Segment Information

12 Months Ended

Dec. 31, 2019

Change in Segments

During the third quarter of 2019, the Company realigned the information that the Chief Operating Decision Maker (“CODM”) regularly reviews to evaluate performance for operating decision-making purposes, including performance assessment and allocation of resources. As a result of this change in segment reporting (see Note 1), the Company retrospectively revised prior period results, by segment, to conform to the current period presentation. This structure includes three reportable segments: Quant & Solutions, Alternatives, and Liquid Alpha. The structure is based on the Company’s various investment strategies.

As a result of the change noted above, effective for the quarter ended September 30, 2019, the Company began reporting the following business segments:


•	Quant & Solutions—comprised of versatile, often highly-tailored strategies that leverage data and technology in a computational, factor based investment process across a range of asset classes and geographies, including Global, non-U.S., emerging markets and managed volatility equities, as well as multi-asset products.


•	Alternatives—comprised of illiquid and differentiated liquid investment strategies that include private equity, real estate and real assets, including forestry, as well as a growing suite of liquid alternative capabilities in areas such as long/short, market neutral and absolute return.


•	Liquid Alpha—comprised of specialized investment strategies with a focus on alpha-generation across market cycles in long-only small-, mid-, and large-cap U.S., global, non-U.S. and emerging markets equities, as well as fixed income.

The Company has a corporate head office that is included in “Other”. The corporate head office supports the segments by providing infrastructure and administrative support in the areas of accounting/finance, operations, information technology, strategy and relationship management, legal, compliance and human resources. The corporate head office expenses are not allocated to the Company’s three business segments but the CODM does consider the cost structure of the corporate head office when evaluating the financial performance of the segments.

Performance Measure

The primary measure used by the CODM in measuring performance and allocating resources to the segments is Economic Net Income ("ENI"). The Company defines economic net income for the segments as ENI revenue less (i) ENI operating expenses, (ii) variable compensation and (iii) key employee distributions. The ENI adjustments to U.S. GAAP include both reclassifications of U.S. GAAP revenue and expense items, as well as adjustments to U.S. GAAP results, primarily to exclude non-cash, non-economic expenses, or to reflect cash benefits not recognized under U.S. GAAP. This measure supplements and should be considered in addition to, and not in lieu of, the Consolidated Statements of Operations prepared in accordance with U.S. GAAP. The Company does not disclose total asset information for its reportable segments as the information is not reviewed by the CODM.

ENI revenue includes management fees, performance fees and other revenue under U.S. GAAP, adjusted to include management fees paid to Affiliates by consolidated Funds and the Company’s share of earnings from equity-accounted Affiliates. ENI revenue is also adjusted to exclude the separate revenues recorded under U.S. GAAP for certain Fund expenses reimbursed to our Affiliates.

ENI operating expenses include compensation and benefits, general and administrative expense, and depreciation and amortization under U.S. GAAP, adjusted to exclude non-cash expenses representing changes in the value of Affiliate equity and profit interests held by Affiliate key employees, non-cash amortization of acquisition-related contingent consideration, as well as the value of employee equity owned pre-acquisition, that occurred as a result of Landmark transaction, and the separate expenses recorded under U.S. GAAP for certain Fund expenses reimbursed to Affiliates. Additionally, variable compensation and Affiliate key employee distributions are segregated from ENI operating expenses.

ENI segment results are also adjusted to exclude the portion of consolidated Fund revenues, expenses and investment return recorded under U.S. GAAP.

Segment Presentation

The following tables set forth summarized operating results for the Company's three segments and related adjustments necessary to reconcile the segment economic net income to arrive at the Company's consolidated U.S. GAAP net income (loss) for the year ended December 31, 2019 (in millions):



	Quant & Solutions		Alter-natives		Liquid Alpha		Other			Reconciling Adjustments				Total U.S. GAAP⁽¹⁾
ENI revenue	$	380.6	$	166.5	$	263.8	$	0.4		$	8.2		(a)	$	819.5

ENI operating expenses	160.6		66.9		78.8		35.4			(17.0		)	(b)	324.7
Earnings before variable compensation	220.0		99.6		185.0		(35.0		)	25.2				494.8
Variable compensation	75.6		36.7		62.4		10.0			14.7			(c)	199.4
ENI operating earnings (after variable comp)	144.4		62.9		122.6		(45.0		)	10.5				295.4
Affiliate key employee distributions	6.4		23.0		23.7		—			(8.0		)	(d)	45.1
Earnings after Affiliate key employee distributions	138.0		39.9		98.9		(45.0		)	18.5				250.3
Net interest income (expense)	—		—		—		(21.0		)	(9.0		)	(e)	(30.0		)
Net investment income	—		—		—		—			37.7			(f)	37.7
Net income attributable to non-controlling interests in consolidated Funds	—		—		—		—			(16.1		)	(f)	(16.1		)
Income tax (expense) benefit	—		—		—		(50.0		)	32.0			(h)	(18.0		)
Economic net income	$	138.0	$	39.9	$	98.9	$	(116.0	)	$	63.1			$	223.9

The following table presents the financial data for the Company’s three segments for the year ended December 31, 2018 (in millions):



	Quant & Solutions		Alter-natives		Liquid Alpha		Other			Reconciling Adjustments				Total U.S. GAAP⁽¹⁾
ENI revenue	$	389.0	$	218.1	$	311.6	$	0.4		$	9.1		(a)	$	928.2

ENI operating expenses	146.3		61.8		84.5		43.1			196.2			(b)	531.9
Earnings before variable compensation	242.7		156.3		227.1		(42.7		)	(187.1		)		396.3
Variable compensation	86.2		58.9		73.9		11.7			5.2			(c)	235.9
ENI operating earnings (after variable comp)	156.5		97.4		153.2		(54.4		)	(192.3		)		160.4
Affiliate key employee distributions	9.5		34.1		33.0		—			—				76.6
Earnings after Affiliate key employee distributions	147.0		63.3		120.2		(54.4		)	(192.3		)		83.8
Net interest income (expense)	—		—		—		(13.6		)	(8.1		)	(e)	(21.7		)
Net investment income	—		—		—		—			53.1			(f)	53.1
Net income attributable to non-controlling interests in consolidated Funds	—		—		—		—			6.1			(f)	6.1
Revaluation of DTA deed	—		—		—		—			20.0			(g)	20.0
Income tax (expense) benefit	—		—		—		(62.7		)	57.7			(h)	(5.0		)
Gain (loss) on disposal of discontinued operations, net of tax	—		—		—		—			0.1			(f)	0.1
Economic net income	$	147.0	$	63.3	$	120.2	$	(130.7	)	$	(63.4	)		$	136.4

The following table presents the financial data for the Company’s three segments for the year ended December 31, 2017 (in millions):



	Quant & Solutions		Alter-natives		Liquid Alpha		Other			Reconciling Adjustments				Total U.S. GAAP⁽¹⁾
ENI revenue	$	368.5	$	186.1	$	335.1	$	11.0		$	(13.3	)	(a)	$	887.4

ENI operating expenses	126.6		57.4		82.1		48.0			177.0			(b)	491.1
Earnings before variable compensation	241.9		128.7		253.0		(37.0		)	(190.3		)		396.3
Variable compensation	79.2		48.7		86.9		28.6			8.8			(c)	252.2
ENI operating earnings (after variable comp)	162.7		80.0		166.1		(65.6		)	(199.1		)		144.1
Affiliate key employee distributions	8.6		26.8		37.7		—			—				73.1
Earnings after Affiliate key employee distributions	154.1		53.2		128.4		(65.6		)	(199.1		)		71.0
Net interest income (expense)	—		—		—		(18.8		)	(4.9		)	(e)	(23.7		)
Net investment income	—		—		—		—			42.9			(f)	42.9
Net income attributable to non-controlling interests in consolidated Funds	—		—		—		—			(4.9		)	(f)	(4.9		)
Revaluation of DTA deed	—		—		—		—			51.8			(g)	51.8
Income tax (expense) benefit	—		—		—		(70.4		)	(62.4		)	(h)	(132.8		)
Gain (loss) on disposal of discontinued operations, net of tax	—		—		—		—			(0.1		)	(f)	(0.1		)
Economic net income	$	154.1	$	53.2	$	128.4	$	(154.8	)	$	(176.7	)		$	4.2

(1)

The U.S. GAAP equivalent of ENI revenue is U.S. GAAP revenue. The U.S. GAAP equivalent of ENI operating expenses is U.S. GAAP operating expenses, which is comprised of ENI operating expenses, variable compensation and Affiliate key employee distributions above. The U.S. GAAP equivalent of earnings after Affiliate key employee distributions is U.S. GAAP operating Income. The U.S. GAAP equivalent of Economic Net Income is U.S. GAAP net income attributable to controlling interests.

Reconciling Adjustments:


(a)	Adjusted to exclude earnings from equity-accounted Affiliates, which are included in U.S. GAAP investment income, and to include consolidated Funds revenues and the separate revenues recorded for certain Fund expenses reimbursed by customers, which are included in U.S. GAAP revenue.

(b)

Adjusted to include non-cash amortization expense for acquisition-related consideration and pre-acquisition employee equity, non-cash expenses for key employee equity and profit interest revaluations, capital transaction costs, amortization of acquired intangible assets, restructuring costs, consolidated Funds’ operating expenses and the Fund expenses reimbursed by customers, each of which are included in U.S. GAAP operating expenses.


(c)	Adjusted to include restructuring costs, which are included in U.S. GAAP compensation expense. Also adjusted to include variable compensation related to restructuring at an Affiliate that will be reimbursed through a reduction of Affiliate key employee distributions.


(d)	Adjusted to exclude the amount of variable compensation related to restructuring at an Affiliate, which will be reimbursed through Affiliate key employee distributions.


(e)	Adjusted to include the cost of seed financing, which is included in U.S. GAAP interest expense.


(f)	Adjusted to include net investment income (loss), net income (loss) attributable to non-controlling interests in consolidated Funds, and the gain on disposal of discontinued operations, all of which are included in U.S. GAAP net income attributable to controlling interests.


(g)	Adjusted to exclude the revaluation gain associated with the settlement of the DTA Deed with OM plc , which is included in U.S. GAAP non-operating income.


(h)	Adjusted to include the impact of deferred taxes resulting from changes in tax law and the amortization of goodwill and acquired intangibles. Also adjusted to include tax expense or benefits relating to uncertain tax positions, the tax impact of certain ENI adjustments and other unusual items that are not included in current operating results for ENI purposes.

Management fee revenue by principal geographic area is comprised of the following for the years ended December 31, 2019, 2018 and 2017 (in millions):



	Years ended December 31,
	2019		2018		2017
U.S.	$	607.0	$	687.6	$	666.2
Non-U.S.	200.0		217.4		191.8
Management fee revenue	$	807.0	$	905.0	$	858.0