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Item 7. Management’s Discussion and Analysis

2022-02-25 compared with 2021-02-26 · 203 added, 201 removed, 446 unchanged (48% of the section changed)

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We provide investment management and related services to individuals and institutions.

We use a multi-manager, multi-style approach, offering investment strategies from affiliated managers, each having its own distinct investment style, autonomous investment process and individual brand.

By offering a broad array of products, we believe we can appeal to a greater number of investors and have offerings across market cycles and through changes in investor preferences.

Our earnings are primarily driven by asset-based fees charged for services relating to these various products, including investment management, fund administration, distribution and shareholder services.

We offer investment strategies for individual and institutional investors in different product structures and through multiple distribution channels.

Our investment strategies are available in a diverse range of styles and disciplines, managed by a collection of differentiated investment managers.

We have offerings in various asset classes (equity, fixed income and alternative), geographies (domestic, international and emerging), market capitalizations (large, mid and small), styles (growth, core and value) and investment approaches (fundamental, quantitative and thematic).

We offer investment strategies for individual and institutional investors in different investment products and through multiple distribution channels.

Our investment strategies are available in a diverse range of styles and disciplines, managed by differentiated investment managers.

We have offerings in various asset classes (equity, fixed income, multi-asset and alternative), geographies (domestic, global, international and emerging), market capitalizations (large, mid and small), styles (growth, core and value) and investment approaches (fundamental, quantitative and specialty).

Our retail products include open-end funds and exchange traded funds ("ETFs") as well as closed-end funds and retail separate accounts.

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Our sales efforts are supported by regional sales professionals, a national account relationship group, and separate teams for ETFs and the retirement and insurance channels.

We leverage third-party distributors for offshore products and in certain international jurisdictions.

We leverage third-party distributors for global products and in certain international jurisdictions.

Our retail separate accounts are distributed through financial intermediaries and directly to private clients by teams at an affiliated manager.

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"Risk Factors" of this Annual Report on Form 10-K.

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.

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

These measures are intended to support businesses, employees and consumers until economic activities recover.

Financial markets experienced significant declines during the first quarter of 2020 and volatility in subsequent quarters, although certain markets, including domestic equity securities, experienced recoveries that more than offset the first quarter decline.

Despite the general recovery of the financial markets, particularly domestic equity securities, since the first quarter of 2020, 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.

and global equity markets increased in value in 2021, as evidenced by increases in major indices as noted in the following table:

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Russell 2000 Index 2,245 1,975 13.7 %

MSCI Emerging Markets Index 1,291 1,115 15.8 %

Bloomberg Barclays U.S.

Aggregate Bond Index 2,392 2,225 7.5 %

Standard & Poor's / LSTA Leveraged Loan Index 2,420 2,338 3.5 %

Impact of COVID-19 to our Business

As a result of the challenging and volatile capital, equity and credit markets, our assets under management experienced a decrease during the first quarter of 2020, driven by market depreciation of $16.6 billion and net outflows of $1.3 billion.

For the remainder of 2020, as financial markets recovered, our assets under management increased primarily driven by $35.8 billion in market appreciation and $6.4 billion in positive net flows.

Financial Highlights

▪ Earnings per diluted share was $10.02 in 2020 compared with $11.74 per diluted share in 2019.

▪ Net income per diluted share was $26.01 in 2021, an increase of $15.99, or 159.6%, as compared to net income per diluted share of $10.02 in 2020.

▪ Total sales were $36.5 billion in 2021, an increase of $3.1 billion, or 9.2%, from $33.4 billion in 2020.

Net flows were $5.1 billion in 2020 compared with $(0.8) billion in 2019.

Net flows were $3.1 billion in 2021 compared to $5.4 billion in 2020.

▪ Assets under management were $187.2 billion at December 31, 2021, an increase of $55.0 billion, or 41.6%, from $132.2 billion at December 31, 2020.

AllianzGI Strategic Partnership

On February 1, 2021, we completed actions necessary to finalize our agreement from July 2020 with Allianz Global Investors U.S.

LLC and Allianz Global Investors Distributors LLC (collectively, "AllianzGI") pursuant to which we became the investment adviser, distributor and/or administrator of certain AllianzGI's open-end, closed-end and retail separate account assets.

Agreement with Westchester Capital Management

On February 1, 2021, we entered into an agreement to acquire all of the equity 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 by Westchester's Funds' Board and shareholders.

On February 1, 2021, the Company finalized a strategic partnership with Allianz Global Investors U.S.

LLC ("AllianzGI"), pursuant to which NFJ Investment Group ("NFJ") was established as a new affiliated investment 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 relationship").

Westchester Capital Management

On October 1, 2021, the Company completed its acquisition of Westchester Capital Management, LLC ("Westchester"), a recognized leader in global event-driven strategies with $5.1 billion of assets under management.

Stone Harbor Investment Partners

On January 1, 2022, the Company completed its acquisition of Stone Harbor Investment Partners LLC ("Stone Harbor"), a premier manager of emerging markets debt, multi-asset credit, global corporate, and other strategies with $14.7 billion of assets under management at December 31, 2021.

Assets Under Management

At December 31, 2021, total assets under management were $187.2 billion, representing an increase of $55.0 billion, or 41.6%, from December 31, 2020.

The increase in total assets under management from December 31, 2019 included $19.2 billion of positive market performance and $5.1 billion of positive net flows.

Average long-term assets under management, which represent the majority of our fee-earning asset levels, were $108.2 billion for the twelve months ended December 31, 2020, an increase of $7.7 billion, or 7.7%, from $100.5 billion for the twelve months ended December 31, 2019.

The year-over-year increase in long-term average assets under management was primarily due to market performance and positive net flows.

The change in total assets under management from December 31, 2020 included $19.4 billion of positive market performance, $29.5 billion from the AGI relationship, $5.1 billion from the Westchester acquisition and $3.1 billion of positive net flows.

Investment Performance - Open-End Funds

The following table presents our open-end funds' three-year average annual return and corresponding benchmark index average annual return as of December 31, 2020.

Also presented with each fund is its three-year ranking within its Morningstar Peer Group.

The following table presents our open-end funds' and their assets, as well as the three-year average annual return, corresponding benchmark index average annual return and ranking within its Morningstar Peer Group for each fund as of December 31, 2021.

Fund Type/Name Assets

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Return % (2) Peer Group Percentile

Ranking % (3)

Retail Funds:

Domestic Equity

Virtus KAR Small-Cap Growth Fund $ 6,362 27.99 21.17 32

Virtus KAR Mid-Cap Growth Fund 3,354 36.53 20.50 4

Virtus Ceredex Mid-Cap Value Equity Fund 3,701 19.26 19.62 49

Virtus KAR Mid-Cap Growth Fund 3,261 33.81 27.46 8

Virtus KAR Small-Cap Core Fund 1,976 26.48 20.02 57

Virtus Zevenbergen Innovative Growth Stock Fund 1,371 49.53 22.50 1

Virtus Ceredex Large-Cap Value Equity Fund 1,297 6.78 6.07 35

Virtus KAR Small-Cap Value Fund 1,144 10.40 3.72 86

Virtus KAR Mid-Cap Core Fund 1,578 27.41 23.29 45

Virtus KAR Small-Cap Value Fund 1,507 24.11 17.99 57

Virtus KAR Small-Mid Cap Core Fund 1,459 30.33 21.91 26

Virtus NFJ Mid-Cap Value Fund 1,449 17.92 19.62 64

Virtus AllianzGI Focused Growth Fund 1,446 34.26 34.08 13

Virtus Ceredex Large-Cap Value Equity Fund 1,259 19.46 17.64 28

Virtus NFJ Dividend Value Fund 910 16.04 17.64 75

Virtus KAR Capital Growth Fund 813 32.59 34.08 23

Virtus KAR Small-Mid Cap Core Fund 710 N/A N/A N/A

Virtus NFJ Small-Cap Value Fund 536 13.78 17.99 91

Virtus AllianzGI Mid-Cap Growth Fund 483 36.09 27.46 5

Virtus Ceredex Small-Cap Value Equity Fund 467 14.71 17.99 93

Virtus NFJ Large-Cap Value Fund 344 17.03 17.64 62

Virtus AllianzGI Small-Cap Fund 185 19.75 20.02 55

Virtus KAR Equity Income Fund 145 19.73 13.82 90

Virtus Silvant Large-Cap Growth Stock Fund 139 31.09 34.08 36

Virtus Silvant Small-Cap Growth Stock Fund 38 20.86 16.20 36

Fund Type/Name Assets

(in millions)

Return % (1) Benchmark Index

Return % (2) Peer Group Percentile

Ranking % (3)

Virtus Newfleet Multi-Sector Short Term Bond Fund 6,485 3.81 3.24 12

Virtus AllianzGI Convertible Fund 2,943 27.52 24.18 3

Virtus Seix Floating Rate High Income Fund 2,408 4.12 5.43 67

Virtus Seix U.S.

Government Securities Ultra-Short Bond Fund 881 1.15 1.11 74

Virtus AllianzGI Short Duration High Income Fund 855 6.24 5.77 80

Virtus Newfleet Low Duration Core Plus Bond Fund 804 3.19 2.92 37

Virtus Seix High Yield Fund 467 8.84 8.56 19

Virtus Seix Total Return Bond Fund 378 5.54 4.79 46

Virtus Newfleet Multi-Sector Intermediate Bond Fund 311 6.42 4.79 37

Virtus Seix High Yield Fund 384 6.85 6.22 7

Virtus Seix Investment Grade Tax-Exempt Bond Fund 257 4.22 3.98 50

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Virtus Seix Core Bond Fund 107 5.03 4.79 38

Virtus Newfleet Tax-Exempt Bond Fund 112 4.00 4.32 52

Virtus Newfleet Core Plus Bond Fund 103 6.08 4.79 25

Virtus Newfleet Tax-Exempt Bond Fund 100 4.16 4.27 53

Virtus AllianzGI High Yield Bond Fund 69 7.69 8.57 52

Virtus AllianzGI Core Plus Bond Fund 65 7.01 4.79 6

Virtus Seix Corporate Bond Fund 62 9.28 7.59 6

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Virtus Newfleet High Yield Fund 57 8.79 8.81 20

Fund Type/Name Assets

(in millions)

Return (1) Benchmark Index Return (2) Peer Group Percentile

International/Global

International Equity

Virtus Vontobel Emerging Markets Opportunities Fund 3,740 8.61 10.94 85

Virtus KAR International Small-Cap Fund 2,519 13.94 4.59 22

Virtus KAR International Small-Mid Cap Fund 3,101 18.82 14.72 64

Virtus Vontobel Foreign Opportunities Fund 1,075 18.31 13.18 66

Virtus Vontobel Global Opportunities Fund 410 13.07 10.06 24

Virtus KAR Emerging Markets Small-Cap Fund 390 17.34 16.46 12

Virtus SGA Global Growth Fund 150 19.23 10.06 9

Virtus SGA International Growth Fund 48 13.50 4.88 17

Virtus KAR Global Quality Dividend Fund 38 2.59 3.89 89

Virtus KAR International Small-Mid Cap Fund 34 N/A N/A N/A

Virtus AllianzGI Emerging Markets Opportunities Fund 287 12.33 10.94 39

Virtus NFJ Emerging Markets Value Fund 148 15.29 10.94 22

Virtus NFJ International Value Fund 146 13.46 13.18 9

Virtus AllianzGI International Small-Cap Fund 74 15.33 16.27 90

Virtus AllianzGI Income & Growth Fund 7,496 18.00 26.07 2

Virtus Tactical Allocation Fund 941 21.66 19.32 1

Virtus AllianzGI Global Dynamic Allocation Fund 59 15.80 14.31 21

The Merger Fund® 4,269 3.82 0.99 68

Virtus Duff & Phelps Real Estate Securities Fund 617 22.56 18.41 13

Virtus Duff & Phelps International Real Estate Securities Fund 538 10.88 6.71 72

Virtus KAR Long/Short Equity Fund 129 N/A N/A N/A

Virtus Westchester Event-Driven Fund 334 6.41 0.99 35

Virtus KAR Long/Short Equity Fund 168 27.31 25.79 2

Virtus FORT Trend Fund 153 2.98 0.99 N/A

Virtus Duff & Phelps Global Infrastructure Fund 93 13.34 11.46 34

Virtus Aviva Multi-Strategy Target Return Fund 38 2.90 1.49 50

Virtus Duff & Phelps Global Real Estate Securities Fund 29 7.00 1.52 10

Virtus Tactical Allocation Fund 966 16.19 13.66 1

Fund Type/Name Assets

(in millions)

Return % (1) Benchmark Index

Return % (2) Peer Group Percentile

Ranking % (3)

Specialty Equity

Virtus AllianzGI Technology Fund 2,364 35.42 37.82 45

Virtus AllianzGI Water Fund 1,130 25.14 20.38 14

Virtus Zevenbergen Innovative Growth Stock Fund 1,120 39.44 33.21 3

Virtus AllianzGI Health Sciences Fund 205 21.75 18.79 18

Virtus AllianzGI Global Allocation Fund 195 14.56 14.31 14

Virtus AllianzGI Global Sustainability Fund 136 24.49 20.38 3

Global Equity

Virtus Vontobel Global Opportunities Fund 400 19.96 20.38 89

Virtus SGA Global Growth Fund 172 23.56 20.38 63

Virtus AllianzGI Global Small-Cap Fund 90 20.84 19.20 54

Global Funds:

Virtus GF SGA Global Growth Fund 921 21.99 20.38 58

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Virtus GF Multi-Sector Short Duration Bond Fund 81 3.83 3.60 7

Virtus GF Multi-Sector Income Fund 29 4.52 5.34 19

Virtus GF Select High Yield Fund 27 N/A N/A N/A

Variable Insurance Funds:

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Virtus KAR Small-Cap Growth Series 128 27.75 21.17 34

Virtus Duff & Phelps Real Estate Securities Series 120 22.47 18.41 19

Virtus Newfleet Multi-Sector Intermediate Bond Series 113 5.96 4.79 3

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Virtus Strategic Allocation Series 87 22.01 19.32 5

Virtus Duff & Phelps Real Estate Securities Series 76 5.45 3.40 30

The Merger Fund® VL 54 4.84 0.99 53

Other Funds 418

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Operating Results

In 2020, total revenues increased 7.2%, or $40.7 million, to $603.9 million from $563.2 million in 2019 primarily due to higher revenues from an increase in average assets under management in our open-end funds, retail separate and institutional accounts.

Operating income increased by 14.8%, or $18.5 million, to $143.2 million in 2020 from $124.7 million in 2019, due to increased revenues.

In 2021, total revenues increased $375.3 million, or 62.2%, to $979.2 million from $603.9 million in 2020 primarily as a result of higher average assets under management in open-end funds due to the AGI relationship, positive market performance and positive net flows.

Operating income increased by $182.3 million, or 127.4%, to $325.5 million in 2021 from $143.2 million in 2020 due to increased revenues.

Assets Under Management by Product

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Structured Products 3,734 4,060 (326) (8.0) %

Total Long-Term $ 130,706 $ 107,726 $ 22,980 21.3 %

Liquidity (2) 1,488 1,178 310 26.3 %

Total Assets Under Management $ 187,186 $ 132,194 $ 54,992 41.6 %

Average Long-Term Assets Under Management (3) $ 108,172 $ 100,472 $ 7,700 7.7 %

Average Assets Under Management (3) $ 172,841 $ 109,512 $ 63,329 57.8 %

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

retail funds, offshore funds and variable insurance funds.

(2) Represents assets under management in liquidity strategies, including certain open-end funds and institutional accounts.

retail funds, global funds and variable insurance funds.

(2) Includes ultra-short strategies previously included in a separate liquidity strategy.

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

(3) Averages are calculated as follows:

– Funds - average daily or weekly balances

– Retail Separate Accounts - prior-quarter ending balances

– Retail Separate Accounts - average of quarterly beginning balances

– Institutional Accounts and Structured Products - average of month-end balances

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Ending balance $ 1,479 $ 837

Asset Flows by Product

Years Ended December 31,

(in millions) 2021 2020

Retail Separate Accounts

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Ending balance $ 3,734 $ 4,060

Total Long-Term

Beginning balance $ 132,194 $ 108,904

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Ending balance $ 187,186 $ 132,194

Liquidity (3)

Beginning balance $ 1,178 $ 1,613

Other (2) 310 (435)

Ending balance $ 1,488 $ 1,178

Beginning balance $ 108,904 $ 92,030

Inflows 32,327 20,144

Outflows (27,253) (20,916)

Net flows 5,074 (772)

Market performance 19,209 19,337

Other (2) (993) (1,691)

Ending balance $ 132,194 $ 108,904

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

retail funds, offshore funds and variable insurance funds.

(2) Represents open-end and closed-end fund distributions net of reinvestments, the net change in assets from liquidity strategies and the effect on net flows from non-sales related activities such as asset acquisitions/(dispositions), seed capital investments/(withdrawals), structured products reset transactions and the use of leverage.

(3) Represents assets under management in liquidity strategies, including in certain open-end funds and institutional accounts.

retail funds, global funds and variable insurance funds.

(2) Includes ultra-short strategies previously included in a separate liquidity strategy.

(3) Represents open-end and closed-end fund distributions net of reinvestments, the net change in assets from cash management strategies, and the effect on net flows from non-sales related activities such as asset acquisitions/(dispositions), seed capital investments/(withdrawals), structured products reset transactions, and the use of leverage.

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

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Fixed Income (1) 34,261 28,965 5,296 18.3 %

Multi-Asset (2) 24,853 12,201 12,652 103.7 %

Alternatives (3) 11,526 4,760 6,766 142.1 %

Total Long-term 130,706 107,726 22,980 21.3 %

Liquidity (2) 1,488 1,178 310 26.3 %

Total $ 187,186 $ 132,194 $ 54,992 41.6 %

(1) Consists of real estate securities, mid-stream energy securities and master limited partnerships, options strategies and other.

(2) Represents assets under management in liquidity strategies, including in certain open-end funds and institutional accounts.

(1) Includes ultra-short strategies previously included in a separate liquidity strategy.

(2) Includes strategies with substantial holdings in at least two of the following asset classes:

equity, fixed income and alternatives.

(3) Consists of event-driven, real estate securities, infrastructure, long/short, and other strategies.

Average Assets Under Management and Average Fees Earned

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Average Fee Earned

(expressed in basis points) Average Assets Under Management

(expressed in basis points)

Average Assets Under Management

(in millions) (2)

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Structured Products 37.3 31.5 3,849 4,173

All Long-Term Products 47.4 46.6 108,172 100,472

Liquidity (3) 11.2 10.1 1,340 1,600

All Products 42.9 43.5 $ 172,841 $ 109,512

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

retail funds, offshore funds and variable insurance funds.

retail funds, global funds and variable insurance funds.

(2) Averages are calculated as follows:

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– Institutional Accounts and Structured Products - average of month-end balances

(3) Represents assets under management in liquidity strategies, including in certain open-end funds and institutional accounts.

Average fees earned represent investment management fees before the impact of consolidation of investment products ("CIP"), divided by average net assets.

Average fees earned represent investment management fees, net of revenue-related adjustments, divided by average net assets, excluding the impact of consolidation of investment products ("CIP").

Revenue-related adjustments are based on specific agreements and reflect the portion of investment management fees passed-through to third-party client intermediaries for services to investors in sponsored investment products.

Fund fees are calculated based on average daily or weekly net assets.

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Structured product fees are calculated based on a combination of the underlying cash flows and the principal value of the product.

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

The average fee rate earned on long-term products for 2020 increased by 0.8 basis points compared to the prior year, primarily due to changes in the underlying asset mix to higher fee earnings strategies in open-end funds and retail separate accounts during the current year, as well as higher performance-related fees.

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

The average fee rate earned on all products for 2021 decreased by 0.6 basis points compared to the prior year, primarily due to lower fee rates earned on the assets under management acquired from the AGI relationship.

Results of Operations

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Noncontrolling interests (54,704) (40,006) (14,698) 36.7 %

Net Income (Loss) Attributable to Stockholders 79,957 95,649 (15,692) (16.4) %

Preferred stockholder dividends — (8,337) 8,337 (100.0) %

Net Income (Loss) Attributable to Common Stockholders $ 79,957 $ 87,312 $ (7,355) (8.4) %

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

$ 208,131 $ 79,957 $ 128,174 160.3 %

Earnings (loss) per share-diluted $ 26.01 $ 10.02 $ 15.99 159.6 %

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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 $43.9 million, or 9.5%, for the year ended December 31, 2020 due to a 7.3%, or $7.4 billion, increase in average assets under management and an increase in the total average fee rate of 1.0 basis points.

Investment management fees increased by $276.2 million, or 54.7%, for the year ended December 31, 2021, due to an increase in average assets under management of $63.3 billion, or 57.8%, primarily as a result of the AGI relationship and market performance.

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 decreased by $2.5 million, or 6.0%, for the year ended December 31, 2020, primarily due to lower average assets for open-end funds in share classes that have distribution and service fees.

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

Distribution and service fees increased by $52.1 million, or 135.7%, for the year ended December 31, 2021, primarily due to higher average assets for open-end funds primarily as a result of market performance and the AGI relationship.

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 decreased $0.4 million, or 0.7%, for the year ended December 31, 2020, primarily due to the decrease in average assets under management for our closed-end funds.

Fund administration and shareholder service fees increased by $43.1 million, or 72.4%, for the year ended December 31, 2021, primarily due to the increase in average assets under management for our open-end and closed-end funds during the period, predominantly as a result of market performance and the AGI relationship.

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 decreased for the year ended December 31, 2020 compared to December 31, 2019 due to lower redemption and referral fees.

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 $3.9 million, or 581.0%, during the year ended December 31, 2021 compared to December 31, 2020, due to revenue from other fee earning assets primarily as a result of the AGI relationship.

Operating Expenses

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Other operating expenses of CIP 3,562 10,585 (7,023) (66.3) %

Change in fair value of contingent consideration 12,400 — 12,400 N/M

Restructuring and severance — 1,155 (1,155) (100.0) %

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

Employment expenses of $267.3 million increased $26.8 million, or 11.1%, from the prior year ended December 31, 2019.

The increase from the prior year was primarily due to increased profit- and sales-based compensation.

Employment expenses of $358.2 million increased $90.9 million, or 34.0%, from the prior year primarily due to increased profit-based compensation in the current year.

Distribution and Other Asset-Based Expenses

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These payments are primarily based on assets under management or on a percentage of sales.

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 decreased $5.1 million, or 6.2%, from the prior year due primarily to a lower percentage of sales and assets under management in share classes that have distribution and other asset-based expenses.

Distribution and other asset-based 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 period commissions are recovered from distribution fee revenues and contingent sales charges received upon redemption of shares.

Distribution and other asset-based expenses increased $64.0 million, or 83.1%, from the prior year primarily due to increased sales and assets under management in share classes that have distribution and other asset-based expenses predominantly as a result of the AGI relationship.

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 decreased $4.5

million, or 6.0%, to $69.9 million for the year ended December 31, 2020 from the prior year primarily due to decreased travel and related expenses primarily as a result of the impact of COVID-19 on the current operating environment.

Other operating expenses increased $20.2 million, or 29.0%, for the year ended December 31, 2021 as compared to the prior year primarily due to acquisition related professional fees and the addition of new affiliates.

Other Operating Expenses of CIP

Other operating expenses of CIP increased $6.6 million, or 163.6%, to $10.6 million for the year ended December 31, 2020 from the prior year primarily due to costs associated with the issuance of a new CLO as well as the refinancing of debt for two CLOs in the current year.

Restructuring and Severance

During the year ended December 31, 2020, we incurred $1.2 million in restructuring and severance costs, a decrease of $1.1 million, or 49.8%, from the prior year primarily due to lower staff reductions in the current year.

Other operating expenses of CIP decreased $7.0 million, or 66.3%, for the year ended December 31, 2021 compared to the prior year primarily due to the costs associated with the issuance of a new CLO in the prior year that did not recur.

Change in Fair Value of Contingent Consideration

The Company's contingent consideration related to its NFJ and Westchester transactions are recorded at fair value each reporting date taking into consideration changes in various estimates, including probability of success, discount rates and amount of time until the conditions of the contingent payments are achieved.

The change in fair value is recorded in the current period as a gain or loss.

The change in value of contingent consideration of $12.4 million in 2021 was primarily attributable to higher future revenue projections and the time value of money.

Depreciation Expense

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

Depreciation expense decreased $0.3 million, or 6.7%, to $4.7 million for the year ended December 31, 2020 primarily due to a higher level of equipment being fully depreciated in the current year period.

Depreciation expense decreased $0.8 million, or 16.3%, during the year ended December 31, 2021, compared to 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 remained consistent for the year ended December 31, 2020 compared to the prior year.

Amortization expense increased $14.4 million, or 47.6%, for the year ended December 31, 2021 compared to the prior year due to the additional amortization associated with the Westchester and AGI transactions.

Other Income (Expense), net

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Realized and Unrealized Gain (Loss) on Investments, net

Realized and unrealized gain (loss) on investments, net remained consistent for the year ended December 31, 2020 compared to the prior year.

Realized and unrealized gain (loss) on investments, net changed during the year ended December 31, 2021 by $(3.2) million, as compared to the prior year.

The realized and unrealized gains and losses during the year ended December 31, 2021 reflected changes in overall market conditions experienced during the year.

Realized and Unrealized Gain (Loss) of CIP, net

Realized and unrealized gain (loss) of CIP, net increased $0.8 million from the prior year.

The increase for the current year consisted primarily of net realized and unrealized losses of $32.4 million due to declines in market values of leveraged loans, partially offset by unrealized gains of $31.6 million related to the changes in value of the notes payable.

Realized and unrealized gain (loss) of CIP, net changed $0.2 million compared to the prior year.

The change for the current year consisted primarily of net realized and unrealized gains of $73.4 million due to changes in market values of leveraged loans, partially offset by unrealized losses of $73.2 million related to the value of the notes payable.

Other Income (Expense), net

Other income (expense), net decreased during the year ended December 31, 2020 by $0.5 million, or 22.2%, as compared to the prior year primarily due to lower profits from equity method investments during the current year.

Other income (expense), net increased by $2.4 million during the year ended December 31, 2021 compared to the prior year primarily due to increased earnings from equity method investments during the current year.

Interest Income (Expense), net

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Interest expense of CIP (60,398) (85,437) 25,039 (29.3) %

Total Interest Income, net $ 13,684 $ 7,722 $ 5,962 77.2 %

Total Interest Income (Expense), net $ 21,806 $ 13,684 $ 8,122 59.4 %

Interest Expense

Interest expense decreased $7.6 million, or 38.9%, for the year ended December 31, 2020 compared to the prior year primarily due to a decrease in the average debt outstanding and a lower average interest rate compared to the prior year.

Also contributing to the decrease was a $0.7 million gain recognized on the early extinguishment of debt.

Interest expense decreased $2.7 million, or 22.3%, for the year ended December 31, 2021 compared to the prior year primarily due to a lower effective interest rate as well as lower average debt outstanding compared to the prior year.

Interest and Dividend Income

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

Interest and dividend income decreased $2.5 million, or 64.4%, in 2020 compared to the prior year primarily due to lower interest rates earned on cash and cash equivalents and lower dividends received from our investments as compared to the prior year.

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

Interest and dividend income remained consistent in 2021 compared to the prior year.

Interest and Dividend Income of Investments of CIP

Interest and dividend income of investments of CIP decreased $5.7 million, or 4.9%, compared to the prior year primarily due to a decrease in interest rates partially offset by increased investments of CIP.

Interest and dividend income of investments of CIP decreased $19.6 million, or 17.8%, compared to the prior year 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 $6.6 million, or 7.1%, compared to the prior year primarily due to lower variable interest rates partially offset by higher average debt balances of CIP during the current year.

Interest expense of CIP decreased by $25.0 million, or 29.3%, compared to the prior year primarily due to both lower variable interest rates and average debt balances of CIP during the current year.

Income Tax Expense

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federal, state and local taxes at an estimated effective tax rate of 25.7% and 26.8% for 2021 and 2020, respectively.

The increase in the estimated effective tax rate for the current year was primarily due to a decrease in excess tax benefits associated with the Company's stock compensation deduction.

On March 27, 2020, the United States enacted the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act"), which contains several income tax provisions.

Certain of those tax provisions are expected to be effective retroactively for years ending before the date of enactment.

The Company has evaluated the legislation and, at this time, does not anticipate the CARES Act to have a material impact on its consolidated financial statements.

The decrease in the estimated effective tax rate for the current year compared to the prior year was primarily due to excess tax benefits related to share-based compensation.

Effects of Inflation

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Investments 108,890 64,944 43,946 67.7 %

Contingent consideration 162,564 — 162,564 N/M

Debt 266,346 201,212 65,134 32.4 %

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At December 31, 2021, we had $378.9 million of cash and cash equivalents and $108.9 million of investments, which included $80.3 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 December 31, 2020, we had $205.7 million outstanding under our term loan maturing June 1, 2024 and no outstanding borrowings under our $100.0 million 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.

Our main uses of capital related to operating activities comprise employee compensation and related benefit costs, which includes annual incentive compensation;

other operating expenses, which primarily consist of investment research;

technology costs;

professional fees;

distribution and occupancy costs;

interest on our indebtedness;

and income taxes.

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

In the first quarter of 2020 and 2019, we paid approximately $84.7 million and $76.2 million, respectively, in incentive compensation earned during the years ended December 31, 2019 and 2018, respectively.

In the first quarters of 2021 and 2020, we paid approximately $96.9 million and $84.7 million, respectively, in incentive compensation earned during the years ended December 31, 2020 and 2019, respectively.

In addition to operating activities, other uses of cash could include:

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

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

(vi) investments in our infrastructure;

(vii) investments in inorganic growth opportunities which may require upfront payments and/or contingent consideration;

(viii) integration costs, including restructuring and severance, related to acquisitions, if any;

and (ix) purchases of affiliate noncontrolling interests.

(i) investments in organic growth, including seeding or launching new products and expanding distribution;

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

(iii) dividend payments to common stockholders;

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

(v) investments in our infrastructure;

(vi) investments in inorganic growth opportunities that may require upfront and/or future payments;

(vii) integration costs, including restructuring and severance, related to acquisitions, if any;

(viii) purchases of affiliate noncontrolling interests and (ix) payment of contingent consideration related to completed acquisitions.

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 an 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.

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 December 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.

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Operating Cash Flow

Net cash used in operating activities of $226.1 million for 2020 increased by $189.4 million from net cash used in operating activities of $36.7 million in 2019 primarily due to increased net purchases of investments by CIP of $201.8 million in the current year compared to the prior year.

Cash flows provided by operating activities of $665.7 million for 2021 changed by $891.8 million from cash flows used in operating activities of $226.1 million in 2020 primarily due to an increase in net sales of investments by CIP of $698.5 million compared to the prior year.

Investing Cash Flow

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

Net cash provided by investing activities of $8.7 million for 2020 increased by $4.2 million from net cash provided by investing activities of $4.4 million in 2019.

The primary investing activities during 2020 were related to the increase in cash of $9.7 million from the consolidation of investment products partially offset by capital expenditures and other asset purchases of $1.0 million.

Net cash used in investing activities of $175.0 million for 2021 changed by $183.7 million from net cash provided by investing activities of $8.7 million in 2020.

The primary investing activities during 2021 related to cash paid for the Westchester transaction.

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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 provided by financing activities increased $135.8 million to $235.3 million in 2020 compared to net cash provided by financing activities of $99.6 million in the prior year, primarily due to an increase of $166.6 million in net borrowings of CIP during 2020 compared to the prior year, partially offset by an increase of $24.2 million on the repayment of debt during 2020 compared to the prior year.

Credit 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 December 31, 2020, $205.7 million was outstanding under the Term Loan, and there were no outstanding borrowings under the Credit Facility.

In accordance with Accounting Standards Codification ("ASC") 835, Interest , the amounts outstanding under the Term Loan are presented in the Consolidated Balance Sheet net of related debt issuance costs, which were $4.5 million as of December 31, 2020.

Contractual Obligations

The following table summarizes our contractual obligations as of December 31, 2020:

(in millions) Total Less Than

1 Year 1-3 Years 3-5 Years More Than

Lease obligations $ 29.1 $ 5.8 $ 12.9 $ 4.8 $ 5.6

Term Loan (1) 227.9 10.3 217.6 — —

Credit Facility, including commitment fee (1) 0.6 0.4 0.2 — —

Minimum payments on service contracts (2) 12.6 7.2 5.4 — —

Total $ 270.2 $ 23.7 $ 236.1 $ 4.8 $ 5.6

(1) At December 31, 2020, we had $205.7 million outstanding under our Term Loan, which has a variable interest rate, and no amounts outstanding under our Credit Facility.

Payments due are estimated based on the variable interest rate and commitment fee rate in

effect on December 31, 2020.

Debt of CIP is excluded as we are not obligated for these amounts.

See Part II, Item 8, "Financial Statements and Supplementary Data," Note 19 "Consolidation" for additional information.

(2) Service contracts include contractual amounts that will be due to purchase goods and services to be used in our operations and may be canceled at earlier times than those indicated under certain conditions that may include termination fees.

Affiliate noncontrolling interests that are redeemable have been excluded from the above table as there is significant uncertainty as to the timing and amount of any noncontrolling interest purchase in the future.

Accordingly, future payments to purchase noncontrolling interests have been excluded from the above table, unless a put or call option has been exercised and a mandatory firm commitment exists for us to purchase such noncontrolling interests.

The table above excludes approximately $1.0 million of unrecognized tax benefits accounted for under ASC 70, Income Taxes , as we are unable to reasonably estimate the ultimate amount or timing of any settlement.

See Part II, Item 8, "Financial Statements and Supplementary Data," Note 9 "Income Taxes" for additional information.

Net cash related to financing activities changed by $479.7 million to net cash outflows of $244.4 million in 2021 compared to net cash provided by financing activities of $235.3 million in the prior year, primarily due to a decrease of $579.9 million in net borrowings of CIP during 2021 compared to the prior year, partially offset by an increase of net cash inflows of $147.7 million primarily as a result of the refinancing of our credit agreement more fully discussed below.

Credit Agreement Refinancing

On September 28, 2021, we completed a refinancing through the execution of an amended and restated credit agreement (the "Credit Agreement").

The Credit Agreement provides for (i) a $275.0 million term loan with a seven-year term (the "Term Loan") and (ii) a $175.0 million revolving credit facility with a five-year term.

A portion of the proceeds from the refinancing was used to pay off $194.0 million outstanding on a previous term loan.

At December 31, 2021, $274.3 million was outstanding under the Term Loan, and there were no outstanding borrowings under the revolving credit facility.

In accordance with Accounting Standards Codification ("ASC") 835, Interest , the amounts outstanding under the Term Loan are presented on the Consolidated Balance Sheet net of related debt issuance costs, which were $8.0 million as of December 31, 2021.

Impact of New Accounting Standards

For a discussion of accounting standards, see Part II, Item 8, "Financial Statements and Supplementary Data," Note 2 "Summary of Significant Accounting Policies."

Off-Balance Sheet Arrangements

We do not invest in any off-balance sheet vehicles that provide liquidity, capital resources, market or credit risk support nor do we engage in any leasing activities that expose us to any liability that is not reflected in our consolidated financial statements.

Critical Accounting Policies and Estimates

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We evaluate any variable interest entities ("VIEs") in which we have 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;

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;

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Noncontrolling interests - CIP

Noncontrolling interests - CIP represent third-party investments in our CIP and are classified as redeemable noncontrolling interests in our Consolidated Balance Sheets because investors in those products are able to request withdrawal at any time.

Noncontrolling interests - CIP represent third-party investments in our CIP and are classified as redeemable noncontrolling interests on our Consolidated Balance Sheets because investors in those products are able to request withdrawal at any time.

Noncontrolling interests - affiliate

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We, in purchasing affiliate equity, have the option to settle in cash or shares of common stock and are entitled to the cash flow associated with any purchased equity.

Minority interests held in an affiliate are generally recorded in our Consolidated Balance Sheets at estimated redemption value within redeemable noncontrolling interests, and changes in estimated redemption value of these interests are recorded in our Consolidated Statements of Operations within noncontrolling interests.

Minority interests held in an affiliate are generally recorded on our Consolidated Balance Sheets at estimated redemption value within redeemable noncontrolling interests, and changes in estimated redemption value of these interests are recorded on our Consolidated Statements of Operations within noncontrolling interests.

Fair Value Measurements and Fair Value of Financial Instruments

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Cash equivalents represent investments in money market funds.

Cash investments in money market funds are valued using published net asset values are classified as Level 1.

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 we act as the investment manager.

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These liabilities are recorded within other liabilities of CIP on our Consolidated Balance Sheets.

Cash, accounts receivable, accounts payable, securities purchase payable of CIP and accrued liabilities equal or approximate fair value based on the short-term nature of these instruments.

Cash, accounts receivable, accounts payable, securities purchased payable of CIP, and accrued liabilities equal or approximate fair value based on the short-term nature of these instruments.

As of December 31, 2021, the carrying value of goodwill was $338.4 million.

Goodwill represents the excess of the purchase price of acquisitions over the fair value of identified net assets and liabilities acquired.

We have determined that we have only one reporting unit for purposes of assessing the carrying value of goodwill.

Goodwill represents the excess of the acquisition purchase price over the fair value of identified net assets and liabilities acquired.

We have one reporting unit for purposes of assessing the carrying value of goodwill.

Goodwill impairment testing is performed at least annually or whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.

If we determine that the carrying value of the reporting unit is less than the fair value, a second step of the goodwill impairment test is performed to measure the amount of impairment loss, if any.

We completed our annual goodwill impairment assessment as of October 31, 2020, and no impairment was identified.

For purposes of this assessment, we considered various qualitative factors including, but not limited to, certain indicators of fair value (i.e., market capitalization and market multiplies for asset management businesses), and determined that it was more likely than not that the fair value of our reporting unit was greater than its carrying value.

We completed our annual goodwill impairment assessment as of October 31, 2021, and no

impairment was identified.

For purposes of this assessment, we considered various qualitative factors including, but not limited to, certain indicators of fair value (i.e., market capitalization and market multiplies for asset managers), and determined that it was more likely than not that the fair value of our reporting unit was greater than its carrying value.

Only a significant decline in the fair value of our reporting unit would indicate that an impairment may exist.

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As of December 31, 2021, the carrying value of indefinite-lived intangible assets was $42.3 million.

Indefinite-lived intangible assets comprise certain trade names and fund investment advisory contracts.

Indefinite-lived intangible assets comprise certain fund investment advisory contracts and trade names.

We perform indefinite-lived intangible asset impairment tests annually, or more frequently, should circumstances change, which could reduce the fair value of indefinite-lived intangible assets below their carrying value.

We completed our annual impairment assessment of these assets as of October 31, 2021, and no impairments were identified.

For purposes of this assessment, we considered various qualitative

factors for the investment advisory contracts related to the indefinite-lived intangible assets including, but not limited to, (i) the growth in assets under management, (ii) the positive operating margins, and (iii) the positive cash flows generated, and we determined that it was more likely than not that the fair value of indefinite-lived intangible assets was greater than their carrying value.

For purposes of this assessment, we considered various qualitative factors for the investment advisory contract intangible assets including, but not limited to, changes in (i) assets under management, (ii) operating margins, and (iii) net cash flows generated, and we determined that it was more likely than not that the fair value of indefinite-lived intangible assets was greater than their carrying value.

Only a significant decline in the fair value of the indefinite-lived intangible assets would indicate that an impairment may exist.

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Our 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 our control such as additional investments, withdrawals and market performance.

Investment management fees, distribution and service fees, and administration and shareholder service fees are calculated as a percentage of average net assets of the investment portfolios managed.

The net asset values from which these fees are calculated are variable in nature and subject to factors outside of our control such as additional investments, withdrawals and market performance.

Because of this, these fees are considered constrained until the end of the contractual measurement period (monthly or quarterly) which is when asset values are generally determinable.

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Investment management services represent a series of distinct daily services that are performed over time.

Fees earned on funds are based on each fund's average daily or weekly net assets that are generally received and calculated on a monthly basis.

We record management fees net of investment management fees paid to unaffiliated subadvisers since we consider ourselves to be an agent of the fund as it relates to the day-to-day investment management services performed by unaffiliated subadvisers, with our performance obligation being to arrange for the provision of that service and not control the specified service before that service is performed.

Fees earned on funds are based on each fund's average daily or weekly net assets and are generally calculated and received on a monthly basis.

We record investment management fees net of the fees paid to unaffiliated subadvisers since we are deemed to be an agent of the fund as it relates to the day-to-day investment management services performed by unaffiliated subadvisers, with our performance obligation being to arrange for the provision of that service and not control the specified service before it is performed.

Amounts paid to unaffiliated subadvisers for the years ended December 31, 2021, 2020 and 2019 were $115.5 million, $38.6 million and $40.5 million, respectively.

Retail separate account fees are generally based on the end of the preceding or current quarter's asset values.

Institutional account fees are generally based on an average of month-end balances.

The increase in 2021 compared to prior years was due to the new subadvisory relationship with AllianzGI.

Retail separate account fees are generally earned based on the end of the preceding or current quarter's asset values.

Institutional account fees are generally earned based on an average of month-end balances.

In certain instances, institutional fees may include performance related fees that are based on relative investment returns.

Fees for structured finance products, for which we act as the collateral manager, consist of senior, subordinated and, in certain instances, incentive management fees.

Senior and subordinated management fees are calculated at a contractual fee rate applied against the end of the preceding quarter par value of the total collateral being managed with subordinated fees being recognized only after certain portfolio criteria are met.

Senior and subordinated management fees are earned at a contractual fee rate applied against the end of the preceding quarter par value of the total collateral being managed with subordinated fees being earned only after certain portfolio criteria are met.

Incentive fees on certain of our CLOs are typically a percentage of the excess cash flows available to holders of the subordinated notes, above a threshold level internal rate of return.

We rely on data provided to us by service providers for the pricing of our assets under management.

Our service providers have formal valuation policies and procedures over the valuation of investments.

We rely on data provided to us by service providers for the pricing of the underlying investment securities for the asset values that drive our investment management fees and our assets under management.

Our service providers have formal

valuation policies and procedures over the valuation of investments.

As of December 31, 2021, our total assets under management by fair value hierarchy level, as defined by ASC 820, were approximately 78.1% Level 1, 20.6% Level 2 and 1.3% Level 3.

Distribution and Service Fees

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

Depending on the fund type or share class, these fees primarily consist of an asset-based fee that is paid by the fund over a period of years to cover allowable sales and marketing expenses for the fund or front-end sales charges that are based on a percentage of the offering price.

Asset-based distribution and service fees are primarily based on percentages of the average daily net asset value and are

paid monthly pursuant to the terms of the respective distribution and service fee contracts.

Distribution and service fees are asset-based fees earned from certain share classes within our open-end funds and on a portion of other fee earning assets for distribution services.

These fees primarily consist of an asset-based fee that is paid by the fund over a period of years to cover allowable sales and marketing expenses for the fund or front-end sales charges that are based on a percentage of the offering price.

Asset-based distribution and service fees are primarily based on percentages of the average daily net asset value and are paid monthly pursuant to the terms of the respective distribution and service fee contracts.

Distribution and service fees represent two performance obligations comprised of distribution and related shareholder servicing activities.

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Shareholder servicing activities are generally services satisfied over time.

We distribute our open-end funds through third-party financial intermediaries that comprise national and regional broker-dealers.

We distribute our open-end funds through third-party financial intermediaries that comprise national, regional and independent broker-dealers.

These third-party financial intermediaries provide distribution and shareholder service activities on our behalf.

We pass related distribution and service fees to these third-party financial intermediaries for these services and consider ourselves the principal in these arrangements since we have control of the services prior to the services being transferred to the customer.

We pay related distribution and service fees to these third-party financial intermediaries for these services as we consider ourselves the principal in these arrangements since we have control of the services prior to the services being transferred to the customer.

These payments are classified within distribution and other asset-based expenses.

Administration & Shareholder Service Fees

We provide administrative fund services to our open-end mutual funds, ETFs and certain of our closed-end funds and shareholder services to our open-end funds.

We provide administrative fund services to our open-end mutual funds, ETFs and the majority of our closed-end funds and shareholder services to our open-end funds.

Administration and shareholder services are performed over time.

We earn fees for these services, which are calculated and paid monthly, based on each fund's average daily or weekly net assets.

We earn fees for these services, that are calculated and paid monthly, based on each fund's average daily or weekly net assets.

Administrative fund services include:

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Shareholder services include maintaining shareholder accounts, processing shareholder transactions, preparing filings and performing necessary reporting.

Other income and fees consist primarily of redemption income on the early redemption of certain share classes of mutual funds.

Accounting for Income Taxes

We account for income taxes in accordance with ASC 740, Income Taxes , which requires recognition of the amount of taxes payable or refundable for the current year, as well as deferred tax assets and liabilities for temporary differences between the tax basis of assets and liabilities and the reported amounts in the Consolidated Financial Statements.

We recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained, based on the technical merits of the position.

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Valuation allowances are provided when it is determined that it is more likely than not that the benefit of deferred tax assets will not be realized.

Contingent Consideration

We periodically enter into contingent payment arrangements in connection with our business combinations or asset purchases.

In contingent payment arrangements, we agree to pay additional transaction consideration to the seller based on future performance.

We estimate the value of future payments of these potential future obligations at the time a business combination or asset purchase is consummated.

Liabilities under contingent payment arrangements are recorded within contingent consideration on the Consolidated Balance Sheets.

Contingent payment obligations related to business combinations are remeasured at fair value each reporting date using a simulation model with the assistance of an independent valuation firm and approved by management (level 3 fair value measurement).

The change in fair value is recorded in the current period as a gain or loss.

Gains and losses resulting from changes in the fair value of contingent payment obligations are reflected within change in fair value of contingent consideration on the Consolidated Statements of Operations.

Contingent payment obligations related to our asset purchases, if estimable and probable of payment, are initially recorded at their estimated value and reviewed every reporting period for changes.

Any changes to the estimated value are recorded as an update of the initial acquisition cost of the asset with a corresponding change to the estimated contingent payment obligation on the Consolidated Balance Sheets.

Loss Contingencies

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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-K

Item 7. Management’s Discussion and Analysis