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Table of Contents

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, 2019
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                     to                     
Commission file number 1-10994
 
 
 
 
 
vircorporatelogo01.jpg
 VIRTUS INVESTMENT PARTNERS, INC.
(Exact name of registrant as specified in its charter)
 
 
 
 
 

Delaware
 
26-3962811
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
One Financial Plaza, Hartford, CT 06103
(Address of principal executive offices)
Registrant’s telephone number, including area code:
(800) 248-7971
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Trading Symbol
 
Name of each exchange on which registered
Common Stock, $.01 par value
 
VRTS
 
The NASDAQ Stock Market LLC
(including attached Preferred Share Purchase Rights)
 
 
 
 
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of class)
 
 
 
 
 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    x 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    x  No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    x  Yes    ¨  No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    x  Yes    ¨  No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 

x
  
Accelerated filer
  
¨
Non-accelerated filer
 

¨
  
Smaller reporting company
  
 
 
 
 
Emerging growth company
 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ¨  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).      Yes    x  No
The aggregate market value of the registrant’s voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold (based on the closing share price as quoted on the NASDAQ Global Market) as of the last business day of the registrant’s most recently completed second fiscal quarter was approximately $695,000,000. For purposes of this calculation, shares of common stock held or controlled by executive officers and directors of the registrant have been treated as shares held by affiliates.
There were 7,723,659 shares of the registrant’s common stock outstanding on February 13, 2020.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s proxy statement that will be filed with the SEC in connection with the 2020 Annual Meeting of Shareholders are incorporated by reference into Part III of this Form 10-K.


Table of Contents

Virtus Investment Partners, Inc.
Annual Report on Form 10-K for the Fiscal Year Ended December 31, 2019
 
 
 
Page
 
 
 
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
 
 
 
 
 
 
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
 
 
 
 
 
 
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
 
 
 
 
 
 
Item 15.
Item 16.

"We," "us," "our," the "Company" and "Virtus," as used in this Annual Report on Form 10-K (the "Annual Report"), refer to Virtus Investment Partners, Inc., a Delaware corporation, and its subsidiaries.



Table of Contents

PART I
 
Item 1.
Business.
Organization
Virtus Investment Partners, Inc. (the "Company"), a Delaware corporation, commenced operations on November 1, 1995 through a reverse merger of the investment management subsidiary of Phoenix Life Insurance Company ("Phoenix") with Duff & Phelps Corporation. The Company was a majority-owned subsidiary of Phoenix from 1995 to 2001 and a wholly owned subsidiary from 2001 until 2008. On December 31, 2008, the Company became an independent publicly traded company as a result of Phoenix's distribution of 100% of Virtus common stock to Phoenix stockholders in a spin-off transaction.
Our Business
We provide investment management and related services to individuals and institutions. We use a multi-manager, multi-style approach, offering investment strategies from affiliated managers, each having its own distinct investment style, autonomous investment process and individual brand. By offering a broad array of products, we believe we can appeal to a greater number of investors and have offerings across market cycles and through changes in investor preferences. Our earnings are primarily driven by asset-based fees charged for services relating to these various products, including investment management, fund administration, distribution and shareholder services.

We offer investment strategies for individual and institutional investors in different product structures and through multiple distribution channels. Our investment strategies are available in a diverse range of styles and disciplines and are managed by a collection of differentiated investment managers. We have offerings in various asset classes (equity, fixed income and alternative), geographies (domestic, international and emerging) market capitalizations (large, mid and small), styles (growth, core and value) and investment approaches (fundamental, quantitative and thematic). Our retail products include U.S. 1940 Act mutual funds, Undertaking for Collective Investment in Transferable Securities ("UCITS" or "offshore funds" and collectively with U.S. 1940 Act mutual funds, "open-end funds"), exchange traded funds ("ETFs"), closed-end funds (collectively with open-end funds and ETFs, "funds") and retail separate accounts. Our institutional products are offered through separate accounts and pooled or commingled structures to a variety of institutional clients. We also provide subadvisory services to other investment advisers and serve as the collateral manager for structured products.

Our Investment Managers

We provide investment management services through our affiliated investment managers who are registered under the Investment Advisers Act of 1940, as amended (the "Investment Advisers Act"). The investment managers are responsible for portfolio management activities for our retail and institutional products operating under advisory or subadvisory agreements. We provide our affiliated managers with distribution, operational and administrative support, thereby allowing each manager to focus primarily on investment management. We also engage select unaffiliated managers to sub-advise certain of our open-end funds and ETFs. We monitor our managers’ services by assessing their performance, style and consistency and the discipline with which they apply their investment process.


1

Table of Contents

Our affiliated investment managers and their respective assets under management, products and strategies as of December 31, 2019 were as follows:
Manager
 
Products
 
Strategies
 
Assets
(in billions)
Ceredex Value Advisors
 
Open-end funds and institutional accounts
 
Value-oriented strategies;
large-, mid- and small-cap domestic equities
 
$
9.4

Duff & Phelps Investment Management
 
Closed- and open-end funds and institutional accounts
 
Equity income strategies;
global listed infrastructure, domestic, international real estate and energy, and international equities
 
$
11.2

Kayne Anderson Rudnick Investment Management
 
Open-end funds, institutional accounts, intermediary-sold managed accounts and private client accounts
 
Quality-oriented equity strategies in
small to large cap, including domestic global, international and emerging market strategies
 
$
33.0

Newfleet Asset Management
 
Closed- and open-end funds, ETFs, institutional, intermediary-sold managed accounts, private client accounts and structured products
 
Fixed income strategies;
multi-sector, enhanced core strategies and dedicated sector strategies such as bank loans and high yield
 
$
10.4

Rampart Investment Management Company
 
Closed- and open-end funds, institutional accounts and intermediary-sold managed accounts
 
Quantitative and option related strategies
 
$
1.0

Seix Investment Advisors
 
Open-end funds, institutional, ETFs and structured products
 
High yield, leveraged loans, investment grade taxable, tax-exempt and multi-sector strategies
 
$
18.2

Silvant Capital Management
 
Open-end funds and institutional
 
Growth equity strategies, including large-cap and small-cap
 
$
0.8

Sustainable Growth Advisers
 
Institutional and private client accounts and open-end funds
 
Large-cap growth strategies, including domestic, global, international and emerging markets
 
$
14.8


As of December 31, 2019, $9.9 billion in assets under management were managed by unaffiliated managers.

Our Investment Products
Our assets under management are in open-end funds, closed-end funds, ETFs, retail separate accounts, institutional accounts and structured products.

Assets Under Management by Product as of
December 31, 2019

Fund assets
(in billions)
Open-end funds
$
42.9

Closed-end funds
6.7

Exchange traded funds
1.2

Retail separate accounts
20.4

Institutional accounts
32.6

Structured products
3.9

Total Long-Term
107.7

Liquidity (1)
1.2

Total Assets Under Management
$
108.9

(1)
Represents assets under management in liquidity strategies, including certain open-end funds and institutional accounts.


2

Table of Contents

Open-End Funds

Our open-end mutual funds are offered in a variety of asset classes (domestic and international equity, taxable and non-taxable fixed income, and alternative investments), market capitalizations (large, mid and small), styles (growth, core and value) and investment approaches (fundamental, quantitative and thematic). Our Ireland domiciled off-shore funds are offered in select investment strategies to non-U.S. investors. Summary information about our open-end funds as of December 31, 2019 were as follows:
Asset Class
 
Number of Funds Offered
 
Total Assets
 
Advisory Fee
Range (1)
 
 
 
 
(in millions)
 
(%)
Domestic Equity
 
22

 
$
16,661

 
2.15-0.40
Fixed Income
 
22

 
12,808

 
1.85-0.21
International/Global Equity
 
13

 
11,459

 
1.20-0.65
Alternatives
 
9

 
1,139

 
1.30-0.55
Asset Allocation
 
4

 
803

 
1.00-0.45
Total Open-End Funds
 
70

 
$
42,870

 
 

(1)
Percentage of average daily net assets. The percentages listed represent the range of management advisory fees paid by the funds, from the highest to the lowest. The range indicated includes the impact of breakpoints at which management advisory fees for certain of the funds in each fund type decrease as assets in the funds increase. Subadvisory fees paid on funds managed by unaffiliated subadvisers are not reflected in the percentages listed.

Closed-End Funds

Our closed-end funds are offered in a variety of asset classes and various strategies such as infrastructure, energy and global multi-sector. We managed the following closed-end funds as of December 31, 2019, each of which is traded on the New York Stock Exchange:

Fund Type/Name
 
Total Assets
 
Advisory
Fee
 
 
 
 
(in millions)
 
(%)
 
 
Asset Allocation
 
 
 
 
 
 
DNP Select Income Fund Inc.
 
$
4,230

 
0.60-0.50
 
(1)
Virtus Total Return Fund Inc.
 
689

 
0.75
 
(2)
Alternatives
 
 
 
 
 
 
Duff & Phelps Utility and Infrastructure Fund Inc.
 
887

 
1.00
 
(1)
Duff & Phelps Select MLP and Midstream Energy Fund Inc.
 
169

 
1.00
 
(2)
Fixed Income
 
 
 
 
 
 
Duff & Phelps Utility and Corporate Bond Trust Inc.
 
367

 
0.50
 
(1)
Virtus Global Multi-Sector Income Fund
 
207

 
0.95
 
(2)
DTF Tax-Free Income Inc.
 
199

 
0.50
 
(1)
Total Closed-End Funds
 
$
6,748

 
 
 
 
 

(1)
Percentage of average weekly net assets. A range indicates that the fund has breakpoints at which management advisory fees decrease as assets in the fund increase.
(2)
Percentage of average daily net assets of each fund.


3

Table of Contents

Exchange Traded Funds

Our ETFs are offered in a range of actively managed and index-based investment capabilities across multiple asset classes. We managed the following ETFs at December 31, 2019:
ETF Name
 
Total Assets
 
Advisory
Fee (1)
 
 
(in millions)
 
(%)
Alternative
 
 
 
 
Virtus Real Asset Income ETF
 
$
322

 
0.033

InfraCap MLP ETF
 
312

 
0.075

Virtus Private Credit Strategy ETF
 
224

 
0.468

InfraCap Reit Preferred ETF
 
44

 
0.075

 
 
 
 
 
Equity
 
 
 
 
Virtus InfraCap U.S. Preferred Stock ETF
 
97

 
0.140

Virtus LifeSci Biotech Clinical Trials ETF
 
42

 
0.450

Reaves Utilities ETF
 
35

 
0.490

Virtus LifeSci Biotech Products ETF
 
28

 
0.450

Virtus Glovista Emerging Markets ETF
 
6

 
0.650

Virtus WMC Global Factor Opportunities ETF
 
6

 
0.280

 
 
 
 
 
Fixed Income
 
 
 
 
Virtus Newfleet Multi-Sector Bond ETF
 
22

 
0.700

Virtus Newfleet Dynamic Credit ETF
 
10

 
0.550

Virtus Seix Senior Loan ETF
 
8

 
0.570

Total ETFs
 
$
1,156

 
 
(1)
Percentage of average daily net assets of each fund. Subadvisory fees paid on funds managed by unaffiliated subadvisers are not reflected in the percentages listed.

Retail Separate Accounts

Intermediary-Sold Managed Accounts

Intermediary-sold managed accounts are individual investment accounts that are primarily contracted through intermediaries as part of investment programs offered to retail investors.  Summary information about our intermediary-sold managed accounts as of December 31, 2019 were as follows:
Asset Class
 
Total Assets
 
 
(in millions)
Equity
 
$
13,620

Fixed income
 
1,915

Alternative
 
57

Total Intermediary-Sold Managed Accounts
 
$
15,592



4

Table of Contents

Private Client Accounts

Private client accounts are investment accounts offered by our affiliate, Kayne Anderson Rudnick ("Kayne"), directly to individual investors.  Kayne has advisers who provide investment advisory services employing both affiliated and unaffiliated investment managers.  Summary information about our private client accounts as of December 31, 2019 was as follows:
Asset Class
 
Total Assets
 
 
(in millions)
Equity
 
$
3,073

Fixed income
 
1,613

Alternative
 
136

Total Private Client Accounts
 
$
4,822


Institutional Accounts

Our institutional clients include corporations, multi-employer retirement funds, public employee retirement systems, foundations and endowments; in addition, we provide subadvisory services to unaffiliated mutual funds. Summary information about our institutional accounts as of December 31, 2019 was as follows:
Asset Class
 
Total Assets
 
 
(in millions)
Equity
 
$
21,268

Fixed income
 
9,091

Alternative
 
2,276

Total Institutional Accounts
 
$
32,635


Structured Products

We act as collateral manager for structured finance products that primarily consist of collateralized loan obligations ("CLOs"). We managed the following structured products as of December 31, 2019:

Fund Name
 
Inception
 
Total Assets
 
 
 
 
(in millions)
Mountain View CLO IX Ltd.
 
2015
 
$
553

Mountain View CLO 2017-1 Ltd.
 
2017
 
503

Mountain View CLO 2014-1 Ltd.
 
2014
 
409

Mountain View CLO X Ltd.
 
2015
 
406

Mountain View CLO XIV Ltd.
 
2019
 
406

Mountain View CLO 2017-2 Ltd.
 
2018
 
405

Mountain View CLO 2013-1 Ltd.
 
2013
 
398

Newfleet CLO 2016-1 Ltd.
 
2016
 
351

Mountain View CLO 2016-1 Ltd.
 
2016
 
303

Broderick CDO 1 Ltd.
 
2005
 
169

Total Structured Products
 
 
 
$
3,903

 


5

Table of Contents

Our Investment Management, Administration and Shareholder Services
Our investment management, administration and shareholder service fees earned in each of the last three years were as follows: 
 
Years Ended December 31,
(in thousands)
2019
 
2018
 
2017 (1)
Open-end funds
$
229,637

 
$
231,175

 
$
175,260

Closed-end funds
42,199

 
41,455

 
44,687

Retail separate accounts
82,999

 
73,532

 
54,252

Institutional accounts
96,429

 
77,711

 
46,600

Structured products
6,381

 
9,622

 
6,302

Other products (2)
3,832

 
3,526

 
3,974

Total investment management fees
461,477

 
437,021

 
331,075

Administration fees
42,009

 
44,503

 
34,413

Shareholder service fees
17,875

 
19,111

 
14,583

Total
$
521,361

 
$
500,635

 
$
380,071


(1)
Prior period amounts have not been adjusted and are reported in accordance with historical accounting under Accounting Standards Codification 605, Revenue Recognition.
(2) Includes ETFs and liquidity strategies.

Investment Management Fees

We provide investment management services pursuant to investment management agreements through our affiliated investment advisers (each an "Adviser"). With respect to our funds, the Adviser provides overall investment management services, pursuant to agreements with the funds that must be approved annually by the fund’s board of directors and that may be terminated without penalty, or automatically in certain situations, such as a "change in control" of the Adviser. We earn fees based on each fund’s average daily or weekly net assets with most fee schedules providing for rate declines or "breakpoints" as asset levels increase to certain thresholds. For funds managed by subadvisers, the day-to-day investment management of the fund’s portfolio is performed by the subadviser, which receives a management fee based on the percentage of average daily net assets in the funds they subadvise or a percentage of the Adviser’s management fee. Each fund bears all expenses associated with its operations. In some cases, to the extent total fund expenses exceed a specified percentage of a fund’s average net assets, the Adviser has agreed to reimburse the funds for such excess expenses.

For retail separate accounts and institutional accounts, investment management fees are negotiated and based primarily on portfolio size and complexity, individual client requests and capacity in investment strategy, as appropriate. In certain instances, institutional fees may include performance related fees that are based on relative investment returns. Generally, we are entitled to performance fees only if the returns on the related portfolios exceed agreed upon periodic or cumulative return targets. Fees for structured finance products, for which we act as the collateral manager, consist of senior, subordinated and, in certain instances, incentive management fees. Senior and subordinated management fees are calculated at a contractual fee rate applied against the end of the preceding quarter par value of the total collateral being managed with subordinated fees being recognized only after certain portfolio criteria are met. Incentive fees on certain of our structured products are typically a percentage of the excess cash flows available to holders of the subordinated notes, above a threshold level internal rate of return.

Administration Fees

We provide various administrative fund services to our open-end funds and certain of our closed-end funds. We earn fees based on each fund’s average daily or weekly net assets. These services include: record keeping, preparing and filing documents required to comply with securities laws, legal administration and compliance services, customer service, supervision of the activities of the funds’ service providers, tax services and treasury services as well as providing office space, equipment and personnel that may be necessary for managing and administering the business affairs of the funds.


6

Table of Contents

Shareholder Service Fees

We provide shareholder services to our open-end mutual funds. We earn fees based on each fund’s average daily net assets. Shareholder services include maintaining shareholder accounts, processing shareholder transactions, preparing filings and performing necessary reporting, among other things.

Our Distribution Services

We distribute our open-end funds and ETFs principally through financial intermediaries. We have broad distribution access in the retail market, with distribution partners that include national and regional broker-dealers, independent broker-dealers and registered investment advisers, banks and insurance companies. In many of these firms, we have a number of products that are on preferred "recommended" lists and on fee-based advisory programs. Our sales efforts are supported by regional sales professionals, a national account relationship group and separate teams for ETFs and the retirement and insurance channels.

Our retail separate accounts are distributed through financial intermediaries and directly to private clients by teams at an affiliated manager. Our institutional services are marketed through relationships with consultants as well as directly to clients. We target key market segments, including foundations and endowments, corporate, public and private pension plans, and subadvisory relationships.

Our Broker-Dealer Services

We operate a broker-dealer that is registered under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and is a member of the Financial Industry Regulatory Authority ("FINRA"). Our broker-dealer serves as principal underwriter and distributor of our open-end mutual funds and ETFs under sales agreements with unaffiliated financial intermediaries, and also markets advisory services to sponsors of retail separate accounts. Our broker-dealer is subject to the net capital rule of the Securities and Exchange Commission (the "SEC"), which is designed to enforce minimum standards regarding the general financial condition and liquidity of broker-dealers.

Our Competition
We face significant competition from a wide variety of financial institutions, including other investment management companies, as well as from proprietary products offered by our distribution partners such as banks, broker-dealers and financial planning firms. Competition in our businesses is based on several factors, including investment performance, fees charged, access to distribution channels, and service to financial advisers and their clients. Our competitors, many of which are larger than us, often offer similar products and use similar distribution sources, and may also offer less expensive products, have greater access to key distribution channels and have greater resources than we do.
Our Regulatory Matters
We are subject to regulation by the SEC, FINRA and other federal and state agencies and self-regulatory organizations. Each affiliated manager and unaffiliated subadviser is registered with the SEC under the Investment Advisers Act. Each open-end mutual fund, closed-end fund and ETF is registered with the SEC under the Investment Company Act of 1940, as amended (the "Investment Company Act"). Our off-shore funds are subject to regulation by the Central Bank of Ireland (the "CBI"), and the funds and each investment manager and sub-investment manager are also registered with the CBI.
The financial services industry is highly regulated, and failure to comply with related laws and regulations can result in the revocation of registrations, the imposition of censures or fines and the suspension or expulsion of a firm and/or its employees from the industry. All of our U.S.-domiciled open-end mutual funds are generally available-for-sale and are qualified in all 50 states, Washington, D.C., Puerto Rico, Guam and the U.S. Virgin Islands. Our off-shore funds are sold through financial intermediaries to investors who are not citizens or residents of the United States. Most aspects of our investment management business, including the business of the unaffiliated subadvisers, are subject to various U.S. federal and state laws and regulations.
Our officers, directors and employees may, from time to time, own securities that are also held by one or more of our funds. We have adopted a Code of Ethics pursuant to the provisions of the Investment Company Act and the Investment Advisers Act that requires the disclosure of personal securities holdings and trading activity by all employees on a quarterly and annual basis.  Employees with investment discretion or access to investment decisions are subject to additional restrictions with respect to the pre-clearance of the purchase or sale of securities over which they have investment discretion or beneficial interest. Our Code of Ethics also imposes restrictions with respect to personal transactions in securities that are held, recently

7

Table of Contents

sold, or contemplated for purchase by our mutual funds, and certain transactions are restricted so as to avoid the possibility of improper use of information relating to the management of client accounts.
Our Employees
As of December 31, 2019, we had 578 full-time equivalent employees. None of our employees are represented by a union.
Available Information
Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, as well as proxy statements, are available free of charge on our website located at www.virtus.com as soon as reasonably practicable after they are filed with, or furnished to, the SEC. Reports, proxy statements and other information regarding issuers that file electronically with the SEC, including our filings, are also available to the public on the SEC’s website at http://www.sec.gov.

A copy of our Corporate Governance Principles, our Code of Conduct and the charters of our Audit Committee, Compensation Committee, Governance Committee and Risk and Finance Committee are posted on our website at http://ir.virtus.com under "Corporate Governance" and are available in print to any person who requests copies by contacting Investor Relations by email to: investor.relations@virtus.com or by mail to Virtus Investment Partners, Inc., c/o Investor Relations, One Financial Plaza, Hartford, CT 06103. Information contained on the website is not incorporated by reference or otherwise considered part of this document.


Item 1A.
Risk Factors.
This section describes some of the potential risks relating to our business, such as market, liquidity, operational, reputation and regulatory risks. The risks described below are some of the more important factors that could affect our business. You should carefully consider the risks described below, together with all of the other information included in this Annual Report on Form 10-K, in evaluating the Company and our common stock. If any of the risks described below actually occur, our business, revenues, profitability, results of operations, financial condition, cash flows, reputation and stock price could be materially adversely affected.
Risks Relating to Our Business

We earn substantially all of our revenues based on assets under management, which fluctuate based on many factors, including market conditions, investment performance and client withdrawals. Any reduction in assets under management would reduce our revenues and profitability.

The majority of our revenues are generated from asset-based fees from investment management products and services to individuals and institutions. Therefore, if assets under management decline, our fee revenues would decline, reducing profitability as certain of our expenses are fixed or have contractual terms. Assets under management could decline due to a variety of factors, including, but not limited to, the following:

General domestic and global economic and political conditions. Capital, equity and credit markets can experience substantial volatility. Changes in interest rates, the availability and cost of credit, inflation rates, economic uncertainty, changes in laws, trade barriers, commodity prices, currency exchange rates and controls, and national and international political circumstances (including wars, terrorist acts, pandemics and security operations) and other conditions may impact the capital, equity and credit markets which may impact our assets under management. Employment rates, economic weakness and budgetary challenges in parts of the world, the impact of the United Kingdom’s withdrawal from the European Union, uncertainty regarding international trade policies, regional turmoil in the Middle East, concern over prospects in China and emerging markets, growing debt for certain countries, and uncertainty about the consequences of governments withdrawing monetary stimulus all indicate that economic and political conditions remain unpredictable.

If the security markets decline or experience volatility, our assets under management and our revenues could be negatively impacted. Changes in currency exchange rates, such as an increase in the value of the U.S. dollar relative to non-U.S. currencies, could result in a decrease in the U.S. dollar value of assets under management that are denominated in non-U.S. currencies. In addition, diminishing investor confidence in the markets and/or adverse

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market conditions could result in a decrease in investor risk tolerance. Such a decrease could prompt investors to reduce their rate of investment or to fully withdraw from markets, which could reduce our overall assets under management and have an adverse effect on our revenues, earnings and growth prospects.

The volatility in the markets in the recent past has highlighted the interconnection of the global markets and demonstrated how the deteriorating financial condition of one institution may materially adversely impact the performance of other institutions. Our assets under management have exposure to many different industries and counterparties and may be exposed to credit, operational or other risk due to the default by a counterparty or client or in the event of a market failure or disruption. In the event of extreme circumstances, including economic, political or business crises, such as a widespread systemic failure in the global financial system or failures of firms that have significant obligations as counterparties, we may suffer significant declines in assets under management and severe liquidity or valuation issues.

Price declines in specific securities, market segments or geographic areas where those assets are invested. Funds and portfolios that we manage that are focused on certain geographic markets and industry sectors, are particularly vulnerable to political, social and economic events in those markets and sectors. If these markets or industries decline or experience volatility, this could have a negative impact on our assets under management and our revenues. For example, certain non-U.S. markets, particularly emerging markets, are not as developed or as efficient as the U.S. financial markets and, as a result, may be less liquid, less regulated and significantly more volatile than the U.S. financial markets. Liquidity in such markets may be adversely impacted by factors including political or economic events, government policies, expropriation, volume trading limits by foreign investors, and social or civil unrest, etc. These factors may negatively impact the market value of an investment or our ability to dispose of it.

Any real or perceived negative absolute or relative performance. Sales and redemptions of our investment strategies can be affected by investment performance relative to other competing investment strategies or to established benchmarks. Our investment management strategies are rated, ranked or assessed by independent third-parties, distribution partners and industry periodicals and services. These assessments often influence the investment decisions of clients. If the performance or assessment of our investment strategies is seen as underperforming relative to peers, it could result in an increase in the withdrawal of assets by existing clients and the inability to attract additional investments from existing and new clients. Certain of our investment strategies have capacity constraints, as there is a limit to the number of securities available for the strategy to operate effectively. In those instances, we may choose to limit access to new or existing investors.

Changes in interest rates. Increases in interest rates from their historically low levels may adversely affect the net asset values of our assets under management. Furthermore, increases in interest rates may result in reduced prices in equity markets. Conversely, decreases in interest rates could lead to outflows in fixed income assets that we manage as investors seek higher yields.

Our investment advisory agreements are subject to withdrawal, renegotiation or termination on short notice, which could negatively impact our business.

Our clients include our sponsored mutual fund investors, represented by boards of directors, managed account program sponsors, private clients and institutional clients. Our investment management agreements with these clients may be terminated on short notice without penalty. As a result, there would be little impediment to these clients or sponsors from terminating our agreements. Our clients may renegotiate their investment contracts, or reduce the assets we manage for them, due to a number of reasons including, but not limited to: investment performance; loss of key investment personnel; a change in the client's or third-party distributors decision makers; and reputational, regulatory or compliance issues. The board of directors of our sponsored funds may deem it to be in the best interests of a fund’s shareholders to make decisions averse to us, such as reducing the compensation paid to us, requesting that we subsidize fund expenses over certain thresholds, or imposing restrictions on our management of the fund. Under the Investment Company Act, investment advisory agreements automatically terminate in the event of an assignment, which may occur if, among other events, the Company undergoes a change in control, such as any person acquiring 25% of the voting rights of our common stock. If an assignment were to occur, we cannot be certain that the fund’s board of directors and its shareholders would approve a new investment advisory agreement. In addition, investment advisory agreements for separate accounts we manage may not be assigned without the consent of the client. If an assignment occurs, we cannot be certain that the Company will be able to obtain the necessary approvals or client consents. The withdrawal, renegotiation or termination of any investment management contract relating to a material portion of assets under management would have an adverse impact on our results of operations and financial condition.


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Any damage to our reputation could harm our business and lead to a reduction in our revenues and profitability.

Maintaining a positive reputation with existing and potential clients, the investment community and other constituencies is critical to our success. Our reputation is vulnerable to many threats that can be difficult or impossible to control, and costly or impossible to remediate even if they are without merit or satisfactorily addressed. Our reputation may be impacted by many factors including, but not limited to: poor performance; litigation; conflicts of interests; regulatory inquiries, investigations or findings; operational failures (including cyber breaches); intentional or unintentional misrepresentation of our products or services by us or our third party service providers; material weaknesses in our internal controls; or employee misconduct or rumors. Any damage to our reputation could impede our ability to attract and retain clients and key personnel, adversely impact relationships with clients, third-party distributors and other business partners, and lead to a reduction in the amount of our assets under management, any of which could adversely affect our results of operations and financial condition.

We manage client assets under agreements that have investment guidelines or other contractual requirements, and any failure to comply could result in claims, losses or regulatory sanctions, which could negatively impact our revenues and profitability.

The agreements under which we manage client assets often have established investment guidelines or other contractual requirements with which we are required to comply in providing our investment management services. Although we maintain various compliance procedures and other controls to prevent, detect and correct such errors, any failure or allegation of a failure to comply with these guidelines or other requirement could result in client claims, reputational damage, withdrawal of assets and potential regulatory sanctions, any of which could have an adverse impact on our results of operations and financial condition.

Our indebtedness contains covenants that require annual principal repayments and other provisions that could adversely affect our financial position or results of operations

We incur indebtedness for a variety of business reasons, including in relation to financing acquisitions. The indebtedness we incur can take many forms including, but not limited to, term loans or revolving lines of credit that customarily contain covenants.

At December 31, 2019, the Company had $285.7 million of total debt outstanding, excluding debt of consolidated investment products ("CIP"), and $100.0 million in unused capacity on a credit facility. Under our credit agreement, we are required to use a portion of our cash flow to service interest and make required annual principal payments, which will restrict our cash flow available to pursue business growth opportunities. The credit agreement also contains covenants that limit our ability to return capital to shareholders. In addition, our indebtedness may make it more difficult for us to withstand or respond to adverse or changing business, regulatory and economic conditions. We cannot provide assurances that at all times in the future we will satisfy all such covenants or obtain any required waiver or amendment, in which event all indebtedness could become immediately due. Any or all of the above factors could materially adversely affect our financial position or results of operations.

Our business relies on the ability to attract and retain key employees, and the loss of such employees could negatively affect our financial performance.

The success of our business is dependent to a large extent on our ability to attract and retain key employees, such as senior executives, portfolio managers, securities analysts and sales personnel. Competition in the job market for these professionals is generally intense, and compensation levels in the industry are highly competitive. Our industry is also characterized by the movement of investment professionals among different firms.

If we are unable to continue to attract and retain key employees, or if compensation costs required to attract and retain key employees increase, our performance, including our competitive position, could be materially adversely affected. Additionally, we utilize Company equity awards as part of our compensation plans and as a means for recruiting and retaining key employees. Declines in our stock price could result in deterioration of the value of equity awards granted, thus lessening the effectiveness of using stock-based awards to retain key employees.

In certain circumstances, the departure of key employees could cause higher redemption rates in certain strategies or the loss of certain client accounts. Any inability to retain key employees, attract qualified employees or replace key employees in a timely manner could lead to a reduction in the amount of our assets under management, which could have a material adverse

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effect on our revenues and profitability. In addition, there could be additional costs to replace, retain or attract new talent that could result in a decrease in our profitability and have an adverse impact on our results of operations and financial condition.

The highly competitive nature of the asset management industry may require us to reduce our fees, or increase amounts paid to financial intermediaries, which could result in a reduction of our revenues and profitability.

We face significant competition from a wide variety of financial institutions, including other investment management companies, as well as from proprietary products offered by our distribution partners such as banks, broker-dealers and financial planning firms. Competition in our businesses is based on several factors, including investment performance, fees charged, access to distribution channels and service to financial advisers. Our competitors, many of which are larger than we are, often offer similar products, use similar distribution sources, offer less expensive products, have greater access to key distribution channels, and have greater resources, geographic footprints and name recognition than we do. Additionally, certain products and asset classes that we do not currently offer, such as passive or index-based products, are increasingly popular with investors. Existing clients may withdraw their assets in order to invest in these products, and we may be unable to attract additional investments from existing and new clients, which would lead to a decline in our assets under management and market share.

Our profits are highly dependent on the fees charged for our products and services. In recent years, there has been a trend in certain segments of our markets toward lower fees and lower-fee products, such as passive products. Competition could cause us to reduce the fees that we charge. In order to maintain appropriate fee levels in a competitive environment, we must provide clients with investment products and services they view as appropriate in relation to the fees charged. If our clients, including our fund boards, were to view our fees as being high relative to the market or the returns provided by our investment products, we may choose or be required to reduce our fee levels or we may experience significant redemptions in our assets under management, which could have an adverse impact on our results of operations and financial condition.

We are subject to an extensive and complex regulatory environment, and changes in regulations or failure to comply with regulations could adversely affect our revenues and profitability.

The investment management industry in which we operate is subject to extensive and frequently changing regulation and has seen increased focus in recent year. We are regulated by the SEC under the Exchange Act, the Investment Company Act and the Investment Advisers Act, and we are subject to regulation by the Commodities Futures Trading Commission under the Commodities Exchange Act. Our UCITS and advisers are subject to regulation by the CBI. We are also regulated by FINRA, the Department of Labor under the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), as well as other federal and state laws and regulations.

Although we spend extensive time and resources to ensure compliance with all applicable laws and regulations, if we fail to properly modify and update our compliance procedures in a timely manner in this changing and highly complex regulatory environment, we may be subject to various legal proceedings, including civil litigation, governmental investigations and enforcement actions that could result in fines, penalties, suspensions of individual employees, or limitations on particular business activities, any of which could have an adverse impact on our results of operations and financial condition.

Changes in tax laws and unanticipated tax obligations could have an adverse impact on our financial condition, results of operations and cash flow.

We are subject to federal and state income and non-income based taxes in the United States. Tax authorities may disagree with certain positions we have taken or implement changes in tax policy, which may result in the assessment of additional taxes. We regularly assess the appropriateness of our tax positions and reporting. We cannot provide assurance, however, that we will accurately predict the outcomes of audits, and the actual outcomes of these audits could be unfavorable. In addition, our ability to use net operating loss carryforwards and other tax attributes available to us will be dependent on our ability to generate taxable income.

We utilize unaffiliated firms in providing investment management services, and matters that have an adverse impact on their business, or any change in our relationships with them, could lead to a reduction in assets under management, which would adversely affect our revenues and profitability.

We utilize unaffiliated subadvisers as investment managers for certain of our retail products, and we have licensing arrangements with unaffiliated data providers. Because we typically have no ownership interests in these unaffiliated firms, we do not control the business activities of such firms. Problems stemming from the business activities of these unaffiliated firms

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may negatively impact or disrupt such firms’ operations or expose them to disciplinary action or reputational harm. Furthermore, any such matters at these unaffiliated firms may have an adverse impact on our business or reputation or expose us to regulatory scrutiny, including with respect to our oversight of such firms.

We periodically negotiate provisions and renewals of these relationships, and we cannot provide assurance that such terms will remain acceptable to us or the unaffiliated firms. These relationships can also be terminated upon short notice without penalty. In addition, the departure of key employees at unaffiliated subadvisers or data providers could cause higher redemption rates for certain assets under management and/or the loss of certain client accounts. An interruption or termination of unaffiliated firm relationships could affect our ability to market our products and result in a reduction in assets under management, which could have an adverse impact on our results of operations and financial condition.

We distribute our products through intermediaries and changes in key distribution relationships could reduce our revenues, increase our costs and adversely affect our profitability.

Our primary source of distribution for retail products is through intermediaries that include third-party financial institutions, such as: major wire houses; national, regional and independent broker-dealers and financial advisors; banks and financial planners; and registered investment advisers. Our success is highly dependent on access to these various distribution systems. These distributors are generally not contractually required to distribute our products and typically offer their clients various investment products and services, including proprietary products and services, in addition to and in competition with our products and services. While we compensate these intermediaries for selling our products and services pursuant to contractual agreements, we may not be able to retain access to these channels at all or at similar pricing. Increasing competition for these distribution channels could cause our distribution costs to rise, which could have a material adverse effect on our business, revenues and profitability. To the extent that existing or future intermediaries prefer to do business with our competitors, the sales of our products as well as our market share, revenues and profitability could decline.

We and our third-party service providers rely on numerous technology systems, and any temporary business interruption, security breach or system failure could negatively impact our business and profitability.

Our technology systems, and those of third-party service providers, are critical to our operations. The ability to consistently and reliably obtain accurate securities pricing information, process client portfolio and fund shareholder transactions, and provide reports and other customer service to fund shareholders and clients in other accounts managed by us is an essential part of our business. Any delays or inaccuracies in obtaining pricing information, processing such transactions or reports, other breaches and errors, and any inadequacies in other customer service could result in reimbursement obligations or other liabilities or alienate customers and potentially give rise to claims against us. Our customer service capability, as well as our ability to obtain prompt and accurate securities pricing information and to process transactions and reports, is highly dependent on third-party service providers’ information systems. Any failure or interruption of those systems, whether resulting from technology or infrastructure breakdowns, defects or external causes such as fire, natural disaster, computer viruses, acts of terrorism or power disruptions, could result in financial loss, negatively impact our reputation and negatively affect our ability to do business. Although we, and our third-party service providers, have disaster recovery plans in place, we may nonetheless experience interruptions if a natural or man-made disaster or prolonged power outage were to occur, which could have an adverse impact on our results of operations and financial condition.

In addition, like other companies, our computer systems are regularly subject to, and expected to continue to be the target of, computer viruses or other malicious codes, unauthorized access, cyber-attacks or other computer-related penetrations. Over time, the sophistication of cyber threats continues to increase, and any controls we put in place and preventative actions we take to reduce the risk of cyber incidents and protect our information systems may be insufficient to detect or prevent unauthorized access, cyber-attacks or other security breaches to our computer systems or those of third parties with whom we do business. Breach of our technology systems, or of those of third parties with whom we do business, through cyber-attacks or failure to manage and secure our technology environment could result in interruptions or malfunctions in the operations of our business, loss of valuable information, liability for stolen assets or information, remediation costs to repair damage caused by a breach, additional costs to mitigate against future incidents, and litigation costs resulting from an incident.

We and certain of our third-party vendors receive and store personal information as well as non-public business information. Although we and our third-party vendors take precautions, we may still be vulnerable to hacking or other unauthorized use. A breach of the systems or hardware could result in unauthorized access to our proprietary business or client data or release of this type of data, which could subject us to legal liability or regulatory action under data protection and privacy laws, which may result in fines or penalties, the termination of existing client contracts, costly mitigation activities and

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harm to our reputation. The occurrence of any of these risk could have an adverse impact on our results of operations and financial condition.

A relatively large percentage of our common stock is concentrated with a small number of shareholders, which could increase the volatility in our stock trading and affect our share price.

A large percentage of our common stock is held by a limited number of shareholders. If our larger shareholders decide to liquidate their positions, it could cause significant fluctuation in the share price of our common stock. Public companies with a relatively concentrated level of institutional shareholders, such as we have, often have difficulty generating trading volume in their stock, which may increase the volatility in the price of our common stock.

Civil litigation and government investigations or proceedings could adversely affect our business.

Many aspects of our business involve substantial risks of liability, and there have been substantial incidences of litigation and regulatory investigations in the financial services industry in recent years, including customer claims as well as class action suits seeking substantial damages. From time to time, we and/or our funds may be named as defendants or co-defendants in lawsuits or be involved in disputes that involve the threat of lawsuits seeking substantial damages. We and/or our funds are also involved from time to time in governmental and self-regulatory organization investigations and proceedings. See Item 3. "Legal Proceedings" for further description of the Company's litigation matters.

Any lawsuits, investigations or proceedings could result in reputational damage, loss of clients and assets, settlements, awards, injunctions, fines, penalties, increased costs and expenses in resolving a claim, diversion of employee resources and resultant financial losses. Predicting the outcome of such matters is inherently difficult, particularly where claims are brought on behalf of various classes of claimants or by a large number of claimants, when claimants seek substantial or unspecified damages, or when investigations or legal proceedings are at an early stage. A substantial judgment, settlement, fine or penalty could be material to our operating results or cash flows for a particular period, depending on our results for that period, or could cause us significant reputational harm, which could harm our business prospects.

We depend to a large extent on our business relationships and our reputation to attract and retain clients. As a result, allegations of improper conduct by private litigants, including investors in our funds, or regulators, whether the ultimate outcome is favorable or unfavorable to us, as well as negative publicity and press speculation about us, our investment activities or the asset management industry in general, whether or not valid, may harm our reputation, which may be more damaging to our business than to other types of businesses. We may incur substantial legal expenses in defending against proceedings commenced by a client, regulatory authority or other private litigant. Substantial legal liability levied on us could cause significant reputational harm and have an adverse impact on our results of operations and financial condition.

We have a significant portion of the Company's assets invested in marketable securities, which exposes us to earnings volatility as the value of these investments fluctuate, as well as risk of capital loss.

We use capital to seed new investment strategies and make investments to introduce new products or enhance distribution access of existing products.  At December 31, 2019, the Company had $107.2 million of seed capital investments, comprising $56.7 million of marketable securities and $50.5 million of net interests in CIP, and $83.4 million of net investments in CLOs. These investments are in a variety of asset classes, including alternative, fixed income and equity strategies including first loss tranches of CLO equity.  Many of these investments employ a long-term investment strategy and entail an optimal investment period spanning several years. Accordingly, during this investment period, the Company’s capital utilized in these investments may not be available for other corporate purposes at all or without significantly diminishing our investment return. We cannot provide assurance that these investments will perform as expected. Moreover, increases or decreases in the value of these investments will increase the volatility of our earnings, and a decline in the value of these investments would result in the loss of capital and have an adverse impact on our results of operations and financial condition.

Our intended quarterly dividends may not be paid as intended or at all.

The declaration, payment and determination of the amount of our quarterly dividends may change at any time. In making decisions regarding our quarterly dividends, we consider general economic and business conditions, our strategic plans and prospects, our businesses and investment opportunities, our financial condition and operating results, potential purchases of affiliate noncontrolling interests, working capital requirements and anticipated cash needs, contractual restrictions (including under the terms of our credit agreement) and obligations, legal, tax, regulatory and other restrictions that may have implications on the payment of distributions by us to our shareholders or by our subsidiaries to us, and such other factors as we may deem

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relevant. Our ability to pay dividends in excess of our current quarterly dividends is subject to restrictions under the terms of our credit agreement. We cannot make any assurances that any dividends will be paid.

We may need to raise additional capital in the future, and resources may not be available to us in sufficient amounts or on acceptable terms, which could have an adverse impact on our business.

Our ability to meet our future cash needs is dependent upon our ability to generate cash. Although we have generated sufficient cash in the past, we may not do so in the future. As of December 31, 2019, we maintained $221.8 million in cash and cash equivalents, $107.2 million in seed capital investments and $83.4 million of net investments in CLOs and had $100.0 million available under our credit facility. Also at December 31, 2019, we had $285.7 million in debt outstanding, excluding the notes payable of our CIP for which risk of loss to the Company is limited to our $83.4 million investment in such products. See Footnote 20 of our consolidated financial statements for additional information on the notes payable of the CIP. Our ability to access capital markets efficiently depends on a number of factors, including the state of credit and equity markets, interest rates and credit spreads. We may need to raise capital to fund new business initiatives in the future, and financing may not be available to us in sufficient amounts, on acceptable terms, or at all. If we are unable to access sufficient capital on acceptable terms, our business could be adversely impacted.

We have corporate governance provisions that may make an acquisition of us more difficult.

Certain provisions of our certificate of incorporation and bylaws could discourage, delay or prevent a merger, acquisition or other change in control that stockholders may consider favorable, including transactions in which stockholders might otherwise receive a premium for their shares. These provisions also could limit the price that investors might be willing to pay in the future for shares of our common stock, thereby depressing the market price of our common stock. Stockholders who wish to participate in these transactions may not have the opportunity to do so. In addition, the provisions of Section 203 of the Delaware General Corporation Law also restrict certain business combinations with interested stockholders.

Our insurance policies may not cover all losses and costs to which we may be exposed.

We carry insurance in amounts and under terms that we believe are appropriate. Our insurance may not cover all liabilities and losses to which we may be exposed. Certain insurance coverage may not be available or may be prohibitively expensive in future periods. As our insurance policies come up for renewal, we may need to assume higher deductibles or pay higher premiums, which could have an adverse impact on our results of operations and financial condition.

We have goodwill and intangible assets on our balance sheet that could become impaired.

Our goodwill and indefinite-lived intangible assets are subject to annual impairment reviews. We also have definite-lived intangible assets that are subject to impairment testing if indicators of impairment are identified. A variety of factors could cause the carrying values to become impaired, which would adversely affect our results of operations.

We may engage in significant strategic transactions that may not achieve the expected benefits or could expose us to additional risks.

We regularly review, and from time to time have discussions on and engage in, potential significant transactions, including potential acquisitions, consolidations, joint ventures or similar transactions, some of which may be material. We cannot provide assurance that we will be successful in negotiating the required agreements, closing transactions after signing such agreements, or achieving expected financial benefits, including such things as revenue or cost synergies.

Any strategic transaction may also involve a number of other risks, including additional demands on our staff, unanticipated problems regarding integration of operating facilities, technologies and new employees, and the existence of liabilities or contingencies not disclosed to, or otherwise unknown by, us prior to closing a transaction. In addition, any business we acquire may underperform relative to expectations or may lose customers or employees.

SPECIAL NOTE ABOUT FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains statements that are, or may be considered to be, forward-looking statements within the meaning of The Private Securities Litigation Reform Act of 1995, as amended, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). All statements that are not historical facts, including statements about our beliefs or expectations, are "forward-looking statements." These statements may be identified by such forward-looking terminology as "expect," "estimate," "intent," "plan," "intend," "believe,"

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"anticipate," "may," "will," "should," "could," "continue," "project," "opportunity," "predict," "would," "potential," "future," "forecast," "guarantee," "assume," "likely," "target" or similar statements or variations of such terms.
Our forward-looking statements are based on a series of expectations, assumptions and projections about the Company and the markets in which we operate, are not guarantees of future results or performance, and involve substantial risks and uncertainty, including assumptions and projections concerning our assets under management, net asset inflows and outflows, operating cash flows, business plans and ability to borrow, for all future periods. All forward-looking statements contained in this Annual Report on Form 10-K are as of the date of this Annual Report on Form 10-K only.

We can give no assurance that such expectations or forward-looking statements will prove to be correct. Actual results may differ materially. We do not undertake or plan to update or revise any such forward-looking statements to reflect actual results, changes in plans, assumptions, estimates or projections, or other circumstances occurring after the date of this Annual Report on Form 10-K, even if such results, changes or circumstances make it clear that any forward-looking information will not be realized. If there are any future public statements or disclosures by us that modify or impact any of the forward-looking statements contained in or accompanying this Annual Report on Form 10-K, such statements or disclosures will be deemed to modify or supersede such statements in this Annual Report on Form 10-K.
Our business and our forward-looking statements involve substantial known and unknown risks and uncertainties, including those discussed under "Risk Factors" and "Management’s Discussion and Analysis of Financial Condition and Results of Operations" in this Annual Report on Form 10-K, as well as the following risks and uncertainties resulting from: (a) any reduction in our assets under management; (b) withdrawal, renegotiation or termination of investment advisory agreements; (c) damage to our reputation; (d) failure to comply with investment guidelines or other contractual requirements; (e) inability to satisfy financial covenants and payments related to our indebtedness; (f) inability to attract and retain key personnel; (g) challenges from the competition we face in our business; (h) adverse regulatory and legal developments; (i) unfavorable changes in tax laws or limitations; (j) adverse developments related to unaffiliated subadvisers; (k) negative implications of changes in key distribution relationships; (l) interruptions in or failure to provide critical technological service by us or third parties; (m) volatility associated with our common stock; (n) adverse civil litigation and government investigations or proceedings; (o) risk of loss on our investments; (p) inability to make quarterly common stock dividends; (q) lack of sufficient capital on satisfactory terms; (r) losses or costs not covered by insurance; (s) impairment of goodwill or intangible assets; (t) inability to achieve expected acquisition-related benefits; and other risks and uncertainties. Any occurrence of, or any material adverse change in, one or more risk factors or risks and uncertainties referred to in this Annual Report on Form 10-K and our other periodic reports filed with the SEC could materially and adversely affect our operations, financial results, cash flows, prospects and liquidity.

Certain other factors that may impact our continuing operations, prospects, financial results and liquidity, or that may cause actual results to differ from such forward-looking statements, are discussed or included in the Company’s periodic reports filed with the SEC and are available on our website at www.virtus.com under "Investor Relations." You are urged to carefully consider all such factors.

Item 1B.
Unresolved Staff Comments.
None.

Item 2.
Properties.
We lease our principal offices, which are located at One Financial Plaza, Hartford, CT 06103. In addition, we lease office space in California, Connecticut, Florida, Georgia, Illinois, Massachusetts, New Jersey and New York.

Item 3.
Legal Proceedings.
The information set forth in response to Item 103 of Regulation S-K under "Legal Proceedings" is incorporated
by reference from Part II, Item 8. "Financial Statements and Supplementary Data," Note 12 "Commitments and Contingencies" of this Annual Report on Form 10-K.

Item 4.
Mine Safety Disclosures.
Not applicable.

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PART II

Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Our common stock is traded on the NASDAQ Global Market under the trading symbol "VRTS." As of February 13, 2020, we had 7,723,659 shares of common stock outstanding that were held by approximately 48,000 holders of record.
In making decisions regarding our quarterly dividend, we consider general economic and business conditions, our strategic plans and prospects, our businesses and investment opportunities, our financial condition and operating results, working capital requirements and anticipated cash needs, contractual restrictions and obligations, legal, tax, regulatory and other restrictions that may have implications on the payment of distributions by us to our common shareholders or by our subsidiaries to us, and such other factors as we may deem relevant. We cannot provide any assurances that any distributions, whether quarterly or otherwise, will continue to be paid in the future.
On February 3, 2020, 1,150,000 shares of mandatory convertible preferred stock ("MCPS") converted to 912,870 shares of the Company's common stock. Each share of MCPS converted to 0.7938 shares of common stock at a conversion price of $125.97 per share, subject to customary anti-dilution adjustments. The number of shares of common stock issued upon conversion was determined based on the volume-weighted average price per share of our common stock over the 20 consecutive trading day period beginning on, and including, the 22nd scheduled trading day immediately preceding the mandatory conversion date.
On February 26, 2020, our Board of Directors declared a quarterly cash dividend of $0.67 per common share to be paid on May 15, 2020 to shareholders of record at the close of business on April 30, 2020.
Issuer Purchases of Equity Securities

As of December 31, 2019, 4,180,045 shares of our common stock were authorized to be repurchased under a share repurchase program approved by our Board of Directors, and 252,438 shares remain available for repurchase. Under the terms of the program, we may repurchase shares of our common stock from time to time at our discretion through open market repurchases, privately negotiated transactions and/or other mechanisms, depending on price and prevailing market and business conditions. The program, which has no specified term, may be suspended or terminated at any time.

During the year ended December 31, 2019, we repurchased a total of 372,365 common shares for approximately $40.0 million. The following table sets forth information regarding our share repurchases in each month during the quarter ended December 31, 2019:
Period
 
Total number of shares purchased
 
Average price paid per share (1)
 
Total number of shares purchased as part of publicly announced plans or programs (2)
 
Maximum number of shares that may yet be purchased under the plans or programs (2)
October 1—31, 2019
 
7,295

 
$
108.23

 
7,295

 
330,888

November 1—30, 2019
 
45,038

 
$
115.96

 
45,038

 
285,850

December 1—31, 2019
 
33,412

 
$
119.27

 
33,412

 
252,438

Total
 
85,745

 
 
 
85,745

 
 
(1)
Average price paid per share is calculated on a settlement basis and excludes commissions.
(2) The share repurchases above were completed pursuant to a program announced in the fourth quarter of 2010 and most recently expanded in December 2017. This repurchase program is not subject to an expiration date.

There were no unregistered sales of equity securities during the fourth quarter of fiscal 2019. Shares of our common stock purchased by participants in our Employee Stock Purchase Plan were delivered to participant accounts via open market purchases at fair value by the third-party administrator under the plan. We do not reserve shares for this plan or discount the purchase price of the shares.

16

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Item 6.
Selected Financial Data.
The following table sets forth our selected consolidated financial and other data at the dates and for the periods indicated. The selected financial data should be read in conjunction with "Management’s Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements and the notes thereto appearing elsewhere in this Annual Report on Form 10-K.
 
Years Ended December 31,
(in thousands, except per share data)
2019 (1)
 
2018 (1)
 
2017 (1)
 
2016 (2)
 
2015 (2)
Results of Operations
 
 
 
 
 
 
 
 
 
Revenues
$
563,246

 
$
552,235

 
$
425,607

 
$
322,554

 
$
381,977

Operating expenses
438,536

 
439,136

 
367,572

 
271,740

 
301,599

Operating income (loss)
124,710

 
113,099

 
58,035

 
50,814

 
80,378

Income tax expense (benefit)
35,177

 
32,961

 
40,490

 
21,044

 
36,972

Net income (loss)
105,508

 
76,080

 
39,939

 
48,763

 
30,671

Net income (loss) attributable to common stockholders
87,312

 
67,192

 
28,676

 
48,502

 
35,106

Earnings (loss) per share—basic
12.54

 
9.37

 
4.09

 
6.34

 
3.99

Earnings (loss) per share—diluted
11.74

 
8.86

 
3.96

 
6.20

 
3.92

Cash dividends declared per preferred share
7.25

 
7.25

 
7.25

 

 

Cash dividends declared per common share
2.44

 
2.00

 
1.80

 
1.80

 
1.80

 
As of December 31,
(in thousands)
2019 (1)
 
2018 (1)
 
2017 (2)
 
2016 (2)
 
2015 (2)
Balance Sheet Data
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
221,781

 
$
201,705

 
$
132,150

 
$
64,588

 
$
87,574

Investments
83,206

 
79,558

 
108,492

 
89,371

 
56,738

Investments of CIP
2,030,110

 
1,749,568

 
1,597,752

 
489,042

 
522,820

Goodwill and other intangible assets, net
600,757

 
629,178

 
472,107

 
45,215

 
47,588

Total assets
3,204,634

 
2,870,535

 
2,590,799

 
824,388

 
859,729

Accrued compensation and benefits
101,377

 
93,339

 
86,658

 
47,885

 
49,617

Debt
277,839

 
329,184

 
248,320

 
30,000

 

Notes payable of CIP
1,834,535

 
1,620,260

 
1,457,435

 
328,761

 

Total liabilities
2,454,532

 
2,169,187

 
1,981,397

 
465,449

 
276,408

Redeemable noncontrolling interests
63,845

 
57,481

 
4,178

 
37,266

 
73,864

Mandatory convertible preferred stock
110,843

 
110,843

 
110,843

 

 

Total equity
686,257

 
643,867

 
605,224

 
321,673

 
509,457

 
As of December 31,
(in millions)
2019
 
2018
 
2017
 
2016
 
2015
Assets Under Management
 
 
 
 
 
 
 
 
 
Total assets under management
$
108,904

 
$
92,030

 
$
90,963

 
$
45,366

 
$
47,385

Total long-term assets under management
$
107,726

 
$
90,417

 
$
88,835

 
$
45,366

 
$
47,385

 
(1)
Derived from audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K.
(2)
Derived from audited consolidated financial statements not included in this Annual Report on Form 10-K.


17

Table of Contents

Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Overview

Our Business

We provide investment management and related services to individuals and institutions. We use a multi-manager, multi-style approach, offering investment strategies from affiliated managers, each having its own distinct investment style, autonomous investment process and individual brand. By offering a broad array of products, we believe we can appeal to a greater number of investors and have offerings across market cycles and through changes in investor preferences. Our earnings are primarily driven by asset-based fees charged for services relating to these various products, including investment management, fund administration, distribution and shareholder services.

We offer investment strategies for individual and institutional investors in different product structures and through multiple distribution channels. Our investment strategies are available in a diverse range of styles and disciplines, managed by a collection of differentiated investment managers. We have offerings in various asset classes (equity, fixed income and alternative), geographies (domestic, international and emerging) market capitalizations (large, mid and small), styles (growth, core and value) and investment approaches (fundamental, quantitative and thematic). Our retail products include open-end funds and exchange traded funds ("ETFs") as well as closed-end funds and retail separate accounts. Our institutional products are offered through separate accounts and pooled or commingled structures to a variety of institutional clients. We also provide subadvisory services to other investment advisers and serve as the collateral manager for structured products.

We distribute our open-end funds and ETFs principally through financial intermediaries. We have broad distribution access in the retail market, with distribution partners that include national and regional broker-dealers, independent broker-dealers and registered investment advisers, banks and insurance companies. In many of these firms, we have a number of products that are on preferred "recommended" lists and on fee-based advisory programs. Our sales efforts are supported by regional sales professionals, a national account relationship group, and separate teams for ETFs and the retirement and insurance channels. We leverage third-party distributors for off-shore products and in certain international jurisdictions. Our retail separate accounts are distributed through financial intermediaries and directly to private clients by teams at an affiliated manager.

Our institutional services are marketed through relationships with consultants as well as directly to clients. We target key market segments, including foundations and endowments, corporate, public and private pension plans, and subadvisory relationships.

Market Developments

The financial markets have a significant impact on the value of our assets under management and on the level of our sales and flows. The capital and financial markets could experience fluctuation, volatility and declines as they have in the past, which could impact investment returns and asset flows among investment products as well as investor choices and preferences among investment products. The changes in our assets under management may also be affected by the factors discussed in Item 1A. "Risk Factors" of this Annual Report on Form 10-K.

The U.S. and global equity markets increased in value in 2019, as evidenced by increases in major indices as noted in the following table:
 
 
December 31,
 
As of Change
Index
 
2019
 
2018
 
%
MSCI World Index
 
2,358

 
1,884

 
25.2
%
Standard & Poor's 500 Index
 
3,231

 
2,507

 
28.9
%
Russell 2000 Index
 
1,668

 
1,349

 
23.6
%
MSCI Emerging Markets Index
 
1,115

 
966

 
15.4
%
Bloomberg Barclays U.S. Aggregate Bond Index
 
2,225

 
2,047

 
8.7
%
Standard & Poor's / LSTA Leveraged Loan Index
 
2,273

 
2,054

 
10.7
%




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Table of Contents



A discussion of our results of operations for the year ended December 31, 2018 compared to the year ended December 31, 2017 may be found in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of our Form 10-K for the fiscal year ended December 31, 2018, which specific discussion is incorporated herein by reference.

Financial Highlights

Earnings per diluted share was $11.74 in 2019, an increase of $2.88, or 32.5%, from $8.86 per diluted share in 2018.
Total sales were $20.1 billion in 2019 compared with $22.8 billion in 2018. Net flows were $(0.8) billion in 2019 compared with $(3.7) billion in 2018.
Assets under management were $108.9 billion at December 31, 2019 compared to $92.0 billion at December 31, 2018.

Sustainable Growth Advisers, LP

On July 1, 2018, we completed our majority investment in Sustainable Growth Advisers, LP (the "SGA Acquisition"), an investment manager with $11.3 billion in assets under management at June 30, 2018.

Assets Under Management

At December 31, 2019, total assets under management were $108.9 billion, representing an increase of $16.9 billion, or 18.3%, from December 31, 2018. The increase was primarily due to positive market performance of $19.3 billion, partially offset by net outflows, dividend distributions on open- and closed-end funds and interest payments on structured products. Long-term assets under management, which exclude liquidity strategies, were $107.7 billion at December 31, 2019, up 19.1% from $90.4 billion at the end of the prior year.

Average long-term assets under management, which exclude assets in liquidity strategies, were $100.5 billion for the twelve months ended December 31, 2019, an increase of $5.9 billion, or 6.2%, from $94.6 billion for the twelve months ended December 31, 2018. The year-over-year increase in long-term average assets under management was primarily due to the full year impact of the SGA Acquisition and positive market performance, partially offset by net outflows, dividend distributions on open- and closed-end funds and interest payments on structured products.


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Table of Contents

Investment Performance - Open End Funds

The following table presents our open-end funds' three-year average annual return and the corresponding three-year benchmark index average annual return as of December 31, 2019. Also presented with each fund is its three-year ranking within its Morningstar Peer Group.
 
 
 
Three Year
Fund Type/Name
Assets
(in millions)
 
Average
Return (1)
Benchmark Index
Return (2)
Peer Group Percentile
 Ranking (3)
 
 
 
%
%
%
U.S. Retail Funds
 
 
 
 
 
Equity
 
 
 
 
 
Virtus KAR Small-Cap Growth Fund
$
5,463

 
27.98
12.49
1
Virtus Ceredex Mid-Cap Value Equity Fund
3,716

 
11.06
8.10
3
Virtus KAR Small-Cap Core Fund
1,604

 
22.89
8.59
4
Virtus Ceredex Large-Cap Value Equity Fund
1,306

 
10.90
9.68
35
Virtus KAR Mid-Cap Growth Fund
681

 
27.73
17.36
1
Virtus KAR Small-Cap Value Fund
633

 
7.67
4.77
88
Virtus KAR Capital Growth Fund
561

 
21.19
20.49
22
Virtus Ceredex Small-Cap Value Equity Fund
556

 
4.33
4.77
86
Virtus KAR Mid-Cap Core Fund
529

 
16.17
12.06
44
Virtus Rampart Equity Trend Fund
304

 
8.55
15.27
95
Virtus Rampart Sector Trend Fund
206

 
10.42
15.27
89
Virtus Rampart Enhanced Core Equity Fund
146

 
11.08
15.27
85
Virtus Zevenbergen Innovative Growth Stock Fund
137

 
26.90
19.89
2
Virtus Silvant Large-Cap Growth Stock Fund
109

 
19.01
20.49
42
Virtus KAR Small-Mid Cap Core Fund
54

 
N/A
N/A
N/A
Virtus Horizon Wealth Masters Fund
46

 
8.23
12.06
71
Virtus Silvant Small-Cap Growth Stock Fund
30

 
13.32
12.49
53
 
 
 
 
 
 
Fixed Income
 
 
 
 
 
Virtus Newfleet Multi-Sector Short Term Bond Fund
6,362

 
3.23
3.04
11
Virtus Seix Floating Rate High Income Fund
3,341

 
3.54
4.48
54
Virtus Newfleet Low Duration Core Plus Bond Fund
485

 
2.92
2.58
21
Virtus Newfleet Senior Floating Rate Fund
354

 
3.26
4.48
70
Virtus Newfleet Multi-Sector Intermediate Bond Fund
318

 
5.01
4.03
40
Virtus Seix Total Return Bond Fund
307

 
3.11
4.03
94
Virtus Seix Investment Grade Tax-Exempt Bond Fund
301

 
3.67
4.10
70
Virtus Seix High Yield Fund
299

 
5.89
6.45
31
Virtus Seix High Income Fund
296

 
5.31
6.37
57
Virtus Newfleet Tax-Exempt Bond Fund
130

 
4.06
4.24
47
Virtus Seix Core Bond Fund
105

 
3.46
4.03
66
Virtus Newfleet Core Plus Bond Fund
98

 
4.91
4.03
12
Virtus Newfleet High Yield Fund
60

 
5.57
6.36
47
Virtus Seix High Grade Municipal Bond Fund
59

 
4.61
4.72
51
Virtus Seix Corporate Bond Fund
39

 
4.96
5.92
67
Virtus Seix U.S. Mortgage Fund
21

 
2.95
3.25
33
 
 
 
 
 
 




20

Table of Contents

 
 
 
Three Year
Fund Type/Name
Assets
(in millions)
 
Average
Return (1)
Benchmark Index Return (2)
Peer Group Percentile
 Ranking (3)
 
 
 
%
%
%
International/Global
 
 
 
 
 
Virtus Vontobel Emerging Markets Opportunities Fund
7,312

 
10.88
11.57
45
Virtus KAR International Small-Cap Fund
1,926

 
15.17
9.65
12
Virtus Vontobel Foreign Opportunities Fund
1,098

 
14.15
9.56
29
Virtus Vontobel Global Opportunities Fund
348

 
16.30
12.44
15
Virtus KAR Emerging Markets Small-Cap Fund
129

 
13.60
6.70
16
Virtus SGA Global Growth Fund
92

 
19.85
12.44
5
Virtus KAR Global Quality Dividend Fund
42

 
9.69
10.55
N/A
Virtus SGA International Growth Fund
42

 
16.03
9.87
14
 
 
 
 
 
 
Alternatives
 
 
 
 
 
Virtus Duff & Phelps Real Estate Securities Fund
561

 
8.10
8.14
51
Virtus Duff & Phelps International Real Estate Securities Fund
255

 
13.79
10.76
5
Virtus Duff & Phelps Global Infrastructure Fund
108

 
12.37
12.12
19
Virtus Duff & Phelps Global Real Estate Securities Fund
56

 
11.83
8.28
17
Virtus Aviva Multi-Strategy Target Return Fund
38

 
0.99
1.16
80
Virtus KAR Long/Short Equity Fund
37

 
N/A
N/A
N/A
 
 
 
 
 
 
Asset Allocation
 
 
 
 
 
Virtus Tactical Allocation Fund
621

 
12.66
12.36
5
Virtus Rampart Multi-Asset Trend Fund
48

 
5.40
8.99
65
Virtus Herzfeld Fund
46

 
8.16
9.20
62
 
 
 
 
 
 
Global Funds
 
 
 
 
 
Virtus GF SGA Global Growth Fund
308

 
N/A
N/A
N/A
Virtus GF Multi-Sector Short Duration Bond Fund
62

 
2.81
3.26
4
Virtus GF U.S. Small Cap Focus Fund
62

 
24.33
8.59
2
Virtus GF Multi-Sector Income Fund
27

 
N/A
N/A
N/A
 
 
 
 
 
 
Variable Insurance Funds
 
 
 
 
 
Virtus KAR Capital Growth Series
238

 
21.80
20.49
17
Virtus SGA International Growth Series
148

 
4.63
9.87
99
Virtus Newfleet Multi-Sector Intermediate Bond Series
118

 
4.69
4.03
54
Virtus KAR Small-Cap Growth Series
104

 
29.26
12.49
1
Virtus Rampart Enhanced Core Equity Series
97

 
11.30
15.27
83
Virtus Duff & Phelps Real Estate Securities Series
78

 
8.07
8.14
52
Virtus KAR Small-Cap Value Series
77

 
8.00
4.77
86
Virtus Strategic Allocation Series
77

 
12.60
12.36
5
 
 
 
 
 
 
Other Funds
59

 
 
 
 
 
 
 
 
 
 
 
$
42,870

 
 
 
 
(1)
Represents the average annual total return performance of the largest share class as measured by net assets for which performance data is available. Performance shown does not include the effect of applicable sales charges, if any. Had any applicable sales charges been reflected, performance would be lower than shown above.
(2)
Represents the average annual total return of the benchmark index. Benchmark indices are unmanaged, their returns do not reflect any fees, expenses or sales charges, and they are not available for direct investment. The Benchmark Index for each fund can be found in the respective fund's fact sheet on our website at https://www.virtus.com/investor-center/mutual-fund-documents.
(3)
Represents the peer ranking of the fund’s average annual total return according to Morningstar. The Morningstar Peer Group for each fund can be found in the respective fund's fact sheet on our website at https://www.virtus.com/investor-

21

Table of Contents

center/mutual-fund-documents. Fund returns are reported net of fees.
Past performance does not guarantee future results. Investment return and principal value will fluctuate so that shares, when redeemed, may be worth more or less than their original cost.

Operating Results

In 2019, total revenues increased 2.0%, or $11.0 million, to $563.2 million from $552.2 million in 2018 primarily due to higher revenues from an increase in average assets primarily as a result of the SGA Acquisition and positive market performance. Operating income increased by 10.3%, or $11.6 million, to $124.7 million in 2019 from $113.1 million in 2018, due to the same factors causing the increase in total revenues in addition to a decrease in expenses.

Assets Under Management by Product

The following table summarizes our assets under management by product:  
 
As of December 31,
 
As of Change
(in millions)
2019
 
2018
 
2019 vs.
2018
 
%
Open-End Funds (1)
$
42,870

 
$
37,710

 
$
5,160

 
13.7
 %
Closed-End Funds
6,748

 
5,956

 
792

 
13.3
 %
Exchange Traded Funds
1,156

 
668

 
488

 
73.2
 %
Retail Separate Accounts
20,414

 
14,998

 
5,416

 
36.1
 %
Institutional Accounts
32,635

 
27,445

 
5,190

 
18.9
 %
Structured Products
3,903

 
3,640

 
263

 
7.2
 %
Total Long-Term
107,726

 
90,417

 
17,309

 
19.1
 %
Liquidity (2)
1,178

 
1,613

 
(435
)
 
(26.9
)%
Total Assets Under Management
$
108,904

 
$
92,030

 
$
16,874

 
18.3
 %
Average Long-Term Assets Under Management (3)
$
100,472

 
$
94,567

 
$
5,905

 
6.2
 %
Average Assets Under Management (3)
$
102,072

 
$
96,278

 
$
5,794

 
6.0
 %

(1)
Represents assets under management of U.S. retail funds, offshore funds and variable insurance funds.
(2)
Represents assets under management in liquidity strategies, including certain open-end funds and institutional accounts.
(3)
Averages are calculated as follows:
- Funds - average daily or weekly balances
- Retail Separate Accounts - average of prior-quarter ending balances or average of month-end balances
- Institutional Accounts and Structured Products - average of month-end balances



22

Table of Contents

The following table summarizes asset flows by product:
Asset Flows by Product
 
 
 
 
 
 
 
(in millions)
Years Ended December 31,
 
2019
 
2018
Open-End Funds (1)
 
 
 
Beginning balance
$
37,710

 
$
43,078

Inflows
10,835

 
14,836

Outflows
(13,029
)
 
(17,098
)
Net flows
(2,194
)
 
(2,262
)
Market performance
7,536

 
(2,522
)
Other (2)
(182
)
 
(584
)
Ending balance
$
42,870

 
$
37,710

Closed-End Funds
 
 
 
Beginning balance
$
5,956

 
$
6,666

Inflows
44

 
22

Outflows

 

Net flows
44

 
22

Market performance
1,116

 
(289
)
Other (2)
(368
)
 
(443
)
Ending balance
$
6,748

 
$
5,956

Exchange Traded Funds
 
 
 
Beginning balance
$
668

 
$
1,039

Inflows
784

 
290

Outflows
(279
)
 
(342
)
Net flows
505

 
(52
)
Market performance
90

 
(163
)
Other (2)
(107
)
 
(156
)
Ending balance
$
1,156

 
$
668

Retail Separate Accounts
 
 
 
Beginning balance
$
14,998

 
$
13,937

Inflows
3,315

 
3,061

Outflows
(1,790
)
 
(2,440
)
Net flows
1,525

 
621

Market performance
4,045

 
(736
)
Other (2)
(154
)
 
1,176

Ending balance
$
20,414

 
$
14,998

Institutional Accounts
 
 
 
Beginning balance
$
27,445

 
$
20,815

Inflows
4,777

 
4,144

Outflows
(5,720
)
 
(6,543
)
Net flows
(943
)
 
(2,399
)
Market performance
6,377

 
(992
)
Other (2)
(244
)
 
10,021

Ending balance
$
32,635

 
$
27,445

Structured Products
 
 
 
Beginning balance
$
3,640

 
$
3,299

Inflows
389

 
421

Outflows
(98
)
 
(71
)
Net flows
291

 
350

Market performance
173

 
180

Other (2)
(201
)
 
(189
)
Ending balance
$
3,903

 
$
3,640


23

Table of Contents

Total Long-Term
 
 
 
Beginning balance
$
90,417

 
$
88,834

Inflows
20,144

 
22,774

Outflows
(20,916
)
 
(26,494
)
Net flows
(772
)
 
(3,720
)
Market performance
19,337

 
(4,522
)
Other (2)
(1,256
)
 
9,825

Ending balance
$
107,726

 
$
90,417

Liquidity (3)
 
 
 
Beginning balance
$
1,613

 
$
2,129

Other (2)
(435
)
 
(516
)
Ending balance
$
1,178

 
$
1,613

Total
 
 
 
Beginning balance
$
92,030

 
$
90,963

Inflows
20,144

 
22,774

Outflows
(20,916
)
 
(26,494
)
Net flows
(772
)
 
(3,720
)
Market performance
19,337

 
(4,522
)
Other (2)
(1,691
)
 
9,309

Ending balance
$
108,904

 
$
92,030


(1)
Represents assets under management of U.S. retail funds, offshore funds and variable insurance funds.
(2)
Represents open-end and closed-end fund distributions net of reinvestments, the net change in assets from liquidity strategies and the effect on net flows from non-sales related activities such as asset acquisitions/(dispositions), seed capital investments/(withdrawals), structured products reset transactions and the use of leverage.
(3)
Represents assets under management in liquidity strategies, including in certain open-end funds and institutional accounts.

The following table summarizes our assets under management by asset class:
 
 
December 31,
 
Change
(in millions)
2019
 
2018
 
2019 vs.
2018
 
%
Asset Class
 
 
 
 
 
 
 
Equity
$
70,720

 
$
53,297

 
$
17,423

 
32.7
 %
Fixed income
31,186

 
33,425

 
(2,239
)
 
(6.7
)%
Alternatives (1)
5,820

 
3,695

 
2,125

 
57.5
 %
Total Long-term
107,726

 
90,417

 
17,309

 
19.1
 %
Liquidity (2)
1,178

 
1,613

 
(435
)
 
(26.9
)%
Total
$
108,904

 
$
92,030

 
$
16,874

 
18.3
 %
 
(1)
Consists of real estate securities, mid-stream energy securities and master limited partnerships, options strategies and other.
(2)
Represents assets under management in liquidity strategies, including in certain open-end funds and institutional accounts.

24

Table of Contents

Average Assets Under Management and Average Fees Earned

The following table summarizes the average management fees earned in basis points and average assets under management: 
 
Years Ended December 31,

Average Fee Earned
(expressed in basis points)
 
Average Assets Under Management
(in millions) (2)
 
2019
 
2018
 
2019
 
2018
Products
 
 
 
 
 
 
 
Open-End Funds (1)
56.1

 
53.0

 
$
40,917

 
$
43,623

Closed-End Funds
64.7

 
66.0

 
6,524

 
6,283

Exchange Traded Funds
22.1

 
17.9

 
1,012

 
985

Retail Separate Accounts
47.9

 
47.1

 
17,311

 
15,069

Institutional Accounts
31.3

 
32.1

 
30,834

 
24,966

Structured Products
36.9