DIAMOND HILL INVESTMENT GROUP, INC. Forward-Looking Statements
Throughout this Quarterly Report on Form 10-Q and other publicly available documents, including the documents incorporated herein by reference, the Company may make forward-looking statements within the meaning of theU.S. Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), relating to such matters as anticipated operating results, AUM prospects and levels, technological developments, economic trends (including interest rates and market volatility), expected transactions and similar matters. The words "believe," "expect," "anticipate," "estimate," "may," "will," "likely," "project," "should," "hope," "seek," "plan," "intend" and similar expressions identify forward-looking statements that speak only as of the date thereof. While the Company believes that the assumptions underlying its forward-looking statements are reasonable, investors are cautioned that any of the assumptions could prove to be inaccurate and, accordingly, actual results and experiences could differ materially from the anticipated results or other expectations expressed in the forward-looking statements. Factors that could cause such actual results or experiences to differ from results discussed in the forward-looking statements include, but are not limited to: (i) any reduction in the Company's AUM; (ii) withdrawal, renegotiation, or termination of DHCM's investment advisory agreements; (iii) damage to the Company's reputation; (iv) failure to comply with investment guidelines or other contractual requirements; (v) challenges from the competition the Company faces in its business; (vi) adverse regulatory and legal developments; (vii) unfavorable changes in tax laws or limitations; (viii) interruptions in or failure to provide critical technological service by the Company or third parties; (ix) adverse civil litigation and government investigations or proceedings; (x) risk of loss on the Company's investments; (xi) lack of sufficient capital on satisfactory terms; (xii) losses or costs not covered by insurance; (xiii) impairment of goodwill or intangible assets; (xiv) a decline in the performance of our products; (xv) changes in interest rates; (xvi) changes in national and local economic and political conditions; (xvii) the continuing economic uncertainty in various parts of the world; (xviii) the effects of the COVID-19 pandemic and the actions taken in connection therewith; (xix) political uncertainty caused by, among other things, political parties, economic nationalist sentiments, tensions surrounding the current socioeconomic landscape, and other risks identified from time-to-time in other public documents the Company files with theSEC .
General
The Company derives consolidated revenue and net income from investment advisory and fund administration services provided by DHCM. DHCM is a registered investment adviser under the Investment Advisers Act of 1940, as amended. DHCM sponsors, distributes, and provides investment advisory and related services to clients through pooled investment vehicles, including the Funds, DHMF, separately managed accounts, and model delivery programs. DHCM is committed to generating excellent, long-term investment outcomes and building enduring client partnerships. By committing to shared investment principles, including valuation-disciplined active portfolio management, fundamental bottom-up research, and a long-term business owner mindset, DHCM has created a suite of investment strategies designed for long-term strategic allocations from institutionally-oriented investors. DHCM's core values of curiosity, ownership, trust, and respect create an environment where investment professionals focus on results and all teammates focus on the overall client experience. The combination of these investment principles and core values creates an aligned boutique model ensuring our associates have a vested interest in our clients' success. This alignment with clients is emphasized through: (i) personal investment byDiamond Hill employees in the strategies managed, (ii) a fee philosophy focused on a fair sharing of the economics among clients, employees, and shareholders, (iii) a strict adherence to capacity discipline ensuring the ability to add value for existing clients, and (iv) compensation driven by the value created for clients. The Company's primary objective is to fulfill its fiduciary duty to its clients. The Company believes this focus on generating excellent, long-term investment outcomes and building enduring client partnerships will enable it to grow its intrinsic value to achieve a compelling, long-term return for its shareholders.
Assets Under Management
The Company derives revenue primarily from DHCM's investment advisory and
administration fees. Investment advisory and administration fees paid to DHCM
are generally based on the value of the investment portfolios it manages and
fluctuate with changes in the total value of its AUM. The Company, through DHCM,
recognizes revenue when it satisfies its performance obligations under the terms
of a contract with a client.
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The Company's revenues are highly dependent on both the value and composition of AUM. The following is a summary of the Company's AUM by product and investment objective, as well as a roll-forward of the change in AUM, for the three months endedMarch 31, 2022 and 2021: Assets Under Management As of March 31, (in millions, except percentages) 2022 2021 % Change Proprietary funds$ 19,392 $ 20,954 (7) % Sub-advised funds 3,846 3,575 8 % Separately managed accounts 7,084 6,053 17 % Total AUM$ 30,322 $ 30,582 (1) % Assets Under Management by Investment Strategy As of March 31, (in millions, except percentages) 2022 2021 % Change U.S. Equity Large Cap$ 20,631 $ 18,317 13 % Small-Mid Cap 3,139 3,128 - % Mid Cap 1,112 1,097 1 % Small Cap 489 616 (21) % All Cap Select 489 427 15 % Large Cap Concentrated 82 43 91 % Micro Cap 15 - NM Total U.S. Equity 25,957 23,628 10 % Alternatives Long-Short 2,080 2,028 3 % Total Alternatives 2,080 2,028 3 % Global/International Equity International 56 19 195 % Global(a) - 16 NM Total Global/International Equity 56 35 60 % Fixed Income Short Duration Securitized Bond 1,580 1,253 26 % Core Fixed Income 636 550 16 % Long Duration Treasury 41 47 (13) % Corporate Credit(b) - 2,140 NM High Yield(b) - 965 NM Total Fixed Income 2,257 4,955 (54) % Total-All Strategies 30,350 30,646 (1) % (Less: Investments in affiliated funds)(c) (28) (64) (56) % Total AUM$ 30,322 $ 30,582 (1) %
(a)
(b) The High Yield-Focused Advisory Contracts were sold to Brandywine Global
effective
(c) Certain of the Funds own shares of the
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Change in Assets
Under Management
For the Three Months Ended
March 31,
(in millions) 2022 2021
AUM at beginning of the period $ 31,028 $ 26,411
Net cash inflows (outflows)
proprietary funds 173 1,877
sub-advised funds (25) 42
separately managed accounts 89 (175)
237 1,744
Net market appreciation (depreciation) and income (943) 2,427
Increase (decrease) during the period (706) 4,171
AUM at end of the period $
30,322
Average AUM during the period$ 30,459 $ 28,163 Net Cash Inflows Further Breakdown For the Three Months Ended March 31, (in millions) 2022 2021 Net cash inflows Equity $ 193$ 1,256 Fixed Income 44 488 $ 237$ 1,744 AUM decreased$0.7 billion during the three months endedMarch 31, 2022 , due primarily to depreciation in the financial markets, which was partially offset by net inflows into our strategies during the period. With the exception of Small Cap and Mid Cap, all of our other equity strategies had positive flows during the three months endedMarch 31, 2022 . Fixed income net inflows during the three months endedMarch 31, 2022 , were primarily into our Core Bond strategy.
Model Delivery Programs - Assets Under Advisement
DHCM provides strategy-specific model portfolios to sponsors of model delivery
programs. DHCM does not have discretionary investment authority over individual
client accounts in model delivery programs, and therefore these assets are not
included in the Company's AUM. Rather, we refer to these model delivery assets
as assets under advisement ("AUA"). DHCM is paid for its services by the program
sponsor at a pre-determined rate based on the amount of AUA in the program.
Model delivery AUA was $2.1 billion as of March 31, 2022 , $2.1 billion as of
December 31, 2021 , and $1.4 billion as of March 31, 2021 .
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