BRIGHTSPHERE INVESTMENT GROUP INC. Unless we state otherwise or the context otherwise requires, references in this Quarterly Report on Form 10-Q to "BrightSphere" or "BSIG" refer toBrightSphere Investment Group Inc. , references to the "Company" refer to BSIG, and references to "we," "our" and "us" refer to BSIG and its consolidated subsidiaries and equity-accounted Affiliates, excluding discontinued operations. References to the holding company or "Center" excluding the Affiliates refer toBrightSphere Inc. , or "BSUS," aDelaware corporation and wholly owned subsidiary of BSIG. Unless we state otherwise or the context otherwise requires, references in this Quarterly Report on Form 10-Q to "Affiliates" or an "Affiliate" refer to the asset management firms in which we have an ownership interest. References in this Quarterly Report on Form 10-Q to "OM plc " refer toOld Mutual plc , our former parent. None of the information in this Quarterly Report on Form 10-Q constitutes either an offer or a solicitation to buy or sell any of our Affiliates' products or services, nor is any such information a recommendation for any of our Affiliates' products or services. The following discussion of our financial condition and results of operations should be read in conjunction with our Condensed Consolidated Financial Statements and related notes which appear elsewhere in this Quarterly Report on Form 10-Q. This discussion contains forward-looking statements that involve risks and uncertainties. See "Forward-Looking Statements" at the end of this Item 2 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. 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 segments and underlying Affiliates, 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 location, and net flows by segment, client type and client location. •U.S. GAAP Results of Operations for the Three and Nine Months EndedSeptember 30, 2020 and 2019 includes an explanation of changes in ourU.S. GAAP revenue, expense and other items for the three and nine months endedSeptember 30, 2020 and 2019, 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 attributable to controlling interests and ENI for the three and nine months endedSeptember 30, 2020 and 2019 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 segment analysis for each of our business segments. •Capital Resources and Liquidity discusses our key balance sheet data. This section discusses Cash Flows from the business; Adjusted EBITDA;Future Capital Needs; Borrowings and Long-Term Debt. 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. •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 the policies were applied and estimates were made. 39 -------------------------------------------------------------------------------- Table of Contents Overview We are a diversified, global asset management company headquartered inBoston, Massachusetts . We operate our business through three business segments: •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 and geographies, including Global, non-U.S. , emerging markets and managed volatility equities, as well as multi-asset products. •Alternatives-comprised of illiquid and differentiated liquid investment strategies that include private equity, real estate and real assets, including forestry, as well as a growing suite of liquid alternative capabilities in areas such as long/short, market neutral and absolute return. •Liquid Alpha(1)-comprised of specialized investment strategies with a focus on alpha-generation across market cycles in long-only small-, mid-, and large-capU.S. , global, non-U.S. and emerging markets equities, as well as fixed income. (1)InJuly 2020 , we completed the sale ofCopper Rock Capital Partners LLC ("Copper Rock") and announced the divestiture ofBarrow Hanley Mewhinney & Strauss, LLC ("Barrow Hanley"), which is expected to close in the fourth quarter of 2020, see "Recent Developments" herein. Within our three segments, we have five(1) affiliate firms to whom we refer in this Quarterly Report as our Affiliates. Through our Affiliates, we offer a diverse range of actively-managed investment strategies and products to institutional investors around the globe. While our Affiliates maintain autonomy in the investment process and the day-to-day management of their businesses, our strategy is to work with them to accelerate the growth and profitability of their firms. UnderU.S. GAAP, our Affiliates may be consolidated into our operations or may be accounted for under the equity method of accounting. We may also be required to consolidate certain of our Affiliates' 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. (1)InJuly 2020 , we completed the sale of Copper Rock and announced divestiture of Barrow Hanley, which is expected to close in the fourth quarter of 2020. This number gives effect to these divestitures. See "Recent Developments" herein. 40 -------------------------------------------------------------------------------- Table of Contents Our Affiliates within each business segment and their principal strategies include: Quant & Solutions •Acadian Asset Management LLC ("Acadian")(1)-a leading quantitatively-oriented manager of active global and international equity, and alternative strategies. Alternatives •Landmark Partners, LLC ("Landmark")-a leading global secondary private equity, real estate and real asset investment firm. •Campbell Global, LLC ("Campbell Global")-a leading sustainable forestry and natural resource investment manager that seeks to deliver superior investment performance by focusing on unique acquisition opportunities, client objectives and disciplined management. Liquid Alpha •Barrow, Hanley, Mewhinney & Strauss, LLC ("Barrow Hanley")(2)-a widely recognized value-oriented investment manager ofU.S. , international and global equities, fixed income and a range of balanced investment management strategies. •Thompson, Siegel & Walmsley LLC ("TSW")(1)-a value-oriented investment manager focused on small- and mid-capU.S. equity, international equity and fixed income strategies. •Investment Counselors ofMaryland , LLC ("ICM")(3)-a value-driven domestic equity manager with product offerings focused on small- and mid-cap companies. (1)Certain smaller Acadian strategies are included in Alternatives and certain TSW strategies are included in Quant & Solutions where the classification is more appropriate. (2)InJuly 2020 , we announced the divestiture of Barrow Hanley. See "Recent Developments" herein. We have presented operational information (including AUM and flow data) including Barrow Hanley for all periods. UnderU.S. GAAP, financial results continue to include Barrow Hanley until the transaction closes, which is expected to be in the fourth quarter of 2020. (3)Accounted for under the equity method of accounting. Recent Developments Divestiture of Barrow Hanley and Copper Rock OnJuly 24, 2020 , we sold all of our equity interests in Copper Rock, a former Affiliate, toSpouting Rock Asset Management LLC . The transaction resulted in a$7.2 million gain which is reflected on our Condensed Consolidated Statement of Operations for the three and nine months endedSeptember 30, 2020 . OnJuly 26, 2020 , we entered into a purchase and sale agreement withPerpetual U.S. Holdings Company Inc. to sell all our interests in Barrow Hanley in exchange for$319 million of cash consideration, on a cash-free, debt-free basis, subject to certain customary closing and post-closing adjustments. The transaction is expected to close in the fourth quarter of 2020. COVID-19 Impact Beginning in the first quarter of 2020, the outbreak of COVID-19 had a significant impact on the global economy and the financial and securities markets, which will likely to continue for months to come. The overall extent and duration of COVID-19 on businesses and economic activity generally remains unclear. We continue to monitor the economic uncertainty and market volatility related to COVID-19, which has impacted the investment management industry in which we and our Affiliates operate. The extent of the impact on our business operations and financial results will depend on a number of factors and future developments, which are uncertain and cannot be predicted. 41
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See Item 1A to our Quarterly Report on Form 10-Q filed with the
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. Our Affiliates earn management fees based on assets under management. Approximately 70% of our management fees for the three months endedSeptember 30, 2020 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 or other measuring methods. Changes in the levels of our AUM are driven by our investment performance and net client cash flows. Our Affiliates 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$18.0 billion , or 10% of our AUM in consolidated Affiliates, are in accounts with incentive fee or carried interest features in which we participate in the performance fee. The majority of these incentive fees are calculated based on value added over the relevant benchmarks on a rolling three-year basis. Carried interests are features of private equity funds, which are calculated based on long-term cumulative returns. Our largest expense item is compensation and benefits paid to our and our Affiliates' 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 our Affiliates result in the sharing of economics between BSUS and each Affiliate's key management personnel using a profit-sharing model, except for ICM, which uses a revenue share model as a result of a legacy economic arrangement that has not been restructured. Profit sharing affects two elements within our earnings: (i) the calculation of variable compensation and (ii) the level of each Affiliate's equity or profit interests distribution to its employees. Variable compensation is the portion of earnings that is contractually allocated to Affiliate employees as a bonus pool, typically representing a fixed 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 Affiliate 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 Affiliate 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 Affiliate key employees are either awarded as part of their variable compensation arrangements, or alternatively, may have originally resulted from BSUS acquiring less than 100% of the Affiliate. Over time, Affiliate 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 Affiliate key employees forgoing cash bonuses in exchange for the equivalent value in Affiliate 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. 42 -------------------------------------------------------------------------------- Table of Contents How We Measure Performance We manage our business based on three business segments, 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 impact of a one-time compensation arrangement entered into that includes advances against future compensation payments, 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 is also adjusted for amortization of acquisition-related contingent consideration and pre-acquisition retained equity with service components. ENI revenue is primarily comprised of the fee revenues paid to us by our clients for our advisory services and earnings from our 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, it excludes reimbursement of certain costs we paid on behalf of our customers and includes our share of earnings from our 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, the impact of a one-time compensation arrangement entered into that includes advances against future compensation payments, costs we paid on behalf of our customers which were subsequently reimbursed 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 Fund that is attributable to the outside investors or clients of the consolidated Fund is included in "Non-controlling interests" in our Condensed 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 betweenU.S. GAAP net income and economic net income, see "-Non-GAAP Supplemental Performance Measure - Economic Net Income and Segment Analysis." 43 -------------------------------------------------------------------------------- Table of Contents Summary Results of Operations The following table summarizes our unaudited results of operations for the three and nine months endedSeptember 30, 2020 and 2019: ($ in millions, unless otherwise noted) Three Months Ended September 30, Nine Months Ended September 30, 2020 vs. 2020 vs. 2020 2019 2019 2020 2019 2019 U.S. GAAP Basis Revenue$ 182.4 $ 197.8 $ (15.4) $ 539.7 $ 612.1
50.0 43.4 6.6 122.4 159.8 (37.4)
Net income from continuing operations attributable to controlling interests
37.2 75.4 (38.2) 88.7 156.1 (67.4)
Net income attributable to controlling interests 37.2 75.4 (38.2) 88.7 156.1
(67.4)
U.S. GAAP operating margin(1) 22.2 % 26.2 % (403) bps 26.1 % 27.2 % (111) bps Earnings per share, basic ($)$ 0.46 $ 0.84 $ (0.38) $ 1.08 $ 1.68 $ (0.60) Earnings per share, diluted ($)$ 0.46 $ 0.84 $ (0.38) $ 1.08 $ 1.68 $ (0.60) Basic shares outstanding (in millions) 80.0 90.0 (10.0) 81.8 93.0
(11.2)
Diluted shares outstanding (in millions) 80.9 90.0 (9.1) 82.1 93.1
(11.0)
Economic Net Income Basis(2)(3) (Non-GAAP measure used by management) ENI revenue(4)$ 180.8 $ 195.8 $ (15.0) $ 533.9 $ 606.1 $ (72.2) Pre-tax economic net income(5) 49.5 49.7 (0.2) 136.3 154.5 (18.2) Adjusted EBITDA 60.5 59.8 0.7 170.6 182.1 (11.5) ENI operating margin(6) 36.4 %
34.7 % 166 bps 34.6 % 34.6 %
(2) bps
Economic net income(7) 37.7 37.4 0.3 104.9 117.6 (12.7)
ENI diluted EPS ($) $ 0.47 $ 0.42 $ 0.05 $ 1.28 $ 1.26 $ 0.02
Other Operational Information
Assets under management (AUM) at period end (in
billions) $ 184.8 $ 216.8 $ (32.0) $ 184.8 $ 216.8 $ (32.0)
Net client cash flows (in billions) (1.5) (6.2) 4.7 (2.2) (7.6) 5.4
Annualized revenue impact of net flows (8) (0.5) (16.2) 15.7 (14.1) (24.4) 10.3 (1)U.S. GAAP operating margin equals operating income from continuing operations divided by total revenue. (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 Measure-Economic Net Income and Segment Analysis." (3)Excludes restructuring costs at the Center and Affiliates of$1.4 million and$4.8 million , costs associated with the transfer of an insurance policy from our former Parent of$0.4 million and$1.0 million , costs relating to the impact of a one-time compensation arrangement entered into that includes advances against future compensation payments of$3.2 million and$13.9 million , and the gain on sale of Copper Rock of$7.2 million and$7.2 million for the three and nine endedSeptember 30, 2020 , respectively. Excludes restructuring costs at the Center of$0.1 million and$4.6 million and costs associated with the redomicile to theU.S. of$0.9 million and$2.0 million for the three and nine months endedSeptember 30, 2019 , respectively. (4)ENI revenue is the ENI measure which corresponds toU.S. GAAP revenue. (5)Pre-tax economic net income is the ENI measure which corresponds toU.S. GAAP pre-tax income from continuing operations attributable to controlling interests. 44 -------------------------------------------------------------------------------- Table of Contents (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 corresponds to ourU.S. GAAP operating margin, excluding the effect of consolidated Funds. (7)Economic net income is the ENI measure which is most directly comparable toU.S. GAAP net income from continuing operations attributable to controlling interests. (8)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 distribution. 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 equity-accounted Affiliate. In addition, reinvested income and distribution for each segment is multiplied by average fee rate for the respective 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 OnJuly 24, 2020 , we completed the sale of all of our equity interests in Copper Rock, a former Affiliate, to Spouting Rock. Unless specifically noted, flow information from Copper Rock is included up toJune 30, 2020 , but excluded thereafter, and AUM data atSeptember 30, 2020 excludes the Copper Rock AUM. OnJuly 26, 2020 , we entered into a purchase and sale agreement to sell our interests in Barrow Hanley to Perpetual in exchange for$319 million of cash consideration, on a cash-free, debt-free basis, subject to certain customary closing and post-closing adjustments. The transaction is expected to close in the fourth quarter of 2020. Barrow Hanley will continue to contribute to our financial results until the transaction closes. Unless specifically noted, flow information includes flows from Barrow Hanley, and AUM data atSeptember 30, 2020 includes the Barrow Hanley AUM. The following table presents our assets under management by Affiliate as of each of the dates indicated: ($ in billions) September 30, 2020 December 31, 2019 Acadian Asset Management $ 95.9 $ 102.2 Barrow, Hanley, Mewhinney & Strauss 44.6
51.7
Campbell Global 4.9
4.8
Copper Rock Capital Partners (1) -
3.9
Investment Counselors of Maryland 2.3 2.4 Landmark Partners 18.1 18.3 Thompson, Siegel & Walmsley 19.0 21.1 Total assets under management $ 184.8 $ 204.4
(1)On
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Our strategies include:
i.U.S. equity, which includes small cap through large cap securities and
substantially value or blended investment styles;
ii.Global / non-U.S. equity, which includes global and international equities
including emerging markets;
iii.Fixed income, which includes government bonds, corporate bonds and other
fixed income investments in the United States ; and
iv.Alternatives, which consist of illiquid and differentiated liquid investment
strategies that include private equity, real estate and real assets, including
forestry, as well as a growing suite of liquid alternative capabilities in areas
such as long/short, market neutral and absolute return.
The following table presents our assets under management by strategy as of each
of the dates indicated:
($ in billions) September 30, 2020 December 31, 2019
U.S. equity, small/smid cap value $ 5.2 $ 6.0
U.S. equity, mid cap value 4.0 5.3
U.S. equity, large cap value 24.5 30.2
U.S. equity, core/blend 1.9 1.9
Total U.S. equity 35.6 43.4
Global equity 34.6 40.3
International equity 54.2 54.9
Emerging markets equity 23.8 28.7
Total global / non-U.S. equity 112.6 123.9
Fixed income 12.7 13.3
Alternatives 23.9 23.8
Total assets under management $ 184.8 $ 204.4
The following table shows assets under management by client type as of each of
the dates indicated:
($ in billions) September 30, 2020 December 31, 2019
AUM % of total AUM % of total
Sub-advisory $ 36.3 19.6 % $ 40.5 19.8 %
Corporate/Union 33.6 18.2 % 38.6 18.9 %
Public/Government 70.7 38.3 % 75.2 36.8 %
Endowment/Foundation 4.0 2.2 % 5.3 2.6 %
OM plc Group 1.8 1.0 % 2.1 1.0 %
Commingled Trust/UCITS 27.5 14.9 % 30.8 15.1 %
Mutual Fund 2.1 1.1 % 2.2 1.1 %
Other 8.8 4.8 % 9.7 4.7 %
Total assets under management $ 184.8 $ 204.4
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The following table shows assets under management by client location as of each
of the dates indicated:
($ in billions) September 30, 2020 December 31, 2019
AUM % of total AUM % of total
U.S. $ 136.8 74.0 % $ 148.4 72.6 %
Europe 17.0 9.2 % 20.1 9.8 %
Asia 10.1 5.5 % 12.4 6.1 %
Australia 8.2 4.4 % 9.4 4.6 %
Other 12.7 6.9 % 14.1 6.9 %
Total assets under management $ 184.8 $ 204.4
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.
Realizations include distributions related to the sale of alternative assets,
which represent a return on investment.
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
equity-accounted Affiliate. In addition, reinvested income and distributions for
each segment 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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Table of Contents The following table summarizes our asset flows and market appreciation (depreciation) by segment for each of the periods indicated:
Three Months Ended September 30, Nine Months Ended September 30,
($ in billions, unless otherwise noted) 2020 2019 2020 2019
Quant & Solutions
Beginning balance $ 92.0 $ 97.6 $ 101.9 $ 85.2
Gross inflows 2.8 3.0 9.8 10.6
Gross outflows (5.7) (3.6) (12.5) (9.1)
Reinvested income and distributions 0.6 0.7 2.2 2.1
Net flows (2.3) 0.1 (0.5) 3.6
Market appreciation (depreciation) 5.7 (2.2) (6.0) 6.7
Ending balance $ 95.4 $ 95.5 $ 95.4 $ 95.5
Average AUM(1) $ 95.7 $ 96.0 $ 93.1 $ 94.1
Alternatives
Beginning balance $ 24.1 $ 23.5 $ 23.8 $ 23.8
Gross inflows 0.8 0.6 1.6 1.3
Gross outflows (0.1) (0.1) (0.3) (0.7)
Net flows 0.7 0.5 1.3 0.6
Market depreciation (0.2) - (0.2) (0.1)
Realizations and other(2) (0.7) (0.8) (1.0) (1.1)
Ending balance $ 23.9 $ 23.2 $ 23.9 $ 23.2
Average AUM(1) $ 23.9 $ 23.2 $ 24.0 $ 23.6
Liquid Alpha(3)
Beginning balance $ 64.9 $ 103.9 $ 78.7 $ 97.3
Sale of Affiliate (1.7) - (1.7) -
Gross inflows 2.8 1.0 8.0 4.7
Gross outflows (3.1) (8.4) (12.3) (18.7)
Reinvested income and distributions 0.4 0.6 1.3 2.2
Net flows 0.1 (6.8) (3.0) (11.8)
Market appreciation (depreciation) 2.2 1.0 (8.5) 12.6
Ending balance $ 65.5 $ 98.1 $ 65.5 $ 98.1
Average AUM $ 65.2 $ 99.8 $ 67.5 $ 101.2
Average AUM of consolidated Affiliates $ 63.0 $ 97.6 $ 65.4 $ 99.1
Total(4)
Beginning balance $ 181.0 $ 225.0 $ 204.4 $ 206.3
Sale of Affiliate (1.7) - (1.7) -
Gross inflows 6.4 4.6 19.4 16.6
Gross outflows (8.9) (12.1) (25.1) (28.5)
Reinvested income and distributions 1.0 1.3 3.5 4.3
Net flows (1.5) (6.2) (2.2) (7.6)
Market appreciation (depreciation) 7.7 (1.2) (14.7) 19.2
Realizations and other(2) (0.7) (0.8) (1.0) (1.1)
Ending balance $ 184.8 $ 216.8 $ 184.8 $ 216.8
Average AUM $ 184.8 $ 219.0 $ 184.6 $ 218.9
Average AUM of consolidated Affiliates $ 182.6 $ 216.8 Annualized basis points: inflows 41.8 33.7 37.4 34.8 Annualized basis points: outflows 34.5 30.1 39.4 34.0 Annualized revenue impact of net flows ($ in millions)$ (0.5) $ (16.2) $ (14.1) $ (24.4) 48
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(1)Average AUM equals average AUM of consolidated Affiliates.
(2)Realizations include distributions related to the sale of alternative assets,
and represent a return on investments. Other activity primarily relates to the
decline in billable AUM as a legacy alternative fund transitioned from billing
based on committed AUM to net asset value.
(3)The following table summarizes our asset flows and market appreciation
(depreciation) for the Liquid Alpha segment excluding Barrow Hanley and Copper
Rock for the periods indicated:
Three Months Ended September 30, Nine Months Ended September 30,
($ in billions) 2020 2019 2020 2019
Liquid Alpha
Beginning balance $ 19.1 $ 22.8 $ 23.1 $ 21.3
Net flows 1.1 (0.6) 0.5 (1.3)
Market appreciation
(depreciation) 0.7 - (2.7) 2.2
Ending balance $ 20.9 $ 22.2 $ 20.9 $ 22.2
Average AUM of consolidated
Affiliates $ 18.0 $ 20.1 $ 17.9 $ 20.6 (4)The following table summarizes our total asset flows and market appreciation (depreciation) excluding Barrow Hanley and Copper Rock:
Three Months Ended September 30, Nine Months Ended September 30,
($ in billions) 2020 2019 2020 2019
Total
Beginning balance $ 135.2 $ 143.9 $ 148.8 $ 130.3
Net flows (0.5) - 1.4 2.9
Market appreciation
(depreciation) 6.2 (2.2) (9.0) 8.8
Realizations and other (0.7) (0.8) (1.0) (1.1)
Ending balance $ 140.2 $ 140.9 $ 140.2 $ 140.9
Average AUM of consolidated
Affiliates $ 137.6 $ 139.3 $ 135.1 $ 138.3
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, including U.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.
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The following table summarizes our asset flows by client type for each of the
periods indicated:
($ in billions) Three Months Ended September 30, Nine Months Ended September 30,
2020 2019 2020 2019
Sub-advisory
Beginning balance $ 34.5 $ 64.3 $ 40.5 $ 61.3
Sale of Affiliate (0.2) - (0.2) -
Gross inflows 1.5 0.9 5.3 3.4
Gross outflows (1.4) (5.7) (5.9) (13.5)
Reinvested income and distributions(1) 0.2 0.4 0.7 1.3
Net flows 0.3 (4.4) 0.1 (8.8)
Market appreciation (depreciation) 1.7 0.3 (4.1) 7.7
Ending balance $ 36.3 $ 60.2 $ 36.3 $ 60.2
Institutional
Beginning balance $ 136.3 $ 149.3 $ 152.0 $ 135.1
Sale of Affiliate (1.4) - (1.4) -
Gross inflows 4.3 3.3 12.1 11.5
Gross outflows (7.3) (6.0) (17.5) (13.7)
Reinvested income and distributions(1) 0.7 0.8 2.6 2.8
Net flows (2.3) (1.9) (2.8) 0.6
Market appreciation (depreciation) 5.7 (1.4) (9.2) 10.6
Realizations and other(2) (0.7) (0.8) (1.0) (1.1)
Ending balance $ 137.6 $ 145.2 $ 137.6 $ 145.2
Retail/Other
Beginning balance $ 10.2 $ 11.4 $ 11.9 $ 9.9
Sale of Affiliate (0.1) - (0.1) -
Gross inflows 0.6 0.4 2.0 1.7
Gross outflows (0.2) (0.4) (1.7) (1.3)
Reinvested income and distributions(1) 0.1 0.1 0.2 0.2
Net flows 0.5 0.1 0.5 0.6
Market appreciation (depreciation) 0.3 (0.1) (1.4) 0.9
Ending balance $ 10.9 $ 11.4 $ 10.9 $ 11.4
Total
Beginning balance $ 181.0 $ 225.0 $ 204.4 $ 206.3
Sale of Affiliate (1.7) - (1.7) -
Gross inflows 6.4 4.6 19.4 16.6
Gross outflows (8.9) (12.1) (25.1) (28.5)
Reinvested income and distributions(1) 1.0 1.3 3.5 4.3
Net flows (1.5) (6.2) (2.2) (7.6)
Market appreciation (depreciation) 7.7 (1.2) (14.7) 19.2
Realizations and other(2) (0.7) (0.8) (1.0) (1.1)
Ending balance $ 184.8 $ 216.8 $ 184.8 $ 216.8
(1) Reinvested income and distributions is allocated based on consolidated total
distribution rate multiplied by the beginning of period AUM of each client type.
(2)Realizations include distributions related to the sale of alternative assets,
and represent a return on investments. Other activity primarily relates to the
decline in billable AUM as a legacy alternative fund transitioned from billing
based on committed AUM to net asset value.
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It is a strategic objective to increase our percentage of assets under
management sourced from non-U.S. clients. Our categorization by client location
includes:
i. U.S. -based clients, where the contracting client is based in the United
States , and
ii. Non-U.S. -based clients, where the contracting client is based outside the
United States .
The following table summarizes asset flows by client location for each of the
periods indicated:
($ in billions) Three Months Ended September 30, Nine Months Ended September 30,
2020 2019 2020 2019
U.S.
Beginning balance $ 132.1 $ 169.9 $ 148.4 $ 156.8
Sale of Affiliate (0.5) - (0.5) -
Gross inflows 4.5 2.9 14.1 10.5
Gross outflows (5.1) (8.8) (16.4) (21.0)
Reinvested income and distributions(1) 0.7 1.0 2.5 3.3
Net flows 0.1 (4.9) 0.2 (7.2)
Market appreciation (depreciation) 5.8 (0.6) (10.4) 15.0
Realizations and other(2) (0.7) (0.7) (0.9) (0.9)
Ending balance $ 136.8 $ 163.7 $ 136.8 $ 163.7
Non-U.S.
Beginning balance $ 48.9 $ 55.1 $ 56.0 $ 49.5
Sale of Affiliate (1.2) - (1.2) -
Gross inflows 1.9 1.7 5.3 6.1
Gross outflows (3.8) (3.3) (8.7) (7.5)
Reinvested income and distributions(1) 0.3 0.3 1.0 1.0
Net flows (1.6) (1.3) (2.4) (0.4)
Market appreciation (depreciation) 1.9 (0.6) (4.3) 4.2
Realizations and other(2) - (0.1) (0.1) (0.2)
Ending balance $ 48.0 $ 53.1 $ 48.0 $ 53.1
Total
Beginning balance $ 181.0 $ 225.0 $ 204.4 $ 206.3
Sale of Affiliate (1.7) - (1.7) -
Gross inflows 6.4 4.6 19.4 16.6
Gross outflows (8.9) (12.1) (25.1) (28.5)
Reinvested income and distributions(1) 1.0 1.3 3.5 4.3
Net flows (1.5) (6.2) (2.2) (7.6)
Market appreciation (depreciation) 7.7 (1.2) (14.7) 19.2
Realizations and other(2) (0.7) (0.8) (1.0) (1.1)
Ending balance $ 184.8 $ 216.8 $ 184.8 $ 216.8
(1)Reinvested income and distributions is allocated based on consolidated
distribution total rate multiplied by the beginning of period AUM of each client
location.
(2)Realizations include distributions related to the sale of alternative assets,
and represent a return on investments. Other activity primarily relates to the
decline in billable AUM as a legacy alternative fund transitioned from billing
based on committed AUM to net asset value.
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At September 30, 2020 , our total assets under management were $184.8 billion , an
increase of $3.8 billion , or 2.1%, compared to $181.0 billion at June 30, 2020
and a decrease of $(32.0) billion , or (14.8)%, compared to $216.8 billion at
September 30, 2019 . The change in assets under management during the three
months ended September 30, 2020 reflects net market appreciation of $7.7 billion
from continued market recovery, partially offset by net flows of $(1.5) billion
and the sale of Copper Rock of $(1.7) billion . The change in assets under
management during the nine months ended September 30, 2020 reflects net market
depreciation of $(14.7) billion , driven by the COVID-19 pandemic that caused
significant market disruption in the first quarter of 2020, realizations and
other of $(1.0) billion , net flows of $(2.2) billion including reinvested income
and distributions of $3.5 billion , and the sale of Copper Rock of $(1.7)
billion .
For the three months ended September 30, 2020 , our net flows were $(1.5) billion
compared to $(1.7) billion for the three months ended June 30, 2020 and $(6.2)
billion for the three months ended September 30, 2019 . Net flows for the three
months ended September 30, 2020 included $(1.0) billion related to Barrow Hanley
and Copper Rock. Reinvested income and distributions of $1.0 billion , $1.2
billion and $1.3 billion are reflected in the net flows for the three months
ended September 30, 2020 , June 30, 2020 and September 30, 2019 , respectively.
For the three months ended September 30, 2020 , the annualized revenue impact of
the net flows was $(0.5) million . This is compared to the annualized revenue
impact of net flows of $(13.4) million for the three months ended June 30, 2020
and $(16.2) million for the three months ended September 30, 2019 . Gross inflows
of $6.4 billion during the three-month period yielded approximately 42 bps, and
gross outflows in the same period of $(8.9) billion yielded approximately 34
bps.
For the nine months ended September 30, 2020 , our net flows were $(2.2) billion
compared to $(7.6) billion for the nine months ended September 30, 2019 . The
improvement in net flows during the nine months ended September 30, 2020
compared to the nine months ended September 30, 2019 was primarily due to
improvement of the Liquid Alpha segment. Net flows during the nine months ended
September 30, 2020 included $(3.6) billion related to Barrow Hanley and Copper
Rock. Reinvested income and distributions of $3.5 billion , and $4.3 billion are
reflected in the net flows for the nine months ended September 30, 2020 and
September 30, 2019 , respectively. For the nine months ended September 30, 2020 ,
the annualized revenue impact of the net flows was $(14.1) million compared to
$(24.4) million for the nine months ended September 30, 2019 due to lower net
outflows in 2020. Gross inflows of $19.4 billion in the nine months ended
September 30, 2020 yielded approximately 37 bps compared to $16.6 billion
yielding approximately 35 bps in the year-ago period. Gross outflows of $(25.1)
billion yielded approximately 39 bps in the nine months ended September 30, 2020
compared to $(28.5) billion yielding approximately 34 bps in the year-ago
period.
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