UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2018
or
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 1-10994
VIRTUS INVESTMENT PARTNERS, INC.
(Exact name of registrant as specified in its charter)
Delaware | 26-3962811 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
One Financial Plaza, Hartford, CT 06103
(Address of principal executive offices)
Registrant’s telephone number, including area code:
(800) 248-7971
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Name of each exchange on which registered | |
Common Stock, $.01 par value | The NASDAQ Stock Market LLC | |
(including attached Preferred Share Purchase Rights) | ||
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ¨ Yes x No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. ¨ Yes x No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes ¨ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). x Yes ¨ No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer | x | Accelerated filer | ¨ | |||
Non-accelerated filer | ¨ | Smaller reporting company | ¨ | |||
Emerging growth company | ¨ | |||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). ¨ Yes x No
The aggregate market value of the registrant’s voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold (based on the closing share price as quoted on the NASDAQ Global Market) as of the last business day of the registrant’s most recently completed second fiscal quarter was approximately $865,000,000. For purposes of this calculation, shares of common stock held or controlled by executive officers and directors of the registrant have been treated as shares held by affiliates.
There were 7,011,182 shares of the registrant’s common stock outstanding on February 11, 2019.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s Proxy Statement which will be filed with the SEC in connection with the 2019 Annual Meeting of Shareholders are incorporated by reference into Part III of this Form 10-K.
Virtus Investment Partners, Inc.
Annual Report on Form 10-K for the Fiscal Year Ended December 31, 2018
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"We," "us," "our," the "Company" and "Virtus," as used in this Annual Report on Form 10-K ("Annual Report"), refer to Virtus Investment Partners, Inc., a Delaware corporation, and its subsidiaries.
PART I
Item 1. | Business. |
Organization
Virtus Investment Partners, Inc. (the "Company"), a Delaware corporation, commenced operations on November 1, 1995 through a reverse merger of the investment management subsidiary of Phoenix Life Insurance Company ("Phoenix") with Duff & Phelps Corporation. The Company was a majority-owned subsidiary of Phoenix from 1995 to 2001 and a wholly owned subsidiary from 2001 until 2008. On December 31, 2008, the Company became an independent publicly traded company as a result of Phoenix's distribution of 100% of Virtus common stock to Phoenix stockholders in a spin-off transaction.
Our Business
We provide investment management and related services to individuals and institutions. We use a multi-manager, multi-style approach, offering investment strategies from affiliated managers, each having its own distinct investment style, autonomous investment process and individual brand. By offering a broad array of products, we believe we can appeal to a greater number of investors and have offerings across market cycles and through changes in investor preferences. Our earnings are primarily driven by asset-based fees charged for services relating to these products including investment management, fund administration, distribution and shareholder services.
We offer investment strategies for individual and institutional investors in different product structures and through multiple distribution channels. Our investment strategies are available in a diverse range of styles and disciplines, managed by a collection of differentiated investment managers. We have offerings in various asset classes (domestic and international equity, fixed income and alternative), market capitalizations (large, mid and small), styles (growth, core and value) and investment approaches (fundamental, quantitative and thematic). Our retail products include U.S. 1940 Act mutual funds, Undertaking for Collective Investment in Transferable Securities ("UCITS" or "offshore funds" and collectively with U.S. 1940 Act mutual funds, "open-end funds") exchange traded funds ("ETFs"), closed-end funds (collectively, "funds") and retail separate accounts. Our institutional products include a variety of equity and fixed income strategies for corporations, multi-employer retirement funds, public employee retirement systems, foundations and endowments. We also provide subadvisory services to other investment advisors.
Our Investment Managers
We provide investment management services through our investment managers who are registered under the Investment Advisers Act of 1940, as amended (the "Investment Advisers Act"). The investment managers are responsible for portfolio management activities for our retail and institutional products operating under advisory or subadvisory agreements. We provide our affiliated managers with distribution, operational and administrative support, thereby allowing each manager to focus primarily on investment management. We also engage select unaffiliated managers for certain of our open-end funds and ETFs. We monitor our managers’ services by assessing their performance, style and consistency and the discipline with which they apply their investment process.
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Our affiliated investment managers and their respective assets under management, styles and strategies are as follows:
Manager | Clients | Investment Management Services | Assets (in billions) | |||||
Ceredex Value Advisors | Open-end funds, institutional investors | Value-oriented strategies; large-, mid-, and small-cap equities | $ | 8.0 | ||||
Duff & Phelps Investment Management | Closed- and open-end funds and institutional investors | Equity income strategies; global listed infrastructure, U.S. and global real estate, energy, and international equities | $ | 9.0 | ||||
Kayne Anderson Rudnick Investment Management | Closed- and open-end funds, institutional investors, financial intermediaries and high-net-worth individuals | Quality-oriented equity strategies; small to large cap and in global, international and emerging strategies | $ | 22.8 | ||||
Newfleet Asset Management | Closed-and open-end funds, institutional investors, financial intermediaries and high-net-worth clients | Fixed income strategies; multi-sector, enhanced core strategies and dedicated sector strategies such as bank loans and high yield | $ | 10.2 | ||||
Rampart Investment Management Company | Closed- and open-end funds, institutional investors and financial intermediaries | Quantitative and option related strategies | $ | 1.0 | ||||
Seix Investment Advisors | Open-end funds and institutional investors | High yield, leveraged loans, investment grade taxable and tax-exempt and multi-sector strategies | $ | 21.3 | ||||
Silvant Capital Management | Open-end funds and institutional investors | Growth equity strategies, including large- cap and small-cap | $ | 0.7 | ||||
Sustainable Growth Advisers | Institutional investors and high-net-worth clients | Large-cap growth strategies, including U.S., global, international and emerging markets | $ | 10.6 | ||||
As of December 31, 2018, $8.2 billion in assets under management were managed by unaffiliated managers.
Our Investment Products
Our assets under management are in open-end funds, closed-end funds, ETFs, retail separate accounts (intermediary sponsored and private client), institutional accounts and structured products.
Assets Under Management by Product as of
December 31, 2018
($ in billions)
Fund assets | |||
Open-end funds | $ | 37.7 | |
Closed-end funds | 6.0 | ||
Exchange traded funds | 0.7 | ||
Retail separate accounts | 15.0 | ||
Institutional accounts | 27.4 | ||
Structured products | 3.6 | ||
Total Long-Term | 90.4 | ||
Liquidity (1) | 1.6 | ||
Total Assets Under Management | $ | 92.0 | |
(1) Represents assets under management in liquidity strategies, including certain open-end funds and institutional accounts
Open-End Funds
Our open-end mutual funds are offered in a variety of asset classes (domestic and international equity, taxable and non-taxable fixed income, and alternative investments), market capitalizations (large, mid and small), styles (growth, core and value) and investment approaches (fundamental, quantitative and thematic). Our Ireland domiciled UCITS are offered in select investment strategies to non-U.S. investors.
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Summary information about our open-end funds as of December 31, 2018 is as follows:
Asset Class | Number of Funds Offered | Total Assets | Advisory Fee Range (1) | ||||||
($ in millions) | (%) | ||||||||
Fixed Income | 27 | $ | 14,921.5 | 1.85-0.21 | |||||
US Equity | 22 | 12,451.9 | 2.15-0.40 | ||||||
International/Global Equity | 9 | 8,645.6 | 1.20-0.65 | ||||||
Alternatives | 9 | 969.2 | 1.30-0.55 | ||||||
Asset Allocation | 5 | 721.8 | 1.00-0.45 | ||||||
Total Open-End Funds | 72 | $ | 37,710.0 | ||||||
(1) | Percentage of average daily net assets of each fund. The percentages listed represent the range of management advisory fees paid by the funds, from the highest to the lowest. The range indicated includes the impact of breakpoints at which management advisory fees for certain of the funds in each fund type decrease as assets in the funds increase. Subadvisory fees paid on funds managed by unaffiliated subadvisers are not reflected in the percentages listed. |
Closed-End Funds
Our closed-end funds are offered in a variety of asset classes and various strategies such as, infrastructure, energy and global multi-sector. We managed the following closed-end funds as of December 31, 2018, each of which is traded on the New York Stock Exchange:
Fund Type/Name | Total Assets | Advisory Fee | |||||||
($ in millions) | % | ||||||||
Asset Allocation | |||||||||
DNP Select Income Fund | $ | 3,600.9 | 0.60-0.50 | (1) | |||||
Virtus Global Dividend & Income Fund Inc. | 325.0 | 0.70 | (2) | ||||||
Virtus Total Return Fund Inc. | 289.1 | 0.85 | (2) | ||||||
Equity | |||||||||
Duff & Phelps Global Utility Income Fund | 800.7 | 1.00 | (1) | ||||||
Alternatives | |||||||||
Duff & Phelps Select MLP and Midstream Energy Fund | 190.1 | 1.00 | (2) | ||||||
Fixed Income | |||||||||
Duff & Phelps Utility and Corporate Bond Trust | 355.3 | 0.50 | (1) | ||||||
Virtus Global Multi-Sector Income Fund | 201.9 | 0.95 | (2) | ||||||
DTF Tax-Free Income Inc. | 193.0 | 0.50 | (1) | ||||||
Total Closed-End Funds | $ | 5,956.0 | |||||||
(1) | Percentage of average weekly net assets. A range indicates that the fund has breakpoints at which management advisory fees decrease as assets in the fund increase. |
(2) | Percentage of average daily net assets of each fund. |
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Exchange Traded Funds
We offer ETFs in a range of actively managed and index-based investment capabilities across multiple asset classes, subadvised by affiliated managers and select unaffiliated investment subadvisers. The ETFs are available through Virtus ETF Advisers, a multi-manager ETF sponsor and affiliate of Virtus. We managed the following ETFs at December 31, 2018:
Fund Name | Total Assets | Advisory Fee (1) | |||||
($ in millions) | % | ||||||
InfraCap MLP ETF | $ | 405.9 | 0.075 | ||||
Virtus Newfleet Multi-Sector Bond ETF | 77.2 | 0.700 | |||||
Virtus Newfleet Dynamic Credit ETF | 60.5 | 0.550 | |||||
Virtus LifeSci Biotech Clinical Trials ETF | 26.9 | 0.450 | |||||
Virtus LifeSci Biotech Products ETF | 24.5 | 0.450 | |||||
InfraCap REIT Preferred ETF | 21.1 | 0.075 | |||||
Reaves Utilities ETF | 13.4 | 0.075 | |||||
Virtus Glovista Emerging Markets ETF | 12.5 | 0.260 | |||||
Virtus Cumberland Municipal Bond ETF | 11.2 | 0.245 | |||||
Virtus InfraCap U.S. Preferred Stock ETF | 9.9 | 0.140 | |||||
Virtus WMC Global Factor Opportunities ETF | 4.5 | 0.280 | |||||
Total ETFs | $ | 667.6 | |||||
(1) | Percentage of average daily net assets of each fund. Subadvisory fees paid on funds managed by unaffiliated subadvisers are not reflected in the percentages listed. |
Retail Separate Accounts
Intermediary-Sold Managed Accounts
Intermediary-sold managed accounts are individual investment accounts that are primarily contracted through intermediaries as part of investment programs offered to retail investors. Summary information about our intermediary-sold managed accounts as of December 31, 2018 is as follows:
Asset Class | Total Assets | |||
($ in millions) | ||||
Equity | $ | 9,474.8 | ||
Fixed income | 1,745.8 | |||
Alternative | 54.3 | |||
Total Intermediary-Sold Managed Accounts | $ | 11,274.9 | ||
Private Client Accounts
Private client accounts are investment accounts offered by our affiliate, Kayne Anderson Rudnick ("Kayne"), directly to individual investors. Kayne has advisors who provide investment advisory services employing both affiliated and unaffiliated investment managers. Summary information about our private client accounts as of December 31, 2018 is as follows:
Asset Class | Total Assets | |||
($ in millions) | ||||
Equity | $ | 2,252.0 | ||
Fixed income | 1,400.9 | |||
Alternative | 69.2 | |||
Asset Allocation | 1.4 | |||
Total Private Client Accounts | $ | 3,723.5 | ||
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Institutional Accounts
Our institutional clients include corporations, multi-employer retirement funds, public employee retirement systems, foundations and endowments as well as subadvisory services to unaffiliated mutual funds. Summary information about our institutional accounts is as follows:
Asset Class | Total Assets | |||
($ in millions) | ||||
Equity | $ | 16,507.8 | ||
Fixed income | 9,875.5 | |||
Alternatives | 1,061.7 | |||
Total Institutional Accounts | $ | 27,445.0 | ||
Structured Products
We act as collateral manager for structured finance products that primarily consist of collateralized loan obligations ("CLOs"). As of December 31, 2018, we managed $3.6 billion in structured finance products.
Our Investment Management, Administration and Shareholder Services
Our investment management, administration and shareholder service fees earned in each of the last three years were as follows:
Years Ended December 31, | |||||||||||
($ in thousands) | 2018 | 2017 | 2016 | ||||||||
Open-end funds | $ | 231,175 | $ | 175,260 | $ | 129,542 | |||||
Closed-end funds | 41,455 | 44,687 | 43,342 | ||||||||
Retail separate accounts | 73,532 | 54,252 | 40,155 | ||||||||
Institutional accounts | 77,711 | 46,600 | 18,707 | ||||||||
Structured products | 9,622 | 6,302 | 2,211 | ||||||||
Other products (1) | 3,526 | 3,974 | 1,273 | ||||||||
Total investment management fees | 437,021 | 331,075 | 235,230 | ||||||||
Administration fees | 44,503 | 34,413 | 26,997 | ||||||||
Shareholder service fees | 19,111 | 14,583 | 11,264 | ||||||||
Total | $ | 500,635 | $ | 380,071 | $ | 273,491 | |||||
(1) Includes ETFs and Liquidity strategies
Investment Management Fees
We provide investment management services pursuant to investment management agreements through our affiliated investment advisers (each an "Adviser"). With respect to our funds, the Adviser provides overall investment management services, pursuant to agreements with the funds that must be approved annually by the fund’s board of directors and that may be terminated without penalty, or automatically in certain situations, such as a "change in control" of the Adviser. We earn fees based on each fund’s average daily or weekly net assets with most fee schedules providing for rate declines or "breakpoints" as asset levels increase to certain thresholds. For funds managed by subadvisers, the agreement provides that the subadviser manage the day-to-day investment management of the fund’s portfolio and receive a management fee from the Adviser based on the percentage of average daily net assets in the funds they subadvise or a percentage of the Adviser’s management fee. Each fund bears all expenses associated with its operations. In some cases, to the extent total fund expenses exceed a specified percentage of a fund’s average net assets, the Adviser has agreed to reimburse the funds for such excess expenses. For certain of our exchange traded funds managed by unaffiliated subadvisers, the subadviser has agreed to pay the fund’s operating expenses in excess of the specified percentage of fund average assets.
For retail separate accounts and institutional accounts, fees are negotiated and based primarily on asset size, portfolio complexity and individual client requests. Fees for structured finance products, for which we act as the collateral manager, consist of senior, subordinated and, in certain instances, incentive management fees. Senior and subordinated management fees are calculated at a contractual fee rate applied against the end of the preceding quarter par value of the total collateral being managed with subordinated fees being recognized only after certain portfolio criteria are met. Incentive fees on certain of our CLOs are typically a percentage of the excess cash flows available to holders of the subordinated notes, above a threshold level internal rate of return.
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Administration Fees
We provide various administrative fund services to our open-end funds and certain of our closed-end funds. We earn fees based on each fund’s average daily or weekly net assets. These services include: record keeping, preparing and filing documents required to comply with securities laws, legal administration and compliance services, customer service, supervision of the activities of the funds’ service providers, tax services and treasury services as well as providing office space, equipment and personnel that may be necessary for managing and administering the business affairs of the funds.
Shareholder Service Fees
We provide shareholder services to our open-end mutual funds. We earn fees based on each fund’s average daily net assets. Shareholder services include maintaining shareholder accounts, processing shareholder transactions, preparing filings and performing necessary reporting, among other things. We engage third-party service providers to perform certain aspects of the shareholder services.
Our Distribution Services
We distribute our open-end funds and ETFs through financial intermediaries. We have broad access in the retail market, with distribution partners that include national and regional broker-dealers and independent financial advisory firms. Our sales efforts are supported by regional sales professionals, a national account relationship group, and a separate team for retirement and insurance products.
Our retail separate accounts are distributed through financial intermediaries and directly by teams at our affiliated managers. Our institutional services are marketed through relationships with consultants as well as directly to clients. We target key market segments, including foundations and endowments, corporate, public and private pension plans, and provide subadvisory services to other investment advisors.
Our Broker-Dealer Services
We operate two broker-dealers that are registered under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and are members of the Financial Industry Regulatory Authority ("FINRA"). They serve as principal underwriters and distributors of our open-end mutual funds and ETFs. Our broker-dealers are subject to the Securities and Exchange Commission’s ("SEC") net capital rule designed to enforce minimum standards regarding the general financial condition and liquidity of broker-dealers.
Open-end mutual fund shares and UCITS fund shares are distributed by VP Distributors, LLC ("VPD") under sales agreements with unaffiliated financial intermediaries. VPD also markets advisory services to sponsors of retail separate accounts. ETF Distributors, LLC ("ETFD") serves as the principal underwriter and distributor of our ETFs.
Our Competition
We face significant competition from a wide variety of financial institutions, including other investment management companies, as well as from proprietary products offered by our distribution partners such as banks, broker-dealers and financial planning firms. Competition in our businesses is based on several factors including investment performance, fees charged, access to distribution channels and service to financial advisers and their clients. Our competitors, many of which are larger than us, often offer similar products and use similar distribution sources and may also offer less expensive products, have greater access to key distribution channels, and have greater resources than we do.
Our Regulatory Matters
We are subject to regulation by the SEC, FINRA and other federal and state agencies and self-regulatory organizations. Each affiliated manager and unaffiliated subadviser is registered with the SEC under the Investment Advisers Act. Each open-end mutual fund, closed-end fund and ETF is registered with the SEC under the Investment Company Act of 1940 (the "Investment Company Act"). Our UCITs are subject to regulation by the Central Bank of Ireland ("CBI"), and the funds and each investment manager and sub-investment manager to the UCITs are registered with the CBI.
The financial services industry is highly regulated, and failure to comply with related laws and regulations can result in the revocation of registrations, the imposition of censures or fines, and the suspension or expulsion of a firm and/or its employees from the industry. All of our U.S.-domiciled open-end mutual funds are currently available-for-sale and are qualified in all 50 states, Washington, D.C., Puerto Rico, Guam and the U.S. Virgin Islands. Our UCITS are sold through financial intermediaries to investors
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who are not citizens of or residents of the United States. Most aspects of our investment management business, including the business of the unaffiliated subadvisers, are subject to various U.S. federal and state laws and regulations.
Our officers, directors and employees may, from time to time, own securities that are also held by one or more of our funds. Our internal policies with respect to personal investments are established pursuant to the provisions of the Investment Company Act and/or the Investment Advisers Act. Employees, officers and directors who, in the function of their responsibilities to us, meet the requirements of the Investment Company Act, Investment Advisers Act and/or FINRA regulations must disclose personal securities holdings and trading activity. Employees, officers and directors with investment discretion or access to investment decisions are subject to additional restrictions with respect to the pre-clearance of the purchase or sale of securities over which they have investment discretion or beneficial interest. Other restrictions are imposed upon supervised persons with respect to personal transactions in securities that are held, recently sold, or contemplated for purchase by our mutual funds. All supervised persons are required to report holdings and transactions on an annual and quarterly basis pursuant to the provisions of the Investment Company Act and Investment Advisers Act. In addition, certain transactions are restricted so as to avoid the possibility of improper use of information relating to the management of client accounts.
Our Employees
As of December 31, 2018, we had 577 full-time equivalent employees. None of our employees are represented by a union.
Available Information
Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, as well as proxy statements, are available free of charge on our website located at www.virtus.com as soon as reasonably practicable after they are filed with or furnished to the SEC. Reports, proxy statements and other information regarding issuers that file electronically with the SEC, including our filings, are also available to the public on the SEC’s website at http://www.sec.gov.
A copy of our Corporate Governance Principles, our Code of Conduct and the charters of our Audit Committee, Compensation Committee, Governance Committee and Risk and Finance Committee are posted on our website at http://ir.virtus.com, under "Corporate Governance" and are available in print to any person who requests copies by contacting Investor Relations by email to: investor.relations@virtus.com or by mail to Virtus Investment Partners, Inc., c/o Investor Relations, One Financial Plaza, Hartford, CT 06103. Information contained on the website is not incorporated by reference or otherwise considered part of this document.
Item 1A. | Risk Factors. |
This section describes some of the potential risks relating to our business, such as market, liquidity, operational, reputation and regulatory risks. The risks described below are some of the more important factors that could affect our business. You should carefully consider the risks described below, together with all of the other information included in this Annual Report on Form 10-K, in evaluating the Company and our common stock. If any of the risks described below actually occur, our business, revenues, profitability, results of operations, financial condition, cash flows, reputation and stock price could be materially adversely affected.
Risks Relating to Our Business
We earn substantially all of our revenues based on assets under management, which fluctuate based on many factors, and any reduction in assets under management would reduce our revenues and profitability. Assets under management fluctuate based on many factors including market conditions, investment performance and client withdrawals.
The majority of our revenues are generated from asset-based fees from investment management products and services to individuals and institutions. Therefore, if assets under management decline, our fee revenues would decline, reducing profitability as a portion of our expenses are fixed. Assets under management could decline, due to a variety of factors, including, but not limited to, the following:
• | General domestic and global economic and political conditions can influence assets under management. Changes in interest rates, the availability and cost of credit, inflation rates, economic uncertainty, changes in laws, trade barriers, commodity prices, currency exchange rates and controls and national and international political circumstances (including wars, terrorist acts and security operations) and other conditions may impact the equity and credit markets which may influence our assets under management. Capital and credit markets can experience substantial volatility. Employment rates, continued economic weakness and budgetary challenges in parts of the world, the prospective impact of the United Kingdom’s withdrawal from the European Union, uncertainty regarding |
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international trade policies, regional turmoil in the Middle East, concern over growth prospects in China and emerging markets, growing debt loads for certain countries, and uncertainty about the consequences of governments withdrawing monetary stimulus all indicate that economic and political conditions remain unpredictable. If the security markets decline or experience volatility, our assets under management and our revenues could be negatively impacted. Changes in currency exchange rates such as an increase in the value of the U.S. dollar relative to non-U.S. currencies could result in a decrease in the U.S. dollar value of assets under management that are denominated in non-U.S. currencies. In addition, diminishing investor confidence in the markets and/or adverse market conditions could result in a decrease in investor risk tolerance. Such a decrease could prompt investors to reduce their rate of investment or to fully withdraw from markets, which could lower our overall assets under management and have an adverse effect on our revenues, earnings and growth prospects.
The volatility in the markets in the recent past has highlighted the interconnection of the global markets and demonstrated how the deteriorating financial condition of one institution may materially adversely impact the performance of other institutions. Our assets under management have exposure to many different industries and counterparties and may be exposed to credit, operational or other risk due to the default by a counterparty or client or in the event of a market failure or disruption. In the event of extreme circumstances, including economic, political or business crises, such as a widespread systemic failure in the global financial system or failures of firms that have significant obligations as counterparties, we may suffer significant declines in assets under management and severe liquidity or valuation issues.
• | The value of assets under management can decline due to price declines in specific securities, market segments or geographic areas where those assets are invested. Funds and portfolios that we manage, focused on certain geographic markets and industry sectors, are particularly vulnerable to political, social and economic events in those markets and sectors. If these markets or industries decline or experience volatility, this could have a negative impact on our assets under management and our revenues. For example, certain non-U.S. markets, particularly emerging markets, are not as developed or as efficient as the U.S. financial markets and, as a result, may be less liquid, less regulated and significantly more volatile than the U.S. financial markets. Liquidity in such markets may be adversely impacted by factors including political or economic events, government policies, expropriation, volume trading limits by foreign investors, and social or civil unrest. These factors may negatively impact the market value of an investment or our ability to dispose of it. |
• | Any real or perceived negative absolute or relative performance could negatively impact the maintenance and growth of assets under management. Sales and redemptions of our investment strategies can be affected by investment performance relative to other competing investment strategies or to established benchmarks. Our investment management strategies are rated, ranked or assessed by independent third-parties, distribution partners, and industry periodicals and services. These assessments often influence the investment decisions of clients. If the performance or assessment of our investment strategies is seen as underperforming relative to peers, it could result in an increase in the withdrawal of assets by existing clients and the inability to attract additional investments from existing and new clients. In addition, certain of our investment strategies have capacity constraints, as there is a limit to the number of securities available for the strategy to operate effectively. In those instances, we may choose to limit access to new or existing investors. In addition, certain mutual funds employ the use of leverage as part of their investment strategies, which will increase or decrease assets under management, and the risk associated with the investment, as the proceeds from the use of leverage are invested in accordance with the funds’ investment strategies. |
• | Changes in interest rates can have adverse effects on our assets under management. Increases in interest rates from their historically low levels may adversely affect the net asset values of our assets under management. Furthermore, increases in interest rates may result in reduced prices in equity markets. Conversely, decreases in interest rates could lead to outflows in fixed income assets that we manage as investors seek higher yields. Any of these effects could lower our assets under management and revenues and, if our revenues decline without a commensurate reduction in our expenses, would lead to a reduction in our net income. |
Any of these factors could cause our assets under management to decline and have an adverse impact on our results of operations and financial condition. Additionally we may be unable to effect appropriate expense reductions in a timely manner in response to these adverse impacts.
Our investment advisory agreements are subject to withdrawal, renegotiation or termination on short notice which could negatively impact our business.
Our clients include the boards of directors for our sponsored mutual funds, managed account program sponsors, private clients and institutional clients. Our investment management agreements with these clients may be terminated on short notice
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without penalty. As a result, there would be little impediment to these sponsors or clients terminating our agreements. Our clients may renegotiate their investment contracts or reduce the assets we manage for them due to a number of reasons including but not limited to investment performance, reputational, regulatory or compliance issues, loss of key investment management or other personnel or a change in management of third-party distributors or others with whom we have relationships. The directors of our sponsored funds may deem it to be in the best interests of a fund’s shareholders to make decisions adverse to us, such as reducing the compensation paid to us, requesting that we subsidize fund expenses over certain thresholds, or imposing restrictions on our management of the fund. Under the Investment Company Act, investment advisory agreements automatically terminate in the event of an assignment, which may occur if, among other events, the Company undergoes a change in control, such as any person acquiring 25% voting rights of our common stock. If an assignment were to occur, we cannot be certain that the fund’s board of directors and its stockholders would approve a new investment advisory agreement. In addition, investment advisory agreements for the separate accounts we manage may not be assigned without the consent of the client. If an assignment occurs, we cannot be certain that the Company will be able to obtain the necessary fund approvals or the necessary consents from our clients. The withdrawal, renegotiation or termination of any investment management contract relating to a material portion of assets under management would have an adverse impact on our results of operations and financial condition.
Any damage to our reputation could harm our business and lead to a reduction in our revenues and profitability.
Maintaining a positive reputation with the investment community and other constituencies is critical to our success. Our reputation is vulnerable to many threats that can be difficult or impossible to control, and costly or impossible to remediate even if they are without merit or satisfactorily addressed. Our reputation may be impacted by many factors, including but not limited to: poor performance; litigation; conflicts of interests; regulatory inquiries, investigations or findings; operational failures (including cyber breaches); intentional or unintentional misrepresentation of our products or services; material weaknesses in our internal controls; or employee misconduct or rumors. Any damage to our reputation could impede our ability to attract and retain clients and key personnel, adversely impact relationships with third-party distributors and other business partners, and lead to a reduction in the amount of our assets under management, any of which could adversely affect our results of operations and financial condition.
We manage client assets under agreements that have investment guidelines or other contractual requirements, and any failure to comply could result in claims, losses or regulatory sanctions, which could negatively impact our revenues and profitability.
The agreements under which we manage client assets often have established investment guidelines or other contractual requirements with which we are required to comply in providing our investment management services. Although we maintain various compliance procedures and other controls to prevent, detect and correct such errors, any failure or allegation of a failure to comply with these guidelines or other requirement could result in client claims, reputational damage, withdrawal of assets, and potential regulatory sanctions, any of which could have an adverse impact on our results of operations and financial condition.
Our indebtedness contains covenants that require annual principal repayments and other provisions that could adversely affect our financial position or results of operations
We incur indebtedness for a variety of business reasons, including in relation to financing acquisitions. The indebtedness we incur can take many forms including but not limited to term loans or revolving lines of credit which customarily contain covenants.
At December 31, 2018, the Company had $340.6 million of total debt outstanding, excluding debt of consolidated investment products, and $100.0 million in unused capacity on a credit facility. Under our Credit Agreement, we are required to use a portion of our cash flow to service interest and make required annual principal payments, which will restrict our cash flow available to pursue business growth opportunities. The Credit Agreement also contains covenants that limit our ability to return capital to shareholders. In addition, our indebtedness may make it more difficult for us to withstand or respond to adverse or changing business, regulatory and economic conditions. We cannot provide assurances that at all times in the future we will satisfy all such covenants or obtain any required waiver or amendment, in which event all indebtedness could become immediately due. Any or all of the above factors could materially adversely affect our financial position or results of operations.
Our business relies on the ability to attract and retain key employees, and the loss of such employees could negatively affect our financial performance.
The success of our business is dependent to a large extent on our ability to attract and retain key employees such as senior executives, portfolio managers, securities analysts and sales personnel. Competition in the job market for these professionals is generally intense, and compensation levels in the industry are highly competitive. Our industry is also characterized by the movement of investment managers among different firms.
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If we are unable to continue to attract and retain key employees, or if compensation costs required to attract and retain key employees increase, our performance, including our competitive position, could be materially adversely affected. Additionally, we utilize Company equity awards as part of our compensation plans and as a means for recruiting and retaining key employees. Declines in our stock price could result in deterioration of the value of equity awards granted, thus lessening the effectiveness of using stock-based awards to retain key employees.
In certain circumstances, the departure of key employees could cause higher redemption rates in certain strategies or the loss of certain client accounts. Any inability to retain key employees, attract qualified employees, or replace key employees in a timely manner, could lead to a reduction in the amount of our assets under management, which could have a material adverse effect on our revenues and profitability. In addition, there could be additional costs to replace, retain or attract new talent that could result in a decrease in our profitability and have an adverse impact on our results of operations and financial condition.
The highly competitive nature of the asset management industry may require us to reduce our fees, or increase amounts paid to financial intermediaries, any of which could result in a reduction of our revenues and profitability.
We face significant competition from a wide variety of financial institutions, including other investment management companies, as well as from proprietary products offered by our distribution partners such as banks, broker-dealers and financial planning firms. Competition in our businesses is based on several factors including investment performance, fees charged, access to distribution channels, and service to financial advisers. Our competitors, many of which are larger than we are, often offer similar products, use similar distribution sources, offer less expensive products, have greater access to key distribution channels, and have greater resources, geographic footprints and name recognition than we do. Additionally, certain products and asset classes which we do not currently offer, such as passive or index-based products, are becoming increasingly popular with investors. Existing clients may withdraw their assets in order to invest in these products, and we may be unable to attract additional investments from existing and new clients, which would lead to a decline in our assets under management and market share.
Our profits are highly dependent on the fee levels for our products and services. In recent years, there has been a trend in certain segments of our markets toward lower fees and lower-fee products, such as passive products. Competition could cause us to reduce the fees that we charge for our products and services. In order to maintain appropriate fee levels in a competitive environment, we must be able to continue to provide clients with investment products and services that are viewed as appropriate in relation to the fees charged. If our clients, including our fund boards, were to view our fees as being high relative to the market or the returns provided by our investment products, we may choose or be required to reduce our fee levels or we may experience significant redemptions in our assets under management, which could have an adverse impact on our results of operations and financial condition.
We are subject to an extensive and complex regulatory environment, and changes in regulations or failure to comply with regulations could adversely affect our revenues and profitability.
The investment management industry in which we operate is subject to extensive and frequently changing regulation. We are regulated by the Securities and Exchange Commission ("SEC") under the Exchange Act, the Investment Company Act and the Investment Advisers Act, and we are subject to regulation by the Commodities Futures Trading Commission under the Commodities Exchange Act. Our UCITS and advisers are subject to regulation by the CBI. We are also regulated by FINRA, the Department of Labor under the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), as well as other federal and state laws and regulations.
The regulatory environment in which we operate changes often and has seen increased focus in recent years. For example, in fiscal 2018 the SEC indicated the rule regarding the use of derivatives by registered open- and closed-end funds will be re-proposed by September 2019. If the use of derivatives rule is substantially similar to the rule originally proposed in fiscal 2015, the rule could negatively impact the provision of investment services or limit opportunities for certain funds that we manage and increase our management and administration costs, with potential adverse effects on our revenues, expenses and results of operations.
Although we spend extensive time and resources on compliance efforts designed to ensure compliance with all applicable laws and regulations, if we or our affiliates fail to properly modify and update our compliance procedures in a timely manner in this changing and highly complex regulatory environment, we may be subject to various legal proceedings, including civil litigation, governmental investigations and enforcement actions, that could result in fines, penalties, suspensions of individual employees, or limitations on particular business activities, any of which could have an adverse impact on our results of operations and financial condition.
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Changes in tax laws and unanticipated tax obligations could have an adverse impact on our financial condition, results of operations and cash flow.
We are subject to federal and state income taxes in the United States. Tax authorities may disagree with certain positions we have taken or implement changes in tax policy, which may result in the assessment of additional taxes. We regularly assess the appropriateness of our tax positions and reporting. We cannot provide assurance, however, that we will accurately predict the outcomes of audits, and the actual outcomes of these audits could be unfavorable. In addition, our ability to use net operating loss carryforwards and other tax attributes available to us will be dependent on our ability to generate taxable income.
We utilize unaffiliated firms in providing investment management services, and any matters that have an adverse impact on their business, or any change in our relationships with them, could lead to a reduction in assets under management, which would adversely affect our revenues and profitability.
We utilize unaffiliated subadvisers as investment managers for certain of our retail products, and we have licensing arrangements with unaffiliated data providers. Because we typically have no ownership interests in these unaffiliated firms, we do not control the business activities of such firms. Problems stemming from the business activities of these unaffiliated firms may negatively impact or disrupt such firms’ operations or expose them to disciplinary action or reputational harm. Furthermore, any such matters at these unaffiliated firms may have an adverse impact on our business or reputation or expose us to regulatory scrutiny, including with respect to our oversight of such firms.
We periodically negotiate provisions and renewals of these relationships, and we cannot provide assurance that such terms will remain acceptable to us or the unaffiliated firms. These relationships can also be terminated upon short notice without penalty. In addition, the departure of key employees at unaffiliated subadvisers or data providers could cause higher redemption rates for certain assets under management and/or the loss of certain client accounts. An interruption or termination of unaffiliated firm relationships could affect our ability to market our products and result in a reduction in assets under management, which could have an adverse impact on our results of operations and financial condition.
We distribute our products through intermediaries, and changes in key distribution relationships could reduce our revenues, increase our costs and adversely affect our profitability.
Our primary source of distribution for retail products is through intermediaries that include third-party financial institutions, such as: major wire houses; national, regional and independent broker-dealers and financial advisors; banks and financial planners; and registered investment advisors. Our success is highly dependent on access to these various distribution systems. These distributors are generally not contractually required to distribute our products and typically offer their clients various investment products and services, including proprietary products and services, in addition to and in competition with our products and services. While we compensate these intermediaries for selling our products and services pursuant to contractual agreements, we may not be able to retain access to these channels at all or at similar pricing. Increasing competition for these distribution channels could cause our distribution costs to rise, which could have a material adverse effect on our business, revenues and profitability. To the extent that existing or future intermediaries prefer to do business with our competitors, the sales of our products as well as our market share, revenues and profitability could decline.
We and our third-party service providers rely on numerous technology systems, and any temporary business interruption, security breach or system failures could negatively impact our business and profitability.
Our technology systems, and those of third-party service providers, are critical to our operations. The ability to consistently and reliably obtain accurate securities pricing information, process client portfolio and fund shareholder transactions, and provide reports and other customer service to fund shareholders and clients in other accounts managed by us is an essential part of our business. Any delays or inaccuracies in obtaining pricing information, processing such transactions or such reports, other breaches and errors, and any inadequacies in other customer service could result in reimbursement obligations or other liabilities or alienate customers and potentially give rise to claims against us. Our customer service capability, as well as our ability to obtain prompt and accurate securities pricing information and to process transactions and reports, is highly dependent on third-party service providers’ information systems. Any failure or interruption of those systems, whether resulting from technology or infrastructure breakdowns, defects or external causes such as fire, natural disaster, computer viruses, acts of terrorism or power disruptions, could result in financial loss, negatively impact our reputation and negatively affect our ability to do business. Although we, and our third-party service providers, have disaster recovery plans in place, we may experience temporary interruptions if a natural or man-made disaster or prolonged power outage were to occur, which could have an adverse impact on our results of operations and financial condition.
In addition, like other companies, our computer systems are regularly subject to, and expected to continue to be the target of, computer viruses or other malicious codes, unauthorized access, cyber-attacks or other computer-related penetrations. Over time, the sophistication of cyber threats continues to increase, and any controls we put in place and preventative actions we take to reduce the risk of cyber incidents and protect our information systems may be insufficient to detect or prevent unauthorized access, cyber-attacks or other security breaches to our computer systems or those of third parties with whom we do business.
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Breach of our technology systems, or of those of third parties with whom we do business through cyber-attacks, or failure to manage and secure our technology environment could result in interruptions or malfunctions in the operations of our business, loss of valuable information, liability for stolen assets or information, remediation costs to repair damage caused by a breach, additional costs to mitigate against future incidents, and litigation costs resulting from an incident.
We and certain of our third-party vendors receive and store personal information as well as non-public business information. Although we and our third-party vendors take precautions, we may still be vulnerable to hacking or other unauthorized use. A breach of the systems or hardware could result in an unauthorized access to our proprietary business or client data or release of this type of data, which could subject us to legal liability or regulatory action under data protection and privacy laws, which may result in fines or penalties, the termination of existing client contracts, costly mitigation activities and harm to our reputation. This could have an adverse impact on our results of operations and financial condition.
A relatively large percentage of our common stock is concentrated with a small number of shareholders, which could increase the volatility in our stock trading and affect our share price.
A large percentage of our common stock is held by a limited number of shareholders. If our larger shareholders decide to liquidate their positions, it could cause significant fluctuation in the share price of our common stock. Public companies with a relatively concentrated level of institutional shareholders, such as we have, often have difficulty generating trading volume in their stock, which may increase the volatility in the price of our common stock.
Civil litigation and government investigations or proceedings could adversely affect our business.
Many aspects of our business involve substantial risks of liability, and there have been substantial incidences of litigation and regulatory investigations in the financial services industry in recent years, including customer claims as well as class action suits seeking substantial damages. From time to time, we and/or our funds may be named as defendants or co-defendants in lawsuits or be involved in disputes that involve the threat of lawsuits seeking substantial damages. We and/or our funds are also involved from time to time in governmental and self-regulatory organization investigations and proceedings. See Item 3. Legal Proceedings for further description of the Company's litigation matters.
Any lawsuits, investigations or proceedings could result in reputational damage, loss of clients and assets, settlements, awards, injunctions, fines, penalties, increased costs and expenses in resolving a claim, diversion of employee resources and resultant financial losses. Predicting the outcome of such matters is inherently difficult, particularly where claims are brought on behalf of various classes of claimants or by a large number of claimants, when claimants seek substantial or unspecified damages, or when investigations or legal proceedings are at an early stage. A substantial judgment, settlement, fine or penalty could be material to our operating results or cash flows for a particular period, depending on our results for that period, or could cause us significant reputational harm, which could harm our business prospects.
We depend to a large extent on our business relationships and our reputation to attract and retain clients. As a result, allegations of improper conduct by private litigants, including investors in our funds, or regulators, whether the ultimate outcome is favorable or unfavorable to us, as well as negative publicity and press speculation about us, our investment activities or the asset management industry in general, whether or not valid, may harm our reputation, which may be more damaging to our business than to other types of businesses. We may incur substantial legal expenses in defending against proceedings commenced by a client, regulatory authority or other private litigant. Substantial legal liability levied on us could cause significant reputational harm and have an adverse impact on our results of operations and financial condition.
We have a significant portion of our assets invested in marketable securities which exposes us to earnings volatility, as the value of these investments fluctuate, as well as risk of capital loss.
We use capital to seed new investment strategies and make new investments to introduce new products or enhance distribution access of existing products. At December 31, 2018, the Company had $92.8 million of seed capital investments, comprising $54.9 million of marketable securities and $37.9 million of net interests in consolidated investment products ("CIPs"), and $90.1 million of investments in CLOs that comprise $86.0 million of net interests in CIPs and $4.1 million of non-consolidated CLOs. These investments are in a variety of asset classes including alternative, fixed income and equity strategies. Many of these investments employ a long-term investment strategy and entail an optimal investment period spanning several years. Accordingly, during this investment period, the Company’s capital utilized in these investments may not be available for other corporate purposes at all or without significantly diminishing our investment return. We cannot provide assurance that these investments will perform as expected. Moreover, increases or decreases in the value of these investments will increase the volatility of our earnings, and a decline in the value of these investments would result in the loss of capital and have an adverse impact on our results of operations and financial condition.
Our intended quarterly distributions may not be paid as intended or at all.
The declaration, payment and determination of the amount of our quarterly dividends may change at any time. In making
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decisions regarding our quarterly dividends, we consider general economic and business conditions, our strategic plans and prospects, our businesses and investment opportunities, our financial condition and operating results, consideration required for potential purchases of affiliate non controlling interest, working capital requirements and anticipated cash needs, contractual restrictions (including under the terms of our Credit Agreement and the Mandatory Convertible Preferred Stock that we issued on February 1, 2017) and obligations, legal, tax, regulatory and other restrictions that may have implications on the payment of distributions by us to our shareholders or by our subsidiaries to us, and such other factors as we may deem relevant. Our ability to pay dividends in excess of our current quarterly dividends is subject to restrictions under the terms of our Credit Agreement. We cannot make any assurances that any distributions will be paid.
We may need to raise additional capital in the future, and resources may not be available to us in sufficient amounts or on acceptable terms, which could have an adverse impact on our business.
Our ability to meet our future cash needs is dependent upon our ability to generate cash. Although we have successfully generated sufficient cash in the past, we may not do so in the future. As of December 31, 2018, we maintained $201.7 million in cash and cash equivalents, $92.8 million in seed capital investments and $90.1 million of investments in CLOs that comprise $86.0 million of net interests in CIPs and $4.1 million of marketable securities and had $100.0 million available under our credit facility. Also at December 31, 2018 we had $340.6 million in debt outstanding excluding the notes payable of our CIPs for which risk of loss to the Company is limited to our $86.0 million investment in such products. See Footnote 19 of our consolidated financial statements for additional information on the notes payable of the CIPs. Our ability to access capital markets efficiently depends on a number of factors, including the state of credit and equity markets, interest rates and credit spreads. We may need to raise capital to fund new business initiatives in the future, and financing may not be available to us in sufficient amounts, on acceptable terms, or at all. If we are unable to access sufficient capital on acceptable terms, our business could be adversely impacted.
Our common stock ranks junior to the Mandatory Convertible Preferred Stock with respect to dividends and amounts payable in the event of our liquidation and ranks junior to our indebtedness which may limit any payment or other distribution of assets to holders of our common stock in the event we are liquidated.
Our common stock ranks junior to the Mandatory Convertible Preferred Stock, with respect to the payment of dividends and amounts payable in the event of our liquidation, dissolution or winding-up. This means that, unless accumulated dividends have been paid or set aside for payment on all outstanding Mandatory Convertible Preferred Stock for all completed dividend periods, no dividends may be declared or paid on our common stock. Likewise, in the event of our voluntary or involuntary liquidation, dissolution or winding-up, no distribution of our assets may be made to holders of our common stock until we have paid to holders of the Mandatory Convertible Preferred Stock a liquidation preference equal to $100.00 per share plus accrued and unpaid dividends (whether or not declared).
Additionally, in the event of our liquidation, dissolution or winding up, our common stock would rank below all debt claims against us. As a result, holders of our common stock will not be entitled to receive any payment or other distribution of assets until after all of our obligations to our debt holders have been satisfied.
We have corporate governance provisions that may make an acquisition of us more difficult.
Certain provisions of our certificate of incorporation and bylaws could discourage, delay or prevent a merger, acquisition or other change in control that stockholders may consider favorable, including transactions in which stockholders might otherwise receive a premium for their shares. These provisions also could limit the price that investors might be willing to pay in the future for shares of our common stock, thereby depressing the market price of our common stock. Stockholders who wish to participate in these transactions may not have the opportunity to do so. In addition, the provisions of Section 203 of the Delaware General Corporation Law also restrict certain business combinations with interested stockholders.
Our insurance policies may not cover all losses and costs to which we may be exposed.
We carry insurance in amounts and under terms that we believe are appropriate. Our insurance may not cover all liabilities and losses to which we may be exposed. Certain insurance coverage may not be available or may be prohibitively expensive in future periods. As our insurance policies come up for renewal, we may need to assume higher deductibles or pay higher premiums, which could have an adverse impact on our results of operations and financial condition.
We have goodwill and intangible assets on our balance sheet which could become impaired.
Our goodwill and intangible assets are subject to annual impairment reviews. We also have definite-lived intangibles assets on our balance sheet that are subject to impairment testing if indicators of impairment are identified. A variety of factors could cause such book values to become impaired, which would adversely affect our results of operations.
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We may engage in significant strategic transactions that may not achieve the expected benefits or could expose us to additional risks.
We regularly review, and from time to time have discussions on and engage in, potential significant transactions, including potential acquisitions, consolidations, joint ventures or similar transactions, some of which may be material. We cannot provide assurance that we will be successful in negotiating the required agreements or successfully close transactions after signing such agreements. In addition, in entering into such transactions, we may expect to achieve certain financial benefits, including such things as revenue or cost synergies, and we may not ultimately be able to realize such benefits.
Any strategic transaction may also involve a number of other risks, including additional demands on our staff, unanticipated problems regarding integration of operating facilities, technologies and new employees, and the existence of liabilities or contingencies not disclosed to, or otherwise unknown by, us prior to closing a transaction. In addition, any business we acquire may underperform relative to expectations or may lose customers or employees.
SPECIAL NOTE ABOUT FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains statements that are, or may be considered to be, forward-looking statements within the meaning of The Private Securities Litigation Reform Act of 1995, as amended, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). All statements that are not historical facts, including statements about our beliefs or expectations, are forward-looking statements. These statements may be identified by such forward-looking terminology as "expect," "estimate," "intent," "plan," "intend," "believe," "anticipate," "may," "will," "should," "could," "continue," "project," "opportunity," "predict," "would," "potential," "future," "forecast," "guarantee," "assume," "likely," "target" or similar statements or variations of such terms.
Our forward-looking statements are based on a series of expectations, assumptions and projections about our Company and the markets in which we operate, are not guarantees of future results or performance and involve substantial risks and uncertainty, including assumptions and projections concerning our assets under management, net asset inflows and outflows, operating cash flows, business plans and ability to borrow, for all future periods. All of our forward-looking statements contained in this Annual Report on Form 10-K are as of the date of this Annual Report on Form 10-K only.
We can give no assurance that such expectations or forward-looking statements will prove to be correct. Actual results may differ materially. We do not undertake or plan to update or revise any such forward-looking statements to reflect actual results, changes in plans, assumptions, estimates or projections, or other circumstances occurring after the date of this Annual Report on Form 10-K, even if such results, changes or circumstances make it clear that any forward-looking information will not be realized. If there are any future public statements or disclosures by us which modify or impact any of the forward-looking statements contained in or accompanying this Annual Report on Form 10-K, such statements or disclosures will be deemed to modify or supersede such statements in this Annual Report on Form 10-K.
Our business and our forward-looking statements involve substantial known and unknown risks and uncertainties, including those discussed under "Risk Factors," and "Management’s Discussion and Analysis of Financial Condition and Results of Operations" in this Annual Report on Form 10-K as well as the following risks and uncertainties resulting from: (a) any reduction in our assets under management; (b) withdrawal, renegotiation or termination of investment advisory agreements; (c) damage to our reputation; (d) failure to comply with investment guidelines or other contractual requirements; (e) inability to satisfy financial covenants and payments related to our indebtedness; (f) inability to attract and retain key personnel; (g) challenges from the competition we face in our business; (h) adverse regulatory and legal developments; (i) unfavorable changes in tax laws or limitations; (j) adverse developments related to unaffiliated subadvisers; (k) negative implications of changes in key distribution relationships; (l) interruptions in or failure to provide critical technological service by us or third parties; (m) volatility associated with our common and preferred stock; (n) adverse civil litigation and government investigations or proceedings; (o) risk of loss on our investments; (p) inability to make quarterly common and preferred stock distributions; (q) lack of sufficient capital on satisfactory terms; (r) losses or costs not covered by insurance; (s) impairment of goodwill or intangible assets; (t) inability to achieve expected acquisition-related benefits and other risks and uncertainties. Any occurrence of, or any material adverse change in, one or more risk factors or risks and uncertainties referred to in this Annual Report on Form 10-K or our other periodic reports filed with the SEC could materially and adversely affect our operations, financial results, cash flows, prospects and liquidity.
Certain other factors which may impact our continuing operations, prospects, financial results and liquidity, or which may cause actual results to differ from such forward-looking statements, are discussed or included in the Company’s periodic reports filed with the SEC and are available on our website at www.virtus.com under "Investor Relations." You are urged to carefully consider all such factors.
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Item 1B. | Unresolved Staff Comments. |
None.
Item 2. | Properties. |
We lease our principal offices, which are located at One Financial Plaza, Hartford, CT 06103. In addition, we lease office space in California, Connecticut, Florida, Georgia, Illinois, Massachusetts, New Jersey and New York.
Item 3. | Legal Proceedings. |
The Company is regularly involved in litigation and arbitration as well as examinations, inquiries and investigations by various regulatory bodies, including the SEC, involving its compliance with, among other things, securities laws, client investment guidelines, laws governing the activities of broker-dealers and other laws and regulations affecting its products and other activities. Legal and regulatory matters of this nature involve or may involve but are not limited to the Company’s activities as an employer, issuer of securities, investor, investment adviser, broker-dealer or taxpayer. In addition, in the normal course of business, the Company discusses matters with its regulators raised during regulatory examinations or is otherwise subject to their inquiry. These matters could result in censures, fines, penalties or other sanctions.
The Company accrues for a liability when it is both probable that a liability has been incurred and the amount of the liability can be reasonably estimated. Significant judgment is required in both the determination of probability and the determination as to whether a loss is reasonably estimable. In addition, in the event the Company determines that a loss is not probable, but is reasonably possible, and it becomes possible to develop what the Company believes to be a reasonable range of possible loss, then the Company will include disclosures related to such matter as appropriate and in compliance with Accounting Standards Codification 450, Loss Contingencies. The disclosures, accruals or estimates, if any, resulting from the foregoing analysis are reviewed at least quarterly and adjusted to reflect the impact of negotiations, settlements, rulings, advice of legal counsel and other information and events pertaining to a particular matter. Based on information currently available, available insurance coverage, indemnities and established reserves, the Company believes that the outcomes of its legal and regulatory proceedings are not likely, either individually or in the aggregate, to have a material adverse effect on the Company’s results of operations, cash flows or its consolidated financial condition. However, in the event of unexpected subsequent developments and given the inherent unpredictability of these legal and regulatory matters, the Company can provide no assurance that its assessment of any claim, dispute, regulatory examination or investigation or other legal matter will reflect the ultimate outcome and an adverse outcome in certain matters could, from time to time, have a material adverse effect on the Company’s results of operations or cash flows in particular quarterly or annual periods.
In re Virtus Investment Partners, Inc. Securities Litigation; formerly Tom Cummins v. Virtus Investment Partners Inc. et al
On February 20, 2015, a putative class action complaint was filed against the Company and certain of the Company’s current officers (the "defendants") in the United States District Court for the Southern District of New York (the "Court"). On August 21, 2015, the plaintiffs filed a Consolidated Class Action Complaint (the "Complaint") purportedly filed on behalf of all purchasers of the Company’s common stock between January 25, 2013 and May 11, 2015 (the "Class Period"). The Complaint alleged that, during the Class Period, the defendants disseminated materially false and misleading statements and concealed material adverse facts relating to certain funds and alleged claims under Sections 10(b) and 20(a) of the Exchange Act, and Rule 10b-5. While the Company believed that the suit was without merit, on May 18, 2018, it executed a final settlement agreement with the plaintiffs settling all claims in the litigation in order to avoid the cost, distraction, disruption, and inherent litigation uncertainty. The settlement was approved by the Court on December 4, 2018, and on January 11, 2019, the Court entered final judgment, concluding the action.
Item 4. | Mine Safety Disclosures. |
Not applicable.
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PART II
Item 5. | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. |
Our common stock is traded on the NASDAQ Global Market under the trading symbol "VRTS." As of February 11, 2019, we had 7,011,182 shares of common stock outstanding that were held by approximately 51,500 holders of record.
On February 21, 2019, our board of directors declared a quarterly cash dividend of $0.55 per common share to be paid on May 15, 2019 to shareholders of record at the close of business on April 30, 2019 and a $1.8125 dividend per share on our mandatory convertible preferred stock, to be paid on May 1, 2019 to shareholders of record at the close of business on April 15, 2019.
In making decisions regarding our quarterly dividend, we consider general economic and business conditions, our strategic plans and prospects, our businesses and investment opportunities, our financial condition and operating results, working capital requirements and anticipated cash needs, contractual restrictions and obligations, legal, tax, regulatory and other restrictions that may have implications on the payment of distributions by us to our common shareholders or by our subsidiaries to us, and such other factors as we may deem relevant. We cannot provide any assurances that any distributions, whether quarterly or otherwise, will continue to be paid in the future.
Issuer Purchases of Equity Securities
As of December 31, 2018, 4,180,045 shares of our common stock have been authorized to be repurchased under a share repurchase program approved by our Board of Directors, and 624,803 shares remain available for repurchase. Under the terms of the program, we may repurchase shares of our common stock from time to time at our discretion through open market repurchases, privately negotiated transactions and/or other mechanisms, depending on price and prevailing market and business conditions. The program, which has no specified term, may be suspended or terminated at any time.
During the year ended December 31, 2018, we repurchased a total of 258,953 common shares for approximately $27.5 million. The following table sets forth information regarding our share repurchases in each month during the quarter ended December 31, 2018:
Period | Total number of shares purchased | Average price paid per share (1) | Total number of shares purchased as part of publicly announced plans or programs (2) | Maximum number of shares that may yet be purchased under the plans or programs (2) | |||||||||
October 1—31, 2018 | 9,426 | $ | 99.19 | 9,426 | 775,524 | ||||||||
November 1—30, 2018 | 95,374 | $ | 98.90 | 95,374 | 680,150 | ||||||||
December 1—31, 2018 | 55,347 | $ | 83.59 | 55,347 | 624,803 | ||||||||
Total | 160,147 | 160,147 | |||||||||||
(1) | Average price paid per share is calculated on a settlement basis and excludes commissions. |
(2) The share repurchases above were completed pursuant to a program announced in the fourth quarter of 2010 and most recently expanded in December 2017. This repurchase program is not subject to an expiration date.
There were no unregistered sales of equity securities during the fourth quarter of fiscal 2018. Shares of our common stock purchased by participants in our Employee Stock Purchase Plan were delivered to participant accounts via open market purchases at fair value by the third-party administrator under the plan. We do not reserve shares for this plan or discount the purchase price of the shares.
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Item 6. | Selected Financial Data. |
The following table sets forth our selected consolidated financial and other data at the dates and for the periods indicated. The selected financial data should be read in conjunction with "Management’s Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements and the notes thereto appearing elsewhere in this Annual Report on Form 10-K.
Years Ended December 31, | |||||||||||||||||||
($ in thousands, except per share data) | 2018 (1) | 2017 (1)(3) | 2016 (1) | 2015 (2) | 2014 (2) | ||||||||||||||
Results of Operations | |||||||||||||||||||
Revenues | $ | 552,235 | $ | 425,607 | $ | 322,554 | $ | 381,977 | $ | 450,598 | |||||||||
Operating expenses | 439,136 | 367,572 | 271,740 | 301,599 | 319,878 | ||||||||||||||
Operating income (loss) | 113,099 | 58,035 | 50,814 | 80,378 | 130,720 | ||||||||||||||
Income tax expense (benefit) | 32,961 | 40,490 | 21,044 | 36,972 | 39,349 | ||||||||||||||
Net income (loss) | 76,080 | 39,939 | 48,763 | 30,671 | 96,965 | ||||||||||||||
Net income (loss) attributable to common stockholders | 67,192 | 28,676 | 48,502 | 35,106 | 97,700 | ||||||||||||||
Earnings (loss) per share—basic | 9.37 | 4.09 | 6.34 | 3.99 | 10.75 | ||||||||||||||
Earnings (loss) per share—diluted | 8.86 | 3.96 | 6.20 | 3.92 | 10.51 | ||||||||||||||
Cash dividends declared per preferred share | 7.25 | 7.25 | — | — | — | ||||||||||||||
Cash dividends declared per common share | 2.00 | 1.80 | 1.80 | 1.80 | 1.35 | ||||||||||||||
As of December 31, | |||||||||||||||||||
2018 (1) | 2017 (1)(3) | 2016 (2) | 2015 (2) | 2014 (2) | |||||||||||||||
Balance Sheet Data | |||||||||||||||||||
Cash and cash equivalents | $ | 201,705 | $ | 132,150 | $ | 64,588 | $ | 87,574 | $ | 202,847 | |||||||||
Investments | 79,558 | 108,492 | 89,371 | 56,738 | 63,448 | ||||||||||||||
Investments of consolidated investment products | 1,749,568 | 1,597,752 | 489,042 | 522,820 | 236,652 | ||||||||||||||
Goodwill and other intangible assets, net | 629,178 | 472,107 | 45,215 | 47,588 | 47,043 | ||||||||||||||
Total assets | 2,870,535 | 2,590,799 | 824,388 | 859,729 | 698,773 | ||||||||||||||
Accrued compensation and benefits | 93,339 | 86,658 | 47,885 | 49,617 | 54,815 | ||||||||||||||
Debt | 329,184 | 248,320 | 30,000 | — | — | ||||||||||||||
Notes payable of consolidated investment product | 1,620,260 | 1,457,435 | 328,761 | — | — | ||||||||||||||
Total liabilities | 2,169,187 | 1,981,397 | 465,449 | 276,408 | 112,350 | ||||||||||||||
Redeemable noncontrolling interests | 57,481 | 4,178 | 37,266 | 73,864 | 23,071 | ||||||||||||||
Mandatory convertible preferred stock | 110,843 | 110,843 | — | — | — | ||||||||||||||
Total equity | 643,867 | 605,224 | 321,673 | 509,457 | 563,352 | ||||||||||||||
As of December 31, | |||||||||||||||||||
2018 | 2017 | 2016 | 2015 | 2014 | |||||||||||||||
($ in millions) | |||||||||||||||||||
Assets Under Management | |||||||||||||||||||
Total assets under management | $ | 92,030 | $ | 90,963 | $ | 45,366 | $ | 47,385 | $ | 56,702 | |||||||||
Total long-term assets under management | $ | 90,417 | $ | 88,835 | $ | 45,366 | $ | 47,385 | $ | 56,702 | |||||||||
(1) | Derived from audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K. |
(2) | Derived from audited consolidated financial statements not included in this Annual Report on Form 10-K. |
(3) | On June 1, 2017, we completed the acquisition of RidgeWorth Investments. See Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations for further discussion of the RidgeWorth acquisition. |
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Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations. |
Overview
Our Business
We provide investment management and related services to individuals and institutions. We use a multi-manager, multi-style approach, offering investment strategies from affiliated managers, each having its own distinct investment style, autonomous investment process and individual brand. By offering a broad array of products, we believe we can appeal to a greater number of investors and have offerings across market cycles and through changes in investor preferences. Our earnings are primarily driven by asset-based fees charged for services relating to these various products including investment management, fund administration, distribution and shareholder services.
We offer investment strategies for individual and institutional investors in different product structures and through multiple distribution channels. Our investment strategies are available in a diverse range of styles and disciplines, managed by a collection of differentiated investment managers. We have offerings in various asset classes (domestic and international equity, fixed income and alternative), market capitalizations (large, mid and small), styles (growth, core and value) and investment approaches (fundamental, quantitative and thematic). Our retail products include open-end funds and exchange traded funds ("ETFs"), as well as closed-end funds and retail separate accounts. Our institutional products include a variety of equity and fixed income strategies for corporations, multi-employer retirement funds, public employee retirement systems, foundations, and endowments. We also provide subadvisory services to other investment advisors.
We distribute our open-end funds and ETFs principally through financial intermediaries. We have broad distribution access in the retail market, with distribution partners that include national and regional broker-dealers, independent broker-dealers and registered investment advisors, banks and insurance companies. In many of these firms, we have a number of products that are on preferred "recommended" lists and on fee-based advisory programs. Our sales efforts are supported by regional sales professionals, a national account relationship group and separate teams for ETFs and the retirement and insurance channels. Our retail separate accounts are distributed through financial intermediaries and directly by teams at other investment advisors.
Our institutional services are marketed through relationships with consultants as well as directly to clients. We target key market segments, including foundations and endowments, corporate, public and private pension plans, and subadvisory relationships.
Market Developments
The U.S. and global equity markets decreased in value in 2018, as evidenced by decreases in major indices. The MSCI World Index ended the year at 1,884, down 10.4% from 2,103 at the start of the year. The Standard & Poor’s 500 Index ended the year at 2,507, down 6.2% from 2,674, and the Russell 2000 ended at 1,349, down 12.2% from 1,536 at the start of the year. The major U.S. bond index, the Bloomberg Barclays U.S. Aggregate Bond Index, remained relatively flat in 2018 ending the year at 2,047 compared to 2,046 at the start of the year. The S&P/LSTA Leveraged Loan Index decreased 0.6% in 2018 ending the year at 2,054 compared to 2,067 at the start of the year.
The financial markets have a significant impact on the value of our assets under management and on the level of our sales and flows. The capital and financial markets could experience fluctuation, volatility and declines, as they have in the past, which could impact investment returns and asset flows among investment products as well as investor choices and preferences among investment products. The changes in our assets under management may also be affected by the factors discussed in Item 1A of this Annual Report on Form 10-K "Risk Factors."
Financial Highlights
• | Net income per diluted share was $8.86 in 2018, up $4.90, or 123.7%, from $3.96 per diluted share in 2017. |
• | Total sales (inflows) were $22.8 billion in 2018 compared with $15.4 billion in 2017. Net outflows were $3.7 billion in 2018 compared with $0.2 billion in 2017. |
• | Assets under management were $92.0 billion at December 31, 2018 compared with $91.0 billion at December 31, 2017. |
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Sustainable Growth Advisers, LP
On July 1, 2018, we completed our majority investment in Sustainable Growth Advisers (the "SGA Acquisition"), an investment manager with $11.3 billion in assets under management at June 30, 2018.
RidgeWorth Investments
On June 1, 2017, we acquired RidgeWorth Investments (the "RW Acquisition," and together with the SGA Acquisition, the "Acquisitions" or "Acquired Businesses"), a multi-boutique investment management firm that managed approximately $40.1 billion in assets under management as of June 1, 2017, including $35.7 billion in long term assets under management and $4.4 billion in liquidity strategies.
Assets Under Management
At December 31, 2018, total assets under management were $92.0 billion, representing an increase of $1.1 billion, or 1.2%, from December 31, 2017. The increase was primarily due to the SGA Acquisition, partially offset by negative market performance of $4.5 billion and net outflows of $3.7 billion. Long-term assets under management, which exclude liquidity strategies, were $90.4 billion at December 31, 2018, up 1.8% from $88.8 billion at the end of the prior year.
Average long-term assets under management, which exclude assets in liquidity strategies, were $94.6 billion for the twelve months ended December 31, 2018, an increase of $24.4 billion, or 34.7%, from $70.2 billion for the twelve months ended December 31, 2017. The year-over-year increase in long-term average assets under management was primarily due to the Acquired Businesses.
Investment Performance - Open End Funds
The following table presents our open end funds' three-year average annual return and the corresponding three-year benchmark index average annual return as of December 31, 2018. Also presented with each fund is its Morningstar Peer Group and its three-year ranking within that peer group.
Three-Year: | Three-Year | |||
Benchmark Index | Average Return (1) | Benchmark Index | ||
Fund Type/Name | Assets ($ in millions) | Morningstar Peer Group | Peer Group Percentile Ranking (2) | Return (3) |
Retail Funds | (%) | (%) | ||
Alternatives | ||||
Virtus Duff & Phelps Real Estate Securities Fund | $542.3 | FTSE NAREIT Equity REITs Index | 1.99 | 2.89 |
Real Estate Funds | 54 | |||
Virtus Duff & Phelps International Real Estate Securities Fund | 167.9 | FTSE EPRA NAREIT Developed ex-U.S. Index (net) | 5.01 | 4.40 |
Global Real Estate Funds | 11 | |||
Virtus Duff & Phelps Global Infrastructure Fund | 81.2 | Global Infrastructure Linked Benchmark (4) | 7.32 | 7.77 |
Infrastructure Funds | 15 | |||
Virtus Aviva Multi-Strategy Target Return Fund | 64.4 | U.S. Treasury Federal Funds Rate | (2.07) | 0.74 |
Multialternative Funds | 94 | |||
Virtus Duff & Phelps Global Real Estate Securities Fund | 40.3 | FTSE EPRA NAREIT Developed Index (net) | 3.95 | 2.72 |
Global Real Estate Funds | 21 | |||
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Three-Year: | Three-Year | |||
Benchmark Index | Average Return (1) | Benchmark Index | ||
Fund Type/Name | Assets ($ in millions) | Morningstar Peer Group | Peer Group Percentile Ranking (2) | Return (3) |
Asset Allocation | ||||
Virtus Strategic Allocation Fund | 404.3 | Strategic Allocation Fund Linked Benchmark (5) | 4.18 | 6.97 |
Allocation--50% to 70% Equity | 69 | |||
Virtus Tactical Allocation Fund | 124.9 | Tactical Allocation Fund Linked Benchmark (6) | 4.28 | 6.89 |
Allocation--50% to 70% Equity | 66 | |||
Virtus Rampart Multi-Asset Trend Fund | 61.3 | Dow Jones Global Moderate Portfolio Index | 1.62 | 5.53 |
Tactical Allocation | 79 | |||
Virtus Herzfeld Fund | 51.8 | 60% MSCI AC World Index (net) / 40% Bloomberg Barclays U.S. Aggregate | 6.47 | 4.92 |
Allocation--50% to 70% Equity | 12 | |||
Equity | ||||
Virtus KAR Small-Cap Growth Fund | 4,053.7 | Russell 2000® Growth Index | 22.91 | 7.24 |
Small Growth Funds | 1 | |||
Virtus Ceredex Mid-Cap Value Equity Fund | 2,515.0 | Russell Midcap® Value Index | 7.34 | 6.06 |
Mid-Cap Value Funds | 20 | |||
Virtus Ceredex Large-Cap Value Equity Fund | 1,318.2 | Russell 1000® Value Index | 6.34 | 6.95 |
Large Value Funds | 62 | |||
Virtus KAR Small-Cap Core Fund | 1,208.9 | Russell 2000® Index | 15.83 | 7.36 |
Small Growth Funds | 3 | |||
Virtus Ceredex Small-Cap Value Equity Fund | 556.5 | Russell 2000® Index | 7.65 | 7.37 |
Small Blend Funds | 23 | |||
Virtus KAR Small-Cap Value Fund | 501.4 | Russell 2000® Value Index | 7.56 | 7.37 |
Small Growth Funds | 63 | |||
Virtus KAR Capital Growth Fund | 424.1 | Russell 1000® Growth Index | 7.18 | 11.15 |
Large Growth Funds | 81 | |||
Virtus Rampart Equity Trend Fund | 358.5 | S&P 500® Index | 2.97 | 9.26 |
Large Blend Funds | 97 | |||
Virtus KAR Mid-Cap Core Fund | 267.4 | Russell Midcap® Index | 10.04 | 7.04 |
Mid-Cap Growth Funds | 16 | |||
Virtus Rampart Sector Trend Fund | 216.7 | S&P 500® Index | 4.41 | 9.26 |
Large Blend Funds | 94 | |||
Virtus KAR Mid-Cap Growth Fund | 169.9 | Russell Midcap® Growth Index | 13.52 | 8.59 |
Mid-Cap Growth Funds | 3 | |||
Virtus Rampart Enhanced Core Equity Fund | 131.3 | S&P 500® Index | 6.18 | 9.26 |
Large Blend Funds | 82 | |||
Virtus Silvant Large-Cap Growth Stock Fund | 97.3 | Russell 1000® Growth Index | 6.67 | 11.15 |
Large Growth Funds | 85 | |||
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Three-Year: | Three-Year | |||
Benchmark Index | Average Return (1) | Benchmark Index | ||
Fund Type/Name | Assets ($ in millions) | Morningstar Peer Group | Peer Group Percentile Ranking (2) | Return (3) |
Virtus Zevenbergen Innovative Growth Stock Fund | 96.2 | Russell 3000® Growth Index | 13.44 | 10.85 |
Large Growth Funds | 4 | |||
Virtus Horizon Wealth Masters Fund | 51.5 | Russell Midcap® Index | 5.35 | 7.04 |
Mid-Cap Blend Funds | 58 | |||
Virtus Silvant Small-Cap Growth Stock Fund | 23.9 | Russell 2000® Growth Index | 5.31 | 7.24 |
Small Growth Funds | 86 | |||
Fixed Income | ||||
Virtus Newfleet Multi-Sector Short Term Bond Fund | 6,246.0 | ICE BofAML 1-3 Year A-BBB US Corporate Index | 2.85 | 2.06 |
Short-Term Bond Funds | 7 | |||
Virtus Seix Floating Rate High Income Fund | 5,308.9 | Credit Suisse Leveraged Loan Index | 4.98 | 5.03 |
Bank Loan Funds | 17 | |||
Virtus Seix Total Return Bond Fund | 444.6 | Bloomberg Barclays U.S. Aggregate Bond Index | 1.80 | 2.06 |
Intermediate-Term Bond Funds | 69 | |||
Virtus Newfleet Senior Floating Rate Fund | 426.4 | S&P/LSTA Leveraged Loan Index | 3.69 | 4.83 |
Bank Loan Funds | 52 | |||
Virtus Newfleet Low Duration Income Fund | 384.4 | Low Duration Income Linked Benchmark (7) | 1.98 | 1.60 |
Short-Term Bond | 26 | |||
Virtus Seix Investment Grade Tax-Exempt Bond Fund | 322.0 | Bloomberg Barclays Municipal 1-15 Yr Blend (1-17) Index | 1.50 | 1.96 |
Muni National Interm | 65 | |||
Virtus Seix High Income Fund | 296.7 | Bloomberg Barclays U.S. Corporate High Yield Bond Index | 6.95 | 7.23 |
High Yield Bond Funds | 14 | |||
Virtus Seix High Yield Fund | 290.3 | ICE BofAML US High Yield BB-B Constrained Index | 6.01 | 6.33 |
High Yield Bond Funds | 37 | |||
Virtus Newfleet Multi-Sector Intermediate Bond Fund | 248.0 | Bloomberg Barclays U.S. Aggregate Bond Index | 4.68 | 2.06 |
Multisector Bond Funds | 24 | |||
Virtus Seix Core Bond Fund | 145.8 | Bloomberg Barclays U.S. Aggregate Bond Index | 1.97 | 2.06 |
Intermediate Term Bond Funds | 59 | |||
Virtus Newfleet Tax-Exempt Bond Fund | 137.0 | Virtus Tax-Exempt Bond Fund Linked Benchmark (8) | 1.75 | 2.03 |
Muni National Interm Funds | 45 | |||
Virtus Seix Georgia Tax-Exempt Bond Fund | 75.1 | Bloomberg Barclays Municipal Bond Index | 1.69 | 2.30 |
Muni Single-State Interm Funds | 22 | |||
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Three-Year: | Three-Year | |||
Benchmark Index | Average Return (1) | Benchmark Index | ||
Fund Type/Name | Assets ($ in millions) | Morningstar Peer Group | Peer Group Percentile Ranking (2) | Return (3) |
Virtus Newfleet Credit Opportunities Fund | 74.9 | Bloomberg Barclays U.S. High-Yield 2% Issuer Capped Bond Index | 3.11 | 7.23 |
High Yield Bond Funds | 96 | |||
Virtus Newfleet Bond Fund | 64.3 | Bloomberg Barclays U.S. Aggregate Bond Index | 2.67 | 2.06 |
Intermediate Term Bond Funds | 21 | |||
Virtus Newfleet High Yield Fund | 56.9 | Bloomberg Barclays U.S. High-Yield 2% Issuer Capped Bond Index | 5.13 | 7.23 |
High Yield Bond | 65 | |||
Virtus Seix High Grade Municipal Bond Fund | 49.3 | Bloomberg Barclays Municipal Bond Index | 2.27 | 2.30 |
Muni National Long Funds | 39 | |||
Virtus Seix Corporate Bond Fund | 40.9 | Bloomberg Barclays U.S. Corporate Investment Grade Bond Index | 3.61 | 3.26 |
Corporate Bond Funds | 29 | |||
Virtus Seix U.S. Mortgage Fund | 24.7 | Bloomberg Barclays U.S. Mortgage Backed Securities Index | 1.42 | 1.71 |
Intermediate Government Funds | 21 | |||
Virtus Newfleet CA Tax-Exempt Bond Fund | 24.0 | Bloomberg Barclays California Municipal Bond Index | 1.99 | 2.17 |
Muni California Long Funds | 58 | |||
Virtus Seix Virginia Intermediate Municipal Bond Fund | 23.7 | Bloomberg Barclays Municipal 1-15 Yr Blend (1-17) Index | 1.76 | 1.96 |
Muni Single State Interm Funds | 18 | |||
Virtus Seix Short-Term Municipal Bond Fund | 20.2 | Bloomberg Barclays Municipal 1-5 Yr Index | 0.90 | 1.15 |
Muni National Short | 46 | |||
Virtus Seix North Carolina Tax-Exempt Bond Fund | 15.6 | Bloomberg Barclays Municipal Bond Index | 1.32 | 2.30 |
Muni Single State Interm Funds | 55 | |||
International/Global | ||||
Virtus Vontobel Emerging Markets Opportunities Fund | 6,244.8 | MSCI Emerging Markets Index (net) | 5.33 | 9.25 |
Diversified Emerging Markets | 74 | |||
Virtus Vontobel Foreign Opportunities Fund | 953.2 | MSCI EAFE® Index (net) | 3.67 | 2.87 |
Foreign Large Growth | 39 | |||
Virtus KAR International Small-Cap Fund | 900.1 | MSCI AC World Ex U.S. Small Cap Index (net) | 13.17 | 3.82 |
Foreign Small/Mid Blend | 1 | |||
Virtus Vontobel Global Opportunities Fund | 211.1 | MSCI AC World Index (net) | 8.57 | 6.60 |
World Large Stock | 11 | |||
Virtus WCM International Equity Fund | 90.2 | MSCI AC World ex USA Index (net) | 6.70 | 4.48 |
Foreign Large Growth | 9 | |||
Virtus KAR Emerging Markets Small-Cap Fund | 69.7 | MSCI Emerging Markets Small Cap Index (net) | 12.91 | 3.68 |
Diversified Emerging Markets | 3 | |||
Virtus KAR Global Quality Dividend Fund | 33.7 | Global Quality Dividend Linked Benchmark (9) | 5.76 | 8.79 |
World Large Stock | N/A | |||
22
Three-Year: | Three-Year | |||
Benchmark Index | Average Return (1) | Benchmark Index | ||
Fund Type/Name | Assets ($ in millions) | Morningstar Peer Group | Peer Group Percentile Ranking (2) | Return (3) |
Global Funds | ||||
Virtus G.F. Multi-Sector Short Duration Bond Fund | 49.7 | Bloomberg Barclays U.S. Intermediate Aggregate Bond Index | 2.05 | 1.72 |
USD Diversified Bond - Short Term | 43 | |||
Virtus G.F. U.S. Small Cap Focus Fund | 30.4 | Russell 2000® Index | 21.47 | 7.36 |
US Small-Cap Equity | 2 | |||
Variable Insurance Funds | ||||
Virtus KAR Capital Growth Series | 187.2 | Russell 1000® Growth Index | 7.75 | 11.15 |
Large Growth | 73 | |||
Virtus Duff & Phelps International Series | 137.1 | MSCI EAFE® Index (net) | (1.67) | 2.87 |
Foreign Large Blend | 99 | |||
Virtus Newfleet Multi-Sector Intermediate Bond Series | 114.6 | Bloomberg Barclays U.S. Aggregate Bond Index | 4.32 | 2.06 |
Multisector Bond | 34 | |||
Virtus Rampart Enhanced Core Equity Series | 85.8 | S&P 500® Index | 5.44 | 9.26 |
Large Blend | 88 | |||
Virtus KAR Small-Cap Growth Series | 84.0 | Russell 2000® Growth Index | 25.58 | 7.24 |
Small Growth | 1 | |||
Virtus Strategic Allocation Series | 79.4 | Strategic Allocation Series Linked Benchmark (10) | 4.12 | 6.97 |
Allocation--50% to 70% Equity | 71 | |||
Virtus KAR Small-Cap Value Series | 69.7 | Russell 2000® Value Index | 8.55 | 7.37 |
Small Growth | 48 | |||
Virtus Duff & Phelps Real Estate Securities Series | 65.6 | FTSE NAREIT Equity REITs Index | 1.90 | 2.89 |
Real Estate | 56 | |||
Other Funds | 55.1 | |||
$37,710.0 | ||||
(1) | Represents the average annual total return performance of the largest share class as measured by net assets for which performance data is available. Performance shown does not include the effect of applicable sales charges, if any. Had any applicable sales charges been reflected, performance would be lower than shown above. |
(2) | Represents the peer ranking of the fund’s average annual total return according to Morningstar. Fund returns are reported net of fees. |
(3) | Represents the average annual total return of the benchmark index. Benchmark indices are unmanaged, their returns do not reflect any fees, expenses or sales charges, and they are not available for direct investment. |
(4) | The Global Infrastructure Linked Benchmark consists of the FTSE Developed Infrastructure 50/50 Index (net). The Global Infrastructure Linked Benchmark prior to October 1, 2016 consisted of the MSCI World Infrastructure Sector Capped Index. |
(5) | The Strategic Allocation Fund Linked Benchmark consists of 45% Russell 1000® Growth Index, 15% MSCI EAFE® Index and 40% Bloomberg Barclays U.S. Aggregate Bond Index. The Strategic Allocation Fund Linked Benchmark prior to September 7, 2016 consisted of 60% S&P 500® Index and 40% Bloomberg Barclays U.S. Aggregate Bond Index. |
(6) | The Tactical Allocation Fund Linked Benchmark consists of 45% Russell 1000® Growth Index, 15% MSCI EAFE® Index and 40% Bloomberg Barclays U.S. Aggregate Bond Index. The Tactical Allocation Fund Linked Benchmark prior to September 7, 2016 consisted of 50% S&P 500® Index and 50% Bloomberg Barclays U.S. Aggregate Bond Index. |
(7) | The Low Duration Income Linked Benchmark costs of the ICE BofAML 1-5 Year US Corporate & Government Bond Index. The Low Duration Income Linked Benchmark prior to February 1, 2017 consisted of the Bloomberg Barclays U.S. Intermediate Government/Credit Bond Index. |
(8) | The Tax-Exempt Bond Linked Benchmark consists of the ICE BofAML 1-22 Year US Municipal Securities Index, a subset of the Bank of America Merrill Lynch U.S. Municipal Securities Index. |
(9) | The Global Quality Dividend Linked Benchmark consists of the Russell Developed Large Cap Index. The Global Quality Dividend Linked Benchmark prior to February 1, 2017 consisted of the Russell 1000® Value Index. |
(10) | The Strategic Allocation Series Linked Benchmark consists of 45% Russell 1000® Growth Index, 15% MSCI EAFE® Index and 40% Bloomberg Barclays U.S. Aggregate Bond Index. The Strategic Allocation Series Linked Benchmark prior to September 7, |
23
2016 consisted of 60% S&P 500® Index and 40% Bloomberg Barclays U.S. Aggregate Bond Index.
(11) | Represents all funds that do not yet have a three-year average return based on their inception date or funds with assets of less than $10.0 million. |
Past performance does not guarantee future results. Investment return and principal value will fluctuate so that shares, when redeemed, may be worth more or less than their original cost.
Operating Results
In 2018, total revenues increased 29.8%, or $126.6 million, to $552.2 million from $425.6 million in 2017 primarily due to additional revenues from an increase in average assets primarily as a result of the Acquired Businesses. Operating income increased by 94.9%, or $55.1 million, to $113.1 million in 2018 from $58.0 million in 2017, due to the same factors driving the increase in total revenues.
Assets Under Management by Product
The following table summarizes our assets under management by product:
As of December 31, | As of Change | ||||||||||||||||||||||||
($ in millions) | 2018 | 2017 | 2016 | 2018 vs. 2017 | % | 2017 vs. 2016 | % | ||||||||||||||||||
Open-End Funds (1) | $ | 37,710.0 | $ | 43,077.6 | $ | 23,432.8 | $ | (5,367.6 | ) | (12.5 | )% | $ | 19,644.8 | 83.8 | % | ||||||||||
Closed-End Funds | 5,956.0 | 6,666.2 | 6,757.4 | (710.2 | ) | (10.7 | )% | (91.2 | ) | (1.3 | )% | ||||||||||||||
Exchange Traded Funds | 667.6 | 1,039.2 | 596.8 | (371.6 | ) | (35.8 | )% | 442.4 | 74.1 | % | |||||||||||||||
Retail Separate Accounts | 14,998.4 | 13,936.8 | 8,473.5 | 1,061.6 | 7.6 | % | 5,463.3 | 64.5 | % | ||||||||||||||||
Institutional Accounts | 27,445.0 | 20,815.9 | 5,492.7 | 6,629.1 | 31.8 | % | 15,323.2 | 279.0 | % | ||||||||||||||||
Structured Products | 3,640.3 | 3,298.8 | 613.1 | 341.5 | 10.4 | % | 2,685.7 | 438.1 | % | ||||||||||||||||
Total Long-Term | 90,417.3 | 88,834.5 | 45,366.3 | 1,582.8 | 1.8 | % | 43,468.2 | 95.8 | % | ||||||||||||||||
Liquidity (2) | 1,612.5 | 2,128.7 | — | (516.2 | ) | (24.2 | )% | 2,128.7 | n/m | ||||||||||||||||
Total Assets Under Management | $ | 92,029.8 | $ | 90,963.2 | $ | 45,366.3 | $ | 1,066.6 | 1.2 | % | $ | 45,596.9 | 100.5 | % | |||||||||||
Average Long-Term Assets Under Management (3) | $ | 94,567.2 | $ | 70,212.4 | $ | 45,325.2 | $ | 24,354.8 | 34.7 | % | $ | 24,887.2 | 54.9 | % | |||||||||||
Average Assets Under Management (3) | $ | 96,278.2 | $ | 72,286.1 | $ | 45,325.2 | $ | 23,992.1 | 33.2 | % | $ | 26,960.9 | 59.5 | % | |||||||||||
(1) | Represents assets under management of U.S. retail funds, offshore funds and variable insurance funds |
(2) | Represents assets under management in liquidity strategies, including certain open-end funds and institutional accounts |
(3) | Averages are calculated as follows: |
- Funds - average daily or weekly balances
- Retail Separate Accounts - prior quarter ending balance or average of month-end balances in quarter
- Institutional Accounts and Structured Products - average of month-end balances in quarter
24
The following table summarizes asset flows by product:
Asset Flows by Product | |||||||||||
($ in millions) | Years Ended December 31, | ||||||||||
2018 | 2017 | 2016 | |||||||||
Open-End Funds (1) | |||||||||||
Beginning balance | $ | 43,077.6 | $ | 23,432.8 | $ | 28,882.1 | |||||
Inflows | 14,836.2 | 9,776.9 | 7,070.1 | ||||||||
Outflows | (17,098.4 | ) | (10,561.0 | ) | (13,117.7 | ) | |||||
Net flows | (2,262.2 | ) | (784.1 | ) | (6,047.6 | ) | |||||
Market performance | (2,521.5 | ) | 5,107.0 | 898.7 | |||||||
Other (2) | (583.9 | ) | 15,321.9 | (300.4 | ) | ||||||
Ending balance | $ | 37,710.0 | $ | 43,077.6 | $ | 23,432.8 | |||||
Closed-End Funds | |||||||||||
Beginning balance | $ | 6,666.2 | $ | 6,757.4 | $ | 6,222.3 | |||||
Inflows | 21.6 | — | — | ||||||||
Outflows | — | (112.8 | ) | (103.3 | ) | ||||||
Net flows | 21.6 | (112.8 | ) | (103.3 | ) | ||||||
Market performance | (288.9 | ) | 444.4 | 794.9 | |||||||
Other (2) | (442.9 | ) | (422.8 | ) | (156.5 | ) | |||||
Ending balance | $ | 5,956.0 | $ | 6,666.2 | $ | 6,757.4 | |||||
Exchange Traded Funds | |||||||||||
Beginning balance | $ | 1,039.2 | $ | 596.8 | $ | 340.8 | |||||
Inflows | 290.5 | 732.6 | 382.8 | ||||||||
Outflows | (341.9 | ) | (152.6 | ) | (124.8 | ) | |||||
Net flows | (51.4 | ) | 580.0 | 258.0 | |||||||
Market performance | (162.9 | ) | 21.5 | 20.3 | |||||||
Other (2) | (157.3 | ) | (159.1 | ) | (22.3 | ) | |||||
Ending balance | $ | 667.6 | $ | 1,039.2 | $ | 596.8 | |||||
Retail Separate Accounts | |||||||||||
Beginning balance | $ | 13,936.8 | $ | 8,473.5 | $ | 6,784.4 | |||||
Inflows | 3,060.7 | 2,730.3 | 1,825.5 | ||||||||
Outflows | (2,439.8 | ) | (1,746.2 | ) | (1,156.9 | ) | |||||
Net flows | 620.9 | 984.1 | 668.6 | ||||||||
Market performance | (736.3 | ) | 1,996.1 | 1,023.5 | |||||||
Other (2) | 1,177.0 | 2,483.1 | (3.0 | ) | |||||||
Ending balance | $ | 14,998.4 | $ | 13,936.8 | $ | 8,473.5 | |||||
Institutional Accounts | |||||||||||
Beginning balance | $ | 20,815.9 | $ | 5,492.7 | $ | 4,799.7 | |||||
Inflows | 4,143.3 | 1,684.4 | 1,345.3 | ||||||||
Outflows | (6,542.9 | ) | (2,698.1 | ) | (1,039.3 | ) | |||||
Net flows | (2,399.6 | ) | (1,013.7 | ) | 306.0 | ||||||
Market performance | (992.0 | ) | 1,339.4 | 412.6 | |||||||
Other (2) | 10,020.7 | 14,997.5 | (25.6 | ) | |||||||
Ending balance | $ | 27,445.0 | $ | 20,815.9 | $ | 5,492.7 | |||||
Structured Products | |||||||||||
Beginning balance | $ | 3,298.8 | $ | 613.1 | $ | 356.0 | |||||
Inflows | 421.4 | 474.3 | 316.3 | ||||||||
Outflows | (71.0 | ) | (345.8 | ) | (70.3 | ) | |||||
Net flows | 350.4 | 128.5 | 246.0 | ||||||||
Market performance | 180.0 | 65.7 | 20.1 | ||||||||
Other (2) | (188.9 | ) | 2,491.5 | (9.0 | ) | ||||||
Ending balance | $ | 3,640.3 | $ | 3,298.8 | $ | 613.1 | |||||
25
Total Long-Term | |||||||||||
Beginning balance | $ | 88,834.5 | $ | 45,366.3 | $ | 47,385.3 | |||||
Inflows | 22,773.7 | 15,398.5 | 10,940.0 | ||||||||
Outflows | (26,494.0 | ) | (15,616.5 | ) | (15,612.3 | ) | |||||
Net flows | (3,720.3 | ) | (218.0 | ) | (4,672.3 | ) | |||||
Market performance | (4,521.6 | ) | 8,974.1 | 3,170.1 | |||||||
Other (2) | 9,824.7 | 34,712.1 | (516.8 | ) | |||||||
Ending balance | $ | 90,417.3 | $ | 88,834.5 | $ | 45,366.3 | |||||
Liquidity (3) | |||||||||||
Beginning balance | $ | 2,128.7 | $ | — | $ | — | |||||
Other (2) | (516.2 | ) | 2,128.7 | — | |||||||
Ending balance | $ | 1,612.5 | $ | 2,128.7 | $ | — | |||||
Total | |||||||||||
Beginning balance | $ | 90,963.2 | $ | 45,366.3 | $ | 47,385.3 | |||||
Inflows | 22,773.7 | 15,398.5 | 10,940.0 | ||||||||
Outflows | (26,494.0 | ) | (15,616.5 | ) | (15,612.3 | ) | |||||
Net flows | (3,720.3 | ) | (218.0 | ) | (4,672.3 | ) | |||||
Market performance | (4,521.6 | ) | 8,974.1 | 3,170.1 | |||||||
Other (2) | 9,308.5 | 36,840.8 | (516.8 | ) | |||||||
Ending balance | $ | 92,029.8 | $ | 90,963.2 | $ | 45,366.3 | |||||
(1) | Represents assets under management of U.S. retail funds, offshore funds and variable insurance funds |
(2) | Represents open-end and closed-end fund distributions net of reinvestments, the net change in assets from liquidity strategies, and the impact on net flows from non-sales related activities such as asset acquisitions/(dispositions), seed capital investments/(withdrawals), structured products reset transactions and the use of leverage |
(3) | Represents assets under management in liquidity strategies, including in certain open-end funds and institutional accounts |
The following table summarizes our assets under management by asset class:
December 31, | Change | ||||||||||||||||||||||||
($ in millions) | 2018 | 2017 | 2016 | 2018 vs. 2017 | % | 2017 vs. 2016 | % | ||||||||||||||||||
Asset Class | |||||||||||||||||||||||||
Equity | $ | 53,297.1 | $ | 45,779.8 | $ | 25,822.3 | $ | 7,517.3 | 16.4 | % | $ | 19,957.5 | 77.3 | % | |||||||||||
Fixed income | 33,425.2 | 38,740.0 | 15,523.6 | (5,314.8 | ) | (13.7 | )% | 23,216.4 | 149.6 | % | |||||||||||||||
Alternatives (1) | 3,695.0 | 4,314.7 | 4,020.4 | (619.7 | ) | (14.4 | )% | 294.3 | 7.3 | % | |||||||||||||||
Liquidity (2) | 1,612.5 | 2,128.7 | — | (516.2 | ) | (24.2 | )% | 2,128.7 | N/M | ||||||||||||||||
Total | $ | 92,029.8 | $ | 90,963.2 | $ | 45,366.3 | $ | 1,066.6 | 1.2 | % | $ | 45,596.9 | 100.5 | % | |||||||||||
(1) | Consists of real estate securities, mid-stream energy securities and master limited partnerships, options strategies and other |
(2) | Represents assets under management in liquidity strategies, including certain open-end funds and institutional accounts |
26
Average Assets Under Management and Average Fees Earned
The following table summarizes the average management fees earned in basis points and average assets under management:
December 31, | ||||||||||||||||||||
($ in millions, except average fee earned data which is in basis points) | Average Fee Earned (expressed in basis points) | Average Assets Under Management ($ in millions) (2) | ||||||||||||||||||
2018 | 2017 | 2016 | 2018 | 2017 | 2016 | |||||||||||||||
Products | ||||||||||||||||||||
Open-End Funds (1) | 52.6 | 49.7 | 49.3 | $ | 43,622.8 | $ | 34,932.6 | $ | 25,551.7 | |||||||||||
Closed-End Funds | 66.0 | 66.0 | 65.8 | 6,283.7 | 6,770.0 | 6,583.6 | ||||||||||||||
Exchange Traded Funds | 14.9 | 25.0 | 31.4 | 984.9 | 890.8 | 406.3 | ||||||||||||||
Retail Separate Accounts | 48.2 | 48.6 | 54.3 | 15,069.1 | 11,001.2 | 7,273.9 | ||||||||||||||
Institutional Accounts | 31.1 | 32.1 | 37.3 | 24,965.8 | 14,515.0 | 5,009.4 | ||||||||||||||
Structured Products | 43.1 | 40.8 | 44.2 | 3,640.9 | 2,102.8 | 500.3 | ||||||||||||||
All Long-Term Products | 46.4 | 46.9 | 50.9 | 94,567.2 | 70,212.4 | 45,325.2 | ||||||||||||||
Liquidity (3) | 10.4 | 8.0 | — | 1,711.0 | 2,073.7 | — | ||||||||||||||
All Products | 45.7 | 45.8 | 50.9 | $ | 96,278.2 | $ | 72,286.1 | $ | 45,325.2 | |||||||||||
(1) | Represents assets under management of U.S. retail funds, offshore funds and variable insurance funds |
(2) Averages are calculated as follows:
- Funds - average daily or weekly balances
- Retail Separate Accounts - prior-quarter ending balance or average of month-end balances in quarter
- Institutional Accounts and Structured Products - average of month-end balances in quarter
(3) | Represents assets under management in liquidity strategies, including certain open-end funds and institutional accounts |
Average fees earned represent investment management fees, net of fees paid to third-party investment management service providers and investment management fees earned from consolidated investment products, divided by average net assets. Open-end fund, closed-end fund and exchange traded fund fees are calculated based on average daily or weekly net assets. Retail separate account fees are calculated based on the end of the preceding or current quarter’s asset values or on an average of month-end balances. Institutional account fees are calculated based on an average of month-end balances or current quarter’s asset values. Structured product fees are calculated based on a combination of the underlying cash flows and the principal value of the product. Average fees earned will vary based on several factors, including the asset mix and expense reimbursements to funds.
Year ended December 31, 2018 compared to year ended December 31, 2017. The average fee rate earned on long-term products for 2018 decreased by 0.5 basis points compared to the prior year, primarily due to the impact on the average fees earned as a result of the assets from the Acquired Businesses having lower blended fee rates. The products most impacted by the Acquired Businesses were institutional accounts and retail separate accounts, where the additional assets had a lower overall fee rate. The decrease in the average fee rates for ETFs was primarily due to higher fund expense reimbursements on newly-launched funds. These decreases were partially offset by shifts in the underlying asset mix to higher fee earning strategies in open-end funds and certain incentive related fees earned primarily from structured products.
Year ended December 31, 2017 compared to year ended December 31, 2016. The average fee rate earned on long-term products for 2017 decreased by 4.0 basis points compared to the same period in the prior year, primarily due to the impact of the lower blended fee rate of the assets from the RW Acquisition. The product categories most impacted were institutional accounts and retail separate accounts, where the additional assets were primarily in fixed income strategies. The 0.4 basis point increase in average fees earned on open-end funds was primarily attributable to market appreciation and positive net flows in higher fee equity products.
27
Results of Operations
Summary Financial Data
Years Ended December 31, | Change | ||||||||||||||||||||||||
($ in thousands) | 2018 | 2017 | 2016 | 2018 vs. 2017 | % | 2017 vs. 2016 | % | ||||||||||||||||||
Investment management fees | $ | 437,021 | $ | 331,075 | $ | 235,230 | $ | 105,946 | 32.0 | % | $ | 95,845 | 40.7 | % | |||||||||||
Other revenue | 115,214 | 94,532 | 87,324 | 20,682 | 21.9 | % | 7,208 | 8.3 | % | ||||||||||||||||
Total revenues | 552,235 | 425,607 | 322,554 | 126,628 | 29.8 | % | 103,053 | 31.9 | % | ||||||||||||||||
Total operating expenses | 439,136 | 367,572 | 271,740 | 71,564 | 19.5 | % | 95,832 | 35.3 | % | ||||||||||||||||
Operating income (loss) | 113,099 | 58,035 | 50,814 | 55,064 | 94.9 | % | 7,221 | 14.2 | % | ||||||||||||||||
Other income (expense), net | (23,180 | ) | 18,161 | 8,819 | (41,341 | ) | (227.6 | )% | 9,342 | 105.9 | % | ||||||||||||||
Interest income (expense), net | 19,122 | 4,233 | 10,174 | 14,889 | 351.7 | % | (5,941 | ) | (58.4 | )% | |||||||||||||||
Income (loss) before income taxes | 109,041 | 80,429 | 69,807 | 28,612 | 35.6 | % | 10,622 | 15.2 | % | ||||||||||||||||
Income tax expense (benefit) | 32,961 | 40,490 | 21,044 | (7,529 | ) | (18.6 | )% | 19,446 | 92.4 | % | |||||||||||||||
Net income (loss) | 76,080 | 39,939 | 48,763 | ||||||||||||||||||||||