Item 1. Business
Item 1. Business.
Organization
Virtus Investment Partners, Inc. (the "Company"), a Delaware corporation, commenced operations on November 1, 1995 and became an independent publicly traded company on December 31, 2008 as a result of the distribution by Phoenix Life Insurance Company ("Phoenix"), the Company's former parent, of 100% of Virtus common stock to Phoenix stockholders in a spin-off transaction.
Our Business
We provide investment management and related services to individuals and institutions. We use a multi-manager, multi-style approach, offering investment strategies from affiliated managers, each having its own distinct investment style, autonomous investment process and individual brand. By offering a broad array of products, we believe we can appeal to a greater number of investors and have offerings across market cycles and through changes in investor preferences. Our earnings are primarily driven by asset-based fees charged for services relating to these various products, including investment management, fund administration, distribution and shareholder services.
We offer investment strategies for individual and institutional investors in different product structures and through multiple distribution channels. Our investment strategies are available in a diverse range of styles and disciplines, managed by a collection of differentiated investment managers. We have offerings in various asset classes (equity, fixed income and alternative), geographies (domestic, international and emerging) market capitalizations (large, mid and small), styles (growth, core and value) and investment approaches (fundamental, quantitative and thematic). Our retail products include open-end funds and exchange traded funds ("ETFs") as well as closed-end funds and retail separate accounts. Our institutional products are offered through separate accounts and pooled or commingled structures to a variety of institutional clients. We also provide subadvisory services to other investment advisers and serve as the collateral manager for structured products.
Our Investment Managers
We provide investment management services through our affiliated investment managers who are registered under the Investment Advisers Act of 1940, as amended (the "Investment Advisers Act"). The investment managers are responsible for portfolio management activities for our retail, institutional and structured products operating under advisory, subadvisory or collateral management agreements. We provide our affiliated managers with distribution, operational and administrative support, thereby allowing each manager to focus primarily on investment management. We also use the investment management services of select unaffiliated managers to sub-advise certain of our open-end funds and ETFs. We monitor our managers' services by assessing their performance, style and consistency and the discipline with which they apply their investment process.
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Our affiliated investment managers and their respective assets under management, products and strategies as of December 31, 2020 were as follows:
Manager Products Strategies Assets
(in billions)
Ceredex Value Advisors Open-end funds and institutional accounts Value Equity Strategies
large-, mid- and small-cap domestic equities
$ 8.5
Duff & Phelps Investment Management Closed- and open-end funds and institutional accounts Income Focused Strategies
global listed infrastructure, domestic, international real estate and energy
$ 10.6
Kayne Anderson Rudnick Investment Management Open-end funds, institutional accounts, intermediary-sold managed accounts and private client accounts Quality-Oriented Equity Strategies
small- to large-cap, including domestic global, international and emerging market strategies
$ 51.7
Newfleet Asset Management Closed- and open-end funds, ETFs, institutional, private client accounts and structured products Multi-Sector Fixed Income Strategies
multi-sector, enhanced core strategies and dedicated sector strategies such as bank loans and high yield
$ 10.0
Seix Investment Advisors Open-end funds, institutional, ETFs and structured products Investment Grade and Leveraged Finance Fixed Income Strategies
high yield, bank loans, investment grade taxable, non-taxable and multi-sector strategies
$ 17.9
Silvant Capital Management Open-end funds and institutional Growth Equity Strategies
including large-cap and small-cap
$ 0.8
Sustainable Growth Advisers Institutional and private client accounts and open-end funds Global Growth Equity Strategies
large-cap growth strategies, including domestic, global, international and emerging markets
$ 22.2
As of December 31, 2020, $10.5 billion in assets under management were managed by unaffiliated managers including an unaffiliated manager in which the Company holds a minority interest.
Our Investment Products
Our assets under management are in open-end funds, closed-end funds, ETFs, retail separate accounts, institutional accounts and structured products.
Assets Under Management by Product as of
December 31, 2020
Fund assets (in billions)
Open-end funds $ 49.5
Closed-end funds 5.9
Exchange traded funds 0.8
Retail separate accounts 29.8
Institutional accounts 40.6
Structured products 4.1
Total Long-Term 130.7
Liquidity (1) 1.5
Total Assets Under Management $ 132.2
(1) Represents assets under management in liquidity strategies, including in certain open-end funds and institutional accounts.
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Open-End Funds
Our open-end mutual funds are offered in a variety of asset classes (domestic and international equity, taxable and non-taxable fixed income, and alternative investments), market capitalizations (large, mid and small), styles (growth, core and value) and investment approaches (fundamental, quantitative and thematic). Our offshore funds are offered in select investment strategies to non-U.S. investors. Summary information about our open-end funds as of December 31, 2020 were as follows:
Asset Class Number of Funds Offered Total Assets Advisory Fee
Range (1)
(in millions) (%)
Domestic Equity 20 $ 23,774 2.15-0.40
Fixed Income 22 11,317 1.85-0.21
International/Global Equity 15 12,054 1.20-0.65
Alternatives 9 1,303 1.30-0.55
Multi-Asset 2 1,073 0.55-0.45
Total Open-End Funds 68 $ 49,521
(1) Percentage of average daily net assets. The percentages listed represent the range of management advisory fees paid by the funds, from the highest to the lowest. The range indicated includes the impact of breakpoints at which management advisory fees for certain of the funds in each fund type decrease as assets in the funds increase. Subadvisory fees paid on funds managed by unaffiliated subadvisers are not reflected in the percentages listed.
Closed-End Funds
Our closed-end funds are offered in a variety of asset classes and various strategies such as infrastructure, energy and global multi-sector. We managed the following closed-end funds as of December 31, 2020, each of which is traded on the New York Stock Exchange:
Fund Type/Name Total Assets Advisory
Fee
(in millions) (%)
Multi-Asset
DNP Select Income Fund Inc. $ 3,807 0.60-0.50 (1)
Virtus Total Return Fund Inc. 604 0.70 (2)
Alternatives
Duff & Phelps Utility and Infrastructure Fund Inc. 716 1.00 (1)
Duff & Phelps Select MLP and Midstream Energy Fund Inc. 19 1.00 (2)
Fixed Income
Duff & Phelps Utility and Corporate Bond Trust Inc. 370 0.50 (1)
Virtus Global Multi-Sector Income Fund 196 0.95 (2)
DTF Tax-Free Income, Inc. 202 0.50 (1)
Total Closed-End Funds $ 5,914
(1) Percentage of average weekly net assets. A range indicates that the fund has breakpoints at which management advisory fees decrease as assets in the fund increase.
(2) Percentage of average daily net assets of each fund.
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Exchange Traded Funds
Our ETFs are offered in a range of actively managed and index-based investment capabilities across multiple asset classes. We managed the following ETFs as of December 31, 2020:
ETF Name Total Assets Advisory
Fee (1)
(in millions) (%)
Alternative
Virtus InfraCap U.S. Preferred Stock ETF $ 225 0.140
Virtus Real Asset Income ETF 152 0.033
InfraCap MLP ETF 147 0.075
InfraCap REIT Preferred ETF 59 0.075
Virtus Reaves Utilities ETF 30 0.490
Equity
Virtus Terranova U.S. Quality Momentum ETF 92 0.290
Virtus LifeSci Biotech Clinical Trials ETF 47 0.450
Virtus LifeSci Biotech Products ETF 29 0.450
Virtus WMC International Dividend ETF 5 0.280
Fixed Income
Virtus Newfleet Multi-Sector Bond ETF 18 0.700
Virtus Newfleet Dynamic Credit ETF 6 0.550
Virtus Seix Senior Loan ETF 6 0.570
Multi-Asset
Virtus Private Credit Strategy ETF 21 0.467
Total ETFs $ 837
(1) Percentage of average daily net assets of each fund. Subadvisory fees paid on funds managed by unaffiliated subadvisers are not reflected in the percentages listed.
Retail Separate Accounts
Intermediary-Sold Managed Accounts
Intermediary-sold managed accounts are individual investment accounts that are primarily contracted through intermediaries as part of investment programs offered to retail investors. Summary information about our intermediary-sold managed accounts as of December 31, 2020 were as follows:
Asset Class Total Assets
(in millions)
Equity
Domestic equity $ 21,489
International equity 329
Fixed Income
Investment grade 244
Leveraged finance 1,789
Alternative 1
Total Intermediary-Sold Managed Accounts $ 23,852
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Private Client Accounts
Private client accounts are investment accounts offered by certain affiliates directly to individual investors. Services provided include investment and wealth advisory services employing both affiliated and unaffiliated investment managers and select third-party business partners. Summary information about our private client accounts as of December 31, 2020 was as follows:
Asset Class Total Assets
(in millions)
Multi-Asset $ 5,750
Fixed Income 103
Equity 46
Total Private Client Accounts $ 5,899
Institutional Accounts
Our institutional clients include corporations, multi-employer retirement funds, public employee retirement systems, foundations and endowments; in addition, we provide subadvisory services to unaffiliated mutual funds. Summary information about our institutional accounts as of December 31, 2020 was as follows:
Asset Class Total Assets
(in millions)
Equity
Domestic equity $ 19,664
International equity 8,738
Fixed Income
Investment grade 6,655
Leveraged finance 2,288
Alternative 2,333
Multi-Asset 945
Total Institutional Accounts $ 40,623
Structured Products
We act as collateral manager for structured finance products that primarily consist of collateralized loan obligations ("CLOs"). We managed the following structured products as of December 31, 2020:
Fund Name Inception Total Assets
(in millions)
Mountain View CLO IX Ltd. 2015 $ 541
Mountain View CLO 2017-1 Ltd. 2017 494
Mountain View CLO 2016-1 Ltd. 2016 405
Mountain View CLO XV Ltd. 2020 405
Mountain View CLO 2017-2 Ltd. 2018 399
Mountain View CLO XIV Ltd. 2019 398
Mountain View CLO 2013-1 Ltd. 2013 377
Mountain View CLO X Ltd. 2015 342
Newfleet CLO 2016-1 Ltd. 2016 305
Mountain View CLO 2014-1 Ltd. 2014 259
Broderick CDO 1 Ltd. 2005 135
Total Structured Products $ 4,060
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Our Investment Management, Administration and Shareholder Services
Our investment management, administration and shareholder service fees earned in each of the last three years were as follows:
Years Ended December 31,
(in thousands) 2020 2019 2018
Open-end funds $ 247,519 $ 229,637 $ 231,175
Closed-end funds 36,833 42,199 41,455
Retail separate accounts 104,932 82,999 73,532
Institutional accounts 109,531 96,429 77,711
Structured products 4,012 6,381 9,622
Other products 2,511 3,832 3,526
Total investment management fees 505,338 461,477 437,021
Administration fees 41,582 42,009 44,503
Shareholder service fees 17,881 17,875 19,111
Total $ 564,801 $ 521,361 $ 500,635
Investment Management Fees
We provide investment management services pursuant to investment management agreements through our affiliated investment advisers (each an "Adviser"). With respect to our funds, the Adviser provides overall investment management services, pursuant to agreements with the funds. We earn fees based on each fund's average daily or weekly net assets with most fee schedules providing for rate declines or "breakpoints" as asset levels increase to certain thresholds. For funds managed by subadvisers, the day-to-day investment management of the fund's portfolio is performed by the subadviser, which receives a management fee based on a percentage of the Adviser's management fee. Each fund bears all expenses associated with its operations. In some cases, to the extent total fund expenses exceed a specified percentage of a fund's average net assets, the Adviser has agreed to reimburse the funds for such excess expenses.
For retail separate accounts and institutional accounts, investment management fees are negotiated and based primarily on portfolio size and complexity, individual client requests and investment strategy capacity, as appropriate. In certain instances, institutional fees may include performance related fees. Generally, we are entitled to performance related fees only if the returns on the portfolios exceed agreed upon periodic or cumulative return targets, primarily benchmark indices. Fees for structured finance products, for which we act as the collateral manager, consist of senior, subordinated and, in certain instances, incentive management fees. Senior and subordinated management fees are calculated at a contractual fee rate applied against the end of the preceding quarter par value of the total collateral being managed with subordinated fees being recognized only after certain portfolio criteria are met. Incentive fees on certain of our structured products are typically a percentage of the excess cash flows available to holders of the subordinated notes, above a threshold level internal rate of return.
Administration Fees
We provide various administrative fund services to our open-end mutual funds, ETFs and certain of our closed-end funds. We earn fees based on each fund's average daily or weekly net assets. These services include: record keeping, preparing and filing documents required to comply with securities laws, legal administration and compliance services, customer service, supervision of the activities of the funds' service providers, tax services and treasury services as well as providing office space, equipment and personnel that may be necessary for managing and administering the business affairs of the funds.
Shareholder Service Fees
We provide shareholder services to our open-end mutual funds. We earn fees based on each fund's average daily net assets. Shareholder services include maintaining shareholder accounts, processing shareholder transactions, preparing filings and performing necessary reporting, among other things.
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Our Distribution Services
We distribute our open-end funds and ETFs principally through financial intermediaries. We have broad distribution access in the retail market, with distribution partners that include national and regional broker-dealers, independent broker-dealers and registered investment advisers, banks and insurance companies. In many of these firms, we have a number of products that are on preferred "recommended" lists and on fee-based advisory programs. Our sales efforts are supported by regional sales professionals, a national account relationship group and separate teams for ETFs and the retirement and insurance channels.
Our retail separate accounts are distributed through financial intermediaries and directly to private clients by teams at our affiliated managers. Our institutional services are marketed through relationships with consultants as well as directly to clients. We target key market segments, including foundations and endowments, corporate, public and private pension plans, and subadvisory relationships.
Our Broker-Dealer Services
We operate a broker-dealer that is registered under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and is a member of the Financial Industry Regulatory Authority ("FINRA"). Our broker-dealer serves as the principal underwriter and distributor of our open-end mutual funds and ETFs under sales agreements with unaffiliated financial intermediaries, and also market advisory services to sponsors of retail separate accounts. Our broker-dealer is subject to the net capital rule of the Securities and Exchange Commission (the "SEC"), which is designed to enforce minimum standards regarding the general financial condition and liquidity of broker-dealers.
Our Competition
We face significant competition from a wide variety of financial institutions, including other investment management companies, as well as from proprietary products offered by our distribution partners such as banks, broker-dealers and financial planning firms. Competition in our businesses is based on several factors, including investment performance, fees charged, access to distribution channels, and service to financial advisors and their clients. Our competitors, many of which are larger than us, often offer similar products and use similar distribution sources, and may also offer less expensive products, have greater access to key distribution channels and have greater resources than we do.
Our Regulatory Matters
We are subject to regulation by the SEC, FINRA and other federal and state agencies and self-regulatory organizations. Each affiliated investment manager and unaffiliated subadviser is registered with the SEC under the Investment Advisers Act. Each open-end mutual fund, closed-end fund and ETF is registered with the SEC under the Investment Company Act of 1940, as amended (the "Investment Company Act"). Our offshore funds are subject to regulation by the Central Bank of Ireland (the "CBI"), and the funds and each investment manager and sub-investment manager are also registered with the CBI.
The financial services industry is highly regulated, and failure to comply with related laws and regulations can result in the revocation of registrations, the imposition of censures or fines and the suspension or expulsion of a firm and/or its employees from the industry. All of our U.S.-domiciled open-end mutual funds are generally available-for-sale and are qualified in all 50 states, Washington, D.C., Puerto Rico, Guam and the U.S. Virgin Islands. Our offshore funds are sold to both retail investors who are not citizens or residents of the United States or non-U.S. institutional clients. Most aspects of our investment management business, including the business of the unaffiliated subadvisers, are subject to various U.S. federal and state laws and regulations.
Our officers, directors and employees may, from time to time, own securities that are also held by one or more of our funds. We have adopted a Code of Ethics pursuant to the provisions of the Investment Company Act and the Investment Advisers Act that require the disclosure of personal securities holdings and trading activity by all employees on a quarterly and annual basis. Employees with investment discretion or access to investment decisions are subject to additional restrictions with respect to the pre-clearance of the purchase or sale of securities over which they have investment discretion or beneficial interest. Our Code of Ethics also imposes restrictions with respect to personal transactions in securities that are held, recently sold, or contemplated for purchase by our mutual funds, and certain transactions are restricted so as to avoid the possibility of improper use of information relating to the management of client accounts.
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Human Capital
We believe our value as a company derives from the talents and diversity of our employees. We foster a dynamic, entrepreneurial, and collaborative environment where talented people excel and are recognized and rewarded for their contributions. We are committed to creating and maintaining an equitable, welcoming and inclusive environment that promotes respect for every employee.
As of December 31, 2020, we employed 581 employees and operated offices in seven states. We strive to attract and retain talented individuals by creating an environment of excellence and opportunity that serves as a foundation for all employees to reach their potential and make meaningful contributions to the organization.
▪ We engage with employees in all areas of the organization to raise the awareness of, and advance, our diversity and inclusion efforts and ensure the greatest alignment of resources with business priorities.
▪ We offer career enhancement opportunities to maximize each employee's potential and develop leaders throughout the organization.
▪ We provide an education assistance program with tuition reimbursement for employees who wish to continue their education to secure increased responsibility and growth within their careers.
We have competitive salaries and offer a comprehensive suite of benefits, including programs that support wellness, financial security, and professional development.
▪ We regularly assess and benchmark our compensation and benefit practices and conduct internal and external pay comparisons to assist us in ensuring that employees are compensated fairly, equitably, and competitively.
▪ We offer benefits that promote financial and personal security including comprehensive insurance coverage, matching 401(k) employee contributions, an employee stock purchase plan, and employee reimbursement of work-related expenses.
▪ Our wellness programs include health screenings and wellness earned premium rebates, as well as paid time off for vacation, illness, bereavement, parental and family care leave, and volunteer activities.
We depend upon our key personnel to manage our business, including our senior executives, portfolio managers, securities analysts, investment advisers, sales personnel and other professionals. The retention of our key investment personnel is material to the management of our business. The departure of our key investment personnel could cause us to lose certain client accounts, which could adversely affect our business.
Available Information
Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and all amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, as well as proxy statements, are available free of charge on our website located at www.virtus.com as soon as reasonably practicable after they are filed with, or furnished to, the SEC. Reports, proxy statements and other information regarding issuers that file electronically with the SEC, including our filings, are also available to the public on the SEC's website at http://www.sec.gov.
A copy of our Corporate Governance Principles, our Code of Conduct and the charters of our Audit Committee, Compensation Committee, Governance Committee and Risk and Finance Committee are posted on our website at http://ir.virtus.com under "Corporate Governance" and are available in print to any person who requests copies by contacting Investor Relations by email to: investor.relations@virtus.com or by mail to Virtus Investment Partners, Inc., c/o Investor Relations, One Financial Plaza, Hartford, CT 06103. Information contained on the website is not incorporated by reference or otherwise considered part of this document.