VIRTUS INVESTMENT PARTNERS, INC. 10-K

Item 1. Business. Organization Virtus Investment Partners, Inc. (the "Company"), a Delaware corporation, commenced operations on November 1, 1995 and became an independent publicly traded company on December 31, 2008 as a result of the distribution by Phoenix Life Insurance Company ("Phoenix"), the Company's former parent, of 100% of Virtus common stock to Phoenix stockholders in a spin-off transaction. Our Business We provide investment management and related services to individuals and institutions. We use a multi-manager, multi-style approach, offering investment strategies from affiliated managers, each having its own distinct investment style, autonomous investment process, individual brand, as well as from select unaffiliated subadvisers. 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 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. Our institutional products are offered through separate accounts and pooled or commingled structures to a variety of institutional clients. We also provide subadvisory services to other investment advisers and serve as the collateral manager for structured products. Our Investment Managers We provide investment management services through our affiliated investment managers who are registered under the Investment Advisers Act of 1940, as amended (the "Investment Advisers Act"). The investment managers are responsible for portfolio management activities for our retail, institutional and structured products operating under advisory, subadvisory or collateral management agreements. We provide our affiliated managers with distribution, operational and administrative support, thereby allowing each manager to focus primarily on investment management. We also use the investment management services of select unaffiliated managers to sub-advise certain of our open- and closed-end funds, ETFs and retail separate accounts. We monitor our managers' services by assessing their performance, style and consistency and the discipline with which they apply their investment process. 1 Table of Contents Our affiliated investment managers and their respective assets under management, products and strategies as of December 31, 2021 were as follows: Manager Products Strategies Assets (in billions) Ceredex Value Advisors Open-end funds, institutional and intermediary-sold managed accounts Value Equity large-, mid- and small-cap domestic equities $ 9.9 Duff & Phelps Investment Management Open- and closed-end funds, ETFs and intermediary-sold managed accounts Income Focused Equities global listed infrastructure, domestic, global, real asset and international real estate and energy $ 12.2 Kayne Anderson Rudnick Investment Management Intermediary-sold managed accounts, open-end funds, institutional accounts and private client accounts Quality-Oriented Equity small- to large-cap, including domestic, global, long/short, global dividend, international and emerging market strategies $ 64.9 Newfleet Asset Management Open- and closed-end funds, structured products, institutional accounts, ETFs and intermediary-sold managed accounts Multi-Sector Fixed Income multi-sector, enhanced core and dedicated sector strategies such as bank loans and high yield $ 9.9 NFJ Investment Group Intermediary-sold managed accounts, open- and closed-end funds, and institutional accounts Global Value Equity small- to large-cap, including domestic, global, international and emerging market strategies $ 9.0 Seix Investment Advisors Institutional, open-end funds, structured products, intermediary-sold managed accounts, private client accounts and ETFs Investment Grade and Leveraged Finance Fixed Income high yield, bank loans, investment grade taxable, non-taxable and multi-sector strategies $ 17.6 Silvant Capital Management Institutional accounts, open-end funds and private client accounts Growth Equity including large-cap and small-cap $ 0.9 Sustainable Growth Advisers Institutional accounts, intermediary-sold managed accounts, open-end funds and private client accounts Global Growth Equity large-cap growth strategies, including domestic, global, international and emerging markets $ 26.7 Westchester Capital Management Open-end funds and institutional accounts Event Driven merger arbitrage, multi-strategy and credit event $ 5.1 2 Table of Contents Our select unaffiliated subadvisers and their respective assets under management, products and strategies as of December 31, 2021 were as follows: Unaffiliated Subadviser Products Strategies Assets (in billions) Allianz Global Investors Open- and closed-end funds and intermediary-sold managed accounts Various domestic, global and international equity, fixed income, multi-asset and specialty $ 23.1 Vontobel Asset Management, Inc. Open-end funds Global Growth Equity international and global equity $ 5.2 Zevenbergen Capital Investments (1) Open-end funds High Growth Equity domestic all-cap equity $ 1.1 Other Open-end funds and ETFs Various domestic, international, global and specialty equity $ 1.6 (1) We hold a minority interest in this subadviser. Our Investment Products Our assets under management are in open-end funds, closed-end funds, ETFs, retail separate accounts, institutional accounts and structured products. Assets Under Management by Product as of December 31, 2021 Products (in billions) Open-end funds (1) $ 77.2 Closed-end funds 12.1 Exchange traded funds 1.5 Retail separate accounts 44.5 Institutional accounts 48.1 Structured products 3.7 Total Assets Under Management $ 187.2 (1) Represents assets under management of U.S. funds, global funds and variable insurance funds. 3 Table of Contents Open-End Funds Our open-end mutual funds are offered in a variety of asset classes (domestic, global and international equity, taxable and non-taxable fixed income, multi-asset and alternative investments), market capitalizations (large, mid and small), styles (growth, core and value) and investment approaches (fundamental, quantitative and specialty). Our global funds are offered in select investment strategies to non-U.S. investors. Summary information about our open-end funds as of December 31, 2021 was as follows: Asset Class Number of Funds Total Assets (in millions) Advisory Fee Range % (1) Domestic Equity 27 $ 29,046 2.15 - 0.45 Fixed Income 29 17,180 1.85 - 0.21 International Equity 13 9,194 1.20 - 0.60 Multi-Asset 4 8,600 0.75 - 0.45 Alternative 12 6,422 1.25 - 0.55 Specialty Equity 6 5,148 0.95 - 0.68 Global Equity 8 1,637 1.85 - 0.65 Total Open-End Funds 99 $ 77,227 (1) Percentage of average daily net assets. The percentages listed represent the range of management advisory fees paid by the funds, from the highest to the lowest. The range indicated includes the impact of breakpoints at which management advisory fees for certain of the funds in each fund type decrease as assets in such funds increase. Subadvisory fees paid on funds managed by unaffiliated subadvisers are not reflected in the percentages listed. Closed-End Funds Our closed-end funds are offered in a variety of asset classes such as equity, fixed income and multi-asset and options. We managed the following closed-end funds as of December 31, 2021, each of which is traded on the New York Stock Exchange: Asset Class Number of Funds Total Assets (in millions) Advisory Fee Range % (1) Multi-Asset 5 $ 8,171 1.00 - 0.50 Fixed Income 5 2,210 0.95 - 0.50 Equity 1 946 1.25 Alternatives 1 741 1.00 Total Closed-End Funds $ 12,068 (1) Percentage of average weekly or daily net assets. The percentages listed represent the range of management advisory fees paid by the funds, from the highest to the lowest. The range indicated includes the impact of breakpoints at which management advisory fees for certain of the funds in each fund type decrease as assets in such funds increase. Subadvisory fees paid on funds managed by unaffiliated subadvisers are not reflected in the percentages listed. Exchange Traded Funds Our ETFs are offered in a range of actively managed and index-based investment capabilities across multiple asset classes. We managed the following ETFs as of December 31, 2021: Asset Class Number of Funds Total Assets (in millions) Advisory Fee Range % (1) Fixed Income 5 $ 650 0.57 - 0.14 Alternative 4 596 0.75 - 0.33 Equity 5 204 0.66 - 0.28 Multi-Asset 1 29 0.47 Total ETFs $ 1,479 (1) Percentage of average daily net assets. The percentages listed represent the range of management advisory fees paid by the funds, from the highest to the lowest. Subadvisory fees paid on funds managed by unaffiliated subadvisers are not reflected in the percentages listed. 4 Table of Contents Retail Separate Accounts Intermediary-Sold Managed Accounts Intermediary-sold managed accounts are individual investment accounts that are primarily contracted through intermediaries as part of investment programs offered to retail investors. Summary information about our intermediary-sold managed accounts as of December 31, 2021 was as follows: Asset Class Total Assets (in millions) Equity Domestic $ 34,373 Global 528 Specialty 131 International 130 Fixed Income Leveraged finance 1,946 Investment grade 226 Multi-Asset 286 Alternative 1 Total Intermediary-Sold Managed Accounts $ 37,621 Private Client Accounts Private client accounts are investment accounts offered by certain affiliates directly to individual investors. Services provided include investment and wealth advisory services employing both affiliated and unaffiliated investment managers and select third-party business partners. Summary information about our private client accounts as of December 31, 2021 was as follows: Asset Class Total Assets (in millions) Multi-Asset $ 6,777 Fixed Income Investment grade 88 Leveraged finance 2 Equity Domestic 36 Global 14 Total Private Client Accounts $ 6,917 5 Table of Contents Institutional Accounts Our institutional clients include corporations, multi-employer retirement funds, public employee retirement systems, foundations and endowments; in addition, we provide subadvisory services to unaffiliated mutual funds. Summary information about our institutional accounts as of December 31, 2021 was as follows: Asset Class Total Assets (in millions) Equity Domestic $ 24,291 International 1,390 Global 9,479 Fixed Income Investment grade 5,152 Multi-sector 1,053 Leveraged finance 2,019 Alternative 3,765 Multi-Asset 991 Total Institutional Accounts $ 48,140 Structured Products We act as collateral manager for structured finance products of 11 collateralized loan obligations ("CLOs") with aggregate assets of $3.7 billion having a range of fees (senior plus subordinate) from 0.35% to 0.14%. Other Fee Earning Assets Other fee earning assets include assets for which we provide services for an asset-based fee but do not serve as the investment adviser. Other fee earning assets are not included in our assets under management. At December 31, 2021, we had $3.8 billion of other fee earning assets. Our Investment Management, Administration and Shareholder Services Our investment management, administration and shareholder service fees earned in each of the last three years were as follows: Years Ended December 31, (in thousands) 2021 2020 2019 Open-end funds $ 393,673 $ 247,519 $ 229,637 Closed-end funds 63,301 36,833 42,199 Retail separate accounts 174,919 104,932 82,999 Institutional accounts 143,487 109,531 96,429 Structured products 4,726 4,012 6,381 Other products 1,479 2,511 3,832 Total investment management fees 781,585 505,338 461,477 Administration fees 73,113 41,582 42,009 Shareholder service fees 29,418 17,881 17,875 Total $ 884,116 $ 564,801 $ 521,361 Investment Management Fees We provide investment management services through our affiliated investment advisers (each an "Adviser") pursuant to investment management agreements. We earn fees based on each fund's average daily or weekly net assets with most fee schedules providing for rate declines or "breakpoints" as asset levels increase to certain thresholds. For funds managed by subadvisers, the day-to-day investment management of the fund's portfolio is performed by the subadviser, which receives a management fee based on a percentage of the Adviser's management fee. Each fund bears all expenses associated with its 6 Table of Contents operations. In some cases, to the extent total fund expenses exceed a specified percentage of a fund's average net assets, the Adviser has agreed to reimburse the fund's expenses in excess of that level. For retail separate accounts and institutional accounts, investment management fees are negotiated and based primarily on portfolio size and complexity, individual client requests and investment strategy capacity, as appropriate. In certain instances, institutional fees may include performance related fees, generally earned if the returns on the portfolios exceed agreed upon periodic or cumulative return targets, primarily benchmark indices. Fees for structured finance products, for which we act as the collateral manager, consist of senior, subordinated and, in certain instances, incentive management fees. Senior and subordinated management fees are calculated at a contractual fee rate applied against the end of the preceding quarter par value of the total collateral being managed with subordinated fees being recognized only after certain portfolio criteria are met. Incentive fees on certain of our structured products are typically a percentage of the excess cash flows available to holders of the subordinated notes, above a threshold level internal rate of return. Administration Fees We provide various administrative services to our open-end mutual funds, ETFs and the majority of our closed-end funds. We earn fees based on each fund's average daily or weekly net assets. These services include: record keeping, preparing and filing documents required to comply with securities laws, legal administration and compliance services, customer service, supervision of the activities of the funds' service providers, tax services and treasury services as well as providing office space, equipment and personnel that may be necessary for managing and administering the business affairs of the funds. Shareholder Service Fees We provide shareholder services to our open-end mutual funds. We earn fees based on each fund's average daily net assets. Shareholder services include maintaining shareholder accounts, processing shareholder transactions, preparing filings and performing necessary reporting, among other things. Our Distribution Services We distribute our open-end funds and ETFs principally through financial intermediaries. We have broad distribution access in the retail market, with distribution partners that include national and regional broker-dealers, independent broker-dealers and registered investment advisers, banks and insurance companies. In many of these firms, we have a number of products that are on preferred "recommended" lists and on fee-based advisory programs. Our sales efforts are supported by regional sales professionals, a national account relationship group and separate teams for ETFs and the retirement and insurance channels. Our retail separate accounts are distributed through financial intermediaries and directly to private clients by teams at our affiliated investment managers. Our institutional services are marketed through relationships with consultants as well as directly to clients. We target key market segments, including foundations and endowments, corporate, public and private pension plans, and subadvisory relationships. Our Broker-Dealer Services We operate a broker-dealer that is registered under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and is a member of the Financial Industry Regulatory Authority ("FINRA"). Our broker-dealer serves as the principal underwriter and distributor of our open-end mutual funds and ETFs under sales agreements with unaffiliated financial intermediaries, provides market advisory services to sponsors of retail separate accounts, and is also a program manager and distributor of a qualified tuition plan under Section 529 of the Internal Revenue Code ("529 Plan"). Our broker-dealer is subject to the net capital rule of the Securities and Exchange Commission (the "SEC"), which is designed to enforce minimum standards regarding the general financial condition and liquidity of broker-dealers. Our Competition We face significant competition from a wide variety of financial institutions, including other investment management companies, as well as from proprietary products offered by our distribution partners such as banks, broker-dealers and financial planning firms. Competition in our businesses is based on several factors, including investment performance, fees charged, access to distribution channels, and service to financial advisors and their clients. Our competitors, many of which are larger than us, often offer similar products and use similar distribution sources, and may also offer less expensive products, have greater access to key distribution channels and have greater resources than we do. 7 Table of Contents Our Regulatory Matters We are subject to regulation by the SEC, FINRA and other federal and state agencies and self-regulatory organizations. Each affiliated investment manager and unaffiliated subadviser is registered with the SEC under the Investment Advisers Act. Each open-end mutual fund, closed-end fund and ETF is registered with the SEC under the Investment Company Act of 1940, as amended (the "Investment Company Act"). Our global funds are registered with and subject to regulation by the Central Bank of Ireland. The financial services industry is highly regulated, and failure to comply with related laws and regulations can result in the revocation of registrations, the imposition of censures or fines and the suspension or expulsion of a firm and/or its employees from the industry. Most aspects of our investment management business are subject to various U.S. federal and state laws and regulations. All of our U.S.-domiciled open-end mutual funds are generally available for sale and are qualified in all 50 states, Washington, D.C., Puerto Rico, Guam and the U.S. Virgin Islands. Our global funds are sold to both retail investors who are not citizens or residents of the United States or are non-U.S. institutional clients. Our officers, directors and employees may, from time to time, own securities that are also held by one or more of our funds. We have adopted a Code of Ethics pursuant to the provisions of the Investment Company Act and the Investment Advisers Act that require the disclosure of personal securities holdings and trading activity by all employees on a quarterly and annual basis. Employees with investment discretion or access to investment decisions are subject to additional restrictions with respect to the pre-clearance of the purchase or sale of securities over which they have investment discretion or beneficial interest. Our Code of Ethics also imposes restrictions with respect to personal transactions in securities that are held, recently sold, or contemplated for purchase by our mutual funds, and certain transactions are restricted so as to avoid the possibility of improper use of information relating to the management of client accounts. Human Capital As of December 31, 2021, we employed 668 employees and we operate offices in the United States and United Kingdom. We strive to attract and retain talented individuals by creating an environment of excellence and opportunity that serves as a foundation for all employees to reach their potential and make meaningful contributions to the organization. We have competitive salaries and offer a comprehensive suite of benefits, including programs that support wellness, financial security, and professional development. ▪ We regularly assess and benchmark our compensation and benefit practices and conduct internal and external pay comparisons to assist us in ensuring that employees are compensated fairly, equitably and competitively. ▪ We offer career enhancement opportunities to maximize each employee's potential and develop leaders throughout the organization. ▪ We provide an education assistance program with tuition reimbursement for employees who wish to continue their education to secure increased responsibility and growth within their careers. ▪ We offer benefits that promote financial and personal security including comprehensive insurance coverage, matching 401(k) employee contributions, an employee stock purchase plan and employee reimbursement of work-related expenses. ▪ Our wellness programs include health screenings and wellness earned premium rebates, as well as paid time off for vacation, illness, bereavement, parental and family care leave, and volunteer activities. We depend upon our key personnel to manage our business, including our senior executives, portfolio managers, securities analysts, investment advisers, sales personnel and other professionals. The retention of our key investment personnel is material to the management of our business. The departure of our key investment personnel could cause us to lose certain client accounts, which could adversely affect our business. We believe our value as a company derives from the talents and diversity of our employees, and we are committed to creating and maintaining an environment where every employee is treated with dignity and respect. The collective sum of our individual differences, backgrounds, unique skills, and life experiences creates an environment where employees and the company can achieve the highest levels of performance. Our programs and practices in: (i) workforce diversity, (ii) inclusive culture (iii) community participation, (iv) employee involvement, and (v) philanthropy, are designed to help us deliver on our commitment to maintaining an organization that is diverse, equitable, and inclusive for all employees. 8 Table of Contents ▪ We collaborate with organizations, institutions, and referral sources to identify diverse talent pools and increase the diversity of potential candidates. ▪ We prohibit any form of discrimination and have no tolerance for harassment in any form or any behavior that may contribute to a hostile, intimidating, unwelcoming, and/or inaccessible work environment. ▪ We engage with employees across the organization to raise the awareness of and advance our diversity and inclusion efforts. ▪ We and our employees have a rich history of community engagement and philanthropic activities that support the diverse needs of the communities in which we have a business presence. Available Information Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and all amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, as well as proxy statements, are available free of charge on our website located at www.virtus.com as soon as reasonably practicable after they are filed with, or furnished to, the SEC. Reports, proxy statements and other information regarding issuers that file electronically with the SEC, including our filings, are also available to the public on the SEC's website at http://www.sec.gov. A copy of our Corporate Governance Principles, our Code of Conduct and the charters of our Audit Committee, Compensation Committee, and Governance Committee are posted on our website at http://ir.virtus.com under "Corporate Governance" and are available in print to any person who requests copies by contacting Investor Relations by email to: investor.relations@virtus.com or by mail to Virtus Investment Partners, Inc., c/o Investor Relations, One Financial Plaza, Hartford, CT 06103. Information contained on the website is not incorporated by reference or otherwise considered part of this document.