VIRTUS INVESTMENT PARTNERS, INC. 10-Q

Item 1. Financial Statements Virtus Investment Partners, Inc. Condensed Consolidated Balance Sheets (Unaudited) (in thousands, except share data) June 30, 2021 December 31, 2020 Assets: Cash and cash equivalents $ 275,439 $ 246,511 Investments 81,775 64,944 Accounts receivable, net 120,122 84,499 Assets of consolidated investment products ("CIP") Cash and cash equivalents of CIP 129,816 86,980 Cash pledged or on deposit of CIP 602 6,358 Investments of CIP 2,271,843 2,333,277 Other assets of CIP 45,046 13,430 Furniture, equipment and leasehold improvements, net 12,896 14,488 Intangible assets, net 380,824 280,264 Goodwill 315,366 290,366 Deferred taxes, net 11,054 9,538 Other assets 48,039 36,288 Total assets $ 3,692,822 $ 3,466,943 Liabilities and Equity Liabilities: Accrued compensation and benefits $ 96,509 $ 122,514 Accounts payable and accrued liabilities 45,755 25,357 Dividends payable 8,565 9,013 Contingent consideration (Note 4) 137,664 — Debt 190,224 201,212 Other liabilities 38,387 36,120 Liabilities of CIP Notes payable of CIP 2,132,012 2,190,445 Securities purchased payable and other liabilities of CIP 122,344 45,829 Total liabilities 2,771,460 2,630,490 Commitments and Contingencies (Note 14) Redeemable noncontrolling interests 131,525 115,513 Equity: Equity attributable to stockholders: Common stock, $ 0.01 par value, 1,000,000,000 shares authorized; 11,905,842 shares issued and 7,651,606 shares outstanding at June 30, 2021, respectively, and 11,790,869 shares issued and 7,583,466 shares outstanding at December 31, 2020, respectively 119 118 Additional paid-in capital 1,280,667 1,298,002 Retained earnings (accumulated deficit) ( 35,704 ) ( 135,259 ) Accumulated other comprehensive income (loss) 35 29 Treasury stock, at cost, 4,254,236 and 4,207,403 shares at June 30, 2021 and December 31, 2020, respectively ( 464,248 ) ( 451,749 ) Total equity attributable to stockholders 780,869 711,141 Noncontrolling interests 8,968 9,799 Total equity 789,837 720,940 Total liabilities and equity $ 3,692,822 $ 3,466,943 The accompanying notes are an integral part of these condensed consolidated financial statements. 1 Table of Contents Virtus Investment Partners, Inc. Condensed Consolidated Statements of Operations (Unaudited) Three Months Ended June 30, Six Months Ended June 30, (in thousands, except per share data) 2021 2020 2021 2020 Revenues Investment management fees $ 193,510 $ 110,550 $ 366,779 $ 230,838 Distribution and service fees 23,450 8,889 43,798 18,349 Administration and shareholder service fees 25,877 13,289 48,437 27,942 Other income and fees 1,174 166 1,894 331 Total revenues 244,011 132,894 460,908 277,460 Operating Expenses Employment expenses 87,630 60,163 179,389 126,293 Distribution and other asset-based expenses 36,021 17,345 68,315 36,754 Other operating expenses 21,946 17,436 41,526 36,321 Operating expenses of consolidated investment products ("CIP") 659 2,179 1,218 8,928 Restructuring and severance — 420 — 420 Depreciation expense 981 1,196 2,079 2,454 Amortization expense 10,363 7,533 19,828 15,066 Total operating expenses 157,600 106,272 312,355 226,236 Operating Income (Loss) 86,411 26,622 148,553 51,224 Other Income (Expense) Realized and unrealized gain (loss) on investments, net 2,494 7,114 3,385 ( 430 ) Realized and unrealized gain (loss) of CIP, net 2,747 ( 6,744 ) ( 1,940 ) ( 15,413 ) Other income (expense), net 826 ( 805 ) 2,597 ( 193 ) Total other income (expense), net 6,067 ( 435 ) 4,042 ( 16,036 ) Interest Income (Expense) Interest expense ( 2,256 ) ( 3,126 ) ( 4,570 ) ( 6,325 ) Interest and dividend income 166 242 302 994 Interest and dividend income of investments of CIP 22,562 28,634 46,438 57,863 Interest expense of CIP ( 14,452 ) ( 28,150 ) ( 28,900 ) ( 52,636 ) Total interest income (expense), net 6,020 ( 2,400 ) 13,270 ( 104 ) Income (Loss) Before Income Taxes 98,498 23,787 165,865 35,084 Income tax expense (benefit) 22,401 7,578 37,554 17,869 Net Income (Loss) 76,097 16,209 128,311 17,215 Noncontrolling interests ( 13,130 ) ( 4,930 ) ( 28,756 ) ( 10,221 ) Net Income (Loss) Attributable to Virtus Investment Partners, Inc. $ 62,967 $ 11,279 $ 99,555 $ 6,994 Earnings (Loss) per Share—Basic $ 8.18 $ 1.46 $ 12.97 $ 0.92 Earnings (Loss) per Share—Diluted $ 7.86 $ 1.43 $ 12.39 $ 0.88 Weighted Average Shares Outstanding—Basic 7,698 7,720 7,674 7,572 Weighted Average Shares Outstanding—Diluted 8,007 7,895 8,038 7,936 The accompanying notes are an integral part of these condensed consolidated financial statements. 2 Table of Contents Virtus Investment Partners, Inc. Condensed Consolidated Statements of Comprehensive Income (Unaudited) Three Months Ended June 30, Six Months Ended June 30, (in thousands) 2021 2020 2021 2020 Net Income (Loss) $ 76,097 $ 16,209 $ 128,311 $ 17,215 Other comprehensive income (loss), net of tax: Foreign currency translation adjustment, net of tax of $( 2 ) and $ 0 for the three months ended June 30, 2021 and 2020, respectively, and $( 2 ) and $ 9 for the six months ended June 30, 2021 and 2020, respectively 0 ( 1 ) 6 ( 26 ) Other comprehensive income (loss) 0 ( 1 ) 6 ( 26 ) Comprehensive income (loss) 76,097 16,208 128,317 17,189 Comprehensive (income) loss attributable to noncontrolling interests ( 13,130 ) ( 4,930 ) ( 28,756 ) ( 10,221 ) Comprehensive Income (Loss) Attributable to Virtus Investment Partners, Inc. $ 62,967 $ 11,278 $ 99,561 $ 6,968 The accompanying notes are an integral part of these condensed consolidated financial statements. 3 Table of Contents Virtus Investment Partners, Inc. Condensed Consolidated Statements of Cash Flows (Unaudited) Six Months Ended June 30, (in thousands) 2021 2020 Cash Flows from Operating Activities: Net income (loss) $ 128,311 $ 17,215 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation expense, intangible asset and other amortization 23,196 21,557 Stock-based compensation 15,844 10,113 Amortization of deferred commissions 1,462 1,038 Payments of deferred commissions ( 3,241 ) ( 974 ) Equity in earnings of equity method investments ( 2,561 ) 93 (Gain) loss on extinguishment of debt — ( 705 ) Realized and unrealized (gains) losses on investments, net ( 3,381 ) 431 Distributions from equity method investments 1,908 726 Sales (purchases) of investments, net ( 3,395 ) 4,703 Deferred taxes, net ( 1,518 ) 5,014 Changes in operating assets and liabilities: Accounts receivable, net and other assets ( 43,203 ) ( 2,032 ) Accrued compensation and benefits, accounts payable, accrued liabilities and other liabilities ( 12,651 ) ( 52,788 ) Operating activities of consolidated investment products ("CIP"): Realized and unrealized (gains) losses on investments of CIP, net ( 1,961 ) 11,603 Purchases of investments by CIP ( 664,837 ) ( 920,392 ) Sales of investments by CIP 790,575 442,859 Net proceeds (purchases) of short term investments by CIP 15,191 68 (Purchases) sales of securities sold short by CIP, net ( 88 ) 250 Change in other assets of CIP ( 126 ) ( 1,790 ) Change in liabilities of CIP ( 345 ) 2,130 Amortization of discount on notes payable of CIP — 11,169 Net cash provided by (used in) operating activities 239,180 ( 449,712 ) Cash Flows from Investing Activities: Capital expenditures and other asset purchases ( 4,336 ) ( 475 ) Change in cash and cash equivalents of CIP due to consolidation (deconsolidation), net ( 1,191 ) 9,724 Net cash provided by (used in) investing activities ( 5,527 ) 9,249 Cash Flows from Financing Activities: Payment of long term debt ( 11,826 ) ( 44,059 ) Common stock dividends paid ( 13,748 ) ( 11,320 ) Preferred stock dividends paid — ( 2,084 ) Repurchases of common shares ( 12,499 ) ( 17,500 ) Stock options exercised 66 114 Taxes paid related to net share settlement of restricted stock units ( 19,280 ) ( 5,569 ) Net subscriptions received from (redemptions/distributions paid to) noncontrolling interests ( 6,636 ) ( 3,951 ) Financing activities of CIP: Payments on borrowings by CIP ( 103,722 ) ( 326,201 ) Borrowings by CIP — 781,147 Net cash provided by (used in) financing activities ( 167,645 ) 370,577 Net increase (decrease) in cash, cash equivalents and restricted cash 66,008 ( 69,886 ) Cash, cash equivalents and restricted cash, beginning of period 339,849 321,939 Cash, cash equivalents and restricted cash, end of period $ 405,857 $ 252,053 Non-Cash Investing Activities: Change in accrual for capital expenditures $ ( 47 ) $ ( 21 ) Contingent consideration $ 137,664 $ — Non-Cash Financing Activities: Increase (decrease) to noncontrolling interests due to consolidation (deconsolidation) of CIP, net $ ( 8,001 ) $ 17,137 Common stock dividends payable $ 6,277 $ 5,169 Conversion of preferred stock to common stock $ — $ 115,000 (in thousands) June 30, 2021 December 31, 2020 Reconciliation of cash, cash equivalents and restricted cash Cash and cash equivalents $ 275,439 $ 246,511 Cash of CIP 129,816 86,980 Cash pledged or on deposit of CIP 602 6,358 Cash, cash equivalents and restricted cash at end of period $ 405,857 $ 339,849 The accompanying notes are an integral part of these condensed consolidated financial statements. 4 Table of Contents Virtus Investment Partners, Inc. Condensed Consolidated Statements of Changes in Equity (Unaudited) Permanent Equity Temporary Equity Common Stock Additional Paid-in Capital Retained Earnings (Accumulated Deficit) Accumulated Other Comprehensive Income (Loss) Treasury Stock Total Attributed To Stockholders Non- controlling Interests Total Equity Redeemable Non- controlling Interests (in thousands, except per share data) Shares Par Value Shares Amount Balances at March 31, 2020 7,695,413 $ 117 $ 1,304,868 $ ( 219,501 ) $ ( 16 ) 4,038,563 $ ( 429,249 ) $ 656,219 $ 10,247 $ 666,466 $ 87,115 Net income (loss) — — — 11,279 — — — 11,279 ( 1,378 ) 9,901 6,308 Foreign currency translation adjustments — — — — ( 1 ) — — ( 1 ) — ( 1 ) — Net subscriptions (redemptions) and other — — ( 167 ) — — — — ( 167 ) ( 524 ) ( 691 ) ( 2,736 ) Cash dividends declared ($ 0.67 per common share) — — ( 5,496 ) — — — — ( 5,496 ) — ( 5,496 ) — Repurchases of common shares ( 74,897 ) — — — — 74,897 ( 7,500 ) ( 7,500 ) — ( 7,500 ) — Issuance of common shares related to employee stock transactions 43,756 1 12 — — — — 13 — 13 — Taxes paid on stock-based compensation — — ( 2,019 ) — — — — ( 2,019 ) — ( 2,019 ) — Stock-based compensation — — 5,838 — — — — 5,838 — 5,838 — Balances at June 30, 2020 7,664,272 $ 118 $ 1,303,036 $ ( 208,222 ) $ ( 17 ) 4,113,460 $ ( 436,749 ) $ 658,166 $ 8,345 $ 666,511 $ 90,687 Balances at March 31, 2021 7,649,679 $ 119 $ 1,284,643 $ ( 98,671 ) $ 35 4,227,315 $ ( 456,748 ) $ 729,378 $ 9,317 $ 738,695 $ 112,482 Net income (loss) — — — 62,967 — — — 62,967 270 63,237 12,860 Foreign currency translation adjustments — — — — 0 — — 0 — 0 — Net subscriptions (redemptions) and other — — — — — — — — ( 619 ) ( 619 ) 6,183 Cash dividends declared ($ 0.82 per common share) — — ( 6,604 ) — — — — ( 6,604 ) — ( 6,604 ) — Repurchases of common shares ( 26,921 ) — — — — 26,921 ( 7,500 ) ( 7,500 ) — ( 7,500 ) — Issuance of common shares related to employee stock transactions 28,848 — — — — — — — — — — Taxes paid on stock-based compensation — — ( 4,117 ) — — — — ( 4,117 ) ( 4,117 ) — Stock-based compensation — — 6,745 — — — — 6,745 — 6,745 — Balances at June 30, 2021 7,651,606 $ 119 $ 1,280,667 $ ( 35,704 ) $ 35 4,254,236 $ ( 464,248 ) $ 780,869 $ 8,968 $ 789,837 $ 131,525 Permanent Equity Temporary Equity Common Stock Preferred Stock Additional Paid-in Capital Retained Earnings (Accumulated Deficit) Accumulated Other Comprehensive Income (Loss) Treasury Stock Total Attributed To Stockholders Non- controlling Interests Total Equity Redeemable Non- controlling Interests (in thousands, except per share data) Shares Par Value Shares Amount Shares Amount Balances at December 31, 2019 6,809,280 $ 107 1,150,000 $ 110,843 $ 1,199,205 $ ( 215,216 ) $ 9 3,927,607 $ ( 419,249 ) $ 675,699 $ 10,558 $ 686,257 $ 63,845 Net income (loss) — — — — — 6,994 — — — 6,994 ( 1,123 ) 5,871 11,344 Foreign currency translation adjustments — — — — — — ( 26 ) — — ( 26 ) — ( 26 ) — Net subscriptions (redemptions) and other — — — — ( 167 ) — — — — ( 167 ) ( 1,090 ) ( 1,257 ) 15,498 Conversion of preferred stock 912,806 9 ( 1,150,000 ) ( 110,843 ) 110,834 — — — — — — — — Cash dividends declared ($ 1.34 per common share) — — — — ( 11,676 ) — — — — ( 11,676 ) — ( 11,676 ) — Repurchases of common shares ( 185,853 ) — — — — — — 185,853 ( 17,500 ) ( 17,500 ) — ( 17,500 ) — Issuance of common shares related to employee stock transactions 128,039 2 — — 112 — — — — 114 — 114 — Taxes paid on stock-based compensation — — — — ( 5,569 ) — — — — ( 5,569 ) — ( 5,569 ) — Stock-based compensation — — — — 10,297 — — — — 10,297 — 10,297 — Balances at June 30, 2020 7,664,272 $ 118 — $ — $ 1,303,036 $ ( 208,222 ) $ ( 17 ) 4,113,460 $ ( 436,749 ) $ 658,166 $ 8,345 $ 666,511 $ 90,687 Balances at December 31, 2020 7,583,466 $ 118 — $ — $ 1,298,002 $ ( 135,259 ) $ 29 4,207,403 $ ( 451,749 ) $ 711,141 $ 9,799 $ 720,940 $ 115,513 Net income (loss) — — — — — 99,555 — — — 99,555 345 99,900 28,411 Foreign currency translation adjustments — — — — — — 6 — — 6 — 6 — Net subscriptions (redemptions) and other — — — — — — — — — — ( 1,176 ) ( 1,176 ) ( 12,399 ) Cash dividends declared ($ 1.64 per common share) — — — — ( 13,300 ) — — — — ( 13,300 ) — ( 13,300 ) — Repurchases of common shares ( 46,833 ) — — — — — — 46,833 ( 12,499 ) ( 12,499 ) — ( 12,499 ) — Issuance of common shares related to employee stock transactions 114,973 1 — — 65 — — — — 66 — 66 — Taxes paid on stock-based compensation — — — — ( 19,280 ) — — — — ( 19,280 ) ( 19,280 ) — Stock-based compensation — — — — 15,180 — — — — 15,180 — 15,180 — Balances at June 30, 2021 7,651,606 $ 119 — $ — $ 1,280,667 $ ( 35,704 ) $ 35 4,254,236 $ ( 464,248 ) $ 780,869 $ 8,968 $ 789,837 $ 131,525 The accompanying notes are an integral part of these condensed consolidated financial statements. 5 Table of Contents Virtus Investment Partners, Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) 1. Organization and Business Virtus Investment Partners, Inc. (the "Company," "we," "us," "our" or "Virtus"), a Delaware corporation, operates in the investment management industry through its subsidiaries. The Company provides investment management and related services to individuals and institutions. The Company’s retail investment management services are provided to individuals through products consisting of U.S. 1940 Act mutual funds and Undertaking for Collective Investment in Transferable Securities ("UCITS" or "offshore funds" and collectively, with U.S. 1940 Act mutual funds, "open-end funds"), exchange traded funds ("ETFs"), closed-end funds (collectively, with open-end funds and ETFs, "funds") and retail separate accounts. Institutional investment management services are offered through separate accounts and pooled or commingled structures to a variety of institutional clients. The Company also provides subadvisory services to other investment advisers and serves as the collateral manager for structured products. 2. Basis of Presentation and Significant Accounting Policies Basis of Presentation The unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, these financial statements contain all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the Company’s financial condition and results of operations. Operating results for the six months ended June 30, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 ("2020 Annual Report on Form 10-K") filed with the Securities and Exchange Commission (the "SEC"). The Company’s significant accounting policies, which have been consistently applied, are summarized in its 2020 Annual Report on Form 10-K. New Accounting Standards Implemented In January 2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2020-01, Investments - Equity Securities (Topic 321), Investments-Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) . This standard clarifies the interaction of the accounting for equity securities under Topic 321, the accounting for equity method investments in Topic 323 and the accounting for certain forward contracts and purchased options in Topic 815. The Company adopted this standard on January 1, 2021. The adoption of this standard did not have a material impact on the Company's condensed consolidated financial statements. In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes . This standard simplifies the accounting for income taxes by removing certain exceptions to the general principles of Topic 740, Income Taxes, and improves consistent application by clarifying and amending existing guidance. The Company adopted this standard on January 1, 2021. The adoption of this standard did not have a material impact on the Company's condensed consolidated financial statements. 3. Revenues The Company's revenues are recognized when a performance obligation is satisfied, which occurs when control of the services is transferred to customers. Investment management fees, distribution and service fees, and administration and shareholder service fees are generally calculated as a percentage of average net assets of the investment portfolios managed. The net asset values from which investment management, distribution and service, and administration and shareholder service fees are calculated are variable in nature and subject to factors outside of the Company's control such as additional investments, withdrawals and market performance. Because of this, these fees are considered constrained until the end of the contractual 6 Table of Contents measurement period (monthly or quarterly), which is when asset values are generally determinable. Revenue Disaggregated by Source The following table summarizes investment management fees by source: Three Months Ended June 30, Six Months Ended June 30, (in thousands) 2021 2020 2021 2020 Investment management fees Open-end funds $ 96,795 $ 54,018 $ 185,667 $ 113,126 Closed-end funds 16,395 8,557 29,335 18,736 Retail separate accounts 42,475 22,398 79,987 48,112 Institutional accounts 35,782 24,606 68,220 47,523 Structured products 1,585 417 2,844 1,991 Other products 478 554 726 1,350 Total investment management fees $ 193,510 $ 110,550 $ 366,779 $ 230,838 4. 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 the Company became the investment adviser, distributor and/or administrator of certain of AllianzGI's open-end, closed-end and retail separate account assets. Additionally, as part of the strategic partnership, AllianzGI’s Dallas-based Value Equity team joined the Company as a newly established affiliated manager, NFJ Investment Group ("NFJ"). Assets acquired in connection with the transaction primarily consisted of definite-lived intangible assets representing open-end, closed-end and retail separate account investment contracts as well as indefinite-lived assets consisting of goodwill related to NFJ. The revenues and operating income of NFJ were not material to the Company's results of operations for the three and six months ended June 30, 2021. Transaction consideration consists of variable cash payments based on a percentage of the investment management fees earned on certain open-end, closed-end and retail separate account assets adopted under the transaction. Payments are to be made annually around the anniversary of the closing date of the transaction over the next seven years . The estimate of these future revenue participation payments of $ 137.7 million at June 30, 2021 have been recorded as a liability and included as Contingent Consideration on the Company's Condensed Consolidated Balance Sheet. In addition, the Company capitalized $ 7.7 million of costs associated with certain assets acquired. The following table summarizes the identified acquired assets: February 1, 2021 (in thousands) Approximate Fair Value Weighted Average Useful Life Definite-lived intangible assets: Open-end and closed-end fund investment contracts $ 101,447 13 years Retail separate account investment contracts 17,000 6 years Trade name 1,941 8 years Total definite-lived intangible assets $ 120,388 Goodwill 25,000 Total assets acquired $ 145,388 7 Table of Contents 5. Intangible Assets, Net Below is a summary of intangible assets, net: (in thousands) June 30, 2021 December 31, 2020 Definite-lived intangible assets: Investment contracts and other $ 609,958 $ 489,570 Accumulated amortization ( 272,650 ) ( 252,822 ) Definite-lived intangible assets, net 337,308 236,748 Indefinite-lived intangible assets 43,516 43,516 Total intangible assets, net $ 380,824 $ 280,264 Activity in intangible assets, net was as follows: Six Months Ended June 30, (in thousands) 2021 2020 Intangible assets, net Balance, beginning of period $ 280,264 $ 310,391 Additions 120,388 — Amortization ( 19,828 ) ( 15,066 ) Balance, end of period $ 380,824 $ 295,325 Definite-lived intangible asset amortization for the remainder of fiscal year 2021 and succeeding fiscal years is estimated as follows: Fiscal Year Amount (in thousands) Remainder of 2021 20,782 2022 41,440 2023 40,778 2024 35,136 2025 30,368 2026 and thereafter 168,804 Total $ 337,308 6. Investments Investments consist primarily of investments in the Company's sponsored products. The Company's investments, excluding the assets of consolidated investment products ("CIP") discussed in Note 16, at June 30, 2021 and December 31, 2020 were as follows: (in thousands) June 30, 2021 December 31, 2020 Investment securities - fair value $ 54,448 $ 39,990 Equity method investments (1) 13,193 12,676 Nonqualified retirement plan assets 12,132 10,612 Other investments 2,002 1,666 Total investments $ 81,775 $ 64,944 (1) The Company's equity method investments are valued on a three-month lag based upon the availability of financial information. 8 Table of Contents Investment Securities - fair value Investment securities - fair value consist of investments in the Company's sponsored funds, separately managed accounts and trading debt securities. The composition of the Company’s investment securities - fair value was as follows: June 30, 2021 December 31, 2020 (in thousands) Cost Fair Value Cost Fair Value Investment Securities - fair value Sponsored funds $ 40,304 $ 40,791 $ 22,378 $ 25,909 Equity securities 10,123 13,642 9,614 14,078 Debt securities 7 15 7 3 Total investment securities - fair value $ 50,434 $ 54,448 $ 31,999 $ 39,990 For the three and six months ended June 30, 2021, the Company recognized realized gains of $ 1.0 million and $ 1.8 million on the sale of its investment securities - fair value, respectively. For the three and six months ended June 30, 2020, the Company recognized realized gains of less than $ 0.1 million and realized losses of $ 0.3 million on the sale of its investment securities - fair value, respectively. 7. Fair Value Measurements The Company’s assets and liabilities measured at fair value on a recurring basis, excluding the assets and liabilities of CIP discussed in Note 16, as of June 30, 2021 and December 31, 2020 by fair value hierarchy level were as follows: June 30, 2021 (in thousands) Level 1 Level 2 Level 3 Total Assets Cash equivalents $ 208,764 $ — $ — $ 208,764 Investment securities - fair value Sponsored funds 40,791 — — 40,791 Equity securities 13,642 — — 13,642 Debt securities — 15 — 15 Nonqualified retirement plan assets 12,132 — — 12,132 Total assets measured at fair value $ 275,329 $ 15 $ — $ 275,344 December 31, 2020 (in thousands) Level 1 Level 2 Level 3 Total Assets Cash equivalents $ 207,101 $ — $ — $ 207,101 Investment securities - fair value Sponsored funds 25,909 — — 25,909 Equity securities 14,078 — — 14,078 Debt securities — 3 — 3 Nonqualified retirement plan assets 10,612 — — 10,612 Total assets measured at fair value $ 257,700 $ 3 $ — $ 257,703 The following is a discussion of the valuation methodologies used for the Company’s assets measured at fair value: Cash equivalents represent investments in money market funds. Cash investments in money market funds are valued using published net asset values and are classified as Level 1. Sponsored funds represent investments in open-end funds, closed-end funds and ETFs for which the Company acts as the investment manager. The fair value of open-end funds is determined based on their published net asset values and are 9 Table of Contents categorized as Level 1. The fair value of closed-end funds and ETFs is determined based on the official closing price on the exchange on which they are traded and are categorized as Level 1. Equity securities represent securities traded on active markets and are valued at the official closing price (typically the last sale or bid) on the exchange on which the securities are primarily traded and are categorized as Level 1. Debt securities represent investments in senior secured bank loans and are based on evaluated quotations received from independent pricing services and are categorized as Level 2. Nonqualified retirement plan assets represent mutual funds within a nonqualified retirement plan whose fair value is determined based on their published net asset value and are categorized as Level 1. Cash, accounts receivable, accounts payable and accrued liabilities equal or approximate fair value based on the short-term nature of these instruments. The Company had no Level 3 investments for the three- and six-month periods ended June 30, 2021 and 2020, respectively. 8. Equity Transactions Dividends Declared On May 13, 2021, the Company declared a quarterly cash dividend of $ 0.82 per common share to be paid on August 13, 2021 to stockholders of record at the close of business on July 30, 2021. Common Stock Repurchases During the three and six months ended June 30, 2021, the Company repurchased 26,921 and 46,833 common shares, respectively, at a weighted average price of $ 278.56 and $ 266.87 per share, respectively, for a total cost, including fees and expenses, of $ 7.5 million and $ 12.5 million, respectively, under its share repurchase program. As of June 30, 2021, 675,809 shares remained available for repurchase. Under the terms of the program, the Company may repurchase shares of its common stock from time to time at its discretion through open market repurchases, privately negotiated transactions and/or other mechanisms, depending on price and prevailing market and business conditions. The program, which has no specified term, may be suspended or terminated at any time. 9. Accumulated Other Comprehensive Income (Loss) The changes in accumulated other comprehensive income (loss) by component for the six months ended June 30, 2021 and 2020 were as follows: (in thousands) Foreign Currency Translation Adjustments Balance at December 31, 2020 $ 29 Foreign currency translation adjustments, net of tax of $( 2 ) 6 Net current-period other comprehensive income (loss) 6 Balance at June 30, 2021 $ 35 10 Table of Contents (in thousands) Foreign Currency Translation Adjustments Balance at December 31, 2019 $ 9 Foreign currency translation adjustments, net of tax of $ 9 ( 26 ) Net current-period other comprehensive income (loss) ( 26 ) Balance at June 30, 2020 $ ( 17 ) 10. Stock-Based Compensation Pursuant to the Company's Omnibus Incentive and Equity Plan (the "Plan"), officers, employees and directors may be granted equity-based awards, including restricted stock units ("RSUs"), performance stock units ("PSUs"), stock options and unrestricted shares of common stock. At June 30, 2021, 814,812 shares of common stock remained available for issuance of the 3,370,000 shares that are authorized for issuance under the Plan. Stock-based compensation expense is summarized as follows: Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 2020 (in thousands) Stock-based compensation expense $ 7,849 $ 6,492 $ 15,844 $ 10,113 Restricted Stock Units Each RSU entitles the holder to one share of common stock when the restriction expires. RSUs may be time-vested or performance-contingent (PSUs) that convert into RSUs after performance measurement is complete and generally vest in one to three years . Shares that are issued upon vesting are newly issued shares from the Plan and are not issued from treasury stock. RSU activity, inclusive of PSUs, for the six months ended June 30, 2021 is summarized as follows: Number of Shares Weighted Average Grant Date Fair Value Outstanding at December 31, 2020 533,185 $ 106.19 Granted 96,378 $ 263.58 Forfeited ( 20,851 ) $ 129.78 Settled ( 183,473 ) $ 123.13 Outstanding at June 30, 2021 425,239 $ 133.39 For the six months ended June 30, 2021 and 2020, a total of 72,324 and 62,899 RSUs, respectively, were withheld by the Company as a result of net share settlements to settle minimum employee tax withholding obligations. The Company paid $ 19.3 million and $ 5.5 million for the six months ended June 30, 2021 and 2020, respectively, in minimum employee tax withholding obligations related to RSUs withheld for the net share settlements. During the six months ended June 30, 2021, the Company granted 24,798 PSUs that contain performance-based metrics in addition to a service condition. Compensation expense for PSUs is generally recognized over a three-year service period based upon the value determined using a combination of (i) the intrinsic value method, for awards that contain a performance metric that represents a "performance condition" in accordance with ASC 718, and (ii) the Monte Carlo simulation valuation model for awards that contain a "market condition" performance metric under ASC 718. Compensation expense for PSU awards that contain a market condition is fixed at the date of grant and will not be adjusted in future periods based upon the achievement of the market condition. Compensation expense for PSU awards with a performance condition is recorded each period based upon a probability assessment of the expected outcome of the performance metric with a final adjustment upon measurement at the end of the performance period. As of June 30, 2021, unamortized stock-based compensation expense for unvested RSUs and PSUs was $ 33.2 million, 11 Table of Contents with a weighted-average remaining contractual life of 1.4 years. 11. Earnings (Loss) Per Share Earnings (loss) per share ("EPS") is calculated in accordance with ASC 260, Earnings per Share. Basic EPS is computed by dividing net income (loss) attributable to Virtus Investment Partners, Inc. by the weighted-average number of common shares outstanding for the period, excluding dilution for potential common stock issuances. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock, including: (i) shares issuable upon the vesting of RSUs and stock option exercises using the treasury stock method and (ii) shares issuable upon the conversion of the Company's previously outstanding mandatory convertible preferred stock ("MCPS"), as determined under the if-converted method. For purposes of calculating diluted EPS, preferred stock dividends have been subtracted from net income (loss) in periods in which utilizing the if-converted method would be anti-dilutive. The computation of basic and diluted EPS is as follows: Three Months Ended June 30, Six Months Ended June 30, (in thousands, except per share amounts) 2021 2020 2021 2020 Net Income (Loss) $ 76,097 $ 16,209 $ 128,311 $ 17,215 Noncontrolling interests ( 13,130 ) ( 4,930 ) ( 28,756 ) ( 10,221 ) Net Income (Loss) Attributable to Virtus Investment Partners, Inc. $ 62,967 $ 11,279 $ 99,555 $ 6,994 Shares: Basic: Weighted-average number of shares outstanding 7,698 7,720 7,674 7,572 Plus: Incremental shares from assumed conversion of dilutive instruments 309 175 364 364 Diluted: Weighted-average number of shares outstanding 8,007 7,895 8,038 7,936 Earnings (Loss) per Share—Basic $ 8.18 $ 1.46 $ 12.97 $ 0.92 Earnings (Loss) per Share—Diluted $ 7.86 $ 1.43 $ 12.39 $ 0.88 The following table details the securities that have been excluded from the above computation of weighted-average number of shares for diluted EPS, because the effect would be anti-dilutive. Three Months Ended June 30, Six Months Ended June 30, (in thousands) 2021 2020 2021 2020 Restricted stock units and options 5 35 6 1 Total anti-dilutive securities 5 35 6 1 12. Income Taxes In calculating the provision for income taxes, the Company uses an estimate of the annual effective tax rate based upon the facts and circumstances at each interim period. On a quarterly basis, the estimated annual effective tax rate is adjusted, as appropriate, based upon changes in facts and circumstances, if any, as compared to those forecasted at the beginning of the fiscal year and at each interim period thereafter. The provision for income taxes reflected U.S. 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 comparatively lower estimated effective tax rate for the six months ended June 30, 2021 was primarily due to valuation allowances recorded in the prior year period for the tax effects of unrealized losses on certain Company investments. 12 Table of Contents 13. Debt 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. During the six months ended June 30, 2021, the Company repaid $ 11.8 million outstanding under its Term Loan. At June 30, 2021, $ 193.8 million remained outstanding under the Term Loan, and the Company had no outstanding borrowings under its Credit Facility. In accordance with ASC 835, Interest, the amounts outstanding under the Company's Term Loan are presented on the Condensed Consolidated Balance Sheet net of related debt issuance costs, which were $ 3.6 million as of June 30, 2021. 14. Commitments and Contingencies Legal Matters The Company is involved from time to time in litigation and arbitration, as well as examinations, inquiries and investigations by various regulatory bodies, including the SEC, involving its compliance with, among other things, securities laws, client investment guidelines, laws governing the activities of broker-dealers and other laws and regulations affecting its products and other activities. Legal and regulatory matters of this nature involve or may involve but are not limited to the Company's activities as an employer, issuer of securities, investor, investment adviser, broker-dealer or taxpayer. In addition, in the normal course of business, the Company discusses matters with its regulators raised during regulatory examinations or is otherwise subject to their inquiry. These matters could result in censures, fines, penalties or other sanctions. The Company records a liability when it is both probable that a liability has been incurred and the amount of the liability can be reasonably estimated. Significant judgment is required in both the determination of probability and the determination as to whether a loss is reasonably estimable. In addition, in the event the Company determines that a loss is not probable, but is reasonably possible, and it becomes possible to develop what the Company believes to be a reasonable range of possible loss, then the Company will include disclosures related to such matter as appropriate and in compliance with ASC 450, Contingencies . The disclosures, accruals or estimates, if any, resulting from the foregoing analysis are reviewed at least quarterly and adjusted to reflect the impact of negotiations, settlements, rulings, advice of legal counsel and other information and events pertaining to a particular matter. Based on information currently available, available insurance coverage, indemnities and established reserves, the Company believes that the outcomes of its legal and regulatory proceedings are not likely, either individually or in the aggregate, to have a material adverse effect on the Company's results of operations, cash flows or its consolidated financial condition. However, in the event of unexpected subsequent developments and given the inherent unpredictability of these legal and regulatory matters, the Company can provide no assurance that its assessment of any claim, dispute, regulatory examination or investigation or other legal matter will reflect the ultimate outcome, and an adverse outcome in certain matters could, from time to time, have a material adverse effect on the Company's results of operations or cash flows in particular quarterly or annual periods. 15. Redeemable Noncontrolling Interests Redeemable noncontrolling interests represent third-party investments in the Company's CIP and minority interests held in a consolidated majority-owned affiliate. Minority interests held in the affiliate are subject to holder put rights and Company call rights at established multiples of earnings before interest, taxes, depreciation and amortization and, as such, are considered redeemable at other than fair value. The rights are exercisable at pre-established intervals (between four and seven years from their issuance) or upon certain conditions such as retirement. The put and call rights are not legally detachable or separately exercisable and are deemed to be embedded in the related noncontrolling interests. The Company, in purchasing affiliate equity, has the option to settle in cash or shares of the Company's common stock and is entitled to the cash flow associated with any purchased equity. Minority interests in an affiliate are recorded at estimated redemption value within redeemable noncontrolling interests in the Company's Condensed Consolidated Balance Sheets, and any changes in the estimated redemption value are recorded in the Condensed Consolidated Statements of Operations within noncontrolling interests. 13 Table of Contents Redeemable noncontrolling interests for the six months ended June 30, 2021 included the following amounts: (in thousands) CIP Affiliate Noncontrolling Interests Total Balances at December 31, 2020 $ 28,061 $ 87,452 $ 115,513 Net income (loss) attributable to noncontrolling interests 918 4,087 5,005 Changes in redemption value (1) — 23,406 23,406 Total net income (loss) attributable to noncontrolling interests 918 27,493 28,411 Net subscriptions (redemptions) and other ( 6,393 ) ( 6,006 ) ( 12,399 ) Balances at June 30, 2021 $ 22,586 $ 108,939 $ 131,525 (1) Relates to noncontrolling interests redeemable at other than fair value. 16. Consolidation The condensed consolidated financial statements include the accounts of the Company, its subsidiaries and investment products that are consolidated. Voting interest entities ("VOEs") are consolidated when the Company is considered to have a controlling financial interest, which is typically present when the Company owns a majority of the voting interest in an entity or otherwise has the power to govern the financial and operating policies of the entity. The Company evaluates any variable interest entities ("VIEs") in which the Company has a variable interest for consolidation. A VIE is an entity in which either (i) the equity investment at risk is not sufficient to permit the entity to finance its own activities without additional financial support or (ii) where as a group, the holders of the equity investment at risk do not possess (x) the power through voting or similar rights to direct the activities that most significantly impact the entity’s economic performance; (y) the obligation to absorb expected losses or the right to receive expected residual returns of the entity; or (z) proportionate voting and economic interests and where substantially all of the entity’s activities either involve or are conducted on behalf of an investor with disproportionately fewer voting rights. If an entity has any of these characteristics, it is considered a VIE and is required to be consolidated by its primary beneficiary. The primary beneficiary is the entity that has both the power to direct the activities that most significantly impact the VIE’s economic performance and has the obligation to absorb losses of, or the right to receive benefits from, the VIE that could potentially be significant to the VIE. In the normal course of its business, the Company sponsors various investment products, some of which are consolidated by the Company. CIP includes both VOEs, made up primarily of open-end funds in which the Company holds a controlling financial interest, and VIEs, which primarily consist of CLOs of which the Company is considered the primary beneficiary. The consolidation and deconsolidation of these investment products have no impact on net income (loss) attributable to stockholders. The Company’s risk with respect to these investment products is limited to its beneficial interests in these products. The Company has no right to the benefits from, and does not bear the risks associated with, these investment products beyond the Company’s investments in, and fees generated from, these products. The following table presents the balances of CIP that, after intercompany eliminations, were reflected on the Condensed Consolidated Balance Sheets as of June 30, 2021 and December 31, 2020: As of June 30, 2021 December 31, 2020 VOEs VIEs VOEs VIEs (in thousands) CLOs Other CLOs Other Cash and cash equivalents $ 7,036 $ 121,934 $ 1,448 $ 9,837 $ 82,295 $ 1,206 Investments 54,953 2,154,956 61,934 57,256 2,217,055 58,966 Other assets 13,962 30,195 889 1,989 10,484 957 Notes payable — ( 2,132,012 ) — — ( 2,190,445 ) — Securities purchased payable and other liabilities ( 20,534 ) ( 101,176 ) ( 634 ) ( 2,566 ) ( 42,940 ) ( 323 ) Noncontrolling interests ( 16,975 ) ( 8,968 ) ( 5,611 ) ( 24,707 ) ( 9,799 ) ( 3,354 ) Net interests in CIP $ 38,442 $ 64,929 $ 58,026 $ 41,809 $ 66,650 $ 57,452 14 Table of Contents Consolidated CLOs The majority of the Company's CIP that are VIEs are CLOs. At June 30, 2021, the Company consolidated six CLOs. The financial information of certain CLOs is included on the Company's condensed consolidated financial statements on a one-month lag based upon the availability of the fund's financial information. A majority-owned consolidated private fund, whose primary purpose is to invest in CLOs for which the Company serves as the collateral manager, is also included. Investments of CLOs The CLOs held investments of $ 2.2 billion at June 30, 2021 consisting of bank loan investments, which comprise the majority of the CLOs' portfolio asset collateral and are senior secured corporate loans across a variety of industries. These bank loan investments mature at various dates between 2022 and 2029 and pay interest at LIBOR plus a spread of up to 10.00 %. The CLOs may elect to reinvest any prepayments received on bank loan investments up until the periods between October 2019 and March 2025, depending on the CLO. Generally, subsequent prepayments received after the reinvestment period must be used to pay down the note obligations. At June 30, 2021, the fair value of the senior bank loans was less than the unpaid principal balance by $ 35.5 million. At June 30, 2021, there were no material collateral assets in default. Notes Payable of CLOs The CLOs held notes payable with a total value, at par, of $ 2.3 billion at June 30, 2021, consisting of senior secured floating rate notes payable with a par value of $ 2.1 billion and subordinated notes with a par value of $ 225.9 million. These note obligations bear interest at variable rates based on LIBOR plus a pre-defined spread ranging from 0.8 % to 8.7 %. The principal amounts outstanding of these note obligations mature on dates ranging from October 2027 to January 2033. The Company’s beneficial interests and maximum exposure to loss related to these consolidated CLOs is limited to (i) ownership in the subordinated notes and (ii) accrued management fees. The secured notes of the consolidated CLOs have contractual recourse only to the related assets of the CLO and are classified as financial liabilities. Although these beneficial interests are eliminated upon consolidation, the application of the measurement alternative prescribed by ASU 2014-13, Consolidation (Topic 810) ("ASU 2014-13"), results in the net assets of the consolidated CLOs shown above to be equivalent to the beneficial interests retained by the Company at June 30, 2021, as shown in the table below: (in thousands) Subordinated notes $ 63,664 Accrued investment management fees 1,265 Total beneficial interests $ 64,929 The following table represents income and expenses of the consolidated CLOs included on the Company’s Condensed Consolidated Statements of Operations for the period indicated: (in thousands) Six Months Ended June 30, 2021 Income: Realized and unrealized gain (loss), net $ ( 4,646 ) Interest income 44,487 Total income 39,841 Expenses: Other operating expenses 904 Interest expense 28,901 Total expense 29,805 Noncontrolling interests ( 345 ) Net Income (loss) attributable to CIP $ 9,691 15 Table of Contents As summarized in the table below, the application of the measurement alternative as prescribed by ASU 2014-13 results in the consolidated net income summarized above to be equivalent to the Company’s own economic interests in the consolidated CLOs, which are eliminated upon consolidation: (in thousands) Six Months Ended June 30, 2021 Distributions received and unrealized gains (losses) on the subordinated notes $ 5,054 Investment management fees 4,637 Total economic interests $ 9,691 Fair Value Measurements of CIP The assets and liabilities of CIP measured at fair value on a recurring basis as of June 30, 2021 and December 31, 2020 by fair value hierarchy level were as follows: As of June 30, 2021 (in thousands) Level 1 Level 2 Level 3 Total Assets Cash equivalents $ 121,934 $ — $ — $ 121,934 Debt investments 1,281 2,194,503 50,186 2,245,970 Equity investments 21,907 2,071 1,895 25,873 Total assets measured at fair value $ 145,122 $ 2,196,574 $ 52,081 $ 2,393,777 Liabilities Notes payable $ — $ 2,132,012 $ — $ 2,132,012 Short sales 531 — — 531 Total liabilities measured at fair value $ 531 $ 2,132,012 $ — $ 2,132,543 As of December 31, 2020 (in thousands) Level 1 Level 2 Level 3 Total Assets Cash equivalents $ 82,295 $ — $ — $ 82,295 Debt investments 16,859 2,219,199 53,368 2,289,426 Equity investments 38,468 3,856 814 43,138 Derivatives 858 1,227 — 2,085 Total assets measured at fair value $ 138,480 $ 2,224,282 $ 54,182 $ 2,416,944 Liabilities Notes payable $ — $ 2,190,445 $ — $ 2,190,445 Derivatives 714 757 — 1,471 Short sales 520 — — 520 Total liabilities measured at fair value $ 1,234 $ 2,191,202 $ — $ 2,192,436 The following is a discussion of the valuation methodologies used for the assets and liabilities of the Company’s CIP measured at fair value: Cash equivalents represent investments in money market funds. Cash investments in money market funds are valued using published net asset values and are classified as Level 1. Debt and equity investments represent the underlying debt, equity and other securities held in CIP. Equity investments are valued at the official closing price on the exchange on which the securities are traded and are generally categorized within Level 1. Level 2 investments represent most debt securities, including bank loans and certain equity securities (including non- 16 Table of Contents U.S. securities), for which closing prices are not readily available or are deemed to not reflect readily available market prices, and are valued using an independent pricing service. Debt investments are valued based on quotations received from independent pricing services or from dealers who make markets in such securities. Bank loan investments, which are included as debt investments, are generally priced at the average mid-point of bid and ask quotations obtained from a third-party pricing service. Fair value may also be based upon valuations obtained from independent third-party brokers or dealers utilizing matrix pricing models that consider information regarding securities with similar characteristics. In certain instances, fair value has been determined utilizing discounted cash flow analyses or single broker non-binding quotes. Depending on the nature of the inputs, these assets are classified as Level 1, 2 or 3 within the fair value measurement hierarchy. Level 3 investments include debt and equity securities that are not widely traded, are illiquid or are priced by dealers based on pricing models used by market makers in the security. Derivative assets and liabilities represent futures contracts, swaps contracts, option contracts and forward contracts held in CIP. Derivative instruments in an asset position are classified as other assets of CIP on the Condensed Consolidated Balance Sheets. Derivative instruments in a liability position are classified as liabilities of CIP within the Condensed Consolidated Balance Sheets. The change in fair value of such derivatives is recorded in realized and unrealized gain (loss) on investments of CIP, net, on the Condensed Consolidated Statements of Operations. Depending on the nature of the inputs, these derivative assets and liabilities are classified as Level 1, 2 or 3 within the fair value measurement hierarchy. In connection with entering into these derivative contracts, these CIP may be required to pledge an amount of cash equal to the appropriate "initial margin" requirements. The cash pledged or on deposit is recorded on the Condensed Consolidated Balance Sheets of the Company as Cash pledged or on deposit of CIP. The fair value of such derivatives at December 31, 2020, was immaterial. There were no derivative assets or liabilities held at June 30, 2021. Notes payable represent notes issued by CIP CLOs and are measured using the measurement alternative in ASU 2014-13. Accordingly, the fair value of CLO liabilities was measured as the fair value of CLO assets less the sum of (i) the fair value of the beneficial interests held by the Company and (ii) the carrying value of any beneficial interests that represent compensation for services. The fair value of the beneficial interests held by the Company is based on third-party pricing information without adjustment. Short sales are transactions in which a security is sold that is not owned or is owned but there is no intention to deliver, in anticipation that the price of the security will decline. Short sales are recorded on the Condensed Consolidated Balance Sheets within other liabilities of CIP and are classified as Level 1 based on the underlying equity security. The securities purchase payable at June 30, 2021 and December 31, 2020 approximated fair value due to the short-term nature of the instruments. The following table is a reconciliation of assets of CIP for Level 3 investments for which significant unobservable inputs were used to determine fair value: Six Months Ended June 30, (in thousands) 2021 2020 Balance at beginning of period $ 54,182 $ 40,422 Realized gains (losses), net ( 214 ) 4 Change in unrealized gains (losses), net 3,281 ( 920 ) Purchases 4,395 56 Amortization 60 6 Sales ( 27,309 ) ( 1,195 ) Transfers to Level 2 ( 44,578 ) ( 38,607 ) Transfers from Level 2 62,264 12,106 Balance at end of period (1) $ 52,081 $ 11,872 (1) The investments that are categorized as Level 3 were valued utilizing third-party pricing information without adjustment. Transfers between Level 2 and Level 3 were due to trading activities at period end. 17 Table of Contents Nonconsolidated VIEs The Company serves as the collateral manager for other collateralized loan and collateralized bond obligations (collectively, "CDOs") that are not consolidated. The assets and liabilities of these CDOs reside in bankruptcy remote, special purpose entities in which the Company has no ownership of, nor holds any notes issued by, the CDOs, and provides neither recourse nor guarantees. The Company has determined that the investment management fees it receives for serving as collateral manager for these CDOs did not represent a variable interest since (i) the fees the Company earns are compensation for services provided and are commensurate with the level of effort required to provide the investment management services, (ii) the Company does not hold other interests in the CDOs that individually, or in the aggregate, would absorb more than an insignificant amount of the CDOs' expected losses or receive more than an insignificant amount of the CDOs' expected residual return, and (iii) the investment management arrangement only includes terms, conditions and amounts that are customarily present in arrangements for similar services negotiated at arm's length. The Company has interests in certain other VIEs that the Company does not consolidate as it is not the primary beneficiary since its interest in these entities does not provide the Company with the power to direct the activities that most significantly impact the entities' economic performance. At June 30, 2021, the carrying value and maximum risk of loss related to the Company's interest in these VIEs was $ 30.8 million. 18 Table of Contents