What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-08-06 compared with 2021-05-06 · 118 added, 85 removed, 310 unchanged (40% of the section changed)

19 unchanged sentences

(ix) adverse developments related to unaffiliated subadvisers;

(x) negative implications of changes in key distribution relationships;

(x) negative changes in key distribution relationships;

(xi) interruptions in or failure to provide critical technological service by us or third parties;

30 unchanged sentences

We target key market segments, including foundations and endowments, corporate, public and private pension plans, and subadvisory relationships.

Recent Market Developments

During 2020, the novel coronavirus global pandemic ("COVID-19") significantly impacted the global economy and financial markets, creating uncertainty, market volatility and dislocation.

In an effort to contain COVID-19 in the U.S., or slow its spread, the federal government and nearly every state enacted varying degrees of social containment measures, restricting business and related activities, closing borders, and restricting travel.

COVID-19 Impact

The novel coronavirus global pandemic ("COVID-19") significantly impacted the global economy and financial markets, creating uncertainty, market volatility and dislocation.

To contain COVID-19 in the U.S., or slow its spread, the federal government and nearly every state enacted varying degrees of social containment measures, restricting business and related activities, closing borders, and restricting travel.

Governments around the world responded to the impact of COVID-19 with economic stimulus measures.

Despite the general recovery of the financial markets, particularly domestic equity securities, the economy has been slower to recover.

The timing and magnitude of the economic recovery, as well as the sustainability of the financial markets recovery, continues to be uncertain.

Despite the general recovery of the financial markets, particularly domestic equity securities, the timing and magnitude of the economic recovery, as well as the sustainability of the financial markets recovery, continues to be uncertain.

Financial Highlights

▪ Net income per diluted share was $4.54 in the first quarter of 2021, as compared to net loss per diluted share of $(0.58) in the first quarter of 2020.

▪ Total sales were $10.6 billion in the first quarter of 2021, an increase of $3.4 billion, or 47.4%, from $7.2 billion in the first quarter of 2020.

Net flows were $2.4 billion in the first quarter of 2021 compared to $(1.4) billion in the first quarter of 2020.

▪ Assets under management were $168.9 billion at March 31, 2021, an increase of $78.2 billion, or 86.2%, from March 31, 2020.

▪ Net income per diluted share was $7.86 in the second quarter of 2021, as compared to net income per diluted share of $1.43 in the second quarter of 2020.

▪ Total sales were $9.6 billion in the second quarter of 2021, an increase of $0.1 billion, or 1.5%, from $9.4 billion in the second quarter of 2020.

Net flows were $1.3 billion in the second quarter of 2021 compared to $2.8 billion in the second quarter of 2020.

▪ Assets under management were $178.6 billion at June 30, 2021, an increase of $70.2 billion, or 64.7%, from June 30, 2020.

AllianzGI Strategic Partnership

On February 1, 2021, the Company completed the actions necessary to finalize its strategic partnership with Allianz Global Investors ("AllianzGI"), pursuant to which NFJ Investment Group was added as a newly established affiliated manager and the Company became the investment adviser, distributor and/or administrator of certain of AllianzGI's open-end, closed-end and retail separate account assets which in total added $29.5 billion in assets under management (the "AGI Transaction").

On February 1, 2021, we completed the actions necessary to finalize the strategic partnership with Allianz Global Investors ("AllianzGI"), pursuant to which NFJ Investment Group ("NFJ") was established as a new affiliated manager and the Company became the investment adviser, distributor and/or administrator for $29.5 billion of AllianzGI's open-end, closed-end, institutional and retail separate account assets (the "AGI Transaction").

In addition, the Company had $3.8 billion of other fee earning assets as of June 30, 2021, also as a result of the AllianzGI partnership.

Agreement with Westchester Capital Management

On February 1, 2021, we entered into an agreement to acquire all of Westchester Capital Management ("Westchester").

The transaction is expected to close in the second half of the 2021, subject to customary closing conditions and approvals, including by fund shareholders.

The transaction is expected to close in the second half of 2021, subject to customary closing conditions and approvals, including by fund shareholders.

The expected payment at closing is $135.0 million and there is an additional revenue-retention payment of up to $20.0 million due within six months of closing.

Agreement with Stone Harbor Investment Partners

On June 25, 2021, we entered into an agreement to acquire Stone Harbor Investment Partners LP ("Stone Harbor").

The transaction is expected to close near the end of 2021, subject to customary closing conditions and approvals, including by fund shareholders.

Assets Under Management

At March 31, 2021, total assets under management were $168.9 billion, representing an increase of $78.2 billion, or 86.2%, from March 31, 2020, and an increase of $36.7 billion, or 27.8%, from December 31, 2020.

The increase in total assets under management from March 31, 2020 included $40.5 billion of positive market performance, $29.5 billion from the AGI Transaction and $9.2 billion of positive net flows.

At June 30, 2021, total assets under management were $178.6 billion, representing an increase of $70.2 billion, or 64.7%, from June 30, 2020, and an increase of $46.4 billion, or 35.1%, from December 31, 2020.

The increase in total assets under management from June 30, 2020 included $34.0 billion of positive market performance, $29.5 billion from the AGI Transaction and $7.7 billion of positive net flows.

The change in total assets under management from December 31, 2020 was due to the increase from the AGI Transaction, $13.5 billion of positive market performance and $3.8 billion of positive net flows.

In addition, at June 30, 2021, we had $3.8 billion of other fee earning assets.

Operating Results

In the first quarter of 2021, total revenues increased 50.0% to $216.9 million from $144.6 million in the first quarter of 2020, primarily as a result of higher average assets under management in our open-end funds as a result of positive market performance, net flows and the assets from the AGI Transaction.

Operating income increased $37.5 million to $62.1 million in the first quarter of 2021 compared to $24.6 million in the first quarter of 2020, primarily due to the same factors previously mentioned.

In the second quarter of 2021, total revenues increased 83.6% to $244.0 million from $132.9 million in the second quarter of 2020, primarily as a result of higher average assets under management in our open-end funds as a result of positive market performance, positive net flows and the assets from the AGI Transaction.

Operating income increased $59.8 million to $86.4 million in the second quarter of 2021 compared to $26.6 million in the second quarter of 2020, primarily due to the same factors previously mentioned.

Assets Under Management by Product

The following table summarizes our assets under management by product:

As of March 31, Change

As of June 30, Change

(in millions) 2021 2020 $ %

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Prior period amounts have been recast to conform to the current year presentation.

(3) Averages for the three-month period ended March 31 were calculated as follows:

(3) Averages for the six-month period ended June 30 were calculated as follows:

– Funds - average daily or weekly balances

4 unchanged sentences

Three Months Ended

June 30, Six Months Ended

(in millions) 2021 2020 2021 2020

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Beginning balance $ 11,664 $ 5,343 $ 5,914 $ 6,748

Inflows — — — 5

Outflows — — — —

Net flows — — — 5

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Market performance 33 33 68 72

(30) (39) (61) (87)

Ending balance $ 3,870 $ 4,264 $ 3,870 $ 4,264

Three Months Ended

June 30, Six Months Ended

(in millions) 2021 2020 2021 2020

12 unchanged sentences

The following table summarizes our assets under management by asset class:

As of March 31, Change % of Total

As of June 30, Change % of Total

(in millions) 2021 2020 $ % 2021 2020

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The following table summarizes the average management fees earned in basis points and average assets under management:

Three Months Ended March 31,

Three Months Ended June 30,

Average Fee Earned

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All Products 42.5 42.9 $ 172,878 $ 98,158

Six Months Ended June 30,

Average Fee Earned

(expressed in basis points) Average Assets Under

(in millions) (2)

2021 2020 2021 2020

Open-End Funds (1) 47.2 49.0 $ 70,187 $ 40,087

Closed-End Funds 55.6 62.3 10,638 6,045

Exchange Traded Funds 10.8 7.3 1,024 758

Retail Separate Accounts 44.9 48.9 34,681 19,037

Institutional Accounts 31.9 30.1 43,151 31,876

Structured Products 39.4 30.3 3,930 4,228

All Products 42.8 42.8 $ 163,611 $ 102,031

(1) Represents assets under management of U.S.

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Average fees earned will vary based on several factors, including the asset mix and expense reimbursements to funds.

The average fee rate earned on all products for the three months ended June 30, 2021 decreased by 0.4 basis points compared to the same period in the prior year primarily due to lower fee rates earned on the assets under management acquired from the AGI Transaction.

Results of Operations

Summary Financial Data

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

(in thousands) 2021 2020 2021 vs.

2020 % 2021 2020 2021 vs.

Investment management fees $ 193,510 $ 110,550 $ 82,960 75.0 % $ 366,779 $ 230,838 $ 135,941 58.9 %

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Operating income (loss) 86,411 26,622 59,789 224.6 % 148,553 51,224 97,329 190.0 %

Other income (expense), net (2,025) (15,601) 13,576 (87.0) %

Interest income (expense), net 7,250 2,296 4,954 215.8 %

Other income (expense), net 6,067 (435) 6,502 NM 4,042 (16,036) 20,078 NM

Interest income (expense), net 6,020 (2,400) 8,420 NM 13,270 (104) 13,374 NM

Income (loss) before income taxes 98,498 23,787 74,711 314.1 % 165,865 35,084 130,781 372.8 %

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Noncontrolling interests (13,130) (4,930) (8,200) 166.3 % (28,756) (10,221) (18,535) 181.3 %

Net Income (Loss) Attributable to Common Stockholders $ 36,588 $ (4,285) $ 40,873 (953.9) %

Net Income (Loss) Attributable to Virtus Investment Partners, Inc.

$ 62,967 $ 11,279 $ 51,688 458.3 % $ 99,555 $ 6,994 $ 92,561 NM

NM = Not meaningful

Revenues by source were as follows:

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

(in thousands) 2021 2020 2021 vs.

2020 % 2021 2020 2021 vs.

Investment management fees

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Investment management fees are earned based on a percentage of assets under management and are paid pursuant to the terms of the respective investment management contracts, which generally require monthly or quarterly payments.

Investment management fees increased by $53.0 million, or 44.0%, for the three months ended March 31, 2021, compared to the same period in the prior year.

The increase in investment management fees during the three-month period was due to an increase in average assets under management of $48.4 billion, or 45.7%.

Investment management fees increased by $83.0 million, or 75.0%, and $135.9 million, or 58.9%, for the three and six months ended June 30, 2021, respectively, compared to the same periods in the prior year.

The increase in investment management fees during the three- and six- month periods ended June 30, 2021 was due to an increase in average assets under management of $74.7 billion, or 76.1% and $61.6 million, or 60.4%, respectively, primarily as a result of market performance, the AGI Transaction and positive net flows.

Distribution and Service Fees

Distribution and service fees are sales- and asset-based fees earned from open-end funds for marketing and distribution services.

Distribution and service fees increased by $10.9 million, or 115.1%, for the three months ended March 31, 2021, compared to the same period in the prior year, primarily due to higher average assets for open-end funds in share classes that have distribution and service fees.

Distribution and service fees increased by $14.6 million, or 163.8%, and $25.4 million, or 138.7%, for the three and six months ended June 30, 2021, respectively, compared to the same periods in the prior year, due to higher average assets for open-end funds in share classes that have distribution and service fees primarily as a result of market performance and the AGI Transaction.

Administration and Shareholder Service Fees

Administration and shareholder service fees represent fees earned for fund administration and shareholder services from our open-end mutual funds, ETFs and certain of our closed-end funds.

Fund administration and shareholder service fees increased by $7.9 million, or 54.0%, for the three months ended March 31, 2021, compared to the same period in the prior year primarily due to the increase in average assets under management for our open-end and closed-end funds during the period.

Fund administration and shareholder service fees increased by $12.6 million, or 94.7%, and $20.5 million, or 73.3%, for the three and six months ended June 30, 2021, compared to the same periods in the prior year primarily due to the increase in average assets under management for our open-end and closed-end funds during the periods primarily as a result of market performance, the AGI Transaction and positive net flows.

Other Income and Fees

Other income and fees primarily represent contingent sales charges earned from investor redemptions of certain shares sold without a front-end sales charge.

Other income and fees increased for the three months ended March 31, 2021, compared to the same period in the prior year, primarily due to $3.4 billion of other fee earning assets as a result of the AGI Transaction.

Other income and fees primarily represent fees related to other fee earning assets and contingent sales charges earned from investor redemptions of certain shares sold without a front-end sales charge.

Other income and fees increased by $1.0 million, or 607.2%, and $1.6 million, or 472.2%, for the three and six months ended June 30, 2021, respectively, compared to the same periods in the prior year primarily due fees associated with other fee earning assets as a result of the AGI Transaction.

Operating Expenses

Operating expenses by category were as follows:

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

(in thousands) 2021 2020 2021 vs.

2020 % 2021 2020 2021 vs.

Operating expenses

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Other operating expenses of CIP 659 2,179 (1,520) (69.8) % 1,218 8,928 (7,710) (86.4) %

Restructuring and severance — 420 (420) (100.0) % — 420 (420) (100.0) %

Depreciation expense 981 1,196 (215) (18.0) % 2,079 2,454 (375) (15.3) %

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Employment expenses consist of fixed and variable compensation and related employee benefit costs.

Employment expenses for the three months ended March 31, 2021 were $91.8 million, which represented an increase of $25.6 million, or 38.8%, compared to the same period in the prior year.

The increase for the three months ended March 31, 2021 was primarily due to increased profit- and sales-based compensation.

Employment expenses for the three and six months ended June 30, 2021 were $87.6 million and $179.4 million, which represented an increase of $27.5 million, or 45.7%, and $53.1 million, or 42.0%, compared to the same period in the prior year.

The increase for the three and six months ended June 30, 2021 was primarily due to increased profit-based compensation.

Distribution and Other Asset-Based Expenses

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These expenses also include the amortization of deferred sales commissions related to up-front commissions on shares sold without a front-end sales charge to shareholders.

The deferred sales commissions are amortized on a straight-line basis over the periods in which commissions are generally recovered from distribution fee revenues and contingent sales charges received from shareholders of the funds upon redemption of their shares.

Distribution and other asset-based expenses increased by $12.9 million, or 66.4%, for the three months ended March 31, 2021, as compared to the same period in the prior year, primarily due to an increased percentage of sales and assets under management in share classes that have distribution and other asset-based expenses.

The deferred sales commissions are amortized on a straight-line basis over the periods in which commissions are generally recovered from distribution fee revenues

and contingent sales charges received from shareholders of the funds upon redemption of their shares.

Distribution and other asset-based expenses increased by $18.7 million, or 107.7%, and $31.6 million, or 85.9%, for the three and six months ended June 30, 2021, as compared to the same periods in the prior year, primarily due to an increased percentage of sales and assets under management in share classes that have distribution and other asset-based expenses primarily as a result of the AGI Transaction.

Other Operating Expenses

Other operating expenses primarily consist of investment research and technology costs, professional fees, travel and distribution related costs, rent and occupancy expenses, and other business costs.

Other operating expenses for the three months ended March 31, 2021 increased by $0.7 million, or 3.7%, as compared to the same period in the prior year, due to professional fees in the current year related to the Westchester and AGI transactions, partially offset by decreased travel and related expenses primarily as a result of the impact of COVID-19 on the current operating environment.

Other operating expenses for the three months ended June 30, 2021 increased by $4.5 million, or 25.9%, as compared to the same period in the prior year primarily due to acquisition related professional fees and additional expenses as a result of the newly established affiliated manager, NFJ.

Other operating expenses for the six months ended June 30, 2021 increased $5.2 million, or 14.3%, as compared to the same period in the prior year primarily due to acquisition related professional fees in the current year, partially offset by decreased travel and related expenses primarily as a result of the impact of COVID-19 on the current operating environment.

Other Operating Expenses of CIP

Other operating expenses of CIP decreased $6.2 million, or 91.7% to $0.6 million for the three months ended March 31, 2021 compared to the same period in the prior year.

The decrease during the three-month period was primarily due to the costs associated with the issuance of a new CLO in the prior year period that did not recur.

Other operating expenses of CIP decreased $1.5 million, or 69.8%, for the three months ended June 30, 2021 and $7.7 million, or 86.4%, for the six months ended June 30, 2021 compared to the same periods in the prior year.

The decreases during the six-month periods were primarily due to the costs associated with the issuance of a new CLO in the prior year periods that did not recur.

Depreciation Expense

Depreciation expense consists primarily of the straight-line depreciation of furniture, equipment and leasehold improvements.

Depreciation expense remained consistent during the three months ended March 31, 2021, compared to the same period in the prior year.

Depreciation expense decreased $0.2 million, or 18.0%, and $0.4 million, or 15.3%, during the three and six months ended June 30, 2021, respectively, compared to the same periods in the prior year, primarily due to certain assets becoming fully depreciated.

Amortization Expense

Amortization expense consists of the amortization of definite-lived intangible assets over their estimated useful lives.

Amortization expense increased for the three months ended March 31, 2021 compared to the same period in the prior year due

to the additional amortization associated with the AGI Transaction.

Amortization expense increased for the three and six months ended June 30, 2021 compared to the same periods in the prior year due to the additional amortization associated with the AGI Transaction.

Other Income (Expense)

Other Income (Expense), net by category were as follows:

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

(in thousands) 2021 2020 2021 vs.

2020 % 2021 2020 2021 vs.

Other Income (Expense)

Realized and unrealized gain (loss) on investments, net $ 891 $ (7,544) $ 8,435 (111.8)%

Realized and unrealized gain (loss) of CIP, net (4,687) (8,669) 3,982 (45.9) %

Other income (expense), net 1,771 612 1,159 189.4 %

Total Other Income (Expense), net $ (2,025) $ (15,601) $ 13,576 (87.0) %

Realized and unrealized gain (loss) on investments, net $ 2,494 $ 7,114 $ (4,620) (64.9) % $ 3,385 $ (430) $ 3,815 NM

Realized and unrealized gain (loss) of CIP, net 2,747 (6,744) 9,491 NM (1,940) (15,413) 13,473 (87.4) %

Other income (expense), net 826 (805) 1,631 NM 2,597 (193) 2,790 NM

Total Other Income (Expense), net $ 6,067 $ (435) $ 6,502 NM $ 4,042 $ (16,036) $ 20,078 NM

Realized and unrealized gain (loss) on investments, net

Realized and unrealized gain (loss) on investments, net changed during the three months ended March 31, 2021 by $8.4 million, as compared to the same period in the prior year.

The realized and unrealized gains and losses during the three-months ended March 31, 2021 reflected changes in overall market conditions experienced during the period.

Realized and unrealized gain (loss) on investments, net changed during the three and six months ended June 30, 2021 by $(4.6) million and $3.8 million, respectively, as compared to the same periods in the prior year.

The realized and unrealized gains and losses during the three and six months ended June 30, 2021 reflected changes in overall market conditions experienced during the periods.

Realized and unrealized gain (loss) of CIP, net

Realized and unrealized gain (loss) of CIP, net changed $4.0 million, or 45.9%, during the three months ended March 31, 2021, compared to the same period in the prior year.

The change for the three months ended March 31, 2021 consisted primarily of an increase in net realized and unrealized gains of $111.2 million, due to changes in market values of leveraged loans, partially offset by changes in unrealized losses of $107.2 million related to the value of the notes payable.

Realized and unrealized gain (loss) of CIP, net changed $9.5 million, and $13.5 million, during the three and six months ended June 30, 2021, respectively, compared to the same periods in the prior year.

The change for the three and six months ended June 30, 2021 consisted primarily of an increase in net realized and unrealized gains of $90.5 million and $201.7 million, respectively, due to changes in market values of leveraged loans, partially offset by changes in unrealized losses of $81.0 million and $188.2 million, respectively, related to the value of the notes payable.

Other income (expense), net

Other income (expense), net increased by $1.2 million, or 189.4%, for the three months ended March 31, 2021 compared to the same period in the prior year, primarily due to increased earnings from equity method investments during the current year period.

Other income (expense), net increased by $1.6 million and $2.8 million for the three and six months ended June 30, 2021, respectively, compared to the same periods in the prior year, primarily due to increased earnings from equity method investments during the current year periods.

Interest Income (Expense)

Interest Income (Expense), net by category were as follows:

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

(in thousands) 2021 2020 2021 vs.

2020 % 2021 2020 2021 vs.

Interest Income (Expense)

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Interest expense of CIP (14,452) (28,150) 13,698 (48.7) % (28,900) (52,636) 23,736 (45.1) %

Total Interest Income (Expense), net $ 7,250 $ 2,296 $ 4,954 215.8 %

Total Interest Income (Expense), net $ 6,020 $ (2,400) $ 8,420 NM $ 13,270 $ (104) $ 13,374 NM

Interest Expense

Interest expense decreased $0.9 million, or 27.7%, for the three months ended March 31, 2021 compared to the same period in the prior year.

The decrease was due to a decrease in the average levels of debt outstanding and a lower average interest rate compared to the same period in the prior year.

Interest expense decreased $0.9 million, or 27.8%, and $1.8 million, or 27.7%, for the three and six months ended June 30, 2021, respectively, compared to the same periods in the prior year.

The decreases were due to a decrease in the average debt outstanding and a lower average interest rate compared to the same periods in the prior year.

Interest and Dividend Income

Interest and dividend income is earned on cash equivalents and our marketable securities.

Interest and dividend income decreased $0.6 million, or 81.9%, for the three months ended March 31, 2021, compared to the same period in the prior year.

The decrease was primarily due to lower interest rates earned on cash as compared to the corresponding period in the prior year.

Interest and dividend income decreased $0.1 million, or 31.4%, and $0.7 million, or 69.6%, for the three and six months ended June 30, 2021, respectively, compared to the same periods in the prior year.

The decreases were primarily due to lower interest rates earned on cash as compared to the corresponding periods in the prior year.

Interest and Dividend Income of Investments of CIP

Interest and dividend income of investments of CIP decreased $5.4 million, or 18.3%, for the three months ended March 31, 2021, compared to the same period in the prior year.

The decrease was primarily due to a decrease in interest rates partially offset by increased investments of CIP.

Interest and dividend income of investments of CIP decreased $6.1 million, or 21.2%, and $11.4 million, or 19.7%, for the three and six months ended June 30, 2021, respectively, compared to the same periods in the prior year.

The decreases were primarily due to a decrease in interest rates.

Interest Expense of CIP

Interest expense of CIP represents interest expense on the notes payable of CIP.

Interest expense of CIP decreased by $10.0 million, or 41.0%, for the three months ended March 31, 2021, compared to the same period in the prior year.

The decrease during the three months ended March 31, 2021 was primarily due to lower variable interest rates partially offset by higher average debt balances of CIP during the current year periods, as well as $3.3 million of amortization of discounts on notes payable in the prior year period which did not recur.

Interest expense of CIP decreased by $13.7 million, or 48.7%, and $23.7 million, or 45.1%, for the three and six months ended June 30, 2021, respectively, compared to the same periods in the prior year.

The decrease during the three and six months ended June 30, 2021 was primarily due to lower variable interest rates partially offset by higher average debt balances of CIP during the current year periods, as well as $3.3 million of amortization of discounts on notes payable in the prior year-to-date period that did not recur.

Income Tax Expense (Benefit)

The provision for income taxes reflected U.S.

federal, state and local taxes at an estimated effective tax rate of 22.5% and 91.1% for the three months ended March 31, 2021 and 2020, respectively.

The decrease in the estimated effective tax rate for the three months ended March 31, 2021 was primarily due to valuation allowances recorded in the prior year period for the tax effects of unrealized losses on certain Company investments.

federal, state and local taxes at an estimated effective tax rate of 22.6% and 50.9% for the six months ended June 30, 2021 and 2020, respectively.

The decrease in the estimated effective tax rate for the six months ended June 30, 2021 as compared to the same period in the prior year was primarily due to income tax expense associated with valuation allowances recorded for unrealized losses on certain Company investments in the corresponding prior year period that did not recur.

Liquidity and Capital Resources

1 unchanged sentence

The following table summarizes certain financial data relating to our liquidity and capital resources:

March 31, 2021 December 31, 2020 Change

June 30, 2021 December 31, 2020 Change

(in thousands) 2021 vs.

2 unchanged sentences

Investments 81,775 64,944 16,831 25.9 %

Contingent consideration 137,664 — 137,664 — %

Debt 190,224 201,212 (10,988) (5.5) %

1 unchanged sentence

Total equity 789,837 720,940 68,897 9.6 %

Three Months Ended

March 31, Change

Six Months Ended June 30, Change

(in thousands) 2021 2020 2021 vs.

4 unchanged sentences

Financing Activities (167,645) 370,577 (538,222)

At March 31, 2021, we had $228.3 million of cash and cash equivalents and $67.7 million of investments, which included $40.9 million of investment securities, compared to $246.5 million of cash and cash equivalents and $64.9 million of investments, which included $40.0 million of investment securities, at December 31, 2020.

At March 31, 2021, we had $199.8 million of principal outstanding under our term loan maturing June 1, 2024 and no outstanding borrowings under our $100.0 million revolving credit facility.

At June 30, 2021, we had $275.4 million of cash and cash equivalents and $81.8 million of investments, which included $54.4 million of investment securities, compared to $246.5 million of cash and cash equivalents and $64.9 million of investments, which included $40.0 million of investment securities, at December 31, 2020.

At June 30, 2021, we had $193.8 million of principal outstanding under our term loan maturing June 1, 2024 and no outstanding borrowings under our $100.0 million revolving credit facility.

Uses of Capital

Our main uses of capital related to operating activities comprise employee compensation and related benefit costs including payment of annual incentive compensation, interest on our indebtedness, income taxes and other operating expenses, which primarily consist of investment research, technology costs, professional fees, distribution and occupancy costs.

which primarily consist of investment research, technology costs, professional fees, distribution and occupancy costs.

Annual incentive compensation, which is one of the largest annual operating cash expenditures, is typically paid in the first quarter of the year.

2 unchanged sentences

(i) investments in organic growth, including expanding our distribution efforts;

(ii) seeding or launching new products, including funds or sponsoring CLO issuances;

(ii) seeding or launching new products, including adding seed capital to expand distribution opportunities and sponsoring CLO issuances;

(iii) principal payments on debt outstanding through scheduled amortization, excess cash flow payment requirements or additional paydowns;

(iv) dividend payments to common stockholders;

(v) repurchases of our common stock;

(v) repurchases of our common stock, or withholding obligations for the net settlement of employee share transactions;

(vi) investments in our infrastructure;

3 unchanged sentences

Capital and Reserve Requirements

We operate a broker-dealer subsidiary registered with the SEC that is subject to certain rules regarding minimum net capital.

We operate a SEC registered broker-dealer subsidiary that is subject to certain rules regarding minimum net capital.

The broker-dealer is required to maintain a ratio of "aggregate indebtedness" to "net capital," as defined, which may not exceed 15 to 1 and must also maintain a minimum amount of net capital.

Failure to meet these requirements could result in adverse consequences to us, including additional reporting requirements, a lower required ratio of aggregate indebtedness to net capital or interruption of our business.

At March 31, 2021, the ratio of aggregate indebtedness to net capital of our broker-dealer was below the maximum allowed, and net capital was significantly greater than the required minimum.

At June 30, 2021, the ratio of aggregate indebtedness to net capital of our broker-dealer was below the maximum allowed, and net capital was significantly greater than the required minimum.

Balance Sheet

3 unchanged sentences

Operating Cash Flow

Net cash provided by operating activities of $150.2 million for the three months ended March 31, 2021 changed by $402.5 million from net cash used in operating activities of $252.3 million for the same period in the prior year primarily due to a decrease in net purchases of investments by CIP of $379.0 million in the current year period compared to the prior year period.

Net cash provided by operating activities of $239.2 million for the six months ended June 30, 2021 changed by $688.9 million from net cash used in operating activities of $449.7 million for the same period in the prior year primarily due to an increase in net sales of investments by CIP of $618.4 million in the current year period compared to the prior year period.

Investing Cash Flow

Cash flows from investing activities consist primarily of capital expenditures and other investing activities related to our business operations.

Net cash used in investing activities was $2.6 million for the three months ended March 31, 2021 compared to net cash provided by investing activities of $9.4 million in the same period for the prior year.

The primary investing activities for the three months ended March 31, 2021 were $2.6 million of capital expenditures and other asset purchases.

The primary investing activities for the three months ended March 31, 2020 were related to the consolidation of investment products.

Net cash used in investing activities was $5.5 million for the six months ended June 30, 2021 compared to net cash provided by investing activities of $9.2 million in the same period for the prior year.

The primary investing activities for the six months ended June 30, 2021 were $4.3 million of capital expenditures and other asset purchases.

The primary investing activities for the six months ended June 30, 2020 were related to the consolidation of investment products.

Financing Cash Flow

Cash flows from financing activities consist primarily of the issuance of common stock, return of capital through repurchases of common shares, dividends, withholding obligations for the net share settlement of employee share transactions, issuance and repayment of debt and changes to noncontrolling interests.

Net cash related to financing activities changed by $402.3 million to net cash used in financing activities of $87.7 million for the three months ended March 31, 2021 as compared to net cash provided by financing activities of $314.6 million for the three months ended March 31, 2020.

The net change was primarily due to a decrease of $397.4 million in net borrowings of CIP during the three months ended March 31, 2021 compared to the prior year period.

Net cash related to financing activities changed by $538.2 million to net cash used in financing activities of $167.6 million for the six months ended June 30, 2021 as compared to net cash provided by financing activities of $370.6 million for the six months ended June 30, 2020.

The net change was primarily due to a decrease of $558.7 million in net borrowings of CIP during the six months ended June 30, 2021 compared to the prior year period.

C redit Agreement

The Company's credit agreement, as amended (the "Credit Agreement"), is comprised of (i) $365.0 million of seven-year term debt (the "Term Loan") expiring in June 2024 and (ii) a $100.0 million five-year revolving credit facility (the "Credit Facility") expiring in June 2022.

At March 31, 2021, $199.8 million remained outstanding under the Term Loan, and there were no outstanding borrowings under the Credit Facility.

In accordance with Accounting Standards Codification 835, Interest, the amounts outstanding under the Term Loan are presented on the Condensed Consolidated Balance Sheet net of related debt issuance costs, which were $4.1 million as of March 31, 2021.

At June 30, 2021, $193.8 million remained outstanding under the Term Loan, and there were no outstanding borrowings under the Credit Facility.

Contractual Obligations

Our contractual obligations are summarized in our 2020 Annual Report on Form 10-K.

As of March 31, 2021, there have been no material changes outside of the ordinary course of business in our contractual obligations since December 31, 2020.

As of June 30, 2021, there have been no material changes in our contractual obligations since December 31, 2020.

Critical Accounting Policies and Estimates

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A complete description of our significant accounting policies is included in our 2020 Annual Report on Form 10-K.

There were no material changes in our critical accounting policies in the three months ended March 31, 2021.

There were no material changes in our critical accounting policies in the three months ended June 30, 2021.

Recently Issued Accounting Pronouncements

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The Company is primarily exposed to market risk associated with unfavorable movements in interest rates and securities prices.

During the three months ended March 31, 2021, there were no material changes to the information contained in Part II, Item 7A of the Company's 2020 Annual Report on Form 10-K.

During the three and six months ended June 30, 2021, there were no material changes to the information contained in Part II, Item 7A of the Company's 2020 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