Diamond Hill Investment : 2021 (Dated March 11, 2022)

DIAMOND HILL INVESTMENT GROUP, INC.

ANNUAL LETTER TO SHAREHOLDERS

March 11, 2022

Dear Fellow Shareholders:

At Diamond Hill, we are fiercely committed to improving the lives of our clients and those they serve through exceptional investment results. Doing so requires discipline, patience, and a passion for what we do and who we serve. It's that passion that drives us to develop outstanding, long-term partnerships with our clients, because we know that great investment outcomes enable our clients to achieve their goals.

We are pleased with our strong 2021 investment and financial results, and we remain focused on the long-term impact we have on our clients. Broadly speaking, we aim to deliver exceptional results for clients over a full market cycle. We believe we are one of few in our industry with a truly long-termfocus-in our client partnerships, in our investment approach, and in the way we manage our business.

Market cycles don't follow a set schedule. Since the global financial crisis, investors have experienced more than a decade of strong returns, while perpetually low interest rates were a tailwind to both equities and fixed income. Considering broad market cap-weighted indices, equity valuations are elevated by any historical standard. For the most part, market leadership has been driven by large-cap growth and momentum, which has created historically wide valuation spreads between value and growth.

In this environment, absolute returns have been strong over the past decade-a market dynamic that has made our job as valuation-disciplined investors more challenging. Looking forward, we believe a shift in market leadership is underway that can favor active investors with the discipline to identify mispriced investments. We believe high market valuations, combined with reasonably high operating margins in a rising interest rate environment, likely mean absolute returns will be harder to come by in the period ahead. We are confident in our ability to navigate such an environment well, especially given our ability to be selective in the more concentrated strategies we manage and their differentiation from core benchmarks.

Great Outcomes Require Great Partnerships

Our commitment to developing enduring client partnerships is demonstrated by the care we take in aligning our interests with our clients through capacity discipline, by investing alongside them, and by keeping fees reasonable so clients hold on to more of their returns. To ensure we have a disciplined platform that allows us to deliver for clients, our investment team aligns on our foundational, shared principles.

1

• We invest with a valuation discipline, which goes beyond investing according to common industry definitions of growth versus value. Instead, we believe in taking an ownership stake in an investment at a discount to what we believe it is worth and waiting patiently for value to be realized.
• We believe we can add the most value with an active, fundamentally driven process.
• We emphasize an ownership mindset. Our investment professionals approach each investment as long-term owners. Further, our portfolio managers invest heavily alongside our clients. Every employee owns shares in our company from their first day and has the opportunity to build further ownership in our company and invest in our strategies along with our clients, promoting an ownership mentality throughout the firm.
• We are long-term oriented. We believe in the rigor of our research and the power of time- horizon arbitrage. As bottom-up,benchmark-agnostic investors, we expect to outperform over the long term. We are comfortable with shorter periods where our portfolios' performance may meaningfully differ from benchmarks or peers, and we endeavor to partner with clients who understand this well.
• We are committed to capacity discipline. We believe prudent capacity management puts our clients' interests first by ensuring the size of a strategy never becomes an impediment to delivering investment performance.

As investment managers, we are constantly focused on delivering great investment returns for clients. However, we recognize that excellent investment results, while a critical part of our success, are not enough. Our clients benefit from our commitment to transparency, accountability, and targeted communication-a client experience that addresses their specific needs from a long- term partner they can trust, helping instill the confidence to remain invested through varying market environments.

Partnering To Do More

We are thoughtful in developing partnerships with a diverse set of clients who share our long-term discipline, including institutions (endowments, foundations, government entities, health care systems, etc.), financial intermediaries, family offices, and other institutionally oriented investors. We are committed to staying true to who we are, rather than trying to be all things to all people, using our shared investment principles as the foundation.

Great investment outcomes require alignment on a long-term time horizon. When we form partnerships, the impact our investment outcomes can have becomes clear. An example is our long-term partnership with the nonprofit LifeCare Alliance, a client since 2002. LifeCare Alliance was central Ohio's first in-home health care agency, Ohio's first agency to provide visiting nurses, and is the nation's largest non-profitMeals-on-Wheels providers. Our investment results mean LifeCare Alliance can provide for more patients, hire more health care professionals, and deliver more meals-in general, do more to fulfill its mission.

We are motivated knowing our passion for deep, fundamental research can translate over time into more hospital beds, scholarship funds, innovation funding, and more secure retirements.

Long-Term Goals Driving Strategic Initiatives

Creating lasting value requires alignment in how we assess and define our success for our key stakeholder groups-clients, associates, and shareholders. For our clients, we want to deliver excellent investment outcomes that result in partnerships where our clients fundamentally believe in what we do and how we invest. For our associates, we aim to cultivate a workplace where we can thrive doing our best work in a culture that enables success. For our shareholders, we aim to

2

build a business that is positioned to succeed over the long run-one in which we remain constantly focused on improving our investment and operational excellence.

Our long-term goals include continuing to enhance our ability to outperform for clients, further diversifying our business so we can continue to weather any market environment, and thoughtfully growing the business-to bolster our firm's long-term viability for the benefit of each of our stakeholders. We believe an innovative mindset focused on growing strategies to capacity and developing new capabilities will enable us to drive future growth.

In 2021, we developed a new strategic plan to specifically address our long-term goals. As part of that plan, we will continue our never-ending focus on delivering excellent client results. We plan to grow our unconstrained strategies and build on the early success of our international team. We will continue expanding our fixed income strategies, including offering strategies that match clients' needs with our expertise. Success in these areas will expand our institutional market presence, helping elongate our average client tenure and further diversify our client base.

Enabling Great Investment Results and Client-Centric Growth

Our focus on long-term performance rather than asset growth incentivizes our portfolio managers to prioritize existing clients and close strategies before they reach a size that could limit their ability to deliver value-added returns. In that vein, we soft-closed our Large Cap strategy in March 2021, and our Small-Mid Cap strategy remains closed to most new investors. We also refined our strategy line-up in 2021 to ensure continued alignment on delivering valuation-disciplined, long- term oriented investment outcomes, while providing us flexibility to develop new, capacity- disciplined offerings that meet client objectives and capitalize on our investment team's research capabilities.

We believe ample growth opportunity exists across our portfolio of open strategies. In 2021, the International, Core Bond, and Short Duration Securitized Bond strategies reached their five-year track records. All three have shown the ability to exceed their investment goals and serve important strategic roles in client portfolios. We also believe there is opportunity for us to reach new markets with our Micro Cap strategy. Lastly, we made our long-standingLarge Cap Concentrated strategy more broadly accessible by launching it as a mutual fund in 2021.

Financial Results

We were pleased to deliver record financial results in 2021. Our results benefited from strong investment performance and positive net flows, in addition to a tailwind from market returns. Assets under management ("AUM") finished the year at $31.0 billion, an increase of $4.6 billion, which is particularly meaningful given we sold $3.5 billion in AUM in Q3 with the sale of our Corporate Credit and High Yield strategies. We had a second consecutive year of strong net client inflows, totaling $2.1 billion in 2021. Revenue increased 44% to an all-time high of $182 million, which included $12 million from a performance-based fee that reached its first five-year measurement term in 2021.

We generated net operating income of $76 million and an operating margin of 42% in 2021. In managing our business, we focus on net operating income as adjusted, after tax (adjusted "NOPAT"), which excludes the gains and losses on deferred compensation plan investments that flow through operating income.[1] Adjusted NOPAT increased 76% to $62 million in 2021-$19.40 per share.[1] Our operating profit margin, as adjusted, was 46% in 2021, up from 38% in 2020.[1] To have appropriate flexibility to deliver for each of our stakeholders, we target an adjusted operating margin of 30%-40% over the long term. Over shorter periods, we have periodically seen that number deviate significantly from our target range. While we are pleased when we can deliver

3

above-expected margin, we continue to believe 30%-40% is the appropriate average annual expectation.

As stewards of our business, we seek to grow the long-term intrinsic value of our firm, and we typically evaluate our performance over rolling five-year periods. Over the last five years, important fundamental indicators of our intrinsic value per share have increased. AUM increased 60% from $19 billion at the end of 2016 to $31 billion at the end of 2021. Revenue increased 34% from $136 million in 2016 to $182 million in 2021. Revenue grew less than AUM due primarily to a shift in our asset mix from higher fee to lower fee strategies. We were able to grow adjusted NOPAT at a faster rate than revenue over this same five-year period, with adjusted NOPAT up 49% from $41 million in 2016 to $62 million in 2021.

Capital Allocation

Our capital allocation approach is designed to grow the intrinsic value of the business by investing in new and existing strategies and ensuring we have sufficient capital to operate the business in any market environment. When we believe we have more capital than is necessary to achieve those aims, we return capital to shareholders.

We may repurchase shares when our shares are trading below our estimate of the firm's intrinsic value. We first initiated share repurchases in Q4 2018. Since then, we have repurchased approximately 525,000 shares totaling $72 million, which represents approximately 15% of our shares outstanding when we began making repurchases. Share repurchases in 2021 were approximately 46,000 shares totaling $7.8 million. Repurchases since Q4 2018 have been partially offset by the net issuance of approximately 150,000 shares in the form of compensation to our associates over that period. We believe share-based compensation is an important way to align our interests with shareholders.

After considering strategic uses of capital and share repurchases, we evaluate any excess capital for payment of shareholder dividends. Based on our strong financial results during the year, coupled with a reduction in share repurchases compared to the prior two years, we significantly increased our dividends in 2021. Dividends included a $1 per share regular quarterly dividend and a $19 per share special dividend in Q4, totaling approximately $73 million, or $23 per share. We have paid dividends in each of the past five years cumulatively totaling $59 per share.

Given our history of consistently generating excess cash flow, in October we announced plans to increase our regular quarterly dividend from $1.00 to $1.50 per share starting in Q1 2022. Each year we will continue to consider paying an additional special dividend in Q4 after assessing our strategic capital deployment and share repurchases during the year.

Conclusion

We firmly believe the best way to generate strong long-term shareholder returns is to deliver for our clients. Our investment team is intensely focused on generating great long-term investment results for our clients, and our entire firm is committed to developing and maintaining partnerships that help instill the confidence required to remain invested through full market cycles. This perspective has enabled us to grow new and existing client relationships, which ultimately helps us deliver returns to our shareholders.

The last few years have been heavily influenced by the COVID-19 pandemic and all the related impacts it has had on markets and society. Through this period, I'm proud of the commitment our associates demonstrated to remain focused on delivering for clients. Over the last several years, we have put in place strong leadership and streamlined our strategies to focus on our competitive

4

advantages-strategies where we are confident in our long-term ability to deliver strong investment returns for clients. We have also invested in our ability to effectively communicate with clients through our distribution technology project and updating our approach to marketing. As part of that, shareholders may notice our annual documents include a new logo. In the coming months we are rolling out an updated look for our brand and an improved digital experience that we believe will improve the client experience and help convey our discipline and focus on great investment outcomes.

2022 is starting out with heightened market volatility, even when compared to the last few years. We believe this environment presents opportunities for those focused on actively managing concentrated portfolios with a valuation discipline and long-term ownership mindset, and we look forward to delivering for our clients and shareholders in the years to come.

Sincerely,

Heather Brilliant

Chief Executive Officer

1. Net operating income, as adjusted, after tax, net operating income, as adjusted, after tax per share, and operating profit margin, as adjusted, are non-GAAP performance measures. Reconciliations to GAAP measures are provided in the following Annex.

5