UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K


ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2021
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 001-37387

Associated Capital Group, Inc.

(Exact name of registrant as specified in its charter)

Delaware
 
47-3965991
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)

191 Mason Street, Greenwich, CT 06830
 
(203) 629-9595
(Address of principal executive offices)(Zip Code)
 
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class
 
Trading Symbol
 
 Name of each exchange on which registered
Class A Common Stock, par value $0.001 per share
 
AC
 
 New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act Yes ☐ 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 ☐ 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 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 and post such files).  Yes ☒ No ☐

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 the 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 ☐
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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.

Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2) Yes No ☒.

The aggregate market value of the class A common stock held by non-affiliates of the registrant as of June 30, 2021 (the last business day of the registrant’s most recently completed second fiscal quarter) was $124,403,412.

As of March 11, 2022, 3,088,197 shares of class A common stock and 18,962,754 shares of class B common stock were outstanding. GGCP, Inc., a private company controlled by the Company’s Executive Chair, held 77,165 shares of class A common stock and indirectly held 18,423,741 shares of class B common stock. Other executive officers and directors of GGCP, Inc. held 29,866 and 36,758 shares of class A and class B common stock, respectively. In additional, there are 222,905 Phantom Restricted Stock Awards outstanding as of December 31, 2021.

DOCUMENTS INCORPORATED BY REFERENCE: Portions of the registrant’s definitive proxy statement relating to the 2022 Annual Meeting of Shareholders are incorporated by reference in Items 10, 11, 12, 13 and 14 of Part III of this report.




Associated Capital Group, Inc.

Annual Report on Form 10-K for the Fiscal Year Ended December 31, 2021

Part I
     
 
Item 1
 4
 
6
 
 7
 
7
 
7
 
 10
 
Item 1A
10
 
Item 1B
10
 
Item 2
10
 
Item 3
10
 
Item 4
11
Part II

   
 
Item 5
11
 
Item 6
11
 
Item 7
11
 
Item 7A
18
 
Item 8
19
 
Item 9
50
 
Item 9A
50
 
Item 9B
51
 
Item 9C
51
Part III

   
 
Item 10
51
 
Item 11
51
 
Item 12
51
 
Item 13
51
 
Item 14
51
Part IV

   
 
Item 15
51
 
Item 16
53
 
   
 
54
 
55
 
 
 
   
 
Certifications
 
     
     
     

Forward-Looking Statements

Our disclosure and analysis in this report and in documents that are incorporated by reference contain some forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements give our current expectations or forecasts of future events. You can identify these statements because they do not relate strictly to historical or current facts. You should not place undue reliance on these statements. They use words such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,” and other words and terms of similar meaning. They also appear in any discussion of future operating or financial performance. In particular, these include statements relating to future actions, future performance of our products, expenses, the outcome of any legal proceedings, and financial results.

Although we believe that we are basing our expectations and beliefs on reasonable assumptions within the bounds of what we currently know about our business and operations, there can be no assurance that our actual results will not differ materially from what we expect or believe. Some of the factors that could cause our actual results to differ from our expectations or beliefs include, without limitation: the adverse effect from a decline in the securities markets; a decline in the performance of our products; a general downturn in the economy; changes in government policy or regulation; changes in our ability to attract or retain key employees; and unforeseen costs and other effects related to legal proceedings or investigations of governmental and self-regulatory organizations. We also direct your attention to any more specific discussions of risk contained in our other public filings or in documents incorporated by reference here or in prior filings or reports.

We are providing these statements as permitted by the Private Litigation Reform Act of 1995. We do not undertake to update publicly any forward-looking statements if we subsequently learn that we are unlikely to achieve our expectations or if we receive any additional information relating to the subject matters of our forward-looking statements.

Definitions

Unless we have indicated otherwise, or the context otherwise requires, references in this report to “Associated Capital Group, Inc.,” “AC Group,” “the Company,” “AC,” “we,” “us” and “our” or similar terms are to Associated Capital Group, Inc., its predecessors and its subsidiaries through which our operations are actually conducted. “GAMCO”, “GBL”, or similar terms refers to our former parent GAMCO Investors, Inc.

The information provided in response to Item 7. Management’s Discussion and Analysis (“MD&A”) of Financial Condition and Results of Operations is provided as a supplement to, and should be read in conjunction with, the Consolidated Financial Statements and the notes thereto included in Item 8 to this report.

PART 1:
OVERVIEW

Giving Back to Society - (Y)our “S” in ESG

AC seeks to be a good corporate citizen in our community through the way we conduct our business activities as well as by other measures such as serving our community, and sponsoring local organizations.

Continuing in the Company’s tradition of shareholder charitable giving, on November 5, 2021, the Board of Directors of Associated Capital approved a $0.30 per share shareholder designated charitable contribution (“SDCC”) for registered shareholders. This is a 50% increase from last year’s $0.20 per share contribution. AC’s total contribution, based on the shares registered as of December 1, 2021, is approximately $6.0 million, of which approximately $1.2 million was received from a comparable SDCC program by the GAMCO Investors, Inc., which declared a $0.50 per share SDCC on our 2.4 million shares. Since November 2015, Associated Capital’s SDCC program of corporate giving has resulted in nearly $31 million in donations to over 160 501(c)(3) organizations across the United States.

ITEM 1:
BUSINESS

(Y)our Business

We are a Delaware corporation, incorporated in 2015, that provides alternative investment management services and operates a direct investment business that over time invests in businesses that fit our criteria. Additionally, we derive income from proprietary investments.

Alternative Investment Management

We conduct our investment management activities through our wholly-owned subsidiary Gabelli & Company Investment Advisers, Inc. (“GCIA”) and its wholly-owned subsidiary, Gabelli & Partners, LLC (“Gabelli & Partners”). GCIA is an investment adviser registered with the Securities and Exchange Commission (“SEC”) under the Investment Advisers Act of 1940, as amended (the “Advisers Act”). GCIA and Gabelli & Partners together serve as general partners or investment managers to investment funds including limited partnerships and offshore companies (collectively, “Investment Partnerships”), and separate accounts. We primarily manage assets across a range of risk and event arbitrage portfolios and in equity event-driven value strategies. The business earns management and incentive fees from its advisory activities. Management fees are largely based on a percentage of assets under management (“AUM”). Incentive fees are based on a percentage of the investment returns of certain client portfolios.

We manage assets on a discretionary basis and invest in a variety of U.S. and foreign securities mainly in the developed global markets. We primarily employ absolute return strategies with the objective of generating positive returns. We serve a wide variety of investors globally including private wealth management clients, corporations, corporate pension and profit-sharing plans, foundations and endowments, as well as serving as sub-advisor to certain third-party investment funds.

In merger arbitrage, the goal is to earn absolute positive returns. We introduced our first limited partnership, Gabelli Arbitrage (renamed Gabelli Associates), in February 1985. Our typical investment process begins at the time of deal announcement, buying shares of the target at a discount to the stated deal terms, earning the spread until the deal closes, and reinvesting the proceeds in new deals in a similar manner. By owning a diversified portfolio of transactions, we mitigate the adverse impact of singular deal-specific risks. Since inception, we have compounded net annual returns of 7.4% with 35 of 37 positive years, net, overall.  As a result, a $10 million investment by a tax free vehicle in this fund at its inception would be worth more than $138 million as of December 31, 2021. In addition, the value of such an investment would have exhibited significantly less volatility than that of broad equity indices.

As the business and investor base expanded, we launched an offshore version in 1989. Building on our strengths in global event-driven value investing, several investment vehicles have been added to balance investors’ geographic, strategic and sector-specific needs. Today, we manage investments in multiple categories, including merger arbitrage, event-driven value and other strategies.

Lastly, during 2021 our Board of Directors approved the launch of a private equity fund.

Assets Under Management

As of December 31, 2021, we managed approximately $1.78 billion in assets. The following table sets forth AC’s total AUM, including investment funds and separately managed accounts, for the dates shown (in millions):

   
December 31,
 
   
2021
   
2020
 
             
Merger Arbitrage
 
$
1,542
   
$
1,126
 
Event-Driven Value (a)
   
195
     
180
 
Other (b)
   
44
     
45
 
Total (c)
 
$
1,781
   
$
$ 1,351
 

(a)
Excluding merger arbitrage.
(b)
Includes investment vehicles focused on private equity, merchant banking, non-investment-grade credit and capital structure arbitrage.
(c)
Includes $238 and $235 of proprietary capital, respectively.

Proprietary Capital

Proprietary capital is earmarked for our direct investment business that invests in new and existing businesses, using a variety of techniques and structures. We launched our direct private equity and merchant banking activities in August 2017. The direct investment business is developing along three core pillars:

Gabelli Private Equity Partners, LLC (“GPEP”), formed in August 2017 with $150 million of authorized capital as a “fund-less” sponsor.

Gabelli Special Purpose Acquisition Vehicles (“SPAC”), which commenced in 2018 with the launch of the Gabelli Value for Italy S.p.a., a general sector SPAC (VALU) that was listed on the London Stock Exchange’s Borsa Italiana AIM segment.

Finally, Gabelli Principal Strategies Group, LLC (“GPS”) was created to pursue strategic operating initiatives broadly.

Our direct investing efforts are organized to invest in various ways, including growth capital, leveraged buyouts and restructurings, with an emphasis on small and mid-sized companies. Our investment sourcing is across a variety of channels including direct owners, private equity funds, classic agents, and corporate carve outs (which are positioned for accelerated growth, as businesses seek to enhance shareholder value through financial engineering). The Company’s direct investing vehicles allow us to acquire companies and create long-term value with no pre-determined exit timetable. The SPAC vehicles leverage our capital markets expertise and act to expand deal flow in target industries.

On September 22, 2020, Associated Capital completed the $175 million initial public offering of its special purpose acquisition corporation (“SPAC”), PMV Consumer Acquisition Corp. (NYSE:PMVC).  PMV Consumer Acquisition Corp. (“PMV”) was created to pursue an initial business combination following the consumer globally with companies having an enterprise valuation in the range of $200 million to $3.5 billion.

We have a proprietary portfolio of cash and investments which we expect to use to invest primarily in funds that we will manage, provide seed capital for new products, including SPACs that we or our affiliates sponsor, expand our geographic presence, develop new markets and pursue strategic acquisitions and alliances.

Morgan Group Holding Co. Spin-Off

On March 16, 2020, the Company’s Board of Directors approved the spin-off of Morgan Group Holding Co. (“Morgan Group”) to AC’s shareholders. On August 5, 2020, AC distributed its 83.3% stake in Morgan Group to shareholders of record as of July 30, 2020.  Following the 1 for 100 reverse split on June 10, 2020, AC shareholders received approximately 0.022356 shares of Morgan Group common stock for each share of AC common stock they held.

The historical financial results of Morgan Group have been reflected in the Company’s consolidated financial statements as discontinued operations for all periods presented through August 5, 2020.

Business Strategy

Our business strategy targets global growth of the business through continued leveraging of our proven asset management strengths including the long-term performance record of our alternative investment funds, diverse product offerings and experienced investment, research and client relationship professionals. In order to achieve performance and growth in AUM and profitability, we are pursuing a strategy which includes the following key elements:

Continuing an Active Fundamental Investment Approach

Since 1985, our results demonstrate our core competence in event driven investing through market cycles. Our “Private Market Value (PMV) with a Catalyst™” investing approach remains the principal management philosophy guiding our investment operations. This method is based on investing principles first articulated by Graham & Dodd, and further refined by our Executive Chair, Mario J. Gabelli.

Growing our Investment Partnerships Advisory Business

We intend to grow our Investment Partnerships advisory operations by gaining share with existing products and introducing new products within our core competencies, such as event and merger arbitrage. In addition, we intend to grow internationally.

Capitalizing on Acquisitions and Alliances - Direct Investments

We intend to leverage our research and investment capabilities by pursuing acquisitions and alliances that will broaden our product offerings and add new sources of distribution. In addition, we may make direct investments in operating businesses using a variety of techniques and structures. For example, on September 22, 2020, Associated Capital announced the $175 million initial public offering of its special purpose acquisition corporation, PMV Consumer Acquisition Corp. (NYSE:PMVC).  PMV Consumer Acquisition Corp. (“PMV”) was created to pursue an initial business combination following the consumer globally with companies having an enterprise valuation in the range of $200 million to $3.5 billion.

Opportunities in Private Equity

One of our initiatives is to launch a private equity business to take advantage of the opportunities in the market place.

Pursuing Partnerships and Joint Ventures

We plan to pursue partnerships and joint ventures with firms that fit with AC’s product quality and that can provide Asian/European distribution capabilities that would complement our U.S. equity product expertise. We expect to target opportunities for investors interested in non-market correlated returns.

Competition

The alternative asset management industry is intensely competitive. We face competition in all aspects of our business from other managers in the United States and around the globe. We compete with alternative investment management firms, insurance companies, banks, brokerage firms and financial institutions that offer products that have similar features and investment objectives. Many of these investment management firms are subsidiaries of large diversified financial companies and may have access to greater resources than we do. Many are larger in terms of AUM and revenues and, accordingly, have larger investment and sales organizations and related budgets. Historically, we have competed primarily on the basis of the long-term investment performance of our investment products. We have recently taken steps to increase our distribution channels, brand awareness and marketing efforts.

The market for providing investment management services to institutional and private wealth management clients is also highly competitive. Selection of investment advisors by U.S. institutional investors is often subject to a screening process and to favorable recommendations by investment industry consultants. Many of these investors require their investment advisors to have a successful and sustained performance record, often five years or longer, and focus on one-year and three-year performance records. Currently, we believe that our investment performance record would be attractive to potential new institutional and private wealth management clients. While we have significantly increased our AUM from institutional investors since our founding, no assurance can be given that our efforts to obtain new business will be successful.

Intellectual Property

Service marks and brand name recognition are important to our business. We have rights to the service marks under which our products are offered. We have rights to use the “Gabelli” name, and the “GAMCO” brand, pursuant to a non-exclusive, royalty-free license agreement we have entered into with GAMCO (the “Service Mark and Name License Agreement”). We can use these names with respect to our funds, collective investment vehicles, Investment Partnerships and other investment products pursuant to the Service Mark and Name License Agreement. The Service Mark and Name License Agreement has a perpetual term, subject to termination only in the event we are not in compliance with its quality control provisions. Pursuant to an assignment agreement signed in 1999, Mario J. Gabelli had assigned to GAMCO all of his rights, title and interests in and to the “Gabelli” name for use in connection with investment management services and institutional research services. In addition, the funds managed by Mario J. Gabelli outside GAMCO and AC have entered into a license agreement with GAMCO permitting them to continue limited use of the “Gabelli” name under specified circumstances.

Regulation

Virtually all aspects of our businesses are subject to federal, state and foreign laws and regulations. These laws and regulations are primarily intended to protect investment advisory clients and investors and the financial markets. Under such laws and regulations, agencies that regulate investment advisors have broad powers, including the power to limit, restrict or prohibit such an advisor from carrying on its business in the event that it fails to comply with such laws and regulations. In such an event, the possible sanctions that may be imposed include civil and criminal liability, the suspension of individual employees, injunctions, limitations on engaging in certain lines of business for specified periods of time, revocation of the investment advisor and other registrations, censures and fines.

Existing U.S. Regulation Overview

AC and certain of its U.S. subsidiaries are currently subject to extensive regulation, primarily at the federal level, by the SEC, the United States Department of Labor, and other regulatory bodies. Certain of our U.S. subsidiaries are also subject to anti-terrorist financing, privacy, and anti-money laundering regulations as well as economic sanctions laws and regulations established by these agencies.

The Advisers Act

GCIA is registered with the SEC under the Advisers Act and is regulated by and subject to examination by the SEC. The Advisers Act imposes numerous obligations on registered investment advisors including fiduciary duties, disclosure obligations and record keeping, operational and marketing requirements. The SEC is authorized to institute proceedings and impose sanctions for violations of the Advisers Act, ranging from censure to termination of an investment advisor’s registration. The failure of GCIA to comply with the requirements of the SEC could have a material adverse effect on us.

We derive substantially all of our revenues from investment advisory services under investment management agreements. Under the Advisers Act, our investment management agreements may not be assigned without the client’s consent.

Employee Retirement Income Security Act of 1974 (“ERISA”)

GCIA is subject to ERISA and to regulations promulgated thereunder, insofar as it is a “fiduciary” under ERISA with respect to certain of its clients. ERISA and applicable provisions of the Internal Revenue Code of 1986, as amended, impose certain duties on persons who are fiduciaries under ERISA and prohibit certain transactions involving ERISA plan clients. Our failure to comply with these requirements could have a material adverse effect on us.

Anti-Tax Evasion Legislation

Our global business may be impacted by the Foreign Account Tax Compliance Act (“FATCA”) which was enacted in 2010 and introduced expansive new investor onboarding, withholding and reporting rules aimed at ensuring U.S. persons with financial assets outside of the United States pay appropriate taxes. In many instances, however, the precise nature of what needs to be implemented will be governed by bilateral Intergovernmental Agreements (“IGAs”) between the United States and the countries in which we do business or have accounts. While many of these IGAs have been put into place, others have yet to be concluded.

The Organization for Economic Cooperation and Development (“OECD”) has developed the Common Reporting Standard (“CRS”) to address the issue of offshore tax evasion on a global basis. Aimed at maximizing efficiency and reducing cost for financial institutions, the CRS provides a common standard for due diligence, reporting and exchange of information regarding financial accounts. Pursuant to the CRS, participating jurisdictions will obtain from reporting financial institutions, and automatically exchange with partner jurisdictions on an annual basis, financial information with respect to all reportable accounts identified by financial institutions on the basis of common due diligence and reporting procedures. As a result, the Investment Partnerships will be required to report information on the investors of the Partnerships to comply with the CRS due diligence and reporting requirements, as adopted by the countries in which the Investment Partnerships are organized.

The FATCA and CRS rules will impact both U.S. and non-U.S. Investment Partnerships and separately managed accounts and subject us to extensive additional administrative burdens. Our business could also be impacted to the extent there are other changes to tax laws such as the recent tax reform legislation. Such changes could adversely affect our financial results.

The Patriot Act

The USA Patriot Act of 2001 contains anti-money laundering and financial transparency laws and mandates various regulations applicable to financial services companies, including standards for verifying client identification at account opening, and obligations to monitor client transactions and report suspicious activities. Anti-money laundering laws outside of the United States contain some similar provisions. Our failure to comply with these requirements as applicable to us could have a material adverse effect on us.

Laws and Other Issues Relating to Taking Significant Equity Stakes in Companies

Investments by AC, its affiliates, and those made on behalf of their respective advisory clients and Investment Partnerships often represent a significant equity ownership position in an issuer’s equity. This may be due to the fact that AC is deemed to be a member of a “group” that includes GAMCO, an entity under common control with AC, and, therefore, may be deemed to beneficially own the securities owned by other members of the group under applicable securities regulations. As of December 31, 2021, by virtue of being a member of the group, AC was deemed to hold five percent or more beneficial ownership with respect to approximately 80 equity securities. This activity raises frequent regulatory, legal and disclosure issues regarding our aggregate beneficial ownership level with respect to portfolio securities, including issues relating to issuers’ stockholder rights plans or “poison pills;” various federal and state regulatory limitations, including (i) state gaming laws and regulations, (ii) federal communications laws and regulations; (iii) federal and state public utility laws and regulations, (iv) federal proxy rules governing stockholder communications; and (v) federal laws and regulations regarding the reporting of beneficial ownership positions. Our failure to comply with these requirements could have a material adverse effect on us.

Potential Legislation Relating to Private Pools of Capital

We manage a variety of private pools of capital, including hedge funds. Congress, regulators, tax authorities and others continue to explore increased regulation related to private pools of capital, including changes with respect to: investor eligibility; trading activities, record-keeping and reporting; the scope of anti-fraud protections; safekeeping of client assets; tax treatment; and a variety of other matters. AC may be materially and adversely affected by new legislation, rule-making or changes in the interpretation or enforcement of existing rules and regulations imposed by various regulators.

Existing European Regulation Overview

Alternative Investment Fund Managers Directive

Our European activities are impacted by the European Union’s (“EU”) Alternative Investment Fund Managers Directive (“AIFMD”). AIFMD regulates managers of, and service providers to, a broad range of alternative investment funds (“AIFs”) domiciled within and, potentially, outside the EU. AIFMD also regulates the marketing of all AIFs inside the European Economic Area. AIFMD’s requirements restrict AIF marketing and impose additional compliance and disclosure obligations on AC regarding items such as remuneration, capital requirements, leverage, valuation, stakes in EU companies, depositaries, domicile of custodians and liquidity management. These compliance and disclosure obligations and the associated risk management and reporting requirements will subject us to additional expenses.

Undertakings for Collective Investment in Transferable Securities

The EU has also adopted directives on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities (“UCITS”) impacting depositary functions, remuneration policies and sanctions. The latest initiative in this area, UCITS V, seeks to align the depositary regime, remuneration rules and sanctioning powers of regulators under the UCITS Directive with the requirements of AIFMD.

Similarly, the European Securities and Markets Authority recently revised its guidelines for exchange-traded and other UCITS funds. These guidelines introduced new collateral management requirements for UCITS funds concerning collateral received in the context of derivatives using Efficient Portfolio Management (“EPM”) techniques (including securities lending) and over-the-counter derivative transactions. We are following the guidelines with respect to our collateral management arrangements applicable to the EPM of the UCITS funds for which GCIA acts as a sub-advisor. The costs of complying with increasing regulation in the EU may negatively impact the net performance of the UCITs fund that GCIA sub advises and therefore may result in decreased remuneration to GCIA for this sub advisory activity.

Markets in Financial Instruments Directive

The EU’s revised Markets in Financial Instruments Directive (“MiFID II”), which was fully implemented in 2018, created specific new rules regarding the use of “soft dollars” to pay for research. A MiFID licensed investment firm that provides portfolio management services or independent investment advisory services to clients may not pay for third-party research with soft dollars generated through client trading activity. Research must be paid for either (i) by the investment firm out of its own resources or (ii) through a separate research payment account for each client to pay for the research. While currently GCIA is not directly subject to MiFID II: (a) GCIA may be invoiced separately by any EU brokers from whom it purchases research in the future; and (b) clients may begin to require that GCIA “unbundle” research payments from commission trading.

The Financial Conduct Authority (“FCA”) currently regulates Gabelli Securities International (UK) Limited (“GSIL UK”), our MiFID licensed entity in the United Kingdom. Authorization by the FCA is required to conduct certain financial services-related business in the United Kingdom under the Financial Services and Markets Act 2000. The FCA’s rules adopted under that Act provide requirements dealing with a firm’s capital resources, senior management arrangements, conduct of business, interaction with clients and systems and controls. The FCA supervises GSIL UK through a combination of proactive engagement, event-driven and reactive supervision and thematic-based reviews in order to monitor our compliance with regulatory requirements. Breaches of the FCA’s rules may result in a wide range of disciplinary actions against GSIL and/or its employees.

Clients whose assets we manage in the EU are additionally subject to EU regulations on OTC derivatives which require (i) the central clearing of standardized OTC derivatives, (ii) the application of risk-mitigation techniques to non-centrally cleared OTC derivatives and (iii) the reporting of all derivative contracts.

Brexit Impact

Through The European Union (Withdrawal) Act of 2018, GSIL UK remained subject to the requirements of MiFID II as in effect on December 31, 2021 (the “Transition End Date”). MiFID II, sets out detailed requirements governing the organization and conduct of business of investment firms and regulated markets. MiFID II also includes pre- and post-trade transparency requirements for equity markets and extensive transaction reporting requirements. In addition, relevant entities must comply with revised obligations on capital resources for banks and certain investment firms set out in the Capital Requirements Directive. This directive includes requirements not only on capital, but also governance and remuneration as well. The obligations introduced through these directives have a direct effect on some of our European operations. The Company cannot assure you the extent to which the future amendments to or replacement of MiFID II or other EU regulations will be adopted into UK law and continue to apply to GSIL UK after the Transition End Date.

Regulatory Matters Generally

The investment management industry is likely to continue to face a high level of regulatory scrutiny and to become subject to additional rules designed to increase disclosure, tighten controls and reduce potential conflicts of interest. In addition, the SEC has substantially increased its use of focused inquiries which request information from investment advisors regarding particular practices or provisions of the securities laws. We participate in some of these inquiries in the normal course of our business. Changes in laws, regulations and administrative practices by regulatory authorities, and the associated compliance costs, have increased our cost structure and could in the future have a material adverse impact. Although we have installed procedures and utilize the services of experienced administrators, accountants and lawyers to assist us in adhering to regulatory guidelines and satisfying these requirements, and maintain insurance to protect ourselves in the case of client losses, there can be no assurance that the precautions and procedures that we have instituted and installed, or the insurance that we maintain to protect ourselves in case of client losses, will protect us from all potential liabilities.

Employees

On March 11, 2022, we had a full-time staff of  25 teammates, of whom  8 served in the portfolio management, research and trading areas, 8 served in the marketing and shareholder servicing areas and 9 served in the finance, legal, operations and administrative areas. We also avail ourselves of services provided by GAMCO in accordance with a transitional services agreement that was entered into with GAMCO as part of AC’s spin-off from GAMCO on November 30, 2015.

Status as a Smaller Reporting Company

We are a “smaller reporting company” as defined by Rule 12b-2 of the Exchange Act and in Item 10(f)(1) of Regulation S-K. As a result, we are eligible to take advantage of certain exemptions from various reporting requirements that are not available to other public companies that are not “smaller reporting companies.”

We ceased to be an emerging growth company after December 31, 2020.

Our website address is www.associated-capital-group.com. Information on our website is not incorporated by reference herein and is not part of this report. We provide a link on our website to the following filings as soon as reasonably practicable after they are electronically filed with or furnished to the Securities and Exchange Commission (“Commission” or “SEC”): our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All such filings on our website are available free of charge. In addition, these reports and the other documents we file with the SEC are available at www.sec.gov.

ITEM 1A:
RISK FACTORS

Smaller reporting companies are not required to provide the information required by this item.

ITEM 1B:
UNRESOLVED STAFF COMMENTS

None.

ITEM 2:
PROPERTIES

Our offices are owned by a wholly owned subsidiary of AC and are located at 191 Mason Street, Greenwich, CT 06830. A portion of the office space is leased to affiliates. During 2021 AC received $118.1 thousand from affiliates (primarily GAMCO) pursuant to lease agreements for this property.

AC acquired 3 St. James Place, London, UK on March 3, 2020 which is fully leased to GAMCO in 2021. During 2021 AC received $275.4 thousand from GAMCO pursuant to the lease agreement for this property.

During 2021 and 2020, AC paid $73.7 thousand and $144 thousand, respectively, to GAMCO pursuant to a sublease based on the percentage of square footage occupied by several AC teammates (including pro rata allocation of common space) at GAMCO’s offices at One Corporate Center, Rye, NY 10580.

ITEM 3:
LEGAL PROCEEDINGS

Currently, we are not subject to any legal proceedings that individually or in the aggregate involved a claim for damages in excess of 10% of our consolidated assets. From time to time, we may be named in legal actions and proceedings. These actions may seek substantial or indeterminate compensatory as well as punitive damages or injunctive relief. We are also subject to governmental or regulatory examinations or investigations. Examinations or investigations can result in adverse judgments, settlements, fines, injunctions, restitutions or other relief. For any such matters, the consolidated financial statements include the necessary provisions for losses that we believe are probable and estimable. Furthermore, we evaluate whether there exist losses which may be reasonably possible and, if material, make the necessary disclosures. However, management believes such amounts, both those that are probable and those that are reasonably possible, are not material to the Company’s consolidated financial condition, operations, or cash flows at December 31, 2021. See also Note L, Guarantees, Contingencies and Commitments, to the consolidated financial statements in Part II, Item 8 of this Form 10-K.

ITEM 4:
MINE SAFETY DISCLOSURES

Not applicable.

PART II

ITEM 5:
MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market for our Stock, Dividends and Stock Repurchase Program

Shares of our Class A common stock are traded on the New York Stock Exchange under the symbol AC.

As of March 11, 2022, there were 109 and 21 holders of record of the Company’s Class A and Class B common stock, respectively. These figures do not include beneficial holders of Class A shares held in “street” name at various brokerage firms.

In December 2015, the Board of Directors established a stock repurchase program authorizing the Company to repurchase up to 500,000 shares. On February 7, 2017, the Board of Directors reset the available number of shares to be purchased under the stock repurchase program to 500,000 shares. On August 3, 2017 and May 8, 2018, the Board of Directors authorized the repurchase of an additional 1 million and 500,000 shares, respectively. Our stock repurchase program is not subject to an expiration date.

The following table provides information for our repurchase of our Class A common stock during the quarter ended December 31, 2021.

Period
 
Total
Number
of Shares
Repurchased
   
Average
Price Paid Per
Share, net of
Commissions
   
Total Number of
Shares Repurchased
as Part of Publicly
Announced Plans
or Programs
   
Maximum
Number of Shares
That May Yet Be
Purchased Under the
Plans or Programs
 
10/01/21 - 10/31/21
   
2,276
   
$
36.86
     
2,276
     
679,170
 
11/01/21 - 11/30/21
   
2,026
     
36.08
     
2,026
     
677,144
 
12/01/21 - 12/31/21
   
-
     
-
     
-
     
677,144
 
Totals
   
4,302
   
$
36.49
     
4,302
         

We have adopted the 2015 Stock Award and Incentive Plan (the “Equity Compensation Plan”). A maximum of 2.0 million shares of Class A Stock have been reserved for issuance as approved by the Company’s stockholders at the annual meeting of stockholders held on May 3, 2016. The Company withdrew the registration statement covering the issuance of those shares as of December 29, 2017.

The number of shares remaining available for future issuance under equity compensation plans is 1.3 million.

ITEM 6:
SELECTED FINANCIAL DATA

Smaller reporting companies are not required to provide the information required by this item.

ITEM 7:
MANAGEMENT’S DISCUSSION AND ANALYSIS (“MD&A”) OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

In December 2019, a novel strain of coronavirus (“COVID-19”) surfaced in China and spread quickly to numerous countries, including the United States. On March 11, 2020, COVID-19 was identified as a global pandemic by the World Health Organization. As world leaders focused on the unprecedented human and economic challenges of COVID-19, global equity markets plunged as the coronavirus pandemic spread. In the remainder of 2020 and continuing through 2021, as a result of unprecedented fiscal and monetary stimulus and the fast tracking of COVID-19 vaccines, the markets have rebounded strongly. The pandemic and resulting economic dislocations did not have a significant adverse impact on our AUM. As a result of this pandemic, the majority of our employees (“teammates”) were working remotely. The Company’s remote work arrangements were mostly discontinued as of July 2021. As restrictions around the globe begin to lift, our teams will once again seek to meet and engage our current and prospective investors in their local jurisdictions.

There continues to be no material impact of remote work arrangements on our operations, including our financial reporting systems, internal control over financial reporting, and disclosure controls and procedures, and there has been no material challenge in implementing our business continuity plan.

Financial Highlights

Financial Performance

The following is a summary of the Company’s financial performance for the Quarters and Years ended December 31, 2021 and 2020:

($000s except per share data or as noted)

   
Fourth Quarter
   
Full Year
 
   
2021
   
2020
   
2021
   
2020
 
AUM - end of period (in millions)
 
$
1,781
   
$
1,351
   
$
1,781
   
$
1,351
 
AUM - average (in millions)
   
1,735
     
1,286
     
1,595
     
1,399
 
Net income/(loss) per share-diluted
 
$
0.43
   
$
2.29
   
$
2.68
   
$
0.84
 
Book Value Per Share
 
$
42.48
   
$
40.36
   
$
42.48
   
$
40.36
 

Financial Condition Overview

The Company consolidates certain investment partnerships and other entities for which it has a controlling financial interest. The following table reflects the net impact of the consolidated investment partnerships and other entities (“Consolidated Entities”) on the consolidated statements of financial condition (in thousands):

   
December 31, 2021
 
   
Prior to
Consolidation
   
Consolidated
Entities
   
As Reported
 
Assets
                 
Cash
   
315,009
     
4,039
     
319,048
 
Investments
   
606,382
     
16,709
     
623,091
 
Other
   
69,713
     
191,484
     
261,197
 
Total assets
 
$
991,104
   
$
212,232
   
$
1,203,336
 
Liabilities and equity
                       
Total liabilities
   
45,024
     
20,510
     
65,534
 
Redeemable noncontrolling interests
   
-
     
202,456
     
202,456
 
Total Associated Capital Group, Inc. equity(1)
   
946,080
     
(8,978
)
   
937,102
 
Noncontrolling interests(1)
   
-
     
(1,756
)
   
(1,756
)
Total liabilities and equity
 
$
991,104
   
$
212,232
   
$
1,203,336
 

   
December 31, 2020
 
   
Prior to
Consolidation
   
Consolidated
Entities
   
As Reported
 
Assets
                 
Cash
   
32,347
     
7,162
     
39,509
 
Investments
   
869,751
     
19,188
     
888,939
 
Other
   
45,709
     
200,388
     
246,097
 
Total assets
 
$
947,807
   
$
226,738
   
$
1,174,545
 
Liabilities and equity
                       
Total liabilities
   
46,418
     
19,910
     
66,328
 
Redeemable noncontrolling interests
   
-
     
206,828
     
206,828
 
Total equity
   
901,389
     
-

   
901,389
 
Total liabilities and equity
 
$
947,807
   
$
226,738
   
$
1,174,545
 

(1) Debit adjustments to Associated Capital Group, Inc. equity and noncontrolling interests reflects the amortization of the discount related to the issuance of PMV SPAC’s redeemable noncontrolling interest. The discount is amortized over a period of 18 months through an adjustment to additional paid-in capital and noncontrolling interest (proportionate to ownership interest in PMV Sponsor) and is also adjusted periodically for income/loss allocated to redeemable noncontrolling interest.

Consolidated Statements of Income

Investment advisory and incentive fees, which are based on the amount and composition of AUM in our funds and accounts, represent our largest source of revenues. Growth in revenues depends on good investment performance, which influences the value of existing AUM as well as contributes to higher investment and lower redemption rates and attracts additional investors while maintaining current fee levels. Growth in AUM is also dependent on being able to access various distribution channels, which is usually based on several factors, including performance and service.  In light of the ongoing dynamics created by COVID-19 and its impact on the global economy and markets, we could experience higher volatility in short-term returns of our funds.

Incentive fees generally consist of an incentive allocation on the absolute gain in a portfolio generally equating to 15-20% of the economic profit, as defined in the agreements governing the investment vehicle or account. We recognize such revenue only when the measurement period has been completed or at the time of an investor redemption.

Compensation includes variable and fixed compensation and related expenses paid to officers, portfolio managers, sales, trading, research and all other professional staff. Variable compensation is paid to sales personnel and portfolio management and may represent up to approximately 55% of revenues.

Management fee expense is incentive-based equal to 10% of adjusted aggregate pre-tax profits paid to the Executive Chair or his designees for his services pursuant to an employment agreement.

Other operating expenses include general and administrative operating costs.

Other income and expense includes net gains and losses from investments (which include both realized and unrealized gains and losses from securities and equity in earnings of investments in partnerships), interest and dividend income, and interest expense. Net gains and losses from investments are derived from our proprietary investment portfolio consisting of various public and private investments and from consolidated investment funds.

Net income/(loss) attributable to noncontrolling interests represents the share of net income attributable to third-party limited partners of certain partnerships and offshore funds we consolidate. Please refer to Notes A and E in our consolidated financial statements included elsewhere in this report.

Consolidated Statements of Financial Condition

We ended 2021 with approximately $942 million in cash and investments, net of securities sold, not yet purchased of $13 million. This includes $319 million of cash and cash equivalents; $61 million of short-term U.S. Treasury obligations; $260 million of securities, net of securities sold, not yet purchased, including shares of GAMCO with a market value of $60.4 million; and $289 million invested in affiliated and third-party funds and partnerships, including investments in closed end funds managed by an affiliate (primarily GAMCO) which have a value of $64 million and more limited liquidity. Our financial resources provide flexibility to pursue strategic objectives that may include acquisitions, lift-outs, seeding new investment strategies, and co-investing, as well as shareholder compensation in the form of share repurchases and dividends.

Total shareholders’ equity attributable to shareholders of the Company was $937 million or $42.48 per share as of December 31, 2021, compared to $899 million or $40.36 per share as of the prior year-end. Shareholders’ equity per share is calculated by dividing the total equity by the number of common shares outstanding. The increase in equity from the end of 2020 was largely attributable to net income for the year, partially offset by dividends, share repurchases and the impact of amortization of the discount related to the issuance of PMV SPAC's redeemable noncontrolling interest.

Assets Under Management Highlights

We reported assets under management as follows (dollars in millions):

   
Year Ended December 31,
       
   
2021
   
2020
   
% Change
 
Merger Arbitrage
 
$
1,542
   
$
1,126
     
36.90
 
Event-Driven Value
   
195
     
180
     
8.33
 
Other
   
44
     
45
     
(2.22
)
Total AUM (a)
 
$
1,781
   
$
1,351
     
31.83
 

(a)
Includes $238 million and $235 million of proprietary capital, respectively.

Changes in our AUM during 2021 were as follows (dollars in millions):

         
Year Ended December 31, 2021
       
   
Beginning
   
Inflows
   
Outflows
   
Investment
Return
   
Ending
 
Merger Arbitrage
 
$
1,126
   
$
566
   
$
(200
)
 
$
50
   
$
1,542
 
Event-Driven Value
   
180
     
5
     
(12
)
   
22
     
195
 
Other
   
45
     
-
     
(3
)
   
2
     
44
 
Total AUM
 
$
1,351
   
$
571
   
$
(215
)
 
$
74
   
$
1,781
 

The majority of our AUM have calendar year-end measurement periods, and our incentive fees are primarily recognized in the fourth quarter. Assets under management increased on a net basis by $356 million for the year ended December 31, 2021 coupled with $74 million in market appreciation.

Operating Results for the Year Ended December 31, 2021 as Compared to the Year Ended December 31, 2020

Revenues

Total revenues were $20.9 million for the year ended December 31, 2021, $1.9 million higher than total revenues of $19.0 million for the year ended December 31, 2020. Total revenues by type were as follows (dollars in thousands):

   
Year Ended December 31,
   
Change
 
   
2021
   
2020
   
$
   
%
 
Investment advisory and incentive fees
 
$
20,530
   
$
18,288
   
$
2,242
     
12.3
 
Other revenues
   
394
     
695
     
(301
)
   
(43.3
)
Total revenues
 
$
$ 20,924
   
$
$ 18,983
   
$
1,941
     
10.2
 

Investment advisory and incentive fees: We earn advisory fees based on our AUM. Investment advisory fees are directly influenced by the amount of average AUM and the fee rates applicable to various accounts.

Advisory and incentive fees were $20.5 million for 2021 compared to $18.3 million for 2020, an increase of $2.2 million. This increase is the result of the higher average AUM over the period.

Incentive fees are directly related to the gains generated for our clients’ accounts. We earn a percentage, usually 20%, of such gains. Incentive fees were $12.4 million in 2021, up $1.9 million from $10.5 million in 2020, due to higher assets under management coupled with superior investment performance.

Other revenues: Other revenues were $0.4 million for 2021 compared to $0.7 million for 2020, a decrease of $0.3 million.

Expenses

Compensation: Compensation, which includes variable compensation, salaries, bonuses and benefits, was $24.5 million for the year ended December 31, 2021, an increase of $5.1 million from $19.4 million for the year ended December 31, 2020. Fixed compensation expense, which includes salaries, bonuses and benefits, increased to $11.1 million in 2021 from $9.5 million in 2020. The remainder of compensation expense represents variable compensation that fluctuates with management and incentive fee revenues as well as the investment results of certain proprietary accounts. Variable payouts are also impacted by the mix of products upon which performance fees are earned and the extent to which they may exceed their allocated costs. For 2021, these variable payouts (based on the investment performance of the products with incentive fees) were $13.4 million, an increase of $3.5 million from $9.9 million in 2020.

Stock-based compensation, which primarily consists of awards accounted for as liabilities, was $2.1 million in 2021, an increase of $2.3 million from $(0.2) million recorded in 2020 due to increases in the Company’s share price in 2021 coupled with a new grant of awards in May 2021.

Management fees: Management fee expense is incentive-based and entirely variable compensation equal to 10% of the aggregate adjusted pre-tax profits, which is paid to the Executive Chair or his designees pursuant to his employment agreement with AC. In 2021 and 2020, AC recorded management fee expense of $8.4 million and $3.1 million, respectively.

Other operating expenses: Our other operating expenses were $7.1 million in 2021 compared to $8.9 million in 2020, a decrease of $1.8 million primarily due to a one-time credit recorded in 2021 of $1.5 million.

Investment and other non-operating income/(expense), net

Net gain from investments: Net gain from investments is directly related to the performance of our proprietary portfolio. For the year ended December 31, 2021, net gains from investments were $93.4 million compared to $36.9 million in the prior year primarily driven by investment income on our holdings of GBL as well as other portfolio increases.

Interest and dividend income: Interest and dividend income increased to $12.1 million in 2021 from $8.7 million in 2020 primarily due to the $5.1 million ($2 per share) special dividend declared on our holdings of GAMCO in 2021.

Income Taxes

In 2021 we recorded income tax expense of $17.7 million resulting in an effective tax rate (“ETR”) of 21.8%. In 2020 we recorded income tax expense of $9.4 million resulting in an ETR of 31.4%. The decrease in rate from 2020 is primarily driven by foreign investments which increased the 2020 rate by 9.9%.

Noncontrolling Interests

Net income attributable to noncontrolling interests was $4.4 million in 2021 compared to $1.0 million in 2020. The increase of $3.4 million was driven primarily by Gabelli Merger Plus+ Trust and mark to market earnings from PMV SPAC.

Net Income/(Loss)

Net income for the year ended December 31, 2021 was $59.2 million compared to net income of $18.8 million for the prior year. The change was primarily driven by higher gains on our investment portfolio primarily driven by the 2021 market recovery from the COVID-19 pandemic.

Liquidity and Capital Resources

Our principal assets consist of cash and cash equivalents; short-term treasury securities; marketable securities, primarily equities, including 2.4 million shares of GAMCO; and interests in affiliated and third-party funds and partnerships. Although Investment Partnerships may be subject to restrictions as to the timing of distributions, the underlying investments of such Investment Partnerships are generally liquid, and the valuations of these products reflect that underlying liquidity.

Summary cash flow data is as follows (in thousands):

   
Year Ended December 31,
 
   
2021
   
2020
 
Cash flows provided by (used in) continuing operations:
           
Operating activities
 
$
238,194
   
$
(279,483
)
Investing activities
   
65,285
     
(174,072
)
Financing activities
   
(14,394
)
   
150,949
 
Net increase from continuing operations
   
289,085
     
(302,606
)
Cash flows provided by (used in) discontinued operations:
               
Operating activities
   
-
     
114
 
Net increase in cash, cash equivalents and restricted cash
   
289,085
     
(302,492
)
Cash, cash equivalents and restricted cash at beginning of period
   
39,509
     
342,001
 
Cash, cash equivalents and restricted cash at end of period
 
$
328,594
   
$
39,509
 

We require relatively low levels of capital expenditures and have a highly variable cost structure where costs increase and decrease based on the level of revenues we receive. Our revenues, in turn, are highly correlated to the level of AUM and to investment performance. We anticipate that our available liquid assets should be sufficient to meet our cash requirements as we build out our operating business. At December 31, 2021, we had cash and cash equivalents of $319.0 million, investments in U.S. Treasury Bills of $61.0 and $260.2 million of investments net of securities sold, not yet purchased of $12.9 million. Included in cash and cash equivalents are $4.0 million and $7.2 million as of December 31, 2021 and 2020, respectively, which were held by consolidated investment funds and may not be readily available for the Company to access.

Net cash provided by operating activities from continuing operations was $238.2 million in 2021 due to $278.1 million of net decreases of securities and net contributions to investment partnerships and our net income of $63.6, offset by $82.9 million of adjustments for noncash items, primarily gains on investments securities and partnership investments and deferred taxes, and $20.6 million in net receivables/payables.

Net cash used in operating activities from continuing operations was $279.5 million in 2020 due to $295.8 million in net purchases of trading securities, including $315.4 million of net purchases of U.S. Treasury Bills, $10.7 of net income adjusted for noncash items, primarily unrealized gains on securities and equity in net gains from partnerships, net distributions from Investment Partnerships of $31.0 million and increases in net receivables/payables of $4.0 million.

Net cash provided by investing activities from continuing operations was $65.3 million in 2021 due to proceeds from sales of securities of $35.3 million and return of capital on securities of $38.7 million, partially offset by purchases of securities of $8.7 million.

Net cash used in investing activities from continuing operations was $174.1 million in 2020 due to the investment of cash in a trust account by the PMV SPAC of $175 million, the purchase of our building in London for $11.1 million and purchases of securities of $2.7 million partially offset by proceeds from sales of securities of $13.1 million and return of capital on securities of $1.6 million.

Net cash used in financing activities from continuing operations was $14.4 million in 2021 resulting from stock buyback payments of $7.6 million, dividends paid of $4.4 million and redemptions of redeemable noncontrolling interests of $2.3 million.

Net cash provided by financing activities from continuing operations was $150.9 million in 2020 resulting from contributions from redeemable noncontrolling interests of $162.6 million primarily related to contributions to PMV SPAC and nonredeemable non-controlling interests of $2.4 million reduced by dividends paid of $6.7 million and stock buyback payments of $7.4 million. Cash provided by discontinued operations from the spin-off of Morgan Group was $0.1 million.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

Critical Accounting Policies

In the ordinary course of business, we make a number of estimates and assumptions relating to the reporting of results of operations and financial condition in the preparation of our consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”). We base our estimates on historical experience, when available, and on other various assumptions that are believed to be reasonable under the circumstances. Actual results could differ significantly from those estimates under different assumptions and conditions.

We believe that the following critical accounting policies require management to exercise significant judgment:

Major Revenue-Generating Services and Revenue Recognition

The Company’s revenues are derived primarily from investment advisory and incentive fees.

Investment advisory and incentive fees are directly influenced by the level and mix of AUM as fees are derived from a contractually-determined percentage of the balance of each account as well as a percentage of the investment performance of certain accounts. Management fees from Investment Partnerships and offshore funds are computed either monthly or quarterly, and amounts receivable are included in investment advisory fees receivable on the consolidated statements of financial condition. These revenues vary depending upon the level of capital flows, financial market conditions, investment performance and the fee rates applicable to each account.

Incentive allocations or fees are generally recognized at the end of an annual measurement period and amounts receivable are included in investment advisory fees receivable on the consolidated statements of financial condition.

See Note B, Significant Accounting Policies, in the consolidated financial statements for additional information.

Investments in Securities

Investments in securities are a recorded at fair value in the statements of financial condition in accordance with U.S. GAAP.  Securities transactions and any related gains and losses are recorded on a trade date basis.  Realized gains and losses from securities transactions are recorded on the specific identified cost basis and are included in net gain from investments on the consolidated statements of income.

Management determines the appropriate classification of securities at the time of purchase. Government debt with maturities of greater than three months at the time of purchase are considered investments in debt securities. The Company has investments in debt securities accounted for as trading, including investments in marketable securities held in trust by PMV.

Securities sold, but not yet purchased are recorded on the trade date, and are stated at fair value and represent obligations of AC to purchase the securities at prevailing market prices. Therefore, the future satisfaction of such obligations may be for an amount greater or less than the amounts recorded on the consolidated statements of financial condition. The ultimate gains or losses recognized are dependent upon the prices at which these securities are purchased to settle the obligations under the sales commitments. Unrealized gains and losses and realized gains and losses from covers of securities sold, not yet purchased transactions are included in net gain from investments on the consolidated statements of income.

Consolidation

The Company assesses all entities with which it is involved for consolidation on a case by case basis depending on the specific facts and circumstances surrounding each entity. Pursuant to accounting guidance, the Company first evaluates whether it holds a variable interest in an entity. The Company considers all economic interests, including proportionate interests through related parties, to determine if such interests are to be considered a variable interest. Fees paid to the Company that are customary and commensurate with the level of services provided from entities in which the Company does not hold other economic interests in the entity are not considered as a variable interest.

For any entity where the Company has determined that it does hold a variable interest, the Company performs an assessment to determine whether it qualifies as a variable interest entity (“VIE”).

The granting of substantive kick-out rights is a key consideration in determining whether a limited partnership or similar entity is a VIE and whether or not that entity should be consolidated. The Company evaluates consolidation on a case by case basis for those VIEs in which substantive kick-out rights have been granted to the unaffiliated investors to either dissolve the fund or remove the general partner.

Under the variable interest entity model, the Company consolidates those entities where it is determined that the Company is the primary beneficiary of the entity. The Company is determined to be the primary beneficiary when it has a controlling financial interest in the VIE, which is defined as possessing both (a) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and (b) the obligation to absorb losses of the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE. If the Company alone is not considered to have a controlling financial interest in the VIE but the Company and its related parties under common control in the aggregate have a controlling financial interest in the VIE, the Company will be deemed to be the primary beneficiary if it is the party that is most closely associated with the VIE. When the Company and its related parties not under common control in the aggregate have a controlling financial interest in a VIE, the Company would be deemed to be the primary beneficiary if substantially all the activities of the entity are performed on behalf of the Company.

The Company determines whether it is the primary beneficiary of a VIE at the time it becomes initially involved with the VIE and reconsiders that conclusion as required. Investments and redemptions (either by the Company, related parties of the Company or third parties) or amendments to the governing documents of the respective entity may affect an entity’s status as a VIE or the determination of the primary beneficiary.

Entities that do not qualify as VIEs are assessed for consolidation as voting interest entities (“VOEs”) under the voting interest model.  The Company evaluates whether the entity should be evaluated under the guidance for partnerships and similar entities, or corporations, and consolidates those entities it controls through a majority voting interest or other means.  If the Company is the general partner or managing member it generally will not be required to consolidate a VOE.

The Company records noncontrolling interests in consolidated Investment Partnerships for which the Company’s ownership is less than 100%.

See Note E, Investment Partnerships and Other Entities in the consolidated financial statements for additional information.

Investments in Partnerships and Affiliates

The Company is general partner or co-general partner of various managed funds. We also have investments in unaffiliated partnerships, offshore funds and other entities (collectively, “investments in partnerships and affiliates”). The Company accounts for its investments in partnerships and affiliates under the equity method. Substantially all of the Company’s equity method investees are entities that record their underlying investments at fair value and included in investments in partnerships. Therefore, under the equity method of accounting, the Company’s share of the investee’s underlying net income predominantly represents fair value adjustments in the investments held by the equity method investees. The Company’s share of the investee’s underlying net income or loss is based upon the most currently available information and is recorded as net gain from investments on the consolidated statements of income. Capital contributions are recorded as an increase in investments when paid, and withdrawals and distributions are recorded as reductions of the investments when received. Depending on the terms of the investment, the Company may be restricted as to the timing and amounts of withdrawals.

Income Taxes

For purposes of the preparation of the consolidated financial statements, the provision for income taxes is computed using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the consolidated financial statements. Under this method deferred tax assets and liabilities are recorded for temporary differences between the tax basis of assets and liabilities and the reported amounts on the consolidated financial statements using the statutory tax rates in effect for the year when the reported amount of the asset or liability is expected to be recovered or settled, respectively. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the enactment date. A valuation allowance is recorded to reduce the carrying values of deferred tax assets to the amount that is more likely than not to be realized. For each tax position taken or expected to be taken in a tax return, the Company determines whether it is more likely than not that the position will be sustained upon examination based on the technical merits of the position, including resolution of any related appeals or litigation. A tax position that meets the more likely than not recognition threshold is measured to determine the amount of benefit to recognize. The tax position is measured at the largest amount of benefit that is greater than 50% likely of being realized upon settlement. The Company recognizes the accrual of interest on uncertain tax positions and penalties in the income tax provision on the consolidated statements of income.

Recent Accounting Developments

See Note B, Significant Accounting Policies – Recent Accounting Developments, in the consolidated financial statements.

Seasonality and Inflation

We do not believe that our operations are subject to significant seasonal fluctuations. We do not believe inflation will significantly affect our compensation costs, as they are substantially variable in nature. The rate of inflation may affect certain other expenses, however, such as information technology and occupancy costs. To the extent inflation results in rising interest rates and has other effects upon the securities markets, it may adversely affect our financial position and results of operations by reducing our AUM, revenues or otherwise.

ITEM 7A:
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Smaller reporting companies are not required to provide the information required by this item.

ITEM 8:
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

ASSOCIATED CAPITAL GROUP, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 
Page
   
20
   
Consolidated Financial Statements:
 
21
22
23
24-25
26
28
28
29
36
36
37
41
42
44
45
47
48
48
49
49
49

All schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission that are not required under the related instructions or are inapplicable have been omitted.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the stockholders and the Board of Directors of Associated Capital Group, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated statements of financial condition of Associated Capital Group, Inc. and subsidiaries (the “Company”) as of December 31, 2021 and 2020, the related consolidated statements of income, comprehensive income, equity and cash flows, for each of the two years in the period ended December 31, 2021, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

Critical audit matters are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters.

/S/ Deloitte & Touche, LLP

Stamford, Connecticut

March 17, 2022
We have served as the Company’s auditor since 2015.

ASSOCIATED CAPITAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share data)

   
Year Ended December 31,
 
   
2021
   
2020
 
Revenues
           
Investment advisory and incentive fees
 
$
20,530
   
$
18,288
 
Other revenues
   
394
     
695
 
Total revenues
   
20,924
     
18,983
 
Expenses
               
Compensation
   
24,457
     
19,436
 
Management fee
   
8,426
     
3,101
 
Other operating expenses
   
7,117
     
8,915
 
Total expenses
   
40,000
     
31,452
 
Operating loss
   
(19,076
)
   
(12,469
)
Other income/(expense)
               
Net gain from investments
   
93,405
     
36,864
 
Interest and dividend income
   
12,109
     
8,675
 
Interest expense
   
(310
)
   
(180
)
Shareholder-designated contribution
   
(4,789
)
   
(3,007
)
Total other income, net
   
100,415
     
42,352
 
Income/(loss) before income taxes
   
81,339
     
29,883
 
Income tax expense/(benefit)
   
17,705
     
9,374
 
Income/(loss) from continuing operations, net of taxes
   
63,634
     
20,509
 
Income/(loss) from discontinued operations, net of taxes
   
-
     
(632
)
Income/(loss) before noncontrolling interests
   
63,634
     
19,877
 
Income/(loss) attributable to noncontrolling interests
   
4,431
     
1,061
 
Net income/(loss) attributable to Associated Capital Group, Inc.’s shareholders
 
$
59,203
   
$
18,816
 
                 
Net income/(loss) per share attributable to Associated Capital Group, Inc.’s shareholders:
               
Basic - Continuing operations
 
$
2.68
   
$
0.87
 
Basic - Discontinued operations
   
-
     
(0.03
)
Basic - Total
 
$
2.68
   
$
0.84
 
                 
Diluted - Continuing operations
 
$
2.68
   
$
0.87
 
Diluted - Discontinued operations
   
-
     
(0.03
)
Diluted - Total
 
$
2.68
   
$
0.84
 
                 
Weighted average shares outstanding:
               
Basic
   
22,120
     
22,369
 
Diluted
   
22,120
     
22,369
 
                 
Actual shares outstanding
   
22,058
     
22,274
 

See accompanying notes.

ASSOCIATED CAPITAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in thousands)

   
Year Ended December 31,
 
   
2021
   
2020
 
             
Income/(loss) before noncontrolling interests
 
$
63,634
   
$
19,877
 
Less: Comprehensive income/(loss) attributable to noncontrolling interests
   
4,431
     
1,061
 
                 
Comprehensive income/(loss) attributable to Associated Capital Group, Inc.
 
$
59,203
   
$
18,816
 

See accompanying notes.

ASSOCIATED CAPITAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands, except per share data)

   
December 31,
2021
   
December 31,
2020
 
ASSETS
           
             
Cash and cash equivalents
 
$
319,048
   
$
39,509
 
Investments in U.S. Treasury Bills
   
60,996
     
344,453
 
Investments in equity securities (Including GBL stock with a value of $60.4 million and $48.9 million, respectively)
   
273,087
     
249,887
 
Investments in affiliated registered investment companies
   
134,548
     
170,605
 
Investments in partnerships
   
154,460
     
123,994
 
Receivable from brokers
   
42,478
     
24,677
 
Investment advisory fees receivable
   
8,315
     
7,346
 
Receivable and investment in note receivable from affiliates
   
10,094
     
4,743
 
Deferred tax assets, net
   
-
     
2,207
 
Goodwill
   
3,519
     
3,519
 
Other assets
   
21,682
     
28,565
 
Investments in marketable securities held in trust
   
175,109
     
175,040
 
Total assets
 
$
1,203,336
   
$
1,174,545
 
                 
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY
               
                 
Payable to brokers
 
$
9,339
   
$
6,496
 
Income taxes payable, including deferred tax liabilities, net
   
8,575
     
9,746
 
Compensation payable
   
19,730
     
18,567
 
Securities sold, not yet purchased
   
12,905
     
17,571
 
Payable to affiliates
   
-
     
2,188
 
Accrued expenses and other liabilities
   
3,580
     
5,635
 
Deferred underwriting fee payable
   
6,125
     
6,125
 
PMV warrant liability
   
5,280
     
-
 
Total liabilities
   
65,534
     
66,328
 
                 
Redeemable noncontrolling interests
   
202,456
     
206,828
 
                 
Commitments and contingencies (Note J)
           
                 
Equity:
               
Preferred stock, $0.001 par value; 10,000,000 shares authorized; none issued and outstanding
           
Class A Common Stock, $0.001 par value; 100,000,000 shares authorized; 6,629,254 shares issued, respectively; 3,095,169 and 3,311,127 shares outstanding, respectively
   
6
     
6
 
Class B Common Stock, $0.001 par value; 100,000,000 shares authorized; 19,196,792 shares issued; 18,962,918 outstanding, respectively
   
19
     
19
 
Additional paid-in capital
   
990,069
     
999,047
 
Retained earnings
   
68,435
     
13,649
 
Treasury stock, at cost (3,534,085 and 3,318,127 shares, respectively)
   
(121,427
)
   
(113,783
)
Total Associated Capital Group, Inc. equity
   
937,102
     
898,938
 
Noncontrolling interests
   
(1,756
)
   
2,451
 
Total equity
   
935,346
     
901,389
 
Total liabilities and equity
 
$
1,203,336
   
$
1,174,545
 
                 
As of December 31, 2021 and 2020, certain balances include amounts related to consolidated variable interest entities (“VIEs”) and voting interest entities (“VOEs”). See Footnote E.
               

See accompanying notes.

ASSOCIATED CAPITAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY

(Dollars in thousands, except per share data)
For the Three Months Ended March 31, 2021, June 30, 2021, September 30, 2021 and December 31, 2021

   
Associated Capital Group, Inc. shareholders
                   
   
Common
Stock
   
Retained
Earnings
   
Additional
Paid-in
Capital
   
Treasury
Stock
   
Total
   
Noncontrolling
Interests
   
Total
Equity
   
Redeemable
Noncontrolling
Interests
 
Balance at December 31, 2020
 
$
25
   
$
13,649
   
$
999,047
   
$
(113,783
)
 
$
898,938
   
$
2,451
   
$
901,389
   
$
206,828
 
Contributions from redeemable noncontrolling interests
    -       -       -       -       -       -       -      
136
 
Redemptions of noncontrolling interests
   
-
     
-
     
-
     
-
     
-
     
-
      -      
(12,066
)
Net income
   
-
     
18,555
     
-
     
-
     
18,555
     
-
     
18,555
     
172
 
Purchase of treasury stock
   
-
     
-
     
-
     
(4,198
)
   
(4,198
)
   
-
     
(4,198
)
   
-
 
Balance at March 31, 2021
 
$
25
   
$
32,204
   
$
999,047
   
$
(117,981
)
 
$
913,295
   
$
2,451
   
$
915,746
   
$
195,070
 
Contributions from redeemable noncontrolling interests
    -       -       -       -       -       -       -      
665
 
Net income/(loss)
   
-
     
29,716
     
-
     
-
     
29,716
     
-
     
29,716
     
(532
)
Dividends declared ($0.10 per share)
   
-
     
(2,211
)
   
-
     
-
     
(2,211
)
   
-
     
(2,211
)
   
-
 
Purchase of treasury stock
   
-
     
-
     
-
     
(1,893
)
   
(1,893
)
   
-
     
(1,893
)
   
-
 
Accretion of redeemable noncontrolling interest
   
-
     
-
     
(6,001
)
   
-
     
(6,001
)
   
(2,892
)
   
(8,893
)
   
8,893
 
Other changes to redeemable noncontrolling interests
    -       -       -       -       -       -       -      
(7,527
)
Balance at June 30, 2021
 
$
25
   
$
59,709
   
$
993,046
   
$
(119,874
)
 
$
932,906
   
$
(441
)
 
$
932,465
   
$
196,569
 
Redemptions of noncontrolling interests
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
(2,161
)
Net income/(loss)
   
-
     
1,503
     
-
     
-
     
1,503
     
122
     
1,625
     
3,879
 
Purchase of treasury stock
   
-
     
-
     
-
     
(1,396
)
   
(1,396
)
   
-
     
(1,396
)
   
-
 
Accretion of redeemable noncontrolling interest
   
-
     
-
     
(1,028
)
   
-
     
(1,028
)
   
(478
)
   
(1,506
)
   
1,506
 
Balance at September 30, 2021
 
$
25
   
$
61,212
   
$
992,018
   
$
(121,270
)
 
$
931,985
   
$
(797
)
 
$
931,188
   
$
199,793
 
Redemptions of noncontrolling interests
   
-
     
-
     
-
     
-
      -       -       -      
(973
)
Net income/(loss)
   
-
     
9,429
     
-
     
-
     
9,429
     
15
     
9,444
     
775
 
Dividends declared ($0.10 per share)
   
-
     
(2,206
)
   
-
     
-
     
(2,206
)
   
-
     
(2,206
)
   
-
 
Purchase of treasury stock
   
-
     
-
     
-
     
(157
)
   
(157
)
   
-
     
(157
)
   
-
 
Accretion of redeemable noncontrolling interest
   
-
     
-
     
(1,949
)
   
-
     
(1,949
)
   
(974
)
   
(2,923
)
   
2,923
 
Other changes to redeemable noncontrolling interests
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
(62
)
Balance at December 31, 2021
 
$
25
   
$
68,435
   
$
990,069
   
$
(121,427
)
 
$
937,102
   
$
(1,756
)
 
$
935,346
   
$
202,456
 

See accompanying notes.

ASSOCIATED CAPITAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY

(Dollars in thousands, except per share data)
For the three months ended March 31, 2020, June 30, 2020, September 30, 2020 and December 31, 2020

   
Associated Capital Group, Inc. shareholders
                   
   
Common Stock
   
Retained Earnings/
(Accumulated Deficit)
   
Additional Paid-in Capital
   
Treasury Stock
   
Total
   
Noncontrolling Interest
   
Total Equity
   
Redeemable Noncontrolling Interests
 
Balance at December 31, 2019
 
$
25
   
$
(701
)
 
$
1,003,450
   
$
(106,342
)
 
$
896,432
   
$
1,003
   
$
897,435
   
$
50,385
 
Redemptions of noncontrolling interests
   
-
     
-
     
-
     
-
     
-
     
-
      -      
(531
)
Net income/(loss)
   
-
     
(73,355
)
   
-
     
-
     
(73,355
)
   
(52
)
   
(73,407
)
   
(3,945
)
Purchase of treasury stock
   
-
     
-
     
-
     
(3,225
)
   
(3,225
)
   
-
     
(3,225
)
   
-
 
Balance at March 31, 2020
 
$
25
   
$
(74,056
)
 
$
1,003,450
   
$
(109,567
)
 
$
819,852
   
$
951
   
$
820,803
   
$
45,909
 
Redemptions of noncontrolling interests
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
(1,167
)
Net income/(loss)
   
-
     
35,237
     
-
     
-
     
35,237
     
(48
)
   
35,189
     
2,436
 
Dividends declared ($0.10 per share)
   
-
     
(2,237
)
   
-
     
-
     
(2,237
)
   
-
     
(2,237
)
   
-
 
Purchase of treasury stock
   
-
     
-
     
-
     
(1,068
)
   
(1,068
)
   
-
     
(1,068
)
   
-
 
Balance at June 30, 2020
 
$
25
   
$
(41,056
)
 
$
1,003,450
   
$
(110,635
)
 
$
851,784
   
$
903
   
$
852,687
   
$
47,178
 
Contributions from redeemable  noncontrolling interests
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
156,049
 
Spin-off of MGHL
   
-
     
-
     
(4,403
)
   
-
     
(4,403
)
   
(903
)
   
(5,306
)
   
-
 
PMV Sponsor members’ interest
   
-
     
-
     
-
     
-
     
-
     
2,072
     
2,072
     
-
 
Net income
   
-
     
5,815
     
-
     
-
     
5,815
     
-
     
5,815
     
937
 
Purchase of treasury stock
   
-
     
-
     
-
     
(1,101
)
   
(1,101
)
   
-
     
(1,101
)
   
-