0001748824-21-000023.txt : 20210507 0001748824-21-000023.hdr.sgml : 20210507 20210507075430 ACCESSION NUMBER: 0001748824-21-000023 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 80 CONFORMED PERIOD OF REPORT: 20210331 FILED AS OF DATE: 20210507 DATE AS OF CHANGE: 20210507 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BrightSphere Investment Group Inc. CENTRAL INDEX KEY: 0001748824 STANDARD INDUSTRIAL CLASSIFICATION: INVESTMENT ADVICE [6282] IRS NUMBER: 471121020 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-38979 FILM NUMBER: 21900309 BUSINESS ADDRESS: STREET 1: 200 CLAREDON ST STREET 2: 53RD FLOOR CITY: BOSTON STATE: MA ZIP: 02116 BUSINESS PHONE: 6173697300 MAIL ADDRESS: STREET 1: 200 CLAREDON ST STREET 2: 53RD FLOOR CITY: BOSTON STATE: MA ZIP: 02116 FORMER COMPANY: FORMER CONFORMED NAME: BrightSphere US Inc. DATE OF NAME CHANGE: 20180801 10-Q 1 bsig-20210331.htm 10-Q bsig-20210331
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q 
(Mark One)
      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended March 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: 001-38979
 
bsig-20210331_g1.jpg
BRIGHTSPHERE
Investment Group Inc.
(Exact name of registrant as specified in its charter) 
Delaware47-1121020
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
  
200 Clarendon Street, 53rd Floor02116
Boston, Massachusetts
(Address of principal executive offices)(Zip Code)
(617)-369-7300
(Registrant’s telephone number, including area code) 
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTicker SymbolName of each exchange on which registered
Common stock, par value $0.001 per shareBSIGNew York Stock Exchange
4.800% Notes due 2026BSIG 26New York Stock Exchange
5.125% Notes due 2031BSANew York Stock Exchange
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 ý No o 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ý No o 
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 definition 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. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  No ý 
The number of shares of the registrant’s common stock, $0.001 per share, outstanding as of May 5, 2021 was 79,354,560.


TABLE OF CONTENTS
  Page
Part I
   
Item 1.
   
 
   
 
   
 
   
 
   
 
   
 
   
Item 2.
   
Item 3.
   
Item 4.
   
Part II
   
Item 1.
   
Item 1A.
   
Item 6.


2

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements.

BrightSphere Investment Group Inc.
Condensed Consolidated Balance Sheets
(in millions, except for share and per share data, unaudited)
March 31,
2021
December 31,
2020
Assets  
Cash and cash equivalents$450.5 $391.3 
Restricted cash1.6 1.6 
Investment advisory fees receivable120.7 112.6 
Income taxes receivable0.9 9.3 
Fixed assets, net62.6 64.7 
Right of use assets80.1 82.3 
Investments (includes balances reported at fair value of $112.6 and $113.1)
114.6 115.1 
Acquired intangibles, net0.2 0.2 
Goodwill34.0 34.0 
Other assets31.4 33.8 
Deferred tax assets167.8 170.3 
Assets held for sale:
Affiliate assets held for sale241.6 249.7 
Assets of consolidated Funds held for sale:
Consolidated Funds’ assets held for sale130.9 114.3 
Total assets$1,436.9 $1,379.2 
Liabilities and stockholders’ equity  
Accounts payable and accrued expenses$23.0 $32.4 
Accrued incentive compensation34.6 94.1 
Due to OM plc2.0 3.4 
Other compensation liabilities145.1 139.2 
Accrued income taxes4.2 4.1 
Operating lease liabilities96.9 98.9 
Other liabilities1.3 1.5 
Debt:
Third party borrowings475.5 394.3 
Liabilities held for sale:
Affiliate liabilities held for sale224.3 226.9 
Total liabilities1,006.9 994.8 
Commitments and contingencies
Equity: 
Common stock (par value $0.001; 79,354,810 and 79,387,961 shares, respectively, issued)
0.1 0.1 
Additional paid-in capital492.8 492.4 
Retained deficit(150.3)(176.5)
Accumulated other comprehensive loss(11.9)(13.6)
Non-controlling interests5.6 1.7 
Non-controlling interests in consolidated Funds93.7 80.3 
Total equity and non-controlling interests in consolidated Funds430.0 384.4 
Total liabilities and equity$1,436.9 $1,379.2 
See Notes to Condensed Consolidated Financial Statements

3

BrightSphere Investment Group Inc.
Condensed Consolidated Statements of Operations
(in millions except for per share data, unaudited)
 
Three Months Ended
March 31,
 20212020
Revenue:  
Management fees$125.3 $142.6 
Performance fees4.6 1.0 
Other revenue1.3 1.6 
Consolidated Funds’ revenue 1.5 
Total revenue131.2 146.7 
Operating expenses:  
Compensation and benefits67.9 49.4 
General and administrative expense20.6 24.3 
Impairment of goodwill 16.4 
Depreciation and amortization5.6 5.1 
Total operating expenses94.1 95.2 
Operating income37.1 51.5 
Non-operating income and (expense):  
Investment income (loss)2.6 (13.7)
Interest income 0.3 
Interest expense(6.2)(7.8)
Loss on sale of subsidiary(1.3) 
Net consolidated Funds’ investment gains (losses) (17.2)
Total non-operating income (loss)(4.9)(38.4)
Income from continuing operations before taxes32.2 13.1 
Income tax expense10.3 6.4 
Income from continuing operations21.9 6.7 
Income from discontinued operations, net of tax18.5 15.4 
Net income40.4 22.1 
Net income (loss) attributable to non-controlling interests in consolidated Funds13.4 (10.5)
Net income attributable to controlling interests$27.0 $32.6 
Earnings per share (basic) attributable to controlling interests$0.34 $0.38 
Earnings per share (diluted) attributable to controlling interests0.33 0.38 
Continuing operations earnings per share (basic) attributable to controlling interests
0.28 0.20 
Continuing operations earnings per share (diluted) attributable to controlling interests
0.27 0.20 
Weighted average common stock outstanding79.3 85.1 
Weighted average diluted common stock outstanding82.3 85.1 
See Notes to Condensed Consolidated Financial Statements

4

BrightSphere Investment Group Inc.
Condensed Consolidated Statements of Comprehensive Income
(in millions, unaudited)
 
Three Months Ended
March 31,
 20212020
Net income$40.4 $22.1 
Other comprehensive income (loss):
Amortization related to derivative securities, net of tax
0.6 0.5 
Foreign currency translation adjustment1.1 (2.1)
Total other comprehensive income (loss)1.7 (1.6)
Comprehensive income (loss) attributable to non-controlling interests in consolidated Funds13.4 (10.5)
Total comprehensive income attributable to controlling interests$28.7 $31.0 

See Notes to Condensed Consolidated Financial Statements

5

BrightSphere Investment Group Inc.
Condensed Consolidated Statements of Changes in Stockholders’ Equity
For the three months ended March 31, 2021 and 2020
($ in millions except share data, unaudited)
 Common stock
(millions)
Common stock, 
par
value
Additional paid-in capitalRetained earnings (deficit)Accumulated
other
comprehensive
income (loss)
Total
stockholders’
equity
Non-
controlling
interests
Non-controlling
interests in
consolidated
Funds
Total 
equity
Redeemable non-controlling interests in consolidated 
Funds
Total equity and
redeemable
non-controlling
interests in
consolidated
Funds
December 31, 201985.9 $0.1 $534.3 $(452.5)$(17.5)64.4 $1.3 $48.8 $114.5 $83.9 $198.4 
Retirement of common stock(0.2)— — — —  — — — — — 
Repurchase of common stock(3.2)— (19.2)— — (19.2)— — (19.2)— (19.2)
Capital contributions— — — — — — — 0.2 0.2 1.2 1.4 
Equity-based compensation— — 1.1 — — 1.1 — — 1.1 — 1.1 
Foreign currency translation adjustment
— — — — (2.1)(2.1)— — (2.1)— (2.1)
Amortization related to derivatives securities, net of tax
— — — — 0.5 0.5 — — 0.5 — 0.5 
Dividends ($0.10 per share)
— — — (8.4)— (8.4)— — (8.4)— (8.4)
Net income (loss)— — — 32.6 — 32.6 — 0.1 32.7 (10.6)22.1 
March 31, 202082.5 $0.1 $516.2 $(428.3)$(19.1)$68.9 $1.3 $49.1 $119.3 $74.5 $193.8 
December 31, 202079.4 $0.1 $492.4 $(176.5)$(13.6)$302.4 $1.7 $80.3 $384.4 $ $384.4 
Capital contributions— — — — — — 3.8 — 3.8 — 3.8 
Equity-based compensation— — 0.4 — — 0.4 — — 0.4 — 0.4 
Foreign currency translation adjustment
— — — — 1.1 1.1 — — 1.1 — 1.1 
Amortization related to derivative securities, net of tax
— — — — 0.6 0.6 — — 0.6 — 0.6 
Other changes in non-controlling interests
— — — — — — 0.1 — 0.1 — 0.1 
Dividends ($0.01 per share)
— — — (0.8)— (0.8)— — (0.8)— (0.8)
Net income (loss)— — — 27.0 — 27.0 — 13.4 40.4 — 40.4 
March 31, 202179.4 $0.1 $492.8 $(150.3)$(11.9)$330.7 $5.6 $93.7 $430.0 $ $430.0 
See Notes to Condensed Consolidated Financial Statements

6

BrightSphere Investment Group Inc.
Condensed Consolidated Statements of Cash Flows
(in millions, unaudited) 
Three Months Ended
March 31,
 20212020
Cash flows from operating activities:  
Net income$40.4 $22.1 
Less: Income from discontinued operations, net of tax(18.5)(15.4)
Less: Net (income) loss attributable to non-controlling interests in consolidated Funds from continuing operations 10.6 
Adjustments to reconcile net income to net cash flows from operating activities from continuing operations:
  
Impairment of goodwill  16.4 
Loss on sale of subsidiary1.3  
Depreciation and other amortization5.6 5.1 
Amortization of debt-related costs1.1 1.1 
Amortization and revaluation of non-cash compensation awards5.3 (23.7)
Net earnings from Affiliate accounted for using the equity method(1.1)(0.6)
Distributions received from equity method Affiliate1.1 0.2 
Distributions from discontinued operations12.2 11.4 
Deferred income taxes2.3 22.7 
(Gains) losses on other investments(4.3)22.9 
Changes in operating assets and liabilities (excluding discontinued operations):  
(Increase) decrease in investment advisory fees receivable(8.1)17.1 
(Increase) decrease in other receivables, prepayments, deposits and other assets10.9 (17.8)
Decrease in accrued incentive compensation, operating lease liabilities and other liabilities(58.3)(77.4)
Decrease in accounts payable, accrued expenses and accrued income taxes(10.1)(22.0)
Net cash flows from operating activities of continuing operations, excluding consolidated Funds(20.2)(27.3)
Net income (loss) attributable to non-controlling interests in consolidated Funds from continuing operations (10.6)
Adjustments to reconcile net income (loss) attributable to non-controlling interests of consolidated Funds to net cash flows from operating activities from continuing operations of consolidated Funds:
Losses on other investments 12.0 
Purchase of investments (25.1)
Sale of investments 22.0 
(Increase) decrease in receivables and other assets (4.4)
Increase in accounts payable and other liabilities 1.6 
Net cash flows from operating activities of continuing operations of consolidated Funds (4.5)
Net cash flows from operating activities of continuing operations(20.2)(31.8)
Net cash flows from operating activities of discontinued operations(0.1)(1.7)
Total net cash flows from operating activities(20.3)(33.5)
Cash flows from investing activities:  
Additions of fixed assets, excluding discontinued operations(3.5)(6.0)
Purchase of investment securities(2.7)(4.8)
Sale of investment securities7.2 12.2 
Net cash flows from investing activities of continuing operations1.0 1.4 
Net cash flows from investing activities of discontinued operations1.8 (0.1)
Total net cash flows from investing activities2.8 1.3 
See Notes to Condensed Consolidated Financial Statements

7

BrightSphere Investment Group Inc.
Condensed Consolidated Statements of Cash Flows
(in millions, unaudited) 
Three Months Ended
March 31,
 20212020
Cash flows from financing activities:  
Proceeds from third party and non-recourse borrowings95.0 80.0 
Repayment of third party and non-recourse borrowings(14.0)(13.3)
Payment for debt issuance costs(0.4) 
Payment to OM plc for co-investment redemptions(1.3) 
Dividends paid to stockholders(0.6)(5.8)
Dividends paid to related parties(0.3)(2.7)
Repurchases of common stock (17.1)
Cash flows from financing activities of consolidated Funds
      Redeemable non-controlling interest capital raised 1.1 
Net cash flows from financing activities of continuing operations78.4 42.2 
Net cash flows from financing activities of discontinued operations0.4 0.2 
Total net cash flows from financing activities78.8 42.4 
Effect of foreign exchange rate changes on cash and cash equivalents  
Net increase in cash and cash equivalents61.3 10.2 
Cash and cash equivalents at beginning of period (including restricted cash)392.9 105.3 
Cash and cash equivalents at beginning of period classified within assets held for sale (Affiliate and consolidated funds)$11.2 $15.7 
Cash and cash equivalents at end of period$465.4 $131.2 
Less: cash and cash equivalents at end of period classified within assets held for sale (Affiliate and consolidated funds)(13.3)(14.1)
Cash and cash equivalents at end of period from continuing operations (including restricted cash)$452.1 117.1
Supplemental disclosure of cash flow information:  
Interest paid (excluding consolidated Funds)$8.2 $10.1 
Income taxes paid0.3  
Supplemental disclosure of non-cash investing and financing transactions:
Payable for securities purchased by a consolidated Fund$ $1.1 
See Notes to Condensed Consolidated Financial Statements

8


BrightSphere Investment Group Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)

1) Organization and Description of the Business
BrightSphere Investment Group Inc. (“BrightSphere”, “BSIG” or the “Company”), through its subsidiaries, is a global asset management company with interests in a diverse group of investment management firms (the “Affiliates”) individually headquartered in the United States. The Company provides investment management services globally to predominantly institutional investors, in asset classes that include U.S. and global equities, fixed income, alternative assets and forestry. Fees for services are largely asset-based and, as a result, the Company’s revenue fluctuates based on the performance of financial markets and investors’ asset flows in and out of the Company’s products.
The Company’s Affiliates are organized as limited liability companies. The Company generally utilizes a profit-sharing model in structuring its compensation and ownership arrangements with its Affiliates. The Affiliates’ variable compensation is generally based on each firm’s profitability. BSIG and Affiliate key employees share in profits after variable compensation according to their respective ownership interests. The profit-sharing model results in the alignment of BSIG and Affiliate key employee economic interests, which is critical to the Company’s talent management strategy and long-term growth of the business. The Company conducts its operations through the following two reportable segments(1):
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.

Liquid Alpha(2)—comprised of specialized investment strategies with a focus on alpha-generation across market cycles in long-only small-, mid-, and large-cap U.S. and non-U.S. equities, as well as fixed income.
(1)Prior to March 31, 2021, the Company had an Alternatives reportable segment which was comprised of the Landmark Partners, LLC (“Landmark”) and Campbell Global, LLC (“Campbell Global”) operating segments. On March 30, 2021, the Company entered into an agreement to sell of all of the Company’s interests in Landmark. As a result of this transaction, Landmark has been reclassified to discontinued operations, and the Alternatives segment no longer constitutes a reportable segment of the Company. The reportable segments for all periods presented have been recast to reflect the reporting of Landmark within discontinued operations and the Campbell Global operating segment has been reclassified to “Other” within the Company’s segment reporting. See Note 3, Divestitures, Held for Sale and Discontinued Operations and Note 15, Segments for further discussion.
(2)On February 6, 2021, the Company announced the divestiture of all of the Company’s interests in Investment Counselors of Maryland (“ICM”), an equity-accounted Affiliate. See Note 3, Divestitures, Held for Sale and Discontinued Operations for further discussion.
Prior to 2014, the Company was a wholly-owned subsidiary of Old Mutual plc (“OM plc”), an international long-term savings, protection and investment group, listed on the London Stock Exchange. On October 15, 2014, the Company completed the initial public offering (the “Offering”) by OM plc pursuant to the Securities Act of 1933, as amended. Additionally, between the Offering and February 25, 2019, the Company, OM plc and/or HNA Capital U.S. (“HNA”) completed a series of transactions in the Company’s shares, including a two-step transaction announced on March 25, 2017 for a sale by OM plc of a 24.95% shareholding in the Company to HNA and a two-step transaction announced on November 19, 2018 for a sale of the substantial majority of the shares held by HNA of the Company to Paulson & Co. (“Paulson”). On February 25, 2019, this transaction was completed and Paulson

9



BrightSphere Investment Group Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)

1) Organization and Description of the Business (cont.)

held approximately 21.7% of the shares of the Company. The remaining shares held by HNA were bought back by the Company in the first quarter of 2019.

For the three months ended March 31, 2021, the Company did not repurchase any shares of common stock. For the three months ended March 31, 2020, the Company repurchased 3,230,262 shares of common stock at an average price of $5.93 per share, or approximately $19.2 million in total, including commissions.

2) Basis of Presentation and Significant Accounting Policies
The Company’s significant accounting policies are as follows:
Basis of presentation
These unaudited Condensed Consolidated Financial Statements reflect the historical balance sheets, statements of operations and of comprehensive income, statements of changes in stockholders’ equity and statements of cash flows of the Company. Within these Condensed Consolidated Financial Statements, Paulson and its related entities, as defined above, are referred to as “related parties.”
The Condensed Consolidated Financial Statements are prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). In the opinion of management, all normal and recurring adjustments considered necessary for a fair presentation of the Company’s Condensed Consolidated Financial Statements have been included. All dollar amounts, except per-share data in the text and tables herein, are stated in millions unless otherwise indicated. Transactions between the Company and its related parties are included in the Condensed Consolidated Financial Statements, however, material intercompany balances and transactions among the Company, its consolidated Affiliates and consolidated Funds are eliminated in consolidation.
On February 6, 2021 the Company entered into a definitive agreement to sell all of the Company’s interests in ICM, an equity-accounted Affiliate within the Liquid Alpha reporting segment, in exchange for approximately $19 million of cash consideration, subject to certain customary closing and post-closing adjustments. As of March 31, 2021 the carrying value of the Company’s investment was approximately $2 million. The criteria for discontinued operations were not met for this pending divestiture. The transaction is expected to close during second quarter of 2021. See Note 3, Divestitures, Held for Sale and Discontinued Operations for additional information.

10


BrightSphere Investment Group Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)

2) Basis of Presentation and Significant Accounting Policies (cont.)
On March 30, 2021, the Company entered into an Equity Purchase Agreement with Ares Holdings L.P. (“Ares”), pursuant to which Ares agreed to purchase all of the Company’s interests in Landmark for $690 million of cash consideration, on a cash-free, debt-free basis subject to certain customary closing and post-closing adjustments. The Company also agreed to sell its carried interest and co-investments in Landmark funds on the date of closing for approximately $34 million, subject to adjustment for certain related cashflow. The pending divestiture of Landmark met the discontinued operations criteria as it represents a strategic shift that has a major effect on the Company’s operations and financial results. As a result, the Company has reclassified the financial results of Landmark and consolidated Landmark Funds to income from discontinued operations, net of tax in the Condensed Consolidated Statements of Operations for the three months ended March 31, 2021 and March 31, 2020. The assets and liabilities of Landmark and consolidated Landmark Funds have been reflected as assets and liabilities held for sale in the Condensed Consolidated Balance Sheet as of March 31, 2021 and December 31, 2020. Cash flows from our discontinued operations are presented in the Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2021 and March 31, 2020. The Notes to the Condensed Consolidated Financial Statements are presented on a continuing operations basis unless otherwise noted. See Note 3, Divestitures, Held for Sale and Discontinued Operations for additional information.
Certain disclosures included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 (annual report on Form 10-K) are not required to be included on an interim basis in the Company’s quarterly reports on Form 10-Q. The Company has condensed or omitted these disclosures. These unaudited Condensed Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and notes thereto for the year ended December 31, 2020 included in the Company’s Annual Report on Form 10-K as filed with the Securities and Exchange Commission (“SEC”) on March 1, 2021. The Company’s significant accounting policies, which have been consistently applied, are summarized in those financial statements.
Use of estimates
The preparation of these Condensed Consolidated Financial Statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. The three months ended March 31, 2021 were characterized by continued uncertainty due to the COVID-19 pandemic which could impact estimates and assumptions made by management. Actual results could differ from such estimates, and the differences may be material to the Condensed Consolidated Financial Statements.
Recently adopted accounting standards
In December 2019, the FASB issued Accounting Standard Update (“ASU”) 2019-12, ASC 740, “Income Taxes (ASC 740): Simplifying the Accounting for Income Taxes”, which is intended to simplify various aspects related to accounting for income taxes.” ASU 2019-12 removes certain exceptions to the general principles in ASC 740 and also clarifies and amends existing guidance to improve consistent application. The guidance is effective for all public business entities for fiscal years beginning after December 15, 2020, including interim periods therein. The Company adopted the standard on January 1, 2020. The Company has determined that the adoption of this standard did not have a material impact on its Condensed Consolidated Financial Statements and related disclosures.

New accounting standards not yet adopted


11


BrightSphere Investment Group Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)

2) Basis of Presentation and Significant Accounting Policies (cont.)
On March 12, 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848) - Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions that reference London Interbank Offered Rate (“LIBOR”) or other reference rates expected to be discontinued because of reference rate reform. This ASU is effective as of March 12, 2020 through December 31, 2022. The Company has not adopted any of the optional expedients or exceptions as of March 31, 2021, but will continue to evaluate the possible adoption of any such expedients or exceptions during the effective period to determine the impact on its Condensed Consolidated Financial Statements and related disclosures.

The Company has considered all other newly issued accounting guidance that is applicable to the Company’s operations and the preparation of the unaudited Condensed Consolidated Financial Statements, including those that have not yet been adopted. The Company does not believe that any such guidance has or will have a material effect on its Condensed Consolidated Financial Statements and related disclosures.


12


BrightSphere Investment Group Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)

3) Divestitures, Held for Sale and Discontinued Operations
Investment Counselors of Maryland
On February 6, 2021, the Company entered into a definitive agreement to sell all of the Company’s interests in ICM, an equity-accounted Affiliate within the Liquid Alpha segment, in exchange for approximately $19 million of cash consideration, subject to certain customary closing and post-closing adjustments. The criteria for discontinued operations were not met for this pending divestiture. The transaction is expected to close in the second quarter of 2021.
Landmark Partners
On March 30, 2021, the Company entered into an Equity Purchase Agreement with Ares, pursuant to which Ares agreed to purchase all of the Company’s interests in Landmark for $690 million of cash consideration, on a cash-free, debt-free basis subject to certain customary closing and post-closing adjustments. The pending divestiture of Landmark met the discontinued operations criteria as it represents a strategic shift that has a major effect on the Company’s operations and financial results. The transaction is expected to close in the second quarter of 2021. The Company also agreed to sell its carried interest and co-investments in Landmark funds on the date of closing for approximately $34 million, subject to adjustment for certain related cashflow.
BrightSphere International Ltd.
On March 17, 2021, BrightSphere completed the sale of its subsidiary BrightSphere International Ltd. to Perpetual U.S. Holdings Company Inc. (“Perpetual”). The Company recognized a pre-tax loss of $(1.3) million within the Condensed Consolidated Statement of Operations for the three months ended March 31, 2021.

13


BrightSphere Investment Group Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)

3) Divestitures, Held for Sale and Discontinued Operations (cont.)
Assets and Liabilities Held for Sale
The major classes of assets and liabilities of discontinued operations of Landmark classified as held for sale in the Condensed Consolidated Balance Sheets as of March 31, 2021 and December 31, 2020 are as follows (in millions):
March 31,
2021
December 31,
2020
Cash and cash equivalents$10.8 $10.6 
Investment advisory fees receivable 0.2 
Fixed assets, net6.9 6.9 
Right of use assets8.0 8.4 
Intangible assets, net56.6 58.2 
Goodwill148.1 148.1 
Other assets11.2 16.8 
Deferred tax assets 0.5 
Affiliate assets held for sale$241.6 $249.7 
Accounts payable and accrued expenses$2.1 $1.1 
Accrued incentive compensation23.9 26.7 
Other compensation liabilities188.4 188.8 
Operating lease liabilities8.6 9.0 
Other liabilities$1.3 $1.3 
Affiliate liabilities held for sale$224.3 $226.9 


14


BrightSphere Investment Group Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)

3) Divestitures, Held for Sale and Discontinued Operations (cont.)
The major classes of revenue and expenses constituting income from discontinued operations attributable to controlling interests for Landmark in the Condensed Consolidated Statement of Operations for the three months ended March 31, 2021 and 2020 are as follows (in millions):
Three Months Ended March 31,
 20212020
Revenues$36.7 $35.9 
Operating expenses:
Compensation and benefits28.5 8.0 
General and administrative expenses2.9 3.4 
Amortization of intangibles1.6 1.6 
Depreciation and amortization0.2 0.2 
Consolidated Funds other expense0.1 0.1 
Total operating expenses33.3 13.3 
Operating income3.4 22.6 
Investment gains of consolidated Funds16.6  
Income from discontinued operations before taxes20.0 22.6 
Income tax expense1.5 7.2 
Income from discontinued operations, net of tax 18.5 15.4 
Income from discontinued operations attributable to non-controlling interests13.4 0.1 
Net income from discontinued operations attributable to controlling interests$5.1 $15.3 
Consolidated Funds
The Landmark Equity Purchase agreement provides for the redemption of all of the Company’s carried interest and co-investments in Landmark funds on the date of closing for approximately $34 million, subject to adjustment for certain related cashflow. The redemption will result in the deconsolidation of consolidated Funds that are considered to be variable interest entities (“VIEs”). The assets and liabilities of the consolidated Funds have been classified as held for sale as the criteria for held for sale and discontinued operations accounting treatment were met and are therefore presented separately in the Company’s Condensed Consolidated Balance Sheet as of March 31, 2021 and December 31, 2020. The transaction is expected to close in the second quarter of 2021. The consolidated Funds’ investments gains/(losses) from discontinued operations, net of tax, attributable to controlling interests was $3.1 million and $(0.2) million in the Company’s Condensed Consolidated Statement of Operations for the three months ended March 31, 2021 and 2020, respectively.
The major classes of assets comprising the consolidated Funds classified as held for sale are as follows at March 31, 2021 and December 31, 2020 (in millions):

15


BrightSphere Investment Group Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)

3) Divestitures, Held for Sale and Discontinued Operations (cont.)
March 31,
2021
December 31,
2020
Cash and cash equivalents$2.5 $0.6 
Equity-accounted investments(1)
128.4 113.7 
Consolidated Funds’ assets held for sale$130.9 $114.3 

(1)Equity-accounted investments in consolidated Funds is comprised of Investments in partnership interests where a portion of return includes carried interest. These investments are accounted for within the scope of ASC 323, Investments - Equity Method and Joint Ventures because the Company has determined it has significant influence.

4) Investments
Investments are comprised of the following as of the dates indicated (in millions):
 March 31,
2021
December 31,
2020
Other investments held at fair value37.6 40.1 
Investments related to long-term incentive compensation plans held at fair value75.0 73.0 
Total investments held at fair value112.6 113.1 
Equity-accounted investment in Affiliate 2.0 2.0 
Total investments per Condensed Consolidated Balance Sheets114.6 115.1 

Investment income is comprised of the following for the three months ended March 31 (in millions):
Three Months Ended March 31,
 20212020
Realized and unrealized gains (losses) on other investments held at fair value$1.5 $(14.3)
Earnings from equity-accounted investment in Affiliate1.1 0.6 
Total investment income (loss) per Condensed Consolidated Statements of Operations
$2.6 $(13.7)

16


BrightSphere Investment Group Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)

5) Fair Value Measurements

The following table summarizes the Company’s assets that are measured at fair value on a recurring basis at March 31, 2021 (in millions):
 Quoted prices
in active
markets
(Level I)
Significant
other
observable
inputs
(Level II)
Significant
unobservable
inputs
(Level III)
UncategorizedTotal value,
March 31, 2021
Assets of BSIG(1)
 
Investments in separate accounts(2)
10.9 11.8  — 22.7 
Investments related to long-term incentive compensation plans(3)
75.0   — 75.0 
Investments in unconsolidated Funds(4)
  2.6 12.3 14.9 
Total fair value assets$85.9 $11.8 $2.6 $12.3 $112.6 
The following table summarizes the Company’s assets that are measured at fair value on a recurring basis at December 31, 2020 (in millions): 
 Quoted prices
in active
markets
(Level I)
Significant
other
observable
inputs
(Level II)
Significant
unobservable
inputs
(Level III)
UncategorizedTotal value December 31, 2020
Assets of BSIG(1)
    
Investments in separate accounts(2)
9.7 11.6  — 21.3 
Investments related to long-term incentive compensation plans(3)
73.0   — 73.0 
Investments in unconsolidated Funds(4)
  2.6 16.2 18.8 
Total fair value assets$82.7 $11.6 $2.6 $16.2 $113.1 
(1)Assets measured at fair value are comprised of financial investments managed by the Company's Affiliates.
Equity securities, including common and preferred stock and short-term investment funds which are traded on a national securities exchange are stated at the last reported sales price on the day of valuation. To the extent these securities are actively traded and valuation adjustments are not applied, they are classified as Level I. The securities that trade in markets that are not considered to be active but are valued based on quoted market prices, dealer quotations or alternative pricing sources supported by observable inputs obtained by the Company from independent pricing services are classified as Level II. 
The Company obtains prices from independent pricing services that may utilize broker quotes, but generally the independent pricing services will use various other pricing techniques which take into account appropriate factors such as yield, quality, coupon rate, maturity, type of issue, trading characteristics and other data. The Company has not made adjustments to the prices provided.
If the pricing services are only able to (a) obtain a single broker quote or (b) utilize a pricing model, such securities are classified as Level III. If the pricing services are unable to provide prices, the Company attempts to obtain one or more broker quotes directly from a dealer or values such securities at the last bid price obtained. In either case, such securities are classified as Level III. The Company performs due diligence

17


BrightSphere Investment Group Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)

5) Fair Value Measurements (cont.)

procedures over third party pricing vendors to understand their methodology and controls to support their use in the valuation process to ensure compliance with required accounting disclosures.
(2)Investments in separate accounts of $22.7 million at March 31, 2021 consist of approximately 1% of cash equivalents and 99% of equity securities, fixed income securities, and other investments. Investments in separate accounts of $21.3 million at December 31, 2020 consist of approximately 11% of cash equivalents and 89% of equity securities, fixed income securities, and other investments. The Company values these using the published price of the underlying securities (classified as Level I) or quoted price supported by observable inputs as of the measurement date (classified as Level II).
(3)Investments related to long-term incentive compensation plans of $75.0 million and $73.0 million at March 31, 2021 and December 31, 2020, respectively, were investments in publicly registered daily redeemable funds (some managed by Affiliates), which the Company has classified as trading securities and valued using the published price as of the measurement dates. Accordingly, the Company has classified these investments as Level I.
(4)The uncategorized amounts of $12.3 million and $16.2 million at March 31, 2021 and December 31, 2020, respectively, relate to investments in unconsolidated Funds which consist primarily of investments in Funds advised by Affiliates and are valued using NAV which the Company relies on to determine their fair value as a practical expedient and has therefore not classified these investments in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to amounts presented in the Condensed Consolidated Balance Sheets. These unconsolidated Funds consist primarily of real estate investment Funds, UCITS and other investment vehicles. The NAVs that have been provided by investees have been derived from the fair values of the underlying investments as of the measurement dates. UCITS and other investment vehicles are not subject to redemption restrictions.
The real estate investment Funds of $5.2 million and $6.2 million at March 31, 2021 and December 31, 2020, respectively, are subject to longer than quarterly redemption restrictions, and due to their nature, distributions are received only as cash flows are generated from underlying assets over the life of the Funds. The range of time over which the underlying assets are expected to be liquidated by the investees is approximately one year to ten years from March 31, 2021. The valuation process for the underlying real estate investments held by the real estate investment Funds begins with each property or loan being valued by the investment teams. The valuations are then reviewed and approved by the valuation committee, which consists of senior members of the portfolio management, acquisitions, and research teams. For certain properties and loans, the valuation process may also include a valuation by independent appraisers. In connection with this process, changes in fair value measurements from period to period are evaluated for reasonableness, considering items such as market rents, capitalization and discount rates, and general economic and market conditions. 
Investments in unconsolidated Funds categorized as Level III of $2.6 million and $2.6 million at March 31, 2021 and December 31, 2020, respectively, related to investments in Forestry Funds advised by an Affiliate and are valued by the general partner of those Funds. Determination of estimated fair value involves subjective judgment because the actual fair value can be determined only through negotiation between parties in a sale transaction, and amounts ultimately realized may vary significantly from the fair value presented.




18


BrightSphere Investment Group Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)

5) Fair Value Measurements (cont.)

The following table reconciles the opening balances of Level III financial assets to closing balances at the end of the period (in millions):
Three Months Ended March 31,
Investments in unconsolidated Funds20212020
Level III financial assets
At beginning of the period$2.6 $3.0 
Transfers in (out) of Level III
  
Total net fair value gains/losses recognized in net income
  
Total Level III financial assets
$2.6 $3.0 
There were no significant transfers of financial assets or liabilities between Levels II or III during the three months ended March 31, 2021 and 2020, respectively.

19


BrightSphere Investment Group Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)

6) Variable Interest Entities


The Company, through its Affiliates, sponsors the formation of various entities considered to be variable interest entities (“VIEs”). These VIEs are primarily Funds managed by Affiliates and other partnership interests typically owned entirely by third party investors. Certain Funds may be capitalized with seed capital investments from the Company and may be owned partially by Affiliate key employees and/or individuals that own non-controlling interests in an Affiliate.
The Company’s determination of whether it is the primary beneficiary of a Fund that is a VIE is based in part on an assessment of whether or not the Company and its related parties are exposed to absorb more than an insignificant amount of the risks and rewards of the entity. Typically, the Fund’s investors are entitled to substantially all of the economics of these VIEs with the exception of the management fees and performance fees, if any, earned by the Company or any investment the Company has made into the Funds. The Company generally is not the primary beneficiary of Fund VIEs created to manage assets for clients unless the Company’s ownership interest, including interests of related parties, is substantial.
The following table presents the assets of Funds that are VIEs and consolidated by the Company (in millions):
 March 31,
2021
December 31,
2020
Assets  
Consolidated Funds’ assets held for sale (Note 3)130.9 114.3 
Total Assets$130.9 $114.3 
In connection with the pending divestiture of Landmark, the Company reclassified assets of consolidated Funds as “Consolidated Funds’ assets held for sale” in the Condensed Consolidated Balance Sheet as of March 31, 2021 and December 31, 2020. See Note 3, Divestitures, Held for Sale and Discontinued Operations, in these Notes for additional information. To the extent the Company has consolidated Funds that are not VIEs, the assets and liabilities of those Funds are not included in the table above.
The assets of consolidated VIEs presented in the table above belong to the investors in those Funds, are available for use only by the Fund to which they belong, and are not available for use by the Company to the extent they are held by non-controlling interests.
The Company’s involvement with Funds that are VIEs and not consolidated by the Company is generally limited to that of an investment manager and its investment in the unconsolidated VIE, if any. The Company’s investment in any unconsolidated VIE generally represents an insignificant interest of the Fund’s net assets and assets under management, such that the majority of the VIEs results are attributable to third parties. The Company’s exposure to risk in these entities is generally limited to any capital contribution it has made or is required to make and any earned but uncollected management fees. The Company has not issued any investment performance guarantees to these VIEs or their investors.

20


BrightSphere Investment Group Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)

6) Variable Interest Entities (cont.)

The following information pertains to unconsolidated VIEs for which the Company holds a variable interest (in millions):
March 31,
2021
December 31,
2020
Unconsolidated VIE assets$6,380.1 $6,437.1 
Unconsolidated VIE liabilities$4,278.9 $4,332.1 
Equity interests on the Condensed Consolidated Balance Sheets$13.3 $14.3 
Maximum risk of loss(1)
$18.6 $19.3 
(1)Includes equity investments the Company has made or is required to make and any earned but uncollected management and incentive fees. The Company does not record performance or incentive allocations until the respective measurement period has ended.


21


BrightSphere Investment Group Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)

7) Borrowings and Debt

The Company’s borrowings and long-term debt was comprised of the following as of the dates indicated (in millions):

March 31, 2021December 31, 2020
(in millions)Carrying ValueFair ValueFair Value LevelCarrying ValueFair ValueFair Value Level
Third party borrowings:
$125 million revolving credit facility expiring August 22, 2022(1)(2)
$81.0 $81.0 2$ $ 
$275 million 4.80% Senior Notes Due
July 27, 2026
(3)
272.9 301.8 2272.8 298.9 2
$125 million 5.125% Senior Notes Due August 1, 2031(3)
121.6 126.4 2121.5 126.0 2
Total borrowings$475.5 $509.2 $394.3 $424.9 
(1)Fair value approximates carrying value because the credit facility has variable interest rates based on selected short term market rates.
(2)On February 23, 2021, the Company’s $150 million revolving credit facility was assigned to Acadian Asset Management LLC (“Acadian”), an Affiliate within the Quant & Solutions segment, and amended to reduce the facility to $125 million.
(3)The difference between the principal amounts and the carrying values of the senior notes in the table above reflects the unamortized debt issuance costs and discounts.
Revolving Credit Facility
On September 3, 2020, the Company, Royal Bank of Canada, BMO Harris Bank, N.A., Bank of China, New York Branch, Wells Fargo Bank, National Association, Barclays Bank PLC, Morgan Stanley Bank, N.A., Bank of America N.A., the Bank of New York Mellon and Citibank, N.A., as an issuing bank and administrative agent (collectively, the “Lenders”), entered into an amendment (the “Amendment") to the Revolving Credit Agreement dated as of August 20, 2019 (the “Original Credit Agreement”, and as amended by the Amendment, the “Amended Credit Agreement”).
On February 23, 2021, the Company, along with the Lenders, entered into an assignment and assumption and amendment agreement (the “Assignment”) to the Amended Credit Agreement. Pursuant to the Assignment, the Amended Credit Agreement was assigned to and assumed by Acadian and the Amended Credit Agreement was amended (the Amended Credit Agreement, as amended by the Assignment, the “Acadian Credit Agreement”) to, among other things, reduce the Lenders’ commitments thereunder to $125 million. The Acadian Credit Agreement has a maturity date of August 22, 2022.
Borrowings under the Acadian Credit Agreement bear interest, at Acadian’s option, at either the per annum rate equal to (a) the greatest of (i) the prime rate, (ii) the federal funds effective rate plus 0.5% and (iii) the one month Adjusted LIBOR Rate plus 1.0%, plus, in each case an additional amount based on its credit rating or (b) the London interbank offered rate for a period, at the Company’s election equal to one, three or six months plus an additional amount ranging from 1.5% to 2.0%, with such additional amount based on Acadian’s Leverage Ratio (as defined

22


BrightSphere Investment Group Inc.
Notes to Consolidated Financial Statements
(unaudited)

6) Borrowings and Debt (cont.)