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 the Company's 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 after-effects of the COVID-19 pandemic; (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 the Company's associates have a vested interest in the Company's clients' success. This alignment with clients is emphasized through: (i) personal investment by Company 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. 21
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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- and six-month periods endedJune 30, 2022 and 2021: Assets Under Management As of June 30, (in millions, except percentages) 2022 2021 % Change Proprietary funds$ 16,494 $ 22,004 (25) % Sub-advised funds 3,137 3,651 (14) % Separately managed accounts 6,158 6,705 (8) % Total AUM$ 25,789 $ 32,360 (20) % Assets Under Management by Investment Strategy As of June 30, (in millions, except percentages) 2022 2021 % Change U.S. Equity Large Cap$ 17,153 $ 19,604 (13) % Small-Mid Cap 2,624 3,042 (14) % Mid Cap 904 1,081 (16) % Small Cap 404 603 (33) % All Cap Select 417 419 - % Large Cap Concentrated 82 50 64 % Micro Cap 13 11 18 % Total U.S. Equity 21,597 24,810 (13) % Alternatives Long-Short 1,894 2,058 (8) % Total Alternatives 1,894 2,058 (8) % Global/International Equity International 49 21 133 % Global(a) - 17 NM Total Global/International Equity 49 38 29 % Fixed Income Short Duration Securitized Bond 1,497 1,345 11 % Core Fixed Income 734 710 3 % Long Duration Treasury 37 50 (26) % Total Fixed Income 2,268 2,105 8 % Other Corporate Credit - 2,266 NM High Yield - 1,148 NM Total Other(b) - 3,414 NM Total-All Strategies 25,808 32,425 (20) % (Less: Investments in affiliated funds)(c) (19) (65) (71) % Total AUM$ 25,789 $ 32,360 (20) % 22
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(a)
(b) The High Yield-Focused Advisory Contracts were sold to Brandywine Global
effective
(c) Certain of the Funds own shares of theDiamond Hill Short Duration Securitized Bond Fund . The Company reduces the total AUM by the investments held in this affiliated fund. Change in Assets Under Management For the Three Months Ended June 30, (in millions) 2022 2021 AUM at beginning of the period$ 30,322 $ 30,582 Net cash inflows (outflows) proprietary funds (428) 260 sub-advised funds (157) (99) separately managed accounts 70 389 (515) 550 Net market appreciation (depreciation) and income (4,018) 1,228 Increase (decrease) during the period (4,533) 1,778 AUM at end of the period $
25,789
Average AUM during the period$ 28,177 $ 32,095 Change in Assets Under Management For the Six Months Ended June 30, (in millions) 2022 2021 AUM at beginning of the period$ 31,028 $ 26,411 Net cash inflows (outflows) proprietary funds (255) 1,987 sub-advised funds (182) (57) separately managed accounts 158 214 (279) 2,144 Net market appreciation (depreciation) and income (4,960) 3,805 Increase (decrease) during the period (5,239) 5,949 AUM at end of the period $
25,789
Average AUM during the period$ 29,262 $ 30,146 23
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Table of Contents Net Cash Inflows (Outflows) Further Breakdown For the Three Months Ended June 30, (in millions) 2022 2021 Net cash inflows (outflows) Equity$ (576) $ 65 Fixed Income 61 485$ (515) $ 550 Net Cash Inflows (Outflows) Further Breakdown For the Six Months Ended June 30, (in millions) 2022 2021 Net cash inflows (outflows) Equity$ (383) $ 1,200 Fixed Income 104 944$ (279) $ 2,144 AUM decreased$4.5 billion during the three months endedJune 30, 2022 , due primarily to depreciation in the financial markets, and net outflows out of the Company's strategies during the period. The Company experienced equity outflows during the period which were partially offset by flows into its Core Bond strategy. Equity outflows were primarily out of the Company's Large Cap strategy. AUM decreased$5.2 billion during the six months endedJune 30, 2022 , due primarily to depreciation in the financial markets and net outflows out of the Company's strategies. The Company experienced equity outflows during the period which were partially offset by flows into its Core Bond strategy. Equity outflows were primarily out of the Company's Large Cap 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, the Company refers 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$1.8 billion as ofJune 30, 2022 ,$2.1 billion as ofDecember 31, 2021 , and$1.8 billion as ofJune 30, 2021 .
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