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Item 7. Management’s Discussion and Analysis

2024-02-28 compared with 2023-02-27 · 99 added, 148 removed, 381 unchanged (39% of the section changed)

Management's Discussion and Analysis of Financial Condition and Results of Operations.

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

We use a multi-manager, multi-style approach, offering investment strategies from affiliated managers, each having its own distinct investment style, autonomous investment process and individual brand, as well as from select unaffiliated subadvisers for certain of our retail funds.

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

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

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

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

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

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

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

Our retail products include open-end funds, closed-end funds and retail separate accounts.

Our institutional products are offered through separate accounts and pooled or commingled structures to a variety of institutional clients.

We also provide subadvisory services to other investment advisers and serve as the collateral manager for structured products.

We distribute our open-end funds principally through financial intermediaries.

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

Our institutional products are offered through institutional separate accounts and commingled accounts, including structured products to a variety of institutional clients.

Our products include open-end funds, closed-end funds and retail separate accounts.

We also provide subadvisory services to other investment advisers.

Our institutional distribution resources include affiliate-specific sales teams primarily focused on the U.S.

market, supported by shared consultant relations and U.S.

institutional sales distribution.

Our institutional products are marketed through relationships with consultants as well as directly to clients.

We target key market segments, including foundations and endowments, corporations, public and private pension plans, sovereign wealth funds and subadvisory relationships.

Our retail distribution resources in the U.S.

consist of regional sales professionals, a national account relationship group and specialized teams for retirement and ETFs.

retail funds and retail separate accounts are distributed through financial intermediaries.

We have broad distribution access in the U.S.

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In many of these firms, we have a number of products that are on preferred "recommended" lists and on fee-based advisory programs.

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

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

Our institutional services are marketed through relationships with consultants as well as directly to clients.

We target key market segments, including foundations and endowments, corporate, public and private pension plans, and subadvisory relationships.

Our private client business is marketed directly to individual clients by financial advisory teams at our affiliated investment managers.

Market Developments

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

and global equity markets decreased in value in 2022, as evidenced by decreases in major indices as noted in the following table:

and global equity markets increased in value in 2023, as evidenced by increases in major indices as noted in the following table:

December 31, As of Change

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Financial Highlights

▪ Net income per diluted share was $15.50 in 2022, a decrease of $10.51, or 40.4%, as compared to net income per diluted share of $26.01 in 2021.

▪ Net income per diluted share was $17.71 in 2023, an increase of $2.21, or 14.3%, compared to net income per diluted share of $15.50 in 2022.

▪ Total sales were $25.9 billion in 2023, a decrease of $4.4 billion, or 14.6%, from $30.3 billion in 2022.

Net flows were $(7.2) billion in 2023 compared to $(13.4) billion in 2022.

▪ Assets under management were $149.4 billion at December 31, 2022, a decrease of $37.8 billion, or 20.2%, from $187.2 billion at December 31, 2021.

On October 19, 2022, the Company entered into an agreement to acquire AlphaSimplex Group, LLC ("AlphaSimplex"), a leading manager of liquid alternative investment solutions.

Under the agreement, the Company would acquire 100% of AlphaSimplex for $130.0 million at closing, which includes deferred retention incentives for management.

The transaction is expected to close near the end of the first quarter of 2023, subject to customary closing conditions, necessary regulatory approvals, and client approvals, including approvals by the fund boards and fund shareholders.

Stone Harbor Investment Partners

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

Westchester Capital Management

On October 1, 2021, the Company acquired Westchester Capital Management, LLC ("Westchester"), a recognized leader in global event-driven strategies with $5.1 billion of assets under management at September 30, 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 NFJ Investment Group ("NFJ") was established as a new affiliated investment manager, and the Company became the investment adviser, distributor and/or administrator for $29.5 billion of AGI's open-end, closed-end, institutional and retail separate account assets.

▪ Assets under management were $172.3 billion at December 31, 2023, an increase of $22.9 billion, or 15.3%, from $149.4 billion at December 31, 2022.

On April 1, 2023, the Company completed the acquisition of AlphaSimplex Group, LLC ("AlphaSimplex") for $113.4 million in cash at closing, including $50.0 million drawn from the Company's revolving credit facility, that was repaid as of December 31, 2023.

Assets Under Management

At December 31, 2022, total assets under management were $149.4 billion, representing a decrease of $37.8 billion, or 20.2%, from December 31, 2021.

The change in total assets under management from December 31, 2021 included $37.1 billion of negative market performance and $13.4 billion of net outflows partially offset by $14.7 billion in assets under management from the addition of Stone Harbor.

At December 31, 2023, total assets under management were $172.3 billion, representing an increase of $22.9 billion, or 15.3%, from December 31, 2022.

The change in total assets under management from December 31, 2022 included $24.8 billion from positive market performance and $7.8 billion from the acquisition of AlphaSimplex, partially offset by $7.2 billion of net outflows.

Assets Under Management by Product

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Institutional Accounts (2) 62,969 50,663 12,306 24.3 %

Total Assets Under Management $ 149,376 $ 187,186 $ (37,810) (20.2) %

Total $ 172,259 $ 149,376 $ 22,883 15.3 %

Average Assets Under Management (3) $ 161,482 $ 166,795 $ (5,313) (3.2) %

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– Funds - average daily or weekly balances

– Retail Separate Accounts - average of prior-quarter ending balances

– Retail Separate Accounts - prior-quarter ending balances

– Institutional Accounts - average of month-end balances

The following table summarizes asset flows by product:

Asset Flows by Product

The following table summarizes asset flows by product:

Years Ended December 31,

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(3) Represents assets under management of institutional separate and commingled accounts including structured products.

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

Assets Under Management by Asset Class

The following table summarizes assets under management by asset class:

December 31, Change % of Total

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Total $ 172,259 $ 149,376 $ 22,883 15.3 % 100.0 % 100.0 %

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

(1) Consists of strategies and client accounts with substantial holdings in at least two of the following asset classes:

equity, fixed income, and alternatives.

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

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

Average Assets Under Management and Average Fees Earned

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

The average fee rate earned for 2022 on all products decreased by 1.3 basis points compared to the prior year primarily due to a lower proportion of assets under management in equity products as a result of negative equity markets in the year partially offset by a higher proportion of alternative assets.

The average fee rate earned on all products for 2023 increased by 0.6 basis points compared to the prior year primarily due to the addition of alternative strategies with higher fee rates from the AlphaSimplex acquisition.

Investment Performance

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Alternatives 59% 94% 98%

(1) Excludes non-rated funds, closed-end funds, private client accounts, structured products and certain other multi-asset strategies.

(2) Percentage beating benchmark is reported as the percentage of assets under management that have outperformed benchmarks across the indicated periods.

(1) Excludes closed-end funds, private client accounts, structured products and certain other multi-asset strategies.

(2) Percentage beating benchmark is reported as the percentage of assets under management that have outperformed benchmarks across the indicated periods and does not include assets without benchmarks.

Performance is presented on an average annual total return basis for products with a three-, five-, and/or ten-year track record, is net of fees and is measured on a consistent basis relative to the most appropriate benchmarks.

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Earnings (loss) per share-diluted $ 17.71 $ 15.50 $ 2.21 14.3 %

In 2022, total revenues decreased $92.9 million, or 9.5%, to $886.4 million from $979.2 million in 2021 primarily as a result of lower average assets under management due to negative market performance and net outflows partially offset by the addition of assets under management from Stone Harbor and Westchester.

Operating income decreased by $128.0 million, or 39.3%, to $197.5 million in 2022 from $325.5 million in 2021 due to the previously mentioned factors.

In 2023, total revenues decreased $41.1 million, or 4.6%, to $845.3 million from $886.4 million in 2022, and operating income decreased by $46.0 million, or 23.3%, to $151.5 million in 2023 from $197.5 million in 2022, primarily as a result of lower average assets under management.

Revenues by source were as follows:

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Investment Management Fees

Investment management fees are earned based on a percentage of assets under management and are paid pursuant to the terms of the respective investment management contracts, which generally require monthly or quarterly payments.

Investment management fees decreased by $53.2 million, or 6.8%, for the year ended December 31, 2022, due to lower average assets under management and a lower average fee rate.

Investment management fees are earned based on a percentage of assets under management and are paid pursuant to the terms of the respective investment management agreements, which generally require monthly or quarterly payments.

Investment management fees decreased by $16.9 million, or 2.3%, for the year ended December 31, 2023 compared to the prior year, primarily due to lower average assets under management, partially offset by the addition of AlphaSimplex.

Distribution and Service Fees

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

Distribution and service fees decreased by $23.0 million, or 25.4%, for the year ended December 31, 2022, primarily due to lower sales for open-end funds in share classes that have sales-based distribution and service fees.

Distribution and service fees decreased by $11.4 million, or 16.8%, for the year ended December 31, 2023 compared to the prior year, primarily due to lower average assets for open-end funds in share classes that have sales- and asset-based distribution and service fees.

Administration and Shareholder Service Fees

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retail funds, ETFs and certain closed-end funds.

Fund administration and shareholder service fees decreased by $16.7 million, or 16.3%, for the year ended December 31, 2022 compared to the prior year, primarily due to the decrease in average assets under management for our open- and closed-end funds during the period as a result of market performance and net outflows in our open-end funds.

Fund administration and shareholder service fees decreased by $12.0 million, or 14.0%, for the year ended December 31, 2023 compared to the prior year, primarily due to the decrease in average assets under management in open-end funds during the period as a result of market performance and net outflows.

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.

Other income and fees increased modestly during the year ended December 31, 2022 compared to the prior year.

Other income and fees decreased $0.9 million, or 18.8%, for the year ended December 31, 2023 compared to the prior year, primarily due to lower redemption income as well as the decline in average other fee-earning assets in the current year.

Operating Expenses

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

Employment expenses of $371.3 million increased $13.0 million, or 3.6%, from the prior year primarily due to the addition of Stone Harbor and Westchester and increased salary expense partially offset by a decrease in profit-based compensation in the current year.

Employment expenses of $404.7 million increased $33.5 million, or 9.0%, from the prior year primarily due to the addition of AlphaSimplex, which included retention payments to employees incurred as part of the transaction consideration that were classified as employment expense.

Distribution and Other Asset-Based Expenses

Distribution and other asset-based expenses consist primarily of payments to third-party client intermediaries for providing services to investors in sponsored investment products.

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

These payments are primarily based on assets under management.

Distribution and other asset-based expenses also include the amortization of deferred sales commissions related to up-front commissions on shares sold without a front-end sales charge to shareholders.

The deferred sales commissions are amortized on a straight-line basis over the period commissions are recovered from distribution fee revenues and contingent sales charges received upon redemption of shares.

Distribution and other asset-based expenses decreased $28.4 million, or 20.2%, compared to the prior year primarily due to lower sales and a decrease in assets under management in share classes that have sales- and asset-based distribution and other asset-based expenses.

Distribution and other asset-based expenses decreased $15.8 million, or 14.0%, compared to the prior year primarily due to a decrease in average assets under management in share classes that have asset-based distribution and other asset-based expenses.

Other Operating Expenses

Other operating expenses primarily consist of investment research and technology costs, professional fees, travel and distribution-related costs, rent and occupancy expenses, and other business costs.

Other operating expenses increased $36.0 million, or 40.0%, for the year ended December 31, 2022 as compared to the prior year primarily due to the addition of Stone Harbor and Westchester, as well as higher travel and related expenses.

Other operating expenses decreased modestly by $0.3 million, or 0.2%, for the year ended December 31, 2023 as compared to the prior year primarily due to a decrease in other third-party support costs partially offset by the addition of AlphaSimplex.

Other Operating Expenses of CIP

Other operating expenses of CIP increased $0.8 million, or 23.8%, for the year ended December 31, 2022 compared to the prior year primarily due to the costs associated with the issuance of a new CLO in the current year that did not occur in the prior year.

Restructuring Expense

Restructuring expense consists primarily of costs incurred during the year ended December 31, 2022 related to the write-down of right-of-use assets for a lease in conjunction with the consolidation of certain office space.

Other operating expenses of CIP remained consistent during the year ended December 31, 2023 compared to the prior year.

Change in Fair Value of Contingent Consideration

Contingent consideration related to the NFJ, Westchester and Stone Harbor transactions are remeasured at fair value each reporting date taking into consideration changes in various estimates, including underlying performance estimates, discount rates and amount of time until the conditions of the contingent payments are achieved.

Contingent consideration related to the Company's acquisitions are fair valued on each reporting date incorporating changes in various estimates, including underlying performance estimates, discount rates and amount of time until the conditions of the contingent payments are achieved.

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

The decrease in the change in fair value of contingent consideration of $4.4 million in 2022 compared to the prior year was primarily attributable to future revenue projections and the time value of money.

The $13.5 million change in fair value of contingent consideration for the year ended December 31, 2023 as compared to the prior year was primarily attributable to changes in underlying performance estimates and discount rates.

Depreciation Expense

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

Depreciation expense remained consistent in 2022 compared to the prior year.

Depreciation expense increased $1.9 million, or 47.9%, for the year ended December 31, 2023 compared to the prior year primarily due to the addition of AlphaSimplex, as well as leasehold improvements and equipment purchases made in the current year.

Amortization Expense

Amortization expense consists of the amortization of definite-lived intangible assets over their estimated useful lives.

Amortization expense increased $14.0 million, or 31.5%, for the year ended December 31, 2022 compared to the prior year due to the additional amortization associated with the acquisitions of Stone Harbor and Westchester.

Amortization expense increased $2.5 million, or 4.3%, for the year ended December 31, 2023 compared to the prior year, primarily due to the addition of AlphaSimplex.

Other Income (Expense), net

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Realized and unrealized gain (loss) on investments, net changed during the year ended December 31, 2023 by $19.0 million as compared to the prior year.

The realized and unrealized gains and losses during the year ended December 31, 2022 reflected changes in overall market conditions experienced during the year.

The realized and unrealized gains and losses reflect changes in overall market conditions for the year.

Realized and Unrealized Gain (Loss) of CIP, net

Realized and unrealized gain (loss) of CIP, net changed $36.9 million compared to the prior year.

The change for the current year consisted primarily of net realized and unrealized losses of $140.5 million due to changes in market values of leveraged loans, partially offset by unrealized gains of $103.0 million related to the value of the notes payable.

The change for the current year consisted primarily of net realized and unrealized gains of $145.8 million primarily due to changes in market values of leveraged loans, partially offset by changes in net realized and unrealized losses of $108.9 million related to the value of the notes payable.

Other Income (Expense), net

Other income (expense), net decreased by $4.4 million during the year ended December 31, 2022 compared to the prior year primarily due to lower equity method investment income during the current year.

Other income (expense), net changed by $0.3 million during the year ended December 31, 2023 compared to the prior year primarily due to changes in the gains and losses on our equity method investments.

Interest Income (Expense), net

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Interest Expense

Interest expense increased $3.9 million, or 42.6%, for the year ended December 31, 2022 compared to the prior year primarily due to higher interest rates on our debt.

Interest expense increased $10.3 million, or 77.9%, for the year ended December 31, 2023, compared to the prior year primarily due to higher average interest rates and higher average debt balances during the current year.

Interest and Dividend Income

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

Interest and dividend income increased $3.1 million, or 226.1%, compared to the prior year due to higher average investment balances and higher interest rates during the current year compared to the prior year.

Interest and dividend income increased $8.0 million, or 180.1%, compared to the prior year due to higher average investment balances and higher

interest rates during the current year compared to the prior year.

Interest and Dividend Income of Investments of CIP

Interest and dividend income of investments of CIP increased $17.2 million, or 19.1%, compared to the prior year primarily due to higher average interest rates in the current year and the addition of a new CLO in the current year.

Interest and dividend income of investments of CIP increased $90.4 million, or 84.2%, compared to the prior year primarily attributable to higher interest earned on cash balances.

Interest Expense of CIP

Interest expense of CIP represents interest expense on the notes payable of CIP.

Interest expense of CIP increased by $19.8 million, or 32.8%, compared to the prior year primarily due to higher average interest rates during the current year and the addition of a new CLO in the current year.

Interest expense of CIP increased by $75.1 million, or 93.6%, compared to the prior year primarily due to higher average interest rates and the addition of a CLO during the third quarter of 2023 and fourth quarter of 2022.

Income Tax Expense (Benefit)

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federal, state and local taxes at an estimated effective tax rate of 24.2% and 34.9% for 2023 and 2022, respectively.

The higher estimated effective tax rate for 2022 was primarily due to valuation allowances recorded in the current year for the tax effects of unrealized losses on certain Company investments.

The lower estimated effective tax rate for 2023 was primarily due to excess tax benefits associated with stock-based compensation and the change in valuation allowances in the current year related to the tax effects of unrealized gains on certain of our investments.

The higher effective tax rate in the prior year was due to valuation allowances recorded for the tax effects of unrealized losses on certain of our investments.

Effects of Inflation

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Uses of Capital

Our main uses of capital related to operating activities comprise employee compensation and related benefit costs, which include annual incentive compensation, other operating expenses, which primarily consist of investment research, technology costs, professional fees, distribution and occupancy costs, interest on our indebtedness, and income taxes.

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

Our operating expenses consist of employee compensation and related benefit costs and, other operating expenses, which primarily consist of investment research, technology costs, professional fees, distribution and occupancy costs, as well as interest on our indebtedness and income taxes.

Annual incentive compensation, the largest annual operating cash expenditure, is paid in the first quarter of the year.

In 2023 and 2022, we paid approximately $142.1 million and $151.6 million, respectively, in incentive compensation earned during the years ended December 31, 2022 and 2021, respectively.

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We operate an SEC-registered broker-dealer subsidiary that is subject to certain rules regarding minimum net capital.

The broker-dealer is required to maintain a ratio of "aggregate indebtedness" to "net capital," as defined, which may not exceed 15 to 1 and must also maintain a minimum amount of net capital.

Failure to meet these requirements could result in adverse consequences to us, including additional reporting requirements, a lower required ratio of aggregate indebtedness to net capital, or interruption of our business.

At December 31, 2022, the ratio of aggregate indebtedness to net capital of our broker-dealer was below the maximum allowed, and net capital was significantly greater than the required minimum.

Failure to meet these requirements could result in adverse consequences to us, including additional reporting requirements, or interruption of our business.

At December 31, 2023, our broker-dealer net capital was significantly greater than the required minimum.

Balance Sheet

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Investments consist primarily of investments in our sponsored funds.

CIP represent investment products for which we provide investment management services and where we have either a controlling financial interest or we are considered the primary beneficiary of an investment product that is considered a variable interest entity.

CIP represent investment products for which we provide investment management services and where we have either a controlling financial interest or are considered the primary beneficiary of an investment product that is considered a variable interest entity.

Operating Cash Flow

Cash flows provided by operating activities of $132.7 million for 2022 decreased by $533.1 million from cash flows provided by operating activities of $665.7 million in 2021 primarily due to a $396.2 million reduction in net sales of investments by CIP and a decrease in accrued compensation and other liability balances compared to the prior year.

Net cash provided by operating activities of $237.2 million for 2023 increased by $104.5 million from cash flows provided by operating activities of $132.7 million in 2022 primarily due to a decrease of $117.4 million in net purchases of investments by CIP.

Investing Cash Flow

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

Net cash used in investing activities of $27.5 million for 2022 decreased by $147.6 million from net cash used in investing activities of $175.0 million in 2021.

The decrease in cash used in investing activities during 2022 compared to the prior year related to the decrease in cash paid for acquisitions.

Net cash used in investing activities was $129.7 million for 2023 compared to net cash used in investing activities of $27.5 million in 2022.

The increase in cash used in investing activities during 2023 compared to the prior year was primarily due to the cash used for the acquisition of AlphaSimplex.

Financing Cash Flow

Cash flows from financing activities consist primarily of transactions related to our common shares, issuance and repayment of debt by us and CIP, payments of contingent consideration and changes to noncontrolling interests.

Net cash used in financing activities decreased by $142.3 million to net cash outflows of $102.1 million in 2022 compared to net cash outflows of $244.4 million in the prior year.

The decrease in the current year was primarily due to a decrease in net borrowings of CIP of $308.8 million partially offset by an increase in contingent consideration payments of $33.0 million and an increase in repurchases of common shares of $32.5 million in the current year.

Net cash used in financing activities increased by $254.1 million to $356.1 million in 2023 from $102.1 million in the prior year.

The increase in cash used in financing activities during 2023 compared to the prior year was primarily due to an increase of $315.1 million in net borrowings by CIP, partially offset by a $45.0 million decrease in common share repurchases during the year ended December 31, 2023 as compared to the prior year.

Credit Agreement

The Company's credit agreement, as amended (the "Credit Agreement"), comprises (i) a $275.0 million term loan with a seven-year term (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 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 Accounting Standards Codification ("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.

Impact of New Accounting Standards

The Company's credit agreement (the "Credit Agreement"), most recently amended on June 20, 2023 to change the base interest rate from LIBOR to SOFR, comprises (i) a $275.0 million term loan with a seven-year term (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.

On April 3, 2023, the Company borrowed $50.0 million under the revolving credit facility to partially finance its acquisition of

AlphaSimplex (see Note 4 for further information) and repaid the entire outstanding balance prior to December 31, 2023.

In addition, the Company repaid $2.8 million outstanding under the Term Loan.

At December 31, 2023, $258.8 million was outstanding under the Term Loan.

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 $5.4 million as of December 31, 2023.

Recently Issued Accounting Pronouncements

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

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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.

If an entity has any of these characteristics, it is considered a VIE and is consolidated by its primary beneficiary, which 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.

CIP includes both VOEs, made up primarily of open-end funds in which we hold a controlling financial interest, and VIEs, which primarily consist of CLOs of which we are considered the primary beneficiary.

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Noncontrolling interests - CIP

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

Noncontrolling interests - CIP represent third-party investments in 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.

Minority interests held in an affiliate are subject to holder put rights and our call rights at established multiples of earnings before interest, taxes, depreciation and amortization and, as such, are considered redeemable at other than fair value.

These 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.

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

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

Fair Value Measurements and Fair Value of Financial Instruments

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.

ASC 820, Fair Value Measurement ("ASC 820") , 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.

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 – 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.

The following is a discussion of the valuation methodologies used for our assets measured at fair value:

Cash equivalents represent investments in money market funds.

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

Sponsored funds represent investments in open- and closed-end funds for which we act as the investment manager.

The fair value of U.S.

retail funds, global funds and variable insurance 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 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 a nonqualified retirement plan whose fair value is determined based on their published net asset value and are categorized as Level 1.

Contingent consideration represents liabilities associated with our business combinations.

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.

Investments of CIP 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 of CIP represent notes issued by CIP CLOs we consolidate and are measured using the measurement alternative in Accounting Standards Update 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 adjustment.

Short sales of CIP 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.

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

Minority interests held in the affiliate are subject to holder put rights and Company call rights at established multiples of earnings before interest, taxes, depreciation and amortization and, as such, are considered redeemable at other than fair value.

The rights are exercisable at pre-established intervals 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.

These minority interests in the affiliate are recorded at estimated redemption value within redeemable noncontrolling interests on the Company's Consolidated Balance Sheets, and any changes in the estimated redemption value are recorded on the Consolidated Statements of Operations within noncontrolling

As of December 31, 2023, the carrying value of goodwill was $397.1 million.

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As of December 31, 2023, the carrying value of indefinite-lived intangible assets was $42.3 million.

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

Indefinite-lived intangible assets comprise certain fund investment management agreements and trade names.

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

We completed our annual impairment assessment of these assets as of October 31, 2023, and no impairments were identified.

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

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

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

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As of December 31, 2023, the carrying value of definite-lived intangible assets was $389.8 million.

Definite-lived intangible assets comprise certain fund investment advisory contracts, trade names and non-competition agreements.

Definite-lived intangible assets comprise certain investment management agreements, trade names and non-competition agreements.

We monitor the useful lives of definite-lived intangible assets and revise the useful lives, if necessary, based on the circumstances.

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Our revenues are recognized when a performance obligation is satisfied, which occurs when control of the services is transferred to customers.

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

The net asset values from which

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

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.

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

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

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

Amounts paid to unaffiliated subadvisers for the years ended December 31, 2023, 2022 and 2021 were $54.7 million, $77.0 million and $115.5 million, respectively.

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

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

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

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

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

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

In certain instances,

institutional fees may include performance related fees that are based on investment returns relative to benchmarks.

Fees for structured finance products consist of senior, subordinated and, in certain instances, incentive management fees.

Senior and subordinated management fees are based on the end of the preceding quarter par value of the collateral managed with subordinated fees being earned only after certain portfolio criteria are met.

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

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

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

As of December 31, 2022, our total assets under management by fair value hierarchy level, as defined by ASC 820, were approximately 72.2% Level 1, 27.6% Level 2 and 0.2% Level 3.

Distribution and Service Fees

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We provide administrative fund services to our U.S.

retail funds, ETFs and the majority of our closed-end funds and shareholder services to our open-end funds.

retail funds, ETFs and the majority of our closed-end funds and shareholder services to our U.S.

retail funds.

Administration and shareholder services are performed over time.

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Our methodology also includes estimates of future taxable income from operations, as well as the expiration dates and amounts of carryforwards 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 we believe to be reasonable and consistent with demonstrated operating results.

These estimates are projected through the life of the related deferred tax assets based on

assumptions that we believe to be reasonable and consistent with demonstrated operating results.

Changes in future operating results not currently forecasted may have a significant impact on the realization of deferred tax assets.

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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.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis