DIAMOND HILL INVESTMENT GROUP, INC. Forward-Looking Statements
Throughout this 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," "guidance," "forecast," "may," "will," "likely," "project," "should," "hope," "seek," "plan," "intend" and similar expressions identify forward-looking statements that speak only as of the date thereof. Similarly, descriptions of our objectives, strategies, plans, goals or targets are also forward-looking statements. 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 and inflation; (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 . Readers are cautioned not to place undue reliance on forward-looking statements. The Company undertakes no obligation to publicly update forward-looking statements. Readers are advised, however, to consult any further disclosures the Company makes on related subjects in its public announcements andSEC filings.
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 1940 Act, 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 success of the Company's clients. 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.
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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 the applicable contract.
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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 nine-month periods endedSeptember 30, 2022 and 2021: Assets Under Management As of September 30, (in millions, except percentages) 2022 2021 % Change Proprietary funds$ 15,151 $ 18,750 (19) % Sub-advised funds 3,038 3,665 (17) % Separately managed accounts 5,693 6,771 (16) % Total AUM$ 23,882 $ 29,186 (18) % Assets Under Management by Investment Strategy As of September 30, (in millions, except percentages) 2022 2021 % Change U.S. Equity Large Cap$ 15,713 $ 19,651 (20) % Small-Mid Cap 2,515 3,031 (17) % Mid Cap 847 1,086 (22) % Small Cap 342 595 (43) % All Cap Select 407 404 1 % Large Cap Concentrated 86 50 72 % Micro Cap 14 14 - % Total U.S. Equity 19,924 24,831 (20) % Alternatives Long-Short 1,776 2,062 (14) % Total Alternatives 1,776 2,062 (14) % Global/International Equity International 45 29 55 % Global(a) - 16 NM Total Global/International Equity 45 45 - % Fixed Income Short Duration Securitized Bond 1,357 1,494 (9) % Core Fixed Income 755 764 (1) % Long Duration Treasury 34 50 (32) % Total Fixed Income 2,146 2,308 (7) % Total-All Strategies 23,891 29,246 (18) % (Less: Investments in affiliated funds)(b) (9) (60) NM Total AUM$ 23,882 $ 29,186 (18) %
(a)
(b) Certain of the Funds own shares of the
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Change in Assets
Under Management
For the Three Months Ended
September 30,
(in millions) 2022 2021
AUM at beginning of the period $ 25,789 $ 32,360
Net cash inflows (outflows)
proprietary funds (629) 155
sub-advised funds 53 -
separately managed accounts (184) 65
(760) 220
Sale of high yield-focused advisory contracts - (3,456)
Net market appreciation (depreciation) and income (1,147) 62
Decrease during the period (1,907) (3,174)
AUM at end of the period $ 23,882 $ 29,186
Average AUM during the period $ 26,245 $ 30,659
Change in Assets
Under Management
For the Nine Months Ended
September 30,
(in millions) 2022 2021
AUM at beginning of the period $ 31,028 $ 26,411
Net cash inflows (outflows)
proprietary funds (884) 2,142
sub-advised funds (129) (57)
separately managed accounts (25) 279
(1,038) 2,364
Sale of high yield-focused advisory contracts - (3,456)
Net market appreciation (depreciation) and income (6,108) 3,867
Increase (decrease) during the period (7,146) 2,775
AUM at end of the period $
23,882
Average AUM during the period$ 28,300 $ 30,305 25
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Net Cash Inflows (Outflows)
Further Breakdown
For the Three Months Ended
September 30,
(in millions) 2022 2021
Net cash inflows (outflows)
Equity $ (682) $ (18)
Fixed Income (78) 238
$ (760) $ 220
Net Cash Inflows (Outflows)
Further Breakdown
For the Nine Months Ended
September 30,
(in millions) 2022 2021
Net cash inflows (outflows)
Equity $ (1,064) $ 1,182
Fixed Income 26 1,182
$ (1,038) $ 2,364
AUM decreased $1.9 billion during the three months ended September 30, 2022 , due
to depreciation in the financial markets and net outflows out of the Company's
strategies during the period. The Company experienced both equity and fixed
income outflows during the period. Equity outflows were primarily out of the
Company's Large Cap strategy.
AUM decreased $7.1 billion during the nine months ended September 30, 2022 , due
to depreciation in the financial markets and net outflows out of the Company's
strategies. The Company experienced equity outflows during the period 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 or 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$1.7 billion as ofSeptember 30, 2022 ,$2.1 billion as ofDecember 31, 2021 , and$1.9 billion as ofSeptember 30, 2021 . 26
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