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, 2022 December 31, 2021 Assets: Cash and cash equivalents $ 250,530 $ 378,921 Investments 102,840 108,890 Accounts receivable, net 108,248 123,873 Assets of consolidated investment products ("CIP") Cash and cash equivalents of CIP 107,674 206,620 Cash pledged or on deposit of CIP 627 604 Investments of CIP 1,990,159 2,140,238 Other assets of CIP 17,041 44,210 Furniture, equipment and leasehold improvements, net 19,016 12,542 Intangible assets, net 482,085 500,571 Goodwill 347,423 338,406 Deferred taxes, net 21,721 19,204 Other assets 96,551 60,102 Total assets $ 3,543,915 $ 3,934,181 Liabilities and Equity Liabilities: Accrued compensation and benefits $ 105,106 $ 187,449 Accounts payable and accrued liabilities 40,800 48,496 Dividends payable 13,861 14,824 Contingent consideration (Note 4) 133,628 162,564 Debt 255,832 266,346 Other liabilities 93,502 60,225 Liabilities of CIP Notes payable of CIP 1,904,444 2,033,617 Securities purchased payable and other liabilities of CIP 65,890 185,068 Total liabilities 2,613,063 2,958,589 Commitments and Contingencies (Note 14) Redeemable noncontrolling interests 139,147 138,965 Equity: Equity attributable to Virtus Investment Partners, Inc.: Common stock, $ 0.01 par value, 1,000,000,000 shares authorized; 12,023,288 shares issued and 7,275,337 shares outstanding at June 30, 2022; and 11,906,747 shares issued and 7,506,151 shares outstanding at December 31, 2021 120 119 Additional paid-in capital 1,275,907 1,276,424 Retained earnings (accumulated deficit) 88,196 60,962 Accumulated other comprehensive income (loss) ( 267 ) 20 Treasury stock, at cost, 4,747,951 and 4,400,596 shares at June 30, 2022 and December 31, 2021, respectively ( 579,248 ) ( 509,248 ) Total equity attributable to Virtus Investment Partners, Inc. 784,708 828,277 Noncontrolling interests 6,997 8,350 Total equity 791,705 836,627 Total liabilities and equity $ 3,543,915 $ 3,934,181 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) 2022 2021 2022 2021 Revenues Investment management fees $ 185,024 $ 193,510 $ 391,841 $ 366,779 Distribution and service fees 17,159 23,450 37,166 43,798 Administration and shareholder service fees 21,982 25,877 46,326 48,437 Other income and fees 1,142 1,174 2,414 1,894 Total revenues 225,307 244,011 477,747 460,908 Operating Expenses Employment expenses 89,360 87,630 195,353 179,389 Distribution and other asset-based expenses 28,583 36,021 61,429 68,315 Other operating expenses 31,559 21,946 63,271 41,526 Operating expenses of consolidated investment products ("CIP") 649 659 1,389 1,218 Change in fair value of contingent consideration 2,900 — 2,900 — Depreciation expense 962 981 1,897 2,079 Amortization expense 14,624 10,363 29,286 19,828 Total operating expenses 168,637 157,600 355,525 312,355 Operating Income (Loss) 56,670 86,411 122,222 148,553 Other Income (Expense) Realized and unrealized gain (loss) on investments, net ( 10,543 ) 2,494 ( 13,525 ) 3,385 Realized and unrealized gain (loss) of CIP, net ( 21,659 ) 2,747 ( 35,003 ) ( 1,940 ) Other income (expense), net 571 826 858 2,597 Total other income (expense), net ( 31,631 ) 6,067 ( 47,670 ) 4,042 Interest Income (Expense) Interest expense ( 2,825 ) ( 2,256 ) ( 5,104 ) ( 4,570 ) Interest and dividend income 529 166 857 302 Interest and dividend income of investments of CIP 22,412 22,562 42,792 46,438 Interest expense of CIP ( 14,416 ) ( 14,452 ) ( 26,504 ) ( 28,900 ) Total interest income (expense), net 5,700 6,020 12,041 13,270 Income (Loss) Before Income Taxes 30,739 98,498 86,593 165,865 Income tax expense (benefit) 16,480 22,401 33,215 37,554 Net Income (Loss) 14,259 76,097 53,378 128,311 Noncontrolling interests 3,143 ( 13,130 ) ( 2,917 ) ( 28,756 ) Net Income (Loss) Attributable to Virtus Investment Partners, Inc. $ 17,402 $ 62,967 $ 50,461 $ 99,555 Earnings (Loss) per Share—Basic $ 2.34 $ 8.18 $ 6.73 $ 12.97 Earnings (Loss) per Share—Diluted $ 2.29 $ 7.86 $ 6.54 $ 12.39 Weighted Average Shares Outstanding—Basic 7,449 7,698 7,496 7,674 Weighted Average Shares Outstanding—Diluted 7,607 8,007 7,721 8,038 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) 2022 2021 2022 2021 Net Income (Loss) $ 14,259 $ 76,097 $ 53,378 $ 128,311 Other comprehensive income (loss), net of tax: Foreign currency translation adjustment, net of tax of $ 176 and $( 2 ) for the three months ended June 30, 2022 and 2021, respectively, and $ 249 and $( 2 ) for the six months ended June 30, 2022 and 2021, respectively. ( 237 ) 0 ( 287 ) 6 Other comprehensive income (loss) ( 237 ) 0 ( 287 ) 6 Comprehensive income (loss) 14,022 76,097 53,091 128,317 Comprehensive (income) loss attributable to noncontrolling interests 3,143 ( 13,130 ) ( 2,917 ) ( 28,756 ) Comprehensive Income (Loss) Attributable to Virtus Investment Partners, Inc. $ 17,165 $ 62,967 $ 50,174 $ 99,561 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) 2022 2021 Cash Flows from Operating Activities: Net income (loss) $ 53,378 $ 128,311 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation expense, intangible asset and other amortization 32,223 23,196 Stock-based compensation 14,119 15,844 Amortization of deferred commissions 2,700 1,462 Payments of deferred commissions ( 1,962 ) ( 3,241 ) Equity in earnings of equity method investments ( 977 ) ( 2,561 ) Realized and unrealized (gains) losses on investments, net 13,562 ( 3,381 ) Distributions from equity method investments 2,102 1,908 Sales (purchases) of investments, net ( 9,952 ) ( 3,395 ) Change in fair value of contingent consideration 2,900 — Deferred taxes, net ( 2,271 ) ( 1,518 ) Changes in operating assets and liabilities: Accounts receivable, net and other assets 31,069 ( 43,203 ) Accrued compensation and benefits, accounts payable, accrued liabilities and other liabilities ( 110,581 ) ( 12,651 ) Operating activities of consolidated investment products ("CIP"): Realized and unrealized (gains) losses on investments of CIP, net 33,715 ( 1,961 ) Purchases of investments by CIP ( 441,042 ) ( 664,837 ) Sales of investments by CIP 417,706 790,575 Net proceeds (purchases) of short-term investments and securities sold short by CIP ( 45 ) 15,103 Change in other assets and liabilities of CIP 967 ( 471 ) Net cash provided by (used in) operating activities 37,611 239,180 Cash Flows from Investing Activities: Capital expenditures and other asset purchases ( 4,361 ) ( 4,336 ) Acquisition of businesses, net of cash acquired of $ 8,443 ( 19,773 ) — Change in cash and cash equivalents of CIP due to consolidation (deconsolidation), net ( 308 ) ( 1,191 ) Net cash provided by (used in) investing activities ( 24,442 ) ( 5,527 ) Cash Flows from Financing Activities: Payment of long-term debt ( 11,375 ) ( 11,826 ) Common stock dividends paid ( 24,190 ) ( 13,748 ) Repurchase of common shares ( 70,000 ) ( 12,499 ) Payment of contingent consideration ( 33,036 ) — Taxes paid related to net share settlement of restricted stock units ( 15,284 ) ( 19,214 ) Net contributions from (distributions to) noncontrolling interests ( 3,598 ) ( 6,636 ) Financing activities of CIP: Payments on borrowings by CIP ( 82,694 ) ( 103,722 ) Net cash provided by (used in) financing activities ( 240,177 ) ( 167,645 ) Effect of exchange rate changes on cash, cash equivalents and restricted cash ( 306 ) — Net increase (decrease) in cash, cash equivalents and restricted cash ( 227,314 ) 66,008 Cash, cash equivalents and restricted cash, beginning of period 586,145 339,849 Cash, cash equivalents and restricted cash, end of period $ 358,831 $ 405,857 Non-Cash Investing Activities: Contingent consideration $ 1,200 $ 137,664 Non-Cash Financing Activities: Increase (decrease) to noncontrolling interests due to consolidation (deconsolidation) of CIP, net $ ( 338 ) $ ( 8,001 ) Common stock dividends payable $ 11,229 $ 6,277 (in thousands) June 30, 2022 December 31, 2021 Reconciliation of cash, cash equivalents and restricted cash Cash and cash equivalents $ 250,530 $ 378,921 Cash of CIP 107,674 206,620 Cash pledged or on deposit of CIP 627 604 Cash, cash equivalents and restricted cash at end of period $ 358,831 $ 586,145 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 Stockholders' 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 Virtus Investment Partners, Inc. Non- controlling Interests Total Equity Redeemable Non- controlling Interests (in thousands, except per share data) Shares Par Value Shares Amount 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 — — — — — — — — — — — 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 Balances at March 31, 2022 7,472,829 $ 120 $ 1,273,802 $ 81,783 $ ( 30 ) 4,526,048 $ ( 539,248 ) $ 816,427 $ 7,806 $ 824,233 $ 138,738 Net income (loss) — — — 17,402 — — — 17,402 ( 278 ) 17,124 ( 2,865 ) Foreign currency translation adjustments — — — — ( 237 ) — — ( 237 ) — ( 237 ) — Net subscriptions (redemptions) and other — — — — — — — — ( 531 ) ( 531 ) 3,274 Cash dividends declared ($ 1.50 per common share) — — — ( 10,989 ) — — — ( 10,989 ) — ( 10,989 ) — Repurchases of common shares ( 221,903 ) — — — — 221,903 ( 40,000 ) ( 40,000 ) — ( 40,000 ) — Issuance of common shares related to employee stock transactions 24,411 — — — — — — — — — — Taxes paid on stock-based compensation — — ( 1,870 ) — — — — ( 1,870 ) ( 1,870 ) — Stock-based compensation — — 3,975 — — — — 3,975 — 3,975 — Balances at June 30, 2022 7,275,337 $ 120 $ 1,275,907 $ 88,196 $ ( 267 ) 4,747,951 $ ( 579,248 ) $ 784,708 $ 6,997 $ 791,705 $ 139,147 Permanent Equity Temporary Equity Common Stock Additional Paid-in Capital Retained Earnings (Accumulated Deficit) Accumulated Other Comprehensive Income (Loss) Treasury Stock Total Attributed To Virtus Investment Partners, Inc. Non- controlling Interests Total Equity Redeemable Non- controlling Interests (in thousands, except per share data) Shares Par Value Shares Amount 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 Balances at December 31, 2021 7,506,151 $ 119 $ 1,276,424 $ 60,962 $ 20 4,400,596 $ ( 509,248 ) $ 828,277 $ 8,350 $ 836,627 $ 138,965 Net income (loss) — — — 50,461 — — — 50,461 ( 335 ) 50,126 3,252 Foreign currency translation adjustments — — — — ( 287 ) — — ( 287 ) — ( 287 ) — Net subscriptions (redemptions) and other — — — — — — — — ( 1,018 ) ( 1,018 ) ( 3,070 ) Cash dividends declared ($ 3.00 per common share) — — — ( 23,227 ) — — — ( 23,227 ) — ( 23,227 ) — Repurchases of common shares ( 347,355 ) — — — — 347,355 ( 70,000 ) ( 70,000 ) — ( 70,000 ) — Issuance of common shares related to employee stock transactions 116,541 1 ( 1 ) — — — — — — — — Taxes paid on stock-based compensation — — ( 15,284 ) — — — — ( 15,284 ) ( 15,284 ) — Stock-based compensation — — 14,768 — — — — 14,768 — 14,768 — Balances at June 30, 2022 7,275,337 $ 120 $ 1,275,907 $ 88,196 $ ( 267 ) 4,747,951 $ ( 579,248 ) $ 784,708 $ 6,997 $ 791,705 $ 139,147 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: mutual funds registered pursuant to the Investment Company Act of 1940 ("U.S. retail funds"), as amended; Undertaking for Collective Investment in Transferable Securities ("UCITS") and Qualifying Investor Funds ("QIFs"), collectively "global funds" and collectively with mutual funds, exchange traded funds ("ETFs"), and variable insurance funds, the "open-end funds"; closed-end funds (collectively, with open-end funds, the "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, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022. 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, 2021 ("2021 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 2021 Annual Report on Form 10-K. 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 these 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 measurement period (monthly or quarterly), which is when asset values are generally determinable. Investment Management Fees by Source The following table summarizes investment management fees by source: Three Months Ended June 30, Six Months Ended June 30, (in thousands) 2022 2021 2022 2021 Investment management fees Open-end funds $ 84,875 $ 97,273 $ 182,252 $ 186,393 Closed-end funds 16,174 16,395 33,114 29,335 Retail separate accounts 45,312 42,475 94,915 79,987 Institutional accounts 38,663 37,367 81,560 71,064 Total investment management fees $ 185,024 $ 193,510 $ 391,841 $ 366,779 6 Table of Contents 4. Acquisitions Stone Harbor Investment Partners On January 1, 2022, the Company completed the acquisition of Stone Harbor Investment Partners, LLC ("Stone Harbor"), which was accounted for in accordance with ASC 805, Business Combinations ("ASC 805"). The initial transaction consideration of $ 29.4 million was allocated to the assets acquired and liabilities assumed, based upon their estimated fair values at the date of the acquisition, as well as goodwill of $ 8.8 million and definite-lived intangible assets of $ 10.8 million. The Company expects $ 19.6 million of the purchase price to be tax deductible over 15 years. The transaction consideration allocation is based upon preliminary information and is subject to change if additional information becomes available. The final fair value of the net assets acquired may result in adjustments to certain assets and liabilities, including goodwill. The revenues and operating income of Stone Harbor were not material to the Company's results of operations for the three and six months ended June 30, 2022. Transaction consideration consisted of $ 28.2 million in cash paid at closing and $ 1.2 million in contingent consideration recorded at fair value, which represents future potential earn-out payments based on pre-established performance metrics related to revenue retention and revenue growth rates. Future contingent consideration will be paid, if earned, in 2023, 2026 and 2027. The contingent consideration has been accounted for as a liability within contingent consideration on the Company's Condensed Consolidated Balance Sheet. The following table summarizes the identified acquired assets and liabilities assumed as of the Stone Harbor acquisition date: January 1, 2022 (in thousands) Assets: Cash and cash equivalents $ 8,443 Intangible assets 10,800 Goodwill 8,846 Other assets 55,129 Total Assets 83,218 Liabilities Accounts payable and accrued liabilities 53,802 Total liabilities 53,802 Total Net Assets Acquired $ 29,416 Identifiable Intangible Assets Acquired The Company identified and recorded the following intangible assets as a result of the Stone Harbor acquisition: January 1, 2022 Approximate Fair Value ( in thousands) Weighted Average of Useful Life (in years) Definite-lived intangible assets: Investment management agreements $ 6,000 7.3 Trade names 1,000 6.0 Software 3,800 4.0 Total definite-lived intangible assets $ 10,800 The fair value of investment management agreements was estimated using a discounted cash flow method, the fair value of the trade names was estimated using a royalty savings method, and the fair value of the software was estimated using a royalty savings method and replacement cost approach. The Stone Harbor fair value estimates were prepared with the assistance of an independent valuation firm. Westchester Capital Management On October 1, 2021, the Company completed the acquisition of Westchester Capital Management, LLC ("Westchester"), which was accounted for in accordance with ASC 805. The total transaction consideration of $ 169.3 million 7 Table of Contents was allocated to the assets acquired and liabilities assumed based upon their estimated fair values at the date of the acquisition. Goodwill of $ 23.0 million and intangible assets of $ 144.4 million were recorded as a result of the acquisition. The Company expects $ 155.6 million of the purchase price to be tax deductible over 15 years. The revenues and operating income of Westchester were not material to the Company's results of operations for the three and six months ended June 30, 2022. Transaction consideration consisted of $ 156.8 million in cash and contingent consideration accounted for as a liability on the Company's Condensed Consolidated Balance sheet, which represents future potential earn-out payments based on pre-established performance metrics related to revenue growth rates. Future contingent consideration payments will be made, if earned, in 2025 and 2026. As of June 30, 2022, the contingent consideration balance was $ 15.4 million. Fund Adoption and NFJ Investment Group On February 1, 2021, the Company finalized an agreement with Allianz Global Investors U.S. LLC ("AGI"), pursuant to which the Company became the investment adviser, distributor and/or administrator of certain of AGI's open-end, closed-end and retail separate account assets. This transaction was classified as an asset acquisition and the cost of the acquisition was allocated to the assets acquired on the basis of their relative fair values. Additionally, as part of the transaction, AGI’s Dallas-based Value Equity team joined the Company as a newly established affiliated manager, NFJ Investment Group ("NFJ"). The addition of NFJ was classified as a business combination under ASC 805 and assets acquired were recorded at fair value. Assets acquired primarily consisted of definite-lived intangible assets representing 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, 2022 or 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 from the transaction. Payments are to be made annually on the anniversary of the closing date of the transactions over seven years . Contingent payment obligations related to the NFJ acquisition, which were accounted for in accordance with ASC 805 are remeasured at fair value as of each reporting period-end, with the change in fair value recorded within the Condensed Consolidated Statement of Operations. An estimate of these future payments has been recorded as a liability and included as contingent consideration on the Company's Condensed Consolidated Balance Sheet. A payment of $ 33.0 million was made in the first quarter of 2022. The estimated value of future revenue participation payments at June 30, 2022 was $ 117.0 million. 5. Goodwill and Intangible Assets, Net Activity in goodwill was as follows: (in thousands) Balance at December 31, 2021 $ 338,406 Acquisitions 9,017 Balance at June 30, 2022 $ 347,423 Below is a summary of intangible assets, net: Definite-Lived Indefinite-Lived Total (in thousands) Gross Book Value Accumulated Amortization Net Book Value Net Book Value Net Book Value Balances at December 31, 2021 $ 755,576 $ ( 297,303 ) $ 458,273 $ 42,298 $ 500,571 Additions 10,800 — 10,800 — 10,800 Intangible amortization — ( 29,286 ) ( 29,286 ) — ( 29,286 ) Balances at June 30, 2022 $ 766,376 $ ( 326,589 ) $ 439,787 $ 42,298 $ 482,085 8 Table of Contents Definite-lived intangible asset amortization for the remainder of fiscal year 2022 and succeeding fiscal years is estimated as follows: Fiscal Year Amount (in thousands) Remainder of 2022 $ 29,218 2023 57,835 2024 52,194 2025 47,426 2026 46,446 2027 and thereafter 206,668 Total $ 439,787 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, 2022 and December 31, 2021 were as follows: (in thousands) June 30, 2022 December 31, 2021 Investment securities - fair value $ 77,184 $ 80,335 Equity method investments (1) 11,968 13,038 Nonqualified retirement plan assets 11,546 13,321 Other investments 2,142 2,196 Total investments $ 102,840 $ 108,890 (1) The Company's equity method investments are valued on a three-month lag based upon the availability of financial information. Investment Securities - fair value Investment securities - fair value consist of investments in the Company's sponsored funds and separately managed accounts. The composition of the Company’s investment securities - fair value was as follows: June 30, 2022 December 31, 2021 (in thousands) Cost Fair Value Cost Fair Value Investment Securities - fair value Sponsored funds $ 71,808 $ 65,121 $ 63,090 $ 66,326 Equity securities 11,702 12,063 10,659 14,009 Total investment securities - fair value $ 83,510 $ 77,184 $ 73,749 $ 80,335 For the three and six months ended June 30, 2022, the Company recognized net realized losses of $ 0.1 million and $ 30 thousand, respectively, on the sale of its investment securities - fair value. For the three and six months ended June 30, 2021, the Company recognized net realized gains of $ 1.0 million and $ 1.8 million, respectively, on the sale of its investment securities - fair value. 9 Table of Contents 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, 2022 and December 31, 2021 by fair value hierarchy level were as follows: June 30, 2022 (in thousands) Level 1 Level 2 Level 3 Total Assets Cash equivalents $ 180,574 $ — $ — $ 180,574 Investment securities - fair value Sponsored funds 65,121 — — 65,121 Equity securities 12,063 — — 12,063 Nonqualified retirement plan assets 11,546 — — 11,546 Total assets measured at fair value $ 269,304 $ — $ — $ 269,304 Liabilities Contingent consideration $ — $ — $ 72,980 $ 72,980 Total liabilities measured at fair value $ — $ — $ 72,980 $ 72,980 December 31, 2021 (in thousands) Level 1 Level 2 Level 3 Total Assets Cash equivalents $ 307,277 $ — $ — $ 307,277 Investment securities - fair value Sponsored funds 66,326 — — 66,326 Equity securities 14,009 — — 14,009 Nonqualified retirement plan assets 13,321 — — 13,321 Total assets measured at fair value $ 400,933 $ — $ — $ 400,933 Liabilities Contingent consideration $ — $ — $ 88,400 $ 88,400 Total liabilities measured at fair value $ — $ — $ 88,400 $ 88,400 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 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, 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. Nonqualified retirement plan assets represent mutual funds within the Company's nonqualified retirement plan whose fair value is determined based on their published net asset value and are categorized as Level 1. Contingent consideration represents liabilities associated with the Company's business combinations. See Note 4 for a discussion of the transactions. The estimated fair values are measured using a simulation model using unobservable market data inputs prepared with the assistance of an independent valuation firm. These liabilities are categorized as Level 3. 10 Table of Contents Cash, accounts receivable, accounts payable and accrued liabilities equal or approximate fair value based on the short-term nature of these instruments. The following table presents a reconciliation of beginning and ending balances of recurring fair value measurements classified as Level 3: Three Months Ended June 30, Six Months Ended June 30, (in thousands) 2022 2021 2022 2021 Contingent consideration, beginning of period $ 70,080 $ 63,500 $ 88,400 $ — Additions for acquisition — — 1,200 63,500 Reduction for payments made — — ( 19,520 ) — Increase (reduction) of liability related to re-measurement of fair value 2,900 — 2,900 — Contingent consideration, end of period $ 72,980 $ 63,500 $ 72,980 $ 63,500 8. Equity Transactions Dividends Declared On May 18, 2022, the Company declared a quarterly cash dividend of $ 1.50 per common share to be paid on August 15, 2022 to stockholders of record at the close of business on July 29, 2022. Common Stock Repurchases During the three and six months ended June 30, 2022, the Company repurchased 221,903 and 347,355 common shares, respectively, at a weighted average price of $ 180.23 and $ 201.49 per share, respectively, for a total cost, including fees and expenses, of $ 40.0 million and $ 70.0 million, respectively, under its share repurchase program. In May 2022, the Company's Board of Directors authorized an additional 750,000 shares to be repurchased under the share repurchase program. As of June 30, 2022, 932,094 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, 2022 and 2021 were as follows: Foreign Currency Translation Adjustments (in thousands) Balance at December 31, 2021 $ 20 Net current-period other comprehensive income (loss) (1) ( 287 ) Balance at June 30, 2022 $ ( 267 ) Foreign Currency Translation Adjustments (in thousands) Balance at December 31, 2020 $ 29 Net current-period other comprehensive income (loss) (1) 6 Balance at June 30, 2021 $ 35 (1) Consists of foreign currency translation adjustments, net of tax of $ 249 and $( 2 ) for the six months ended June 30, 2022 and 2021, respectively. 10. Stock-Based Compensation Pursuant to the Company's Omnibus Incentive and Equity Plan (the "Omnibus Plan"), officers, employees and directors may be granted equity-based awards, including restricted stock units ("RSUs"), performance stock units ("PSUs"), 11 Table of Contents stock options and unrestricted shares of common stock. At June 30, 2022, 668,628 shares of common stock remain available for issuance of the 3,370,000 shares that are authorized for issuance under the Omnibus Plan. Stock-based compensation expense is summarized as follows: Three Months Ended June 30, Six Months Ended June 30, (in thousands) 2022 2021 2022 2021 Stock-based compensation expense $ 4,572 $ 7,849 $ 14,119 $ 15,844 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 Omnibus Plan and are not issued from treasury stock. RSU activity, inclusive of PSUs, for the six months ended June 30, 2022 is summarized as follows: Number of Shares Weighted Average Grant Date Fair Value Outstanding at December 31, 2021 430,730 $ 138.01 Granted 175,379 $ 193.35 Forfeited ( 36,336 ) $ 116.73 Settled ( 183,995 ) $ 119.53 Outstanding at June 30, 2022 385,778 $ 173.99 For the six months ended June 30, 2022 and 2021, a total of 72,043 and 72,324 RSUs, respectively, were withheld by the Company as a result of net share settlements to settle minimum employee tax withholding obligations. The Company paid $ 15.3 million and $ 19.3 million for the six months ended June 30, 2022 and 2021, respectively, in minimum employee tax withholding obligations related to RSUs withheld for the net share settlements. These net share settlements had the effect of share repurchases by the Company as they reduced the number of shares that would have otherwise been issued as a result of the vesting. During the six months ended June 30, 2022, the Company granted 30,516 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, 2022, unamortized stock-based compensation expense for unvested RSUs and PSUs was $ 35.2 million 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 shares issuable upon the vesting of RSUs and stock option exercises using the treasury stock method, as determined under the if-converted method. 12 Table of Contents 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) 2022 2021 2022 2021 Net Income (Loss) $ 14,259 $ 76,097 $ 53,378 $ 128,311 Noncontrolling interests 3,143 ( 13,130 ) ( 2,917 ) ( 28,756 ) Net Income (Loss) Attributable to Virtus Investment Partners, Inc. $ 17,402 $ 62,967 $ 50,461 $ 99,555 Shares (in thousands): Basic: Weighted-average number of shares outstanding 7,449 7,698 7,496 7,674 Plus: Incremental shares from assumed conversion of dilutive instruments 158 309 225 364 Diluted: Weighted-average number of shares outstanding 7,607 8,007 7,721 8,038 Earnings (Loss) per Share—Basic $ 2.34 $ 8.18 $ 6.73 $ 12.97 Earnings (Loss) per Share—Diluted $ 2.29 $ 7.86 $ 6.54 $ 12.39 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) 2022 2021 2022 2021 Restricted stock units 84 5 24 6 Total anti-dilutive securities 84 5 24 6 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 38.4 % and 22.6 % for the six months ended June 30, 2022 and 2021, respectively. The higher estimated effective tax rate for the six months ended June 30, 2022 was primarily due to valuation allowances recorded in the current year for the tax effects of unrealized losses on certain Company investments. 13. Debt Credit Agreement The Company's credit agreement, as amended (the "Credit Agreement"), comprises (i) a $ 275.0 million seven-year term loan (the "Term Loan") expiring in September 2028, and (ii) a $ 175.0 million revolving credit facility with a five-year term expiring in September 2026. During the six months ended June 30, 2022, the Company repaid $ 11.4 million outstanding under its Term Loan. At June 30, 2022, $ 262.9 million was outstanding under the Term Loan, and the Company had no outstanding borrowings under its revolving credit facility. In accordance with ASC 835, Interest , the amounts outstanding under the Company's Term Loan are presented in the Condensed Consolidated Balance Sheet net of related debt issuance costs, which were $ 7.1 million as of June 30, 2022. 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 13 Table of Contents 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 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 on the Company's Condensed Consolidated Balance Sheets, and any changes in the estimated redemption value are recorded on the Condensed Consolidated Statements of Operations within noncontrolling interests. Redeemable noncontrolling interests for the six months ended June 30, 2022 included the following amounts: (in thousands) CIP Affiliate Noncontrolling Interests Total Balances at December 31, 2021 $ 12,416 $ 126,549 $ 138,965 Net income (loss) attributable to noncontrolling interests ( 1,593 ) 4,192 2,599 Changes in redemption value (1) — 653 653 Total net income (loss) attributable to noncontrolling interests ( 1,593 ) 4,845 3,252 Net subscriptions (redemptions) and other 2,227 ( 5,297 ) ( 3,070 ) Balances at June 30, 2022 $ 13,050 $ 126,097 $ 139,147 (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 14 Table of Contents 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 Virtus Investment Partners, Inc. 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, 2022 and December 31, 2021: As of June 30, 2022 December 31, 2021 VOEs VIEs VOEs VIEs (in thousands) CLOs Other CLOs Other Cash and cash equivalents $ 798 $ 104,348 $ 3,155 $ 787 $ 205,192 $ 1,245 Investments 19,049 1,917,076 54,034 21,544 2,055,107 63,587 Other assets 94 15,920 1,027 64 43,327 819 Notes payable — ( 1,904,444 ) — — ( 2,033,617 ) — Securities purchased payable and other liabilities ( 417 ) ( 65,314 ) ( 159 ) ( 558 ) ( 184,214 ) ( 296 ) Noncontrolling interests ( 4,634 ) ( 6,997 ) ( 8,416 ) ( 4,935 ) ( 8,350 ) ( 7,481 ) Net interests in CIP $ 14,890 $ 60,589 $ 49,641 $ 16,902 $ 77,445 $ 57,874 Consolidated CLOs The majority of the Company's CIP that are VIEs are CLOs. At June 30, 2022, 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 their 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 $ 1.9 billion at June 30, 2022 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 10.0 %. The CLOs may elect to reinvest any prepayments received on bank loan investments up until the periods between October 2019 and October 2026, depending on the CLO. Generally, subsequent prepayments received after the reinvestment period must be used to pay down the note obligations. At June 30, 2022, the fair value of the senior bank loans was less than the unpaid principal balance by $ 113.6 million. At June 30, 2022, there were no material collateral assets in default. Notes Payable of CLOs The CLOs held notes payable with a total value, at par, of $ 2.2 billion at June 30, 2022, consisting of senior secured floating rate notes payable with a par value of $ 1.9 billion and subordinated notes with a par value of $ 233.7 million. These note obligations bear interest at variable rates based on LIBOR plus a pre-defined spread ranging from 0.8 % to 8.9 %. The principal amounts outstanding of these note obligations mature on dates ranging from October 2027 to October 2034. 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 15 Table of Contents 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, 2022, as shown in the table below: (in thousands) Subordinated notes $ 59,446 Accrued investment management fees 1,143 Total Beneficial Interests $ 60,589 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: Six Months Ended June 30, 2022 (in thousands) Income: Realized and unrealized gain (loss), net $ ( 21,668 ) Interest income 40,633 Total Income 18,965 Expenses: Other operating expenses 1,126 Interest expense 26,504 Total Expense 27,630 Noncontrolling interests 335 Net Income (Loss) Attributable to CIP $ ( 8,330 ) 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: Six Months Ended June 30, 2022 (in thousands) Distributions received and unrealized gains (losses) on the subordinated notes held by the Company $ ( 12,458 ) Investment management fees 4,128 Total Economic Interests $ ( 8,330 ) 16 Table of Contents Fair Value Measurements of CIP The assets and liabilities of CIP measured at fair value on a recurring basis as of June 30, 2022 and December 31, 2021 by fair value hierarchy level were as follows: As of June 30, 2022 (in thousands) Level 1 Level 2 Level 3 Total Assets Cash equivalents $ 104,348 $ — $ — $ 104,348 Debt investments 197 1,932,308 30,396 1,962,901 Equity investments 22,767 3,130 1,361 27,258 Total assets measured at fair value $ 127,312 $ 1,935,438 $ 31,757 $ 2,094,507 Liabilities Notes payable $ — $ 1,904,444 $ — $ 1,904,444 Short sales 345 — — 345 Total liabilities measured at fair value $ 345 $ 1,904,444 $ — $ 1,904,789 As of December 31, 2021 (in thousands) Level 1 Level 2 Level 3 Total Assets Cash equivalents $ 205,192 $ — $ — $ 205,192 Debt investments 273 2,107,736 2,695 2,110,704 Equity investments 26,111 2,961 462 29,534 Total assets measured at fair value $ 231,576 $ 2,110,697 $ 3,157 $ 2,345,430 Liabilities Notes payable $ — $ 2,033,617 $ — $ 2,033,617 Short sales 515 — — 515 Total liabilities measured at fair value $ 515 $ 2,033,617 $ — $ 2,034,132 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-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. 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 17 Table of Contents 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, 2022 and December 31, 2021 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) 2022 2021 Balance at beginning of period $ 3,157 $ 54,182 Realized gains (losses), net 27 ( 214 ) Change in unrealized gains (losses), net ( 930 ) 3,281 Purchases — 4,395 Amortization ( 9 ) 60 Sales ( 2,135 ) ( 27,309 ) Transfers to Level 2 ( 36,833 ) ( 44,578 ) Transfers from Level 2 68,480 62,264 Balance at end of period (1) $ 31,757 $ 52,081 (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. 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, 2022, the carrying value and maximum risk of loss related to the Company's interest in these VIEs was $ 27.8 million . 18 Table of Contents