VIRTUS INVESTMENT PARTNERS, INC. 10-K

Item 9A. Controls and Procedures. Evaluation of Disclosure Controls and Procedures We maintain disclosure controls and procedures designed to ensure that information required to be disclosed in reports filed or submitted under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Any controls and procedures, no matter how well designed 33 Table of Contents and operated, can provide only reasonable assurance of achieving the desired control objectives. Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of the end of the period covered by this Annual Report on Form 10-K. Based on their evaluation, our Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective at the reasonable assurance level as of December 31, 2022, the end of the period covered by this Annual Report on Form 10-K. Changes in Internal Controls over Financial Reporting There have been no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) or 15d-15(f) under the Exchange Act) that occurred during the fourth quarter of fiscal 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Management's Report on Internal Control over Financial Reporting Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) or 15d-15(f) of the Exchange Act. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policy or procedures may deteriorate. Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we have conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2022 based upon the Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management, including our Chief Executive Officer and Chief Financial Officer, has concluded that our internal control over financial reporting was effective as of December 31, 2022. The effectiveness of our internal control over financial reporting as of December 31, 2022 has been audited by Deloitte & Touche LLP, our independent registered public accounting firm, as stated in their report, which is included in Item 15 "Exhibits and Financial Statement Schedules" of this Annual Report on Form 10-K. Item 9B. Other Information. None. Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections. Not applicable. 34 Table of Contents PART III Item 10. Directors, Executive Officers and Corporate Governance. Information required by this Item 10 is incorporated herein by reference to our definitive proxy statement for our 2023 Annual Meeting of Shareholders to be filed pursuant to Regulation 14A under the Exchange Act. Item 11. Executive Compensation. Information required by this Item 11 is incorporated herein by reference to our definitive proxy statement for our 2023 Annual Meeting of Shareholders to be filed pursuant to Regulation 14A under the Exchange Act. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. Information required by Item 403 of Regulation S-K is incorporated herein by reference to our definitive proxy statement for our 2023 Annual Meeting of Shareholders to be filed pursuant to Regulation 14A under the Exchange Act. The following table sets forth information as of December 31, 2022 with respect to compensation plans under which shares of our common stock may be issued: EQUITY COMPENSATION PLAN INFORMATION (a) (b) (c) Plan Category Number of securities to be issued upon exercise of outstanding options, warrants and rights Weighted-average exercise price of outstanding options, warrants and rights (1) Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) Equity compensation plans approved by security holders (2) 377,087 $ — 655,343 Equity compensation plans not approved by security holders — — — Total 377,087 $ — 655,343 (1) The weighted-average exercise price set forth in this column is calculated excluding outstanding restricted stock unit awards ("RSUs") since recipients of such awards are not required to pay an exercise price to receive the shares subject to these awards. (2) Represents shares of our common stock issuable upon the vesting of RSUs outstanding under the Company's Omnibus Incentive and Equity Plan (the "Omnibus Plan"). Of the 3,370,000 maximum number of shares of our common stock authorized for issuance under the Omnibus Plan, 124,223 shares of common stock have been issued on a cumulative basis in the form of direct grants to directors. Item 13. Certain Relationships and Related Transactions, and Director Independence. Information required by this Item 13 is incorporated herein by reference to our definitive proxy statement for our 2023 Annual Meeting of Shareholders to be filed pursuant to Regulation 14A under the Exchange Act. Item 14. Principal Accountant Fees and Services. Information required by this Item 14 is incorporated herein by reference to our definitive proxy statement for our 2023 Annual Meeting of Shareholders to be filed pursuant to Regulation 14A under the Exchange Act. 35 Table of Contents PART IV Item 15. Exhibits and Financial Statement Schedules. (a)(1) Financial Statements: The following Report of Independent Registered Public Accounting Firm and Consolidated Financial Statements of Virtus are included in this Annual Report: Report of Independent Registered Public Accounting Firm (PCAOB ID No. 34 ) Consolidated Balance Sheets as of December 31, 2022 and 2021 Consolidated Statements of Operations for the Years Ended December 31, 2022, 2021 and 2020 Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2022, 2021 and 2020 Consolidated Statements of Changes in Stockholders' Equity for the Years Ended December 31, 2022, 2021 and 2020 Consolidated Statements of Cash Flows for the Years Ended December 31, 2022, 2021 and 2020 Notes to Consolidated Financial Statements (a)(2) Financial Statement Schedules: All financial statement schedules have been omitted because the required information is either presented on the consolidated financial statements or the notes thereto or is not applicable or required. 36 Table of Contents (a)(3) Exhibits: The following exhibits are filed herewith or incorporated herein by reference: Exhibit Number Exhibit Description (2) Plan of Acquisition, Reorganization, Arrangement, Liquidation or Succession 2.1 Membership Interest Purchase Agreement by and among the Registrant, Westchester Capital Management, LLC, Westchester Capital Partners, LLC, LPC Westchester, LP, MTSWCM Holdings, LLC, RDBWCM Holdings, LLC, and the Individual Equityholders (as defined therein), dated February 1, 2021 (incorporated by reference to Exhibit 2.4 of the Registrant’s Annual Report on Form 10-K, filed February 26, 2021). (3) Articles of Incorporation and Bylaws 3.1 Amended and Restated Certificate of Incorporation of the Registrant, dated December 18, 2008 (incorporated by reference to Exhibit 3.1 of the Registrant's Amendment No. 4 to Form 10, filed December 19, 2008). 3.2 Amended and Restated Bylaws of the Registrant, as amended on February 14, 2018 (incorporated by reference to Exhibit 3.1 of the Registrant's Current Report on Form 8-K, filed February 16, 2018). 3.3 Certificate of Designations of Series A Non-Voting Convertible Preferred Stock and Series B Voting Convertible Preferred Stock of the Registrant, dated October 31, 2008 (incorporated by reference to Exhibit 4.2 of the Registrant's Amendment No. 2 to Form 10, filed November 14, 2008). 3.4 Certificate of Amendment of the Certificate of Designations of Series A Non-Voting Convertible Preferred Stock and Series B Voting Convertible Preferred Stock of the Registrant (incorporated by reference to Exhibit 3.1 of the Registrant's Quarterly Report on Form 10-Q, filed August 13, 2009). 3.5 Certificate of Designations of Series C Junior Participating Preferred Stock of the Registrant, dated December 29, 2008 (incorporated by reference to Exhibit 3.1 of the Registrant's Current Report on Form 8-K, filed January 2, 2009). 3.6 Certificate of Designations of 7.25% Series D Mandatory Convertible Preferred Stock of the Registrant (incorporated by reference to Exhibit 3.1 of the Registrant's Current Report on Form 8-K, filed February 1, 2017). (4) Instruments Defining the Rights of Security Holders including Indentures 4.1 Description of the Registrant's Common Stock (incorporated by reference to Exhibit 4.3 of the Registrant's Annual Report on Form 10-K, filed February 27, 2020) . (10) Material Contracts 10.1* Change in Control Agreement between George R. Aylward and the Registrant, effective as of December 31, 2008 (incorporated by reference to Exhibit 10.4 of the Registrant's Amendment No. 4 to Form 10, filed December 19, 2008). 10.2* Virtus Investment Partners, Inc. Amended and Restated Omnibus Incentive and Equity Plan (incorporated by reference to Exhibit 10.1 of the Registrant's Form 8-K, filed May 17, 2021). 10.3* Virtus Investment Partners, Inc. Non-Qualified Excess Investment Plan, effective as of November 1, 2008 (incorporated by reference to Exhibit 10.6 of the Registrant's Amendment No. 2 to Form 10, filed November 14, 2008). 10.4* First Amendment to the Virtus Investment Partners, Inc. Non-Qualified Excess Investment Plan, effective as of February 1, 2010 (incorporated by reference to Exhibit 10.1 of the Registrant's Quarterly Report on Form 10-Q, filed May 4, 2010). 10.5* Virtus Investment Partners, Inc. Amended and Restated Executive Severance Allowance Plan, effective as of February 2, 2009 (incorporated by reference to Exhibit 10.1 of the Registrant's Current Report on Form 8-K, filed February 4, 2009). 10.6* Form of Non-Qualified Stock Option Agreement under the Virtus Investment Partners, Inc. Omnibus Incentive and Equity Plan (incorporated by reference to Exhibit 10.4 of the Registrant's Quarterly Report on Form 10-Q, filed May 13, 2009). 10.7* Form of Restricted Stock Units Agreement under the Virtus Investment Partners, Inc. Amended and Restated Omnibus Incentive and Equity Plan. 10.8* Form of Performance Share Units Agreement under the Virtus Investment Partners, Inc. Amended and Restated Omnibus Incentive and Equity Plan. 10.9* Form of Indemnity Agreement (incorporated by reference to Exhibit 10.4 to the Registrant's Quarterly Report on Form 10-Q, filed November 4, 2009). 10.10* Form of Indemnity Agreement. 10.11* Offer Letter from the Registrant to Barry M. Mandinach dated April 4, 2014 (incorporated by reference to Exhibit 10.1 of the Registrant's Quarterly Report on Form 10-Q, filed May 7, 2014). 10.12* Offer Letter from the Registrant to Wendy J. Hills dated July 26, 2019 (incorporated by reference to Exhibit 10.15 of the Registrant’s Annual Report on Form 10-K, filed February 26, 2021). 37 Table of Contents 10.13* Offer Letter from the Registrant to Richard W. Smirl dated April 7, 2021 (incorporated by reference to Exhibit 10.1 of the Registrant's Quarterly Report on Form 10-Q filed May 6, 2021). 10.14 Amended and Restated Credit Agreement, dated as of September 28, 2021, by and among Virtus Investment Partners, Inc. as borrower, Morgan Stanley Senior Funding, Inc. as administrative agent, and the Lenders party thereto (incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K, filed October 4, 2021). (21) Subsidiaries of the Registrant 21.1 Virtus Investment Partners, Inc. Subsidiaries List. (23) Consents of Experts and Counsel 23.1 Consent of Independent Registered Public Accounting Firm. 31.1 Certifications of Registrant's Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certifications of Registrant's Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1 Certifications of Registrant's Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 101 The following information is formatted in iXBRL (Inline Extensible Business Reporting Language): (i) Consolidated Balance Sheets as of December 31, 2022 and December 31, 2021, (ii) Consolidated Statements of Operations for the years ended December 31, 2022, 2021 and 2020, (iii) Consolidated Statements of Comprehensive Income for the years ended December 31, 2022, 2021 and 2020, (iv) Consolidated Statements of Cash Flows for the years ended December 31, 2022, 2021 and 2020, (v) Consolidated Statements of Changes in Stockholders' Equity for the years ended December 31, 2022, 2021 and 2020 and (vi) Notes to Consolidated Financial Statements. 104 Cover page Interactive Data File (embedded within the Inline XBRL document and included in Exhibit 101) * Management contract, compensatory plan or arrangement. The agreements and other documents filed as exhibits to this report are not intended to provide factual information or other disclosure other than the terms of the agreements or other documents themselves, and you should not rely on them for that purpose. In particular, any representations and warranties made by the Company in these agreements or other documents were made solely within the specific context of the relevant agreement or document and may not describe the actual state of affairs at the date they were made or at any other time. Item 16. Form 10-K Summary. None. 38 Table of Contents SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Dated: February 27, 2023 Virtus Investment Partners, Inc. By: /S/ MICHAEL A. ANGERTHAL Michael A. Angerthal Executive Vice President Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated as of February 27, 2023. /S/ TIMOTHY A. HOLT /S/ GEORGE R. AYLWARD Timothy A. Holt Director and Non-Executive Chairman George R. Aylward President, Chief Executive Officer and Director (Principal Executive Officer) /S/ PETER L. BAIN /S/ SUSAN S. FLEMING Peter L. Bain Director Susan S. Fleming, Ph.D. Director /S/ PAUL G. GREIG /S/ MELODY L. JONES Paul G. Greig Director Melody L. Jones Director /S/ W. HOWARD MORRIS /S/ STEPHEN T. ZARRILLI W. Howard Morris Director Stephen T. Zarrilli Director /S/ MICHAEL A. ANGERTHAL Michael A. Angerthal Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) 39 Table of Contents INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page Report of Independent Registered Public Accounting Firm F- 2 Audited Consolidated Financial Statements Consolidated Balance Sheets as of December 31, 2022 and 2021 F- 6 Consolidated Statements of Operations for the Years Ended December 31, 2022, 2021, and 2020 F- 7 Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2022, 2021 and 2020 F- 8 Consolidated Statements of Changes in Stockholders' Equity for the Years Ended December 31, 2022, 2021 and 2020 F- 9 Consolidated Statements of Cash Flows for the Years Ended December 31, 2022, 2021 and 2020 F- 10 Notes to Consolidated Financial Statements F- 12 F-1 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the shareholders and the Board of Directors of Virtus Investment Partners, Inc. Opinions on the Financial Statements and Internal Control over Financial Reporting We have audited the accompanying consolidated balance sheets of Virtus Investment Partners, Inc. and subsidiaries (the "Company") as of December 31, 2022 and 2021, the related consolidated statements of operations, comprehensive income, changes in stockholders’ equity, and cash flows, for each of the three years in the period ended December 31, 2022, and the related notes (collectively referred to as the "financial statements"). We also have audited the Company’s internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO. Basis for Opinions The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express an opinion on these financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures to respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. F-2 Table of Contents Critical Audit Matters The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. Valuation of Assets Acquired – Refer to Notes 2 and 4 to the financial statements Critical Audit Matter Description During the year, the Company acquired Stone Harbor Investment Partners, LLC ("Stone Harbor") which was accounted for as a business combination. Management estimated the fair value of the assets acquired using (1) an excess earnings method for the investment management agreements, (2) a royalty savings method for the trade name, and (3) both a royalty savings method and a replacement cost method for the software. The determination required management to make significant estimates and assumptions related to future cash flows and the selection of the discount rates and long-term growth rates for these assets. The inputs used in estimating the fair value are in most cases unobservable and reflect management’s own judgments about the assumptions market participants would use in pricing the assets. Auditing the valuations of the assets acquired involved a high degree of judgment and an increased extent of effort, including involving our internal fair value specialists in evaluating management’s judgments especially as it relates to management’s assumptions of future cash flows, discount rates, and long-term growth rates. How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to the valuation of assets acquired for Stone Harbor included the following, among others: • We tested the design and operating effectiveness of controls over valuation of the assets acquired including controls over management’s projections of future cash flows, discount rates, and long-term growth rates. • We evaluated the reasonableness of significant business assumptions related to future cash flows, by comparing the projections to historical results and certain peer companies. We also held various discussions with accounting personnel and management regarding the business assumptions utilized in the valuation models and, on a sample basis, obtained audit evidence to substantiate the assumptions therein. • With the assistance of our internal fair value specialists we evaluated certain valuation assumptions, including discount rates and long-term growth rates. – We evaluated the reasonableness of the valuation methodologies used by management to determine whether they were consistent with generally accepted valuation practices. – We evaluated the discount rates used by management to determine whether management's discount rate estimates were within our independent range. – We performed an analysis of inflation, economic, and industry growth statistics to determine whether management's long-term growth rate used in the income approach fell within a reasonable range of the market data. – We evaluated the appropriateness of management’s selection of guideline public companies used in developing the discount rates. • We evaluated whether the assumptions used were consistent with evidence obtained in other areas of the audit. Valuation of Contingent Consideration – Refer to Notes 2, 4 and 7 to the financial statements Critical Audit Matter Description The Company periodically enters into contingent payment arrangements in connection with its business combinations or asset acquisitions. Contingent payment obligations related to business combinations are recorded at fair value upon acquisition and are remeasured at fair value each reporting date. During the year, the contingent payment obligations associated with the 2022 acquisition of Stone Harbor and the 2021 acquisitions of NFJ Investment Group (“NFJ”) and Westchester Capital Management (“Westchester”) were valued to reflect remeasurement and payments made, if applicable, and changes were recorded in the F-3 Table of Contents current period as a gain or loss. Management uses simulation models to determine the fair value of the Company's estimated contingent liability given the variable nature of the arrangements and the significant management judgments in estimating revenue projections, market rate assumptions, discount rates, and risk volatility assumptions. Contingent payment obligations related to asset acquisitions, if estimable and probable of payment, are initially recorded at their estimated value and reviewed every reporting period for changes. During the year, the contingent payment obligations associated with the 2021 asset acquisition as part of the strategic partnership with Allianz Global Investors (“AllianzGI”) was valued to reflect remeasurement and payments made, if applicable, and changes were recorded in the current period as updates to the initial acquisition cost. The valuations of the AllianzGI, NFJ, Westchester, and Stone Harbor contingent payment obligations use unobservable inputs and reflect management’s own judgments about the assumptions market participants would use in pricing the liabilities. Auditing the estimates involved a high degree of auditor judgment and an increased extent of effort. For the fair value of the business combination contingent consideration, our internal fair value specialists were engaged to evaluate management’s judgments utilized within the simulation model related to revenue projections, market rate assumptions, discount rates, and risk volatility assumptions. How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to the valuation of the contingent consideration liability for the AllianzGI, NFJ, Westchester, and Stone Harbor acquisitions included the following, among others: • We tested the design and operating effectiveness of controls over management’s valuation of the contingent consideration liability. • We held discussions with accounting personnel and management regarding the revenue projections utilized in the valuation models. We confirmed that the products included in the revenue projections utilized in the valuation models agreed to those within the respective acquisition agreements. • For the AllianzGI acquisition, we evaluated the methodology used to calculate the estimated value of the contingent payment obligations to confirm it was appropriate for an asset acquisition and confirmed that the amounts recorded were based on the revenue projections and the contractual payment rate. • With the assistance of our internal fair value specialists, we performed the below procedures related to the NFJ, Westchester, and Stone Harbor contingent consideration liability: – We evaluated the valuation methodology used by management to determine whether they were consistent with generally accepted valuation practices. – We estimated the fair value of the contingent liability through the preparation of independent simulation models developed from the underlying acquisition agreements and using independently sourced input data. We compared the fair value estimate produced by our independent model to the model prepared by management. – We evaluated the appropriateness of management’s selection of guideline public companies used for market rate and risk volatility assumptions and the discount rates used by management in the simulation model. • We evaluated whether the assumptions used were consistent with evidence obtained in other areas of the audit. Consolidation — Consolidation of Investment Products - Refer to Notes 2 and 21 to the financial statements Critical Audit Matter Description The Company is required to consolidate investment products to which it provides investment management services when it (1) has a majority voting interest in an investment product that is a voting interest entity (VOE) or otherwise has the power to govern the financial and operating policies of the entity; or (2) it is considered the primary beneficiary of an investment product that is a variable interest entity (VIE). Management is required to evaluate whether an investment product is a VOE or a VIE upon its initial involvement with the investment product, or the occurrence of a reconsideration event. This assessment involves management’s judgment and is determined based on a variety of factors including the capital structure of the investment product, the investment product’s activities, the equity investment at risk, and the proportionate voting and economic interests of the investors in the investment product including the Company. For each investment product that is considered a VIE, management performs a primary beneficiary analysis to determine if it holds a controlling financial interest in the investment product. A controlling financial interest is defined as (a) the power to direct the activities of a VIE that most significantly impact the VIE's economic performance and (b) the obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE. Management’s evaluation of these two criteria involves judgments to analyze the F-4 Table of Contents governing documents of the investment product. The level of judgment required may vary in significance based on the complexity of the voting rights and structure economic interests of the investment product and the facts and circumstances of the Company’s investment. This required a high degree of auditor judgment and an increased extent of effort to evaluate management’s conclusions related to the power criterion and the economics criterion, including characterizing rights as protective or participating and evaluating all variable interests for the potential significance of economic exposure in the entity. How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to testing the consolidation assessment of VIEs included the following, among others: • We tested the design and operating effectiveness of controls over management’s review of the consolidation analysis of new or modified investment products during the year. • We read and analyzed the governing documents (including the collateral management agreement, preference share subscription agreement and credit agreement, if applicable) of each investment product to assess management’s conclusions. Our procedures included evaluating the following: – Key facts included in management’s consolidation analysis are consistent with the governing documents and the Company’s interests in the investment products; – Relevant terms impacting the consolidation analysis under GAAP were considered including the evaluation of whether the investment product is a VOE or VIE; – Judgments made by management based on the capital structure of the investment product, the investment product’s activities, the equity investment at risk, and the proportionate voting and economic interests of the investors in the investment product including the Company were appropriate; – The determined primary beneficiary of those investment products possesses both (1) the power to direct activities of the VIE and (2) the obligation to absorb losses or the right to receive benefits from the VIE. /s/ DELOITTE & TOUCHE LLP Hartford, Connecticut February 27, 2023 We have served as the Company's auditor since 2018. F-5 Table of Contents Virtus Investment Partners, Inc. Consolidated Balance Sheets (in thousands, except share data) December 31, 2022 December 31, 2021 Assets: Cash and cash equivalents $ 338,234 $ 378,921 Investments 100,330 108,890 Accounts receivable, net 99,274 123,873 Assets of consolidated investment products ("CIP") Cash and cash equivalents of CIP 250,301 206,620 Cash pledged or on deposit of CIP 644 604 Investments of CIP 2,190,113 2,140,238 Other assets of CIP 45,445 44,210 Furniture, equipment and leasehold improvements, net 19,123 12,542 Intangible assets, net 442,519 500,571 Goodwill 348,836 338,406 Deferred taxes, net 23,171 19,204 Other assets 94,944 60,102 Total assets $ 3,952,934 $ 3,934,181 Liabilities and Equity Liabilities: Accrued compensation and benefits $ 181,805 $ 187,449 Accounts payable and accrued liabilities 33,200 48,496 Dividends payable 15,812 14,824 Contingent consideration (Note 4) 128,400 162,564 Debt 255,025 266,346 Other liabilities 87,827 60,225 Liabilities of CIP Notes payable of CIP 2,083,314 2,033,617 Securities purchased payable and other liabilities of CIP 230,897 185,068 Total liabilities 3,016,280 2,958,589 Commitments and Contingencies (Note 12) Redeemable noncontrolling interests 113,718 138,965 Equity: Equity attributable to Virtus Investment Partners, Inc.: Common stock, $ 0.01 par value, 1,000,000,000 shares authorized; 12,033,247 shares issued and 7,181,554 shares outstanding at December 31, 2022 and 11,906,747 shares issued and 7,506,151 shares outstanding at December 31, 2021 120 119 Additional paid-in capital 1,286,244 1,276,424 Retained earnings (accumulated deficit) 130,261 60,962 Accumulated other comprehensive income (loss) ( 358 ) 20 Treasury stock, at cost, 4,851,693 and 4,400,596 shares at December 31, 2022 and December 31, 2021, respectively ( 599,248 ) ( 509,248 ) Total equity attributable to Virtus Investment Partners, Inc. 817,019 828,277 Noncontrolling interests 5,917 8,350 Total equity 822,936 836,627 Total liabilities and equity $ 3,952,934 $ 3,934,181 The accompanying notes are an integral part of these consolidated financial statements. F-6 Table of Contents Virtus Investment Partners, Inc. Consolidated Statements of Operations Years Ended December 31, (in thousands, except per share data) 2022 2021 2020 Revenues Investment management fees $ 728,339 $ 781,585 $ 505,338 Distribution and service fees 67,518 90,555 38,425 Administration and shareholder service fees 85,862 102,531 59,463 Other income and fees 4,660 4,563 670 Total revenues 886,379 979,234 603,896 Operating Expenses Employment expenses 371,259 358,230 267,299 Distribution and other asset-based expenses 112,612 141,039 77,010 Other operating expenses 126,178 90,134 69,896 Other operating expenses of consolidated investment products ("CIP") 4,408 3,562 10,585 Change in fair value of contingent consideration 8,020 12,400 — Restructuring expense 4,015 — 1,155 Depreciation expense 3,923 3,900 4,660 Amortization expense 58,504 44,481 30,127 Total operating expenses 688,919 653,746 460,732 Operating Income (Loss) 197,460 325,488 143,164 Other Income (Expense) Realized and unrealized gain (loss) on investments, net ( 12,489 ) 3,907 7,139 Realized and unrealized gain (loss) of CIP, net ( 39,296 ) ( 1,761 ) ( 1,965 ) Other income (expense), net ( 153 ) 4,230 1,876 Total other income (expense), net ( 51,938 ) 6,376 7,050 Interest Income (Expense) Interest expense ( 13,173 ) ( 9,240 ) ( 11,894 ) Interest and dividend income 4,448 1,364 1,367 Interest and dividend income of investments of CIP 107,325 90,080 109,648 Interest expense of CIP ( 80,234 ) ( 60,398 ) ( 85,437 ) Total interest income (expense), net 18,366 21,806 13,684 Income (Loss) Before Income Taxes 163,888 353,670 163,898 Income tax expense (benefit) 57,260 90,835 43,935 Net Income (Loss) 106,628 262,835 119,963 Noncontrolling interests 10,913 ( 54,704 ) ( 40,006 ) Net Income (Loss) Attributable to Virtus Investment Partners, Inc. $ 117,541 $ 208,131 $ 79,957 Earnings (Loss) per Share-Basic $ 15.90 $ 27.13 $ 10.49 Earnings (Loss) per Share-Diluted $ 15.50 $ 26.01 $ 10.02 Weighted Average Shares Outstanding-Basic 7,391 7,672 7,620 Weighted Average Shares Outstanding-Diluted 7,582 8,003 7,976 The accompanying notes are an integral part of these consolidated financial statements. F-7 Table of Contents Virtus Investment Partners, Inc. Consolidated Statements of Comprehensive Income Years Ended December 31, (in thousands) 2022 2021 2020 Net Income (Loss) $ 106,628 $ 262,835 $ 119,963 Other comprehensive income (loss), net of tax: Foreign currency translation adjustment, net of tax of $ 135 , $ 3 and $( 7 ) for the years ended December 31, 2022, 2021 and 2020, respectively ( 378 ) ( 9 ) 20 Other comprehensive income (loss) ( 378 ) ( 9 ) 20 Comprehensive income (loss) 106,250 262,826 119,983 Comprehensive (income) loss attributable to noncontrolling interests 10,913 ( 54,704 ) ( 40,006 ) Comprehensive income (loss) attributable to Virtus Investment Partners, Inc. $ 117,163 $ 208,122 $ 79,977 The accompanying notes are an integral part of these consolidated financial statements. F-8 Table of Contents Virtus Investment Partners, Inc. Consolidated Statements of Changes in Stockholders' Equity Permanent Equity Temporary Equity Common Stock Preferred Stock Additional Paid-in Capital Retained Earnings (Accumulated Deficit) Accumulated Other Comprehensive Income (Loss) Treasury Stock Total Attributed To Virtus Investment Partners, Inc. Non- controlling Interests Total Equity Redeemable Non- controlling Interests (in thousands, except share data) Shares Par Value Shares Amount Shares Amount Balances at December 31, 2019 6,809,280 $ 107 1,150,000 $ 110,843 $ 1,199,205 $ ( 215,216 ) $ 9 3,927,607 $ ( 419,249 ) $ 675,699 $ 10,558 $ 686,257 $ 63,845 Net income (loss) — — — — — 79,957 — — — 79,957 1,298 81,255 38,708 Foreign currency translation adjustments — — — — — — 20 — — 20 — 20 — Net subscriptions (redemptions) and other — — — — ( 167 ) — — — — ( 167 ) ( 2,057 ) ( 2,224 ) 12,960 Conversion of preferred stock 912,806 9 ( 1,150,000 ) ( 110,843 ) 110,834 — — — — — — — — Cash dividends declared ($ 2.98 per common share) — — — — ( 24,998 ) — — — — ( 24,998 ) — ( 24,998 ) — Repurchase of common shares ( 279,796 ) — — — — — — 279,796 ( 32,500 ) ( 32,500 ) — ( 32,500 ) — Issuance of common shares related to employee stock transactions 141,176 2 — — 184 — — — — 186 — 186 — Taxes paid on stock-based compensation — — — — ( 6,608 ) — — — — ( 6,608 ) — ( 6,608 ) — Stock-based compensation — — — — 19,552 — — — — 19,552 — 19,552 — 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) — — — — — 208,131 — — — 208,131 817 208,948 53,887 Foreign currency translation adjustments — — — — — — ( 9 ) — — ( 9 ) — ( 9 ) — Net subscriptions (redemptions) and other — — — — — — — — — ( 2,266 ) ( 2,266 ) ( 30,435 ) Cash dividends declared ($ 4.64 per common share) — — — — ( 25,312 ) ( 11,910 ) — — ( 37,222 ) — ( 37,222 ) — Repurchase of common shares ( 193,193 ) — — — — — — 193,193 ( 57,499 ) ( 57,499 ) — ( 57,499 ) — Issuance of common shares related to employee stock transactions 115,878 1 — — 65 — — — — 66 — 66 — Taxes paid on stock-based compensation — — — — ( 19,509 ) — — — — ( 19,509 ) — ( 19,509 ) — Stock-based compensation — — — — 23,178 — — — — 23,178 — 23,178 — 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) — — — — — 117,541 — — — 117,541 ( 765 ) 116,776 ( 10,148 ) Foreign currency translation adjustments — — — — — — ( 378 ) — — ( 378 ) — ( 378 ) — Net subscriptions (redemptions) and other — — — — 2,035 — — — 2,035 ( 1,668 ) 367 ( 15,099 ) Cash dividends declared ($ 6.30 per common share) — — — — — ( 48,242 ) — — ( 48,242 ) — ( 48,242 ) — Repurchase of common shares ( 451,097 ) — — — — — — 451,097 ( 90,000 ) ( 90,000 ) — ( 90,000 ) — Issuance of common shares related to employee stock transactions 126,500 1 — — ( 1 ) — — — — — — — — Taxes paid on stock-based compensation — — — — ( 16,830 ) — — — — ( 16,830 ) — ( 16,830 ) — Stock-based compensation — — — — 24,616 — — — — 24,616 — 24,616 — Balances at December 31, 2022 7,181,554 $ 120 — $ — $ 1,286,244 $ 130,261 $ ( 358 ) 4,851,693 $ ( 599,248 ) $ 817,019 $ 5,917 $ 822,936 $ 113,718 The accompanying notes are an integral part of these consolidated financial statements. F-9 Table of Contents Virtus Investment Partners, Inc. Consolidated Statements of Cash Flow Years Ended December 31, (in thousands) 2022 2021 2020 Cash Flows from Operating Activities: Net income (loss) $ 106,628 $ 262,835 $ 119,963 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation expense, intangible asset and other amortization 64,215 50,769 38,853 Stock-based compensation 24,042 26,225 21,481 Amortization of deferred commissions 4,342 3,956 2,052 Payments of deferred commissions ( 2,065 ) ( 5,963 ) ( 2,089 ) Equity in earnings of equity method investments ( 187 ) ( 4,403 ) ( 1,964 ) Realized and unrealized (gains) losses on investments, net 13,105 ( 2,721 ) ( 7,128 ) Distributions from equity method investments 2,244 3,710 1,192 Sales (purchases) of investments, net ( 9,309 ) ( 7,952 ) 12,296 (Gain) loss on extinguishment of debt — — ( 705 ) Change in fair value of contingent consideration 8,020 12,400 — Deferred taxes, net ( 1,960 ) ( 9,664 ) 6,332 Right of use asset 3,222 — — Changes in operating assets and liabilities: Accounts receivable, net and other assets 37,548 ( 30,057 ) ( 9,698 ) Accrued compensation and benefits, accounts payable, accrued liabilities and other liabilities ( 47,379 ) 72,628 13,743 Operating activities of consolidated investment products ("CIP"): Realized and unrealized (gains) losses on investments of CIP, net 36,054 ( 4,264 ) ( 5,889 ) Purchases of investments by CIP ( 939,017 ) ( 1,176,936 ) ( 1,304,723 ) Sales of investments by CIP 820,497 1,454,591 883,888 Net proceeds (purchases) of short-term investments and securities sold short by CIP ( 13 ) 16,272 ( 934 ) Change in other assets and liabilities of CIP 6,813 ( 856 ) ( 3,942 ) Amortization of discount on notes payable of CIP 5,870 5,159 11,169 Net cash provided by (used in) operating activities 132,670 665,729 ( 226,103 ) Cash Flows from Investing Activities: Capital expenditures and other asset purchases ( 6,582 ) ( 5,838 ) ( 1,043 ) Change in cash and cash equivalents of CIP due to consolidation (deconsolidation), net ( 308 ) ( 13,559 ) 9,724 Acquisition of business, net of cash acquired of $ 8,443 and $ 1,197 for the years ended December 31, 2022 and 2021, respectively ( 20,577 ) ( 155,636 ) — Net cash provided by (used in) investing activities ( 27,467 ) ( 175,033 ) 8,681 F-10 Table of Contents Years Ended December 31, (in thousands) 2022 2021 2020 Cash Flows from Financing Activities: Refinancing of credit agreement — 81,155 — Payment of long-term debt ( 12,750 ) ( 12,513 ) ( 79,086 ) Payment of contingent consideration ( 33,036 ) — — Payment of deferred financing costs — ( 7,039 ) — Repurchase of common shares ( 90,000 ) ( 57,499 ) ( 32,500 ) Preferred stock dividends paid — — ( 2,084 ) Common stock dividends paid ( 47,254 ) ( 31,411 ) ( 22,800 ) Taxes paid related to net share settlement of restricted stock units ( 16,830 ) ( 19,443 ) ( 6,445 ) Affiliate equity sales (purchases) ( 11,089 ) — — Net contributions from (distributions to) noncontrolling interests ( 5,527 ) ( 3,270 ) ( 7,263 ) Financing activities of CIP Borrowings by CIP 306,296 363,539 779,982 Payments on borrowings by CIP ( 191,867 ) ( 557,919 ) ( 394,472 ) Net cash provided by (used in) financing activities ( 102,057 ) ( 244,400 ) 235,332 Effect of exchange rate changes on cash, cash equivalents and restricted cash ( 112 ) — — Net increase (decrease) in cash and cash equivalents 3,034 246,296 17,910 Cash, cash equivalents and restricted cash, beginning of year 586,145 339,849 321,939 Cash, cash equivalents and restricted cash, end of year $ 589,179 $ 586,145 $ 339,849 Supplemental Disclosure of Cash Flow Information Interest paid $ 11,134 $ 6,478 $ 8,857 Income taxes paid, net 74,313 95,411 35,388 Supplemental Disclosure of Non-Cash Investing and Financing Activities Conversion of preferred stock to common stock — — 115,000 Common stock dividends payable 11,850 11,261 6,218 Contingent consideration 1,200 150,164 — Increase (decrease) to noncontrolling interests due to consolidation (deconsolidation) of CIP, net ( 338 ) ( 30,550 ) 17,137 December 31, (in thousands) 2022 2021 Reconciliation of cash, cash equivalents and restricted cash Cash and cash equivalents $ 338,234 $ 378,921 Cash of consolidated investment products 250,301 206,620 Cash pledged or on deposit of consolidated investment products 644 604 Cash, cash equivalents and restricted cash at end of year $ 589,179 $ 586,145 The accompanying notes are an integral part of these consolidated financial statements. F-11 Table of Contents Virtus Investment Partners, Inc. Notes to Consolidated Financial Statements 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, as amended ("U.S. retail funds" or "variable insurance 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. 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. Summary of Significant Accounting Policies Principles of Consolidation and Basis of Presentation The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"). The 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 entity ("VIEs") in which the Company has a variable interest for consolidation. A VIE is an entity in which either (i) the equity investment at risk is not sufficient to permit the entity to finance its own activities without additional financial support or (ii) where as a group, the holders of the equity investment at risk do not possess: (x) the power through voting or similar rights to direct the activities that most significantly impact the entity's economic performance; (y) the obligation to absorb expected losses or the right to receive expected residual returns of the entity; or (z) proportionate voting and economic interests and where substantially all of the entity's activities either involve or are conducted on behalf of an investor with disproportionately fewer voting rights. If an entity has any of these characteristics, it is considered a VIE and is required to be consolidated by its primary beneficiary. The primary beneficiary is the entity that has both the power to direct the activities that most significantly impact the VIE's economic performance and has the obligation to absorb losses of, or the right to receive benefits from, the VIE that could potentially be significant to the VIE. See Note 21 for additional information related to the consolidation of investment products. Intercompany accounts and transactions have been eliminated. Noncontrolling Interests Noncontrolling interests - CIP Noncontrolling interests - CIP represent third-party investments in the Company's CIP and are classified as redeemable noncontrolling interests on the Consolidated Balance Sheets because investors in those products are able to request withdrawal at any time. Noncontrolling interests - affiliate Noncontrolling interests - affiliate represent minority interests held in a consolidated affiliate. These interests 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 Consolidated Balance Sheets and any changes in the estimated redemption value are recorded on the Consolidated Statements of Operations within noncontrolling interests. F-12 Table of Contents Notes to Consolidated Financial Statements—(Continued) Use of Estimates The preparation of the consolidated financial statements requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosures of contingent assets and liabilities at the dates of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Management believes the estimates used in preparing the consolidated financial statements are reasonable and prudent. Actual results could differ from those estimates. Segment Information Accounting Standards Codification ("ASC") 280, Segment Reporting , establishes disclosure requirements relating to operating segments in annual and interim financial statements. Operating segments are defined as components of an enterprise about which separate financial information is available that is regularly evaluated by the chief operating decision maker in deciding how to allocate resources to the segment and assess its performance. The Company's Chief Executive Officer is the Company's chief operating decision maker. The Company operates in one business segment, namely as an asset manager providing investment management and related services for individual and institutional clients. Although the Company provides disclosures regarding assets under management and other asset flows by product, the Company's determination that it operates in one business segment is based on the fact that the same investment professionals manage both retail and institutional products, operational resources support multiple products, such products have the same or similar regulatory framework and the Company's chief operating decision maker reviews the Company's financial performance on a consolidated level. Investment managers within the Company are generally not aligned with a specific product type. Cash and Cash Equivalents Cash and cash equivalents consist of cash in banks and money market fund investments. Restricted Cash The Company considers cash and cash equivalents of CIP and cash pledged or on deposit of CIP to be restricted as it is not available to the Company for its general operations. Investments Investment Securities - Fair Value Investment securities - fair value consist of investments in the Company's sponsored funds and separately managed accounts and are carried at fair value in accordance with ASC 320, Investments-Debt and Equity Securities ("ASC 320"), and Topic 321, Investments-Equity Securities ("ASC 321"). These securities are marked to market based on the respective publicly quoted net asset values of the funds or market prices of the equity securities or bonds. Transactions in these securities are recorded on a trade date basis. Any unrealized appreciation or depreciation on investment securities is reported on the Consolidated Statement of Operations within realized and unrealized gain (loss) on investments. Equity Method Investments Equity method investments consist of Company investments in noncontrolled entities, where the Company does not hold a controlling financial interest but has the ability to significantly influence operating and financial matters. Equity method investments are accounted for in accordance with ASC 323, Investments-Equity Method and Joint Ventures . Under the equity method of accounting, the Company's share of the noncontrolled entities' net income or loss is recorded in other income (expense), net on the Consolidated Statements of Operations. Distributions received reduce the Company's investment. The investment is evaluated for impairment if events or changes indicate that the carrying amount exceeds its fair value. If the carrying amount of an investment does exceed its fair value and the decline in fair value is deemed to be other-than-temporary, an impairment charge will be recorded. Non-qualified Retirement Plan Assets and Liabilities The Company has a non-qualified retirement plan (the "Excess Incentive Plan") that allows certain employees to voluntarily defer compensation. Assets held in trust, which are considered investment securities, are included in investments at fair value in accordance with ASC 820, Fair Value Measurement ("ASC 820"); the associated obligations to participants, which approximate the fair value of the associated assets, are included in other liabilities on the Consolidated Balance Sheets . See Note 6 for additional information related to the Excess Incentive Plan. F-13 Table of Contents Notes to Consolidated Financial Statements—(Continued) Furniture, Equipment and Leasehold Improvements, Net Furniture, equipment and leasehold improvements are recorded at cost. Depreciation is computed using the straight-line method over the estimated useful lives of three to seven years for furniture and office equipment and three to five years for computer equipment and software. Leasehold improvements are depreciated over the shorter of the remaining estimated lives of the related leases or useful lives of the improvements. Major renewals or betterments are capitalized, and recurring repairs and maintenance are expensed as incurred. Leases The Company leases office space and equipment under various leasing arrangements. In accordance with Accounting Standards Update ("ASU") 2016-02, Leases, the Company's leases are evaluated and classified as either financing leases or operating leases, as appropriate. The Company recognizes a lease liability and a corresponding right of use ("ROU") asset on the commencement date of any lease arrangement. The lease liability is initially measured at the present value of the future lease payments over the lease term using the rate implicit in the arrangement or, if not readily determinable, the Company's incremental borrowing rate. The Company determines its incremental borrowing rate through market sources, including relevant industry rates. A ROU asset is measured initially as the value of the lease liability plus initial direct costs and prepaid lease payments, and less lease incentives received. Lease expense is recognized on a straight-line basis over the lease term and is recorded within other operating expenses on the Consolidated Statement of Operations. Goodwill and Intangible Assets Goodwill represents the excess of the purchase price of business combinations over the identified assets and liabilities acquired. In accordance with ASC 350, Goodwill and Other Intangible Assets, goodwill is not amortized. The Company has a single reporting unit for the purpose of assessing potential impairments of goodwill. An impairment analysis of goodwill is performed annually or more frequently, if warranted by events or changes in circumstances affecting the Company's business. The Company follows ASU 2011-08, Testing Goodwill for Impairment, which provides the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of events or circumstances, it is determined that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the two-step impairment test is unnecessary. The Company's 2022 and 2021 annual goodwill impairment analysis did not result in any impairment charges. Definite-lived intangible assets are comprised of certain fund investment advisory contracts, trade names, non-competition agreements and software. These assets are amortized on a straight-line basis over the estimated useful lives of such assets, which range from 4 to 16 years. Definite-lived intangible assets are evaluated for impairment on an ongoing basis whenever events or circumstances indicate that the carrying value of the definite-lived intangible asset may not be recoverable. The Company determines if impairment has occurred by comparing estimates of future undiscounted cash flows to the carrying value of assets. Assets are considered impaired, and an impairment is recorded, if the carrying value exceeds the expected future undiscounted cash flows. Indefinite-lived intangible assets are comprised of certain trade names and fund investment advisory contracts. These assets are tested for impairment annually or when events or changes in circumstances indicate the assets might be impaired. The Company follows ASU 2012-02, Testing Indefinite-Lived Intangible Assets for Impairment , which provides the option to perform a qualitative assessment of indefinite-lived intangible assets other than goodwill for impairment to determine if additional impairment testing is necessary. The Company's 2022 and 2021 annual indefinite-lived intangible assets impairment analysis did not result in any impairment charges. Contingent Consideration The Company periodically enters into contingent payment arrangements in connection with its business combinations or asset purchases. In contingent payment arrangements, the Company agrees to pay additional transaction consideration to the seller based on future performance. The Company estimates the value of estimated future payments of these potential future obligations at the time a business combination or asset purchase is consummated. Liabilities under contingent payment arrangements are recorded within contingent consideration on the Consolidated Balance Sheets. Contingent payment obligations related to business combinations are remeasured at fair value each reporting date using a simulation model with the assistance of an independent valuation firm and approved by management (level 3 fair value measurement). The change in fair value is recorded in the current period as a gain or loss. Gains and losses resulting from F-14 Table of Contents Notes to Consolidated Financial Statements—(Continued) changes in the fair value of contingent payment obligations are reflected within change in fair value of contingent consideration on the Consolidated Statements of Operations. Contingent payment obligations related to our asset purchases, if estimable and probable of payment, are initially recorded at their estimated value and reviewed every reporting period for changes. Any changes to the estimated value are recorded as an update of the initial acquisition cost of the asset with a corresponding change to the estimated contingent payment obligation on the Consolidated Balance Sheets. Treasury Stock Treasury stock is accounted for under the cost method and is included as a deduction from equity on the Stockholders' Equity section of the Consolidated Balance Sheets. Upon any subsequent resale, the treasury stock account is reduced by the cost of such stock. Revenue Recognition 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 The Company provides investment management services pursuant to investment management agreements through its investment advisers (each an "Adviser"). Investment management services represent a series of distinct daily services that are performed over time. Fees earned on funds are based on each fund's average daily or weekly net assets and are generally calculated and received on a monthly basis. The Company records investment management fees net of the fees paid to unaffiliated subadvisers, as the Company is deemed to be the agent of the fund as it relates to the day-to-day investment management services performed by unaffiliated subadvisers, with the Company's performance obligation being to arrange for the provision of that service and not control the specified service before it is performed. Amounts paid to unaffiliated subadvisers for the years ended December 31, 2022, 2021 and 2020 were $ 77.0 million, $ 115.5 million and $ 38.6 million, respectively. Retail separate account fees are generally earned based on the end of the preceding or current quarter's asset values. Institutional account fees are generally earned based on an average of daily or month-end balances or the current quarter's asset values. Fees for structured finance products, for which the Company acts as the collateral manager, consist of senior, subordinated and, in certain instances, incentive management fees. Senior and subordinated management fees are earned at a contractual fee rate applied against the end of the preceding quarter par value of the total collateral being managed with subordinated fees being earned only after certain portfolio criteria are met. Incentive fees on certain of the Company's collateralized loan obligations ("CLOs") are typically a percentage of the excess cash flows available to holders of the subordinated notes, above a threshold level internal rate of return. Distribution and Service Fees Distribution and service fees are sales- and asset-based fees earned from open-end funds, for marketing and distribution services. Depending on the fund type or share class, these fees primarily consist of an asset-based fee that is paid by the fund over a period of years to cover allowable sales and marketing expenses, or front-end sales charges that are based on a percentage of the offering price. Asset-based distribution and service fees are primarily earned as percentages of the average daily net assets value and are paid monthly pursuant to the terms of the respective distribution and service fee contracts. Distribution and service fees represent two performance obligations comprised of distribution and related shareholder servicing activities. Distribution services are generally satisfied upon the sale of a fund share. Shareholder servicing activities are generally services satisfied over time. The Company distributes its open-end funds through unaffiliated financial intermediaries that comprise national, regional and independent broker-dealers. These unaffiliated financial intermediaries provide distribution and shareholder service F-15 Table of Contents Notes to Consolidated Financial Statements—(Continued) activities on behalf of the Company. The Company passes related distribution and service fees to these unaffiliated financial intermediaries for these services and considers itself the principal in these arrangements since it has control of the services prior to the services being transferred to the customer. These payments are classified within distribution and other asset-based expenses. Administration and Shareholder Service Fees The Company provides administrative fund services to its U.S. retail funds, ETFs and the majority of its closed-end funds and shareholder services to its open-end funds. Administration and shareholder services are performed over time. The Company earns fees for these services, which are calculated and paid monthly, based on each fund's average daily or weekly net assets. Administrative fund 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. The Company also provides office space, equipment and personnel that may be necessary for managing and administering the business affairs of the funds. Shareholder services include maintaining shareholder accounts, processing shareholder transactions, preparing filings and performing necessary reporting. Other Income and Fees Other income and fees primarily represent fees related to other fee earning assets and contingent sales charges earned from investor redemptions of certain shares sold without a front-end sales charge. Stock-based Compensation The Company accounts for stock-based compensation expense in accordance with ASC 718, Compensation—Stock Compensation ("ASC 718"), which requires the measurement and recognition of compensation expense for share-based awards based on the estimated fair value on the date of grant. Restricted stock units ("RSUs") are stock awards that entitle the holder to receive shares of the Company's common stock as the award vests over time or when certain performance metrics are achieved. The fair value of each RSU award is based on the fair market value price on the date of grant unless it contains a performance metric that is considered a "market condition." Compensation expense for RSU awards is recognized ratably over the vesting period on a straight-line basis. The value of RSUs that contain a performance metric ("PSUs") is determined based on (i) the fair market value price on the date of grant, for awards that contain a performance metric that represents a "performance condition" in accordance with ASC 718 or (ii) the Monte Carlo simulation valuation model for awards that contain a "market condition" performance metric under ASC 718. 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. Compensation expense for PSU awards that contain a market condition is fixed at the date of grant and is not adjusted in future periods based upon the achievement of the market condition. Income Taxes The Company accounts for income taxes in accordance with ASC 740, Income Taxes ("ASC 740"), which requires recognition of the amount of taxes payable or refundable for the current year as well as deferred tax assets and liabilities for temporary differences between the tax basis of assets and liabilities and the reported amounts on the Consolidated Financial Statements. The Company's methodology for determining the realizability of deferred tax assets includes consideration of taxable income in prior carryback year(s), if carryback is permitted under the tax law, as well as consideration of the reversal of deferred tax liabilities that are in the same period and jurisdiction and are of the same character as the temporary differences that gave rise to the deferred tax assets. The Company's methodology also includes estimates of future taxable income from its operations as well as the expiration dates and amounts of carry-forwards related to net operating losses and capital losses. These estimates are projected through the life of the related deferred tax assets based on assumptions that the Company believes to be reasonable and consistent with demonstrated operating results. Unanticipated changes in future operating results may have a significant impact on the realization of deferred tax assets. Valuation allowances are provided when it is determined that it is more likely than not that the benefit of deferred tax assets will not be realized. F-16 Table of Contents Notes to Consolidated Financial Statements—(Continued) Comprehensive Income The Company reports all changes in comprehensive income on the Consolidated Statements of Changes in Stockholders' Equity and the Consolidated Statements of Comprehensive Income. Comprehensive income includes net income (loss) and foreign currency translation adjustments (net of tax). 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. Fair Value Measurements and Fair Value of Financial Instruments ASC 820, Fair Value Measurement, establishes a framework for measuring fair value and a valuation hierarchy based upon the transparency of inputs used in the valuation of an asset or liability. The Financial Accounting Standards Board (the "FASB") defines fair value as the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date. Classification within the hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The valuation hierarchy contains three levels as follows: Level 1—Unadjusted quoted prices for identical instruments in active markets. Level 1 assets and liabilities may include debt securities and equity securities that are traded in an active exchange market. Level 2—Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets. Level 2 inputs may include observable market data such as closing market prices provided by independent pricing services after considering factors such as the yields or prices of comparable investments of comparable quality, coupon, maturity, call rights and other potential prepayments, terms and type, reported transactions, indications as to values from dealers and general market conditions. In addition, pricing services may determine the fair value of equity securities traded principally in foreign markets when it has been determined that there has been a significant trend in the U.S. equity markets or in index futures trading. Level 2 assets and liabilities may include debt and equity securities, purchased loans and over-the-counter derivative contracts whose fair value is determined using a pricing model without significant unobservable market data inputs. Level 3—Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable in active exchange markets. 3. Revenues Investment Management Fees by Source The following table summarizes investment management fees by source: Years Ended December 31, (in thousands) 2022 2021 2020 Investment management fees 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 F-17 Table of Contents Notes to Consolidated Financial Statements—(Continued) 4. Acquisitions Stone Harbor Investment Partners On January 1, 2022, the Company acquired Stone Harbor Investment Partners, LLC ("Stone Harbor"), which was accounted for in accordance with ASC 805, Business Combinations ("ASC 805"). Transaction consideration consisted of $ 28.9 million paid in cash 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 transaction consideration of $ 30.1 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 $ 10.3 million and definite-lived intangible assets of $ 10.8 million. The Company expects $ 21.1 million of the purchase price to be tax deductible over 15 years. The revenues and operating income of Stone Harbor were not material to the Company's results of operations for the year ended December 31, 2022. 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 10,259 Other assets 54,264 Total Assets 83,766 Liabilities Accounts payable, accrued and other liabilities 53,713 Total liabilities 53,713 Total Net Assets Acquired $ 30,053 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 multi-period excess earnings 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 fair value estimates were prepared with the assistance of an independent valuation firm. Westchester Capital Management On October 1, 2021, the Company acquired Westchester Capital Management, LLC ("Westchester"), which was accounted for in accordance with ASC 805. Transaction consideration consisted of $ 156.8 million in cash and contingent consideration representing future potential earn-out payments based on pre-established performance metrics related to revenue growth rates, that was recorded as a liability on the Company's Consolidated Balance sheet. Future contingent consideration F-18 Table of Contents Notes to Consolidated Financial Statements—(Continued) payments will be made, if earned, in 2025 and 2026. As of December 31, 2022, the contingent consideration balance was $ 19.9 million. The total transaction consideration of $ 169.3 million 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 year ended December 31, 2021. Fund Adoption and NFJ Investment Group On February 1, 2021, the Company executed 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 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 year ended December 31, 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 the next seven years . Contingent payment obligations related to NFJ, 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 Consolidated Statements of Operations. An estimate of these future payments has been recorded as a liability and included as contingent consideration on the Company's Consolidated Balance Sheets. A payment of $ 33.0 million was made in the first quarter of 2022. The estimated value of the total future revenue participation payments at December 31, 2022 was $ 108.5 million. F-19 Table of Contents Notes to Consolidated Financial Statements—(Continued) 5. Goodwill and Other Intangible Assets 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 of December 31, 2020 $ 489,570 $ ( 252,822 ) $ 236,748 $ 43,516 $ 280,264 Additions/Transfers 266,006 — 266,006 ( 1,218 ) 264,788 Intangible amortization — ( 44,481 ) ( 44,481 ) — ( 44,481 ) Balances of December 31, 2021 755,576 ( 297,303 ) 458,273 42,298 500,571 Additions 10,800 — 10,800 — 10,800 Adjustments ( 10,348 ) — ( 10,348 ) — ( 10,348 ) Intangible amortization — ( 58,504 ) ( 58,504 ) — ( 58,504 ) Balances of December 31, 2022 $ 756,028 $ ( 355,807 ) $ 400,221 $ 42,298 $ 442,519 Activity in goodwill was as follows: Years Ended December 31, (in thousands) 2022 2021 2020 Goodwill Balance, beginning of period $ 338,406 $ 290,366 $ 290,366 Acquisitions 10,430 48,040 — Balance, end of period $ 348,836 $ 338,406 $ 290,366 Definite-lived intangible asset amortization for the next five years and thereafter is estimated as follows: Fiscal Year Amount (in thousands) 2023 $ 56,964 2024 51,322 2025 46,554 2026 45,575 2027 42,473 2028 and Thereafter 157,333 $ 400,221 At December 31, 2022, the weighted average estimated remaining amortization period for definite-lived intangible assets was 8.5 years. F-20 Table of Contents Notes to Consolidated Financial Statements—(Continued) 6. Investments Investments consist primarily of investments in the Company's sponsored products. The Company's investments, excluding the assets of CIP discussed in Note 21, at December 31, 2022 and 2021 were as follows: December 31, (in thousands) 2022 2021 Investment securities - fair value $ 76,999 $ 80,335 Equity method investments (1) 11,448 13,038 Nonqualified retirement plan assets 10,154 13,321 Other investments 1,729 2,196 Total investments $ 100,330 $ 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: December 31, 2022 December 31, 2021 (in thousands) Cost Fair Value Cost Fair Value Investment Securities - fair value: Sponsored funds $ 67,472 $ 62,744 $ 63,090 $ 66,326 Equity securities 13,440 14,255 10,659 14,009 Total investment securities - fair value $ 80,912 $ 76,999 $ 73,749 $ 80,335 For the years ended December 31, 2022, 2021 and 2020, the Company recognized a net realized loss of $ 1.4 million, and gains of $ 5.0 million and $ 4.7 million, respectively, on the sale of its investment securities - fair value. Equity Method Investments The Company's equity method investments primarily consist of a minority investment in an affiliated manager and an investment in a limited partnership. For the years ended December 31, 2022, 2021 and 2020, distributions from equity method investments were $ 2.2 million, $ 3.7 million and $ 1.2 million, respectively. The remaining capital commitment for one of the Company's equity method investments at December 31, 2022 was $ 0.2 million. Nonqualified Retirement Plan Assets The Company's Excess Incentive Plan allows certain employees to voluntarily defer compensation. The Company holds the Excess Incentive Plan assets in a rabbi trust, which is subject to the claims of the Company's creditors in the event of the Company's bankruptcy or insolvency. Each participant is responsible for designating investment options for their contributions, and the ultimate distribution paid to each participant reflects any gains or losses on the assets realized while in the trust. Assets held in trust are included in investments and are carried at fair value utilizing Level 1 valuation techniques in accordance with ASC 320; the associated obligations to participants are included in other liabilities on the Consolidated Balance Sheets . Other Investments Other investments represent interests in entities not accounted for under the equity method such as those accounted for under the cost method. F-21 Table of Contents Notes to Consolidated Financial Statements—(Continued) 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 21, as of December 31, 2022 and 2021, by fair value hierarchy level were as follows: December 31, 2022 (in thousands) Level 1 Level 2 Level 3 Total Assets Cash equivalents $ 287,126 $ — $ — $ 287,126 Investment securities - fair value Sponsored funds 62,744 — — 62,744 Equity securities 14,255 — — 14,255 Nonqualified retirement plan assets 10,154 — — 10,154 Total assets measured at fair value $ 374,279 — $ — $ 374,279 Liabilities Contingent consideration $ — $ — $ 78,100 $ 78,100 Total liabilities measured at fair value $ — $ — $ 78,100 $ 78,100 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 and liabilities 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. F-22 Table of Contents Notes to Consolidated Financial Statements—(Continued) 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. 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: (in thousands) 2022 2021 Contingent consideration, beginning of year $ 88,400 $ — Additions for acquisitions 1,200 96,000 Reduction of liability for payments made ( 19,520 ) ( 20,000 ) Increase (reduction) of liability related to re-measurement of fair value, net 8,020 12,400 Contingent consideration, end of year $ 78,100 $ 88,400 8. Furniture, Equipment and Leasehold Improvements, Net Furniture, equipment and leasehold improvements, net were as follows: December 31, (in thousands) 2022 2021 Leasehold improvements $ 22,657 $ 19,659 Furniture and office equipment 12,389 11,516 Computer equipment and software 5,764 5,142 Subtotal 40,810 36,317 Accumulated depreciation and amortization ( 21,687 ) ( 23,775 ) Furniture, equipment and leasehold improvements, net $ 19,123 $ 12,542 9. Leases All of the Company's leases qualify as operating leases and consist primarily of leases for office facilities, which have remaining initial lease terms ranging from 0.2 to 7.3 years and a weighted average remaining lease term of 5.8 years. The Company has options to renew some of its leases for periods ranging from 3.0 to 10.0 years, depending on the lease. None of the Company's renewal options were considered reasonably assured of being exercised and, therefore, were excluded from the initial lease term used to determine the Company's right-of-use asset and lease liability. The Company's right-of-use asset, recorded in other assets , and lease liability, recorded in other liabilities on the Consolidated Balance Sheets, at December 31, 2022 were $ 64.5 million and $ 77.1 million, respectively. The weighted average discount rate used to measure the Company's lease liability was 3.0 % at December 31, 2022. Lease expense totaled $ 14.0 million, $ 5.6 million and $ 5.1 million for fiscal years 2022, 2021 and 2020, respectively. Cash payments relating to operating leases during 2022 were $ 13.3 million. F-23 Table of Contents Notes to Consolidated Financial Statements—(Continued) Lease liability maturities as of December 31, 2022 were as follows: Fiscal Year Amount (in thousands) 2023 $ 15,383 2024 15,190 2025 14,466 2026 12,578 2027 11,919 Thereafter 14,792 Total lease payments 84,328 Less: Imputed interest 7,191 Present value of lease liabilities $ 77,137 10. Income Taxes The components of the provision for income taxes were as follows: Years Ended December 31, (in thousands) 2022 2021 2020 Current Federal $ 40,113 $ 75,525 $ 27,852 State 19,107 24,974 9,751 Total current tax expense (benefit) 59,220 100,499 37,603 Deferred Federal ( 1,506 ) ( 6,241 ) 3,899 State ( 454 ) ( 3,423 ) 2,433 Total deferred tax expense (benefit) ( 1,960 ) ( 9,664 ) 6,332 Total expense (benefit) for income taxes $ 57,260 $ 90,835 $ 43,935 The following presents a reconciliation of the provision (benefit) for income taxes computed at the federal statutory rate to the provision (benefit) for income taxes recognized on the Consolidated Statements of Operations for the years indicated: Years Ended December 31, (in thousands) 2022 2021 2020 Tax at statutory rate $ 34,416 21 % $ 74,271 21 % $ 34,419 21 % State taxes, net of federal benefit 14,736 9 17,283 5 9,775 6 Excess tax benefits related to share-based compensation ( 2,792 ) ( 1 ) ( 4,095 ) ( 1 ) 239 — Nondeductible compensation 2,356 1 3,461 1 2,686 2 Effect of net (income) loss attributable to noncontrolling interests ( 1,435 ) ( 1 ) ( 2,637 ) ( 1 ) ( 1,939 ) ( 1 ) Change in valuation allowance 9,596 6 1,941 1 ( 1,383 ) ( 1 ) Other, net 383 — 611 — 138 — Income tax expense (benefit) $ 57,260 35 % $ 90,835 26 % $ 43,935 27 % The provision for income taxes reflects U.S. federal, state and local taxes at an effective tax rate of 35 %, 26 % and 27 % for the years ended December 31, 2022, 2021 and 2020, respectively. The Company's tax position for the years ended December 31, 2022, 2021 and 2020 was impacted by changes in the valuation allowance related to the unrealized and realized gains and losses on the Company's investments. Deferred taxes resulted from temporary differences between the amounts reported on the consolidated financial statements and the tax basis of assets and liabilities. The tax effects of temporary differences were as follows: F-24 Table of Contents Notes to Consolidated Financial Statements—(Continued) December 31, (in thousands) 2022 2021 Deferred tax assets: Intangible assets $ 17,773 $ 11,216 Net operating losses 11,881 12,743 Compensation accruals 16,813 17,034 Lease liability 10,026 11,857 Investments 18,283 6,335 Capital losses 2,197 1,083 Other 94 595 Gross deferred tax assets 77,067 60,863 Valuation allowance ( 19,480 ) ( 7,296 ) Gross deferred tax assets after valuation allowance 57,587 53,567 Deferred tax liabilities: Intangible assets ( 24,163 ) ( 21,297 ) Right of use asset ( 7,672 ) ( 9,830 ) Fixed assets ( 1,869 ) ( 1,661 ) Other investments ( 712 ) ( 1,575 ) Gross deferred tax liabilities ( 34,416 ) ( 34,363 ) Deferred tax assets, net $ 23,171 $ 19,204 At each reporting date, the Company evaluates the positive and negative evidence used to determine the likelihood of realization of its deferred tax assets. The Company maintained a valuation allowance in the amount of $ 19.5 million and $ 7.3 million at December 31, 2022 and 2021, respectively, relating to deferred tax assets on items of a capital nature as well as certain state deferred tax assets. As of December 31, 2022, the Company had net operating loss carry-forwards for federal income tax purposes represented by a $ 7.0 million deferred tax asset. The related federal net operating loss carry-forwards are scheduled to begin to expire in the year 2031. As of December 31, 2022, the Company had state net operating loss carry-forwards, varying by subsidiary and jurisdiction, represented by a $ 4.9 million deferred tax asset. Certain state net operating loss carry-forwards are scheduled to begin to expire in 2023. Internal Revenue Code Section 382 ("Section 382") limits tax deductions for net operating losses, capital losses and net unrealized built-in losses after there is a substantial change in ownership in a corporation's stock involving a 50 -percentage point increase in ownership by 5 % or larger stockholders. At December 31, 2022, the Company had pre-change losses represented by deferred tax assets totaling $ 7.8 million that are subject to Section 382 limits. The utilization of these assets is subject to an annual limitation of $ 1.1 million. Activity in unrecognized tax benefits were as follows: Years Ended December 31, (in thousands) 2022 2021 2020 Balance, beginning of year $ 1,235 $ 1,021 $ 1,172 Decrease related to tax positions taken in prior years ( 593 ) — ( 365 ) Increase related to positions taken in the current year 214 214 214 Balance, end of year $ 856 $ 1,235 $ 1,021 If recognized, $ 0.7 million of the $ 0.9 million gross unrecognized tax benefit balance at December 31, 2022 would favorably impact the Company's effective income tax rate. The Company does not expect any significant changes to its liability for unrecognized tax benefits during the next 12 months. F-25 Table of Contents Notes to Consolidated Financial Statements—(Continued) The Company recognizes interest and penalties related to income tax matters within income tax expense. The Company recorded no interest or penalties related to unrecognized tax benefits at December 31, 2022, 2021 and 2020. The earliest federal tax year that remains open for examination is 2019. The earliest open years in the Company's major state tax jurisdictions are 2010 for Connecticut and 2019 for all of the Company's remaining state tax jurisdictions. 11. 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 year ended December 31, 2022, the Company repaid $ 12.8 million outstanding under its Term Loan. At December 31, 2022, $ 261.6 million was outstanding under the Term Loan, and there were no outstanding borrowings under the revolving credit facility. In accordance with ASC 835, Interest , the amounts outstanding under the Company's Term Loan are presented on the Consolidated Balance Sheet net of related debt issuance costs, which were $ 6.6 million as of December 31, 2022. Amounts outstanding under the Credit Agreement bear interest at an annual rate equal to, at the option of the Company, either LIBOR (adjusted for reserves) for interest periods of one, three or six months (or, solely in the case of the revolving credit facility, if agreed to by each relevant Lender, 12 months) or an alternate base rate, in either case plus an applicable margin. The applicable margins are 2.25 %, in the case of LIBOR-based loans, and 1.25 %, in the case of alternate base rate loans. Interest is payable quarterly in arrears with respect to alternate base rate loans and on the last day of each interest period with respect to LIBOR-based loans (but, in the case of any LIBOR-based loan with an interest period of more than three months, at three-month intervals). The Credit Agreement contains LIBOR and other subsequent benchmark successor provisions. The terms of the Credit Agreement require the Company to pay a quarterly commitment fee on the average unused amount of the revolving credit facility. The fee is initially set at 0.50 % and following the first delivery of certain financial reports, will range from 0.375 % to 0.50 %, based on the secured net leverage ratio of the Company as of the last day of the preceding fiscal quarter, as reflected in such financial reports. The Term Loan amortizes at the rate of 1.00 % per annum payable in equal quarterly installments on the last day of each calendar quarter, commencing on December 31, 2021. In addition, the Credit Agreement requires that the Term Loan be mandatorily prepaid with (i) 50 % of the Company’s excess cash flow on an annual basis, stepping down to 25 % if the Company’s secured net leverage ratio declines to 2 :1 or below and stepping down to 0 % if the Company’s secured net leverage ratio declines below 1.5 :1; (ii) 50 % of the net proceeds of certain asset sales, casualty or condemnation events, subject to customary reinvestment rights; and (iii) 100 % of the proceeds of any indebtedness incurred to refinance the term loans or other refinancing indebtedness as well as indebtedness incurred other than indebtedness permitted to be incurred by the Credit Agreement. At any time, upon timely notice, the Company may terminate the Credit Agreement in full, reduce the commitment under the facility in minimum specified increments or prepay loans in whole or in part, subject to the payment of breakage fees with respect to LIBOR-based loans and, in the case of any term loans that are prepaid in connection with a "repricing transaction" occurring within the six-month period following the closing date of the Credit Agreement, a 1.00 % premium. The Credit Agreement contains customary affirmative and negative covenants, including covenants that affect, among other things, the ability of the Company and its subsidiaries to incur additional indebtedness, create liens, merge or dissolve, make investments, dispose of assets, engage in sale and leaseback transactions, make distributions and dividends and prepayments of junior indebtedness, engage in transactions with affiliates, enter into restrictive agreements, amend documentation governing junior indebtedness, modify its fiscal year and modify its organizational documents, subject to customary exceptions, thresholds, qualifications and "baskets." In addition, the Credit Agreement contains a financial performance covenant that is only applicable when greater than 35 % of the revolving credit facility is outstanding, requiring a maximum leverage ratio, as of the last day of each of the four fiscal quarter periods, of no greater than the levels set forth in the Credit Agreement. F-26 Table of Contents Notes to Consolidated Financial Statements—(Continued) Future minimum Term Loan payments (exclusive of any mandatory excess cash flow repayments) as of December 31, 2022 were as follows: Fiscal Year Amount (in thousands) 2023 $ 2,750 2024 2,750 2025 2,750 2026 2,750 2027 2,750 2028 247,813 $ 261,563 12. 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, 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. 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. 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 legal matter will reflect the ultimate outcome, and an adverse outcome in certain matters could have a material adverse effect on the Company's results of operations or cash flows in particular quarterly or annual periods. 13. Equity Transactions Dividends During the first and second quarters of the year ended December 31, 2022, the Board of Directors declared quarterly cash dividends on the Company's common stock of $ 1.50 each. During the third and fourth quarters of the year ended December 31, 2022, the Board of Directors declared quarterly cash dividends on the Company's common stock of $ 1.65 each. Total dividends declared on the Company's common stock were $ 48.2 million for the year ended December 31, 2022. At December 31, 2022, $ 15.8 million was included as dividends payable in liabilities on the Consolidated Balance Sheet representing the fourth quarter dividends to be paid on February 15, 2023 for common stock shareholders of record as of January 31, 2023. Common Stock Repurchases During the year ended December 31, 2022, the Company repurchased 451,097 common shares at a weighted average price of $ 199.48 per share, for a total cost, including fees and expenses, of $ 90.0 million under its share repurchase program. In May 2022, the Company's Board of Directors authorized an additional 750,000 shares under the share repurchase program. As of December 31, 2022, 828,352 shares remain 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. F-27 Table of Contents Notes to Consolidated Financial Statements—(Continued) 14. Accumulated Other Comprehensive Income (Loss) The changes in accumulated other comprehensive income (loss), by component, were as follows: Foreign Currency Translation Adjustments (in thousands) Balance at December 31, 2021 $ 20 Net current-period other comprehensive income (loss) (1) ( 378 ) Balance at December 31, 2022 $ ( 358 ) Foreign Currency Translation Adjustments (in thousands) Balance at December 31, 2020 $ 29 Net current-period other comprehensive income (loss) (1) ( 9 ) Balance at December 31, 2021 $ 20 (1) Consists of foreign currency translation adjustments, net of tax of $ 135 and $ 3 for the years ended December 31, 2022 and 2021, respectively. 15. Retirement Savings Plan The Company sponsors a defined contribution 401(k) retirement plan (the "401(k) Plan") covering all employees who meet certain age and service requirements. Employees may contribute a percentage of their eligible compensation into the 401(k) Plan, subject to certain limitations imposed by the Internal Revenue Code. The Company matches employees' contributions at a rate of 100 % of employees' contributions up to the first 5.0 % of the employees' compensation contributed to the 401(k) Plan. The Company's matching contributions were $ 7.4 million, $ 5.9 million and $ 5.3 million in 2022, 2021 and 2020, respectively. 16. Stock-Based Compensation Equity-based awards, including restricted stock units ("RSUs"), performance stock units ("PSUs"), stock options and unrestricted shares of common stock may be granted to officers, employees and directors of the Company pursuant to the Company's Omnibus Incentive and Equity Plan (the "Omnibus Plan"). At December 31, 2022, 655,343 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: Years Ended December 31, (in thousands) 2022 2021 2020 Stock-based compensation expense $ 24,042 $ 26,225 $ 21,481 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. F-28 Table of Contents Notes to Consolidated Financial Statements—(Continued) RSU activity, inclusive of PSUs, for the year ended December 31, 2022 is summarized as follows: Number of shares Weighted Average Grant Date Fair Value Outstanding at December 31, 2021 430,730 $ 138.01 Granted 185,405 $ 194.46 Forfeited ( 37,666 ) $ 118.26 Settled ( 201,382 ) $ 118.40 Outstanding at December 31, 2022 377,087 $ 178.21 The grant-date intrinsic value of RSUs granted during the year ended December 31, 2022 was $ 36.1 million. Years Ended December 31, (in millions, except per share values) 2022 2021 2020 Weighted-average grant-date fair value per share $ 194.46 $ 268.65 $ 86.73 Fair value of RSUs vested $ 23.8 $ 22.8 $ 21.8 For the years ended December 31, 2022, 2021 and 2020, a total of 79,471 , 73,069 and 68,625 RSUs, respectively, were withheld by the Company as a result of net share settlements to settle minimum employee tax withholding obligations. The Company paid $ 16.8 million, $ 19.5 million and $ 6.5 million for the years ended December 31, 2022, 2021 and 2020, respectively, in minimum employee tax withholding obligations related to RSUs withheld for 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 years ended December 31, 2022 and 2021, the Company granted 30,516 and 26,425 PSUs, respectively, 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, Compensation - Stock Compensation ("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 December 31, 2022 and 2021, unamortized stock-based compensation expense for unvested RSUs and PSUs was $ 27.7 million and $ 24.9 million, respectively, with a weighted average remaining contractual life of 1.0 years and 1.0 years, respectively. The Company did no t capitalize any stock-based compensation expenses during the years ended December 31, 2022, 2021 and 2020. Employee Stock Purchase Plan The Company offers an employee stock purchase plan that allows employees to purchase shares of common stock on the open market at market price through after-tax payroll deductions. The initial transaction fees are paid for by the Company and shares of common stock are purchased on a quarterly basis. The Company does not reserve shares for this plan or discount the purchase price of the shares. 17. Restructuring Expense During the year ended December 31, 2022, the Company incurred $ 4.0 million in in restructuring costs, primarily related to the write-down of right-of-use assets for a lease in conjunction with the consolidation of certain office space. F-29 Table of Contents Notes to Consolidated Financial Statements—(Continued) 18. Earnings (Loss) Per Share The computation of basic and diluted EPS is as follows: Years Ended December 31, (in thousands, except per share amounts) 2022 2021 2020 Net Income (Loss) $ 106,628 $ 262,835 $ 119,963 Noncontrolling interests 10,913 ( 54,704 ) ( 40,006 ) Net Income (Loss) Attributable to Virtus Investment Partners, Inc. $ 117,541 $ 208,131 $ 79,957 Shares (in thousands): Basic: Weighted-average number of shares outstanding 7,391 7,672 7,620 Plus: Incremental shares from assumed conversion of dilutive instruments 191 331 356 Diluted: Weighted-average number of shares outstanding 7,582 8,003 7,976 Earnings (Loss) per Share—Basic $ 15.90 $ 27.13 $ 10.49 Earnings (Loss) per Share—Diluted $ 15.50 $ 26.01 $ 10.02 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. Years Ended Years Ended December 31, (in thousands) 2022 2021 2020 Restricted stock units and stock options 33 3 1 Total anti-dilutive securities 33 3 1 19. Concentration of Credit Risk The following Company clients or sponsored funds provided 10 percent or more of the Company's investment management, administration and shareholder service fee revenues: 2022 2021 2020 Virtus KAR Small Cap Growth Fund * * 10 % * Less than 10 percent of total revenues of the Company 20. Redeemable Noncontrolling Interests Redeemable noncontrolling interests for the year ended December 31, 2022 included the following amounts: (in thousands) CIP Affiliate Noncontrolling Interests Total Balance at December 31, 2021 $ 12,416 $ 126,549 $ 138,965 Net income (loss) attributable to noncontrolling interests ( 1,197 ) 7,507 6,310 Changes in redemption value (1) — ( 16,458 ) ( 16,458 ) Total net income (loss) attributable to noncontrolling interests ( 1,197 ) ( 8,951 ) ( 10,148 ) Affiliate equity sales (purchases) — ( 11,089 ) ( 11,089 ) Net subscriptions (redemptions) and other 7,049 ( 11,059 ) ( 4,010 ) Balance at December 31, 2022 $ 18,268 $ 95,450 $ 113,718 (1) Relates to noncontrolling interests redeemable at other than fair value. 21. Consolidation The consolidated financial statements include the accounts of the Company, its subsidiaries and investment products that are consolidated. VOEs are consolidated when the Company is considered to have a controlling financial interest, which is F-30 Table of Contents Notes to Consolidated Financial Statements—(Continued) 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 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: (i) the power through voting or similar rights to direct the activities that most significantly impact the entity's economic performance, (ii) the obligation to absorb expected losses or the right to receive expected residual returns of the entity, or (iii) 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 consist of CLOs and certain global and private funds 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 Consolidated Balance Sheets as of December 31, 2022 and 2021: As of December 31, 2022 2021 VOEs VIEs VOEs VIEs (in thousands) CLOs Other CLOs Other Cash and cash equivalents $ 1,153 $ 249,003 $ 789 $ 787 $ 205,192 $ 1,245 Investments 24,669 2,106,764 58,680 21,544 2,055,107 63,587 Other assets 295 43,993 1,157 64 43,327 819 Notes payable — ( 2,083,314 ) — — ( 2,033,617 ) — Securities purchased payable and other liabilities ( 573 ) ( 230,141 ) ( 183 ) ( 558 ) ( 184,214 ) ( 296 ) Noncontrolling interests ( 7,879 ) ( 5,917 ) ( 10,389 ) ( 4,935 ) ( 8,350 ) $ ( 7,481 ) Net interests in CIP $ 17,665 $ 80,388 $ 50,054 $ 16,902 $ 77,445 $ 57,874 Consolidated CLOs The majority of the Company's CIP that are VIEs are CLOs. At December 31, 2022, the Company consolidated seven CLOs. The financial information of certain CLOs is included on the Company's 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 $ 2.1 billion at December 31, 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 2023 and 2030 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 December 31, 2022, the fair value of the senior bank loans was less than the unpaid principal balance by $ 146.7 million. At December 31, 2022, there were no material collateral assets in default. F-31 Table of Contents Notes to Consolidated Financial Statements—(Continued) Notes Payable of CLOs The CLOs held notes payable with a total value, at par, of $ 2.4 billion at December 31, 2022, consisting of senior secured floating rate notes payable with a par value of $ 2.1 billion and subordinated notes with a par value of $ 261.2 million. These note obligations bear interest at variable rates based on LIBOR plus a pre-defined spread ranging from 0.8 % to 9.1 %. 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 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 December 31, 2022, as shown in the table below: (in thousands) Subordinated notes $ 78,900 Accrued investment management fees 1,488 Total Beneficial Interests $ 80,388 The following table represents income and expenses of the consolidated CLOs included on the Company's Consolidated Statements of Operations for the period indicated: Year Ended December 31, 2022 (in thousands) Income: Realized and unrealized gain (loss), net $ ( 26,445 ) Interest income 102,968 Total Income $ 76,523 Expenses: Other operating expenses $ 3,826 Interest expense 80,234 Total Expense 84,060 Noncontrolling interests 765 Net Income (loss) attributable to CIP $ ( 6,772 ) 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: Year Ended December 31, 2022 (in thousands) Distributions received and unrealized gains (losses) on the subordinated notes held by the Company $ ( 15,013 ) Investment management fees 8,241 Total Economic Interests $ ( 6,772 ) F-32 Table of Contents Notes to Consolidated Financial Statements—(Continued) Fair Value Measurements of CIP The assets and liabilities of CIP measured at fair value on a recurring basis as of December 31, 2022 and 2021 by fair value hierarchy level were as follows: As of December 31, 2022 (in thousands) Level 1 Level 2 Level 3 Total Assets Cash equivalents $ 249,003 $ — $ — $ 249,003 Debt investments 243 2,119,082 42,246 2,161,571 Equity investments 25,003 2,204 1,335 28,542 Total assets measured at fair value $ 274,249 $ 2,121,286 $ 43,581 $ 2,439,116 Liabilities Notes payable $ — $ 2,083,314 $ — $ 2,083,314 Short sales 414 — — 414 Total liabilities measured at fair value $ 414 $ 2,083,314 $ — $ 2,083,728 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 compensation for services. The fair value of the beneficial interests held by the Company is based on third-party pricing information without F-33 Table of Contents Notes to Consolidated Financial Statements—(Continued) 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 Consolidated Balance Sheets within other liabilities of CIP and are classified as Level 1 based on the underlying equity security. The securities purchased payable at December 31, 2022 and 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. Year Ended December 31, (in thousands) 2022 2021 Level 3 Investments of CIP (1) Balance at beginning of period $ 3,157 $ 54,182 Purchases 4,118 10,708 Sales ( 18,076 ) ( 41,362 ) Amortization 107 98 Change in unrealized gains (losses), net ( 958 ) 2,203 Realized gains (loss), net ( 585 ) ( 301 ) Transfers to Level 2 ( 87,458 ) ( 85,551 ) Transfers from Level 2 143,276 63,180 Balance at end of period $ 43,581 $ 3,157 (1) The investments that are categorized as Level 3 were valued utilizing third-party pricing information without adjustment. Transfers in and/or out of levels are reflected when significant inputs, including market inputs or performance attributes, used for the fair value measurement become observable/unobservable at period end. Nonconsolidated VIEs The Company serves as the collateral manager for other CLOs that are not consolidated. The assets and liabilities of these CLOs reside in bankruptcy remote, special purpose entities in which the Company has no ownership of, nor holds any notes issued by, the CLOs, and provides neither recourse nor guarantees. The Company has determined that the investment management fees it receives for serving as collateral manager for these CLOs 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 CLOs that individually, or in the aggregate, would absorb more than an insignificant amount of the CLOs' expected losses or receive more than an insignificant amount of the CLOs' 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 December 31, 2022, the carrying value and maximum risk of loss related to the Company's interest in these VIEs was $ 26.3 million. 22. Subsequent Events Dividends Declared On February 22, 2023, the Company declared a quarterly cash dividend of $ 1.65 per common share to be paid on May 15, 2023 to shareholders of record at the close of business on April 28, 2023. F-34