Item 1. Business
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.
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, and 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. Through our multi-manager model, we provide our affiliated managers with centralized U.S. retail distribution capabilities and offer institutional sales and business support resources to support affiliate operations.
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 and quantitative). Our retail products include mutual funds registered pursuant to the Investment Company Act of 1940, as amended ("U.S. retail funds"); Undertaking for Collective Investment in Transferable Securities and Qualifying Investor Funds (collectively, "global funds") and collectively with U.S. retail funds, variable insurance funds, exchange-traded funds ("ETFs"), the "open-end funds"); closed-end funds (collectively, with open-end funds, the "funds"); and retail separate accounts that include intermediary-sold and private client accounts. Our investment strategies are offered to institutional clients through separate accounts and pooled, or commingled, structures. 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 and institutional products operating under advisory, subadvisory or collateral management agreements. We also use the investment management services of select unaffiliated managers to sub-advise certain of our open- and closed-end funds. We monitor our managers' services by assessing their performance, style and consistency and the discipline with which they apply their investment process.
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Our affiliated investment managers, their respective investment styles and assets under management as of December 31, 2022 were as follows:
Affiliated Manager Headquarters Investment Style Assets
(in billions)
Ceredex Value Advisors
Founded 1995
Orlando, FL Value Equities $ 7.0
Duff & Phelps Investment Management
Founded 1932
Chicago, IL Listed Real Assets $ 12.0
Kayne Anderson Rudnick Investment Management
Founded 1984
Los Angeles, CA Quality-Oriented Equities $ 47.4
Newfleet Asset Management (1)
Founded 2011
Hartford, CT Multi-Sector Fixed Income $ 12.1
NFJ Investment Group
Founded 1989
Dallas, TX Global Value Equities $ 6.8
Seix Investment Advisors (1)
Founded 1992
Park Ridge, NJ Investment Grade and Leveraged Finance Fixed Income $ 14.4
Silvant Capital Management
Founded 2008
Atlanta, GA Growth Equities $ 1.7
Stone Harbor Investment Partners (1)
Founded 2006
New York, NY Emerging Markets Debt $ 6.6
Sustainable Growth Advisers
Founded 2003
Stamford, CT Global Growth Equities $ 20.8
Westchester Capital Management
Founded 1989
Valhalla, NY Event-Driven Equity $ 5.1
Virtus Multi-Asset (1) Hartford, CT Global Multi-Asset $ 0.2
Virtus Systematic (1) San Diego, CA Systematic Equity $ 0.5
Zevenbergen Capital Investments (2)
Founded 1987
Seattle, WA High Growth Equity $ 1.3
(1) Operates as a division within a broader legal entity.
(2) Affiliated through ownership of a minority interest.
Our select unaffiliated subadvisers, their respective investment styles and assets under management as of December 31, 2022 were as follows:
Unaffiliated Subadviser Investment Style Assets
(in billions)
Voya Investment Management Income & Growth and Convertible $ 9.8
Vontobel Asset Management, Inc. International Growth Equity $ 2.6
Other Risk-Based Quantitative, Income-Focused Equity and Systematic Quantitative $ 1.1
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Our Investment Products
Our assets under management are in open-end funds, closed-end funds, retail separate accounts and institutional accounts. Our earnings are primarily from asset-based fees charged for services relating to these various products, including investment management, fund administration, distribution and shareholder services.
Assets Under Management by Product as of December 31, 2022
Products (in billions)
Open-end funds (1) $ 53.0
Closed-end funds 10.4
Retail separate accounts 35.4
Institutional accounts (2) 50.7
Total Assets Under Management $ 149.4
(1) Represents assets under management of U.S. retail funds, global funds, ETFs and variable insurance funds.
(2) Represents assets under management of institutional separate and commingled accounts, including structured products.
Open-End Funds
Our U.S. retail 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 and quantitative). Our global funds are offered in select investment strategies to non-U.S. investors. Our ETFs are offered in a range of actively managed and index-based investment capabilities across multiple asset classes. Summary information about our open-end funds as of December 31, 2022 was as follows:
Asset Class Number of Funds Total Assets
(in millions)
Advisory Fee
Range % (1)
Domestic Equity 27 $ 18,021 2.15 - 0.29
Fixed Income 46 15,298 1.85 - 0.21
International Equity 14 4,077 1.20 - 0.21
Multi-Asset 4 5,662 0.75 - 0.45
Alternative 16 6,319 1.25 - 0.45
Specialty Equity 9 2,391 0.95 - 0.59
Global Equity 7 1,232 1.85 - 0.65
Total Open-End Funds 123 $ 53,000
(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.
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Closed-End Funds
Our closed-end funds are offered in a variety of asset classes such as equity, fixed income and multi-asset. We managed the following closed-end funds as of December 31, 2022, 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 $ 7,159 1.00 - 0.50
Fixed Income 7 1,746 1.00 - 0.50
Equity 1 786 1.25
Alternatives 1 670 1.00
Total Closed-End Funds 14 $ 10,361
(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.
Retail Separate Accounts
Intermediary-Sold Managed Accounts
Intermediary-sold managed accounts are individual investment accounts that are contracted through intermediaries as part of investment programs offered to retail investors. Summary information about our intermediary-sold managed accounts as of December 31, 2022 was as follows:
Asset Class Total Assets
(in millions)
Equity
Domestic $ 26,789
Global 357
Specialty 77
International 82
Fixed Income
Leveraged finance 1,464
Investment grade 193
Multi-Asset 198
Total Intermediary-Sold Managed Accounts $ 29,160
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, 2022 was as follows:
Asset Class Total Assets
(in millions)
Multi-Asset $ 6,054
Fixed Income
Investment grade 110
Leveraged finance 3
Equity
Domestic 25
Total Private Client Accounts $ 6,192
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Institutional Accounts
Our institutional clients include corporations, multi-employer retirement funds, public employee retirement systems, foundations and endowments. We also act as collateral manager for 12 collateralized loan obligations ("CLOs"). In addition, we provide subadvisory services to unaffiliated mutual funds. Summary information about our institutional accounts as of December 31, 2022 was as follows:
Asset Class Total Assets
(in millions)
Equity
Domestic $ 20,112
International 1,241
Global 6,703
Fixed Income
Leveraged finance 12,338
Investment grade 5,752
Alternative 3,653
Multi-Asset 864
Total Institutional Accounts 50,663
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, 2022, we had $2.5 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) 2022 2021 2020
Open-end funds $ 335,585 $ 395,152 $ 250,030
Closed-end funds 63,841 63,301 36,833
Retail separate accounts 171,509 174,919 104,932
Institutional accounts 157,404 148,213 113,543
Total investment management fees 728,339 781,585 505,338
Administration fees 61,344 73,113 41,582
Shareholder service fees 24,518 29,418 17,881
Total $ 814,201 $ 884,116 $ 564,801
Investment Management Fees
We provide investment management services through our affiliated investment advisers (each an "Adviser") pursuant to investment management agreements. For our sponsored funds, 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 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 CLOs, for which we act as the collateral manager,
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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 U.S. retail 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 U.S. retail 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
Our products are offered through various retail and institutional distribution channels.
Retail
Our retail distribution resources in the U.S. consist of regional sales professionals, a national account relationship group and specialized teams for retirement and ETFs. Our U.S. retail funds and retail separate accounts are distributed through financial intermediaries. We have broad distribution access in the U.S. 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 private client business is marketed directly to individual clients by financial advisory teams at our affiliated investment managers.
Institutional
Our institutional distribution resources include affiliate specific institutional sales teams primarily focused on the U.S. market, supported by shared consultant relation support and non-U.S. institutional distribution. Our institutional products are marketed through relationships with consultants as well as directly to clients. We target key market segments, including foundations and endowments, corporations, public and private pension plans, sovereign wealth funds 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 funds 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.
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Our Regulatory Matters
We are subject to regulation by the SEC and other federal and state agencies, as well as FINRA and other self-regulatory organizations. Each of our affiliated investment managers and unaffiliated subadvisers is registered with the SEC under the Investment Advisers Act. Our affiliated investment managers operating outside of the U.S. are also subject to regulation by various regulatory authorities and exchanges in the relevant jurisdictions, including, for those active in the United Kingdom (the "UK"), the Financial Conduct Authority (the "FCA"). We have distribution teams that operate offices in the UK and Singapore and are subject to regulation by both the FCA and Monetary Authority of Singapore, respectively. Each of our U.S. sponsored funds 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. New regulations or interpretations of existing laws may result in enhanced disclosure obligations, including with respect to climate change or other environmental, social and governance ("ESG") matters, which could negatively affect us or materially increase our regulatory burden. Increased regulations generally increase our costs, and we could continue to experience higher costs if new laws require us to spend more time, hire additional personnel, or purchase new technology to comply effectively.
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.
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 non-U.S. institutional and retail clients who are not citizens or residents of the U.S.
Our officers, directors and employees may, from time to time, own securities that are also held by one or more of our funds or strategies offered to clients. 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, 2022, we employed 772 employees and we operate offices in the U.S., UK and Singapore. 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.
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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.
▪ 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. The Company may use its website as a distribution channel of material company information. Financial and other important information regarding the Company is routinely posted on and accessible through the Company’s website at http://ir.virtus.com. In addition, you may automatically receive email alerts and other information about the Company when you enroll your email address by visiting http://ir.virtus.com. Information contained on the website is not incorporated by reference or otherwise considered part of this document.