BRIGHTSPHERE INVESTMENT GROUP INC. Unless we state otherwise or the context otherwise requires, references in this Annual Report on Form 10-K to the "Company", "BrightSphere" or "BSIG" refer toBrightSphere Investment Group Inc. , and references to "we," "our" and "us" refer to BSIG and its consolidated subsidiaries and previously disposed equity-accounted Affiliate, excluding discontinued operations. References to the holding company or "Center" excluding the Affiliates refer toBrightSphere Inc. , or BSUS, aDelaware corporation and indirect, wholly owned subsidiary of BSIG. Unless we state otherwise or the context otherwise requires, references in this Annual Report on Form 10-K to "Affiliates" or an "Affiliate" refer to the asset management firms in which we have or previously had an ownership interest. References in this Annual Report on Form 10-K to "OM plc " refer toOld Mutual plc , our former parent. None of the information in this Annual Report on Form 10-K constitutes either an offer or a solicitation to buy or sell Acadian's products or services, nor is any such information a recommendation for Acadian's products or services. The following discussion of our financial condition and results of operations should be read in conjunction with our Consolidated Financial Statements and related notes which appear in this Annual Report on Form 10-K in Item 8, Financial Statements and Supplementary Data. This discussion contains forward-looking statements that involve risks and uncertainties. See "Special Note Regarding Forward-Looking Statements" for more information. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those discussed below and elsewhere in this Annual Report on Form 10-K. This Management's Discussion and Analysis of Financial Condition and Results of Operations, or MD&A, is designed to provide a reader of our financial statements with a narrative from the perspective of our management on our financial condition, results of operations, liquidity and certain other factors that may affect our future results.
Our MD&A is presented in five sections:
•Overview provides a brief description of our business. It includes information on our reporting segment and underlying Affiliate, a summary of The Economics of Our Business and an explanation of How We Measure Performance using a non-GAAP measure which we refer to as economic net income, or ENI. This section also provides a Summary Results of Operations and information regarding our Assets Under Management by Affiliate, strategy, client type and client location, and net flows by segment, client type and client location. •U.S. GAAP Results of Operations for the years endedDecember 31, 2022 , 2021 and 2020 includes an explanation of changes in ourU.S. GAAP revenue, expense, and other items over the last three years as well as keyU.S. GAAP operating metrics. •Non-GAAP Supplemental Performance Measure-Economic Net Income and Segment Analysis includes an explanation of the key differences betweenU.S. GAAP net income and ENI, the key measure management uses to evaluate our performance. This section also provides a reconciliation betweenU.S. GAAP net income and ENI for the years endedDecember 31, 2022 , 2021 and 2020, as well as a reconciliation of key ENI operating items including ENI revenue and ENI operating expenses. This section also provides key Non-GAAP operating metrics and a calculation of tax on economic net income. In addition, this section provides analysis for our business segment. •Capital Resources and Liquidity discusses our key balance sheet data. This section discusses Cash Flows from the business; Working Capital and Long-Term Debt; Adjusted EBITDA; Future Capital Needs; and Commitments, Contingencies and Off-Balance Sheet Obligations. The discussion of Adjusted EBITDA includes an explanation of how we calculate Adjusted EBITDA and a reconciliation ofU.S. GAAP net income attributable to controlling interests to Adjusted EBITDA. 35 -------------------------------------------------------------------------------- •Critical Accounting Policies and Estimates provides a discussion of the key accounting policies and estimates that we believe are the most critical to an understanding of our results of operations and financial condition. These accounting policies and estimates require complex management judgment regarding matters that are highly uncertain at the time policies were applied and estimates were made.
Overview
We are a global asset management holding company headquartered inBoston, Massachusetts . We historically held interests in a group of investment management firms (the "Affiliates") individually headquartered inthe United States . We have completed the disposition of certain Affiliates and currently operate our business through the following segment: •Quant & Solutions-comprised of versatile, often highly-tailored strategies that leverage data and technology in a computational, factor-based investment process across a range of asset classes in developed and emerging markets, including global, non-U.S. and small-cap equities, as well as managed volatility, ESG, multi-asset, equity alternatives, and long/short strategies. This segment is comprised of our interest in our sole Affiliate,Acadian Asset Management LLC ("Acadian").
Through Acadian, we offer a diverse range of actively-managed investment strategies and products to institutional investors around the globe.
The corporate head office is included within the Other category, along with our previously disposed Affiliate,Campbell Global, LLC ("Campbell Global") for the years endedDecember 31, 2021 and 2020. We completed the sale of our equity interest in Campbell Global inAugust 2021 .Investment Counselors of Maryland, LLC ("ICM") is also included in the Other category for the year endedDecember 31, 2021 . We completed the sale of our equity interests in ICM inJuly 2021 . The corporate head office expenses are not allocated to the Company's business segment but the Chief Operating Decision Maker ("CODM") does consider the cost structure of the corporate head office when evaluating the financial performance of our segment. The following previously divested Affiliates are included in the Liquid Alpha segment for the year endedDecember 31, 2020 :Barrow Hanley, Mewhinney & Strauss LLC ("Barrow"),Copper Rock Capital Partners ("Copper Rock") and ICM. UnderU.S. GAAP, Acadian is consolidated into our financial statements. We may also be required to consolidate Acadian's sponsored investment entities, or Funds, due to the nature of our decision-making rights, our economic interests in these Funds or the rights of third party clients in those Funds. 36
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The Economics of Our Business
Our profitability is affected by a variety of factors including the level and composition of our average assets under management, or AUM, fee rates charged on AUM and our expense structure. We earn management fees based on assets under management. Approximately 80% of our management fees are calculated based on average AUM (calculated on either a daily or monthly basis) with the remainder of our management fees calculated based on period-end AUM. Changes in the levels of our AUM are driven by market investment performance and net client cash flows. We may also earn performance fees, or adjust management fees, when certain accounts differ in relation to relevant benchmarks or exceed or fail to exceed required returns. Approximately$11.9 billion , or 13%, of our AUM are in accounts with incentive fee features in which we participate in the performance fee. The majority of these performance fees are calculated based on value added over the relevant benchmarks on a rolling one-year basis. Our largest expense item is compensation and benefits paid to our employees, which consists of both fixed and variable components. Fixed compensation and benefits represents base salaries and wages, payroll taxes and the costs of our employee benefit programs. Variable compensation, calculated as described below, may be awarded in cash, equity or profit interests.
The arrangements in place with Acadian result in the sharing of economics between BSUS and Acadian's key management personnel using a profit-sharing model. Profit sharing affects two elements within our earnings: (i) the calculation of variable compensation and (ii) the level of Acadian's equity or profit interests distribution to its employees.
Variable compensation is the portion of earnings that is contractually allocated to Acadian employees as a bonus pool, typically representing a percentage of earnings before variable compensation, which is measured as revenues less fixed compensation and benefits and other operating and administrative expenses. Profits after variable compensation are shared between us and Acadian key employee equity holders according to our respective equity or profit interests ownership. The sharing of profits in this manner ensures that the economic interests of Acadian key employees and those of BSUS are aligned, both in terms of generating strong annual earnings as well as investing those earnings back into the business in order to generate growth over the long term. We view profit sharing as an attractive operating model, as it allows us to share in the benefits of operating leverage as the business grows, and ensures all equity and profit interests holders are incentivized to achieve that growth. Equity or profit interests owned by Acadian key employees are awarded as part of their variable compensation arrangement. Over time, Acadian key employee-owned equity or profit interests are recycled from one generation of employee owners to the next, either by the next generation purchasing equity or profit interests directly from retiring principals, or by Acadian key employees forgoing cash bonuses in exchange for the equivalent value in Acadian equity or profit interests. The recycling of equity or profit interests is often facilitated by BSUS; see "-U.S. GAAP Results of Operations-U.S. GAAP Expenses-Compensation and Benefits Expense" for a further discussion. Employee equity is valued at a fixed multiple of profits, so employees have transparency into both their earning potential in any year from the bonus pool and share of profits, as well as the current value of their equity and the long-term potential to realize value from its growth. In this structure, key employees who are managing the business have incentives to manage for profit, but also to manage the business prudently, in the interest of their clients, and invest for growth, since they will benefit over the long term as both employees and equity holders. In this way, Acadian is aligned with BSUS and the public shareholders to generate profits and growth over time. 37 --------------------------------------------------------------------------------
How We Measure Performance
We manage our business based on one segment, reflecting how our management assesses the performance of our business.
In measuring and monitoring the key components of our earnings, our management uses a non-GAAP financial measure, ENI, to evaluate the financial performance of, and to make operational decisions for, our business. We also use ENI to make resource allocation decisions, determine appropriate levels of investment or dividend payout, manage balance sheet leverage, determine Affiliate variable compensation and equity distributions, and incentivize management. It is an important measure in evaluating our financial performance because we believe it most accurately represents our operating performance and cash generation capability. ENI differs from net income determined in accordance withU.S. GAAP as a result of both the reclassification of certain income statement items and the exclusion of certain non-cash or non-recurring income statement items. In particular, ENI excludes non-cash charges representing the changes in the value of Affiliate equity and profit interests held by Affiliate key employees, the results of discontinued operations which are no longer part of our business, restructuring costs, capital transaction costs, seed capital and co-investment gains, losses and related financing costs, and that portion of consolidated Funds which are not attributable to our stockholders. ENI revenue is primarily comprised of the fee revenues paid to us by our clients for our advisory services and earnings from our former equity-accounted Affiliate. Revenue included within ENI differs fromU.S. GAAP revenue in that it excludes amounts from consolidated Funds which are not attributable to our stockholders, and it includes our share of earnings from our former equity-accounted Affiliate. ENI expenses are calculated to reflect all usual expenses from ongoing continuing operations attributable to our stockholders. Expenses included within ENI differ fromU.S. GAAP expenses in that they exclude amounts from consolidated Funds which are not attributable to our stockholders, revaluations of Affiliate key employee owned equity and profit interests, amortization and impairment of acquired intangibles and other acquisition-related items, and certain other non-cash expenses. "Non-controlling interests" is a concept underU.S. GAAP that identifies net components of revenues and expenses that are not attributable to our stockholders. For example, the portion of the net income (loss) of any consolidated Funds that is attributable to the outside investors or clients of the consolidated Funds is included in "Non-controlling interests" in our Consolidated Financial Statements. Conversely, "controlling interests" is the portion of revenue or expense that is attributable to our stockholders.
For a more detailed discussion of the differences between
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--------------------------------------------------------------------------------Summary Results of Operations
The following table summarizes our results of operations for the years ended
Years ended December 31, Increase (Decrease)
($ in millions, unless otherwise noted) 2022 2021 2020 2022 vs. 2021 2021 vs. 2020
U.S. GAAP Basis
Revenue $ 417.2 $ 523.8 $ 499.5 $ (106.6) $ 24.3
Pre-tax income from continuing operations
attributable to controlling interests 144.8 178.1 344.4 (33.3) (166.3)
Net income from continuing operations
attributable to controlling interests 100.6 128.1 247.3 (27.5) (119.2)
Net income attributable to controlling
interests 100.6 828.4 286.7 (727.8) 541.7
U.S. GAAP operating margin(1) 40 % 28 % 26 % 1241 bps 147 bps
Earnings per share, basic ($) $ 2.39 $ 10.73 $ 3.53 $ (8.34) $ 7.20
Earnings per share, diluted ($) 2.33 10.29 3.49 $ (7.96) $ 6.80
Basic shares outstanding (in millions) 42.1 77.2 81.3 (35.1) (4.1)
Diluted shares outstanding (in millions) 43.2 80.5 82.0 (37.3) (1.5)
Economic Net Income Basis(2)(3)
(Non-GAAP measure used by management)
ENI revenue(4) $ 416.8 $ 523.5 $ 492.3 $ (106.7) $ 31.2
Pre-tax economic net income(5) 112.0 165.4 120.8 (53.4) 44.6
ENI operating margin(6) 32 % 38 % 31 % (617) bps 776 bps
Adjusted EBITDA $ 150.1 $ 211.7 $ 164.9 $ (61.6) $ 46.8
Economic net income(7) 81.6 118.3 88.3 (36.7) 30.0
ENI diluted EPS ($) $ 1.89 $ 1.47 $ 1.08 $ 0.42 $ 0.39
Other Operational Information
Assets under management (AUM) excluding
discontinued operations at year end (in
billions) $ 93.6 $ 117.2 $ 116.0 $ (23.6) $ 1.2
Net client cash flows (in billions) (3.1) (5.9) (4.9) 2.8 (1.0)
Annualized revenue impact of net flows(8) (5.0) (10.3) (31.0) 5.3 20.7
(1)
(2)Economic net income is a non-GAAP measure we use to evaluate the performance of our business. For a reconciliation toU.S. GAAP financial information and a further discussion of economic net income refer to "-Non-GAAP Supplemental Performance Measures-Economic Net Income and Segment Analysis." (3)Excludes restructuring costs of$0.1 million and costs associated with the transfer of an insurance policy from our former Parent of$1.2 million for the year endedDecember 31, 2022 . Excludes income from discontinued operations attributable to controlling interests, as well as restructuring at the Center and Affiliate of$3.8 million , costs associated with the transfer of an insurance policy from our former Parent of$1.2 million , and the gain on sale of subsidiaries of$48.6 million for the year endedDecember 31, 2021 . Excludes income from discontinued operations attributable to controlling interests, as well as restructuring costs at the Center and subsidiaries of$9.4 million , costs associated with the transfer of an insurance policy from our former Parent of$1.6 million , and the gain on sale of subsidiaries of$241.3 million for the year endedDecember 31, 2020 .
(4)ENI revenue is the ENI measure which corresponds to
(5)Pre-tax economic net income is the ENI measure which corresponds to
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(6)ENI operating margin is a non-GAAP efficiency measure, calculated based on
ENI operating earnings divided by ENI revenue. ENI operating earnings is
calculated as ENI revenue, less ENI operating expense, less ENI variable
compensation. The ENI operating margin is most comparable to our
(7)Economic net income is the ENI measure which corresponds to
(8)Annualized revenue impact of net flows represents the difference between annualized management fees expected to be earned on new accounts and net assets contributed to existing accounts, less the annualized management fees lost on terminated accounts or net assets withdrawn from existing accounts, plus revenue impact from reinvested income and distributions, including our equity-accounted Affiliate. The annualized management fees are calculated by multiplying the annual gross fee rate for the relevant account by the net assets gained in the account in the event of a positive flow, excluding any current or future market appreciation or depreciation, or the net assets lost in the account in the event of an outflow, excluding any current or future market appreciation or depreciation. In addition, reinvested income and distributions for the segment is multiplied by average fee rate for the segment to compute the revenue impact. For a further discussion of the uses and limitations of the annualized revenue impact of net flows, see "Assets Under Management" herein.
Assets Under Management
Our total assets under management as ofDecember 31, 2022 were$93.6 billion . The following table presents our assets under management by Affiliate as of each of the dates indicated: ($ in billions) December 31, 2022 December 31, 2021 December 31, 2020 Acadian Asset Management $ 93.6 $ 117.2 $ 108.1 Campbell Global(1) - - 4.7 Investment Counselors of Maryland(2) - - 3.2 Total assets under management excluding discontinued operations 93.6 117.2 116.0 Landmark Partners(3) - - 18.4 Thompson, Siegel & Walmsley(4) - - 22.3 Total assets under management $ 93.6 $ 117.2 $ 156.7
(1)On
(2)On
(3)On
(4)On
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--------------------------------------------------------------------------------Our strategies include:
i.Developed Markets equity, which includes Quant & Solutions
ii.Emerging Markets equity, which includes Quant & Solutions equity investments in the emerging and frontier markets; and
iii.Other, which is mainly comprised of forestry and equities managed by our previous Affiliates.
The following table presents our assets under management by strategy as of each of the dates indicated: ($ in billions) December 31, 2022 December 31, 2021 December 31, 2020 Developed Markets $ 73.2 $ 89.3 $ 81.1 Emerging Markets 20.4 27.9 27.0 Other - - 7.9 Total assets under management $ 93.6 $ 117.2 $ 116.0
The following table shows assets under management by client type as of each of the dates indicated:
($ in billions) December 31, 2022 December 31, 2021 December 31, 2020
AUM % of total AUM % of total AUM % of total
Public / Government $ 39.3 42.0 % $ 52.6 44.9 % $ 54.3 46.8 %
Commingled Trust/UCITS 21.7 23.2 % 26.1 22.3 % 24.1 20.8 %
Corporate / Union 13.1 14.0 % 15.8 13.5 % 16.9 14.6 %
Sub-advisory 11.8 12.6 % 14.1 12.0 % 11.5 9.9 %
Endowment / Foundation 3.1 3.3 % 3.3 2.8 % 2.5 2.2 %
Mutual Fund 0.6 0.6 % 1.0 0.9 % 2.8 2.4 %
Other 4.0 4.3 % 4.3 3.6 % 3.9 3.3 %
Total assets under management $ 93.6 $ 117.2 $ 116.0 The following table shows assets under management by client location as of each of the dates indicated:
($ in billions) December 31, 2022 December 31, 2021 December 31, 2020
AUM % of total AUM % of total AUM % of total
U.S. $ 62.7 67.0 % $ 77.1 65.8 % $ 77.4 66.7 %
Europe 16.3 17.4 % 20.1 17.2 % 18.3 15.8 %
Asia 3.2 3.4 % 5.5 4.7 % 4.5 3.9 %
Australia 5.6 6.0 % 5.9 5.0 % 8.1 7.0 %
Other 5.8 6.2 % 8.6 7.3 % 7.7 6.6 %
Total assets under management $ 93.6 $ 117.2 $ 116.0 AUM flows and the annualized revenue impact of net flows
Net client cash flows and revenue impact of net client cash flows for all periods include reinvested income and distributions, and exclude realizations. Reinvested income and distributions represent investment yield that is reinvested back into the portfolios as opposed to distributed as cash.
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In the following table, we present our asset flows and market appreciation
(depreciation) by segment. We also present a key metric used to better
understand our asset flows, the annualized revenue impact of net client cash
flows. Annualized revenue impact of net flows represents annualized management
fees expected to be earned on new accounts and net assets contributed to
existing accounts (inflows), less the annualized management fees lost on
terminated accounts or net assets withdrawn from existing accounts (outflows),
plus revenue impact from reinvested income and distributions. Annualized
management fee for client flow is calculated by multiplying the annual gross fee
rate for the relevant account with the inflow or the outflow, including our
equity-accounted Affiliate. In addition, reinvested income and distributions is
multiplied by average fee rate for the respective segment to compute the revenue
impact.
The annualized revenue impact of net flows metric is designed to provide
investors with a better indication of the potential financial impact of net
client cash flows, however it has certain limitations. For instance, it does not
include assumptions for the next twelve months' market appreciation or
depreciation and investment performance associated with the assets gained or
lost. Nor does it account for factors such as future client terminations or
additional contributions or withdrawals over the next twelve months.
Additionally, the basis points reported are fee rates based on the asset levels
at the time of the transactions and do not consider the fact that client fee
rates may change over the next twelve months.
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--------------------------------------------------------------------------------The following table summarizes our asset flows and market appreciation (depreciation) by segment for each of the periods indicated: ($ in billions, unless otherwise noted)
Years ended December 31,
2022 2021 2020
Quant & Solutions
Beginning balance $ 117.2 $ 107.0 $ 101.6
Gross inflows 11.1 10.6 12.9
Gross outflows (18.0) (19.7) (17.5)
Reinvested income and distributions 3.8 2.7 2.8
Net flows (3.1) (6.4) (1.8)
Market appreciation (depreciation) (20.5) 15.5 7.2
Other(1) - 1.1 -
Ending balance $ 93.6 $ 117.2 $ 107.0
Average AUM(2) $ 98.7 $ 113.9 $ 94.5
Liquid Alpha(3)
Beginning balance $ - $ 3.2 $ 58.0
Sale of Affiliates - - (50.3)
Gross inflows - - 5.9
Gross outflows - - (10.8)
Reinvested income and distributions - - 1.1
Net flows - - (3.8)
Market depreciation - - (0.7)
Other(3) - (3.2) -
Ending balance $ - $ - $ 3.2
Average AUM $ - $ - $ 42.2
Average AUM of consolidated Affiliates $ - $ - $ 40.0
Other(3)
Beginning balance $ - $ 5.8 $ 5.4
Sale of Affiliates - (8.9) -
Gross inflows - 0.7 1.0
Gross outflows - (0.2) (0.3)
Net flows - 0.5 0.7
Market appreciation (depreciation) - 0.6 (0.3)
Other(1)(3) - 2.0 -
Ending balance $ - $ - $ 5.8
Average AUM $ - $ 5.4 $ 5.7
Average AUM of consolidated Affiliates $ - $ 2.9 $ 5.7
Total
Beginning balance $ 117.2 $ 116.0 $ 165.0
Sale of Affiliates - (8.9) (50.3)
Gross inflows 11.1 11.3 19.8
Gross outflows (18.0) (19.9) (28.6)
Reinvested income and distributions 3.8 2.7 3.9
Net flows (3.1) (5.9) (4.9)
Market appreciation (depreciation) (20.5) 16.1 6.2
Other(4) - (0.1) -
Ending balance continuing operations 93.6 117.2 116.0
Discontinued operations(3) - - 40.7
Ending balance including discontinued operations $ 93.6 $ 117.2 $ 156.7
Average AUM $ 98.7 $ 119.3 $ 142.4
Average AUM of consolidated Affiliates $ 98.7 $
116.8
Annualized basis points: inflows 46.6 46.4 34.6 Annualized basis points: outflows 39.6
36.5 39.7
Annualized revenue impact of net flows (in millions)
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(1)AUM representing liquid alternative strategies previously excluded from the
Quant & Solutions segment has been reclassified as of
(2)Average AUM equals average AUM of consolidated Affiliates.
(3)Our reportable segments reflect the sale of Landmark and TSW and the
reclassification of their AUM, asset flows and market appreciation
(depreciation) to discontinued operations. ICM has been reclassified to the
Other category as of the beginning of the first quarter of 2021. The Other
category includes movements of our previously disposed affiliates, Campbell
Global and ICM, for the years ended
(4)Other movements related to billable assets adjustment for our previous Affiliate.
We also analyze our asset flows by client type and client location. Our client types include:
i.Sub-advisory, which includes assets managed for underlying mutual fund and variable insurance products which are sponsored by insurance companies and mutual fund platforms, where the end client is typically retail;
ii.Institutional, which includes assets managed for public / government pension funds, includingU.S. state and local government funds and non-U.S. sovereign wealth, local government and national pension funds; also includes corporate and union-sponsored pension plans; and iii.Retail / other, which includes assets managed for mutual funds sponsored by our Affiliates, defined contribution plans and accounts managed for high net worth clients. 44
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The following table summarizes our asset flows by client type for each of the
periods indicated:
($ in billions) Years ended December 31,
2022 2021 2020
Sub-advisory
Beginning balance $ 14.1 $ 11.5 $ 28.5
Sale of Affiliates - (0.4) (16.8)
Gross inflows 1.3 2.8 4.7
Gross outflows (1.8) (1.7) (5.7)
Reinvested income and distributions 0.5 0.3 0.7
Net flows - 1.4 (0.3)
Market appreciation (depreciation) (2.3) 1.6 0.1
Ending balance $ 11.8 $ 14.1 $ 11.5
Institutional
Beginning balance $ 97.8 $ 97.8 $ 128.2
Sale of Affiliates - (6.0) (30.5)
Gross inflows 8.3 7.1 12.8
Gross outflows (15.1) (16.6) (21.5)
Reinvested income and distributions 3.1 2.3 3.0
Net flows (3.7) (7.2) (5.7)
Market appreciation (depreciation) (16.9) 13.3 5.8
Other(1) - (0.1) -
Ending balance $ 77.2 $ 97.8 $ 97.8
Retail / Other
Beginning balance $ 5.3 $ 6.7 $ 8.3
Sale of Affiliates (2.5) (3.0)
Gross inflows 1.5 1.4 2.3
Gross outflows (1.1) (1.6) (1.4)
Reinvested income and distributions 0.2 0.1 0.2
Net flows 0.6 (0.1) 1.1
Market appreciation (depreciation) (1.3) 1.2 0.3
Ending balance $ 4.6 $ 5.3 $ 6.7
Total
Beginning balance $ 117.2 $ 116.0 $ 165.0
Sale of Affiliates - (8.9) (50.3)
Gross inflows 11.1 11.3 19.8
Gross outflows (18.0) (19.9) (28.6)
Reinvested income and distributions 3.8 2.7 3.9
Net flows (3.1) (5.9) (4.9)
Market appreciation (depreciation) (20.5) 16.1 6.2
Other(1) - (0.1) -
Ending balance continuing operations 93.6 117.2 116.0
Discontinued operations(2) -
- 40.7
Ending balance including discontinued operations
(1)Other movements related to billable assets adjustment for our previous Affiliate.
(2)Reflects the sale of Landmark and TSW. As a result of the transactions, Landmark and TSW are reported within discontinued operations.
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It is a strategic objective to increase our percentage of assets under
management sourced from non-
i.U.S.-based clients, where the contracting client is based in
ii.Non-
The following table summarizes asset flows by client location for each of the
periods indicated:
($ in billions) Years ended December 31,
2022 2021 2020
U.S.
Beginning balance $ 77.1 $ 77.4 $ 113.4
Sale of Affiliates (7.9) (39.9)
Gross inflows 6.0 6.6 13.3
Gross outflows (9.0) (11.8) (17.8)
Reinvested income and distributions 2.6 1.8 2.7
Net flows (0.4) (3.4) (1.8)
Market appreciation (depreciation) (14.0) 11.0 5.7
Ending balance $ 62.7 $ 77.1 $ 77.4
Non-U.S.
Beginning balance $ 40.1 $ 38.6 $ 51.6
Sale of Affiliates - (1.0) (10.4)
Gross inflows 5.1 4.7 6.5
Gross outflows (9.0) (8.1) (10.8)
Reinvested income and distributions 1.2 0.9 1.2
Net flows (2.7) (2.5) (3.1)
Market appreciation (depreciation) (6.5) 5.1 0.5
Other(1) - (0.1) -
Ending balance $ 30.9 $ 40.1 $ 38.6
Total
Beginning balance $ 117.2 $ 116.0 $ 165.0
Sale of Affiliates - (8.9) (50.3)
Gross inflows 11.1 11.3 19.8
Gross outflows (18.0) (19.9) (28.6)
Reinvested income and distributions 3.8 2.7 3.9
Net flows (3.1) (5.9) (4.9)
Market appreciation (depreciation) (20.5) 16.1 6.2
Other(1) - (0.1) -
Ending balance continuing operations 93.6 117.2 116.0
Discontinued operations(2) -
- 40.7
Ending balance including discontinued operations
(1)Other movements related to billable assets adjustment for our previous Affiliate.
(2)Reflects the sale of Landmark and TSW. As a result of the transactions, Landmark and TSW are reported within discontinued operations.
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At December 31, 2022 , our total assets under management were $93.6 billion , a
decrease of $(23.6) billion or (20.1)%, compared to $117.2 billion at December
31, 2021 . The assets under management at December 31, 2021 represented an
increase of $1.2 billion or 1.0% compared to $116.0 billion excluding
discontinued operations at December 31, 2020 . The change in assets under
management during the year ended December 31, 2022 reflects net market
depreciation of $(20.5) billion and net flows of $(3.1) billion , including
reinvested income and distributions of $3.8 billion . The change in assets under
management during the year ended December 31, 2021 reflects the sale of Campbell
Global and ICM of $(8.9) billion , net flows of $(5.9) billion , including
reinvested income and distributions of $2.7 billion , and realizations and other
of $(0.1) billion , offset by net market appreciation of $16.1 billion . The
change in assets under management during the year ended December 31, 2020
reflects the sale of Barrow and Copper Rock of $(50.3) billion , net flows of
$(4.9) billion , including reinvested income and distributions of $3.9 billion ,
partially offset by net market appreciation of $6.2 billion .
For the year ended December 31, 2022 , our net outflows were $(3.1) billion
compared to net outflows of $(5.9) billion for the year ended December 31, 2021
and net outflows of $(4.9) billion for the year ended December 31, 2020 . The
change in net outflows for the year ended December 31, 2022 was primarily due to
lower outflows in certain Acadian strategies, partly as the result of improved
relative investment performance in the year ended December 31, 2022 . The change
in net outflows for the year ended December 31, 2021 was primarily due to
re-balancing and asset reallocation in certain Quant & Solutions strategies.
Reinvested income and distributions of $3.8 billion , $2.7 billion , and $3.9
billion are reflected in the net flows for the years ended December 31, 2022 ,
2021 and 2020, respectively. For the year ended December 31, 2022 , the
annualized revenue impact of the net flows improved to $(5.0) million compared
to $(10.3) million for the year ended December 31, 2021 and $(31.0) million for
the year ended December 31, 2020 .
47
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For the Years Ended
Our
Years ended December 31, Increase (Decrease)
2021 vs.
($ in millions unless otherwise noted) 2022 2021 2020 2022 vs. 2021 2020
U.S. GAAP Consolidated Statements of Operations(1)
Management fees $ 367.4 $ 433.3 $ 478.9 $ (65.9) $ (45.6)
Performance fees 49.4 84.8 7.8 (35.4) 77.0
Other revenue - 5.7 7.3 (5.7) (1.6)
Consolidated Funds' revenue 0.4 - 5.5 0.4 (5.5)
Total revenue 417.2 523.8 499.5 (106.6) 24.3
Compensation and benefits 159.2 284.6 243.1 (125.4) 41.5
General and administrative expense 71.1 71.2 88.0 (0.1) (16.8)
Impairment of goodwill - - 16.4 - (16.4)
Amortization of acquired intangibles 0.1 0.1 0.3 - (0.2)
Depreciation and amortization 18.5 22.1 19.8 (3.6) 2.3
Consolidated Funds' expense 0.4 - 0.2 0.4 (0.2)
Total operating expenses 249.3 378.0 367.8 (128.7) 10.2
Operating income 167.9 145.8 131.7 22.1 14.1
Investment income 0.2 8.3 4.9 (8.1) 3.4
Interest income 0.8 0.2 0.6 0.6 (0.4)
Interest expense (20.5) (24.8) (28.5) 4.3 (3.7)
Loss on extinguishment of debt (3.2) - - (3.2) -
Gain on sale of subsidiaries - 48.6 241.3 (48.6) (192.7)
Net consolidated Funds' investment loss (0.4) - (5.2) (0.4) 5.2
Income from continuing operations before taxes 144.8 178.1 344.8 (33.3) (166.7)
Income tax expense 44.2 50.0 97.1 (5.8) (47.1)
Income from continuing operations 100.6 128.1 247.7 (27.5) (119.6)
Income from discontinued operations, net of tax - 77.3 67.8 (77.3) 9.5
Gain on disposal of discontinued operations, net of tax
- 691.0 - (691.0) 691.0
Net income 100.6 896.4 315.5 (795.8) 580.9
Net income attributable to non-controlling
interests in consolidated Funds - 68.0 28.8 (68.0) 39.2
Net income attributable to controlling interests
$ 541.7 Basic earnings per share ($)$ 2.39 $ 10.73 $ 3.53 $ (8.34) $ 7.20 Diluted earnings per share ($) 2.33 10.29 3.49 (7.96) 6.80 Weighted average shares of common stock outstanding-basic 42.1 77.2 81.3 (35.1) (4.1) Weighted average shares of common stock outstanding-diluted 43.2 80.5 82.0 (37.3) (1.5) U.S. GAAP operating margin (2) 40 % 28 % 26 % 1241 bps 147 bps
(1)Certain Funds have been consolidated due to our seed capital or co-investments in the Funds.
(2)
48
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The following table reconciles our net income attributable to controlling
interests to our pre-tax income from continuing operations attributable to
controlling interests:
Years ended December 31,
($ in millions) 2022 2021 2020
U.S. GAAP Consolidated Statements of Operations
Net income attributable to controlling interests $ 100.6 $ 828.4 $ 286.7 Exclude: Net income from discontinued operations attributable to controlling interests
- (700.3) (39.4)
Net income from continuing operations attributable to controlling interests
100.6 128.1 247.3
Add: Income tax expense 44.2 50.0 97.1
Pre-tax income from continuing operations attributable to
controlling interests $ 144.8 $ 178.1 $ 344.4
U.S. GAAP Revenues
Our
i.management fees earned based on our overall weighted average fee rate charged to our clients and the level of assets under management;
ii.performance fees earned when our Affiliates' investment performance over agreed time periods for certain clients has differed from pre-determined hurdles;
iii.other revenue, consisting primarily of consulting services as well as reimbursement of certain Fund expenses our Affiliates paid on behalf of our Funds; and
iv.revenue from consolidated Funds, a portion of which is attributable to the holders of non-controlling interests in consolidated Funds.
Management Fees
Our management fees are a function of the fee rates our Affiliates charge to their clients, which are typically expressed in basis points, and the levels of our assets under management. Average basis points earned on average assets under management were 37.2 bps for the year endedDecember 31, 2022 , 37.1 bps for the year endedDecember 31, 2021 and 34.1 bps for the year endedDecember 31, 2020 . The greatest driver of increases or decreases in this average fee rate is changes in the mix of our assets under management caused by net inflows or outflows in certain asset classes, dispositions, and disproportionate market movements. Year endedDecember 31, 2022 compared to year endedDecember 31, 2021 : Management fees decreased$(65.9) million , or (15.2)%, from$433.3 million for the year endedDecember 31, 2021 to$367.4 million for the year endedDecember 31, 2022 . The decrease was primarily due to a decrease in average assets under management, a decrease in performance fees, as well as the disposition of Campbell Global in the third quarter of 2021. Average assets under management excluding our previous equity-accounted Affiliate decreased (15)%, from$116.8 billion for the year endedDecember 31, 2021 to$98.7 billion for the year endedDecember 31, 2022 , primarily due to the negative market and net outflows over the past twelve months, as well as the disposition of Campbell Global in the third quarter of 2021. 49 -------------------------------------------------------------------------------- Year endedDecember 31, 2021 compared to year endedDecember 31, 2020 : Management fees decreased$(45.6) million , or (9.5)%, from$478.9 million for the year endedDecember 31, 2020 to$433.3 million for the year endedDecember 31, 2021 . The decrease was primarily due to the disposition of Barrow, which was included for the majority of 2020, but had no impact on 2021, and lower overall level of average assets under management. Average assets under management excluding our previous equity-accounted Affiliate decreased (16.7)%, from$140.2 billion for the year endedDecember 31, 2020 to$116.8 billion for the year endedDecember 31, 2021 , primarily due to the sale of Campbell Global in the third quarter of 2021 and the sale of Barrow that occurred in the fourth quarter of 2020. Performance Fees Approximately$11.9 billion , or 13.0% of our AUM atDecember 31, 2022 , are in accounts with performance fee features in which we participate. Performance fees are typically shared with our Affiliate key employees through various contractual compensation and profit-sharing arrangements. Year endedDecember 31, 2022 compared to year endedDecember 31, 2021 : Performance fees decreased$(35.4) million , from$84.8 million for the year endedDecember 31, 2021 to$49.4 million for the year endedDecember 31, 2022 . The decrease is partially driven by the reduction in assets under management, changes in outperformance during the year, and the disposition of Campbell Global in the third quarter of 2021. Year endedDecember 31, 2021 compared to year endedDecember 31, 2020 : Performance fees increased$77.0 million , from$7.8 million for the year endedDecember 31, 2020 to$84.8 million for the year endedDecember 31, 2021 . Included in the increase is$16 million of performance fees earned by a timber investment from our previously divested Affiliate, Campbell Global. Acadian contributed approximately$61 million of the increase due to out-performance in a wide range of strategies in 2021, such as long/short and emerging markets equities. Many of Acadian's performance fee-eligible accounts posted strong absolute and relative returns and crystallized performance fees during 2021.
Other Revenue
Year endedDecember 31, 2022 compared to year endedDecember 31, 2021 : Other revenue was$5.7 million for the year endedDecember 31, 2021 . There was no other revenue for the year endedDecember 31, 2022 . The decrease was attributable to the sale of Campbell Global during the year endedDecember 31, 2021 . Year endedDecember 31, 2021 compared to year endedDecember 31, 2020 : Other revenue decreased$(1.6) million , or (21.9)%, from$7.3 million for the year endedDecember 31, 2020 to$5.7 million for the year endedDecember 31, 2021 . The decrease was primarily attributable to the sale of Campbell Global during the year endedDecember 31, 2021 .
Our
i.compensation paid to our investment professionals and other employees, including base salary, benefits, sales-based compensation, variable compensation, Affiliate distributions, and revaluation of key employee owned Affiliate equity and profit interests;
ii.general and administrative expenses;
iii.impairment of goodwill;
iv.amortization of acquired intangible assets;
v.depreciation and amortization charges; and
vi.expenses of consolidated Funds, a portion of which is attributable to the holders of non-controlling interests in consolidated Funds.
50
--------------------------------------------------------------------------------Compensation and Benefits Expense
Our most significant category of expense is compensation and benefits awarded to our and our Affiliates' employees. The following table presents the components ofU.S. GAAP compensation expense for the years endedDecember 31, 2022 , 2021 and 2020: Years ended December 31, ($ in millions) 2022 2021 2020 Fixed compensation and benefits(1)$ 86.1 $ 100.2 $ 130.0 Sales-based compensation(2) 7.7 7.6 7.6 Variable compensation(3) 100.3 130.5 112.1 Affiliate key employee distributions(4) 5.1 13.4 8.5 Non-cash Affiliate key employee equity revaluations(5) (40.0) 32.9 (15.1) Total U.S. GAAP compensation and benefits expense$ 159.2 $ 284.6 $ 243.1 (1)Fixed compensation and benefits includes base salaries, payroll taxes and the cost of benefit programs provided. For the year endedDecember 31, 2022 ,$86.1 million of fixed compensation and benefits (of the$86.1 million above) is included within economic net income. For the year endedDecember 31, 2021 ,$97.2 million of fixed compensation and benefits (of the$100.2 million above) is included within economic net income, which excludes Fund expenses initially paid by our Affiliates on the Fund's behalf and subsequently reimbursed. For the year endedDecember 31, 2020 ,$125.7 million of fixed compensation and benefits (of the$130.0 million above) is included within economic net income, which excludes Fund expenses initially paid by our Affiliates on the Fund's behalf and subsequently reimbursed. The years endedDecember 31, 2021 and 2020 reflect the recategorization of Fund expenses reimbursed by customers of Campbell Global, a former Affiliate that was divested inAugust 2021 . This recategorization is not applicable for the year endedDecember 31, 2022 . (2)Sales-based compensation is paid to our Affiliates' sales and distribution teams and represents compensation earned by our sales professionals, paid over a multi-year period, related to revenue earned on new sales. Its variability is based upon the structure of sales-based compensation due on inflows of assets under management and market-based movement in both current and prior periods. (3)Variable compensation is contractually set and calculated individually at each Affiliate, plus Center bonuses. Variable compensation is usually awarded based on a contractual percentage of each Affiliate's ENI profits before variable compensation and may be paid in the form of cash or non-cash Affiliate equity or profit interests. In Affiliates with an agreed split of performance fees between Affiliate employees and BSUS, the Affiliates' share of performance fees, which ranges between 60%-75% of the total, is allocated entirely to variable compensation. For certain Affiliates, the variable compensation earned on performance fees vest over three-years and compensation expense is recognized over that service period. Center variable compensation includes cash and BSIG equity. Non-cash variable compensation awards typically vest over several years and are recognized as compensation expense over that service period. 51 --------------------------------------------------------------------------------
Years ended December 31,
($ in millions) 2022 2021 2020
Cash variable compensation $ 90.8 $ 124.6 $ 99.7
Non-cash equity-based award amortization 9.5 5.9 12.4
Total variable compensation(a)$ 100.3 $ 130.5 $ 112.1 (a)For the year endedDecember 31, 2022 ,$100.3 million of variable compensation expense (of the$100.3 million above) is included within economic net income. For the year endedDecember 31, 2021 ,$129.6 million of variable compensation expense (of the$130.5 million above) is included within economic net income, which excludes$0.9 million of variable compensation associated with restructuring at an Affiliate. For the year endedDecember 31, 2020 ,$107.9 million of variable compensation expense (of the$112.1 million above) is included within economic net income, which excludes the variable compensation associated with restructuring at the Center and the Affiliates of$3.8 million , and variable compensation subsequently reimbursed by Funds of$0.3 million . The year endedDecember 31, 2020 reflects the recategorization of variable compensation reimbursed by customers of Campbell Global, a former Affiliate that was divested inAugust 2021 . This recategorization is not applicable for the year endedDecember 31, 2022 . (4)Affiliate key employee distributions represent the share of Affiliate profits after variable compensation that is attributable to Affiliate key employee equity and profit interests holders, according to their ownership interests. The Affiliate key employee distribution ratio at each Affiliate is calculated as Affiliate key employee distributions divided by ENI operating earnings at that Affiliate. At certain Affiliates with tiered equity structures, BSUS and other classes of employee equity holders are entitled to an initial proportionate preference over profits after variable compensation, structured such that before a preference threshold is reached, there would be no required key employee distributions to the tiered equity holders, whereas for profits above the threshold the key employee distribution amount to the tiered equity holders would be calculated based on the tiered key employee ownership percentages. (5)Non-cash Affiliate key employee equity revaluations represent changes in the value of Affiliate equity and profit interests held by Affiliate key employees. These ownership interests may, in certain circumstances, be repurchased by BSUS at a value based on a pre-determined fixed multiple of twelve-month earnings and as such a liability is carried on our balance sheet based on the expected cash to be paid. However, any equity or profit interests repurchased by BSUS can be used to fund a portion of future variable compensation awards, resulting in savings in cash variable compensation that offset the negative cash effect of repurchasing the equity. Our Affiliate equity and profit interest plans have been designed to ensure BSUS is not required to repurchase more equity than we can reasonably recycle through variable compensation awards in any given twelve-month period. 52 --------------------------------------------------------------------------------
Fluctuations in compensation and benefits expense for the periods presented are discussed below.
Year endedDecember 31, 2022 compared to year endedDecember 31, 2021 : Compensation and benefits expense decreased$(125.4) million , or (44.1)%, from$284.6 million for the year endedDecember 31, 2021 to$159.2 million for the year endedDecember 31, 2022 . Fixed compensation and benefits decreased$(14.1) million , or (14.1)%, from$100.2 million for the year endedDecember 31, 2021 to$86.1 million for the year endedDecember 31, 2022 , primarily reflecting the disposition of Affiliates. Variable compensation decreased$(30.2) million , or (23.1)%, from$130.5 million for the year endedDecember 31, 2021 to$100.3 million for the year endedDecember 31, 2022 . The decrease was primarily attributable to lower pre-bonus profits in the year endedDecember 31, 2022 and the disposition of Campbell Global. The decrease was partially offset by the inclusion of deferred compensation expense earned on prior year performance fee revenues, of which the Affiliate's share is determined by a contractual split and recognized as compensation expense over a vesting period. Sales-based compensation increased$0.1 million , or 1.3%, from$7.6 million for the year endedDecember 31, 2021 to$7.7 million for the year endedDecember 31, 2022 . Affiliate key employee distributions decreased$(8.3) million , or (61.9)%, from$13.4 million for the year endedDecember 31, 2021 to$5.1 million for the year endedDecember 31, 2022 as a result of lower underlying operating earnings at the consolidated Affiliates. Revaluations of Affiliate key employee equity changed$(72.9) million in 2022, reflecting revaluations of key employee ownership interests at our consolidated Affiliates, as the value of Affiliate equity increased$32.9 million for the year endedDecember 31, 2021 and decreased$(40.0) million for the year endedDecember 31, 2022 . The changes in value year over year reflect changes in earnings, as well as changes in inputs used in the valuation model, including market risk assumptions and discount rates. Year endedDecember 31, 2021 compared to year endedDecember 31, 2020 : Compensation and benefits expense increased$41.5 million , from$243.1 million for the year endedDecember 31, 2020 to$284.6 million for the year endedDecember 31, 2021 . Fixed compensation and benefits decreased$(29.8) million , or (22.9)%, from$130.0 million for the year endedDecember 31, 2020 to$100.2 million for the year endedDecember 31, 2021 , primarily reflecting the disposition of Affiliates and cost savings from the restructuring at the Center and Affiliates. Variable compensation increased$18.4 million , or 16.4%, from$112.1 million for the year endedDecember 31, 2020 to$130.5 million for the year endedDecember 31, 2021 . The increase was primarily attributable to higher performance fee revenues in 2021, of which the Affiliates' share is determined by a contractual split and recognized as compensation over their respective vesting periods. Sales-based compensation remained at$7.6 million for the years endedDecember 31, 2020 and 2021, respectively. Affiliate key employee distributions increased$4.9 million , or 57.6%, from$8.5 million for the year endedDecember 31, 2020 to$13.4 million for the year endedDecember 31, 2021 as a result of higher post-variable compensation earnings and the change in the mix of earnings at the consolidated Affiliates. Revaluations of Affiliate key employee equity changed by$48.0 million in 2021, reflecting revaluations of key employee ownership interests at our consolidated Affiliates, as the value of Affiliate equity decreased$(15.1) million for the year endedDecember 31, 2020 and increased$32.9 million for the year endedDecember 31, 2021 .
General and Administrative Expense
Year endedDecember 31, 2022 compared to year endedDecember 31, 2021 : General and administrative expense decreased$(0.1) million , or (0.1)%, from$71.2 million for the year endedDecember 31, 2021 to$71.1 million for the year endedDecember 31, 2022 . The decrease was primarily due to the disposition of Affiliates, offset partially by an increase in travel and entertainment, consulting, and system costs in the year endedDecember 31, 2022 . Year endedDecember 31, 2021 compared to year endedDecember 31, 2020 : General and administrative expense decreased$(16.8) million , or (19.1)%, from$88.0 million for the year endedDecember 31, 2020 to$71.2 million for the year endedDecember 31, 2021 . The decrease was primarily due to cost saving initiatives at the Center and Affiliates and the disposition of Campbell Global in the third quarter of 2021 and Barrow in the fourth quarter of 2020. 53 --------------------------------------------------------------------------------
Impairment of
Year endedDecember 31, 2022 compared to year endedDecember 31, 2021 : There was no impairment of goodwill recorded for the year endedDecember 31, 2022 or for the year endedDecember 31, 2021 . Year endedDecember 31, 2021 compared to year endedDecember 31, 2020 : Impairment of goodwill was$16.4 million for the year endedDecember 31, 2020 and there was no impairment for the year endedDecember 31, 2021 . The change was the result of the impairment charge recorded for the Copper Rock reporting unit during the year endedDecember 31, 2020 , which was included within the Liquid Alpha segment prior to its disposition in the third quarter of 2020.
Amortization of Acquired Intangibles Expense
Year ended
Year endedDecember 31, 2021 compared to year endedDecember 31, 2020 : Amortization of acquired intangibles expense decreased$(0.2) million , or (66.7)%, from$0.3 million for the year endedDecember 31, 2020 to$0.1 million for the year endedDecember 31, 2021 . The change is due to the disposition of Copper Rock in 2020.
Depreciation and Amortization Expense
Year ended
Year endedDecember 31, 2021 compared to year endedDecember 31, 2020 : Depreciation and amortization expense increased$2.3 million , or 11.6%, from$19.8 million for the year endedDecember 31, 2020 to$22.1 million for the year endedDecember 31, 2021 . The increase was primarily related to additional software and technology investments in the business.
Other non-operating items of income and expense consist of:
i.investment income; ii.interest income; iii.interest expense;
iv.loss on extinguishment of debt; and
v.gain on sale of subsidiaries
54
--------------------------------------------------------------------------------Investment Income
Year endedDecember 31, 2022 compared to year endedDecember 31, 2021 : Investment income decreased$(8.1) million , or (97.6)%, from$8.3 million for the year endedDecember 31, 2021 to$0.2 million for the year endedDecember 31, 2022 . The decrease is due to lower returns generated by seed capital investments in the current year driven by the market decline in the year endedDecember 31, 2022 . Year endedDecember 31, 2021 compared to year endedDecember 31, 2020 : Investment income increased$3.4 million , or 69.4%, from$4.9 million for the year endedDecember 31, 2020 to$8.3 million for the year endedDecember 31, 2021 . The increase is primarily due to an increase in returns generated by seed capital investments driven by continued market recovery in 2021 compared to 2020, which included the negative impact of the market decline in the first quarter of 2020.
Interest Income
Year endedDecember 31, 2022 compared to year endedDecember 31, 2021 : Interest income increased$0.6 million , or 300.0%, from$0.2 million for the year endedDecember 31, 2021 to$0.8 million for the year endedDecember 31, 2022 . The increase was due to an increase in short-term investment returns in 2022. Year endedDecember 31, 2021 compared to year endedDecember 31, 2020 : Interest income decreased$(0.4) million , or (66.7)%, from$0.6 million for the year endedDecember 31, 2020 to$0.2 million for the year endedDecember 31, 2021 , principally due to a decrease in short-term investment returns in 2021.
Interest Expense
Year endedDecember 31, 2022 compared to year endedDecember 31, 2021 : Interest expense decreased$4.3 million , or 17.3%, from$24.8 million for the year endedDecember 31, 2021 to$20.5 million for the year endedDecember 31, 2022 , primarily reflecting a lower balance of third party borrowings in 2022, slightly offset by$1.3 million of additional interest expense related to the amortization of the cash flow hedge associated with the$125 million aggregate principal amount outstanding of our 5.125% Senior Notes dueAugust 1, 2031 that we redeemed inJanuary 2022 . Year endedDecember 31, 2021 compared to year endedDecember 31, 2020 : Interest expense decreased$(3.7) million , or (13.0)%, from$28.5 million for the year endedDecember 31, 2020 to$24.8 million for the year endedDecember 31, 2021 , primarily reflecting a lower balance drawn on our revolving credit facilities during 2021. We paid down the balance in full on our revolving credit facility in the year endedDecember 31, 2021 .
Loss on Extinguishment of Debt
Year endedDecember 31, 2022 compared to year endedDecember 31, 2021 : There was no loss on extinguishment of debt for the year endedDecember 31, 2021 . Loss on extinguishment of debt was$3.2 million for the year endedDecember 31, 2022 as a result of the full redemption of the$125 million aggregate principal amount outstanding of our 5.125% Senior Notes dueAugust 1, 2031 that we redeemed inJanuary 2022 . Year endedDecember 31, 2021 compared to year endedDecember 31, 2020 : There was no loss on extinguishment of debt for the year endedDecember 31, 2021 or for the year endedDecember 31, 2020 .
Gain on Sale of Subsidiaries
Year endedDecember 31, 2022 compared to year endedDecember 31, 2021 : Gain on sale of subsidiaries was$48.6 million for the year endedDecember 31, 2021 representing our gain on sale of our equity interest in ICM and Campbell Global, slightly offset by the loss on disposition of a business unit during the year endedDecember 31, 2021 . There was no gain on sale of subsidiaries in the year endedDecember 31, 2022 . 55
-------------------------------------------------------------------------------- Year endedDecember 31, 2021 compared to year endedDecember 31, 2020 : Gain on sale of subsidiaries decreased$(192.7) million from$241.3 million for the year endedDecember 31, 2020 to$48.6 million for the year endedDecember 31, 2021 , representing our gain on sale of our equity interest in ICM and Campbell Global, slightly offset by the loss on disposition of a business unit during the year endedDecember 31, 2021 . Included in the balance for the year endedDecember 31, 2020 is a gain of$7.2 million on the sale of our equity interests in Copper Rock, a gain of$231.2 million on the sale of our equity interests in Barrow and a gain of$2.9 million on a previously disposed Affiliate.
Our effective tax rate has been impacted by changes in liabilities for uncertain tax positions, tax effects of stock-based compensation, limitations on executive compensation, the mix of income earned inthe United States versus lower-taxed foreign jurisdictions. Our effective tax rate could be impacted in the future by these items as well as further changes in tax laws and regulations in jurisdictions in which we operate. Year endedDecember 31, 2022 compared to year endedDecember 31, 2021 : Income tax expense decreased$(5.8) million , from$50.0 million for the year endedDecember 31, 2021 to$44.2 million for the year endedDecember 31, 2022 . The decrease in income tax expense is primarily related to the decrease in income from continuing operations for the year endedDecember 31, 2022 . Year endedDecember 31, 2021 compared to year endedDecember 31, 2020 : Income tax expense decreased$(47.1) million , from$97.1 million for the year endedDecember 31, 2020 to$50.0 million for the year endedDecember 31, 2021 . The decrease in income tax expense is primarily related to the decrease in the income from continuing operations before taxes for the year endedDecember 31, 2021 , driven by the sale of certain Affiliates that occurred during 2021. The decrease in income tax expense from the sale was partially offset by an increase to the permanent disallowance of executive compensation in 2021, a lower tax benefit recognized in 2021 from changes in uncertain tax positions that resulted from the lapse in statute of limitations, and an increase of state tax obligations.
The net income or loss of all consolidated Funds, excluding any income or loss attributable to seed capital or co-investments we make in the Funds, is included in non-controlling interests in our Consolidated Financial Statements and is not included in net income attributable to controlling interests or in management fees.
Year ended
Year endedDecember 31, 2021 compared to year endedDecember 31, 2020 : There were no consolidated Funds during the year endedDecember 31, 2021 . Consolidated Funds' revenue was$5.5 million for the year endedDecember 31, 2020 . Consolidated Funds' expense was$0.2 million for the year endedDecember 31, 2020 . The decrease in consolidated Funds' revenue and decrease in consolidated Funds' expense is due to the deconsolidation of Funds due to redemption of seed investments in Barrow consolidated Funds following the sale of our equity interests in Barrow inNovember 2020 .
Discontinued Operations
As discussed further in Note 3 of our accompanying Consolidated Financial Statements, we completed the sale of all our equity interests in TSW onJuly 19, 2021 , and we completed the sale of all our equity interests in Landmark onJune 2, 2021 . As a result, Landmark and TSW are reported within discontinued operations. 56 -------------------------------------------------------------------------------- Year endedDecember 31, 2022 compared to year endedDecember 31, 2021 : Income from discontinued operations was$77.3 million for the year endedDecember 31, 2021 , representing the income from TSW and Landmark, including consolidated Landmark Funds. There was no income from discontinued operations for the year endedDecember 31, 2022 . The gain on disposal of discontinued operations, net of tax was$691.0 million for the year endedDecember 31, 2021 representing our gain on sale of our equity interests in Landmark and TSW. There was no gain on disposal of discontinued operations for the year endedDecember 31, 2022 . Year endedDecember 31, 2021 compared to year endedDecember 31, 2020 : Income from discontinued operations increased$9.5 million from$67.8 million for the year endedDecember 31, 2020 to$77.3 million for the year endedDecember 31, 2021 . Income from discontinued operations represents the income from TSW and Landmark, including consolidated Landmark Funds. The increase is driven by the increase in investment gains from the consolidated Landmark Funds attributable to non-controlling interests in the current year. The gain on disposal of discontinued operations, net of tax was$691.0 million for the year endedDecember 31, 2021 representing our gain on sale of our equity interests in Landmark and TSW. There was no gain on disposal of discontinued operations for the year endedDecember 31, 2020 .
Key
The following table shows our keyU.S. GAAP operating metrics for the years endedDecember 31, 2022 , 2021 and 2020. The second, third and fourth metrics below have each been adjusted to eliminate the effect of consolidated Funds to more accurately reflect the economics of our Company. Years ended December 31, ($ in millions) 2022 2021 2020 Numerator: Operating income$ 167.9 $ 145.8 $ 131.7 Denominator: Total revenue$ 417.2 $ 523.8 $ 499.5 U.S. GAAP operating margin(1) 40.2 % 27.8 % 26.4 % Numerator: Total operating expenses(2)$ 248.9 $ 378.0 $ 367.6 Denominator: Management fee revenue$ 367.4 $ 433.3 $ 478.9 U.S. GAAP operating expense / management fee revenue(3) 67.7 % 87.2 % 76.8 % Numerator: Variable compensation $
100.3
$ 273.3 $ 289.7 $ 247.0 U.S. GAAP variable compensation ratio(3) 36.7 % 45.0 % 45.4 % Numerator: Affiliate key employee distributions$ 5.1 $ 13.4 8.5
Denominator: Operating income before Affiliate key employee distributions(2)(4)(5)
$ 173.0 $ 159.2 $ 134.9 U.S. GAAP Affiliate key employee distributions ratio(3) 2.9 % 8.4 % 6.3 % (1)Excluding the effect of Funds consolidation in the applicable periods, theU.S. GAAP operating margin would be 40.3% for the year endedDecember 31, 2022 , 27.8% for the year endedDecember 31, 2021 and 25.6% for the year endedDecember 31, 2020 .
(2)Excludes consolidated Funds' expense of
(3)Excludes the effect of Funds consolidation for the years ended
57
--------------------------------------------------------------------------------
(4)Excludes consolidated Funds' revenue of
(5)The following table identifies the components of operating income before variable compensation and Affiliate key employee distributions, as well as operating income before Affiliate key employee distributions:
Years ended December 31,
($ in millions) 2022 2021 2020
Operating income $ 167.9 $ 145.8 $ 131.7
Affiliate key employee distributions 5.1 13.4 8.5
Operating (income) loss of consolidated Funds - - (5.3)
Operating income before Affiliate key employee distributions
$ 159.2 $ 134.9 Variable compensation 100.3 130.5 112.1 Operating income before variable compensation and Affiliate key employee distributions$ 273.3 $ 289.7 $ 247.0
Non-GAAP Supplemental Performance Measure-Economic Net Income and Segment Analysis
As supplemental information, we provide a non-GAAP performance measure that we refer to as economic net income, or ENI, which represents our management's view of the underlying economic earnings generated by us. We define economic net income as ENI revenue less (i) ENI operating expenses, (ii) variable compensation, (iii) key employee distributions, (iv) net interest and (v) taxes, each as further discussed in this section. ENI adjustments toU.S. GAAP include both reclassifications ofU.S. GAAP revenue and expense items, as well as adjustments toU.S. GAAP results, primarily to exclude non-cash, non-economic expenses, or to reflect cash benefits not recognized underU.S. GAAP. ENI is an important measure to investors because it is used by us to make resource allocation decisions, determine appropriate levels of investment or dividend payout, manage balance sheet leverage, determine Affiliate variable compensation and equity distributions, and incentivize management. It is also an important measure because it assists management in evaluating our operating performance and is presented in a way that most closely reflects the key elements of our profit share operating model with our Affiliates. For a further discussion of how we use ENI and why ENI is useful to investors, see "-Overview-How We Measure Performance."
To calculate economic net income, we re-categorize certain line items on our Consolidated Statements of Operations to reflect the following:
•We exclude the effect of Funds consolidation by removing the portion of Fund revenues, expenses and investment return which were not attributable to our stockholders.
•We include within management fee revenue any fees paid to Affiliates by
consolidated Funds, which are viewed as investment income under
•We include our share of earnings from equity-accounted Affiliates within other income in ENI revenue, rather than investment income.
•We treat sales-based compensation as a general and administrative expense, rather than part of fixed compensation and benefits.
•We identify separately from operating expenses variable compensation and Affiliate key employee distributions, which represent Affiliate earnings shared with Affiliate key employees.
58
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We also make the following adjustments to
i.We exclude non-cash expenses representing changes in the value of Affiliate equity and profit interests held by Affiliate key employees. These ownership interests may in certain circumstances be repurchased by BSUS at a value based on a pre-determined fixed multiple of trailing earnings and as such this value is carried on our balance sheet as a liability. Non-cash movements in the value of this liability are treated as compensation expense underU.S. GAAP. However, any equity or profit interests repurchased by BSUS can be used to fund a portion of future variable compensation awards, resulting in savings in cash variable compensation that offset the negative cash effect of repurchasing the equity. Our Affiliate equity and profit interest plans have been designed to ensure BSUS is never required to repurchase more equity than we can reasonably recycle through variable compensation awards in any given twelve-month period. ii.We exclude non-cash amortization or impairment expenses related to acquired goodwill and other intangibles as these are non-cash charges that do not result in an outflow of tangible economic benefits from the business. iii.We exclude capital transaction costs, including the costs of raising debt or equity, gains or losses realized as a result of redeeming debt or equity and direct incremental costs associated with acquisitions of businesses or assets. iv.We exclude seed capital and co-investment gains, losses and related financing costs. The net returns on these investments are considered and presented separately from ENI because ENI is primarily a measure of our earnings from managing client assets, which therefore differs from earnings generated by our investments in Affiliate products, which can be variable from period to period. v.We include cash tax benefits associated with deductions allowed for acquired intangibles and goodwill that may not be recognized or have timing differences compared toU.S. GAAP.
vi.We exclude the results of discontinued operations attributable to controlling interests since they are not part of our ongoing business and restructuring costs incurred in continuing operations.
vii.We exclude deferred tax resulting from changes in tax law and expiration of statutes, adjustments for uncertain tax positions, deferred tax attributable to intangible assets and other unusual items not related to current operating results to reflect ENI tax normalization.
We also adjust our income tax expense to reflect any tax impact of our ENI adjustments.
59
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Reconciliation of
The following table reconcilesU.S. GAAP net income attributable to controlling interests to economic net income for the years endedDecember 31, 2022 , 2021 and 2020: Years ended December 31, ($ in millions) 2022 2021 2020 U.S. GAAP net income attributable to controlling interests$ 100.6 $ 828.4 $ 286.7
Adjustments to reflect the economic earnings of the Company:
Non-cash key employee-owned equity and profit interest
i. revaluations (40.0) 32.9 (15.1)
ii. Goodwill impairment and amortization of acquired intangible assets 0.1 0.1 16.8
iii. Capital transaction costs 5.2 1.8 0.8
iv. Seed/Co-investment (gains) losses and financings(1) 0.6 (4.0) 4.1
v. Tax benefit of goodwill and acquired intangibles deductions 1.5 1.1 1.6
vi. Discontinued operations attributable to controllinginterests and
restructuring(2) 1.3 (743.8) (269.6)
vii. ENI tax normalization(3) 3.3 (1.7) 2.2
Tax effect of above adjustments, as applicable(4) 9.0 3.5 60.8
Economic net income $ 81.6 $ 118.3 $ 88.3
(1)The net return on seed/co-investment (gains) losses and financings for the
years ended December 31, 2022 , 2021 and 2020 are shown in the following table.
Years ended December 31,
($ in millions) 2022 2021 2020
Seed/Co-investment (gains) losses $ 0.2 $ (5.7) $ (1.6)
Financing costs:
Seed/Co-investment average balance 6.1 28.9 97.0
Blended interest rate* 6.5 % 5.9 % 5.9 %
Financing costs 0.4 1.7 5.7
Net seed/co-investment (gains) losses and financing $ 0.6 $ (4.0) $ 4.1 * The blended rate is based on the weighted average rate of the long-term debt.
(2)For the year endedDecember 31, 2022 , includes restructuring costs of$0.1 million and costs associated with the transfer of an insurance policy from our former Parent of$1.2 million . For the year endedDecember 31, 2021 , includes net income from discontinued operations attributable to controlling interest of$700.3 million , restructuring costs at the Center and Affiliates of$3.8 million , costs associated with the transfer of an insurance policy from our former Parent of$1.2 million , and the gain on sale of subsidiaries of$48.6 million . For the year endedDecember 31, 2020 , includes net income from discontinued operations attributable to controlling interest of$39.4 million , restructuring costs at the Center and Affiliates of$9.4 million , costs associated with the transfer of an insurance policy from our former Parent of$1.6 million , and the gain on sale of subsidiaries of$241.3 million . (3)Includes adjustments of$0.2 million ,$3.0 million and$8.7 million to remove the tax benefit resulting from the reduction in liabilities for uncertain tax positions recorded during the years endedDecember 31, 2022 , 2021 and 2020, respectively.
(4)Reflects the sum of line items (i), (ii), (iii), (iv) and the restructuring
portion of line item (vi) taxed at the 27.3%
60
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The following table reconciles
Years ended December 31,
($) 2022 2021 2020
U.S. GAAP net income per share $ 2.33 $ 10.29 $ 3.49 Adjustments to reflect the economic earnings of the Company:
Non-cash key employee-owned equity and profit interest
i. revaluations (0.92) 0.41 (0.18)
ii. Goodwill impairment and amortization of acquired intangible
assets - - 0.20
iii. Capital transaction costs 0.12 0.02 0.01
iv. Seed/Co-investment (gains) losses and financings 0.01 (0.05) 0.05
v. Tax benefit of goodwill and acquired intangibles deductions 0.03 0.01 0.02
vi. Discontinued operations and restructuring 0.03 (9.23) (3.29)
vii. ENI tax normalization 0.08 (0.02) 0.04
Tax effect of above adjustments 0.21 0.04 0.74
Economic net income per share $ 1.89 $ 1.47 $ 1.08 Limitations of Economic Net Income
Economic net income is the key measure our management uses to evaluate the financial performance of, and make operational decisions for, our business. Economic net income is not audited, and is not a substitute for net income or other performance measures that are derived in accordance withU.S. GAAP. Furthermore, our calculation of economic net income may differ from similarly titled measures provided by other companies.
Because the calculation of economic net income excludes certain ongoing
expenses, including amortization expense and certain compensation costs, it has
certain material limitations and should not be viewed in isolation or as a
substitute for
ENI Revenues
The following table reconciles
Years ended December 31,
($ in millions) 2022 2021 2020
U.S. GAAP Revenue $ 417.2 $ 523.8 $ 499.5
Include earnings from equity-accounted Affiliate - 2.6 2.9
Exclude revenue from consolidated Funds attributable to non-controlling interests
(0.4) - (5.5)
Exclude Fund expenses reimbursed by customers(1) - (2.9) (4.6)
ENI Revenue $ 416.8 $ 523.5 $ 492.3 (1)Reflects the recategorization of fund expenses reimbursed by customers of
Campbell Global, a former Affiliate that was divested in
61
--------------------------------------------------------------------------------The following table identifies the components of ENI revenue:
Years ended December 31,
($ in millions) 2022 2021 2020
Management fees(1) $ 367.4 $ 433.3 $ 478.9
Performance fees (2) 49.4 84.8 7.8
Other income, including equity-accounted Affiliate(3) - 5.4 5.6
ENI Revenue $ 416.8 $ 523.5 $ 492.3 (1)ENI management fees correspond to
(2)ENI performance fees correspond to
(3)ENI other income is comprised primarily of other revenue underU.S. GAAP, plus our earnings from our equity-accounted Affiliate of$2.6 million for the year endedDecember 31, 2021 and$2.9 million for the year endedDecember 31, 2020 . For the years endedDecember 30, 2021 and 2020, other income excludes certain Fund expenses initially paid by our previously divested Affiliate, Campbell Global, on the Funds' behalf that are subsequently reimbursed. This recategorization is not applicable for the year endedDecember 31, 2022 . Refer to "-Non-GAAP Supplemental Performance Measure-Economic Net Income and Segment Analysis" for a full discussion regarding the items excluded from the calculation of economic net income. Years ended December 31, ($ in millions) 2022 2021 2020 U.S. GAAP other revenue $ -$ 5.7 $ 7.3 Earnings from equity-accounted Affiliate - 2.6 2.9 Exclude Fund expenses reimbursed by customers(1) - (2.9) (4.6) ENI other income $ -$ 5.4 $ 5.6
(1)Reflects the recategorization of fund expenses reimbursed by customers of
Campbell Global, a former Affiliate that was divested in
62
--------------------------------------------------------------------------------ENI Operating Expenses
The largest difference betweenU.S. GAAP operating expense and ENI operating expense relates to compensation. As shown in the following reconciliation, the Company excludes the impact of key employee equity revaluations. Variable compensation and Affiliate key employee distributions are also segregated out ofU.S. GAAP operating expense in order to align with the manner in which these items are contractually calculated at the Affiliate level.
The following table reconciles
Years ended December 31,
($ in millions) 2022 2021 2020
U.S. GAAP operating expense $ 249.3 $ 378.0 $ 367.8
Less: items excluded from economic net income
Non-cash key employee equity and profit interest revaluations 40.0
(32.9) 15.1
Goodwill impairment and amortization of acquired intangible
assets (0.1) (0.1) (16.8)
Capital transaction costs - (1.2) (0.2)
Restructuring costs(1) (1.3) (5.1) (11.2)
Fund expenses reimbursed by customers(2) - (2.9) (4.6)
Funds' operating expenses (0.4) - (0.2)
Less: items segregated out of
(100.3) (129.6) (107.9)
Affiliate key employee distributions (5.1) (13.4) (8.5)
ENI operating expense $ 182.1 $ 192.8 $ 233.5
(1)For the year ended December 31, 2022 , includes $0.1 million of restructuring
costs and $1.2 million costs associated with the transfer of an insurance policy
from our former Parent. For the year ended December 31, 2021 , includes $3.8
million of restructuring costs at the Center and Affiliates and $1.2 million
costs associated with the transfer of an insurance policy from our former
Parent. For the year ended December 31, 2020 , includes restructuring costs at
the Center and the Affiliates of $9.4 million and $1.6 million costs associated
with the transfer of an insurance policy from our former Parent.
(2)Reflects the recategorization of fund expenses reimbursed by customers of
Campbell Global, a former Affiliate that was divested in
(3)For the year endedDecember 31, 2021 , excludes variable compensation related to restructuring at the Center and the Affiliates of$0.9 million that is included within Restructuring costs. For the year endedDecember 31, 2020 , excludes variable compensation related to restructuring at the Center and the Affiliates of$3.8 million that is included within Restructuring costs, and Fund expenses reimbursed by customers of a previously divested Affiliate, Campbell Global, of$0.3 million . 63
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The following table identifies the components of ENI operating expense:
Years ended December 31,
($ in millions) 2022 2021 2020
Fixed compensation & benefits(1)
73.5 88.0
Depreciation and amortization 18.5 22.1 19.8
ENI operating expense $ 182.1 $ 192.8 $ 233.5 (1)Fixed compensation and benefits include base salaries, payroll taxes and the
cost of benefit programs provided. The following table reconciles
Years ended December 31,
($ in millions) 2022 2021 2020
Total U.S. GAAP compensation and benefits expense $ 159.2 Non-cash key employee equity and profit interest revaluations excluded from ENI 40.0 (32.9) 15.1
Sales-based compensation reclassified to ENI general & administrative expenses
(7.7) (7.6) (7.6)
Affiliate key employee distributions (5.1) (13.4) (8.5)
Restructuring expenses - (0.9) (3.9)
Variable compensation (100.3) (129.6) (107.9)
Fund expenses reimbursed by customers(a) - (3.0) (4.6)
ENI fixed compensation and benefits $ 86.1 $ 97.2 $ 125.7 (a)Reflects the recategorization of fund expenses reimbursed by customers of
Campbell Global, a former Affiliate that was divested in
(2)The following table reconciles
Years ended December 31,
($ in millions) 2022 2021 2020
U.S. GAAP general and administrative expense$ 71.1 $ 71.2 $ 88.0 Sales-based compensation 7.7 7.6 7.6 Capital transaction costs - (1.2) (0.2) Restructuring costs(a) (1.3) (4.1) (7.3) Additional ENI adjustments - - (0.1) ENI general and administrative expense$ 77.5 $ 73.5 $ 88.0 (a)Reflects$0.1 million related to restructuring and$1.2 million of costs associated with the transfer of an insurance policy from our former Parent for the year endedDecember 31, 2022 . Reflects$2.9 million related to restructuring at the Center and Affiliates, and$1.2 million of costs associated with the transfer of an insurance policy from our former Parent in the year endedDecember 31, 2021 . Reflects$5.6 million related to restructuring at the Center and Affiliates, and$1.6 million of costs associated with the transfer of an insurance policy from our former Parent in the year endedDecember 31, 2020 . 64 --------------------------------------------------------------------------------
Key Non-GAAP Operating Metrics
The following table shows our key non-GAAP operating metrics for the years endedDecember 31, 2022 , 2021 and 2020. We present these metrics because they are the measures our management uses to evaluate the profitability of our business and are useful to investors because they represent the key drivers and measures of economic performance within our business model. Please see the footnotes below for an explanation of each ratio, its usefulness in measuring the economics and operating performance of our business, and a reference to the most closely relatedU.S. GAAP measure: Years ended December 31, ($ in millions) 2022 2021 2020 Numerator: ENI operating earnings(1)$ 134.4 $ 201.1 $ 150.9 Denominator: ENI revenue$ 416.8 $ 523.5 $ 492.3 ENI operating margin(2) 32.2 % 38.4 % 30.7 % Numerator: ENI operating expense$ 182.1 $ 192.8 $ 233.5 Denominator: ENI management fee revenue(3)$ 367.4 $ 433.3 $ 478.9 ENI operating expense ratio(4)
49.6 % 44.5 % 48.8 %
Numerator: ENI variable compensation$ 100.3 $ 129.6 $ 107.9 Denominator: ENI earnings before variable compensation(1)(5)$ 234.7 $ 330.7 $ 258.8 ENI variable compensation ratio(6)
42.7 % 39.2 % 41.7 %
Numerator: Affiliate key employee distributions$ 5.1 $ 13.4 $ 8.5 Denominator: ENI operating earnings(1)$ 134.4 $ 201.1 $ 150.9 ENI Affiliate key employee distributions ratio(7) 3.8 % 6.7 % 5.6 % (1)ENI operating earnings represents ENI earnings before Affiliate key employee distributions and is calculated as ENI revenue, less ENI operating expense, less ENI variable compensation. It differs from economic net income because it does not include the effects of Affiliate key employee distributions, net interest expense or income tax expense. 65 -------------------------------------------------------------------------------- The following table reconcilesU.S. GAAP operating income (loss) to ENI operating earnings: Years ended December 31, ($ in millions) 2022 2021 2020 U.S. GAAP operating income$ 167.9 $ 145.8 $ 131.7 Include earnings from equity-accounted Affiliate - 2.6 2.9
Exclude the impact of: Affiliate key employee-owned equity and profit interest revaluations
(40.0) 32.9 (15.1)
Goodwill impairment and the amortization of acquired
intangible assets 0.1 0.1 16.8
Capital transaction costs - 1.2 0.2
Restructuring costs(a) 1.3 5.1 11.2
Affiliate key employee distributions 5.1 13.4 8.5
Variable compensation 100.3 129.6 107.9
Funds' operating income - - (5.3)
ENI earnings before variable compensation 234.7 330.7 258.8
Less: ENI variable compensation (100.3) (129.6) (107.9)
ENI operating earnings 134.4 201.1 150.9
Less: ENI Affiliate key employee distributions (5.1) (13.4) (8.5)
ENI earnings after Affiliate key employee distributions
$ 187.7 $ 142.4 (a)For the year endedDecember 31, 2022 , includes$1.2 million associated with the transfer of an insurance policy from our former Parent and$0.1 million of restructuring costs. For the year endedDecember 31, 2021 , includes restructuring costs of$1.2 million associated with the transfer of an insurance policy from our former Parent and$3.8 million of restructuring costs at the Center and Affiliates. For the year endedDecember 31, 2020 , includes restructuring costs of$1.6 million associated with the transfer of an insurance policy from our former Parent and$9.4 million of restructuring costs at the Center and the Affiliates. (2)The ENI operating margin, which is calculated before Affiliate key employee distributions, is used by management and is useful to investors to evaluate the overall operating margin of the business without regard to our various ownership levels at each of the Affiliates. The ENI operating margin is most comparable to ourU.S. GAAP operating margin (excluding the effect of consolidated Funds) of 40.3% for the year endedDecember 31, 2022 , 27.8% for the year endedDecember 31, 2021 and 25.6% for the year endedDecember 31, 2020 . The ENI operating margin is important because it gives investors an understanding of the profitability of the total business relative to revenue, irrespective of the ownership position which BSIG has in each of its Affiliates. Management and investors use this ratio when comparing our profitability relative to our peer group and evaluating our ability to manage the cost structure and profitability of our business under different operating environments.
(3)ENI Management fee revenue corresponds to
(4)The ENI operating expense ratio is used by management and is useful to investors to evaluate the level of operating expense as measured against our recurring management fee revenue. We have provided this ratio since many operating expenses, including fixed compensation and benefits and general and administrative expense, are generally linked to the overall size of the business. We track this ratio as a key measure of scale economies at BSIG because in our profit sharing economic model, scale benefits both the Affiliate employees and BSIG stockholders. The ENI operating expense ratio is most comparable to theU.S. GAAP operating expense / management fee revenue ratio. 66 --------------------------------------------------------------------------------
(5)ENI earnings before variable compensation is calculated as ENI revenue, less ENI operating expense.
(6)The ENI variable compensation ratio is used by management and is useful to investors to evaluate consolidated variable compensation as measured against our ENI earnings before variable compensation. Variable compensation is contractually set and calculated individually at each Affiliate, plus Center bonuses. Variable compensation is usually awarded based on a contractual percentage of each Affiliate's ENI earnings before variable compensation and may be paid in the form of cash or non-cash Affiliate equity or profit interests. Center variable compensation includes cash and BSIG equity. Non-cash variable compensation awards typically vest over several years and are recognized as compensation expense over that service period. The variable compensation ratio at each Affiliate is calculated as variable compensation divided by ENI earnings before variable compensation. The ENI variable compensation ratio is most comparable to theU.S. GAAP variable compensation ratio. (7)The ENI Affiliate key employee distribution ratio is used by management and is useful to investors to evaluate Affiliate key employee distributions as measured against our ENI operating earnings. Affiliate key employee distributions represent the share of Affiliate profits after variable compensation that is attributable to Affiliate key employee equity and profit interests holders, according to their ownership interests. The Affiliate key employee distribution ratio at each Affiliate is calculated as Affiliate key employee distributions divided by ENI operating earnings at that Affiliate. At certain Affiliates with tiered equity structures, BSUS and other classes of employee equity holders are entitled to an initial proportionate preference over profits after variable compensation, structured such that before a preference threshold is reached, there would be no required key employee distributions to the tiered equity holders, whereas for profits above the threshold the key employee distribution amount to the tiered equity holders would be calculated based on the tiered key employee ownership percentages. The ENI Affiliate key employee distributions ratio is most comparable to theU.S. GAAP Affiliate key employee distributions ratio. 67
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Tax on Economic Net Income
The following table reconcilesthe United States statutory tax to tax on economic net income: Years ended December 31, ($ in millions) 2022 2021 2020 Pre-tax economic net income(1)$ 112.0 $
165.4
Taxes at the
0.2 (1.9) 7.6
Tax on economic net income (30.4) (47.1) (32.5)
Economic net income $ 81.6 $ 118.3 $ 88.3
Economic net income effective tax rate(3) 27.1 % 28.5 % 26.9 %
(1)Includes interest income and third party ENI interest expense, as shown in
the following table:
Years ended December 31,
($ in millions) 2022 2021 2020
U.S. GAAP interest income $ 0.8 $ 0.2 $ 0.6
U.S. GAAP interest expense (20.5) (24.8) (28.5)
U.S. GAAP net interest expense (19.7) (24.6) (27.9)
Other ENI interest expense exclusions(a) 2.4 2.3 6.3
ENI net interest income (expense) (17.3) (22.3) (21.6)
ENI earnings after Affiliate key employee distributions(b) 129.3
187.7 142.4
Pre-tax economic net income $ 112.0 $ 165.4 $ 120.8
(a)Other ENI interest expense exclusions represent cost of financing on seed
capital and co-investments and amortization of debt issuance costs. Includes
$0.4 million related to the cost of seed and co-investment financing and $2.0
million related to the amortization of debt issuance costs for the year ended
December 31, 2022 . Includes $1.7 million related to the cost of seed and
co-investment financing and $0.6 million related to the amortization of debt
issuance costs for the year ended December 31, 2021 . Includes $5.7 million
related to the cost of seed and co-investment financing and $0.6 million related
to the amortization of debt issuance costs for the year ended December 31, 2020 .
(b)ENI earnings after Affiliate key employee distributions is calculated as ENI
operating income (ENI revenue, less ENI operating expense, less ENI variable
compensation), less Affiliate key employee distributions. Refer to "-Key
Non-GAAP Operating Metrics" for a reconciliation from U.S. GAAP operating income
to ENI earnings after Affiliate key employee distributions.
(2)Taxed at
(3)The economic net income effective tax rate is calculated by dividing the tax on economic net income by pre-tax economic net income.
68
--------------------------------------------------------------------------------Segment Analysis
We operate our business through the following reportable segment:
•Quant & Solutions-comprised of versatile, often highly-tailored strategies that leverage data and technology in a computational, factor-based investment process across a range of asset classes in developed and emerging markets, including global, non-U.S. and small-cap equities, as well as managed volatility, ESG, multi-asset, equity alternatives, and long/short strategies. This segment is comprised of our interest in Acadian. The corporate head office is included within the Other category, along with our previously disposed Affiliate, Campbell Global for the years endedDecember 31, 2021 and 2020. We completed the sale of our equity interest in Campbell Global inAugust 2021 . ICM is also included in the Other category for the year endedDecember 31, 2021 . We completed the sale of our equity interests in ICM inJuly 2021 . The corporate head office expenses are not allocated to the Company's business segment but the CODM does consider the cost structure of the corporate head office when evaluating the financial performance of our segment. Prior toJune 30, 2021 , we had a Liquid Alpha reportable segment which was comprised of TSW and ICM. ICM is included in the Liquid Alpha segment for the year endedDecember 31, 2020 . OnJuly 19, 2021 , we completed the sale of our equity interests in TSW. As a result of this transaction, TSW has been reclassified to discontinued operations and Liquid Alpha no longer constitutes a reportable segment of the Company. The primary measure used by the CODM in measuring performance and allocating resources to the segments is ENI. We define economic net income for the segments as ENI revenue less (i) ENI operating expenses, (ii) variable compensation and (iii) key employee distributions. The ENI adjustments toU.S. GAAP include both reclassifications ofU.S. GAAP revenue and expense items, as well as adjustments toU.S. GAAP results, primarily to exclude non-cash, non-economic expenses, or to reflect cash benefits not recognized underU.S. GAAP.
ENI revenue includes management fees, performance fees and other revenue under
ENI operating expenses include compensation and benefits, general and administrative expense, and depreciation and amortization underU.S. GAAP, adjusted to exclude non-cash expenses representing changes in the value of Affiliate equity and profit interests held by Affiliate key employees and the impairment of goodwill. Additionally, variable compensation and Affiliate key employee distributions are segregated from ENI operating expenses.
ENI segment results are also adjusted to exclude the portion of consolidated
Fund revenues, expenses and investment return recorded under
Refer to the reconciliations of
Segment ENI Revenue
The following tables identify the components of segment ENI revenue for the
years ended
69
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Years ended December 31,
($ in millions) 2022 2021
Quant & Quant &
Solutions Total Solutions Other Total
Management fees $ 367.4 $ 367.4 $ 419.4 $ 13.9 $ 433.3
Performance fees 49.4 49.4 68.7 16.1 84.8
Other income, including equity-accounted
Affiliate - - - 5.4 5.4
ENI revenue $ 416.8 $ 416.8 $ 488.1 $ 35.4 $ 523.5
Year ended December 31,
($ in millions) 2020
Quant & Solutions Liquid Alpha Other Total
Management fees $ 346.8 $ 108.3 $ 23.8 $ 478.9
Performance fees 8.0 (0.2) - 7.8
Other income, including equity-accounted Affiliate - 3.0 2.6 5.6
ENI revenue $ 354.8 $ 111.1 $ 26.4 $ 492.3 Quant & Solutions Segment ENI Revenue
Year endedDecember 31, 2022 compared to year endedDecember 31, 2021 : Quant & Solutions ENI revenue decreased$(71.3) million , or (14.6)%, from$488.1 million for the year endedDecember 31, 2021 to$416.8 million for the year endedDecember 31, 2022 . The decrease was due to (28.1)% lower performance fees in the year endedDecember 31, 2022 , as well as (12.4)% lower management fees driven by lower average AUM resulting from equity market decline and net outflows in the last twelve months. Year endedDecember 31, 2021 compared to year endedDecember 31, 2020 : Quant & Solutions ENI revenue increased$133.3 million , or 37.6%, from$354.8 million for the year endedDecember 31, 2020 to$488.1 million for the year endedDecember 31, 2021 . The$61 million increase in performance fees was primarily due to significant out-performance in a wide range of strategies in 2021, such as long/short and emerging markets equities. The 20.9% increase in management fees was driven by higher average AUM primarily resulting from the equity market increase in 2021.
Liquid Alpha Segment ENI Revenue
Year endedDecember 31, 2021 compared to year endedDecember 31, 2020 : Liquid Alpha ENI revenue was$111.1 million for the year endedDecember 31, 2020 and was comprised of the ENI revenue from Barrow, Copper Rock and ICM. There was no Liquid Alpha ENI revenue for the year endedDecember 31, 2021 as the Liquid Alpha segment no long constituted a reportable segment.
Segment ENI Expense
The following tables identify the components of segment ENI expense for the
years ended
70
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Years ended December 31,
($ in millions) 2022 2021
Quant & Quant &
Solutions Other Total Solutions Other Total
Fixed compensation & benefits $ 79.0 $ 7.1 $ 86.1 $ 79.1 $ 18.1 $ 97.2
General and administrative expense 68.4 9.1 77.5 60.5 13.0 73.5
Depreciation and amortization 18.1 0.4 18.5 21.2 0.9 22.1
Total ENI Operating Expenses $ 165.5 $ 16.6 $ 182.1 $ 160.8 $ 32.0 $ 192.8
Variable compensation 96.0 4.3 100.3 100.8 28.8 129.6
Affiliate key employee distributions 5.1 - 5.1 12.4 1.0 13.4
Total Expenses $ 266.6 $ 20.9 $ 287.5 $ 274.0 $ 61.8 $ 335.8
Year ended December 31,
($ in millions) 2020
Quant & Solutions Liquid Alpha Other Total
Fixed compensation & benefits $ 73.7 $
26.9
General and administrative expense 56.9
12.4 18.7 88.0
Depreciation and amortization 18.4
0.1 1.3 19.8
Total ENI Operating Expenses$ 149.0 $
39.4
Variable compensation 72.8
29.0 6.1 107.9
Affiliate key employee distributions 4.3 3.9 0.3 8.5 Total Expenses$ 226.1 $ 72.3 $ 51.5 $ 349.9
Quant & Solutions Segment ENI Expense
Year endedDecember 31, 2022 compared to year endedDecember 31, 2021 : Quant & Solutions ENI operating expense increased$4.7 million , or 2.9%, from$160.8 million for the year endedDecember 31, 2021 to$165.5 million for the year endedDecember 31, 2022 . The increase was driven by 13.1% higher ENI general and administrative expense primarily due to higher travel and entertainment, consultant, and system costs. Quant & Solutions ENI variable compensation expense is based on contractual percentage of earnings before variable compensation, and also includes a formulaic split of performance fee revenue that gets deferred and recognized as variable compensation expense over a three-year vesting period. Quant & Solutions ENI variable compensation expense decreased (4.8)% as a result of lower earnings before variable compensation, including performance fees. Affiliate key employee distributions attributable to Quant & Solutions decreased (58.9)%, impacted by lower ENI earnings after variable compensation and the leveraged nature of the distribution share. Year endedDecember 31, 2021 compared to year endedDecember 31, 2020 : Quant & Solutions ENI operating expense increased$11.8 million , or 7.9%, from$149.0 million for the year endedDecember 31, 2020 to$160.8 million for the year endedDecember 31, 2021 . The increase was driven by 7.3% higher ENI fixed compensation and benefits expense resulting from higher headcount and 6.3% higher ENI general and administrative expense primarily due to increased portfolio administrative and systems costs. Quant & Solutions ENI variable compensation expense is based on contractual percentage of earnings before variable compensation, and also includes a formulaic split of performance fee revenue that gets deferred and recognized as variable compensation expense over a three-year vesting period. Quant & Solutions ENI variable compensation expense, which is based on contractual arrangements, increased 38.5%, as a result of higher earnings before variable compensation. Affiliate key employee distributions attributable to Quant & Solutions increased 188.4%, primarily due to higher Quant & Solutions ENI earnings after variable compensation as well as the leveraged nature of the sharing agreement. 71 --------------------------------------------------------------------------------
Liquid Alpha Segment ENI Expense
Year endedDecember 31, 2021 compared to year endedDecember 31, 2020 : Liquid Alpha ENI operating expense was$39.4 million for the year endedDecember 31, 2020 and was comprised of the ENI expense from Barrow and Copper Rock. There was no Liquid Alpha ENI expense for the year endedDecember 31, 2021 as the Liquid Alpha segment no longer constituted as a reportable segment.
Other ENI Expense
Year endedDecember 31, 2022 compared to year endedDecember 31, 2021 : Other ENI operating expense decreased$(15.4) million , or (48.1)%, from$32.0 million for the year endedDecember 31, 2021 to$16.6 million for the year endedDecember 31, 2022 . The decrease was driven by (60.8)% lower ENI fixed compensation and benefits and (30.0)% lower ENI general and administrative expense, both driven by the disposition of Affiliates during 2021. Other ENI variable compensation expense decreased (85.1)%, primarily due to the disposition of Campbell Global in 2021. Year endedDecember 31, 2021 compared to year endedDecember 31, 2020 : Other ENI operating expense decreased$(13.1) million , or (29.0)%, from$45.1 million for the year endedDecember 31, 2020 to$32.0 million for the year endedDecember 31, 2021 . The decrease was driven by (27.9)% lower ENI fixed compensation and benefits expense resulting from dispositions, and (30.5)% lower ENI general and administrative expense resulting from cost-saving initiatives. Other ENI variable compensation expense increased 372.1% due to an increase in variable compensation at Campbell Global as a result of higher earnings, and an increase in Center variable compensation.
Capital Resources and Liquidity
Cash Flows
The following table summarizes certain key financial data relating to cash flows. All amounts presented exclude consolidated Funds:
Years ended December 31,
($ in millions) 2022 2021 2020
Cash provided by (used in)(1)(2) Operating activities$ 119.0 $ (4.4) $ 170.6 Investing activities (13.0) 1,036.0 361.6 Financing activities (233.7) (1,152.4) (232.2)
(1)Excludes consolidated Funds.
(2)Cash flow data shown only includes cash flows from continuing operations.
Our most significant uses of cash include share repurchases, repayment of third-party borrowings, third-party interest payments, tax payments, seed capital investments, dividends and compensation and general and administrative expenses.
Comparison for the Years Ended
Net cash provided by operating activities of continuing operations excluding consolidated Funds increased$123.4 million , from net cash used of$(4.4) million during the year endedDecember 31, 2021 to net cash provided of$119.0 million during the year endedDecember 31, 2022 . The increase was primarily driven by taxes paid on the gain on sales of Affiliates and discontinued operations of$163.0 million in 2021, as well as changes in operating assets and liabilities offset by changes in net income period over period. 72
-------------------------------------------------------------------------------- Net cash provided by operating activities of continuing operations excluding consolidated Funds decreased$(175.0) million , from net cash provided of$170.6 million during the year endedDecember 31, 2020 to net cash used of$(4.4) million during the year endedDecember 31, 2021 . The decrease was primarily driven by taxes paid on the gain on sales of Affiliates and discontinued operations of$163.0 million in 2021, as well as changes in operating assets and liabilities offset by changes in net income period over period. Net cash provided by (used in) investing activities of continuing operations was$(13.0) million ,$1,036.0 million and$361.6 million for the years endedDecember 31, 2022 , 2021 and 2020, respectively. Fluctuations are principally due to the timing of sale proceeds received from the sales of Landmark, TSW, Campbell Global and ICM totaling$1,010.9 million in 2021 and the sale of Barrow totaling$295.2 million in 2020. Fluctuations are also impacted by the timing of investments or redemptions of seed capital. Net cash (used in) received from the (purchase) and sale of investments was$3.1 million ,$40.2 million and$92.0 million for the years endedDecember 31, 2022 , 2021 and 2020, respectively. Net cash used in financing activities, excluding consolidated Funds, consists of share repurchases, third-party borrowings, payments made toOM plc , withholding tax payments on stock option exercises and dividend payments. Net cash used in financing activities was$(233.7) million ,$(1,152.4) million and$(232.2) million for the years endedDecember 31, 2022 , 2021 and 2020, respectively. Share repurchases and third party borrowing activity were the drivers of the changes in financing activities year over year. We paid$(103.2) million for share repurchases in 2022 compared to$(1,121.7) million in 2021 and$(46.0) million in 2020. In 2022, we paid down net$(125.0) million against third party borrowings compared to$0.0 million in 2021 and$(175.0) million in 2020.
Working Capital and Long-Term Debt
The following table summarizes certain key financial data relating to our capital resources and liquid net assets. All amounts presented exclude the non-controlling interest portion of consolidated Funds:
Years ended December 31,
($ in millions) 2022 2021 2020
Balance Sheet Data(1)
Current assets
Cash and cash equivalents $ 108.4 $ 252.1 371.3
Investment advisory fees receivable 122.5 167.1 100.6
Investments 18.8 4.6 24.7
Other current assets(2) 2.0 4.9 9.3
Total current assets $ 251.7 $ 428.7 $ 505.9
Current liabilities
Accounts payable and accrued expenses $ 31.0 $ 35.2 31.3
Accrued short-term incentive compensation 92.5 117.4
78.3
Notes payable and other debt(3) - 121.8
-
Other short-term liabilities(4) 10.4 4.7 10.4 Total current liabilities$ 133.9 $ 279.1 $ 120.0 Working Capital$ 117.8 $ 149.6 $ 385.9 Long-term notes payable and other debt$ 273.5 273.1$ 394.3
(1)Excludes the non-controlling interest portion of consolidated Funds.
(2)Includes income taxes receivable.
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(3)Includes the short-term portion of our third-party borrowings. On December
17, 2021 , we issued a notice for the full redemption of the $125 million
aggregate principal amount outstanding of our 5.125% Senior Notes due August 1,
2031 (the "2031 Notes"). On January 18, 2022 we completed the full redemption of
the 2031 Notes.
(4)Includes the short-term portion of our lease liability and accrued income
taxes payable. Excluded from other short-term liabilities for each of the years
presented is an income tax reserve relating to net operating losses that does
not represent a current obligation of the Company. Puts related to Affiliate
equity and profits interests are also excluded on a short-term basis because
they are funded through recycling.
Working capital is defined as current assets less current liabilities, excluding
the non-controlling interest portion of consolidated Funds. Our net working
capital has been positive over the past several years and was $117.8 million at
December 31, 2022 . Our most significant current liabilities have been accounts
payable, accrued compensation expense and the short-term portion of our
third-party debt. Accrued compensation expense has primarily consisted of
variable compensation accruals made throughout the year based on contractual
arrangements. Our cash management practices generally require that working
capital be maintained at a sufficient level to meet short-term operational needs
at both Acadian and BSUS. Periodic distributions of Acadian earnings to BSUS and
Acadian key employee equity holders are made according to our distribution
policies, with BSUS having the ability to access any surplus cash at Acadian as
necessary during interim periods.
Borrowings and Long-Term Debt
The following table summarizes our financing arrangements as of the dates
indicated:
($ in millions) December 31, December 31,
2022 2021 Interest rate Maturity
Revolving credit facility:
Revolving credit facility $ - $ - Variable rate March 7, 2025
Total revolving credit facility $ - $ -
Third party borrowings: 4.80% Senior Notes Due 2026$ 273.5 $ 273.1 4.80% July 27, 2026 5.125% Senior Notes Due 2031(1) - 121.8 5.125% August 1, 2031 Total third party borrowings$ 273.5 $ 394.9 (1)OnJanuary 18, 2022 , we completed the full redemption of the$125.0 million aggregate principal amount outstanding of our 5.125% Senior Notes dueAugust 1, 2031 . As a result of this transaction, we recorded$(3.2) million of loss on extinguishment of debt within the Consolidated Statements of Operations for the year endedDecember 31, 2022 .
Third party borrowings
Revolving Credit Facility
OnMarch 7, 2022 , we, Royal Bank of Canada,BMO Harris Bank, N.A .,Goldman Sachs Bank USA ,Morgan Stanley Bank, N.A. ,Bank of America N.A ., the Bank of New York Mellon andCitibank, N.A ., as an issuing bank and administrative agent (collectively, the "Lenders"), entered into a new revolving credit facility agreement (the "Acadian Credit Agreement"), which replaced our revolving credit facility dated as ofAugust 20, 2019 (as amended by an amendment datedSeptember 3, 2020 and an assignment and assumption and amendment agreement datedFebruary 23, 2021 , the "Original Credit Agreement"). The maturity date of the Original Credit Agreement wasAugust 22, 2022 , and the maturity date of the Acadian Credit Agreement isMarch 7, 2025 . 74 -------------------------------------------------------------------------------- Borrowings under the Acadian Credit Agreement bear interest, at Acadian's option, at the per annum rate equal to either (a) the greatest of (i) the prime rate, (ii) the federal funds effective rate plus 0.5% and (iii) the secured overnight financing rate for a one month period plus a credit spread adjustment of 0.10% ("Adjusted Term SOFR") plus 1%, plus, in each case an additional amount ranging from 0.5% to 1.0%, with such additional amount based on Acadian's Leverage Ratio (as defined below) or (b) Adjusted Term SOFR plus an additional amount ranging from 1.5% to 2.0%, with such additional amount based on Acadian's Leverage Ratio. In addition, Acadian is charged a commitment fee based on the average daily unused portion of the revolving credit facility under the Acadian Credit Agreement at a per annum rate ranging from 0.25% to 0.375%, with such amount based on Acadian's Leverage Ratio. Under the Acadian Credit Agreement, the ratio of Acadian's third-party borrowings to Acadian's trailing twelve months Adjusted EBITDA, as defined by the Acadian Credit Agreement (the "Leverage Ratio"), cannot exceed 2.5x and the ratio of Acadian's trailing twelve months Adjusted EBITDA to Acadian's interest expense (the "Interest Coverage Ratio") must be not less than 4.0x. AtDecember 31, 2022 , Acadian's Leverage Ratio was 0x and Acadian's Interest Coverage Ratio was 107x.
Senior Notes
InJuly 2016 , we issued$275.0 million of 4.80% Senior Notes due 2026 (the "2026 Notes"). The$275.0 million 2026 Notes were sold at a discount of$(0.5) million and we incurred debt issuance costs of$(3.0) million , which are being amortized to interest expense over the ten-year term. The 2026 Notes can be redeemed at any time prior to the scheduled maturity in part or in aggregate, at the greater of 100% of the principal amount at that time or the sum of the remaining scheduled payments discounted at the treasury rate (as defined) plus 0.5%, together with any related accrued and unpaid interest.
As of
Other Compensation Liabilities
Other compensation liabilities principally consist of cash-settled Affiliate
equity and profit interests liabilities held by certain Affiliate key employees,
and voluntary deferred compensation plans. The following table summarizes our
other compensation liabilities:
Years ended December 31,
($ in millions) 2022 2021
Share-based payments liability $ 19.4 $ 28.1
Affiliate profit interests liability - 30.6
Employee equity 19.4 58.7
Voluntary deferral plan liability 39.9 45.0
Total $ 59.3 $ 103.7
Share-based payments liability represents the value of Affiliate key
employee-owned equity that may under certain circumstances be repurchased by us
that is considered an equity award under U.S. GAAP based on the terms and
conditions attached to these interests. Affiliate profit interests liability
represent the value of Affiliate key employee-owned equity that may under
certain circumstances be repurchased by us that is not considered an equity
award under U.S. GAAP, but rather a form of compensation arrangement, based on
the terms and conditions attached to these interests. Our obligation in any
given period in respect of funding these potential repurchases of Affiliate
equity is limited to only that portion that may be put to us by Affiliate key
employees, which is typically capped annually under the terms of these
arrangements such that we are not required to repurchase more than we can
reasonably recycle by re-granting the interests in lieu of cash variable
compensation owed to Affiliate key employees.
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Certain of our and our Affiliate's key employees are eligible to participate in
our voluntary deferral plan, or VDP, which provides our senior personnel the
opportunity to voluntarily defer a portion of their compensation. There is a
voluntary deferral plan investment balance included in investments on the
Consolidated Balance Sheets that corresponds to this deferral liability.
Additionally, we have recorded accrued incentive compensation of $92.5 million
and $117.4 million on the Consolidated Balance Sheets as of December 31, 2022
and 2021, respectively. Included within the accrued incentive compensation
balance is the vested portion of Acadian's deferred compensation pool. Acadian's
deferred compensation pool is based on a contractual percentage of Acadian
performance fee revenues and post-bonus profits, and is subject to a three-year
vesting period. Compensation expense is recognized over the requisite service
period. Unamortized compensation expense related to the unvested portion of the
deferred compensation pool of $23.4 million and $10.6 million is expected to be
recognized in the years ending December 31, 2023 and 2024, respectively.
For additional discussion of our compensation programs, please refer to the compensation discussions contained within our definitive proxy statement for our 2023 annual meeting of shareholders incorporated herein by reference.
Supplemental Liquidity Measure-Adjusted EBITDA
As supplemental information, we provide information regarding Adjusted EBITDA,
which we define as economic net income before interest, income taxes,
depreciation and amortization. Adjusted EBITDA is a non-GAAP liquidity measure
that we provide in addition to, but not as a substitute for, cash flows from
operating activities. It should be noted that our calculation of Adjusted EBITDA
may not be consistent with Adjusted EBITDA as calculated by other companies. We
believe Adjusted EBITDA is a useful liquidity metric because it indicates our
ability to make further investments in our business, service debt and meet
working capital requirements.
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The following table reconciles our
Years Ended December 31,
($ in millions) 2022 2021 2020
Net income attributable to controlling interests $ 100.6 $ 828.4 286.7
Net interest expense to third parties 19.7 24.6 27.9
Income tax expense (including tax expenses related to discontinued operations)
44.2 306.7 112.1
Depreciation and amortization (including intangible assets and discontinued operations) and goodwill impairment
18.6 25.4 44.1
EBITDA $ 183.1 $ 1,185.1 470.8
Non-cash compensation costs, including revaluation of Affiliate key employee-owned equity and profit interests
(37.7) 34.8 (12.4)
EBITDA of discontinued operations attributable to controlling interests
- (960.2) (62.0)
(Gain) loss on seed and co-investments 0.2 (5.7) (1.6)
Restructuring(1) 1.3 (43.5) (230.2)
Custody fees on seed portfolio - - 0.1
Capital transaction costs 3.2 1.2 0.2
Adjusted EBITDA 150.1 211.7 164.9
ENI net interest expense to third parties (17.3) (22.3) (21.6)
Depreciation and amortization(2) (20.8) (24.0) (22.5)
Tax on economic net income (30.4) (47.1) (32.5)
Economic net income $ 81.6 $ 118.3 88.3
(1)Included in restructuring for the year ended December 31, 2022 are $0.1
million of restructuring costs and $1.2 million costs associated with the
transfer of an insurance policy from our former Parent. Included in
restructuring for the year ended December 31, 2021 are $3.8 million of
restructuring costs at the Center and Affiliates, $1.2 million costs associated
with the transfer of an insurance policy from our former Parent and the gain on
sale of Affiliates of $48.6 million . Included in restructuring for the year
ended December 31, 2020 are $9.4 million of restructuring costs at the Center
and Affiliates and $1.6 million of costs associated with the transfer of an
insurance policy from our former Parent and the gain on sale of Affiliates of
$241.3 million .
(2)Includes non-cash equity-based award amortization expense.
For a full discussion regarding the items excluded from Adjusted EBITDA above and the calculation of economic net income, refer to "-Non-GAAP Supplemental Performance Measure-Economic Net Income and Segment Analysis."
Limitations of Adjusted EBITDA
As a non-GAAP, unaudited liquidity measure and derivation of EBITDA, Adjusted EBITDA has certain material limitations. It does not include cash costs associated with capital transactions and excludes certainU.S. GAAP expenses that fall outside the definition of EBITDA. Each of these categories of expense represents costs to us of doing business, and therefore any measure that excludes any or all of these categories of expense has material limitations. 77 --------------------------------------------------------------------------------
Future Capital Needs
We believe that our available cash and cash equivalents to be generated from operations, supplemented by short-term and long-term financing, as necessary, will be sufficient to fund current operations and capital requirements for at least the next twelve months, as well as our day-to-day operations and future investment requirements. Our ability to secure short-term and long-term financing in the future will depend on several factors, including our future profitability, our relative levels of debt and equity and the overall condition of the credit markets.
Commitments, Contingencies and Off-Balance Sheet Obligations
Indemnifications
In the normal course of business, such as through agreements to enter into business combinations with and divestitures of Affiliates, we occasionally enter into contracts that contain a variety of representations and warranties and which provide general indemnifications. Our maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against us that have not yet occurred.
Off-Balance Sheet Obligations
Off-balance sheet arrangements, as defined by theSEC , include certain contractual arrangements pursuant to which a company has an obligation, such as certain contingent obligations, certain guarantee contracts, retained or contingent interests in assets transferred to an unconsolidated entity, certain derivative instruments classified as equity or material variable interests in unconsolidated entities that provide financing, liquidity, market risk or credit risk support. Disclosure is required for any off-balance sheet arrangements that have, or are reasonably likely to have, a material current or future effect on our financial condition, results of operations, liquidity or capital resources. We generally do not enter into off-balance sheet arrangements, other than those described in "Contractual Obligations" as well as Note 6 and Note 15 to our Consolidated Financial Statements included in Item 8 herein, "Variable Interest Entities" and "Commitments and Contingencies", respectively.
Contractual Obligations
The following table summarizes our contractual obligations as ofDecember 31, 2022 : Payments due by period Less than More than ($ in millions) Total 1 year 1 - 3 years 3 - 5 years 5 years Contractual Obligations Third party borrowings$ 275.0 $ - $ -$ 275.0 $ - Lease obligations 90.3 9.2 16.5 15.8 48.8 Other liabilities(1) 1.1 1.1 - - - Maximum Affiliate equity and profits interests repurchase obligations(2) 19.4 3.5 5.4 3.9 6.6 Total contractual obligations$ 385.8 $ 13.8 $ 21.9 $ 294.7 $ 55.4
(1)Represents amounts due to
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(2)Represents amortized amounts held by Acadian key employees. Our actual
funding of these potential repurchases of Acadian equity and profits interests
is limited to only that portion that may be put to us by Acadian key employees
or that we decide to call to facilitate succession planning at Acadian, which is
typically capped annually such that we do not repurchase more than we can
reasonably recycle by re-granting the interests in lieu of cash variable
compensation owed to Acadian key employees. Any equity or profits interests
repurchased by us are used to fund a portion of variable compensation awards
resulting in savings in cash variable compensation that offset the negative cash
effect of repurchasing the equity.
Critical Accounting Policies and Estimates
Our significant accounting policies are disclosed in Item 8, Financial Statements and Supplementary Data - Note 2, "Significant Accounting Policies." The accounting policies and estimates that we believe are the most critical to an understanding of our results of operations and financial condition are those that require complex management judgment regarding matters that are highly uncertain at the time policies were applied and estimates were made. These accounting policies and estimates are discussed below; however, the additional accounting policy detail in the footnote previously referenced is important to the discussion of each of the topics. Different estimates reasonably could have been used in the current period that would have had a material effect on these Consolidated Financial Statements, and changes in these estimates are likely to occur from period-to-period in the future.
Share-based compensation plans
We recognize the cost of all share-based payments to directors, senior management and employees, including grants of restricted stock and stock options, as compensation expense in the Consolidated Statements of Operations over the respective vesting periods.
Awards made under our equity plans are accounted for as equity-settled, and the
grant date fair value is recognized as compensation expense over the requisite
service period, with a corresponding contribution to additional paid-in capital.
Valuation of restricted stock awards ("RSAs") and restricted stock units
("RSUs") is determined based on our closing share price as quoted on the New
York Stock Exchange on the measurement date. For performance-based awards and
stock options, a Monte-Carlo simulation model is used to determine the fair
value. Key inputs for the model include: assumed reinvestment of dividends,
risk-free interest rate and expected volatility. All excess tax benefits and
deficiencies on share-based payment awards are recognized as income tax expense
or benefit in the Consolidated Statements of Operations. In addition, the tax
effects of exercised or vested awards are treated as discrete items in the
reporting period in which they occur and excess tax benefits or deficiencies are
classified with other income tax cash flows as an operating activity in the
Consolidated Statements of Cash Flows. We recognize forfeitures as they occur.
We have compensation arrangements with certain of our Affiliates whereby in
exchange for continued service, Affiliate equity is either purchased by or
granted to Affiliate key employees and may be repurchased either by Affiliate
key employees or by us at a future date, subject to service requirements having
been met. Awards of equity made to Affiliate key employees are accounted for as
cash-settled, with the fair value recognized as compensation expense over the
requisite service period, with a corresponding liability carried within other
compensation liabilities on the Consolidated Balance Sheets until the award is
settled by us. The fair values of the liabilities are determined with the
assistance of third party valuation specialists using discounted cash flow
analyses which incorporate assumptions for the forecasted earnings information,
growth rates, market risk adjustments, discount rates, when award holders
maximize value and post-vesting restrictions. While we believe all assumptions
used in determining the fair value of the liabilities are reasonable and
appropriate, certain assumptions are subjective and changes in these assumptions
could result in different fair value amounts.
79
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We file tax returns directly with theU.S. ,U.K. , state tax authorities and in other foreign jurisdictions. These tax returns represent our filing positions within each jurisdiction and settle our tax liabilities. Each jurisdiction has the right to audit those tax returns and may take different positions with respect to income and expense allocations and taxable earnings determinations. Because the determinations of our annual provisions are subject to judgments and estimates, it is possible that actual results will vary from those recognized in our Consolidated Financial Statements. As a result, it is likely that additions to, or reductions of, income tax expense will occur each year for prior reporting periods as actual tax returns and tax audits are settled. Deferred tax assets, net of any associated valuation allowance, have been recognized based on management's belief that taxable income of the appropriate character, more likely than not, will be sufficient to realize the benefits of these assets over time. In the event that actual results differ from our expectations, or if our historical trends of positive operating income changes, we may be required to record a valuation allowance on some or all of these deferred tax assets, which may have a significant effect on our financial condition and results of operations. In assessing whether a valuation allowance should be established against a deferred tax asset, we consider the nature, frequency and severity of recent losses, forecasts of future profitability, the duration of statutory carryback and carry forward periods, among other factors. We utilize a specific recognition threshold and measurement attribute for the Consolidated Financial Statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The prescribed two-step process for evaluating a tax position involves first determining whether it is more likely than not that a tax position will be sustained upon examination by the appropriate taxing authorities. If it is, the second step then requires a company to measure this tax position benefit as the largest cumulative amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. Unrecognized tax benefits and related interest and penalties, are adjusted periodically to reflect changing facts and circumstances.
Recent Accounting Developments
See discussion of Recent Accounting Developments in Note 2 of the accompanying Consolidated Financial Statements.
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