities in the first half of 2022.

There were no significant changes in Depreciation and other amortization for the three and six months ended June 30, 2023.

Other expenses (net) increased $19.0 million for the three months ended June 30, 2023, primarily due to a $17.7 million increase in expenses related to changes in the values of contingent payment obligations.

Other expenses (net) increased $27.9 million for the six months ended June 30, 2023, primarily due to a $28.5 million increase in expenses related to changes in the values of contingent payment obligations.

There were no significant changes in Depreciation and other amortization for the three and nine months ended September 30, 2023.

Other expenses (net) decreased $4.0 million or 34% for the three months ended September 30, 2023, primarily due to a $4.9 million decrease in expenses related to changes in the values of contingent payment obligations.

Other expenses (net) increased $23.9 million for the nine months ended September 30, 2023, primarily due to a $23.6 million increase in expenses related to changes in the values of contingent payment obligations.

Equity Method Income (Net)

2 unchanged sentences

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, if any, which in aggregate form Equity method income (net):

For the Three Months Ended June 30, For the Six Months Ended June 30,

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

(in millions, except as noted) 2022 2023 % Change 2022 2023 % Change

6 unchanged sentences

Equity method income (net) $ 44.8 $ 39.8 (11) % $ 123.9 $ 154.3 25 %

Our equity method revenue decreased $84.9 million or 15% for the three months ended June 30, 2023, due to an $83.8 million or 15% decrease from asset-based fees.

Our equity method revenue decreased $114.6 million or 20% for the three months ended September 30, 2023, due to a $60.7 million or 10% decrease from asset-based fees and a $53.9 million or 10% decrease from performance-based fees, primarily in our liquid alternatives strategies.

The decrease in asset-based fees was primarily due to the impact of the BPEA Transaction, partially offset by changes in the composition of our assets under management.

While equity method revenue decreased $84.9 million or 15% for the three months ended June 30, 2023, equity method earnings increased $11.6 million or 18%.

Equity method earnings increased 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 $13.7 million or 40% for the three months ended June 30, 2023, primarily due to a $12.6 million decrease due to a decline in actual and expected client attrition for certain definite-lived acquired client relationships and a $2.7 million decrease in amortization expense related to certain definite-lived assets being fully amortized.

For the three months ended September 30, 2023, equity method earnings decreased $15.2 million or 20%, primarily due to a $114.6 million or 20% decrease in equity method revenue.

Equity method intangible amortization decreased $10.2 million or 32% for the three months ended September 30, 2023, primarily due to a $9.1 million decrease due to a decline in actual and expected client attrition for certain definite-lived acquired client relationships and a $2.7 million decrease in amortization expense related to certain definite-lived assets being fully amortized.

These decreases were partially offset by a $1.6 million increase in amortization expense due to an investment in a new Affiliate.

Our equity method revenue increased $179.7 million or 14% for the six months ended June 30, 2023, principally due to a $360.5 million or 27% increase from performance-based fees, primarily in our liquid alternative strategies, partially offset by a $180.8 million or 13% decrease from asset-based fees.

Our equity method revenue increased $64.8 million or 3% for the nine months ended September 30, 2023, due to a $306.6 million or 15% increase from performance-based fees, primarily in our liquid alternative strategies, offset by a $241.8 million or 12% decrease from asset-based fees.

The decrease in asset-based fees was primarily due to the impact of the BPEA Transaction, partially offset by changes in the composition of our assets under management.

For the six months ended June 30, 2023, equity method earnings increased $19.3 million or 14%, primarily due to a $179.7 million or 14% increase in equity method revenue.

Equity method intangible amortization decreased $16.1 million or 28% for the six months ended June 30, 2023, primarily due to a $13.9 million decrease due to a decline in actual and expected client attrition for certain definite-lived acquired client relationships and a $5.4 million decrease in amortization expense related to certain definite-lived assets being fully amortized.

For the nine months ended September 30, 2023, equity method earnings increased $4.1 million or 2%, primarily due to a $64.8 million or 3% increase in equity method revenue.

Equity method intangible amortization decreased $26.3 million or 29% for the nine months ended September 30, 2023, primarily due to a $23.0 million decrease due to a decline in actual and expected client attrition for certain definite-lived acquired client relationships and an $8.1 million decrease in amortization expense related to certain definite-lived assets being fully amortized.

These decreases were partially offset by a $4.8 million increase in amortization expense due to an investment in a new Affiliate.

Affiliate Transaction Gain

For the three and nine months ended September 30, 2023, we recorded a $133.1 million pre-tax gain on the Veritable Transaction.

See Note 9 of our Consolidated Financial Statements.

Investment and Other Income (Expense)

The following table presents our Investment and other income (expense):

For the Three Months Ended June 30, For the Six Months Ended June 30,

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

(in millions) 2022 2023 % Change 2022 2023 % Change

3 unchanged sentences

(1) Percentage change is not meaningful.

Investment and other income increased $48.5 million for the three months ended June 30, 2023, primarily due to increases in net realized and unrealized gains on Other investments and Investments in marketable securities of $23.6 million and $19.3 million, respectively.

Investment and other income increased $72.7 million for the six months ended June 30, 2023, primarily due to increases in net realized and unrealized gains on Investments in marketable securities and Other investments of $50.8 million and $13.7 million, respectively, and an $11.1 million increase in Interest income.

Investment and other income increased $19.9 million for the three months ended September 30, 2023, primarily due to increases in net realized and unrealized gains on Other investments of $13.5 million and an increase in interest income of $6.7 million.

Investment and other income increased $92.5 million for the nine months ended September 30, 2023, primarily due to increases in net realized and unrealized gains on Investments in marketable securities and Other investments of $51.6 million and $27.2 million, respectively, and an increase in interest income of $17.8 million.

Income Tax Expense

The following table presents our Income tax expense:

For the Three Months Ended June 30, For the Six Months Ended June 30,

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

(in millions) 2022 2023 % Change 2022 2023 % Change

Income tax expense $ 38.0 $ 32.8 (14) % $ 93.8 $ 77.7 (17) %

Income tax expense decreased $5.2 million or 14% for the three months ended June 30, 2023, primarily due to an $11.1 million tax benefit resulting from a decrease in our 2022 estimated foreign tax expense, partially offset by $2.2 million of tax benefits from the release of certain valuation allowances on foreign net operating losses and $1.1 million of other tax benefits in the three months ended June 30, 2022, neither of which reoccurred, and a $1.9 million increase in taxes resulting from an increase in Income before income taxes attributable to the controlling interest.

Income tax expense decreased $16.1 million or 17% for the six months ended June 30, 2023, primarily due to an $11.1 million tax benefit resulting from a decrease in our 2022 estimated foreign tax expense, a $2.8 million decrease in taxes resulting from a decrease in Income before income taxes attributable to the controlling interest, and a $2.5 million income tax expense attributable to the non-controlling interest in the six months ended June 30, 2022 which did not reoccur.

Income tax expense $ 36.8 $ 77.7 N.M.

$ 130.5 $ 155.4 19 %

___________________________

(1) Percentage change is not meaningful.

Income tax expense increased $40.9 million for the three months ended September 30, 2023, primarily due to a $38.9 million increase in taxes resulting from an increase in Income before income taxes attributable to the controlling interest primarily attributable to the gain on the Veritable Transaction.

Income tax expense increased $24.9 million or 19% for the nine months ended September 30, 2023, primarily due to a $36.1 million increase in taxes resulting from an increase in Income taxes attributable to the controlling interest primarily attributable to the gain on the Veritable Transaction, partially offset by a $3.9 million decrease in tax expense attributable to the non-controlling interest, a $2.6 million increase in tax windfalls attributable to share-based compensation, and a $1.9 million discrete tax expense related to foreign income for the nine months ended September 30, 2022 that did not reoccur.

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

For the Three Months Ended June 30, For the Six Months Ended June 30,

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

(in millions) 2022 2023 % Change 2022 2023 % Change

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Net income (controlling interest) 112.6 217.0 93 % 368.0 476.8 30 %

Net income (controlling interest) increased $15.9 million or 15% for the three months ended June 30, 2023, primarily due to increases in Investment and other income attributable to the controlling interest and Equity method income (net), partially offset by a decrease in Consolidated revenue and an increase in Other expenses (net) attributable to the controlling interest, primarily related to changes in the values of contingent payment obligations.

Net income (controlling interest) increased $4.4 million or 2% for the six months ended June 30, 2023, primarily due to increases in Investment and other income attributable to the controlling interest and Equity method income (net), partially offset by a decrease in Consolidated revenue and an increase in Other expenses (net) attributable to the controlling interest, primarily related to changes in the values of contingent payment obligations.

Net income (controlling interest) increased $104.4 million or 93% for the three months ended September 30, 2023, primarily due to the gain on the Veritable Transaction and an increase in Investment and other income attributable to the controlling interest, partially offset by an increase in Income tax expense attributable to the controlling interest, primarily due to the Veritable Transaction.

Net income (controlling interest) increased $108.8 million or 30% for the nine months ended September 30, 2023, primarily due to the gain on the Veritable Transaction and increases in Investment and other income attributable to the controlling interest and Equity method income (net).

These increases were partially offset by a decrease in Consolidated revenue and increases in Income tax expense attributable to the controlling interest, primarily due to the Veritable Transaction and Other expenses (net) attributable to the controlling interest, primarily due to changes in the values of contingent payment obligations.

Supplemental Financial Performance Measures

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In the first quarter of 2023, we updated the definitions of Adjusted EBITDA (controlling interest) and Economic net income (controlling interest) to reflect AMG's strategic evolution, including our increased allocation of capital toward private markets and liquid alternatives.

To align with the economic impact of these capital allocation decisions, the updated definitions of Adjusted EBITDA (controlling interest) and Economic net income (controlling interest):

To align with the economic impact of these capital allocation decisions, the

updated definitions of Adjusted EBITDA (controlling interest) and Economic net income (controlling interest):

(i) include only the realized economic gains and losses on seed capital, general partner commitments, and other strategic investments and (ii) exclude any unrealized gains and losses on strategic investments (consistent with the existing treatment of seed capital and general partner commitments).

We have retroactively applied this definition change to prior periods.

The following table

presents the impact on the three and six months ended June 30, 2022:

For the Three Months Ended June 30, For the Six Months Ended June 30,

The following table presents the impact on the three and nine months ended September 30, 2022:

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

(in millions) 2022 2022

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Adjusted EBITDA (controlling interest)

Adjusted EBITDA (controlling interest) is an important supplemental financial performance measure for management as it provides a comprehensive view of the financial performance of our business before our share of interest expense, income and certain non-income based taxes, depreciation, amortization, impairments, gains and losses related to the BPEA Transaction, and non-cash items such as certain Affiliate equity activity, gains and losses on our contingent payment obligations, and unrealized gains and losses on seed capital, general partner commitments, and other strategic investments.

Adjusted EBITDA (controlling interest) is an important supplemental financial performance measure for management as it provides a comprehensive view of the financial performance of our business before our share of interest expense, income and certain non-income based taxes, depreciation, amortization, impairments, gains and losses related to the Veritable and BPEA Transactions, and non-cash items such as certain Affiliate equity activity, gains and losses on our contingent payment obligations, and unrealized gains and losses on seed capital, general partner commitments, and other strategic investments.

Adjusted EBITDA (controlling interest) is also adjusted for realized economic gains and losses related to these seed capital, general partner commitments, and other strategic investments.

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

For the Three Months Ended June 30, For the Six Months Ended June 30,

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

(in millions) 2022 2023 2022 2023

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41.9 29.8 116.9 88.6

BPEA Transaction (2)

Affiliate Transactions (2)

— (139.6) — (162.7)

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

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

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 and impairments is reported in Equity method income (net).

The following table presents the

Intangible amortization and impairments shown above:

For the Three Months Ended June 30, For the Six Months Ended June 30,

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

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

(in millions) 2022 2023 2022 2023

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Total $ 41.9 $ 29.8 $ 116.9 $ 88.6

(2) Includes gains on ordinary shares of EQT AB (“EQT”), a public company listed on Nasdaq Stockholm (EQT.ST).

(2) Includes Veritable Transaction gain of $133.1 million for the three and nine months ended September 30, 2023, and gains of $6.5 million and $29.6 million on ordinary shares of EQT AB (“EQT”), a public company listed on Nasdaq Stockholm (EQT.ST), for the three and nine months ended September 30, 2023, respectively.

We received the EQT shares through the sale of our equity interest in Baring Private Equity Asia (“BPEA”), in connection with the strategic combination of BPEA and EQT, which was completed in the fourth quarter of 2022 (the “BPEA Transaction”).

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

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

Further, we adjust for gains and losses related to the Veritable and BPEA Transactions, 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).

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The following table presents a reconciliation of Net income (controlling interest) to Economic net income (controlling interest) and Economic earnings per share:

For the Three Months Ended June 30, For the Six Months Ended June 30,

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

(in millions, except per share data) 2022 2023 2022 2023

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Intangible-related deferred taxes (2)

BPEA Transaction (2)

12.7 14.7 41.2 44.6

Affiliate Transactions (3)

— (104.7) — (122.1)

Other economic items (4)

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

(2) Includes gains on EQT shares, net of $0.4 million and $5.6 million of income tax expense for the three and six months ended June 30, 2023, respectively.

(2) For the three and nine months ended, September 30, 2023, intangible-related deferred taxes have been adjusted to eliminate a $28.9 million benefit related to the Veritable Transaction.

(3) Includes Veritable Transaction gain of $133.1 million and gains on EQT shares of $6.5 million and $29.6 million, net of $34.9 million and $40.6 million income tax expense for the three and nine months ended September 30, 2023, respectively.

(4) Other economic items include gains and losses related to contingent payment obligations, tax windfalls and shortfalls from share-based compensation, certain Affiliate equity activity, unrealized gains and losses on seed capital, general partner commitments, and other strategic investments, and realized economic gains and losses related to these seed capital, general partner commitments, and other strategic investments.

Other economic items were net of income tax (benefit) expense of $(5.4) million and $(7.0) million for the three and six months ended June 30, 2022, respectively, and $2.6 million and $4.4 million for the three and six months ended June 30, 2023, respectively.

Other economic items were net of income tax benefit of $0.0 million and $7.0 million for the three and nine months ended September 30, 2022, respectively, and income tax expense of $0.3 million and $4.7 million for the three and nine months ended September 30, 2023, respectively.

Liquidity and Capital Resources

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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 Investor Services and BBB+ by S&P Global Ratings.

Cash and cash equivalents were $785.5 million as of June 30, 2023 and were attributable to both our controlling and the non-controlling interests.

In the six months ended June 30, 2023, we met our cash requirements primarily through cash generated by operating activities.

Our principal uses of cash in the six months ended June 30, 2023 were for purchases of investment securities, distributions to Affiliate equity holders, and the return of excess capital through share repurchases.

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, payment of income taxes, and general working capital to be the primary uses of cash on a consolidated basis for the foreseeable future.

Cash and cash equivalents were $999.2 million as of September 30, 2023 and were attributable to both our controlling and the non-controlling interests.

In the nine months ended September 30, 2023, we met our cash requirements primarily through cash generated by operating activities.

Our principal uses of cash in the nine months ended September 30, 2023 were for investments in new Affiliates, purchases of investment securities, distributions to Affiliate equity holders, and the return of excess capital through share repurchases.

We expect investments in new Affiliates, investments in existing Affiliates, primarily through purchases of Affiliate equity interests and general partner and seed capital investments, purchases of marketable securities, 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, payment of income taxes, 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, 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.

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.

Pursuant to the terms of the agreement with a third party and one of our consolidated Affiliates regarding the third party’s acquisition of outstanding equity interests in such Affiliate, we will receive gross cash proceeds of approximately $294 million.

The transaction is expected to close in the second half of 2023, and is subject to customary closing conditions.

See Note 9 of our Consolidated Financial Statements.

Following the closing, we expect to use the proceeds to repay debt, pay taxes, fund future growth initiatives, and repurchase shares of our common stock.

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

For the Six Months Ended June 30,

For the Nine Months Ended September 30,

(in millions) 2022 2023

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

For the six months ended June 30, 2023, Cash flows from operating activities were $325.5 million, primarily from Net income of $375.9 million adjusted for distributions of earnings received for equity method investments of $350.9 million and for non-cash items of $49.2 million.

These items were partially offset by timing differences in the cash settlement of receivables, other assets, and payables, accrued liabilities, and other liabilities of $355.3 million.

For the six months ended June 30, 2023, operating cash flows were primarily attributable to the controlling interest.

For the nine months ended September 30, 2023, Cash flows from operating activities were $619.4 million, primarily from Net income of $661.9 million adjusted for distributions of earnings received for equity method investments of $421.7 million.

These items were partially offset by timing differences in the cash settlement of receivables, other assets, and payables, accrued liabilities, and other liabilities of $254.6 million and for non-cash items of $215.9 million.

For the nine months ended September 30, 2023, operating cash flows were primarily attributable to the controlling interest.

Investing Cash Flow

For the six months ended June 30, 2023, Cash flows from investing activities were $291.1 million, primarily due to net maturities and sales of investment securities.

For the six months ended June 30, 2023, investing cash flows were primarily attributable to the controlling interest.

For the nine months ended September 30, 2023, Cash flows from investing activities were $477.9 million, primarily due to $294.0 million of cash proceeds from the Veritable Transaction and $284.3 million of net maturities and sales of investment securities.

These items were partially offset by $93.8 million of investments in Affiliates.

For the nine months ended September 30, 2023, investing cash flows were primarily attributable to the controlling interest.

Financing Cash Flow

For the six months ended June 30, 2023, Cash flows used in financing activities were $265.2 million, primarily due to $156.4 million of distributions to non-controlling interests, $50.0 million of other financing items, and $44.3 million of repurchases of common stock (net).

For the nine months ended September 30, 2023, Cash flows used in financing activities were $524.0 million, primarily due to $216.4 million of distributions to non-controlling interests, $213.6 million of repurchases of common stock (net) and $54.8 million of other financing items.

Affiliate Equity

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

As of June 30, 2023, the current redemption value of Affiliate equity interests was $569.3 million, of which $500.9 million was presented as Redeemable non-controlling interests (including $16.0 million of consolidated Affiliate sponsored investment products primarily attributable to third-party investors), and $68.4 million was presented as Other liabilities.

Although the timing and amounts of these purchases are difficult to predict, we paid $21.8 million for Affiliate equity purchases and received $13.4 million for Affiliate equity issuances during the six months ended June 30, 2023, and we expect net purchases of approximately $100 million of Affiliate equity during the remainder of 2023.

As of September 30, 2023, the current redemption value of Affiliate equity interests was $477.5 million, of which $432.3 million was presented as Redeemable non-controlling interests (including $13.9 million of consolidated Affiliate sponsored investment products primarily attributable to third-party investors), and $45.2 million was presented as Other liabilities.

Although the timing and amounts of these purchases are difficult to predict, we paid $41.7 million for Affiliate equity purchases and received $13.4 million for Affiliate equity issuances during the nine months ended September 30, 2023, and we expect net purchases of approximately $30 million of Affiliate equity during the remainder of 2023.

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

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Share Repurchases

Our Board of Directors authorized share repurchase programs in October 2022 and January 2022 to repurchase up to 3.0 million and 2.0 million shares of our common stock, respectively, and these authorizations have no expiry.

Our Board of Directors authorized share repurchase programs in October 2023, October 2022, and January 2022 to repurchase up to 3.3 million, 3.0 million, and 2.0 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.

During the three and six months ended June 30, 2023, we repurchased 0.7 million shares of our common stock at an average price per share of $125.13.

As of June 30, 2023, there were a total of 3.2 million shares available for repurchase under our October 2022 and January 2022 share repurchase programs.

As of September 30, 2023, we had repurchased all of the shares authorized in January 2022.

During the three and nine months ended September 30, 2023, we repurchased 1.2 million and 2.0 million shares of our common stock at an average price per share of $137.34 and $132.90, respectively.

As of the October 16, 2023 authorization, there were a total of 5.0 million shares available for repurchase under our 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 represented 80% of the upfront payment based on the closing price of our common stock on the agreement date.

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

In June 2023, we received a final share delivery of 0.4 million shares.

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In August 2022, the Inflation Reduction Act was enacted into law and included a 1% excise tax on stock repurchases after December 31, 2022.

We currently do not expect the excise tax to have a material impact on our financial position or cash flows.

We do not currently expect the excise tax to have a material impact on our financial position or cash flows.

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

See Note 7 of our Consolidated Financial Statements.

(in millions) December 31, 2022 June 30, 2023

(in millions) December 31, 2022 September 30, 2023

Senior bank debt $ 350.0 $ 350.0

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

As of June 30, 2023, we had no outstanding borrowings under the revolver, and could borrow all capacity and remain in compliance with our credit facilities.

As of June 30, 2023, we had senior notes outstanding, the respective principal terms of which are presented below:

As of September 30, 2023, we had no outstanding borrowings under the revolver, and could borrow all capacity and remain in compliance with our credit facilities.

As of September 30, 2023, we had senior notes outstanding, the respective principal terms of which are presented below:

Senior Notes 2025

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Junior Subordinated Notes

As of June 30, 2023, we had junior subordinated notes outstanding, the respective principal terms of which are presented below:

As of September 30, 2023, we had junior subordinated notes outstanding, the respective principal terms of which are presented below:

Junior Subordinated Notes 2060

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Junior Convertible Securities

As of June 30, 2023, we had $341.7 million of principal outstanding in our 5.15% junior convertible trust preferred securities (the “junior convertible securities”), maturing in 2037.

As of September 30, 2023, we had $341.7 million of principal outstanding in our 5.15% junior convertible trust preferred securities (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.

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We may redeem the junior convertible securities, subject to our stock trading at or above certain specified levels over specified 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.

During the six months ended June 30, 2022, we repurchased a portion of our junior convertible securities for a purchase price of $60.9 million and as a result of these repurchases, we reduced our Deferred income tax liability (net) by $11.7 million.

We did not repurchase any of our junior convertible securities during the six months ended June 30, 2023.

During the nine months ended September 30, 2022, we repurchased a portion of our junior convertible securities for a purchase price of $60.9 million and as a result of these repurchases, we reduced our Deferred income tax liability (net) by $11.7 million.

We did not repurchase any of our junior convertible securities during the nine months ended September 30, 2023.

Equity Distribution Program

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

As of June 30, 2023, no sales had occurred under the equity distribution program.

As of September 30, 2023, no sales had occurred under the equity distribution program.

See Note 8 of our Consolidated Financial Statements.

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See Notes 5 and 8 of our Consolidated Financial Statements.

As of June 30, 2023, our lease obligations were $20.2 million for the remainder of 2023, $75.1 million from 2024 through 2025, $48.4 million from 2026 through 2027, and $92.6 million thereafter.

As of September 30, 2023, our lease obligations were $10.1 million for the remainder of 2023, $73.3 million from 2024 through 2025, $46.7 million from 2026 through 2027, and $87.3 million thereafter.

The portion of these lease obligations attributable to the controlling interest were $2.9 million for the remainder of 2023, $20.2 million from 2024 through 2025, $6.4 million from 2026 through 2027, and $10.0 million thereafter.

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Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes to our Quantitative and Qualitative Disclosures About Market Risk for the three months ended June 30, 2023.

There have been no material changes to our Quantitative and Qualitative Disclosures About Market Risk for the three months ended September 30, 2023.

Please refer to Item 7A of our 2022 Annual Report on Form 10-K.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis