AFFILIATED MANAGERS GROUP, INC. 10-K

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 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, 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 2023 compared to fiscal year 2022 is included herein. For discussion and analysis of fiscal year 2022 compared to fiscal year 2021, please refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7 of Part II in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, which was filed with the SEC on February 17, 2023. Executive Overview AMG is a strategic partner to leading independent investment 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. With their entrepreneurial, investment-centric cultures and alignment of interests with clients through direct equity ownership by firm principals, independent firms have fundamental competitive advantages in offering unique return streams to the marketplace. Through AMG’s distinctive approach, we enhance these advantages to magnify the long-term success of our Affiliates and actively support their independence. Our innovative model enables each Affiliate’s management team to retain autonomy and significant equity ownership in their firm, while they leverage our strategic capabilities and insight, including growth capital, product strategy and development, capital formation, and incentive alignment and succession planning. As of December 31, 2023, our aggregate assets under management were approximately $673 billion across a diverse range of private markets, liquid alternatives, and differentiated long-only investment strategies. In the third quarter of 2023, we completed a minority investment in Forbion Group Holding B.V., a private markets firm focused on investing in high-quality life sciences companies, and in the fourth quarter of 2023, we completed a minority investment in Ara Partners Group, LLC, a private markets firm specializing in industrial decarbonization. Following the close of the transactions, Affiliate management continues to hold a significant majority of the equity of the businesses and directs the day-to-day operations. In the third quarter of 2023, we completed the sale of our equity interest in Veritable, LP (“Veritable”) (the “Veritable Transaction”). Pursuant to the terms of the agreement, under which a third party acquired 100% of the outstanding equity interests in Veritable, we received $287.4 million in cash, net of transaction costs. Our gain on the transaction was $133.1 million. In the fourth quarter of 2022, we completed the sale of our equity interest in Baring Private Equity Asia (“BPEA”) 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 were subject to a six-month lock-up, which expired in April 2023), and other investments. Our gain on the transaction was $641.9 million. Operating Performance Measures Under accounting principles generally accepted in the U.S. (“GAAP”), we are required to consolidate certain of our Affiliates and use the equity method of accounting for others. 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. 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: 22 Table of Contents As of and for the Years Ended December 31, (in billions, except as noted) 2021 2022 % Change 2023 % Change Assets under management $ 813.8 $ 650.8 (20) % $ 672.7 3 % Average assets under management 761.7 709.4 (7) % 660.3 (7) % Aggregate fees (in millions) 5,611.4 5,560.5 (1) % 5,066.6 (9) % Assets under management, and therefore average assets under management, include the assets under management of our consolidated and equity method Affiliates. Assets under management is presented on a current basis without regard to the timing of the inclusion of an Affiliate’s financial results in our operating performance measures and Consolidated Financial Statements. 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 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. For certain of our Affiliates accounted for under the equity method, we report the Affiliate’s aggregate fees one quarter in arrears. Aggregate fees are provided in addition to, but not as a substitute for, Consolidated revenue or other GAAP performance measures. Assets Under Management 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, 2023. At the same time, our equity strategies saw outflows, particularly in global equities, in line with client cash flow trends across the industry. We continue to invest in areas of long-term client demand — including private markets, liquid alternatives, sustainable investment 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, 2022 and 2023: Assets Under Management by Strategy ___________________________ (1) Alternatives include private markets strategies, which accounted for 15% and 17% of our assets under management as of December 31, 2022 and 2023, respectively. The following table presents changes in our assets under management by strategy: 23 Table of Contents (in billions) Alternatives Global Equities U.S. Equities Multi-Asset & Fixed Income Total December 31, 2022 $ 220.9 $ 186.1 $ 133.3 $ 110.5 $ 650.8 Client cash inflows and commitments 32.4 19.7 18.0 19.6 89.7 Client cash outflows (23.1) (46.0) (30.9) (18.9) (118.9) Net client cash flows 9.3 (26.3) (12.9) 0.7 (29.2) New investments 8.1 — — — 8.1 Veritable (1) (0.2) — — (17.6) (17.8) Market changes 8.7 25.0 22.5 10.8 67.0 Foreign exchange (2) 2.1 2.4 0.5 0.3 5.3 Realizations and distributions (net) (7.3) (0.3) (0.7) (0.3) (8.6) Other (3) (2.8) (0.3) 0.1 0.1 (2.9) December 31, 2023 $ 238.8 $ 186.6 $ 142.8 $ 104.5 $ 672.7 ___________________________ (1) Assets under management attributable to Veritable as of the closing date. (2) Foreign exchange reflects the impact of translating the assets under management of our Affiliates whose functional currency is not the U.S. dollar into our functional currency. (3) Other includes assets under management attributable to product transitions and reclassifications. The following charts present information regarding the composition of our assets under management by client type as of December 31, 2022 and 2023: Assets Under Management by Client Type The following table presents changes in our assets under management by client type: 24 Table of Contents (in billions) Institutional Retail High Net Worth Total December 31, 2022 $ 333.5 $ 188.9 $ 128.4 $ 650.8 Client cash inflows and commitments 38.5 31.5 19.7 89.7 Client cash outflows (50.2) (47.7) (21.0) (118.9) Net client cash flows (11.7) (16.2) (1.3) (29.2) New investments 7.9 — 0.2 8.1 Veritable (1) (0.2) — (17.6) (17.8) Market changes 28.0 25.5 13.5 67.0 Foreign exchange (2) 3.0 1.9 0.4 5.3 Realizations and distributions (net) (6.0) (2.4) (0.2) (8.6) Other (3) 0.4 (1.7) (1.6) (2.9) December 31, 2023 $ 354.9 $ 196.0 $ 121.8 $ 672.7 ___________________________ (1) Assets under management attributable to Veritable as of the closing date. (2) Foreign exchange reflects the impact of translating the assets under management of our Affiliates whose functional currency is not the U.S. dollar into our functional currency. (3) Other includes assets under management attributable to product transitions and reclassifications. The following tables present performance of our investment strategies, where available, measured by the percentage of assets under management ahead of their relevant benchmark: AUM Weight % of AUM Ahead of Benchmark (1) 3-year 5-year 10-year Liquid alternatives (2) 18 % 85 % 95 % 84 % Global equity (2) 28 % 44 % 43 % 61 % U.S. equity (2) 21 % 42 % 77 % 77 % Multi-asset and fixed income (3) 16 % N/A N/A N/A AUM Weight % of AUM Ahead of Benchmark (1) IRR Latest Vintage IRR Last Three Vintages Private markets (4) 17 % 83 % 84 % ___________________________ (1) Past performance is not indicative of future results. Performance and AUM information is as of December 31, 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. (2) For liquid alternative, global equity, and U.S. equity products, performance is reported as the percentage of assets that have outperformed benchmarks across the indicated periods, and excludes market-hedging products. For purposes of investment performance comparisons, products are an aggregation of portfolios (separate accounts, investment funds, and other products) that each represent a particular investment objective, using the most representative portfolio for the performance comparison. Performance is presented for products with a three-, five-, and/or ten-year track record and is measured on a consistent basis relative to the most appropriate benchmarks. Benchmark appropriateness is generally reviewed annually to reflect any changes in how underlying portfolios/mandates are managed. Product and benchmark performance is reflected as total return and is annualized. Reported product performance is gross-of-fees for institutional and high-net-worth separate accounts, and generally net-of-fees across retail funds and other commingled vehicles such as hedge funds. (3) Multi-asset and fixed income products are mainly our wealth management and solutions offerings. These investment products are primarily customized toward wealth preservation, estate planning, and liability and tax management, and therefore are typically not measured against a benchmark. 25 Table 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 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. Aggregate Fees Aggregate fees consist of asset- and performance-based fees of our consolidated and equity method Affiliates. Asset-based fees include advisory and other fees earned by our Affiliates for services provided to their clients and are typically determined as a percentage of the value of a client’s assets under management, 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 will vary from period to period because they inherently depend on investment performance. As of December 31, 2023, approximately 27% of our total assets under management could potentially earn performance-based fees. 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. 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 predominately earned by our Affiliates accounted for under the equity method. Aggregate fees were $5,066.6 million in 2023, a decrease of $493.9 million or 9% as compared to 2022. The decrease in our aggregate fees was due to a $348.7 million or 6% decrease from asset-based fees and a $145.2 million or 3% decrease from performance-based fees, primarily in our liquid alternative strategies. 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. These decreases were partially offset by changes in the composition of our assets under management. Financial and Supplemental Financial Performance Measures The following table presents our key financial and supplemental financial performance measures: For the Years Ended December 31, (in millions) 2021 2022 % Change 2023 % Change Net income (controlling interest) $ 565.7 $ 1,145.9 N.M. (1) $ 672.9 (41) % Adjusted EBITDA (controlling interest) (2) 1,045.6 1,053.8 1 % 935.7 (11) % Economic net income (controlling interest) (2) 770.0 797.2 4 % 717.8 (10) % ___________________________ (1) Percentage change is not meaningful. (2) Adjusted EBITDA (controlling interest) and Economic net income (controlling interest) are non-GAAP performance measures and are discussed in “Supplemental Financial Performance Measures.” Adjusted EBITDA (controlling interest) is an important supplemental financial performance measure for management as it provides a comprehensive view of our share of the financial performance of our business. Adjusted EBITDA (controlling interest) decreased $118.1 million or 11% in 2023, primarily due to a $493.9 million or 9% decrease in aggregate fees. Adjusted EBITDA (controlling interest) decreased more than aggregate fees on a percentage basis primarily due to the recognition of performance-based fees earned by Affiliates in which we hold less of an economic interest. 26 Table of Contents Net income (controlling interest) decreased $473.0 million or 41% in 2023. This decrease was primarily due to a $508.8 million decrease in Affiliate Transaction gains and the impact of a $58.1 million decrease in Equity method income (net). These decreases were partially offset by a $169.1 million decrease in Income tax expense attributable to the controlling interest. We believe Economic net income (controlling interest) is an important supplemental financial performance measure because it represents our performance before non-cash expenses relating to our acquisition of interests in Affiliates and improves comparability of performance between periods. Economic net income (controlling interest) decreased $79.4 million or 10% in 2023 primarily due to a $118.1 million or 11% 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). Consolidated Revenue Our Consolidated revenue is derived from our consolidated Affiliates, primarily from asset-based fees from investment management services. 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 Affiliates’ average assets under management and the composition of these assets across our consolidated Affiliates’ investment strategies with different asset-based fee ratios and performance-based fees. The following table presents our consolidated Affiliates’ average assets under management and Consolidated revenue: For the Years Ended December 31, (in millions, except as noted) 2021 2022 % Change 2023 % Change Consolidated Affiliate average assets under management (in billions) $ 445.8 $ 422.2 (5) % $ 393.7 (7) % Consolidated revenue $ 2,412.4 $ 2,329.6 (3) % $ 2,057.8 (12) % Our Consolidated revenue decreased $271.8 million or 12% in 2023, due to a $165.5 million or 7% decrease from asset-based fees and a $106.3 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. Consolidated Expenses Our Consolidated expenses are primarily attributable to the non-controlling interests of our consolidated Affiliates. The following table presents our Consolidated expenses: For the Years Ended December 31, (in millions) 2021 2022 % Change 2023 % Change Compensation and related expenses $ 1,047.1 $ 1,071.5 2 % $ 907.5 (15) % Selling, general and administrative 347.1 385.5 11 % 358.2 (7) % Intangible amortization and impairments 35.7 51.6 45 % 48.3 (6) % Interest expense 111.4 114.4 3 % 123.8 8 % Depreciation and other amortization 16.6 15.8 (5) % 13.0 (18) % Other expenses (net) 73.5 34.7 (53) % 45.8 32 % Total consolidated expenses $ 1,631.4 $ 1,673.5 3 % $ 1,496.6 (11) % Compensation and related expenses decreased $164.0 million or 15% in 2023, primarily due to a $161.9 million decrease in compensation correlated to the decrease in Consolidated revenue and a $3.0 million decrease in share-based compensation. 27 Table of Contents Selling, general and administrative expenses decreased $27.3 million or 7% in 2023, primarily due to a $26.0 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. There were no significant changes in Intangible amortization and impairments in 2023. Interest expense increased $9.4 million or 8% in 2023, primarily due to a $12.1 million increase resulting from higher interest rates on our senior unsecured term loan facility (the “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 in 2023. Other expenses (net) increased $11.1 million or 32% in 2023, primarily due to a $13.0 million increase in expenses related to changes in the values of contingent payment obligations. Equity Method Income (Net) When we do not own a controlling equity interest in an Affiliate, but have significant influence, we account for our interest in the Affiliate under the equity method. Our share of earnings or losses from Affiliates accounted for under the equity method, net of amortization and impairments, is included in Equity method income (net). For certain of our Affiliates accounted for under the equity method, we report the Affiliate’s financial results in our Consolidated Financial Statements one quarter in arrears. For a majority of these Affiliates, we use structured partnership interests in which we contractually share in the Affiliate’s revenue less agreed-upon expenses. We also use structured partnership interests in which we contractually share in the Affiliate’s revenue without regard to expenses. Our 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 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, equity method intangible amortization, and equity method intangible impairments, which in aggregate form Equity method income (net): For the Years Ended December 31, (in millions, except as noted) 2021 2022 % Change 2023 % Change Operating Performance Measures Equity method Affiliate average assets under management (in billions) $ 315.9 $ 287.2 (9) % $ 266.6 (7) % Equity method revenue $ 3,199.0 $ 3,230.9 1 % $ 3,008.8 (7) % Financial Performance Measures Equity method earnings $ 417.5 $ 497.2 19 % $ 375.6 (24) % Equity method intangible amortization (123.0) (109.1) (11) % (86.0) (21) % Equity method intangible impairments (52.0) (50.0) (4) % (9.6) (81) % Equity method income (net) $ 242.5 $ 338.1 39 % $ 280.0 (17) % Our equity method revenue decreased $222.1 million or 7% in 2023, due to a $183.2 million or 6% decrease from asset-based fees and a $38.9 million or 1% decrease from performance-based fees, primarily in our liquid alternative strategies. The decrease in asset-based fees was principally due to the impact of the BPEA Transaction, partially offset by changes in the composition of our assets under management. 28 Table of Contents Equity method earnings decreased $121.6 million or 24% in 2023, while equity method revenue decreased $222.1 million or 7%. Equity method earnings decreased 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 less of an economic interest. Equity method intangible amortization decreased $23.1 million or 21% in 2023, primarily due to a $22.9 million decrease in amortization expense due to a decrease in actual and expected client attrition for certain definite-lived acquired client relationships and an $8.4 million decrease due to the BPEA Transaction. These decreases were partially offset by an $8.2 million increase in amortization expense due to investments in new Affiliates. Equity method intangible impairments decreased $40.4 million or 81% in 2023. See Note 9 of our Consolidated Financial Statements. Affiliate Transaction gains For the years ended December 31, 2022, and 2023, we recorded gains of $641.9 million on the BPEA Transaction and $133.1 million on the Veritable Transaction, respectively. See Notes 8 and 9 of our Consolidated Financial Statements. Investment and Other Income The following table presents our Investment and other income: For the Years Ended December 31, (in millions) 2021 2022 % Change 2023 % Change Investment and other income $ 117.6 $ 110.3 (6) % $ 117.1 6 % Investment and other income increased $6.8 million or 6% in 2023, primarily due to a $29.2 million net increase in realized and unrealized gains on Other investments and a $21.1 million increase in interest income. These increases were partially offset by a $38.9 million net decrease in realized and unrealized gains on Investments in marketable securities. Income Tax Expense The following table presents our Income tax expense: For the Years Ended December 31, (in millions) 2021 2022 % Change 2023 % Change Income tax expense $ 251.0 $ 358.3 43 % $ 185.3 (48) % Income tax expense decreased $173.0 million or 48% in 2023, primarily due to a decrease in Income before income taxes attributable to the controlling interest and higher discrete foreign and domestic tax benefits realized on our final 2022 tax returns as a result of the change in the mix of foreign and domestic income. See Note 19 of our Consolidated Financial Statements. Net Income The following table presents Net income, Net income (controlling interest) and Net income (non-controlling interest): For the Years Ended December 31, (in millions) 2021 2022 % Change 2023 % Change Net income $ 890.1 $ 1,388.1 56 % $ 906.1 (35) % Net income (non-controlling interests) 324.4 242.2 (25) % 233.2 (4) % Net income (controlling interest) 565.7 1,145.9 N.M. (1) 672.9 (41) % ___________________________ (1) Percentage change is not meaningful. Net income (controlling interest) decreased $473.0 million or 41% in 2023, primarily due decreases in Affiliate Transaction gains and Equity method income (net). These decreases were partially offset by a decrease in Income tax expense attributable to the controlling interest. Supplemental Financial Performance Measures 29 Table of Contents As supplemental information, we provide non-GAAP performance measures of Adjusted EBITDA (controlling interest), Economic net income (controlling interest), and Economic earnings per share. Management utilizes these non-GAAP performance measures to assess our performance before our share of certain non-cash expenses and to improve comparability between periods. 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): (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. 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 expense, income and certain non-income based taxes, depreciation, amortization, impairments, gains and losses related to the BPEA and Veritable 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. We believe that many investors use this non-GAAP measure when assessing the financial performance of companies in the investment management industry. This non-GAAP performance measure is provided in addition to, but not as a substitute for, Net income (controlling interest) or other GAAP performance measures. The following table presents a reconciliation of Net income (controlling interest) to Adjusted EBITDA (controlling interest): For the Years Ended December 31, (in millions) 2021 2022 2023 Net income (controlling interest) $ 565.7 $ 1,145.9 $ 672.9 Interest expense 111.4 114.4 123.8 Income taxes 229.6 347.4 185.2 Intangible amortization and impairments (1) 199.9 195.0 128.5 Affiliate Transactions (2) — (743.6) (162.7) Other items (3) (61.0) (5.3) (12.0) Adjusted EBITDA (controlling interest) $ 1,045.6 $ 1,053.8 $ 935.7 ___________________________ (1) Intangible amortization and impairments in our Consolidated Statements of Income include amortization attributable to the non-controlling interests of our consolidated Affiliates. For our Affiliates accounted for under the equity method, we do not separately report intangible amortization and impairments in our Consolidated Statements of Income. Our share of these Affiliates’ amortization and impairments is included in Equity method income (net). The following table presents the Intangible amortization and impairments shown above: For the Years Ended December 31, (in millions) 2021 2022 2023 Consolidated intangible amortization and impairments $ 35.7 $ 51.6 $ 48.3 Consolidated intangible amortization and impairments (non-controlling interests) (10.8) (15.7) (15.4) Equity method intangible amortization and impairments 175.0 159.1 95.6 Total $ 199.9 $ 195.0 $ 128.5 (2) The year ended December 31, 2022 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. The year ended December 31, 2023 includes Veritable Transaction gain of $133.1 million and realized gains on ordinary shares of EQT of $29.6 million. 30 Table of Contents (3) Other items include certain non-income based taxes, depreciation, and non-cash items such as gains and losses on our contingent payment obligations, 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. Economic Net Income (controlling interest) and Economic Earnings Per Share We believe Economic net income (controlling interest) and Economic earnings per share are important measures because they represent our performance before non-cash expenses relating to the acquisition of interests in Affiliates and improve comparability of performance between periods. Economic net income (controlling interest) and Economic earnings per share are used by our management and Board of Directors as our principal performance benchmarks, including as one of the measures for aligning executive compensation with stockholder value. These non-GAAP performance measures are provided in addition to, but not as substitutes for, Net income (controlling interest) and Earnings per share (diluted) or other GAAP performance measures. We adjust Net income (controlling interest) to calculate Economic net income (controlling interest) by adding back our share of pre-tax intangible amortization and impairments attributable to intangible assets (including the portion attributable to equity method investments in Affiliates) because these expenses do not correspond to the changes in the value of these assets, which do not diminish predictably over time. We also add back the deferred taxes attributable to intangible assets because we believe it is unlikely these accruals will be used to settle material tax obligations. Further, we adjust for gains and losses related to the BPEA and Veritable 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). 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. This method does not take into account any increase or decrease in our cost of capital in an assumed conversion. The following table presents a reconciliation of Net income (controlling interest) to Economic net income (controlling interest) and Economic earnings per share: For the Years Ended December 31, (in millions, except per share data) 2021 2022 2023 Net income (controlling interest) $ 565.7 $ 1,145.9 $ 672.9 Intangible amortization and impairments (1) 199.9 195.0 128.5 Intangible-related deferred taxes (2) 52.5 45.5 57.3 Affiliate Transactions (3) — (576.0) (122.1) Other economic items (4) (48.1) (13.2) (18.8) Economic net income (controlling interest) $ 770.0 $ 797.2 $ 717.8 Average shares outstanding (diluted) 44.8 49.0 42.2 Hypothetical issuance of shares to settle Redeemable non-controlling interests — (7.4) (3.7) Assumed issuance of junior convertible securities shares (2.1) (1.8) (1.7) Average shares outstanding (adjusted diluted) 42.7 39.8 36.8 Economic earnings per share $ 18.05 $ 20.02 $ 19.48 ___________________________ (1) See note (1) to the table in “Adjusted EBITDA (controlling interest).” 31 Table of Contents (2) For the years ended December 31, 2022, and 2023, intangible-related deferred taxes have been adjusted to eliminate benefits of $13.5 million related to the BPEA Transaction and $28.9 million related to the Veritable Transaction, respectively. (3) The year ended December 31, 2022 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. The year ended December 31, 2023 includes Veritable Transaction gain of $133.1 million and realized gains on EQT shares of $29.6 million, net of $40.6 million income tax expense. (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. For the years ended December 31, 2021, 2022, and 2023, other economic items were net of income tax expense (benefit) of $21.8 million, $(6.4) million, and $5.2 million, respectively. Liquidity and Capital Resources 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. We continue to manage our capital structure consistent with an investment grade company and are currently rated A3 by Moody’s Investors Service and BBB+ by S&P Global Ratings. Cash and cash equivalents were $813.6 million as of December 31, 2023 and were attributable to both our controlling and the non-controlling interests. Our principal uses of cash in 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. In 2023, we met our cash requirements primarily through cash generated by operating activities, proceeds from the Veritable Transaction, and proceeds from the sale of our remaining ordinary shares of EQT. 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, purchases of marketable securities, 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. The following table presents operating, investing, and financing cash flow activities: For the Years Ended December 31, (in millions) 2021 2022 2023 Operating cash flow $ 1,259.2 $ 1,054.7 $ 874.3 Investing cash flow (583.7) (109.9) 264.5 Financing cash flow (798.3) (1,402.9) (758.3) Operating Cash Flow Operating cash flows are calculated by adjusting Net income for other significant sources and uses of cash, significant non-cash items, and timing differences in the cash settlement of assets and liabilities. For the year ended December 31, 2023, Cash flows from operating activities were $874.3 million, primarily from Net income of $906.1 million adjusted for $490.8 million of distributions of earnings received from equity method investments and non-cash items of $303.3 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 $228.6 million. In 2023, operating cash flows were primarily attributable to the controlling interest. Investing Cash Flow 32 Table of Contents For the year ended December 31, 2023, Cash flows from investing activities were $264.5 million, primarily due to $294.0 million of cash proceeds from the Veritable Transaction and $277.4 million of net maturities and sales of investment securities. These items were partially offset by $294.7 million of investments in Affiliates. In 2023, investing cash flows were primarily attributable to the controlling interest. Financing Cash Flow For the year ended December 31, 2023, Cash flows used in financing activities were $758.3 million, primarily due to $341.9 million of repurchases of common stock (net), $271.3 million of distributions to non-controlling interests, $55.3 million of other financing items, and $54.0 million of Affiliate equity purchases, net of issuances. 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. The purchase price of these conditional purchases is generally calculated based upon a multiple of the Affiliate’s cash flow distributions, which is intended to represent fair value. Affiliate equity holders are also permitted to sell their equity interests to other individuals or entities in certain cases, subject to our approval or other restrictions. As of December 31, 2023, the current redemption value of Affiliate equity interests was $447.3 million, of which $393.4 million was presented as Redeemable non-controlling interests (including $11.8 million of consolidated Affiliate sponsored investment products primarily attributable to third-party investors), and $53.9 million was included in Other liabilities. Although the timing and amounts of these purchases are difficult to predict, we paid $67.4 million for Affiliate equity purchases and received $13.4 million for Affiliate equity issuances in 2023, and we expect net purchases of approximately $100 million of Affiliate equity in 2024. In the event of a purchase, we become the owner of the cash flow associated with the purchased equity. See Notes 16 and 17 of our Consolidated Financial Statements. Share Repurchases Our Board of Directors authorized share repurchase programs in January 2022, October 2022, and October 2023 to repurchase up to 2.0 million, 3.0 million, and 3.3 million shares of our common stock, respectively, and these authorizations have no expiry. Purchases may be made from time to time, at management’s discretion, in the open market or in privately negotiated transactions, including through the use of trading plans, as well as pursuant to accelerated share repurchase programs or other share repurchase strategies that may include derivative financial instruments. For the year ended December 31, 2023, we repurchased 3.0 million shares of our common stock at an average price per share of $132.99. As of December 31, 2023, we had repurchased all of the shares in the repurchase program authorized in January 2022, and there were a total of 4.2 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 represents 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. Under this agreement we repurchased a total of 1.5 million shares at an average price of $147.29 per share. In August 2022, the Inflation Reduction Act was enacted into law and included a provision for a 1% excise tax on repurchases of our common stock. This provision, which was effective for the Company beginning January 1, 2023, did not have a material impact on our Consolidated Financial Statements for the year ended December 31, 2023. We do not currently expect the excise tax to have a material impact on our financial position or cash flows. We record the excise tax as part of the cost basis of our common stock repurchased. Debt The following table presents the carrying value of our outstanding indebtedness. See Note 6 of our Consolidated Financial Statements. 33 Table of Contents December 31, (in millions) 2021 2022 2023 Senior bank debt $ 350.0 $ 350.0 $ 350.0 Senior notes 1,098.0 1,098.7 1,099.4 Junior subordinated notes 765.8 765.9 765.9 Junior convertible securities 299.5 341.7 341.7 The carrying value of our debt differs from the amount reported in the notes to our Consolidated Financial Statements, as the carrying value of our debt in the table above is not reduced for debt issuance costs. Senior Bank Debt We have a $1.25 billion revolver and a $350.0 million term loan (together, the “credit facilities”). The revolver matures on October 25, 2027 and 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. Under the terms of the credit facilities we are required to meet two financial ratio covenants. The first of these covenants is a maximum ratio of debt to EBITDA (the “bank leverage ratio”) of 3.25x. The second covenant is a minimum EBITDA to cash interest expense ratio of 3.00x (the “bank interest coverage ratio”). For purposes of calculating these ratios, share-based compensation and certain Affiliate equity expenses are added back to Adjusted EBITDA. As of December 31, 2023, our bank leverage and bank interest coverage ratios were 1.3x and 8.3x, respectively, and we were in compliance with all of the terms of our credit facilities. As of December 31, 2023, we had no outstanding borrowings under the revolver and could borrow all capacity and remain in compliance with our credit facilities. Senior Notes As of December 31, 2023, we had senior notes outstanding, the respective principal terms of which are presented below: 2024 Senior Notes 2025 Senior Notes 2030 Senior Notes Issue date February 2014 February 2015 June 2020 Maturity date February 2024 August 2025 June 2030 Par value (in millions) $ 400.0 $ 350.0 $ 350.0 Stated coupon 4.25 % 3.50 % 3.30 % Coupon frequency Semi-annually Semi-annually Semi-annually Potential call date Any time Any time Any time On February 15, 2024, our $400.0 million 4.25% senior notes due 2024 matured and were fully repaid. Junior Subordinated Notes As of December 31, 2023, we had junior subordinated notes outstanding, the respective principal terms of which are presented below: 34 Table of Contents 2059 Junior Subordinated Notes 2060 Junior Subordinated Notes 2061 Junior Subordinated Notes Issue date March 2019 September 2020 July 2021 Maturity date March 2059 September 2060 September 2061 Par value (in millions) $ 300.0 $ 275.0 $ 200.0 Stated coupon 5.875 % 4.75 % 4.20 % Coupon frequency Quarterly Quarterly Quarterly Potential call date March 2024 September 2025 September 2026 Listing NYSE NYSE NYSE Junior Convertible Securities As of December 31, 2023, 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. Each of the junior convertible securities represents an undivided beneficial interest in the assets of the trust. The trust’s only assets are junior subordinated convertible debentures issued to it by us, and have substantially the same payment terms as the junior convertible securities. We own all of the trust’s common securities, and have fully and unconditionally guaranteed, on a subordinated basis, the payment obligations on the junior convertible securities. We do not consolidate the trust’s financial results into our Consolidated Financial Statements. Holders of the junior convertible securities have no rights to put these securities to us. Upon conversion, holders will receive cash or shares of our common stock, or a combination thereof, at our election. We may redeem the junior convertible securities, subject to our stock trading at or above certain specified levels over specified times periods, and may also repurchase junior convertible securities in the open market or in privately negotiated transactions from time to time at management’s discretion. The junior convertible securities are considered contingent payment debt instruments under federal income tax regulations, which require us to deduct interest in an amount greater than our reported interest expense. We estimate that these deductions will generate annual deferred tax liabilities of approximately $9 million. For the year ended December 31, 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 $11.4 million. We did not repurchase any of our junior convertible securities during the year ended December 31, 2023. 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, 2023, no sales had occurred under the equity distribution program. Commitments See Note 7 of our Consolidated Financial Statements. Other Contingent Commitments See Notes 4 and 7 of our Consolidated Financial Statements. Leases As of December 31, 2023, our lease obligations were $40.0 million through 2024, $61.5 million from 2025 through 2026, $43.9 million from 2027 through 2028, and $68.3 million thereafter. The portion of these lease obligations attributable to the controlling interest were $11.3 million through 2024, $13.6 million from 2025 through 2026, $3.9 million from 2027 through 2028, and $8.0 million thereafter. See Note 10 of our Consolidated Financial Statements. Recent Accounting Developments See Note 1 of our Consolidated Financial Statements. 35 Table of Contents Critical Accounting Estimates and Judgments The preparation of financial statements and related disclosures in conformity with GAAP requires us to make judgments, assumptions, and estimates that affect the amounts reported in our Consolidated Financial Statements and accompanying notes. See Note 1 of our Consolidated Financial Statements for a discussion of our significant accounting policies. The following are our critical accounting estimates and judgments used in the preparation of our Consolidated Financial Statements, and due to their subjectivity, actual results could differ materially from the amounts reported. Fair Value Measurements Accounting standards define fair value as the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market in an orderly transaction between market participants at the measurement date. 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 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. In these analyses, we also consider historical and current market multiples, tax benefits, credit risk, interest rates, tax rates, discount rates, volatility, and discounts for lack of marketability. We consider the reasonableness of our assumptions by comparing our valuation conclusions to observed market transactions and, in certain instances, by consulting with third-party valuation firms. Changes in the assumptions used could significantly impact fair values. Goodwill Goodwill represents the future economic benefits arising from assets acquired in a business combination that are not separately recognized. We perform a qualitative impairment assessment at least annually to determine if the carrying value of our single reporting unit is in excess of its fair value. In this qualitative assessment, we typically measure the excess of the fair value of our reporting unit over its carrying value using various qualitative and quantitative factors (including our market capitalization). If there is an indication that the carrying value of the reporting unit is in excess of the fair value under this test, then we must determine if a potential impairment is more-likely-than-not. To determine if a potential impairment is more-likely-than-not, we perform a single step quantitative test with any excess of carrying value over fair value recorded as an expense in Intangible amortization and impairments. We completed our annual qualitative goodwill impairment assessment as of September 30, 2023 and no impairment was indicated. Based on our assessment, the fair value of our reporting unit was substantially greater than its respective carrying amount, including goodwill. Indefinite-Lived Acquired Client Relationships Indefinite-lived acquired client relationships include investment advisory contracts between our Affiliates and their mutual funds and other retail-oriented investment products. Because these contracts are with the investment products themselves, and not with the underlying investors, and the contracts between our Affiliates and the investment products are typically renewed on an annual basis, industry practice under GAAP is to consider the contract life to be indefinite and, as a result, not amortizable. We perform indefinite-lived acquired client relationship impairment assessments annually, or more frequently should circumstances indicate fair value has declined below the related carrying value. For purposes of our assessments, we consider various qualitative and quantitative factors to determine if it is more-likely-than-not that the fair value of each asset group is greater than its carrying amount. If we determine that it is likely that the fair value has declined below our related carrying value, we perform discounted cash flow analyses to determine the fair value of the asset group and record an expense in Intangible amortization and impairments to reduce the carrying value to its fair value. For the year ended December 31, 2023, we completed our annual assessment and only a significant decline in the fair values of these assets would result in an impairment. 36 Table of Contents Equity Method Investments in Affiliates We periodically perform assessments to determine if the fair value of an investment may have declined below its related carrying value for our Affiliates accounted for under the equity method for a period that we consider to be other-than-temporary. We perform these assessments if certain triggering events occur or annually during the fourth quarter. We first consider whether certain qualitative and quantitative factors (including discount rates) indicate an increased likelihood of a decline in the fair value of an Affiliate during the reporting period. If such a decline is identified, and it is likely that an investment’s fair value may have declined below its carrying value, we perform a quantitative assessment to determine if an impairment exists. Impairments are recorded as an expense in Equity method income (net) to reduce the carrying value of the Affiliate to its fair value. When we quantitatively test our equity method investments for impairment, we typically use valuation methods such as discounted cash flow analyses. In these analyses, our most significant assumptions relate to growth rates of projected assets under management, client attrition, asset- and performance-based fees, expenses, and discount rates. 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.