e10vk
UNITED STATES
SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C.
20549
Form 10-K
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(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended
December 31, 2009
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or
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to
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Commission File
Number: 1-34457
ARTIO GLOBAL INVESTORS
INC.
(Exact name of registrant as
specified in its charter)
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Delaware
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13-6174048
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(State or other jurisdiction
of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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330 Madison Ave.
New York, NY
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10017
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(Address of principal executive
offices)
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(Zip Code)
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(212) 297-3600
(Registrants telephone number, including area code)
Securities registered pursuant to Section 12(b) of the
Act:
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Title of each class:
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Name of each exchange on which registered:
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Class A common stock
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New York Stock Exchange
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Securities
registered pursuant to section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. o Yes þ 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. o Yes þ 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. þ Yes o
No
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Website, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
((§ 232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant
was required to submit and post such
files). o Yes þ No
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
(§ 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrants
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this
Form 10-K
or any amendment to this
Form 10-K. þ
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2
of the Exchange Act.
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Large accelerated filer
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Accelerated
filer o
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Non-accelerated filer
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not check if a smaller reporting company)
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Smaller reporting
company o
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Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the
Act). o Yes þ No
As of June 30, 2009, the aggregate market value of the
voting and non-voting common equity held by non-affiliates was:
$0
The number of shares outstanding of each of the
registrants classes of common stock, as of March 1,
2010, are:
Class A common stock:
27,733,299
Class B common stock:
15,600,000
Class C common stock:
16,755,844
DOCUMENTS
INCORPORATED BY REFERENCE
Portions of Artio Global Investors Inc.s Proxy Statement
for its 2010 Annual Meeting of Stockholders to be held on
May 11, 2010, are incorporated by reference in this Annual
Report on
Form 10-K
in response to Part III, Items 10, 11, 12, 13 and 14.
ARTIO
GLOBAL INVESTORS INC.
ANNUAL REPORT ON
FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2009
TABLE OF CONTENTS
Performance
Information Used in This Annual Report on
Form 10-K
(Report)
We manage investments through proprietary funds
(which include Securities and Exchange Commission, or SEC,
registered mutual funds such as our Artio International Equity
Fund, and private offshore funds that are not SEC registered)
and other types of accounts. Funds and other accounts that are
managed by us with a broadly common investment objective are
referred to as being part of the same strategy. We
measure the results both of our individual funds and of our
composites, which represent the aggregate
performance of substantially all client accounts (including
discretionary, fee-paying, non-taxable and taxable accounts,
private offshore, institutional commingled and mutual funds)
invested in the same general investment strategy. Our composites
are reviewed annually for compliance with the Global Investment
Performance Standards (GIPS), and include, for
example, Global Equity and High Yield.
In Item 1 Business, we include
performance information about the composites in respect of our
principal strategies. We do not include performance information
about each of the proprietary funds, sub-advisory accounts,
separate accounts and commingled funds invested in such
strategies, as the returns generated in each such type of fund
or account is substantially similar to the returns presented for
the overall composite. Information about our proprietary funds,
which compose nearly half of our assets under management, can be
readily found through public sources that monitor mutual fund
performance.
Results for any investment strategy described herein, and for
different investment products within a strategy, are affected by
numerous factors, including different material market or
economic conditions; different advisory fees, brokerage
commissions and other expenses; and the reinvestment of
dividends or other earnings. The returns for any strategy may be
positive or negative, and past performance does not guarantee
future results.
Throughout this Report, we present the annualized returns of our
investment strategies on a gross and net
basis, which represent annualized returns before and after
payment of fees, respectively. In connection with this
presentation, we have also disclosed the returns of certain
market indices or benchmarks for the comparable
period. Indices that are used for these performance comparisons
are unmanaged and have differing volatility, credit and other
characteristics. You should not assume that there is any
material overlap between the securities included in the
portfolios of our investment strategies during these periods and
those that comprise any Merrill Lynch Index, any MSCI Index, any
Russell Index, the Citigroup USD 3 Month EUR Deposit Index,
the Barclays Capital U.S. Aggregate TR Value Index, or the
S&P
500®
Index referred to in this Report. It is not possible to invest
directly in any of the indices described above. The returns of
these indices, as presented in this Report, have not been
reduced by fees and expenses associated with investing in
securities, but do include the reinvestment of dividends. In
this Report, we refer to the date on which we began tracking the
performance of an investment strategy as that strategys
inception date, and to the date an investment
strategy began managing capital as that strategys
launch date.
Each Russell Index referred to in this Report is a registered
trademark or trade name of The Frank Russell Company. The Frank
Russell Company is the owner of all copyrights relating to these
indices and is the source of the performance statistics of these
indices that are referred to in this Report.
The MSCI
EAFE®
Index and the MSCI
EAFE®
and Canada Index, which we refer to as the MSCI
EAFE®
and Canada Index, are trademarks of MSCI Inc. The MSCI AC World
ex USA
Indexsm
ND is a service mark of MSCI Inc. MSCI Inc. is the owner of all
copyrights relating to these indices and is the source of the
performance statistics of these indices that are referred to in
this Report.
We refer to the Barclays Capital U.S. Aggregate TR Value
Index as the Barclays Capital U.S. Aggregate Index.
Barclays Capital is the source of the performance statistics of
this index that are referred to in this Report.
Any Lipper rankings are for Class I mutual fund shares with
a five-year track record only. Other classes may have different
performance characteristics. Lipper, a wholly-owned subsidiary
of Reuters, provides independent insight on global collective
investments including mutual funds, retirement funds, hedge
funds, fund fees and expenses to the asset management and media
communities. Lipper ranks the performance of mutual funds within
a classification of funds that have similar investment
objectives. Rankings are historical with capital
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gains and dividends reinvested and do not include the effect of
loads. If an expense waiver was in effect, it may have had a
material effect on the total return or yield for the period.
Morningstar rankings are for Class I mutual fund shares
with a minimum three-year track record. For each mutual fund
with at least a three-year history, Morningstar calculates a
Morningstar
Ratingtm
based on a Morningstar Risk-Adjusted Return measure that
accounts for variation in a funds monthly performance
(including the effects of sales charges, loads, and redemption
fees), placing more emphasis on downward variations and
rewarding consistent performance. The top 10% of funds in each
category receive 5 stars, the next 22.5% receive 4 stars, the
next 35% receive 3 stars, the next 22.5% receive 2 stars and the
bottom 10% receive 1 star. (Each share class is counted as a
fraction of one fund within this scale and rated separately,
which may cause slight variations in the distribution
percentages.) The Overall Morningstar Rating for a mutual fund
is derived from a weighted average of the performance figures
associated with its three-, five- and ten-year (if applicable)
Morningstar Rating metrics. This investments independent
Morningstar Rating metric is then compared against the mutual
fund universe breakpoints to determine its hypothetical rating.
Data presented reflects past performance, which is no
guarantee of future results.
©
2010 Morningstar, Inc. All Rights Reserved.
None of the information in this Annual Report on
Form 10-K
constitutes either an offer or a solicitation to buy or sell any
fund securities, nor is any such information a recommendation
for any fund security or investment service.
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PART I
Item 1. Business
Overview
Our
Structure
Artio Global Investors Inc. (Investors or the
Company) and subsidiaries (collectively,
we, us or our) comprises
Investors and its three subsidiaries, Artio Global Holdings LLC
(Holdings), an intermediate holding company, Artio
Global Management LLC (Investment Adviser), a
registered investment adviser under the Investment Advisers Act
of 1940 (the Advisers Act), and Artio Capital
Management LLC. Holdings is approximately 74% owned by
Investors, 13% owned by Richard Pell, our Chairman, Chief
Executive Officer and Chief Investment Officer
(Pell), and 13% owned by Rudolph-Riad Younes, our
Head of International Equity (Younes, together with
Pell, the Principals). Investment Adviser and Artio
Capital Management LLC are wholly owned subsidiaries of Holdings.
Investment Adviser was organized as a corporation in Delaware on
November 21, 1962 and converted to a limited liability
company on May 3, 2004. It is our primary operating entity
and a registered investment adviser that provides investment
management services to institutional and mutual fund clients. It
manages and advises the funds, which are U.S. registered
investment companies; commingled institutional investment
vehicles; separate accounts; and sub-advisory accounts (the
Artio Global Funds). Our assets under management are
invested primarily outside of the U.S.
Prior to September 29, 2009, Investors was a wholly owned
subsidiary of Julius Baer Holding Ltd. (a Swiss corporation
currently known as GAM Holding Ltd., GAM). On
September 29, 2009, we completed an initial public offering
(IPO) of 25.0 million shares of Investors
Class A common stock (Class A common
stock) at a price of $26.00 per share, before the
underwriting discount, for net proceeds of $614.9 million.
The net proceeds were used to repurchase and retire, at the IPO
price, net of the underwriting discount, an aggregate of
22.6 million shares of Investors Class C common
stock (Class C common stock) from GAM, and to
repurchase 1.2 million shares of Class A common stock
from each of the Principals.
On October 5, 2009, the underwriters exercised their option
to purchase additional shares of Class A common stock at
the IPO price, net of the underwriting discount, resulting in
the issuance of 2,644,156 shares of Class A common
stock. The net proceeds were used to repurchase and retire, at
the IPO price, net of the underwriting discount,
2,644,156 shares of Class C common stock from GAM.
Our
Business
We are best known for our International Equity strategies, which
represented 83% of our assets under management as of
December 31, 2009. We also offer a broad range of other
investment strategies, including High Grade Fixed Income, High
Yield, Global Equity and U.S. Equity strategies. As of
December 31, 2009, eight out of nine composites of these
strategies had outperformed their benchmarks since inception. We
offer the following investment vehicles through which clients
access our investment capabilities: proprietary funds,
institutional commingled funds, separate accounts and
sub-advisory mandates where we advise other client funds. Our
revenues consist almost entirely of investment management fees,
which are based primarily on the fair value of our assets under
management rather than investment performance-based fees. As of
December 31, 2009, 83% of our assets under management were
concentrated in the International Equity I and International
Equity II strategies, and 92% of our investment management
fees for the year ended December 31, 2009 were attributable
to fees earned from those strategies.
Our primary business objective is to consistently generate
superior investment returns for our clients. We manage our
investment portfolios based on a philosophy of style-agnostic
investing across a broad range of opportunities, focusing on
macro-economic factors and broad-based global investment themes.
We also emphasize fundamental research and analysis in order to
identify specific investment opportunities and capitalize on
price inefficiencies. We believe that the depth and breadth of
the intellectual capital and experience of our investment
professionals, together with this investment philosophy and
approach, have been the key drivers of our investment
performance. As an organization, we concentrate our resources on
meeting
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our clients investment objectives and we seek to
outsource, whenever appropriate, support functions to industry
leaders thereby allowing us to focus our business on the areas
where we believe we can add the most value.
Our distribution efforts target institutions and organizations
that demonstrate institutional buying behavior and longer-term
investment horizons, such as pension fund consultants, broker
dealers, registered investment advisors (RIAs),
mutual fund platforms and sub-advisory relationships, enabling
us to achieve significant leverage from our focused sales force
and client service infrastructure. As of December 31, 2009,
we provided investment management services to a broad and
diversified spectrum of approximately 1,400 institutional
clients, including some of the worlds leading
corporations, public and private pension funds, endowments and
foundations and major financial institutions through our
separate accounts, commingled funds and proprietary funds. We
also managed assets for more than 755,000 retail mutual fund
shareholders through our Funds and other retail investors
through 14 funds that we sub-advise for others.
In the mid-1990s, our Principals assumed responsibility
for managing our International Equity strategy. In the years
that followed, we attracted attention from third parties such as
Morningstar, which awarded a
5-star
rating to the Artio International Equity Fund in 1999.
Consequently, we began to attract significant inflows. Since
1999, we have expanded to other strategies, added portfolio
managers and increased our assets under management to
$56.0 billion as of December 31, 2009.
Our assets under management as of December 31, 2009 by
investment vehicle and investment strategy are as follows:
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Investment Vehicles (As of December 31, 2009)
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Investment Strategies (As of December 31,
2009)
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Industry
Overview
Investment management is the professional management of
securities and other assets on behalf of institutional and
individual investors. This industry has enjoyed significant
growth in recent years due to the capital inflows from sources
such as households, pension plans and insurance companies.
Traditional investment managers, such as separate account and
mutual fund managers, generally manage and advise investment
portfolios of equity and fixed income securities. The investment
objectives of these portfolios include maximizing total return,
capital appreciation, current income
and/or
tracking the performance of a particular index. Performance is
typically evaluated over various time periods based on
investment returns relative to the appropriate market index
and/or peer
group. Traditional managers are generally compensated based on a
small percentage of assets under management. Managers of such
portfolios in the United States are registered with the SEC
under the Advisers Act. Generally, investors have unrestricted
access to their capital through market transactions in the case
of closed-end funds and exchange-traded funds, or through
withdrawals in the case of separate accounts and mutual funds,
or open-end funds.
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Competitive
Strengths
We believe our success as an investment management company is
based on the following competitive strengths:
Long-Term
Track Record of Superior Investment Performance
We have a well-established track record of achieving superior
investment returns over the longer term across our key
investment strategies relative to our competitors and the
relevant benchmarks, as reflected by the following:
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our International Equity I composite (our longest-standing
composite) has outperformed its benchmark, the MSCI AC World ex
USA Index SM ND, by 7.9% on an annualized basis since its
inception in 1995 through December 31, 2009 (calculated on
a gross basis before payment of fees);
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as of December 31, 2009, three of our next four largest
composites had also outperformed their benchmarks on a gross
basis since inception; and
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as of December 31, 2009, five of our nine funds,
representing over 99% of our assets, were rated 4- or
5- stars by Morningstar and of those five funds, all
five were in the top quartile of Lipper rankings for
performance since inception.
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Experienced
Investment Professionals and Management Team
We have an investment-centric culture that has enabled us to
maintain a consistent investment philosophy and to attract and
retain world-class professionals. Our current team of lead
portfolio managers is highly experienced, averaging
approximately 22 years of industry experience among them.
Over the past five years, our team of investment professionals
has expanded from approximately 20 to approximately
50 people and we have experienced only minimal departures
during this period. Furthermore, our entire team of senior
managers (including marketing and sales directors and client
service managers) averages approximately 25 years of
industry experience.
Leading
Position in International Equity
We have a leading position in international equity investment
management and as of December 31, 2009, we ranked as the
11th largest
manager of international equity mutual funds in the United
States, according to Strategic Insight. We believe that
we are well-positioned to take advantage of opportunities in
this attractive asset class over the next several years.
However, in 2009, our International Equity strategies have
generated returns that are well below their benchmarks, which,
despite our strong long-term investment performance, could
negatively impact our competitive position.
Strong
Track Records in Other Investment Strategies
In addition to our leading position in international equity, we
enjoy strong long-term track records in several of our other key
strategies. Our Total Return Bond Fund ranked in the
3rd quartile
of its Lipper universe over the one-year period, in the
2nd quartile
of its Lipper universe over the three- year period, and
in the
1st quartile
of its Lipper universe over the
five-year
period ended December 31, 2009 and since inception, as of
December 31, 2009. Our Global High Income Fund ranked in
the
1st quartile
of its Lipper universe over the one-year period and in
the top decile over the three- and
five-year
periods ended December 31, 2009 and since inception, as of
December 31, 2009. Our Global Equity Fund ranked in the
2nd quartile
of its Lipper universe over the one- and
three-year
periods ended December 31, 2009, and since inception as of
December 31, 2009.
Strong
Relationships with Institutional Clients
We focus our efforts on institutions and organizations that
demonstrate institutional buying behavior and longer-term
investment horizons. As of December 31, 2009, we provided
investment management services to approximately 1,400
institutional clients invested in separate accounts, commingled
funds or proprietary funds. We have found that while
institutional investors generally have a longer and more
extensive due diligence process prior to investing, this results
in clients who are more focused on our method of investing and
our
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long-term results, and, as a result, our institutional
relationships tend to be longer, with less year-to-year
turnover, than is typical among retail clients.
Effective
and Diverse Distribution
Our assets under management are distributed through multiple
channels. By utilizing our intermediated distribution sources
and focusing on institutions and organizations that exhibit
institutional buying behavior, we are able to achieve
significant leverage from our focused sales force and client
service infrastructure. We have developed strong relationships
with most of the major pension and industry consulting firms,
which have allowed us access to a broad range of institutional
clients. As of December 31, 2009, no single consulting firm
represented greater than approximately 4% of our assets under
management and our largest individual client represented
approximately 3% of our total assets under management. We access
retail investors through our relationships with intermediaries
such as RIAs and broker dealers as well as through mutual fund
platforms and sub-advisory relationships. Our distribution
efforts with retail intermediaries, particularly broker dealers,
are more recent than our institutional efforts and, as a result,
our assets sourced through the largest broker dealers represent
a relatively small portion of our assets under management.
However, as a result of recent consolidation among broker
dealers with whom we have established relationships, we believe
we have opportunities to reach additional retail investors
through our existing relationships.
Strong
Organic Growth in Assets under Management and Sustained Net
Client Inflows
In the period from December 31, 2003 through
December 31, 2009, our assets under management grew from
$7.5 billion to $56.0 billion, representing a compound
annual growth rate (CAGR) of 40%. Until mid-2008,
our assets under management growth was the result of a
combination of general market appreciation, our record of
outperforming the relevant benchmarks and an increase in net
client cash inflows, which we define as the amount by which
client additions to new and existing accounts exceed withdrawals
from client accounts. However, market depreciation in 2008 and
early 2009 had a significant negative impact on our assets under
management. During the period between December 31, 2003 and
December 31, 2009, net client cash inflows represented 85%
of our overall growth, including $0.3 billion of net client
cash inflows during the year ended December 31, 2009.
Focused
Business Model
Our business model is designed to focus the vast majority of our
resources on meeting our clients investment objectives.
Accordingly, we take internal ownership of the aspects of our
operations that directly influence the investment process, our
client relationships and risk management. We seek to outsource,
whenever appropriate, support functions, including middle- and
back-office activities, to industry leaders, whose services we
closely monitor. This allows us to focus our efforts where we
believe we can add the most value. We believe this approach has
also resulted in an efficient and streamlined operating model,
which has generated strong operating margins, limited fixed
expenses and an ability to maintain profitability during
difficult periods. As a result, in the years ended
December 31, 2009, 2008 and 2007, we produced Adjusted
operating income of $173 million, $252 million and
$280 million from Total revenues and other operating income
of $307 million, $422 million and $446 million,
representing Adjusted operating margins of 56.4%, 59.8% and
62.7%, respectively. See Item 7. Managements
Discussion and Analysis of Financial Condition and Results of
Operations Adjusted Performance Measures for a
reconciliation of Operating income (loss) before income tax
expense to Adjusted operating income.
Strategy
We seek to achieve consistent and superior long-term investment
performance for our clients. Our strategy for continued success
and future growth is guided by the following principles:
Continue
to Capitalize on our Reputation in International
Equity
We expect to continue to grow our International Equity assets
under management. Our International Equity I strategy, which had
$21.7 billion in assets under management as of
December 31, 2009, was closed to new investors in August
2005 in order to preserve its ability to invest effectively in
smaller capitalization investments. The successor strategy,
International Equity II, which mirrors the International Equity
I strategy
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in all respects except that it does not allocate assets to these
small capitalization investments and therefore does not have the
same capacity constraint as International Equity I, was
launched in March 2005. International Equity II has grown
to $24.7 billion (as of December 31, 2009) in
assets under management in less than five years. We believe we
have the capacity to handle additional assets within our
International Equity II strategy. Given our reputation as a
manager of international equity and our expectation of continued
strong institutional demand for international equity, we aim to
continue to grow international equity assets under management
over the longer term and leverage our experience in
International Equity to grow our Global Equity strategy in order
to capitalize on increasing flows into this strategy from
investors in the United States.
Grow our
other Investment Strategies
Historically, we concentrated our distribution efforts primarily
on our International Equity strategies. In recent years, we have
focused on expanding and growing our other strategies as well,
including our High Grade Fixed Income, High Yield and Global
Equity strategies, which have experienced significant growth in
assets under management as a result. We expect our
U.S. Equity strategies to provide additional growth now
that they have achieved their three-year performance track
records in July 2009, which are an important pre-requisite to
investing for many institutional investors. Morningstar
ratings for Class I shares are:
4-star
rating for Artio US Smallcap Fund,
2-star
rating for Artio US Multicap Fund,
2-star
rating for Artio US Midcap Fund and 1-star rating for Artio US
Microcap Fund. We also intend to continue to selectively
initiate new product offerings in additional asset classes where
we believe our investment professionals have the potential to
produce attractive risk-adjusted returns.
Further
Extend our Distribution Capabilities
We continue to focus on expanding our distribution capabilities
into those markets and client segments where we see demand for
our product offerings and which we believe are consistent with
our philosophy of focusing on distributors who display
institutional buying behavior through their selection process
and due diligence. For example, in 2005 we supplemented our
existing distribution capabilities by developing a team to
distribute to broker dealers through targeting their head-office
product distribution teams. We expect to add additional
resources to this team in 2010. In addition, we have selectively
strengthened our international distribution by expanding into
Canada and expect to further develop our international
distribution over time.
Maintain
a Disciplined Approach to Growth
We are an investment-centric firm that focuses on the delivery
of superior long-term investment returns for our clients through
the application of our established investment processes and risk
management discipline. While we have generated significant
growth in our assets under management over the past several
years and have continued to develop a broader range of
investment offerings, we are focused on long-term success and we
will only pursue those expansion opportunities that are
consistent with our operating philosophy. This philosophy
requires that:
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each new investment strategy and offering must provide the
potential for attractive risk adjusted returns for clients in
these new strategies without negatively affecting return
prospects for existing clients;
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new client segments or distribution sources must value our
approach and be willing to appropriately compensate us for our
services; and
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new product offerings and client segments must be consistent
with the broad investment mission and not alter the
investment-centric nature of our firms culture.
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By ensuring that each new opportunity is evaluated against these
criteria we intend to maintain a disciplined approach to growth
for the long-term. For example, we closed our International
Equity I strategy to new investments in August 2005, in order to
preserve return opportunity in our smaller capitalization
investments for existing International Equity I investors. In
anticipation of this, we launched our International
Equity II strategy in March 2005 with the same focus as our
International Equity I strategy except that it does not invest
in small-cap companies.
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Continue
to Focus on Risk Management
Risk is inherent in the investment management business. However,
in a well-controlled risk environment, risks can generally be
anticipated and managed and the adequacy of return for
risk-taking can be assessed, making it possible to rationalize
the relationship between risk and reward. Therefore, as an
investment organization, we focus intensely on risk management.
We categorize our risks into three classes: risks that have
alpha associated with them (portfolio, or market risk),
strategic risk and non-market risk, which are typically
characterized by the risk of loss. Our Company is subject to
many non-market risks, including fiduciary risk, reputational
risk, operational risk, legal and regulatory risk.
We manage risk at multiple levels throughout the organization,
including directly by the portfolio manager, at the Chief
Investment Officer level, and more broadly through an Enterprise
Risk Management framework overseen by the Management Committee,
which identifies, assesses and manages the full range of risks
that face our Company and reports to the Board of Directors.
Our Enterprise Risk Management framework includes the creation
of a number of internal committees, such as the Compliance
Committee, the Operating Committee, the Information Technology
Steering Committee, and the Trading and Investments Committee,
each of which operates pursuant to a written charter. The Risk
Management Committee, which reports to the Management Committee,
coordinates the risks overseen by each of these committees, and
provides centralized oversight and management thereof.
In addition to the staff committees described above, the Company
has a risk management group that focuses on investment-related
risk. At the investment portfolio level, we seek to manage risk
daily on a real-time basis with an emphasis on identifying which
investments are working, which investments are not, and what
factors are influencing performance on both an intended and
unintended basis. This approach to managing portfolio-level risk
is not designed to avoid taking risks, but to seek to ensure
that the risks we choose to take are rewarded with an
appropriate premium opportunity for those risks. This approach
to managing portfolio-level risk is an integral component of our
investment processes.
Investment
Strategies, Products and Performance
Overview
Our investment strategies are grouped into five asset classes:
International Equity (which as of December 31, 2009
included: five proprietary funds, six institutional commingled
funds, 75 separate accounts and nine sub-advisory accounts);
Global Equity (which as of December 31, 2009 included: two
proprietary funds, three separate accounts and two institutional
commingled funds); U.S. Equity (which as of
December 31, 2009 included: eight proprietary funds and one
sub-advisory account); High Grade Fixed Income (which as of
December 31, 2009 included: three proprietary funds, 13
separate accounts and three sub-advisory accounts); and High
Yield (which as of December 31, 2009 included: two
proprietary funds, two institutional commingled funds, two
separate accounts and one sub-advisory account).
While each of our investment teams has a distinct process and
approach to managing their investment portfolios, we foster an
open, collaborative culture that encourages the sharing of ideas
and insights across teams. This approach serves to unify and
define us as an asset manager and has contributed to the strong
results across our range of strategies. Although not
specifically designed as such nor centrally mandated, the
following practices are core to each teams philosophy and
process:
|
|
|
A team-based approach;
|
|
|
A reliance on internally generated research and independent
thinking;
|
|
|
A belief that broad-based quantitative screening prior to the
application of a fundamental research overlay is as likely to
hide opportunities as it is to reveal them;
|
|
|
A significant emphasis on top-down/macro inputs and broad-based
global investment themes to complement unique industry specific
bottom-up
analysis;
|
8
|
|
|
An intense focus on risk management, but not an aversion to
taking risk that is rewarded with an appropriate
premium; and
|
|
|
A belief that ultimate investment authority and accountability
should reside with individuals within each investment team
rather than committees.
|
We further believe that sharing ideas and analyses across
investment teams allows us to leverage our knowledge of markets
across the globe. In addition, this collaboration has enabled us
to successfully translate profitable ideas from one asset class
or market to another across our range of investment strategies.
We offer the following investment vehicles through which clients
access our investment capabilities: proprietary funds,
institutional commingled funds, separate accounts and
sub-advisory accounts. We currently serve as investment advisor
to nine SEC-registered mutual funds that offer no-load open-end
share classes. In addition, we offer two private offshore funds
to select offshore clients. Our institutional commingled funds
are private pooled investment vehicles which we offer to
qualified institutional clients such as public and private
pension funds, foundations and endowments, membership
organizations and trusts. We similarly manage separate accounts
for institutional clients such as public and private pension
funds, foundations and endowments and generally offer these
accounts to institutional investors making the required minimum
initial investment, which vary by strategy. Due to the size of
the plans and specific reporting requirements of these
investors, a separately managed account is often necessary to
meet our clients needs. Our sub-advisory accounts include
six SEC-registered mutual funds managed pursuant to sub-advisory
agreements and eight non-SEC registered funds. Our sub-advisory
account services are primarily focused on our International
Equity strategies. Clients include financial services companies
looking to supplement their own product offerings with products
externally managed by managers with specific expertise, which we
provide.
9
Investment
Strategies
The table below sets forth the total assets under management for
each of our investment strategies as of December 31, 2009,
the strategy inception date and, for those strategies which we
make available through an SEC-registered mutual fund, the
Lipper ranking of the Class I shares of such mutual
fund against similar funds based on performance since inception.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quartile
|
|
|
|
Total AuM as of
|
|
|
Strategy
|
|
|
Ranking Since
|
|
Strategy
|
|
December 31, 2009
|
|
|
Inception Date
|
|
|
Inception
|
|
|
|
(in millions)
|
|
|
|
|
|
|
|
|
International Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
International Equity I
|
|
$
|
21,656
|
|
|
|
May 1995
|
|
|
|
1
|
|
International Equity II
|
|
|
24,716
|
|
|
|
April 2005
|
(1)
|
|
|
1
|
|
Other International Equity
|
|
|
77
|
|
|
|
Various
|
|
|
|
|
|
High Grade Fixed Income
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Return Bond
|
|
|
4,453
|
|
|
|
February 1995
|
|
|
|
1
|
|
U.S. Fixed Income & Cash
|
|
|
840
|
|
|
|
Various
|
|
|
|
|
|
High Yield
|
|
|
|
|
|
|
|
|
|
|
|
|
High Yield
|
|
|
3,516
|
|
|
|
April 2003
|
|
|
|
1
|
|
Global Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Global Equity
|
|
|
618
|
|
|
|
July 1995
|
|
|
|
2
|
|
U.S. Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Micro-Cap
|
|
|
52
|
|
|
|
August 2006
|
|
|
|
2
|
|
Small-Cap
|
|
|
18
|
|
|
|
August 2006
|
|
|
|
1
|
|
Mid-Cap
|
|
|
5
|
|
|
|
August 2006
|
(2)
|
|
|
3
|
|
Multi-Cap
|
|
|
6
|
|
|
|
August 2006
|
(3)
|
|
|
2
|
|
Other
|
|
|
36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
55,993
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
We classify within International
Equity II certain sub-advised mandates that were initially
part of our International Equity I strategy because net
client cash flows into these mandates, since 2005, have been
invested according to the International Equity II strategy
and the overall portfolios of these mandates are currently more
similar to our International Equity II strategy.
|
|
(2)
|
|
Lipper
compares our Mid-Cap
fund with the Lipper Mid-Cap Growth Funds
class category. We believe the Lipper Mid-Cap Core
Funds class category is better aligned with the strategies
with which we compete. Our ranking since inception in the
Mid-Cap Core Funds class category as of
December 31, 2009 was in the
2nd
quartile. See Performance Information Used in This
Report.
|
|
(3)
|
|
Lipper
compares our Multi-Cap
fund with the Lipper Multi-Cap Growth Funds
class category. We believe the Lipper Multi-Cap
Core Funds class category is better aligned with the
strategies with which we compete. Our ranking since inception in
the Multi-Cap Core Funds class category as of
December 31, 2009 was in the
1st
quartile. See Performance Information Used in This
Report.
|
Set forth below is a description of each of our strategies and
their performance.
International
Equity
Our International Equity strategies are core strategies that do
not attempt to follow either a growth approach or a
value approach to investing. The International
Equity strategies invest in equity securities and equity
derivatives in developed and emerging markets outside the United
States. We believe that maintaining a diversified core
portfolio, driven by dynamic sector and company fundamental
analysis, is the key to delivering superior, risk-adjusted,
long-term performance in the international equity markets. The
investment process for the International Equity strategy is a
three phase process consisting of:
(i) thinking conducting broad global
fundamental analysis to establish relative values and priorities
across and between sectors and geographies;
(ii) screening conducting a detailed
fundamental analysis of the competitive relationship between
companies
10
and the sectors and countries in which they operate; and
(iii) selecting carefully considering
whether the investment opportunity results from (a) an
attractive relative value, (b) a catalyst for change,
(c) in the case of emerging markets, in a market, sector or
region undergoing transformation from emerging toward developed
status, (d) a company in a dominant competitive position or
(e) a company exhibiting a strong financial position with
strong management talent and leadership. The overall objective
of our investment process is to create a highly diversified
portfolio of the most relatively attractive securities in over
20 countries. The portfolio is monitored on a daily basis using
a proprietary attribution system that permits us to track how
particular investments contribute to performance.
The 30 professionals that comprise this team are responsible for
managing International Equity investment strategies which, in
the aggregate, accounted for $46.4 billion of our total
assets under management as of December 31, 2009, with 44%
of these assets in proprietary funds, 31% in separate accounts,
19% in commingled funds and 6% in sub-advised accounts.
|
|
|
International Equity I (IE I)
|
We launched this strategy in May 1995 and, as of
December 31, 2009, it accounted for approximately
$21.7 billion of assets under management, including the
$11.0 billion Artio International Equity Fund. IE I was
closed to new investors in August 2005 in order to preserve the
return opportunity in our smaller capitalization investments for
existing IE I investors. As of December 31, 2009, the Artio
International Equity Fund ranked in the
84th percentile
of its Lipper universe over the past one-year period and
in the
3rd and
1st quartile
over the past three- and five-year periods, respectively.
The following table sets forth the changes in assets under
management for the three years ended December 31, 2009,
2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
International Equity I
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(in millions)
|
|
|
Beginning assets under management
|
|
$
|
20,188
|
|
|
$
|
42,517
|
|
|
$
|
37,368
|
|
Gross client cash inflows
|
|
|
1,759
|
|
|
|
3,126
|
|
|
|
4,764
|
|
Gross client cash outflows
|
|
|
(4,406
|
)
|
|
|
(7,384
|
)
|
|
|
(5,987
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net client cash flows
|
|
|
(2,647
|
)
|
|
|
(4,258
|
)
|
|
|
(1,223
|
)
|
Transfers between investment strategies
|
|
|
10
|
|
|
|
(155
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total client cash flows
|
|
|
(2,637
|
)
|
|
|
(4,413
|
)
|
|
|
(1,223
|
)
|
Market appreciation (depreciation)
|
|
|
4,105
|
|
|
|
(17,916
|
)
|
|
|
6,372
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending assets under management
|
|
$
|
21,656
|
|
|
$
|
20,188
|
|
|
$
|
42,517
|
|
|
|
|
|
International Equity II (IE II)
|
We launched a second International Equity strategy in March
2005. IE II mirrors IE I in all respects except that
it does not invest in companies with small capitalizations. We
direct all new International Equity mandates into this strategy.
As of December 31, 2009, IE II accounted for
approximately $24.7 billion of assets under management. We
classify within IE II certain sub-advised mandates that
were initially part of our IE I strategy because net client
cash flows into these mandates, since 2005, have been invested
according to the IE II strategy and the overall portfolios
of these mandates are currently more similar to our IE II
strategy. As of December 31, 2009, the Artio International
Equity Fund II ranked in the
79th percentile
of its Lipper universe for the one year and in the
2nd quartile
over the three-year period.
11
The following table sets forth the changes in assets under
management for the three years ended December 31, 2009,
2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
International Equity II
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(in millions)
|
|
|
Beginning assets under management
|
|
$
|
18,697
|
|
|
$
|
26,050
|
|
|
$
|
12,932
|
|
Gross client cash inflows
|
|
|
6,349
|
|
|
|
11,532
|
|
|
|
12,331
|
|
Gross client cash outflows
|
|
|
(5,249
|
)
|
|
|
(5,706
|
)
|
|
|
(2,016
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net client cash flows
|
|
|
1,100
|
|
|
|
5,826
|
|
|
|
10,315
|
|
Transfers between investment strategies
|
|
|
|
|
|
|
109
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total client cash flows
|
|
|
1,100
|
|
|
|
5,935
|
|
|
|
10,315
|
|
Market appreciation (depreciation)
|
|
|
4,919
|
|
|
|
(13,288
|
)
|
|
|
2,803
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending assets under management
|
|
$
|
24,716
|
|
|
$
|
18,697
|
|
|
$
|
26,050
|
|
|
|
|
|
Other International Equity
|
In addition to our core IE I and IE II strategies, we have
several other smaller International Equity strategies that we
have developed in response to specific client requests which, in
the aggregate, accounted for approximately $0.1 billion in
assets under management as of December 31, 2009.
The table below sets forth the annualized returns, gross and net
(which represent annualized returns prior to and after payment
of fees, respectively) of our largest International Equity
composites from their inception to December 31, 2009, and
in the five-year, three-year and one-year periods ended
December 31, 2009, relative to the performance of the
market indices that are most commonly used by our clients to
compare the performance of the relevant composite.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2009
|
|
|
Since
|
|
|
|
|
|
|
|
|
Inception
|
|
5 Years
|
|
3 Years
|
|
1 Year
|
|
International Equity I
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annualized Gross Returns
|
|
|
13.0%
|
|
|
|
5.5
|
%
|
|
|
(5.9
|
)%
|
|
|
26.0%
|
|
Annualized Net Returns
|
|
|
11.5%
|
|
|
|
4.6
|
%
|
|
|
(6.6
|
)%
|
|
|
25.0%
|
|
MSCI EAFE
Index®
|
|
|
4.6%
|
|
|
|
3.5
|
%
|
|
|
(6.0
|
)%
|
|
|
31.8%
|
|
MSCI AC World
ex USA
Indexsm
ND
|
|
|
5.2%
|
|
|
|
5.8
|
%
|
|
|
(3.5
|
)%
|
|
|
41.4%
|
|
International Equity II
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annualized Gross Returns
|
|
|
6.1%
|
|
|
|
|
|
|
|
(4.9
|
)%
|
|
|
26.1%
|
|
Annualized Net Returns
|
|
|
5.4%
|
|
|
|
|
|
|
|
(5.5
|
)%
|
|
|
25.3%
|
|
MSCI EAFE
Index®
|
|
|
3.8%
|
|
|
|
|
|
|
|
(6.0
|
)%
|
|
|
31.8%
|
|
MSCI AC World
ex USA
Indexsm
ND
|
|
|
6.1%
|
|
|
|
|
|
|
|
(3.5
|
)%
|
|
|
41.4%
|
|
|
12
The table below sets forth the annualized returns, gross and net
(which represent annualized returns prior to and after payment
of fees, respectively) of our largest International Equity
composites for the years ended December 31, 2009, 2008,
2007, 2006 and 2005, relative to the performance of the market
indices that are most commonly used by our clients to compare
the performance of the relevant composite.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2009
|
|
2008
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
International Equity I
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Returns
|
|
|
26.0%
|
|
|
|
(44.1
|
)%
|
|
|
18.4%
|
|
|
|
32.9%
|
|
|
|
18.3%
|
|
Net Returns
|
|
|
25.0%
|
|
|
|
(44.6
|
)%
|
|
|
17.5%
|
|
|
|
31.5%
|
|
|
|
17.1%
|
|
MSCI EAFE
Index®
|
|
|
31.8%
|
|
|
|
(43.4
|
)%
|
|
|
11.2%
|
|
|
|
26.3%
|
|
|
|
13.5%
|
|
MSCI ACWI ex
USA
Indexsm
ND
|
|
|
41.4%
|
|
|
|
(45.5
|
)%
|
|
|
16.7%
|
|
|
|
26.7%
|
|
|
|
16.6%
|
|
International Equity II
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Returns
|
|
|
26.1%
|
|
|
|
(42.3
|
)%
|
|
|
18.2%
|
|
|
|
31.0%
|
|
|
|
17.4%
|
(1)
|
Net Returns
|
|
|
25.3%
|
|
|
|
(42.6
|
)%
|
|
|
17.4%
|
|
|
|
30.0%
|
|
|
|
16.9%
|
(1)
|
MSCI EAFE
Index®
|
|
|
31.8%
|
|
|
|
(43.4
|
)%
|
|
|
11.2%
|
|
|
|
26.3%
|
|
|
|
13.7%
|
(1)
|
MSCI ACWI ex
USA
Indexsm
ND
|
|
|
41.4%
|
|
|
|
(45.5
|
)%
|
|
|
16.7%
|
|
|
|
26.7%
|
|
|
|
16.3%
|
(1)
|
|
|
|
|
(1)
|
|
Results for the year ended
December 31, 2005 are for the period from April 1,
2005 (the inception of IE II) through December 31,
2005.
|
The returns generated by the proprietary funds, sub-advisory
accounts, separate accounts and institutional commingled funds
invested in our International Equity strategies for the periods
ended December 31, 2009 and 2008 are substantially similar
to the returns presented in the tables above.
High
Grade Fixed Income
We manage investment grade fixed income strategies that include
high grade debt of both U.S. and
non-U.S. issuers.
Our main offering is our Total Return Bond strategy, also known
as the Core Plus strategy, which invests over 60% of portfolio
assets in the U.S. fixed income markets (the
Core) but also seeks to take advantage of those
opportunities available in the investment grade components of
non-U.S. markets
(the Plus). We also offer a Core Plus Plus strategy,
which combines our Total Return Bond strategy with allocations
to high yield. The High Yield portion of these assets is
reflected in the High Yield section of our discussion. In
addition, we manage several U.S. fixed income and cash
strategies.
We believe an investment grade fixed income portfolio can
consistently deliver a source of superior risk-adjusted returns
when enhanced through effective duration budgeting, expansion to
include foreign sovereign debt, yield curve positioning across
multiple curves and sector-oriented credit analysis. The
investment process for the investment grade fixed income
strategies involves five key steps: (i) market
segmentation; (ii) macro fundamental analysis and screening
of global macro-economic factors; (iii) internal rating
assignment; (iv) target portfolio construction; and
(v) risk distribution examination. The portfolio is
constantly monitored and rebalanced as needed.
The seven professionals in our High Grade Fixed Income team are
responsible for both the global high grade and U.S. fixed
income products which, in the aggregate, accounted for
$5.3 billion of our total assets under management as of
December 31, 2009. We have focused our distribution efforts
on these strategies since the beginning of 2007 and have
increased our assets under management invested in these
strategies by $3.3 billion as a result. As of
December 31, 2009, 31% of the $5.3 billion in assets
under management was in proprietary funds, 53% was in separate
accounts and 16% was in sub-advised accounts.
|
|
|
Total Return Bond We launched this product in
February 1995 and, as of December 31, 2009, it accounted
for approximately $4.5 billion of assets under management.
As of December 31, 2009, the Total Return Bond Fund
(I-Shares) ranked in the
3rd quartile
of its Lipper universe over the past one-year period and
in the
2nd and
1st quartile
over the past three- and five-year periods, respectively.
|
13
|
|
|
U.S. Fixed Income & Cash As of
December 31, 2009, these products accounted for
approximately $0.8 billion of assets under management,
mostly through sub-advisory arrangements with GAMs
offshore funds. See Item 8. Financial Statements and
Supplementary Data, Notes to the Consolidated Financial
Statements, Note 6. Related Party Activities.
|
The following table sets forth the changes in assets under
management for the three years ended December 31, 2009,
2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
High Grade Fixed Income
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(in millions)
|
|
|
Beginning assets under management
|
|
$
|
4,566
|
|
|
$
|
4,657
|
|
|
$
|
1,998
|
|
Gross client cash inflows
|
|
|
1,481
|
|
|
|
1,550
|
|
|
|
2,910
|
|
Gross client cash outflows
|
|
|
(1,230
|
)
|
|
|
(1,523
|
)
|
|
|
(535
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net client cash flows
|
|
|
251
|
|
|
|
27
|
|
|
|
2,375
|
|
Transfers between investment strategies
|
|
|
(16
|
)
|
|
|
(117
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total client cash flows
|
|
|
235
|
|
|
|
(90
|
)
|
|
|
2,375
|
|
Market appreciation (depreciation)
|
|
|
492
|
|
|
|
(1
|
)
|
|
|
284
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending assets under management
|
|
$
|
5,293
|
|
|
$
|
4,566
|
|
|
$
|
4,657
|
|
|
The table below sets forth the annualized returns, gross and net
(which represent annualized returns prior to and after payment
of fees, respectively) of our principal composite, the Total
Return Bond (Core Plus) composite, from its inception to
December 31, 2009, and in the five-year, three-year, and
one-year periods ended December 31, 2009, relative to the
performance of the market indices that are most commonly used by
our clients to compare the performance of the composite.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2009
|
|
|
Since
|
|
|
|
|
|
|
Total Return Bond
|
|
Inception
|
|
5 Years
|
|
3 Years
|
|
1 Year
|
|
Annualized Gross Returns
|
|
|
7.9%
|
|
|
|
5.7%
|
|
|
|
6.7%
|
|
|
|
11.2%
|
|
Annualized Net Returns
|
|
|
7.1%
|
|
|
|
5.0%
|
|
|
|
6.2%
|
|
|
|
10.7%
|
|
Barclays Capital U.S. Aggregate Bond Index
|
|
|
6.7%
|
|
|
|
5.0%
|
|
|
|
6.0%
|
|
|
|
5.9%
|
|
Customized
Index(1)
|
|
|
6.3%
|
|
|
|
4.6%
|
|
|
|
6.4%
|
|
|
|
5.4%
|
|
|
|
|
|
(1)
|
|
The customized index is composed of
80% of the Merrill Lynch 1-10 year U.S.
Government/Corporate Index and 20% of the JP Morgan Global
Government Bond
(non-U.S.)
Index.
|
The table below sets forth the annualized returns, gross and net
(which represent annualized returns prior to and after payment
of fees, respectively) of our principal composite, the Total
Return Bond (Core Plus) composite, for the years ended
December 31, 2009, 2008, 2007, 2006 and 2005, relative to
the performance of the market indices that are most commonly
used by our clients to compare the performance of the relevant
composite.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
Total Return Bond
|
|
2009
|
|
2008
|
|
2007
|
|
2006
|
|
2005
|
|
Gross Returns
|
|
|
11.2%
|
|
|
|
0.9%
|
|
|
|
8.3%
|
|
|
|
5.5%
|
|
|
|
2.7
|
%
|
Net Returns
|
|
|
10.7%
|
|
|
|
0.4%
|
|
|
|
7.7%
|
|
|
|
4.8%
|
|
|
|
1.7
|
%
|
Barclays Capital U.S. Aggregate Bond Index
|
|
|
5.9%
|
|
|
|
5.2%
|
|
|
|
7.0%
|
|
|
|
4.3%
|
|
|
|
2.4
|
%
|
Customized
Index(1)
|
|
|
5.4%
|
|
|
|
5.6%
|
|
|
|
8.2%
|
|
|
|
4.7%
|
|
|
|
(0.6
|
)%
|
|
|
|
|
(1)
|
|
The customized index is comprised
of 80% of the Merrill Lynch 1-10 year U.S.
Government/Corporate Index and 20% of the JP Morgan Global
Government Bond
(non-U.S.)
Index.
|
14
The returns generated by the proprietary funds, sub-advisory
accounts and separate accounts invested in our High Grade Fixed
Income strategy for the periods ended December 31, 2009 and
2008 are substantially similar to the returns presented in the
tables above.
High
Yield
Our High Yield strategy invests in securities issued by
non-investment grade issuers in both developed markets and
emerging markets. By bringing a global perspective to the
management of high yield securities and combining it with a
disciplined, credit-driven investment process, we believe we can
provide our clients with a more diversified/higher yielding
portfolio that is designed to deliver superior risk-adjusted
returns. The investment process for the High Yield strategy
seeks to generate high total returns by following five
broad-based fundamental investment rules: (i) applying a
global perspective on industry risk analysis and the search for
investment opportunities; (ii) intensive credit research
based on a business economics approach;
(iii) stop-loss discipline that begins and ends with the
question Why should we not be selling the position?;
(iv) avoiding over-diversification to become more expert on
specific credits; and (v) low portfolio turnover. The
investment process is primarily a
bottom-up
approach to investing, bringing together the teams issuer,
industry and asset class research and more macro-economic,
industry and sector-based insights. With this information, the
team seeks to identify stable to improving credits. Once the
team has established a set of buyable candidates, it
constructs a portfolio through a process of relative value
considerations that seek to maximize the total return potential
of the portfolio within a set of risk management constraints.
The six professionals comprising our High Yield team are
responsible for managing the High Yield strategy which accounted
for approximately $3.5 billion of our total assets under
management as of December 31, 2009, with 59% of these
assets in proprietary funds, 13% in separate accounts, 20% in
sub-advised accounts and 8% in commingled funds. The main
vehicle for this strategy is the Artio Global High Income Fund,
which we launched in December 2002. The fund carried a
Morningstar
5-star
rating on its Class I shares and Class A shares as of
December 31, 2009. The Global High Income Fund also ranked
in the
1st quartile
of its Lipper universe over the one-year period, and the
top decile over the three- and five-year periods ending
December 31, 2009 and since inception, as of
December 31, 2009.
The following table sets forth the changes in assets under
management for the three years ended December 31, 2009,
2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
High Yield
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(in millions)
|
|
|
Beginning assets under management
|
|
$
|
977
|
|
|
$
|
852
|
|
|
$
|
261
|
|
Gross client cash inflows
|
|
|
2,399
|
|
|
|
807
|
|
|
|
671
|
|
Gross client cash outflows
|
|
|
(639
|
)
|
|
|
(442
|
)
|
|
|
(198
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net client cash flows
|
|
|
1,760
|
|
|
|
365
|
|
|
|
473
|
|
Transfers between investment strategies
|
|
|
6
|
|
|
|
117
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total client cash flows
|
|
|
1,766
|
|
|
|
482
|
|
|
|
473
|
|
Market appreciation (depreciation)
|
|
|
773
|
|
|
|
(357
|
)
|
|
|
118
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending assets under management
|
|
$
|
3,516
|
|
|
$
|
977
|
|
|
$
|
852
|
|
|
15
The table below sets forth the annualized returns, gross and net
(which represent annualized returns prior to and after payment
of fees, respectively) of our High Yield composite from its
inception to December 31, 2009, and in the five-year,
three-year, and one-year periods ended December 31, 2009,
relative to the performance of the market indices which are most
commonly used by our clients to compare the performance of the
composite.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2009
|
|
|
Since
|
|
|
|
|
|
|
High Yield
|
|
Inception
|
|
5 Years
|
|
3 Years
|
|
1 Year
|
|
Annualized Gross Returns
|
|
|
11.2%
|
|
|
|
8.4%
|
|
|
|
8.0%
|
|
|
|
56.4%
|
|
Annualized Net Returns
|
|
|
10.0%
|
|
|
|
7.2%
|
|
|
|
6.9%
|
|
|
|
54.9%
|
|
ML Global High Yield USD Constrained Index
|
|
|
9.9%
|
|
|
|
6.8%
|
|
|
|
6.7%
|
|
|
|
62.2%
|
|
|
The table below sets forth the annualized returns, gross and net
(which represent annualized returns prior to and after payment
of fees, respectively) of our High Yield composite for the years
ended December 31, 2009, 2008, 2007, 2006 and 2005 relative
to the performance of the market indices that are most commonly
used by our clients to compare the performance of the relevant
composite.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
High Yield
|
|
2009
|
|
2008
|
|
2007
|
|
2006
|
|
2005
|
|
Gross Returns
|
|
|
56.4%
|
|
|
|
(23.6
|
)%
|
|
|
5.2%
|
|
|
|
12.6%
|
|
|
|
5.7%
|
|
Net Returns
|
|
|
54.9%
|
|
|
|
(24.3
|
)%
|
|
|
4.1%
|
|
|
|
11.2%
|
|
|
|
4.4%
|
|
ML Global High Yield USD Constrained Index
|
|
|
62.2%
|
|
|
|
(27.5
|
)%
|
|
|
3.4%
|
|
|
|
12.2%
|
|
|
|
1.6%
|
|
|
The returns generated by the proprietary funds, sub-advisory
accounts, separate accounts and institutional commingled funds
invested in our High Yield strategies for the years ended
December 31, 2009 and 2008 are substantially similar to the
returns presented in the tables above.
Global
Equity
Global Equity is a core, multi-cap equity strategy that invests
in companies worldwide. While U.S. investors have
traditionally split investment decisions into U.S. versus
non-U.S. categories,
we believe that U.S. investors will adopt the global
paradigm and this distinction will evolve into the adoption of
true global equity portfolios. The impact of globalization
continues to diminish the importance of country of
origin within the equity landscape and industry
considerations have become much more critical in understanding
company dynamics, particularly within more developed markets. We
believe that our strength in analyzing and allocating to
opportunities within developed and emerging markets positions us
to effectively penetrate this growing area. This strategy
employs the same investment process as our International Equity
strategies, but includes the U.S. equity market in its
investing universe.
16
In addition to managing our International Equity strategies, the
30 professionals that comprise this team are also responsible
for our Global Equity strategy and receive input from our
U.S. Equity teams, as appropriate. As of December 31,
2009, Global Equity accounted for approximately
$618 million of assets under management, with 12% of these
assets in our proprietary funds, 54% in separate accounts and
34% in commingled funds. As of December 31, 2009, the Artio
Global Equity Fund ranked in the
2nd quartile
of its Lipper universe over the past one-year period and
in the
2nd quartile
over the past three-year period and had a 3-star Morningstar
rating.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
Global Equity
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(in millions)
|
|
|
Beginning assets under management
|
|
$
|
591
|
|
|
$
|
761
|
|
|
$
|
563
|
|
Gross client cash inflows
|
|
|
89
|
|
|
|
210
|
|
|
|
275
|
|
Gross client cash outflows
|
|
|
(186
|
)
|
|
|
(95
|
)
|
|
|
(151
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net client cash flows
|
|
|
(97
|
)
|
|
|
115
|
|
|
|
124
|
|
Transfers between investment strategies
|
|
|
|
|
|
|
46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total client cash flows
|
|
|
(97
|
)
|
|
|
161
|
|
|
|
124
|
|
Market appreciation (depreciation)
|
|
|
124
|
|
|
|
(331
|
)
|
|
|
74
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending assets under management
|
|
$
|
618
|
|
|
$
|
591
|
|
|
$
|
761
|
|
|
The table below sets forth the annualized returns, gross and net
(which represents annualized returns prior to and after payment
of fees, respectively) of our Global Equity composite from its
inception to December 31, 2009, and in the five-year,
three-year and one-year periods ended December 31, 2009,
relative to the performance of the market indices that are most
commonly used by our clients to compare the performance of the
composite.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2009
|
|
|
Since
|
|
|
|
|
|
|
Global Equity
|
|
Inception
|
|
5 Years
|
|
3 Years
|
|
1 Year
|
|
Annualized Gross Returns
|
|
|
9.6%
|
|
|
|
4.3%
|
|
|
|
(4.2
|
)%
|
|
|
32.2%
|
|
Annualized Net Returns
|
|
|
8.4%
|
|
|
|
3.3%
|
|
|
|
(4.7
|
)%
|
|
|
31.5%
|
|
MSCI World Index
|
|
|
5.6%
|
|
|
|
2.0%
|
|
|
|
(5.6
|
)%
|
|
|
30.0%
|
|
MSCI AC World
Indexsm
|
|
|
5.5%
|
|
|
|
3.1%
|
|
|
|
(4.6
|
)%
|
|
|
34.6%
|
|
|
The table below sets forth the annualized returns, gross and net
(which represent annualized returns prior to and after payment
of fees, respectively) of our Global Equity composite for the
years ended December 31, 2009, 2008, 2007, 2006 and 2005,
relative to the performance of the market indices that are most
commonly used by our clients to compare the performance of the
relevant composite.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
Global Equity
|
|
2009
|
|
2008
|
|
2007
|
|
2006
|
|
2005
|
|
Gross Returns
|
|
|
32.2%
|
|
|
|
(40.8
|
)%
|
|
|
12.5%
|
|
|
|
23.2%
|
|
|
|
13.9%
|
|
Net Returns
|
|
|
31.5%
|
|
|
|
(41.2
|
)%
|
|
|
11.7%
|
|
|
|
21.4%
|
|
|
|
11.8%
|
|
MSCI World Index
|
|
|
30.0%
|
|
|
|
(40.7
|
)%
|
|
|
9.0%
|
|
|
|
20.1%
|
|
|
|
9.5%
|
|
MSCI AC World
Indexsm
|
|
|
34.6%
|
|
|
|
(42.2
|
)%
|
|
|
11.7%
|
|
|
|
21.0%
|
|
|
|
10.8%
|
|
|
The returns generated by the proprietary funds, sub-advisory
accounts, separate accounts and institutional commingled funds
invested in our Global Equity strategies for the years ended
December 31, 2009 and 2008 are substantially similar to the
returns presented in the tables above.
17
U.S.
Equity
Our various U.S. Equity strategies were launched in July
2006 and include Micro-, Small-, Mid- and Multi-Cap investment
strategies that invest in equity securities of U.S. issuers
with market capitalizations that fit within the indicated
categories. We believe a diversified core portfolio, driven by
extensive independent research and the ability to capitalize on
price inefficiencies of companies are the key components to
delivering consistently superior long-term performance. The
investment process we undertake for these U.S. Equity
strategies focuses on individual stock selection based on
in-depth fundamental research, valuation and scenario analysis,
rather than market timing or sector/industry concentration. This
process is comprised of three steps: (i) sector and
industry quantitative and qualitative screening;
(ii) conducting fundamental research; and
(iii) valuing investments based on upside/downside scenario
analysis. Our investment process focuses on both quantitative
and qualitative factors.
The seven professionals comprising our U.S. Equity team are
responsible for managing the four distinct investment strategies
which, in the aggregate, accounted for $81 million of our
total assets under management as of December 31, 2009, with
44% in proprietary funds and 56% in sub-advised accounts.
|
|
|
Multi-Cap We launched this strategy in July
2006 and, as of December 31, 2009, it accounted for
approximately $6 million of assets under management. The
Multi-Cap strategy ranked in the
2nd quartile
of the Lipper Multi-Cap Growth Funds class
category since inception as of December 31, 2009.
|
|
|
Mid-Cap We launched this strategy in July
2006 and, as of December 31, 2009, it accounted for
approximately $5 million of assets under management. The
Mid-Cap strategy ranked in the
3rd quartile
of the Lipper Mid-Cap Growth Funds class
category since inception as of December 31, 2009.
|
|
|
Small-Cap We launched this strategy in July
2006 and, as of December 31, 2009, it accounted for
approximately $18 million of assets under management. The
Small-Cap strategy ranked in the top decile in the Lipper
Small-Cap Growth Funds class category since
inception as of December 31, 2009.
|
|
|
Micro-Cap We launched this strategy in July
2006 and, as of December 31, 2009, it accounted for
approximately $52 million of assets under management. The
Micro-Cap strategy ranked in the
2nd quartile
of its Lipper universe since inception as of
December 31, 2009.
|
The table below sets forth the changes in assets under
management for the three years ended December 31, 2009,
2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
US Equity
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(in millions)
|
|
|
Beginning assets under management
|
|
$
|
49
|
|
|
$
|
133
|
|
|
$
|
138
|
|
Gross client cash inflows
|
|
|
14
|
|
|
|
18
|
|
|
|
73
|
|
Gross client cash outflows
|
|
|
(9
|
)
|
|
|
(38
|
)
|
|
|
(82
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net client cash flows
|
|
|
5
|
|
|
|
(20
|
)
|
|
|
(9
|
)
|
Transfers between investment strategies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total client cash flows
|
|
|
5
|
|
|
|
(20
|
)
|
|
|
(9
|
)
|
Market appreciation (depreciation)
|
|
|
27
|
|
|
|
(64
|
)
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending assets under management
|
|
$
|
81
|
|
|
$
|
49
|
|
|
$
|
133
|
|
|
18
The table below sets forth the annualized returns, gross and net
(which represents annualized returns prior to and after payment
of fees, respectively) of our U.S. Equity composites from
their inception to December 31, 2009, relative to the
performance of the market indices which are most commonly used
by our clients to compare the performance of the relevant
composite.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2009
|
|
|
Since
|
|
|
|
|
US Equities
|
|
Inception
|
|
3 Years
|
|
1 Year
|
|
Multi-Cap
|
|
|
|
|
|
|
|
|
|
|
|
|
Annualized Gross Returns
|
|
|
2.8
|
%
|
|
|
(2.1
|
)%
|
|
|
51.1%
|
|
Annualized Net Returns
|
|
|
1.9
|
%
|
|
|
(2.8
|
)%
|
|
|
49.9%
|
|
Russell
3000®
Index
|
|
|
(1.5
|
)%
|
|
|
(5.4
|
)%
|
|
|
28.3%
|
|
Mid-Cap
|
|
|
|
|
|
|
|
|
|
|
|
|
Annualized Gross Returns
|
|
|
1.2
|
%
|
|
|
(4.2
|
)%
|
|
|
53.4%
|
|
Annualized Net Returns
|
|
|
0.4
|
%
|
|
|
(4.9
|
)%
|
|
|
52.1%
|
|
Russell
Mid-Cap®
Index
|
|
|
(0.7
|
)%
|
|
|
(4.6
|
)%
|
|
|
40.5%
|
|
Small-Cap
|
|
|
|
|
|
|
|
|
|
|
|
|
Annualized Gross Returns
|
|
|
6.8
|
%
|
|
|
3.1
|
%
|
|
|
66.9%
|
|
Annualized Net Returns
|
|
|
6.0
|
%
|
|
|
2.3
|
%
|
|
|
65.3%
|
|
Russell
2000®
Index
|
|
|
(1.9
|
)%
|
|
|
(6.1
|
)%
|
|
|
27.2%
|
|
Micro-Cap
|
|
|
|
|
|
|
|
|
|
|
|
|
Annualized Gross Returns
|
|
|
(2.0
|
)%
|
|
|
(7.3
|
)%
|
|
|
60.8%
|
|
Annualized Net Returns
|
|
|
(3.0
|
)%
|
|
|
(8.1
|
)%
|
|
|
59.3%
|
|
Russell
2000®
Index
|
|
|
(1.9
|
)%
|
|
|
(6.1
|
)%
|
|
|
27.2%
|
|
Russell
Micro-Cap®
Index
|
|
|
(6.2
|
)%
|
|
|
(10.9
|
)%
|
|
|
27.5%
|
|
|
19
The table below sets forth the annualized returns, gross and net
(which represent annualized returns prior to and after payment
of fees, respectively) of our U.S. Equity composites for
the years ended December 31, 2009, 2008, 2007, 2006 and
2005, relative to the performance of the market indices that are
most commonly used by our clients to compare the performance of
the relevant composite.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2009
|
|
2008
|
|
2007
|
|
2006(1)
|
|
2005
|
|
Multi-Cap
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Returns
|
|
|
51.1%
|
|
|
|
(41.4
|
)%
|
|
|
6.1
|
%
|
|
|
17.1%
|
|
|
|
N/A
|
|
Net Returns
|
|
|
49.9%
|
|
|
|
(41.8
|
)%
|
|
|
5.1
|
%
|
|
|
16.4%
|
|
|
|
N/A
|
|
Russell
3000®
Index
|
|
|
28.3%
|
|
|
|
(37.3
|
)%
|
|
|
5.1
|
%
|
|
|
12.2%
|
|
|
|
N/A
|
|
Mid-Cap
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Returns
|
|
|
53.4%
|
|
|
|
(44.7
|
)%
|
|
|
3.7
|
%
|
|
|
18.3%
|
|
|
|
N/A
|
|
Net Returns
|
|
|
52.1%
|
|
|
|
(45.1
|
)%
|
|
|
3.0
|
%
|
|
|
17.7%
|
|
|
|
N/A
|
|
Russell
Mid-Cap®
Index
|
|
|
40.5%
|
|
|
|
(41.5
|
)%
|
|
|
5.6
|
%
|
|
|
12.4%
|
|
|
|
N/A
|
|
Small-Cap
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Returns
|
|
|
66.9%
|
|
|
|
(41.1
|
)%
|
|
|
11.3
|
%
|
|
|
14.5%
|
|
|
|
N/A
|
|
Net Returns
|
|
|
65.3%
|
|
|
|
(41.5
|
)%
|
|
|
10.7
|
%
|
|
|
13.9%
|
|
|
|
N/A
|
|
Russell
2000®
Index
|
|
|
27.2%
|
|
|
|
(33.8
|
)%
|
|
|
(1.6
|
)%
|
|
|
13.1%
|
|
|
|
N/A
|
|
Micro-Cap
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Returns
|
|
|
60.8%
|
|
|
|
(50.4
|
)%
|
|
|
(0.2
|
)%
|
|
|
17.0%
|
|
|
|
N/A
|
|
Net Returns
|
|
|
59.3%
|
|
|
|
(50.8
|
)%
|
|
|
(1.0
|
)%
|
|
|
16.3%
|
|
|
|
N/A
|
|
Russell
2000®
Index
|
|
|
27.2%
|
|
|
|
(33.8
|
)%
|
|
|
(1.6
|
)%
|
|
|
13.1%
|
|
|
|
N/A
|
|
Russell
Micro-Cap®
Index
|
|
|
27.5%
|
|
|
|
(39.8
|
)%
|
|
|
(8.0
|
)%
|
|
|
13.7%
|
|
|
|
N/A
|
|
|
|
|
|
(1)
|
|
Results for the year ended
December 31, 2006 are for the period from July 31,
2006 to December 31, 2006.
|
The returns generated by the proprietary funds, sub-advisory
accounts and separate accounts invested in our U.S. Equity
strategies for the years ended December 31, 2009 and 2008
are substantially similar to the returns presented in the tables
above.
Private
Offshore Fund
In addition to our core strategies, we have approximately
$36 million of assets under management invested in other
strategies, all of which was invested in a private offshore fund
as of December 31, 2009.
New
Initiatives
We expect to launch a global credit hedge fund, which will aim
to deliver absolute returns with low volatility and a low
correlation to other asset classes by exploiting overlooked
areas of value in stressed capital structures and
under-researched international credits utilizing the experience
of our investment teams. It will take a conservative approach to
leverage and will be invested in bank debt, bonds, credit
default swaps, mezzanine capital and equity-like instruments. We
will provide seed money for this initiative.
Distribution
and Client Service
We have historically distributed our products largely through
intermediaries, including investment consultants, broker
dealers, RIAs, mutual fund platforms and sub-advisory
relationships. This distribution model has allowed us to achieve
significant leverage from a relatively small sales and client
service infrastructure. We believe it is important to limit the
relative size of our distribution teams to maintain our
investment-centric mission, strategy and culture.
20
By leveraging our intermediated distribution sources and
focusing on institutions and organizations that demonstrate
institutional buying behavior and longer-term investment
horizons, we have built a balanced and broadly diversified
client base across both the institutional and retail investor
markets. As of December 31, 2009, 44% of assets under
management were in proprietary funds and 56% were in other
institutional assets, including separate accounts (32%),
sub-advisory accounts (8%) and commingled funds (16%). The
recent economic downturn and consolidation in the broker-dealer
industry have led to increased competition to market through
broker dealers and higher costs, and may lead to reduced
distribution access and further cost increases; however, we
believe the recent consolidation provides us with opportunities
to expand our reach to additional retail investors through our
existing broker-dealer relationships.
We believe our client base to be more institutional in nature
and to a large extent exhibit buying behavior that demonstrates
such. We believe that institutional clients invest for the
long-term and given such are less likely to withdraw their
assets during stressed market conditions. The institutional
nature of our business has resulted in lower redemptions as
compared to asset management businesses that service primarily
retail clients.
Historically, we have concentrated our distribution efforts
primarily on our International Equity strategies. In recent
years, we have also begun to focus on other strategies as well,
including our High Grade Fixed Income, High Yield and Global
Equity strategies. In addition, we have selectively strengthened
our international distribution by expanding into Canada.
Institutional
Distribution and Client Service
We service a broad spectrum of institutional clients, including
some of the worlds leading corporations, public and
private pension funds, endowments and foundations and financial
institutions. As of December 31, 2009, we provided asset
management services to approximately 1,400 institutional clients
invested in separate accounts, commingled funds and proprietary
funds, including approximately 155 state and local
governments nationwide and approximately 527 corporate clients.
In addition, we manage assets for approximately
200 foundations; approximately 126 colleges,
universities or other educational endowments; approximately 144
of the countrys hospital or healthcare systems; and
approximately 132 Taft-Hartley plans and 21 religious
organizations.
In the institutional marketplace, our sales professionals,
client relationship managers and client service professionals
are organized into teams, each focusing on a geographic target
market in the United States. We have also established a sales
team in Canada and are considering expanding overseas in
countries where we believe there is significant demand for our
investment expertise, particularly our Global Equity and Global
Fixed Income strategies.
Our institutional sales professionals focus their efforts on
building strong relationships with the influential institutional
consultants in their regions, while seeking to establish direct
relationships with the largest potential institutional clients
in their region. Their efforts have led to consultant
relationships that are broadly diversified across a wide range
of consultants. As of December 31, 2009, our largest
consultant relationship represented approximately 4% of our
total assets under management. Our largest individual client
represented approximately 3% of our total assets under
management as of December 31, 2009, and our top ten clients
represented approximately 17% of our total assets under
management as of December 31, 2009.
Our relationship managers generally assume responsibility from
the sales professionals for maintaining the client relationship
as quickly as is practical after a new mandate is won.
Relationship managers and other client service professionals
focus on interacting
one-on-one
with key clients on a regular basis to update them on investment
performance and objectives.
We have also designated a small team of investment professionals
as product specialists. These specialists participate in the
investment process but their primary responsibility is
communicating with clients any developments in the portfolio and
answering questions beyond those where the client service staff
can provide adequate responses.
21
Proprietary
Fund and Retail Distribution
Within the proprietary fund and retail marketplace, we have
assembled a small team of sales professionals for the areas and
client segments where it can have meaningful impact. Our
approach to retail distribution is to focus on: (i) broker
dealers and major intermediaries; (ii) the RIA marketplace;
(iii) direct brokerage platforms; and (iv) major
financial institutions through sub-advisory channels. In
general, their penetration has been greatest in those areas of
the intermediated marketplace which display an institutional
buying behavior. As of December 31, 2009, our largest
mutual fund platform represented approximately 9% of our total
assets under management.
Broker
Dealers
In 2005, we established a broker-dealer sales team which
supports the head office product distribution teams of major
brokerage firms. This team also seeks to build general awareness
of our investment offering among individual advisors and
supports our platform sales, focusing particularly in those
areas within each of its distributors where our no-load share
classes are most appropriate. These dedicated marketing efforts
are supported by internal investment professionals. While recent
consolidation in the broker-dealer industry reduced the number
of broker-dealer platforms, we believe those organizations with
which we have existing relationships have become larger
opportunities as a result. We are currently focused on expanding
this distribution channel by adding several new wholesalers. As
of December 31, 2009, our largest broker-dealer
relationship accounted for approximately 5% of our total assets
under management.
Registered
Investment Advisor (RIA)
We are also actively pursuing distribution opportunities in the
RIA marketplace. Through the end of 2005, we relied on a
third-party to market our strategies to the RIA community, at
which point we terminated that relationship and developed an
internal capability. The professionals dedicated to the RIA
opportunity employ tailored communications to sophisticated
RIAs. Our professionals also maintain relationships with key
opinion leaders within the RIA community.
Brokerage
Platforms
Our funds are available on various mutual fund platforms
including Charles Schwab & Co., Inc., where our funds have
been available since the first quarter of 2000, and on
Fidelitys Funds Network, where our funds have been
available since the fourth quarter of 1998.
Sub-Advisory
We have accepted selected sub-advisory mandates that provide
access to market segments we would not otherwise serve. For
example, we currently serve as sub-advisor to funds offered by
major financial institutions in retail channels that require
mutual funds with front-end sales commissions. These mandates
are attractive to us because we have chosen not to build the
large team of sales professionals typically required to service
those channels. Once we have sourced these sub-advisory
mandates, we typically approach the servicing of the
relationships in a manner similar to our approach with other
large institutional separate account clients.
Investment
Management Fees
We earn investment management fees on the proprietary funds,
commingled funds and separate accounts that we manage and under
our sub-advisory agreements for proprietary funds and other
investment funds. The fees we earn depend on the type of
investment product we manage and are typically negotiated after
consultation with the client based upon factors such as amount
of assets under management, investment strategy servicing
requirements, multiple or related account relationships and
client type. We believe average assets under management are
important as most of our fees are calculated based on daily or
monthly average assets under management, rather than quarter-end
balances of average assets under management. In addition, a
small number of separate account clients pay us fees according
to the performance of their accounts relative to certain
agreed-upon
benchmarks, which results in a slightly lower base fee, but
allows us to earn higher fees if the relevant investment
strategy outperforms the
agreed-upon
benchmark. Performance fees represented (0.5)%, 1.2% and 0.9% of
our total revenues and other operating income for the years
ended December 31,
22
2009, December 31, 2008 and December 31, 2007,
respectively. See Item 7. Managements
Discussion and Analysis of Financial Condition and Results of
Operations.
To the extent that we offer alternative products in the future,
we expect that performance fees may become a greater portion of
total revenues.
Outsourced
Operations, Systems and Technology
As an organization, we have developed a business model which
focuses the vast majority of resources on meeting clients
investment objectives. As a result, we seek to outsource,
whenever appropriate, support functions to industry leaders to
allow us to focus on areas where we believe we can add the most
value. We monitor the performance of our outsourced service
providers.
We outsource middle- and back-office activities to The Northern
Trust Company, which has responsibility for trade
confirmation, trade settlement, custodian reconciliations,
corporate action processing, performance calculation and client
reporting as well as custody, fund accounting and transfer
agency services for our commingled funds. Our separate and
sub-advised accounts outsource their custody services to service
providers that they select.
Our SEC-registered mutual funds outsource their custody, fund
accounting and administrative services to State Street Bank and
Trust Co. which has responsibility for tracking assets and
providing accurate daily valuations used to calculate each
funds net asset value. In addition, State Street Bank and
Trust Co. provides daily and monthly compliance reviews,
quarterly fund expense budgeting, monthly fund performance
calculations, monthly distribution analysis, SEC reporting,
payment of fund expenses and board reporting. It also provides
annual and periodic reports, regulatory filings and related
services as well as tax preparation services. Our SEC-registered
mutual funds also outsource distribution to Quasar Distributors
LLC and transfer agency services to U.S. Bancorp.
We also outsource our hosting, management and administration of
our front-end trading and compliance systems as well as certain
data center, data replication, file transmission, secure remote
access and disaster recovery services.
Competition
In order to grow our business, we must be able to compete
effectively for assets under management. We compete in all
aspects of our business with other investment management
companies, some of which are part of substantially larger
organizations. We have historically competed principally on the
basis of:
|
|
|
investment performance;
|
|
|
continuity of investment professionals;
|
|
|
quality of service provided to clients;
|
|
|
corporate positioning and business reputation;
|
|
|
continuity of our selling arrangements with intermediaries; and
|
|
|
differentiated products.
|
For information on the competitive risks we face, see Risk
Factors Risks Related to our Industry
The investment management business is intensely
competitive.
Employees
As of December 31, 2009, we employed 200 full-time and
two part-time employees, including 50 investment
professionals, 48 in distribution and client service,
25 in enterprise risk management and 79 in various other
corporate and support functions. None of our employees are
subject to collective bargaining agreements. We consider our
relationship with our employees to be good and have not
experienced interruptions of operations due to labor
disagreements.
23
Regulatory
Environment and Compliance
Our business is subject to extensive regulation in the United
States at both the federal and state level, as well as by
self-regulatory organizations and outside the United States.
Under these laws and regulation, agencies that regulate
investment advisors have broad administrative powers, including
the power to limit, restrict or prohibit an investment advisor
from carrying on its business in the event that it fails to
comply with such laws and regulations. Possible sanctions that
may be imposed include the suspension of individual employees,
limitations on engaging in certain lines of business for
specified periods of time, revocation of investment advisor and
other registrations, censures and fines.
SEC
Regulation
Investment Adviser is registered with the SEC as an investment
advisor pursuant to the Advisers Act, and our retail investment
company clients are registered under the U.S. Investment
Company Act of 1940, as amended (the 1940 Act). As
compared to other, disclosure-oriented U.S. federal
securities laws, the Advisers Act and the 1940 Act, together
with the SECs regulations and interpretations thereunder,
are highly restrictive regulatory statutes. The SEC is
authorized to institute proceedings and impose sanctions for
violations of the Advisers Act and the 1940 Act, ranging from
fines and censures to termination of an advisors
registration.
Under the Advisers Act, an investment advisor (whether or not
registered under the Advisers Act) has fiduciary duties to its
clients. The SEC has interpreted these duties to impose
standards, requirements and limitations on, among other things:
trading for proprietary, personal and client accounts;
allocations of investment opportunities among clients; use of
soft dollars; execution of transactions; and
recommendations to clients. On behalf of our mutual fund and
investment advisory clients, we make decisions to buy and sell
securities for each portfolio, select broker dealers to execute
trades and negotiate brokerage commission rates. In connection
with these transactions, we may receive soft dollar
credits from broker dealers that have the effect of reducing
certain of our expenses. If our ability to use soft
dollars were reduced or eliminated as a result of the
implementation of new regulations, our operating expenses would
likely increase.
The Advisers Act also imposes specific restrictions on an
investment advisors ability to engage in principal and
agency cross transactions. As a registered advisor, we are
subject to many additional requirements that cover, among other
things, disclosure of information about our business to clients;
maintenance of written policies and procedures; maintenance of
extensive books and records; restrictions on the types of fees
we may charge; custody of client assets; client privacy;
advertising; and solicitation of clients. The SEC has legal
authority to inspect any investment advisor and typically
inspects a registered advisor every two to four years to
determine whether the advisor is conducting its activities
(i) in accordance with applicable laws,
(ii) consistent with disclosures made to clients and
(iii) with adequate systems and procedures to ensure
compliance.
A majority of our revenues are derived from our advisory
services to investment companies registered under the 1940
Act i.e., mutual funds. The 1940 Act imposes
significant requirements and limitations on a registered fund,
including with respect to its capital structure, investments and
transactions. While we exercise broad discretion over the
day-to-day management of these funds, every fund is also subject
to oversight and management by a board of directors, a majority
of whom are not interested persons under the 1940
Act. The responsibilities of the board include, among other
things, approving our advisory contract with the fund; approving
service providers; determining the method of valuing assets; and
monitoring transactions involving affiliates. Our advisory
contracts with these funds may be terminated by the funds on not
more than 60 days notice, and are subject to annual
renewal by the funds board after an initial two year term.
Under the Advisers Act, our investment management agreements may
not be assigned without the clients consent. Under the
1940 Act, advisory agreements with registered funds (such as the
mutual funds we manage) terminate automatically upon assignment.
The term assignment is broadly defined and includes
direct assignments as well as assignments that may be deemed to
occur upon the transfer, directly or indirectly, of a
controlling interest in us.
24
ERISA-Related
Regulation
To the extent that Investment Adviser is a fiduciary
under ERISA with respect to benefit plan clients, it is subject
to ERISA, and to regulations promulgated thereunder. ERISA and
applicable provisions of the Internal Revenue Code of 1986, as
amended, impose certain duties on persons who are fiduciaries
under ERISA, prohibit certain transactions involving ERISA plan
clients and provide monetary penalties for violations of these
prohibitions.
Non-U.S.
Regulation
In addition to the extensive regulation our asset management
business is subject to in the United States, we are also subject
to regulation internationally by the Ontario Securities
Commission, the Irish Financial Institutions Regulatory
Authority, and the Hong Kong Securities and Futures Commission.
Our business is also subject to the rules and regulations of the
more than 40 countries in which we currently conduct investment
activities.
Risk
Management and Compliance
We manage risk at multiple levels throughout the organization,
including directly by the portfolio manager, at the Chief
Investment Officer level, and more broadly though an Enterprise
Risk Management framework within the Management Committee. The
Management Committee, through its enterprise risk function, has
oversight of our risk governance structure; it identifies,
assesses and manages the full range of risks that face our
Company and reports to the Board of Directors.
Our eight-person risk management unit is responsible for
measuring and monitoring portfolio level risk, portfolio
analysis including performance attribution, performance
reporting and operational risk. Our legal and compliance
functions are integrated into one team of 11 full-time
professionals as of December 31, 2009. This group is
responsible for all legal and regulatory compliance matters, as
well as monitoring adherence to client investment guidelines.
Senior management is involved at various levels in all of these
functions including through active participation on all the
firms supervisory oversight committees.
For information about our regulatory environment, see Risk
Factors Risks Related to Our Industry
The regulatory environment in which we operate is subject to
continual change and regulatory developments designed to
increase oversight may adversely affect our business.
Where
Readers Can Find Additional Information
We file, or will file, annual, quarterly and current reports,
proxy statements and other information required by the
Securities Exchange Act of 1934, as amended (the Exchange
Act), with the SEC. Readers may read and copy any document
that we file at the SECs Public Reference Room located at
100 F Street, N.E., Washington, D.C. 20549,
U.S.A. Please call the SEC at
1-800-SEC-0330
for further information on the Public Reference Room. Our SEC
filings are also available to the public on the SECs
internet site at
http://www.sec.gov.
Copies of these reports, proxy statements and other information
can also be inspected at the offices of the New York Stock
Exchange, Inc., 20 Broad Street, New York, New York 10005,
U.S.A.
Our internet site is
http://www.artioglobal.com.
We make available free of charge through our internet site our
annual reports on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on
Form 8-K,
proxy statements and Forms 3, 4 and 5 filed on behalf of
directors, executive officers and any 10% shareholders, and any
amendments to those reports filed or furnished pursuant to the
Exchange Act as soon as reasonably practicable after we
electronically file such material with, or furnish it to, the
SEC. Also posted on our website in the Investor
Relations Corporate Governance section are
charters for the Audit Committee, Compensation Committee and
Nominating and Corporate Governance Committee of Investors
Board, as well as our Bylaws, Certificate of Incorporation,
Corporate Governance Guidelines, Code of Business Conduct and
Related Person Transaction Policy, governing our directors,
officers and employees. Information on, or accessible through,
our website is not a part of, and is not incorporated into, this
Annual Report on
Form 10-K.
25
Item 1A. Risk
Factors
We face a variety of significant and diverse risks, many of
which are inherent in our business. Described below are certain
risks that we currently believe could materially affect us.
Other risks and uncertainties that we do not presently consider
to be material or of which we are not presently aware may become
important factors that affect us in the future. The occurrence
of any of the risks discussed below could materially and
adversely affect our business, prospects, financial condition,
results of operations or cash flow.
Risks
Related to our Business
The
loss of any key investment professionals, including
Messrs. Pell and Younes, or members of our senior
management team and senior marketing personnel could have a
material adverse effect on our business.
We depend on the skills and expertise of qualified investment
professionals and our success depends on our ability to retain
the key members of our investment team and to attract new
qualified investment professionals. In particular, we depend on
Messrs. Pell and Younes, who were the architects of our
International Equity strategies. Messrs. Pell and Younes,
as well as other key members of our investment team, possess
substantial experience in investing and have developed strong
relationships with our clients. The loss of either of
Messrs. Pell or Younes or any of our other key investment
professionals could limit our ability to successfully execute
our business strategy and may prevent us from sustaining the
performance of our investment strategies or adversely affect our
ability to retain existing and attract new client assets. In
addition, our investment professionals and senior marketing
personnel have direct contact with our institutional separate
account clients and their consultants, and with key individuals
within each of our other distribution sources and the loss of
these personnel could jeopardize those relationships and result
in the loss of such accounts. We do not carry any key
man insurance that would provide us with proceeds in the
event of the death or disability of Messrs. Pell or Younes
or other key members of senior management, our investment team,
or senior marketing personnel.
We also anticipate that it will be necessary for us to hire
additional investment professionals, both within our existing
teams and as we further diversify our investment products and
strategies. Competition for employees with the necessary
qualifications is intense and we may not be successful in our
efforts to recruit and retain the required personnel. Our
ability to retain and attract these personnel will depend
heavily on the amount of compensation we offer. Compensation
levels in the investment management industry are highly
competitive and can fluctuate significantly from year to year.
Consequently, our profitability could decline as we compete for
personnel. An inability to recruit and retain qualified
personnel could affect our ability to provide acceptable levels
of service to our clients and funds and hinder our ability to
attract new clients and investors to our strategies, each of
which could have a material adverse effect on our business.
If our
investment strategies perform poorly, clients could withdraw
their funds and we could suffer a decline in assets under
management and/or become subject to litigation which would
reduce our earnings.
The performance of our investment strategies is critical in
retaining existing clients as well as attracting new clients. If
our investment strategies perform poorly, as our International
Equity strategies did in 2009, our earnings could be reduced
because:
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our existing clients may withdraw their funds from our
investment strategies, which would cause the revenues that we
generate from investment management fees to decline;
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our Morningstar and Lipper ratings may decline,
which may adversely affect our ability to attract new assets or
retain existing assets, especially assets in the Artio Global
Funds (which include U.S. registered investment companies,
commingled institutional investment vehicles, separate accounts
and sub-advisory accounts);
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third-party financial intermediaries, advisors or consultants
may rate our investment products poorly, which may lead our
existing clients to withdraw funds from our investment
strategies or to reduce asset inflows from these third parties
or their clients; or
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26
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the mutual funds and other investment funds that we advise or
sub-advise may decide not to renew or to terminate the
agreements pursuant to which we advise or sub-advise them and we
may not be able to replace these relationships.
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Our investment strategies can perform poorly for a number of
reasons, including general market conditions and investment
decisions that we make. For instance, heading into 2009, our
positioning in International Equity proved too defensive, as
markets turned decidedly positive in March. This caused
performance to suffer as markets improved. The rallies witnessed
in financials and emerging markets in early March 2009 in
response to global stimulus, led to our underperformance given
our underweight to both of these areas. Although we made
adjustments during this period, the speed and amplitude of the
move negatively impacted us and as a result, we significantly
underperformed relative to our respective benchmarks in 2009.
During the second half of the year, the strategies were
repositioned to take advantage of positive market tailwinds
which had a stabilizing effect, resulting in more muted
underperformance for the second half of 2009, but our full year
results did trail the index which could impact net client cash
inflows in 2010.
In contrast, when our strategies experience strong results
relative to the market or other asset classes, clients
allocations to our strategies may increase relative to their
other investments and we could suffer withdrawals as our clients
rebalance their investments to fit their asset allocation
preferences.
While clients do not have legal recourse against us solely on
the basis of poor investment results, if our investment
strategies perform poorly, we are more likely to become subject
to litigation brought by dissatisfied clients. In addition, to
the extent clients are successful in claiming that their losses
resulted from fraud, negligence, willful misconduct, breach of
contract or other similar misconduct, such clients may have
remedies against us, our investment funds, our investment
professionals
and/or our
affiliates under the federal securities law
and/or state
law.
The
historical returns of our existing investment strategies may not
be indicative of their future results or of the investment
strategies we are in the process of developing.
We have presented the historical returns of our existing
investment strategies under Business
Investment Strategies, Products and Performance. The
historical returns of our strategies and the rankings we have
received in the past should not be considered indicative of the
future results of these strategies or of any other strategies
that we may be in the process of developing or that we may
develop in the future. Our strategies returns have
benefited during some periods from investment opportunities and
positive economic and market conditions. More recent general
economic and market conditions have negatively affected
investment opportunities and our strategies returns, and
there can be no assurance that such negative conditions will not
continue or that, in the future, we will be able to identify and
invest in profitable investment opportunities within our current
or future strategies. For example, in 2009, our International
Equity strategies performed well below historical averages on a
relative basis.
Difficult
market conditions can adversely affect our business in many
ways, including by reducing the value of our assets under
management and causing clients to withdraw funds, each of which
could materially reduce our revenues and adversely affect our
financial condition.
The fees we earn under our investment management fee agreements
are typically based on the market value of our assets under
management. Investors in open-end funds can redeem their
investments in those funds at any time without prior notice and
our clients may reduce the aggregate amount of assets under
management with us for any number of reasons, including
investment performance, changes in prevailing interest rates and
financial market performance. In addition, the prices of the
securities held in the portfolios we manage may decline due to
any number of factors beyond our control, including, among
others, a declining stock market, general economic downturn,
political uncertainty or acts of terrorism. As we have seen in
connection with the market dislocations of 2008 and 2009, in
difficult market conditions, the pace of client redemptions or
withdrawals from our investment strategies could accelerate if
clients move assets to investments they perceive as offering
greater opportunity or lower risk. Any of these sources of
declining assets under management would result in lower
investment management fees.
27
For example, during 2008 and the early part of 2009, the global
economic and financial crisis led to dramatic declines across
financial markets. Global equity markets fell, particularly as
the financial crisis intensified in the third and fourth
quarters of 2008 and the first quarter of 2009. The sizeable
declines in stock prices worldwide resulted in substantial
withdrawals from equity funds during 2008 throughout the asset
management industry.
In response to substantial global stimulus efforts, the economic
environment began to improve in early March of 2009 and
continued to gain momentum throughout the year. In response,
returns for global stocks and bonds improved, which resulted in
positive flows into equity and fixed income products over that
time period, according to industry data, and had a positive
effect on assets under management. For example, our assets under
management were $56.0 billion as of December 31, 2009,
up $10.8 billion, or 24%, from $45.2 billion as of
December 31, 2008.
Our
ability to retain and attract qualified employees is critical to
the success of our business and the failure to do so may
materially adversely affect our performance.
Our people are our most important resource and competition for
qualified employees is intense. In order to attract and retain
qualified employees, we must compensate our employees at
competitive rates and we strive to remain above the median for
our peer group. Typically, those levels of compensation have
caused employee compensation to be an important expense as it is
highly variable and changes with performance. If we are unable
to continue to attract and retain qualified employees, or do so
at rates necessary to maintain our competitive position, or if
compensation costs required to attract and retain employees
increase, our performance, including our competitive position,
could be materially adversely affected. Our compensation program
is designed to attract, retain and motivate employees, however,
underperformance within the general market or within our own
investment strategies may result in a lack of motivation or
productivity among employees even if compensation levels remain
competitive.
Additionally, the Company has begun to incorporate equity awards
as part of its compensation strategy and as a means for
recruiting and retaining this highly skilled talent. Significant
adverse volatility in the Companys stock price could
result in a significant deterioration in the value of restricted
stock units granted, thus lessening the effectiveness of
retaining employees through stock-based awards. There can be no
assurance that the Company will continue to successfully attract
and retain key personnel.
Most
of our investment strategies consist of investments in the
securities of companies located outside of the United States,
which may involve foreign currency exchange, tax, political,
social and economic uncertainties and risks.
As of December 31, 2009, approximately 84% of our assets
under management across our investment strategies were invested
in strategies that primarily invest in securities of companies
located outside the United States. Fluctuations in foreign
currency exchange rates could negatively affect the returns of
our clients who are invested in these strategies. In addition,
an increase in the value of the U.S. dollar relative to
non-U.S. currencies
is likely to result in a decrease in the U.S. dollar value
of our assets under management, which, in turn, could result in
lower
U.S.-dollar
denominated revenue.
Investments in
non-U.S. issuers
may also be affected by tax positions taken in countries or
regions in which we are invested as well as political, social
and economic uncertainty, particularly as a result of the recent
decline in economic conditions. Many financial markets are not
as developed, or as efficient, as the U.S. financial
market, and, as a result, liquidity may be reduced and price
volatility may be higher. Liquidity may also be adversely
affected by political or economic events within a particular
country, and by increasing the size of our investments in
smaller
non-U.S. issuers.
Non-U.S. legal
and regulatory environments, including financial accounting
standards and practices, may also be different, and there may be
less publicly available information in respect of such
companies. These risks could adversely affect the performance of
our strategies that are invested in securities of
non-U.S. issuers.
We
derive a substantial portion of our revenues from a limited
number of our strategies.
As of December 31, 2009, 83% of our assets under management
were concentrated in the International Equity I and
International Equity II strategies, and 92% of our
investment management fees for the year ended
28
December 31, 2009 were attributable to fees earned from
those strategies. As a result, our operating results are
substantially dependent upon the performance of those strategies
and our ability to attract positive net client flows and retain
assets within those strategies. In addition, our smaller
strategies, due to their size, may not be able to generate
sufficient fees to cover their expenses. If a significant
portion of the investors in either the International Equity I or
International Equity II strategies decided to withdraw
their investments or terminate their investment management
agreements for any reason, including poor investment performance
or adverse market conditions, our revenues from those strategies
would decline and it could have a material adverse effect on our
earnings.
We
derive substantially all of our revenues from contracts that may
be terminated on short notice.
We derive substantially all of our revenues from investment
advisory and sub-advisory agreements, almost all of which are
terminable by clients upon short notice. Our investment
management agreements with mutual funds, as required by law, are
generally terminable by the funds board of directors or a
vote of the majority of the funds outstanding voting
securities on not more than 60 days written notice.
After an initial term, each funds investment management
agreement must be approved and renewed annually by the
independent members of such funds board of directors. Our
sub-advisory agreements are generally terminable on not more
than 60 days notice. These investment management
agreements may be terminated or not renewed for any number of
reasons. The decrease in revenues that could result from the
termination of a material contract could have a material adverse
effect on our business.
We
depend on third-party distribution sources to market our
investment strategies and access our client base.
Our ability to grow our assets under management is highly
dependent on access to third-party intermediaries, including
RIAs and broker dealers. We also provide our services to retail
clients through mutual fund platforms and sub-advisory
relationships. As of December 31, 2009, our largest mutual
fund platform represented approximately 9% of our total assets
under management, our largest intermediary accounted for
approximately 5% of our total assets under management and our
largest sub-advisory relationship represented approximately 2%
of our total assets under management. We cannot assure you that
these sources and client bases will continue to be accessible to
us on commercially reasonable terms, or at all. The absence of
such access could have a material adverse effect on our
earnings. Our institutional separate account business is highly
dependent upon referrals from pension fund consultants. Many of
these consultants review and evaluate our products and our firm
from time to time. Poor reviews or evaluations of either a
particular product or of us may result in client withdrawals or
may impair our ability to attract new assets through these
intermediaries. As of December 31, 2009, the consultant
advising the largest portion of our client assets under
management represented approximately 4% of our assets under
management. In addition, the recent economic downturn and
consolidation in the broker-dealer industry have led to
increased competition to market through broker dealers and
higher costs, and may lead to reduced distribution access and
further cost increases.
The
significant growth we have experienced over the past six years
should not be indicative of future growth.
Our assets under management have increased from approximately
$7.5 billion as of December 31, 2003 to approximately
$56.0 billion as of December 31, 2009. Our
December 31, 2009 assets under management represent a
substantial decline from our quarter-end high of
$75.4 billion as of December 31, 2007, but still
represent a significant rate of growth that has been and may
continue to be difficult to sustain. The growth of our business
will depend on, among other things, our ability to devote
sufficient resources to maintaining existing investment
strategies and developing new investment strategies, our success
in producing attractive returns from our investment strategies,
our ability to extend our distribution capabilities, our ability
to deal with changing market conditions, our ability to maintain
adequate financial and business controls and our ability to
comply with new legal and regulatory requirements arising in
response to both the increased sophistication of the investment
management market and the significant market and economic events
of the last two years. In addition, the growth in our assets
under management since December 31, 2004 has benefited from
a general depreciation of the U.S. dollar relative to many
of the currencies in which we invest and such currency trends
may not continue, as evidenced by recent volatility. If we
believe that in order to continue to
29
produce attractive returns from our investment strategies we
should close certain of those strategies to new investors, we
may choose to do so. In addition, we expect there to be
significant demand on our infrastructure and investment team and
we cannot assure you that we will be able to manage our growing
business effectively or that we will be able to sustain the
level of growth we have achieved historically, and any failure
to do so could adversely affect our ability to generate revenue
and control our expenses.
Our
failure to comply with investment guidelines set by our clients,
including the boards of mutual funds, could result in damage
awards against us and a loss of assets under management, either
of which could cause our earnings to decline.
As an investment advisor, we have a fiduciary duty to our
clients. When clients retain us to manage assets on their
behalf, they generally specify certain guidelines regarding
investment allocation and strategy that we are required to
follow in the management of their portfolios. In addition, the
boards of mutual funds we manage generally establish similar
guidelines regarding the investment of assets in those funds. We
are also required to invest the mutual funds assets in
accordance with limitations under the 1940 Act and applicable
provisions of the Internal Revenue Code of 1986, as amended. Our
failure to comply with these guidelines and other limitations
could result in losses to a client or an investor in a fund
which, depending on the circumstances, could result in our
making clients or fund investors whole for such losses. If we
believed that the circumstances did not justify a reimbursement,
or clients and investors believed the reimbursement offered was
insufficient, they could seek to recover damages from us or
could withdraw assets from our management or terminate their
investment management agreement. Any of these events could harm
our reputation and cause our earnings to decline.
We
outsource a number of services to third-party vendors and if
they fail to perform properly, we may suffer financial loss and
liability to our clients.
We have developed a business model that is primarily focused on
our investment strategies. Accordingly, we seek to outsource,
whenever appropriate, support functions. The services we
outsource include middle- and back-office activities such as
trade confirmation, trade settlement, custodian reconciliations
and client reporting services as well as our front-end trading
system and data center, data replication, file transmission,
secure remote access and disaster recovery services. The ability
of the third-party vendors to perform their functions properly
is highly dependent on the adequacy and proper functioning of
their communication, information and computer systems. If these
systems of the third-party vendors do not function properly, or
if the third-party vendors fail to perform their services
properly or choose to discontinue providing services to us for
any reason, or if we are unable to renew any of our key
contracts on similar terms or at all, it could cause our
earnings to decline or we could suffer financial losses,
business disruption, liability to clients, regulatory
intervention or damage to our reputation.
A
change of control of our company could result in termination of
our investment advisory agreements.
Under the 1940 Act, each of the investment advisory agreements
for SEC-registered mutual funds that our subsidiary, Investment
Adviser, advises automatically terminates in the event of an
assignment. Each funds board and shareholders must
therefore approve a new agreement in order for our subsidiary to
continue to act as its advisor. In addition, under the Advisers
Act each of the investment advisory agreements for the separate
accounts we manage may not be assigned without the
consent of the client.
An assignment of our subsidiarys investment management
agreements may occur if, among other things, Investment Adviser
undergoes a change of control. If such an assignment occurs, we
cannot be certain that Investment Adviser will be able to obtain
the necessary approvals from the boards and shareholders of the
SEC-registered funds that it advises, or the necessary consents
from clients whose funds are managed pursuant to separate
accounts. Under the 1940 Act, if an SEC-registered funds
investment advisor engages in a transaction that results in the
assignment of its investment management agreement with the fund,
the advisor may not impose an unfair burden on that
fund as a result of the transaction for a two-year period after
the transaction is completed. Our IPO constituted a change of
control for purposes of the 1940 Act. We obtained all necessary
approvals in connection with the IPO, but for the two years
following the IPO, we will remain subject to the limits on
unfair burdens which could be adverse to our
interests.
30
Operational
risks may disrupt our business, result in losses or limit our
growth.
We are heavily dependent on the capacity and reliability of the
communications, information and technology systems supporting
our operations, whether owned and operated by us or by third
parties. Operational risks such as trading errors or
interruption of our financial, accounting, trading, compliance
and other data processing systems, whether caused by fire, other
natural disaster or pandemic, power or telecommunications
failure, act of terrorism or war or otherwise, could result in a
disruption of our business, liability to clients, regulatory
intervention or reputational damage, and thus materially
adversely affect our business. The risks related to trading
errors are increased by the recent extraordinary market
volatility, which can magnify the cost of an error. For example,
in 2008 we suffered trading errors that cost us approximately
$5.5 million, but in 2009, trading errors were
insignificant. Insurance and other safeguards might not be
available or might only partially reimburse us for our losses.
Although we have
back-up
systems in place, our
back-up
procedures and capabilities in the event of a failure or
interruption may not be adequate. The inability of our systems
to accommodate an increasing volume of transactions also could
constrain our ability to expand our businesses. Additionally,
any upgrades or expansions to our operations
and/or
technology may require significant expenditures and may increase
the probability that we will suffer system degradations and
failures. We also depend on access to our headquarters in New
York City, where a majority of our employees are located, for
the continued operation of our business. Any significant
disruption to our headquarters could have a material adverse
effect on us.
Employee
misconduct could expose us to significant legal liability and
reputational harm.
We are vulnerable to reputational harm as we operate in an
industry where integrity and the confidence of our clients are
of critical importance. Our employees could engage in misconduct
that adversely affects our business. For example, if an employee
were to engage in illegal or suspicious activities, we could be
subject to regulatory sanctions and suffer serious harm to our
reputation (as a consequence of the negative perception
resulting from such activities), financial position, client
relationships and ability to attract new clients. Our business
often requires that we deal with confidential information. If
any of our employees were to improperly use or disclose this
information, we could suffer serious harm to our reputation,
financial position and current and future business
relationships. It is not always possible to deter employee
misconduct, and the precautions we take to detect and prevent
this activity may not always be effective. Misconduct by our
employees, or even unsubstantiated allegations of misconduct,
could result in an adverse effect on our reputation and our
business.
If our
techniques for managing risk are ineffective, we may be exposed
to material unanticipated losses.
In order to manage the significant risks inherent in our
business, we must maintain effective policies, procedures and
systems that enable us to identify, assess and manage the full
spectrum of our risks including, market, fiduciary, operational,
legal, regulatory and reputational risks. Our risk management
methods may prove to be ineffective due to their design or
implementation, or as a result of the lack of adequate, accurate
or timely information or otherwise. If our risk management
efforts are ineffective, we could suffer losses that could have
a material adverse effect on our financial condition or
operating results. Additionally, we could be subject to
litigation, particularly from our clients, and sanctions or
fines from regulators.
Our techniques for managing risks in client portfolios may not
fully mitigate the risk exposure in all economic or market
environments, or against all types of risk, including risks that
we might fail to identify or anticipate. Any failures in our
risk management techniques and strategies to accurately quantify
such risk exposure could limit our ability to manage risks in
those portfolios or to seek positive, risk-adjusted returns. In
addition, any risk management failures could cause portfolio
losses to be significantly greater than historical measures
predict. Our more qualitative approach to managing those risks
could prove insufficient, exposing us to material unanticipated
losses in the value of client portfolios and therefore a
reduction in our revenues.
Our
failure to adequately address conflicts of interest could damage
our reputation and materially adversely affect our
business.
Potential, perceived and actual conflicts of interest are
inherent in our existing and future investment activities. For
example, certain of our strategies have overlapping investment
objectives and potential conflicts of interest may arise with
respect to our decisions regarding how to allocate investment
opportunities among those
31
strategies. In addition, investors (or holders of our
Class A common stock) may perceive conflicts of interest
regarding investment decisions for strategies in which our
investment professionals, who have and may continue to make
significant personal investments, are personally invested.
Potential, perceived or actual conflicts of interest could give
rise to investor dissatisfaction, litigation or regulatory
enforcement actions. Adequately addressing conflicts of interest
is complex and difficult and we could suffer significant
reputational harm if we fail, or appear to fail, to adequately
address potential, perceived or actual conflicts of interest.
Our
use of leverage may expose us to substantial risks that may
adversely affect our growth strategy and business.
In September 2009, Holdings established a $110.0 million
credit facility consisting of a $60.0 million three-year
term credit facility and a $50.0 million three-year
revolving credit facility. In October 2009, Holdings borrowed
$60.0 million under the term credit facility. The
incurrence of this debt exposes us to the typical risks
associated with the use of leverage. Increased leverage makes it
more difficult for us to withstand adverse economic conditions
or business plan variances, to take advantage of new business
opportunities, or to make necessary capital expenditures. The
agreements governing our debt facilities contain covenant
restrictions that limit our ability to conduct our business,
including restrictions on our ability to incur additional
indebtedness. A substantial portion of our cash flow could be
required for debt service and, as a result, might not be
available for our operations or other purposes. Any substantial
decrease in net operating cash flows or any substantial increase
in expenses could make it difficult for us to meet our debt
service requirements or force us to modify our operations. Our
level of indebtedness may make us more vulnerable to economic
downturns and reduce our flexibility in responding to changing
business, regulatory and economic conditions.
A key component of our growth strategy is to focus on achieving
superior, long-term investment performance. Any new initiative
we pursue will be subject to numerous risks, some unknown and
some known, which may be different from and in addition to the
risks we face in our existing business, including, among others,
risks associated with newly established strategies without any
operating history, risks associated with potential, perceived or
actual conflicts of interest, risks relating to the misuse of
confidential information, risks due to potential lack of
liquidity in the securities in which these initiatives invest
and risks due to a general lack of liquidity in the global
financial market that could make it harder to obtain equity or
debt financing.
In developing any new initiatives, we may decide to utilize the
expertise and research of our current investment professionals,
which may place significant strain on resources and distract our
investment professionals from the strategies that they currently
manage. This reliance on our existing investment teams may also
increase the possibility of a conflict of interest arising,
given the differing fee structures associated with these new
initiatives. Our growth strategy may require significant
investment, including capital commitments to seed new products
and to fund additional operating expenses as well as the hiring
of additional investment professionals, which may place
significant strain on our financial, operational and management
resources. We cannot assure you that we will be able to achieve
our growth strategy or that we will succeed in any new
initiatives. Failure to achieve or manage such growth could have
a material adverse effect on our business, financial condition
and results of operations. See Business
Investment Strategies, Products and Performance New
Initiatives.
Failure
to comply with fair value pricing, market
timing and late trading policies and procedures may
adversely affect us.
The SEC has adopted rules that require mutual funds to adopt
fair value pricing procedures to address time zone
arbitrage, selective disclosure procedures to protect mutual
fund portfolio information and procedures to ensure compliance
with a mutual funds disclosed market timing policy. Recent
SEC rules also require our mutual funds to ensure compliance
with their own market timing policies. Our mutual funds are
subject to these rules and, in the event of our non-compliance,
we may be required to disgorge certain revenue. In addition, we
could have penalties imposed on us, be required to pay fines or
be subject to private litigation, any of which could decrease
our future income, or negatively affect our current business or
our future growth prospects. During periods of market volatility
there is often an increased need to adjust a securitys
price to approximate its fair value. This in turn increases the
risk that we could breach the fair value pricing and market
timing rules.
32
We may
not be able to maintain our current fee structure as a result of
industry pressure to reduce fees or as a result of changes in
our business mix, which could have an adverse effect on our
profit margins and results of operations.
We may not be able to maintain our current fee structure as a
result of industry pressures to reduce fees (including those
arising out of legal challenges to the long-established criteria
for determining the reasonableness of fees) or as a result of
changes in our business mix. Although our investment management
fees vary from product to product, historically we have competed
primarily on the basis of our performance and not on the level
of our investment management fees relative to those of our
competitors. In recent years, however, there has been a general
trend toward lower fees in the investment management industry.
In order to maintain our fee structure in a competitive
environment, we must be able to continue to provide clients with
investment returns and service that incentivize our investors to
pay our fees. We cannot assure you that we will succeed in
providing investment returns and service that will allow us to
maintain our current fee structure.
The board of directors of each mutual fund we manage must make
certain findings as to the reasonableness of our fees and can
renegotiate them annually which, in the past, led to a reduction
in fees. Fee reductions on existing or future new business could
have an adverse effect on our profit margins
and/or
results of operations. For more information about our fees see
Business Investment Management Fees and
Managements Discussion and Analysis of Financial
Condition and Results of Operations.
The
cost of insuring our business is substantial and may
increase.
Our insurance costs are substantial and can fluctuate
significantly from year to year. Insurance costs increased in
2009, as coverage was extended to meet the needs of being a
public company. In addition, certain insurance coverage may not
be available or may only be available at prohibitive costs. As
we renew our insurance policies, we may be subject to additional
costs resulting from rising premiums, the assumption of higher
deductibles
and/or
co-insurance liability and, to the extent certain of our
U.S. funds purchase separate director and officer
and/or error
and omission liability coverage, an increased risk of insurance
companies disputing responsibility for joint claims. Higher
insurance costs and incurred deductibles would reduce our net
income.
Risks
Related to our Industry
We are
subject to extensive regulation.
We are subject to extensive regulation in the United States,
primarily at the federal level, including regulation by the SEC
under the Exchange Act, the 1940 Act and the Advisers Act, by
the Department of Labor under the Employee Retirement Income
Security Act of 1974, as amended, or ERISA, as well as
regulation by the Financial Industry Regulatory Authority, Inc.,
or FINRA, and state regulators. The mutual funds we manage are
registered with the SEC as investment companies under the 1940
Act. The Advisers Act imposes numerous obligations on investment
advisors including record keeping, advertising and operating
requirements, disclosure obligations and prohibitions on
fraudulent activities. The 1940 Act imposes similar obligations,
as well as additional detailed operational requirements, on
registered investment companies, which must be strictly adhered
to by their investment advisors.
In addition, our mutual funds are subject to the USA PATRIOT Act
of 2001, which requires each fund to know certain information
about its clients and to monitor their transactions for
suspicious financial activities, including money laundering. The
U.S. Office of Foreign Assets Control, or OFAC, has issued
regulations requiring that we refrain from doing business, or
allowing our clients to do business through us, in certain
countries or with certain organizations or individuals on a list
maintained by the U.S. government. Our failure to comply
with applicable laws or regulations could result in fines,
censure, suspensions of personnel or other sanctions, including
revocation of the registration of any of our subsidiaries as a
registered investment advisor.
In addition to the extensive regulation to which our asset
management business is subject in the United States, we are also
subject to regulation internationally by the Ontario Securities
Commission, the Irish Financial Institutions Regulatory
Authority and the Hong Kong Securities and Futures Commission.
Further, as our international distribution channels expand, we
will be subject to an increasing amount of international
regulation. Our business is already subject to the rules and
regulations of the more than 40 countries in which
33
we currently conduct investment activities. Failure to comply
with applicable laws and regulations in the foreign countries
where we invest could result in fines, suspensions of personnel
or other sanctions. See Business Regulatory
Environment and Compliance.
The
regulatory environment in which we operate is subject to
continual change and regulatory developments designed to
increase oversight may adversely affect our
business.
The legislative and regulatory environment in which we operate
has undergone significant changes in the recent past and while
there is an ordinary evolution to regulation, we believe there
will be significant regulatory changes in our industry, which
will result in subjecting participants to additional regulation.
The requirements imposed by our regulators are designed to
ensure the integrity of the financial markets and to protect
customers and other third parties who deal with us, and are not
designed to protect our stockholders. Consequently, these
regulations often serve to limit our activities, including
through customer protection and market conduct requirements. New
laws or regulations, or changes in the enforcement of existing
laws or regulations, applicable to us and our clients may
adversely affect our business. Our ability to function in this
environment will depend on our ability to constantly monitor and
promptly react to legislative and regulatory changes. For
investment management firms in general, there have been a number
of highly publicized regulatory inquiries that focus on the
mutual fund industry. These inquiries already have resulted in
increased scrutiny in the industry and new rules and regulations
for mutual funds and their investment managers. This regulatory
scrutiny may limit our ability to engage in certain activities
that might be beneficial to our stockholders. See
Business Regulatory Environment and
Compliance.
In addition, as a result of the recent economic downturn, acts
of serious fraud in the asset management industry and perceived
lapses in regulatory oversight, U.S. and
non-U.S. governmental
and regulatory authorities may increase regulatory oversight of
our businesses. We may be adversely affected as a result of new
or revised legislation or regulations imposed by the SEC, other
U.S. or
non-U.S. governmental
regulatory authorities or self-regulatory organizations that
supervise the financial markets. We also may be adversely
affected by changes in the interpretation or enforcement of
existing laws and rules by these governmental authorities and
self-regulatory organizations. It is impossible to determine the
extent of the impact of any new laws, regulations or initiatives
that may be proposed, or whether any of the proposals will
become law. Compliance with any new laws or regulations could
make compliance more difficult and expensive and affect the
manner in which we conduct business.
The
investment management business is intensely
competitive.
The investment management business is intensely competitive,
with competition based on a variety of factors, including
investment performance, continuity of investment professionals
and client relationships, the quality of services provided to
clients, corporate positioning and business reputation,
continuity of selling arrangements with intermediaries and
differentiated products. A number of factors, including the
following, serve to increase our competitive risks:
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a number of our competitors have greater financial, technical,
marketing and other resources, better name recognition and more
personnel than we do;
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there are relatively low barriers impeding entry to new
investment funds, including a relatively low cost of entering
these businesses;
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the recent trend toward consolidation in the investment
management industry, and the securities business in general, has
served to increase the size and strength of a number of our
competitors;
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some investors may prefer to invest with an investment manager
that is not publicly traded based on the perception that
publicly traded companies focus on growth to the detriment of
performance;
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some competitors may invest according to different investment
styles or in alternative asset classes that the markets may
perceive as more attractive than our investment approach;
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34
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some competitors may have a lower cost of capital and access to
funding sources that are not available to us, which may create
competitive disadvantages for us with respect to investment
opportunities; and
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other industry participants, hedge funds and alternative asset
managers may seek to recruit our qualified investment
professionals.
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If we are unable to compete effectively, our earnings would be
reduced and our business could be materially adversely affected.
The
investment management industry faces substantial litigation
risks which could materially adversely affect our business,
financial condition or results of operations or cause
significant reputational harm to us.
We depend to a large extent on our network of relationships and
on our reputation in order to attract and retain clients. If a
client is not satisfied with our services, such dissatisfaction
may be more damaging to our business than to other types of
businesses. We make investment decisions on behalf of our
clients that could result in substantial losses to them. If our
clients suffer significant losses, or are otherwise dissatisfied
with our services, we could be subject to the risk of legal
liabilities or actions alleging negligent misconduct, breach of
fiduciary duty, breach of contract, unjust enrichment
and/or
fraud. These risks are often difficult to assess or quantify and
their existence and magnitude often remain unknown for
substantial periods of time, even after an action has been
commenced. We may incur significant legal expenses in defending
against litigation. Substantial legal liability or significant
regulatory action against us could materially adversely affect
our business, financial condition or results of operations or
cause significant reputational harm to us.
Failure
to maintain effective internal control over financial reporting
could have a material adverse effect on our business and stock
price.
As a public company, we must maintain effective internal control
over financial reporting and as of our second annual report that
will be issued for the period ended December 31, 2010, we
must produce a management assessment in accordance with
Section 404 of the Sarbanes-Oxley Act of 2002. While
management believes that our internal control over financial
reporting was effective as of December 31, 2009, because
internal control over financial reporting is complex and may
change over time to adapt to changes in our business, we cannot
assure you that our internal control over financial reporting
will be effective in the future. If we are not able to maintain
effective internal control over financial reporting, we may not
be able to produce reliable financial reporting and our
independent registered public accounting firm may not be able to
certify the effectiveness of our internal control over financial
reporting as of the required dates. Matters affecting our
internal controls may cause us to be unable to report our
financial information accurately and/or on a timely basis and
thereby subject us to adverse regulatory consequences, including
sanctions or investigations by the SEC, or violations of
applicable stock exchange listing rules, and result in a breach
of the covenants under our credit facility. There could also be
a negative reaction in the financial markets due to a loss of
investor confidence in us and the reliability of our financial
statements. Confidence in the reliability of our financial
statements is also likely to suffer if we report, or our
independent registered public accounting firm reports, a
material weakness in our internal control over financial
reporting. This could lead to a material adverse effect on our
business, a decline in our share price and impair our ability to
raise capital.
Risks
Relating to our Structure
Our
ability to pay regular dividends to our stockholders is subject
to the discretion of our Board of Directors and may be limited
by our holding company structure and applicable provisions of
Delaware law.
We intend to continue to pay cash dividends to holders of our
Class A and Class C common stock on a quarterly basis.
Our Board of Directors may, in its sole discretion, change the
amount or frequency of dividends or discontinue the payment of
dividends entirely. In addition, as a holding company, we will
be dependent upon the ability of our subsidiaries to generate
earnings and cash flows and distribute them to us so that we may
pay dividends to our stockholders. We expect to cause Holdings
to make distributions to its members, including us. However, its
ability to make such distributions will be subject to its
operating results, cash requirements and financial condition,
the applicable provisions of Delaware law which may limit the
amount of funds available for distribution to its members, its
compliance with covenants and financial ratios
35
related to existing or future indebtedness, and its other
agreements with third parties. In addition, each of the
companies in the corporate chain must manage its assets,
liabilities and working capital in order to meet all of its cash
obligations, including the payment of dividends or
distributions. As a consequence of these various limitations and
restrictions, we may not be able to make, or may have to reduce
or eliminate, the payment of dividends on our Class A and
Class C common stock.
Our
ability to pay taxes and expenses may be limited by our holding
company structure and applicable provisions of Delaware
law.
As a holding company, we have no material assets other than our
ownership of New Class A Units of Holdings and we have no
independent means of generating revenue. Holdings is treated as
a partnership for U.S. federal and state income tax
purposes and, as such, is not subject to U.S. federal and
state income tax. Instead, taxable income is allocated to its
members, including us and the Principals. Accordingly, we incur
income taxes on our proportionate share of any net taxable
income of Holdings and also incur expenses related to our
operations. We intend to cause Holdings to distribute cash to
its members (us and the Principals). However, its ability to
make such distributions is subject to various limitations and
restrictions as set forth in the preceding risk factor. If, as a
consequence of these various limitations and restrictions, we do
not have sufficient funds to pay tax or other liabilities to
fund our operations, we may have to borrow funds and thus, our
liquidity and financial condition could be materially adversely
affected.
We
will be required to pay the Principals most of the tax benefit
of any depreciation or amortization deductions we may claim as a
result of the tax basis step up we receive in connection with
their future exchanges of New Class A Units.
Any taxable exchanges by the Principals of New Class A
Units for shares of our Class A common stock are expected
to result in increases in the tax basis in the tangible and
intangible assets of Holdings connected with such New
Class A Units. The increase in tax basis is expected to
reduce the amount of tax that we would otherwise be required to
pay in the future, although the Internal Revenue Service, or
IRS, might challenge all or part of this tax basis increase, and
a court might sustain such a challenge.
We entered into a tax receivable agreement with the Principals,
pursuant to which we agreed to pay them 85% of the amount of the
reduction in tax payments, if any, in U.S. federal, state
and local income tax that we realize (or are deemed to realize
upon an early termination of the tax receivable agreement or a
change of control, both discussed below) as a result of these
increases in tax basis created by their exchanges. We have
previously recorded a deferred tax asset on our historical
financial statements with respect to the tax basis increase that
we would have received in connection with our prior obligation
to redeem certain interests of our Principals. At the time of
the IPO we de-recognized this deferred tax asset recorded on our
balance sheet. Following the IPO, we recorded a deferred tax
asset upon the exchange of each Principals New
Class A Units for shares of our Class A common stock.
In conjunction with the establishment of the deferred tax asset
we established a related liability for amounts due under the tax
receivable agreement. The actual increase in tax basis, as well
as the amount and timing of any payments under this agreement,
will vary depending on a number of factors, including the timing
of each Principals exchanges, the price of our
Class A common stock at the time of the exchange, the
extent to which such exchanges are taxable, the amount and
timing of our income and the tax rates then applicable. Payments
under the tax receivable agreement are expected to give rise to
certain additional tax benefits attributable to further
increases in basis or, in certain circumstances, in the form of
deductions for imputed interest. Any such benefits are covered
by the tax receivable agreement and will increase the amounts
due thereunder. In addition, the tax receivable agreement
provides for interest accrued from the due date (without
extensions) of the corresponding tax return to the date of
payment specified by the tax receivable agreement. We expect
that, as a result of the size and increases in the tax basis of
the tangible and intangible assets of Holdings attributable to
the exchanged New Class A Units, the payments that we may
make to the Principals will be substantial. See Notes to
Consolidated Financial Statements Tax Receivable
Agreement.
Moreover, if we exercise our right to terminate the tax
receivable agreement early, we will be obligated to make an
early termination payment to the Principals, or their
transferees, based upon the net present value (based upon
certain assumptions and deemed events set forth in the tax
receivable agreement, including the
36
assumption that we would have enough taxable income in the
future to fully utilize the tax benefit resulting from any
increased tax basis that results from an exchange and that any
New Class A Units that the Principals or their transferees
own on the termination date are deemed to be exchanged on the
termination date) of all payments that would be required to be
paid by us under the tax receivable agreement. If certain change
of control events were to occur, we would be obligated to make
payments to the Principals using certain assumptions and deemed
events similar to those used to calculate an early termination
payment.
We will not be reimbursed for any payments previously made under
the tax receivable agreement if such basis increase is
successfully challenged by the IRS. As a result, in certain
circumstances, payments could be made under the tax receivable
agreement in excess of our cash tax savings.
Anti-takeover
provisions in our amended and restated certificate of
incorporation and bylaws could discourage a change of control
that our stockholders may favor, which could negatively affect
the market price of our Class A common stock.
Provisions in our amended and restated certificate of
incorporation and bylaws may make it more difficult and
expensive for a third party to acquire control of us even if a
change of control would be beneficial to the interests of our
stockholders. For example, our amended and restated certificate
of incorporation authorizes the issuance of preferred stock that
could be issued by our Board of Directors to thwart a takeover
attempt. The market price of our Class A common stock could
be adversely affected to the extent that the provisions of our
amended and restated certificate of incorporation and bylaws
discourage potential takeover attempts that our stockholders may
favor.
Risks
Related to Our Class A Common Stock
An
active market for our Class A common stock may not be
sustained.
Shares of our Class A common stock are listed on the New
York Stock Exchange (NYSE) under the symbol
ART. We are required to comply with the NYSEs
listing standards in order to maintain the listing of our
Class A common stock on the exchange. The NYSE has the
authority to delist our Class A common stock if, during any
period of 30 consecutive trading days, the average closing share
price falls below $1.00 or the average market capitalization of
our Class A common stock falls below $75 million and
we are unable to satisfy these standards within the time periods
specified under NYSE regulations. In addition, the NYSE has the
authority to delist our Class A common stock immediately
if, during any period of 30 consecutive trading days, the
average market capitalization of such shares falls below
$25 million if the NYSE determines that the trading price
of our shares is abnormally low or if the NYSE otherwise
believes the Class A common stock should no longer be
listed. As of March 1, 2010, during the previous 30
consecutive trading days, the average closing share price of our
Class A common stock was $24.22 per share and the average
market capitalization of our Class A common stock was
approximately $671 million, excluding securities
exchangeable for, or convertible into, shares of our
Class A common stock.
The
market price and trading volume of our Class A common stock
may be volatile, which could result in rapid and substantial
losses for our stockholders.
The market price of our Class A common stock may be highly
volatile and could be subject to wide fluctuations. In addition,
the trading volume in our Class A common stock may
fluctuate and cause significant price variations to occur, which
may limit or prevent investors from readily selling their
Class A common stock and may otherwise negatively affect
the liquidity of our Class A common stock. If the market
price of our Class A common stock declines significantly,
holders may be unable to resell their Class A common stock
at or above their purchase price, if at all. We cannot provide
any assurance that the market price of our Class A common
stock will not fluctuate or decline significantly in the future.
Some of the factors that could negatively affect the price of
our Class A common stock or result in fluctuations in the
price or trading volume of our Class A common stock include:
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variations in our quarterly operating results or dividends, or a
decision to continue not paying a regular dividend;
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failure to meet analysts earnings estimates;
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37
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difficulty in complying with the provisions in our credit
agreement such as financial covenants and amortization
requirements;
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publication of research reports or press reports about us, our
investments or the investment management industry or the failure
of securities analysts to cover our Class A common stock;
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additions or departures of our principals and other key
management personnel;
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adverse market reaction to any indebtedness we may incur or
securities we may issue in the future;
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actions by stockholders;
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changes in market valuations of similar companies;
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speculation in the press or investment community;
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changes or proposed changes in laws or regulations or differing
interpretations thereof affecting our business or enforcement of
these laws and regulations, or announcements relating to these
matters;
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litigation or governmental investigations;
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fluctuations in the performance or share price of other
alternative asset managers;
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poor performance or other complications affecting our funds or
current or proposed investments;
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adverse publicity about the asset management industry generally
or individual scandals, specifically;
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sales of a large number of our Class A common stock or the
perception that such sales could occur; and
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general market and economic conditions.
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The
price of our Class A common stock may decline due to the
large number of shares eligible for future sale and for exchange
into Class A common stock.
The market price of our Class A common stock could decline
as a result of sales of a large number of our Class A
common stock or the perception that such sales could occur.
These sales, or the possibility that these sales may occur, also
might make it more difficult for us to sell equity securities in
the future at a time and price that we deem appropriate. As of
December 31, 2009, we had 60,014,643 outstanding shares of
our Class A common stock on a fully diluted basis and
2,146,758 restricted stock units (RSUs) granted to
employees.
As of December 31, 2009, each of our Principals owned an
aggregate of 7.8 million shares of our Class B common
stock. Each Principal also has the right to exchange his New
Class A Units to shares of Class A common stock on a
one-to-one basis, subject to certain restrictions contained in
the exchange agreement with us and the Principals. As of
December 31, 2009, GAM owned 16,755,844 shares of our
Class C common stock. If GAM transfers the stock to anyone
other than any of its subsidiaries, or to us, such shares will
automatically convert to an equal number of shares of
Class A common stock. In addition, on the second
anniversary of the IPO, any outstanding shares of Class C
common stock will automatically convert to Class A common
stock on a one-to-one basis. Each of our Principals and GAM have
registration rights permitting them to sell their stock, subject
to transfer restrictions in the case of our Principals.
Item 1B. Unresolved
Staff Comments.
The Company has no unresolved SEC comments.
Item 2. Properties.
Our corporate headquarters and principal offices are located at
330 Madison Avenue in New York, New York and are leased under a
lease that will expire in 2014. In addition to our headquarters,
we have sales and marketing teams based in Los Angeles,
California and Toronto, Canada where we maintain short-term
leases. We believe our existing facilities are adequate to meet
our requirements.
Item 3. Legal
Proceedings.
We have been named in certain litigation. In the opinion of
management, the possibility of an outcome from this litigation
that is materially adverse to us is remote.
38
Item 4. Reserved.
PART II
Item 5. Market
for Registrants Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
Shares of our Class A common stock have been listed and are
traded on the New York Stock Exchange (NYSE) under
the symbol ART since our initial public offering in
September 2009. The following table sets forth, for the periods
indicated, the high, low and last sale prices in dollars on the
NYSE for our Class A common stock and the dividends per
share we declared with respect to the periods indicated.
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2009
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High
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Low
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Last Sale
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Dividends Declared
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September 24, 2009 (date of IPO) through September 30,
2009
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$
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27.25
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$
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25.50
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$
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26.15
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$
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For the quarter ended December 31, 2009
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26.54
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22.66
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25.49
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We may pay quarterly dividends on our Class A common stock
in amounts that reflect managements view of our financial
performance and liquidity. However, no assurance can be given
that any dividends, whether quarterly or otherwise, will or can
be paid.
On March 1, 2010, the closing price for our Class A
common stock, as reported on the NYSE, was $23.95. As of
March 1, 2010, there were approximately
83 shareholders of record of our Class A common stock
and one shareholder of record for our Class C common stock.
This figure does not reflect the beneficial ownership of shares
held in nominee name, nor does it include holders of our
Class B common stock or any restricted stock units.
Use of
Proceeds
On October 5, 2009, the underwriters (managed by Goldman,
Sachs & Co. as lead underwriter), exercised their
option to purchase additional shares of Class A common
stock at the IPO price, net of the underwriting discount,
resulting in the issuance of 2,644,156 shares of
Class A common stock. The net proceeds were used to
repurchase and retire, at the IPO price, net of the underwriting
discount, 2,644,156 shares of Class C common stock
from GAM.
Purchases
of Equity Securities
Investors share repurchase activity for each of the three
months in the period ended December 31, 2009, was as
follows:
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Approximate
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Total Number of
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Dollar Value of
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Shares Purchased
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Shares that May
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Total Number of
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as Part of Publicly
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Yet be Purchased
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Shares
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Average Price Paid
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Announced Plans
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Under the Plans or
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Period
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Repurchased(a)
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Per
Share(a)
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or
Programs(b)
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Programs(b)
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October 1, 2009 through October 31, 2009
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2,644,156
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$
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24.596
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$
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November 1, 2009 through November 30, 2009
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December 1, 2009 through December 31, 2009
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For the quarter ended December 31, 2009
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2,644,156
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24.596
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(a)
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These columns reflect the following
transactions during the fourth quarter of 2009: the repurchase
and retirement of 2.6 million shares of Class C common
stock in connection with the exercise of the underwriters
option.
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(b)
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|
As of December 31, 2009,
Investors did not have a share repurchase program.
|
39
Common
Stock Performance Graph
The following graph compares the cumulative total stockholder
return on our Class A common stock from September 24,
2009 (the date our Class A common stock began trading on
the NYSE) through December 31, 2009, with the cumulative
total return of the Standard and Poors 500 Stock Index
(S&P 500) and the SNL Asset Manager Index. The
graph assumes an investment of $100 in our Class A common
stock and in each of the two indices on September 23, 2009
and the reinvestment of all dividends, if any. The initial
public offering price of our Class A common stock was
$26.00 per share.
Total
Return Performance
|
|
|
|
|
|
|
|
|
|
Index
|
|
09/24/09
|
|
12/31/09
|
|
Artio Global Investors Inc.
|
|
$
|
100.00
|
|
|
$
|
98.04
|
|
SNL Asset Manager Index
|
|
$
|
100.00
|
|
|
$
|
105.70
|
|
S&P 500
|
|
$
|
100.00
|
|
|
$
|
104.70
|
|
|
* The SNL Asset Manager Index currently comprises the
following companies: Affiliated Managers Group, Inc.;
AllianceBernstein Holding L.P.; Alternative Asset Management;
BKF Capital Group, Inc.; BlackRock, Inc.; Blackstone Group L.P.;
Brookfield Asset Management; Calamos Asset Management, Inc.;
Cohen & Steers, Inc.; Diamond Hill Investment Group;
Eaton Vance Corp.; Epoch Holding Corp.; Federated Investors,
Inc.; Fortress Investment Group; Franklin Resources, Inc.; GAMCO
Investors, Inc.; GLG Partners, Inc.; Hennessy Advisors, Inc.;
Integrity Mutual Funds, Inc.; INVESCO Ltd.; Janus Capital Group,
Inc.; Legg Mason, Inc.; Och-Ziff Capital Management; Pzena
Investment Management; SEI Investments Co.; T. Rowe Price Group,
Inc.; Triplecrown Acquisition Corp.; U.S. Global Investors,
Inc.; Value Line, Inc.; W.P. Stewart & Co., Ltd.;
Waddell & Reed Financial, Inc.; and Westwood Holdings
Group, Inc.
In accordance with the rules of the SEC, this Common Stock
performance graph shall not be incorporated by reference into
any future filings by us under the Securities Exchange Act of
1934, as amended (the Exchange Act) or under the
Securities Act of 1933, as amended (the Securities
Act), and shall not be deemed to be soliciting material
under the Exchange Act or the Securities Act.
40
Item 6. Selected
Financial Data
Set forth below are selected financial data for the last five
years. This data should be read in conjunction with, and is
qualified in its entirety by reference to, the consolidated
financial statements and accompanying notes included elsewhere
in this Annual Report on
Form 10-K.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
(in thousands, except as indicated and per share
information)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Statement of Operations data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues and other operating income
|
|
$
|
307,392
|
|
|
$
|
422,046
|
|
|
$
|
445,744
|
|
|
$
|
300,432
|
|
|
$
|
201,285
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee compensation and benefits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries, incentive compensation and benefits
|
|
|
79,035
|
|
|
|
92,487
|
|
|
|
92,277
|
|
|
|
69,677
|
|
|
|
52,878
|
|
Allocation of Class B profits interests
|
|
|
33,663
|
|
|
|
76,074
|
|
|
|
83,512
|
|
|
|
53,410
|
|
|
|
33,748
|
|
Change in redemption value of Class B profits interests
|
|
|
266,110
|
|
|
|
54,558
|
|
|
|
76,844
|
|
|
|
46,932
|
|
|
|
23,557
|
|
Tax receivable agreement
|
|
|
97,909
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total employee compensation and benefits
|
|
|
476,717
|
|
|
|
223,119
|
|
|
|
252,633
|
|
|
|
170,019
|
|
|
|
110,183
|
|
Shareholder servicing and marketing
|
|
|
16,886
|
|
|
|
23,369
|
|
|
|
25,356
|
|
|
|
20,134
|
|
|
|
15,130
|
|
General and administrative
|
|
|
42,317
|
|
|
|
62,833
|
|
|
|
50,002
|
|
|
|
31,510
|
|
|
|
24,590
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
535,920
|
|
|
|
309,321
|
|
|
|
327,991
|
|
|
|
221,663
|
|
|
|
149,903
|
|
Non-operating income (loss)
|
|
|
(1,395
|
)
|
|
|
3,181
|
|
|
|
7,034
|
|
|
|
3,288
|
|
|
|
1,391
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
(229,923
|
)
|
|
|
115,906
|
|
|
|
124,787
|
|
|
|
82,057
|
|
|
|
52,773
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes relating to income from continuing operations
|
|
|
134,287
|
|
|
|
54,755
|
|
|
|
58,417
|
|
|
|
38,514
|
|
|
|
24,123
|
|
Income (loss) from discontinued operations, net of taxes
|
|
|
|
|
|
|
|
|
|
|
1,616
|
|
|
|
1,231
|
|
|
|
(2,544
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
(364,210
|
)
|
|
|
61,151
|
|
|
|
67,986
|
|
|
|
44,774
|
|
|
|
26,106
|
|
Net income attributable to non-controlling interests
|
|
|
14,104
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Artio Global Investors
|
|
$
|
(378,314
|
)
|
|
$
|
61,151
|
|
|
$
|
67,986
|
|
|
$
|
44,774
|
|
|
$
|
26,106
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attributable to Artio Global Investors per share
information basic and diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
$
|
(8.88
|
)
|
|
$
|
1.46
|
|
|
$
|
1.58
|
|
|
$
|
1.04
|
|
|
$
|
0.68
|
|
Income from discontinued operations, net of taxes
|
|
|
|
|
|
|
|
|
|
|
0.04
|
|
|
|
0.03
|
|
|
|
(0.06
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(8.88
|
)
|
|
$
|
1.46
|
|
|
$
|
1.62
|
|
|
$
|
1.07
|
|
|
$
|
0.62
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends declared per basic share
|
|
$
|
5.16
|
|
|
$
|
2.79
|
|
|
$
|
1.43
|
|
|
$
|
|
|
|
$
|
0.71
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares used to calculate per share
information basic and diluted
|
|
|
42,620
|
|
|
|
42,000
|
|
|
|
42,000
|
|
|
|
42,000
|
|
|
|
42,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance sheet data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
60,842
|
|
|
$
|
86,563
|
|
|
$
|
133,447
|
|
|
$
|
61,055
|
|
|
$
|
16,194
|
|
Total assets
|
|
|
195,954
|
|
|
|
319,476
|
|
|
|
355,355
|
|
|
|
244,704
|
|
|
|
121,214
|
|
Debt
|
|
|
60,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued compensation and benefits
|
|
|
31,478
|
|
|
|
268,925
|
|
|
|
245,245
|
|
|
|
138,087
|
|
|
|
68,880
|
|
Total liabilities
|
|
|
191,973
|
|
|
|
286,231
|
|
|
|
266,261
|
|
|
|
163,820
|
|
|
|
85,104
|
|
Total stockholders equity
|
|
$
|
6,892
|
|
|
$
|
33,245
|
|
|
$
|
89,094
|
|
|
$
|
80,884
|
|
|
$
|
36,110
|
|
Non-controlling interests
|
|
|
(2,911
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
$
|
3,981
|
|
|
$
|
33,245
|
|
|
$
|
89,094
|
|
|
$
|
80,884
|
|
|
$
|
36,110
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets under management data (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets under management, excluding legacy
|
|
$
|
55,993
|
|
|
$
|
45,200
|
|
|
$
|
75,362
|
|
|
$
|
53,486
|
|
|
$
|
34,850
|
|
Net client cash flows
|
|
|
338
|
|
|
|
1,930
|
|
|
|
12,150
|
|
|
|
7,582
|
|
|
|
8,633
|
|
Market appreciation (depreciation)
|
|
|
10,455
|
|
|
|
(32,092
|
)
|
|
|
9,726
|
|
|
|
11,054
|
|
|
|
4,635
|
|
|
41
Item 7. Managements
Discussion and Analysis of Financial Condition and Results of
Operations (MD&A)
Introduction
Artio Global Investors Inc. (Investors or the
Company) and subsidiaries (collectively,
we, us or our) comprises
Investors and its three subsidiaries, Artio Global Holdings LLC
(Holdings), an intermediate holding company, Artio
Global Management LLC (Investment Adviser), a
registered investment adviser under the Investment Advisers Act
of 1940, and Artio Capital Management LLC. Holdings is
approximately 74% owned by Investors, 13% owned by Richard Pell,
our Chairman, Chief Executive Officer and Chief Investment
Officer (Pell), and 13% owned by Rudolph-Riad
Younes, our Head of International Equity (Younes,
together with Pell, the Principals). The
Principals interests are reflected in the consolidated
financial statements as non-controlling interests. Investment
Adviser and Artio Capital Management LLC are wholly owned
subsidiaries of Holdings.
Our MD&A is provided in addition to the accompanying
consolidated financial statements and footnotes to assist
readers in understanding our results of operations, financial
position, liquidity and cash flows. The MD&A is organized
as follows:
|
|
|
General Overview. Beginning on page 42, we
provide a summary of our overall business, discuss our 2009
initial public offering (IPO), our critical
accounting policies and the economic environment.
|
|
|
Key Performance Indicators. Beginning on
page 45, we discuss the key operating and financial
indicators that guide managements review of our
performance.
|
|
|
Assets Under Management. Beginning on page 47,
we provide a detailed discussion of our assets under management
(AuM), which is a major driver of our operating
revenues and certain of our expenses.
|
|
|
Revenues and Other Operating Income. Beginning on
page 54, we discuss our revenue and other operating income
compared to the previous two years.
|
|
|
Operating Expenses. Beginning on page 55, we
discuss our operating expenses compared to the previous two
years.
|
|
|
Liquidity and Capital Resources. Beginning on
page 58, we analyze our working capital as of
December 31, 2009 and 2008, and cash flows for 2009 and
2008. Also included is a discussion of the amount of financial
capacity available to help fund our future activities.
|
|
|
New Accounting Standards. Beginning on page 60,
we discuss new accounting pronouncements that may apply to us.
|
|
|
Cautionary Note Regarding Forward-Looking
Statements. Beginning on page 60, we describe the
risks and uncertainties that could cause actual results to
differ materially from those discussed in forward-looking
statements set forth in this MD&A relating to our financial
results, operations, business plans and prospects. Such
forward-looking statements are based on managements
current expectations about future events, which are inherently
susceptible to uncertainty and changes in circumstances.
|
Our results for 2009 include a significant amount of expenses
that are either non-recurring or relate to agreements that were
terminated in connection with the IPO. These expenses include,
but are not limited to, Allocation of Class B profits
interests, Change in redemption value of Class B
profits interests, Tax receivable agreement, the
de-recognition of deferred tax assets, as well as certain
professional and licensing fees within General &
administrative expenses.
General
Overview
Business
We are an asset management company that provides investment
management services to institutional and mutual fund clients. We
manage and advise proprietary funds, commingled institutional
investment vehicles,
42
institutional separate accounts and sub-advisory accounts. Our
operations are based principally in the U.S.; however, our AuM
are invested primarily outside of the U.S.
Initial
Public Offering and Changes in Principals
Interests
On September 29, 2009, we completed an initial public
offering (IPO) of 25.0 million shares of
Investors Class A common stock (Class A
common stock) at a price of $26.00 per share. The IPO
proceeds, net of the underwriting discount, of
$614.9 million were used to repurchase and retire an
aggregate of 22.6 million shares of Investors
Class C common stock from GAM Holding Ltd. (formerly known
as Julius Baer Holding Ltd.), a Swiss corporation,
(GAM) and to repurchase 1.2 million shares of
Class A common stock from each of the Principals. (See
Item 8. Financial Statements and Supplementary Data, Notes
to Consolidated Financial Statements, Note 2. Initial
Public Offering and Changes in the Principals
Interests.)
On October 5, 2009, the underwriters exercised their option
to purchase additional shares of Class A common stock at
the IPO price, net of the underwriting discount, resulting in
the issuance of 2,644,156 shares of Class A common
stock. The net proceeds were used to repurchase and retire at
the IPO price, net of the underwriting discount,
2,644,156 shares of Class C common stock from GAM.
After the IPO and the exercise of the underwriters option,
GAM owns approximately 27.9% of the outstanding shares of our
capital stock through its ownership of the outstanding shares of
Class C common stock.
Before the IPO, each Principal had a 15% Class B profits
interest in Investment Adviser, which was accounted for as
compensation. Immediately prior to the IPO, each Principal
exchanged his Class B profits interest for a 15% non-voting
Class A membership interest in Holdings (New
Class A Units). Each Principal also purchased, at par
value, nine million shares of voting, non-participating,
Investors Class B common stock (Class B
common stock). As of December 31, 2009, each
Principals New Class A Units represent an approximate
13% interest in Holdings and are accounted for as
non-controlling interests.
Critical
Accounting Policies and Estimates
The consolidated financial statements are prepared in conformity
with accounting principles generally accepted in the United
States of America (U.S. GAAP). These principles
require management to make estimates and assumptions that affect
the reported amounts of assets, liabilities (including
contingent liabilities), revenues, and expenses at the date of
the consolidated financial statements. Actual results could
differ from those estimates and may have a material effect on
the consolidated financial statements.
Fees
Receivable and Accrued Fees, Net of Allowance for Doubtful
Accounts
Fees receivable and accrued fees, net of allowance for
doubtful accounts represent fees that have been, or will be
billed to our clients. We review receivables and provide an
allowance for doubtful accounts for any receivables when
appropriate. As of December 31, 2009, the allowance for
doubtful accounts was insignificant to our receivables balance.
Investment
Management Fees
Investment management fees fluctuate based on the total
value of AuM. Our procedures for determining the fair values of
assets managed are described in the AuM section of
this MD&A.
Income
Taxes
Recovery of deferred tax benefits depends on our ability to
generate sufficient taxable income. A significant portion of the
deferred tax asset balance is derived using expected tax
benefits that develop over a
15-year
period. Therefore, sufficient taxable income will need to be
earned over a
15-year
period (at current tax rates) for the Company to be able to
receive these tax benefits. As our taxable income has
historically been significantly in excess of the necessary
amount, we believe that it is more likely than not that the
deferred tax asset will be recovered and, therefore, no
valuation allowance is necessary.
Uncertainty in income tax positions is accounted for by
recognizing in the consolidated financial statements the impact
of a tax position when it is more likely than not that the tax
position would be sustained upon
43
examination by the tax authorities based on the technical merits
of the position. We consider the facts and circumstances as of
December 31 in order to determine the appropriate tax benefit to
recognize. Significant differences could exist between the
ultimate outcome of the examination of a tax position and
managements estimate. These differences could have a
material impact on our effective tax rate, results of
operations, financial position
and/or cash
flows.
Interest and penalties relating to tax liabilities are
recognized on actual tax liabilities and exposure items.
Interest is accrued according to the provisions of the relevant
tax law and is reported as interest expense. Penalties are
accrued and reported as General and administrative
expenses.
Economic
Environment
As an investment manager, we derive substantially all of our
operating revenues from providing investment management services
to our institutional and mutual fund clients. Such revenues are
driven by the amount and composition of our AuM, as well as by
our fee structure. Accordingly, our business results are highly
dependent upon the prevailing global economic climate and its
impact on the capital markets.
In the aftermath of the economic and financial turmoil of 2008
and early 2009, financial markets took on a positive tone
beginning in March 2009 as global stimulus efforts began to take
hold. Corporate credit spreads declined and cyclical and
financial stocks led the equity markets forward, with more
defensive sectors slow to follow. Investors began to re-evaluate
risk levels within their portfolios, as was evidenced by
outperformance within emerging markets, high yield and more
cyclically-oriented sectors. Economic fundamentals further aided
the markets tone in the fourth quarter of 2009. While
unemployment remained high, the rate of job losses continued to
slow. Manufacturing levels, capacity utilization, consumer
confidence, and vehicle and retail sales continued to climb.
Third-quarter 2009 gross domestic product rose, although at
a slow pace. The housing market showed signs of stabilization
even with increasing mortgage delinquencies. Finally, inflation
remains muted, which may continue to result in low interest
rates.
44
Key
Performance Indicators
Our management reviews our performance on a monthly basis,
focusing on the indicators described below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of and for the Years Ended December 31,
|
(in millions, except basis points and percentages)
|
|
2009
|
|
2008
|
|
2007
|
|
Operating
indicators(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
AuM at end of period
|
|
$
|
55,993
|
|
|
$
|
45,200
|
|
|
$
|
75,362
|
|
Average AuM for
period(b)
|
|
|
48,166
|
|
|
|
64,776
|
|
|
|
66,619
|
|
Net client cash flows
|
|
|
338
|
|
|
|
1,930
|
|
|
|
12,150
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial indicators
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment management fees
|
|
|
305
|
|
|
|
425
|
|
|
|
446
|
|
Effective fee rate (basis
points)(c)
|
|
|
63.4
|
|
|
|
65.6
|
|
|
|
66.9
|
|
Adjusted operating
income(d)
|
|
|
173
|
|
|
|
252
|
|
|
|
280
|
|
Adjusted operating
margin(e)
|
|
|
56.4
|
%
|
|
|
59.8
|
%
|
|
|
62.7
|
%
|
Adjusted
EBITDA(d)
|
|
|
176
|
|
|
|
255
|
|
|
|
282
|
|
Adjusted EBITDA
margin(e)
|
|
|
57.4
|
%
|
|
|
60.5
|
%
|
|
|
63.1
|
%
|
Adjusted compensation
ratio(d)(f)
|
|
|
24.3
|
%
|
|
|
19.8
|
%
|
|
|
20.4
|
%
|
Adjusted net income attributable to Artio Global
Investors(d)
|
|
|
105
|
|
|
|
143
|
|
|
|
156
|
|
Diluted earnings per share
|
|
$
|
(8.88
|
)
|
|
$
|
1.46
|
|
|
$
|
1.62
|
|
Adjusted diluted earnings per
share(d)
|
|
$
|
1.75
|
|
|
$
|
2.38
|
|
|
$
|
2.61
|
|
|
|
|
|
(a)
|
|
Excluding legacy activities.
|
|
(b)
|
|
Average AuM for a period is
computed on the beginning-of-first-month balance and all
end-of-month balances within the year.
|
|
(c)
|
|
The effective fee rate is computed
by dividing investment management fees by average AuM for the
year.
|
|
(d)
|
|
See the Adjusted Performance
Measures section of this MD&A for reconciliations of
Employee compensation and benefits to Adjusted
compensation; Operating income (loss) before income tax
expense to Adjusted operating income; Net income (loss)
attributable to Artio Global Investors to Adjusted Earnings
before Interest, Taxes, Depreciation and Amortization
(EBITDA); and Net income (loss) attributable to
Artio Global Investors to Adjusted net income attributable
to Artio Global Investors.
|
|
(e)
|
|
Adjusted operating and Adjusted
EBITDA margins are calculated by dividing Adjusted operating
income and Adjusted EBITDA by Total revenues and other
operating income.
|
|
(f)
|
|
Calculated as Adjusted
compensation(d)
divided by Total revenues and other operating income.
|
Operating
Indicators
Our revenues are driven by the amount and composition of our
AuM, as well as by our fee structure. As a result, management
closely monitors our AuM. We believe average AuM is important as
most of our fees are calculated based on daily or monthly AuM,
rather than quarter-end balances of AuM.
Net client cash flows represent sales to either new clients or
existing clients, less redemptions. Our net client cash flows
are driven by the performance of our investment strategies,
competitiveness of fee rates, the success of our marketing and
client service efforts, and the state of the overall equity and
fixed income markets. In addition, our net client cash flows
reflect client-specific actions, such as portfolio rebalancing
or decisions to change portfolio managers.
Economic conditions improved throughout 2009, as equity markets
increased and the U.S. dollar weakened, resulting in our
AuM as of December 31, 2009, being 24% higher than at the
beginning of the year. This was in contrast to a 40% decline in
our AuM in 2008, resulting from substantial declines in global
equity markets, particularly in the third and fourth quarters of
2008, and a strengthening of the U.S. dollar. In addition,
we experienced net client cash inflows of $0.3 billion for
2009, and although market sentiment has improved, we believe
portfolio rebalancing activity in 2009 has decreased from
historical levels as investors evaluated their investment
strategies. As a consequence, we believe this reduced the
overall number of institutional mandates and reduced our level
of net client cash flows.
45
Financial
Indicators
Management reviews certain financial ratios to monitor progress
with internal forecasts, understand the underlying business and
compare our firm with others in the financial services industry.
The effective fee rate represents the amount of investment
management fees we earn divided by the average dollar value of
client assets we manage. We use this information to evaluate the
contribution to revenue from our products. Adjusted operating
and EBITDA margins are important indicators of our profitability
and the efficiency of our business model. (See the
Adjusted Performance Measures section of this
MD&A for a discussion of financial indicators not prepared
in conformity with U.S. Generally Accepted Accounting
Principles (GAAP).) Other ratios shown in the table
above allow us to review expenses in comparison with our
revenues.
Our effective fee rate for 2009 decreased from 2008 due
primarily to a greater proportion of our average AuM being
within our institutional separate accounts and fixed income
strategies, both of which have lower average fee rates than our
overall blended rate. Our institutional separate accounts
increased to approximately 32% of average AuM in 2009 from
approximately 30% of average AuM in 2008. Our fixed income
strategies increased to approximately 14% of average AuM for
2009 from approximately 9% of average AuM in 2008. In addition,
we earn higher investment management fees from our proprietary
funds, compared to our other investment vehicles, and from our
International Equity strategies, compared to our other
investment strategies. Our proprietary funds declined to
approximately 43% of average AuM for 2009 from approximately 47%
of average AuM for 2008. Our International Equity strategies
represented approximately 84% of average AuM for 2009 compared
to approximately 90% of average AuM for 2008.
Our Adjusted operating income and Adjusted EBITDA margins in
2009, declined compared to 2008. Revenues declined faster than
expenses, primarily in the first half of the year. Although the
economic events since the latter part of 2008 have severely
impacted our business, we continued to generate strong Adjusted
operating income and Adjusted EBITDA margins, which we believe
reflects the strength of our franchise and the variability of
our expense base. Operating income (loss) before income tax
expense margins decreased in 2009, due primarily to
non-recurring compensation charges in connection with the IPO
and the reasons discussed above.
Adjusted
Performance Measures
Certain of our financial indicators are not prepared in
conformity with U.S. GAAP. These indicators are adjusted
versions of balances in our consolidated financial statements.
The adjustments are not in conformity with GAAP. We believe
these adjustments are meaningful as they are more representative
of our ongoing organizational structure. The adjustments are
primarily related to certain expenses recorded in Employee
compensation and benefits and the tax effect associated with
those adjustments. For 2009, we have excluded the amortization
expense associated with the equity awards granted to employees
in connection with the IPO, as these awards were one-time in
nature. For all years presented, we have excluded the
non-recurring compensation charges associated with the
reorganization of the Companys ownership structure in
connection with the IPO and the former compensation structure of
our Principals. In addition, we have adjusted Income taxes
related to income from continuing operations to reflect the
appropriate effective tax rate for each year after taking into
consideration these non-GAAP adjustments. We also present
Adjusted net income attributable to Artio Global Investors per
diluted share, which assumes the full exchange of our
Principals non-controlling interests for Class A
common stock at the beginning of each period presented. These
adjustments are reflected in Adjusted operating income, Adjusted
operating margin, Adjusted EBITDA, Adjusted EBITDA margin,
Adjusted compensation ratio, Adjusted net income attributable to
Artio Global Investors and Adjusted diluted earnings per share.
We consider each of these adjusted measures to be important
measures of our financial performance, as we believe they best
present operating performance on a basis that is representative
of our current structure.
46
The following table provides reconciliations of Employee
compensation and benefits to Adjusted compensation,
Operating income (loss) before income tax expense to
Adjusted operating income, Net income (loss) attributable to
Artio Global Investors to Adjusted EBITDA, and Net income
(loss) attributable to Artio Global Investors to Adjusted
net income attributable to Artio Global Investors:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
(in millions)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Employee compensation and benefits
|
|
$
|
477
|
|
|
$
|
223
|
|
|
$
|
253
|
|
Less compensation adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Allocation of Class B profits interests
|
|
|
34
|
|
|
|
76
|
|
|
|
84
|
|
Change in redemption value of Class B profits interests
|
|
|
266
|
|
|
|
54
|
|
|
|
77
|
|
Tax receivable agreement
|
|
|
98
|
|
|
|
|
|
|
|
|
|
Principals deferred compensation
|
|
|
|
|
|
|
9
|
|
|
|
1
|
|
Amortization expense of IPO-related RSU grants
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total compensation adjustments
|
|
|
402
|
|
|
|
139
|
|
|
|
162
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted compensation
|
|
$
|
75
|
|
|
$
|
84
|
|
|
$
|
91
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) before income tax expense
|
|
$
|
(229
|
)
|
|
$
|
113
|
|
|
$
|
118
|
|
Add: total compensation adjustments
|
|
|
402
|
|
|
|
139
|
|
|
|
162
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted operating income
|
|
$
|
173
|
|
|
$
|
252
|
|
|
$
|
280
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Artio Global Investors
|
|
$
|
(378
|
)
|
|
$
|
61
|
|
|
$
|
68
|
|
Add: net income attributable to non-controlling interests
|
|
|
14
|
|
|
|
|
|
|
|
|
|
Less: income from discontinued operations, net of tax
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
Add: income taxes relating to income from continuing operations
|
|
|
134
|
|
|
|
55
|
|
|
|
59
|
|
Less: non-operating (income)
loss(a)
|
|
|
1
|
|
|
|
(3
|
)
|
|
|
(7
|
)
|
Add: depreciation and
amortization(b)
|
|
|
3
|
|
|
|
3
|
|
|
|
2
|
|
Add: total compensation adjustments
|
|
|
402
|
|
|
|
139
|
|
|
|
162
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
$
|
176
|
|
|
$
|
255
|
|
|
$
|
282
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Artio Global Investors
|
|
$
|
(378
|
)
|
|
$
|
61
|
|
|
$
|
68
|
|
Add: net income attributable to non-controlling interests
|
|
|
14
|
|
|
|
|
|
|
|
|
|
Less: income from discontinued operations, net of tax
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
Tax impact of adjustments
|
|
|
67
|
|
|
|
(57
|
)
|
|
|
(72
|
)
|
Add: total compensation adjustments
|
|
|
402
|
|
|
|
139
|
|
|
|
162
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted Net income attributable to Artio Global Investors
|
|
$
|
105
|
|
|
$
|
143
|
|
|
$
|
156
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average diluted shares
|
|
|
43
|
|
|
|
42
|
|
|
|
42
|
|
Adjusted weighted average diluted
shares(c)
|
|
|
60
|
|
|
|
60
|
|
|
|
60
|
|
|
|
|
|
(a)
|
|
Non-operating income (loss)
represents primarily
interest income and expense, including gains and losses on
interest-bearing marketable securities.
|
|
(b)
|
|
Excludes amortization expense
associated with equity awards in connection with the IPO, as
such expense is included in total compensation adjustments.
|
|
(c)
|
|
Adjusted weighted average diluted
shares assumes Investors ownership structure following the IPO
was in effect at the beginning of each period and that the
Principals have exchanged all of their New Class A Units
for Class A common stock.
|
Assets
under Management (AuM)
Changes to our AuM, the distribution of our AuM among our
investment products and investment strategies, and the effective
fee rates on our products, all affect our operating results from
one period to another.
The amount and composition of our AuM are, and will continue to
be, influenced by a variety of factors including, among other
things:
|
|
|
investment performance, including fluctuations in both the
financial markets and foreign currency exchange rates and our
investment decisions;
|
47
|
|
|
client cash flows into and out of our investment products;
|
|
the mix of AuM among our various strategies; and
|
|
our introduction or closure of investment strategies and
products.
|
Our five core investment strategies are:
|
|
|
International Equity;
|
|
Global Equity;
|
|
U.S. Equity;
|
|
High Grade Fixed Income; and
|
|
High Yield.
|
Investors are able to invest in our strategies through the
investment vehicles set forth in the following table.
The following table sets forth a summary of our AuM (including
legacy activities) by investment vehicle type as of
December 31, 2009, 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
As a % of AuM as of December 31,
|
|
(in millions, except percentages)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Proprietary
funds(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A shares
|
|
$
|
7,919
|
|
|
$
|
6,251
|
|
|
$
|
13,217
|
|
|
|
|
|
|
|
|
|
|
|
|
|
I
shares(b)
|
|
|
16,563
|
|
|
|
13,215
|
|
|
|
23,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
24,482
|
|
|
|
19,466
|
|
|
|
37,117
|
|
|
|
43.7
|
%
|
|
|
43.1
|
%
|
|
|
49.3
|
%
|
Institutional commingled funds
|
|
|
9,198
|
|
|
|
7,056
|
|
|
|
9,357
|
|
|
|
16.4
|
|
|
|
15.6
|
|
|
|
12.4
|
|
Separate accounts
|
|
|
17,854
|
|
|
|
14,342
|
|
|
|
22,897
|
|
|
|
31.9
|
|
|
|
31.7
|
|
|
|
30.4
|
|
Sub-advisory accounts
|
|
|
4,459
|
|
|
|
4,336
|
|
|
|
5,991
|
|
|
|
8.0
|
|
|
|
9.6
|
|
|
|
7.9
|
|
Legacy
activities(c)
|
|
|
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending AuM
|
|
$
|
55,993
|
|
|
$
|
45,204
|
|
|
$
|
75,362
|
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
|
|
(a)
|
|
Proprietary funds include both SEC
registered funds and private offshore funds. SEC registered
mutual funds within proprietary funds are: Artio International
Equity Fund; Artio International Equity Fund II; Artio
Total Return Bond Fund; Artio Global High Income Fund; Artio
Global Equity Fund Inc.; Artio U.S. Microcap Fund; Artio U.S.
Midcap Fund; Artio U.S. Multicap Fund; and Artio U.S. Smallcap
Fund.
|
|
(b)
|
|
Amounts invested in private
offshore funds are categorized as I shares.
|
|
(c)
|
|
Legacy activities relate to a hedge
fund product which we discontinued in the fourth quarter of 2008.
|
The different fee structures associated with each type of
investment vehicle make the composition of our AuM an important
determinant of the investment management fees we earn. We
typically earn higher effective investment management fee rates
from our proprietary funds and institutional commingled funds
than on our separate and sub-advised accounts. In the latter
half of 2008, the amount of AuM related to proprietary funds as
a percentage of total AuM decreased as proprietary fund
redemptions exceeded client cash inflows within the proprietary
funds. Proprietary funds include a significant number of
underlying retail investors. We believe that institutional
investors, who typically invest in our other vehicles, generally
have longer-term investment horizons than retail proprietary
fund investors.
48
The following table sets forth the changes in AuM by investment
vehicle type:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
YE 09/08
|
|
|
YE 08/07
|
|
(in millions, except percentages)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
% Change
|
|
|
% Change
|
|
|
Proprietary Funds:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning AuM
|
|
$
|
19,466
|
|
|
$
|
37,117
|
|
|
$
|
26,600
|
|
|
|
(48
|
)%
|
|
|
40
|
%
|
Gross client cash inflows
|
|
|
7,659
|
|
|
|
8,716
|
|
|
|
10,999
|
|
|
|
(12
|
)
|
|
|
(21
|
)
|
Gross client cash outflows
|
|
|
(7,038
|
)
|
|
|
(10,973
|
)
|
|
|
(5,103
|
)
|
|
|
36
|
|
|
|
(115
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net client cash flows
|
|
|
621
|
|
|
|
(2,257
|
)
|
|
|
5,896
|
|
|
|
128
|
|
|
|
(138
|
)
|
Transfers between investment vehicles
|
|
|
(38
|
)
|
|
|
(188
|
)
|
|
|
(92
|
)
|
|
|
80
|
|
|
|
(104
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total client cash flows
|
|
|
583
|
|
|
|
(2,445
|
)
|
|
|
5,804
|
|
|
|
124
|
|
|
|
(142
|
)
|
Market appreciation (depreciation)
|
|
|
4,433
|
|
|
|
(15,206
|
)
|
|
|
4,713
|
|
|
|
129
|
|
|
|
(423
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending AuM
|
|
|
24,482
|
|
|
|
19,466
|
|
|
|
37,117
|
|
|
|
26
|
|
|
|
(48
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Institutional Commingled Funds:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning AuM
|
|
|
7,056
|
|
|
|
9,357
|
|
|
|
5,676
|
|
|
|
(25
|
)
|
|
|
65
|
|
Gross client cash inflows
|
|
|
1,391
|
|
|
|
3,617
|
|
|
|
2,886
|
|
|
|
(62
|
)
|
|
|
25
|
|
Gross client cash outflows
|
|
|
(1,118
|
)
|
|
|
(1,135
|
)
|
|
|
(813
|
)
|
|
|
1
|
|
|
|
(40
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net client cash flows
|
|
|
273
|
|
|
|
2,482
|
|
|
|
2,073
|
|
|
|
(89
|
)
|
|
|
20
|
|
Transfers between investment vehicles
|
|
|
29
|
|
|
|
194
|
|
|
|
371
|
|
|
|
(85
|
)
|
|
|
(48
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total client cash flows
|
|
|
302
|
|
|
|
2,676
|
|
|
|
2,444
|
|
|
|
(89
|
)
|
|
|
9
|
|
Market appreciation (depreciation)
|
|
|
1,840
|
|
|
|
(4,977
|
)
|
|
|
1,237
|
|
|
|
137
|
|
|
|
(502
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending AuM
|
|
|
9,198
|
|
|
|
7,056
|
|
|
|
9,357
|
|
|
|
30
|
|
|
|
(25
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Separate Accounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning AuM
|
|
|
14,342
|
|
|
|
22,897
|
|
|
|
16,574
|
|
|
|
(37
|
)
|
|
|
38
|
|
Gross client cash inflows
|
|
|
2,273
|
|
|
|
2,361
|
|
|
|
5,928
|
|
|
|
(4
|
)
|
|
|
(60
|
)
|
Gross client cash outflows
|
|
|
(2,028
|
)
|
|
|
(1,803
|
)
|
|
|
(2,315
|
)
|
|
|
(12
|
)
|
|
|
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net client cash flows
|
|
|
245
|
|
|
|
558
|
|
|
|
3,613
|
|
|
|
(56
|
)
|
|
|
(85
|
)
|
Transfers between investment vehicles
|
|
|
9
|
|
|
|
(53
|
)
|
|
|
(279
|
)
|
|
|
117
|
|
|
|
81
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total client cash flows
|
|
|
254
|
|
|
|
505
|
|
|
|
3,334
|
|
|
|
(50
|
)
|
|
|
(85
|
)
|
Market appreciation (depreciation)
|
|
|
3,258
|
|
|
|
(9,060
|
)
|
|
|
2,989
|
|
|
|
136
|
|
|
|
(403
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending AuM
|
|
|
17,854
|
|
|
|
14,342
|
|
|
|
22,897
|
|
|
|
24
|
|
|
|
(37
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub-advisory Accounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning AuM
|
|
|
4,336
|
|
|
|
5,991
|
|
|
|
4,636
|
|
|
|
(28
|
)
|
|
|
29
|
|
Gross client cash inflows
|
|
|
768
|
|
|
|
2,557
|
|
|
|
1,359
|
|
|
|
(70
|
)
|
|
|
88
|
|
Gross client cash outflows
|
|
|
(1,569
|
)
|
|
|
(1,410
|
)
|
|
|
(791
|
)
|
|
|
(11
|
)
|
|
|
78
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net client cash flows
|
|
|
(801
|
)
|
|
|
1,147
|
|
|
|
568
|
|
|
|
(170
|
)
|
|
|
102
|
|
Transfers between investment vehicles
|
|
|
|
|
|
|
47
|
|
|
|
|
|
|
|
(100
|
)
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total client cash flows
|
|
|
(801
|
)
|
|
|
1,194
|
|
|
|
568
|
|
|
|
(167
|
)
|
|
|
110
|
|
Market appreciation (depreciation)
|
|
|
924
|
|
|
|
(2,849
|
)
|
|
|
787
|
|
|
|
132
|
|
|
|
(462
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending AuM
|
|
|
4,459
|
|
|
|
4,336
|
|
|
|
5,991
|
|
|
|
3
|
|
|
|
(28
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Legacy Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning AuM
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross client cash inflows
|
|
|
|
|
|
|
44
|
|
|
|
|
|
|
|
(100
|
)
|
|
|
|
|
Gross client cash outflows
|
|
|
|
|
|
|
(35
|
)
|
|
|
|
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net client cash flows
|
|
|
|
|
|
|
9
|
|
|
|
|
|
|
|
(100
|
)
|
|
|
|
|
Transfers between investment vehicles
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total client cash flows
|
|
|
|
|
|
|
9
|
|
|
|
|
|
|
|
(100
|
)
|
|
|
|
|
Market appreciation (depreciation)
|
|
|
(4
|
)
|
|
|
(5
|
)
|
|
|
|
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending AuM
|
|
|
|
|
|
|
4
|
|
|
|
|
|
|
|
(100
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
49
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
YE 09/08
|
|
|
YE 08/07
|
|
(in millions, except percentages)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
% Change
|
|
|
% Change
|
|
|
Total AuM (including legacy activities):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning AuM
|
|
|
45,204
|
|
|
|
75,362
|
|
|
|
53,486
|
|
|
|
(40
|
)
|
|
|
41
|
|
Gross client cash inflows
|
|
|
12,091
|
|
|
|
17,295
|
|
|
|
21,172
|
|
|
|
(30
|
)
|
|
|
(18
|
)
|
Gross client cash outflows
|
|
|
(11,753
|
)
|
|
|
(15,356
|
)
|
|
|
(9,022
|
)
|
|
|
23
|
|
|
|
(70
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net client cash flows
|
|
|
338
|
|
|
|
1,939
|
|
|
|
12,150
|
|
|
|
(83
|
)
|
|
|
(84
|
)
|
Transfers between investment vehicles
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total client cash flows
|
|
|
338
|
|
|
|
1,939
|
|
|
|
12,150
|
|
|
|
(83
|
)
|
|
|
(84
|
)
|
Market appreciation (depreciation)
|
|
|
10,451
|
|
|
|
(32,097
|
)
|
|
|
9,726
|
|
|
|
133
|
|
|
|
(430
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending AuM
|
|
|
55,993
|
|
|
|
45,204
|
|
|
|
75,362
|
|
|
|
24
|
|
|
|
(40
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total AuM (excluding legacy activities):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning AuM
|
|
|
45,200
|
|
|
|
75,362
|
|
|
|
53,486
|
|
|
|
(40
|
)
|
|
|
41
|
|
Gross client cash inflows
|
|
|
12,091
|
|
|
|
17,251
|
|
|
|
21,172
|
|
|
|
(30
|
)
|
|
|
(19
|
)
|
Gross client cash outflows
|
|
|
(11,753
|
)
|
|
|
(15,321
|
)
|
|
|
(9,022
|
)
|
|
|
23
|
|
|
|
(70
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net client cash flows
|
|
|
338
|
|
|
|
1,930
|
|
|
|
12,150
|
|
|
|
(82
|
)
|
|
|
(84
|
)
|
Transfers between investment vehicles
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total client cash flows
|
|
|
338
|
|
|
|
1,930
|
|
|
|
12,150
|
|
|
|
(82
|
)
|
|
|
(84
|
)
|
Market appreciation (depreciation)
|
|
|
10,455
|
|
|
|
(32,092
|
)
|
|
|
9,726
|
|
|
|
133
|
|
|
|
(430
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending AuM
|
|
$
|
55,993
|
|
|
$
|
45,200
|
|
|
$
|
75,362
|
|
|
|
24
|
|
|
|
(40
|
)
|
|
Net client cash flows across all investment vehicles decreased
$1.6 billion for 2009 compared to 2008, mainly as a result
of a $4.7 billion decrease in net client cash inflows to
the International Equity II strategy, partially offset by a
$1.6 billion decrease in net client cash outflows from our
International Equity I strategy and a $1.4 billion increase
in net client cash inflows to our High Yield strategy.
Net client cash flows across all investment vehicles decreased
$10.2 billion for 2008 compared to 2007, mainly as a result
of a $4.5 billion decrease in net client cash inflows to
the International Equity II strategy, $3.0 billion
increase in net client cash outflows from the International
Equity I strategy and $2.3 billion decrease in net client
cash inflows to the High Grade Fixed Income strategy.
Market appreciation for 2009, 2008 and 2007 were primarily
attributable to the following strategies:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
YE 09/08
|
|
|
YE 08/07
|
|
(in millions, except percentages)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
% Change
|
|
|
% Change
|
|
|
Market appreciation (depreciation)
(excluding legacy activities):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International Equity I
|
|
$
|
4,105
|
|
|
$
|
(17,916
|
)
|
|
$
|
6,372
|
|
|
|
123
|
%
|
|
|
(381
|
)%
|
International Equity II
|
|
|
4,919
|
|
|
|
(13,288
|
)
|
|
|
2,803
|
|
|
|
137
|
|
|
|
(574
|
)
|
Other strategies
|
|
|
1,431
|
|
|
|
(888
|
)
|
|
|
551
|
|
|
|
261
|
|
|
|
(261
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total market appreciation (depreciation)
|
|
$
|
10,455
|
|
|
$
|
(32,092
|
)
|
|
$
|
9,726
|
|
|
|
133
|
|
|
|
(430
|
)
|
|
The MSCI AC World ex USA Index experienced a 41.4% increase
during 2009, declined 45.5% in 2008 and grew by 16.7% in 2007.
In 2009, the gross performances of our International Equity I
strategy trailed the index by 15.5% and our International
Equity II strategy trailed the index by 15.3%. In 2008, the
gross performances of our International Equity I strategy
outperformed the index by 1.4% and our International
Equity II strategy outperformed the index by 3.3%. In 2007,
the gross performances of our International Equity I strategy
outperformed the index by 1.8% and our International
Equity II strategy outperformed the index by 1.6%.
50
Proprietary
Funds
Net client cash flows related to proprietary funds increased
$2.9 billion for 2009 compared to 2008, mainly as a result
of a $2.1 billion decrease in net client cash outflows from
our International Equity I Fund and a $1.0 billion increase
in net client cash inflows to our Global High Income Fund,
partially offset by a $0.2 billion decrease in net client
cash inflows to our International Equity II Fund and a
$0.1 billion decrease in net client cash inflows to our
Total Return Bond Fund.
Net client cash flows related to proprietary funds decreased
$8.2 billion for 2008 compared to 2007, mainly as a result
of a $4.1 billion decrease in net client cash flows to our
International Equity I strategy, as 2008 had net client cash
outflows compared to net client cash inflows in 2007, and a
$3.8 billion decrease in net client cash inflows to our
International Equity II strategy.
Institutional
Commingled Funds
Net client cash flows related to institutional commingled funds
decreased $2.2 billion for 2009 compared to 2008, mainly as
a result of a $2.1 billion decrease in net client cash
inflows to our International Equity II vehicles.
Net client cash flows related to institutional commingled funds
increased $0.4 billion for 2008 compared to 2007, mainly as
a result of an increase in net client cash inflows of
$0.2 billion to our International Equity II vehicles
and a decrease in net client cash outflows of $0.1 billion
from our International Equity I vehicles.
Separate
Accounts
Net client cash flows related to separate accounts decreased
$0.3 billion for 2009 compared to 2008, mainly as a result
of a $0.5 billion increase in net client cash outflows from
the International Equity I strategy, partially offset by a
$0.1 billion increase in net client cash flows into the
High Yield strategy, as 2009 had net client cash inflows
compared to net client cash outflows in 2008.
Net client cash flows related to separate accounts decreased
$3.1 billion for 2008 compared to 2007, mainly as a result
of a combined $2.3 billion decrease in net client cash
flows to our High Grade Fixed Income and High Yield strategies,
as 2007 included a $1.6 billion fixed income mandate
relating to one account. Further, the reduction in net client
cash inflows was also attributable to a $1.7 billion
decrease in net client cash inflows to our International
Equity II strategy, partially offset by a $1.0 billion
decrease in net client cash outflows from our International
Equity I strategy.
Sub-advisory
Accounts
Net client cash flows related to sub-advised accounts decreased
$1.9 billion for 2009 compared to 2008. The decrease was
mainly a result of a $2.4 billion decrease in net client
cash flows to our International Equity II accounts, which
resulted from net client cash outflows in 2009 compared to net
client cash inflows in 2008, as 2008 included the impact of a
$1.5 billion funding related to a new client, and 2009
included the partial redemption of approximately
$0.8 billion by our largest sub-advisory client. The
decrease is partially offset by a $0.3 billion increase in
net client cash inflows to our High Yield strategy and a
$0.2 billion decrease in net client cash outflows from
certain low-margin U.S. dollar fixed income products.
Net client cash flows related to sub-advised accounts increased
$0.6 billion for 2008 compared to 2007, mainly as a result
of a $1.5 billion mandate relating to a new International
Equity II client in 2008, partially offset by a decrease in
net client cash inflows to our International Equity II
strategy by other clients, as well as a $0.3 billion
increase in net client cash outflows during 2008 in certain
low-margin short-term U.S. dollar fixed income products.
Fair
Value of AuM
The valuation policies of the proprietary funds are approved by
the Board of Trustees of the Artio Global Investment Funds and
the Board of Directors of the Artio Global Equity Fund.
Valuation of institutional commingled funds is similar to that
of the proprietary funds. Primary responsibility for the
valuation of
51
separate accounts rests with the custodians of our clients
accounts. Fair value polices for sub-advised accounts are
determined by the primary adviser.
As of
December 31, 2009 and 2008
Our proprietary funds and institutional commingled funds adopted
the fair value measurement reporting requirement for their
financial statements in 2008.
The table below shows the composition of the investments in
securities of the proprietary funds and institutional commingled
funds by Levels 1, 2, and 3 as of December 31, 2008
and 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 2
|
|
Level 3
|
|
|
|
|
|
|
Other
|
|
Significant
|
|
|
|
|
Level 1
|
|
Observable
|
|
Unobservable
|
(in millions)
|
|
Total(a)
|
|
Quoted Prices
|
|
Inputs
|
|
Inputs
|
|
December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proprietary funds
|
|
$
|
15,802
|
|
|
$
|
13,545
|
|
|
$
|
1,817
|
|
|
$
|
440
|
|
Institutional commingled funds
|
|
|
6,494
|
|
|
|
6,384
|
|
|
|
79
|
|
|
|
31
|
|
December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proprietary funds
|
|
|
23,813
|
|
|
|
1,987
|
|
|
|
21,482
|
|
|
|
344
|
|
Institutional commingled Funds
|
|
|
8,998
|
|
|
|
1,894
|
|
|
|
7,069
|
|
|
|
35
|
|
|
|
|
|
(a)
|
|
Total differs from aggregate AuM
primarily due to uninvested cash.
|
We do not have responsibility for fair valuing the assets of
separate accounts or sub-advised accounts, and do not have
access to the fair value methodology of the custodians
responsible for such valuation. Accordingly, we do not compute
fair value data for these assets. The table below represents our
estimate of what the data for our separate accounts and
sub-advised assets might have been had we made such a
computation.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 2
|
|
Level 3
|
|
|
|
|
|
|
Other
|
|
Significant
|
|
|
|
|
Level 1
|
|
Observable
|
|
Unobservable
|
(in millions)
|
|
Total(a)
|
|
Quoted Prices
|
|
Inputs
|
|
Inputs
|
|
December 31, 2008
|
|
$
|
17,958
|
|
|
$
|
14,061
|
|
|
$
|
3,753
|
|
|
$
|
144
|
|
December 31, 2009
|
|
|
21,698
|
|
|
|
17,272
|
|
|
|
4,368
|
|
|
|
58
|
|
|
|
|
|
(a)
|
|
Total differs from aggregate AuM
primarily due to uninvested cash.
|
As of
December 31, 2007
During 2007, the valuation committee implemented a
standard-industry correlation model, which was applied to
closing prices when markets rose or fell by a level it
determined was materially significant, to determine fair value.
Since a large number of the underlying holdings were
international investments, the valuation committee recognized
that the last price traded on a local exchange may not
necessarily be the best price to use in calculating
the funds net asset value on a given day. The best
price represented an assessment of the effect that a local
market would have assigned to the event that gave rise to the
fair value pricing, had that local market been open
for business at the time of the funds close of business.
The approach applied stock-specific factor models which include
prices of index-linked futures, such as the S&P 500 or
Nikkei 225 Futures.
Prices obtained using the standard-industry correlation model
are referred to below as prices obtained from independent
pricing agents using adjusted market prices. These prices
were obtained through application of the model, without any
subjective input by our pricing committee or other internal
employees. The pricing committee did, however, monitor the
results derived from the model to ensure that policies were
being consistently applied. As of December 31, 2007, the
substantial majority of AuM that were not valued solely using
data from independent pricing agents were valued using this
third-party correlation model. During 2007, the use of adjusted
market prices had an immaterial (less than 0.1%) impact on our
Total revenues and other operating income.
52
On certain occasions, a specific stock, sector, or market may
not trade or abruptly halt trading during a given day.
Additionally, a post-market event may have required the pricing
committee to evaluate whether the last quoted price reflected
fair value. In the rare circumstances where these post-market
events were determined by the pricing committee to result in the
last quoted market price, as adjusted by the correlation model,
not reflecting fair value, the pricing committee established its
own view in light of the best price or fair value of the
relevant circumstances. These prices are referred to below as
being valued using valuations other than from
independent pricing agents. As of December 31, 2007, less
than 5% of the AuM in our registered investment companies were
valued on this other basis. To establish this
valuation, the pricing committee evaluated available facts and
information, including but not limited to, the following:
|
|
|
fundamental analytical data relating to the investment and its
issuer;
|
|
|
the value of other comparable securities or relevant financial
instruments, including derivative securities, traded on other
markets or among dealers;
|
|
|
an evaluation of the forces which influence the market in which
these securities are purchased and sold (e.g., the
existence of merger proposals or tender offers for similarly
situated companies that might affect the value of the security);
|
|
|
information obtained from the issuer, analysts, other financial
institutions
and/or the
appropriate stock exchange (for exchange-traded securities);
|
|
|
government (domestic or foreign) actions or pronouncements; and
|
|
|
other news events.
|
Additional factors that were considered by the pricing committee
when fair value pricing a portfolio security as a result of a
significant event may have included: the nature and duration of
the event and the forces influencing the operation of the
financial markets; the factors that precipitated the event;
whether the event is likely to recur; and whether the effects of
the event were isolated or whether they affected entire markets,
countries, or regions.
In addition to establishing a best price, the implementation of
these policies were designed to help reduce arbitrage
opportunities. Management supported the boards policy and
adopted a similar policy for its commingled investment vehicles.
As of December 31, 2007, conditions merited the application
of this procedure.
As of December 31, 2007, the sources of fair values of
assets of the registered investment companies were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
|
|
|
|
December 31,
|
|
|
% of Ending
|
|
(in millions, except percentages)
|
|
2007
|
|
|
AuM
|
|
|
Independent pricing agents using quoted market prices
|
|
$
|
11,734
|
|
|
|
31.6
|
%
|
Independent pricing agents using adjusted market prices to
reflect best price at U.S. market closing
|
|
|
23,709
|
|
|
|
63.9
|
|
Other
|
|
|
1,674
|
|
|
|
4.5
|
|
|
|
|
|
|
|
|
|
|
Ending AuM
|
|
$
|
37,117
|
|
|
|
100.0
|
%
|
|
The information in the table above reflects the valuation of our
sponsored proprietary funds. Because the assets of commingled
investment vehicles are very similar to those held in the
proprietary funds, the valuation of commingled investment
vehicles would mirror that of the proprietary funds in terms of
composition and valuation.
Independent pricing agents were sources such as Reuters or
Bloomberg, which provided quoted market prices. Other pricing
sources may also have been independent. However, the prices were
often determined by a market-makers price levels, as
opposed to exchange prints or evaluated bid/ask or sale
transactions. As described above, with respect to the assets
valued using adjusted market prices, substantially all of such
assets
53
were valued based on their quoted market price, adjusted by the
pricing committee to more closely reflect fair value at the
closing of U.S. markets rather than at the time of their
local exchanges closing, due to significant movement in
the value of equity securities during the relevant day. During
2007, the adjustments to market price had no material impact on
our revenues, as the impact on Total revenues and other
operating income in 2007 compared to Total revenues and
other operating income we would have earned if we had used
quoted market prices was less than 0.1%.
The information in the table above reflects the valuation of our
sponsored registered investment companies. Because the assets of
commingled investment vehicles are substantially identical to
those held in registered investment companies, the valuation of
commingled investment vehicles would substantially mirror that
of the registered investment companies in terms of composition
and valuation.
We are not responsible for determining the fair values of the
assets of separate accounts or sub-advised accounts, and did not
have access to the precise fair value methodology of the
custodians responsible for such valuation. However, as noted
above, we maintained our own internal valuation of the assets in
these vehicles and tested these valuations, on a monthly basis,
against the values provided by these custodians and did not find
material deviations.
Set out below, are the sources of fair value of assets of
separate, sub-advised, and hedge fund accounts according to our
internal valuation methodology as of December 31, 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
% of Ending
|
|
(in millions, except percentages)
|
|
2007
|
|
|
AuM
|
|
|
Independent pricing agents using quoted market prices
|
|
$
|
28,179
|
|
|
|
97.5
|
%
|
Independent pricing agents using adjusted market prices to
reflect best price at U.S. market closing
|
|
|
709
|
|
|
|
2.5
|
|
|
|
|
|
|
|
|
|
|
Ending AuM
|
|
$
|
28,888
|
|
|
|
100.0
|
%
|
|
Revenues
and Other Operating Income
Our revenues are driven by investment management fees earned
from managing clients assets. Investment management fees
fluctuate based on the total value of AuM, composition of AuM
among our investment vehicles and among our investment
strategies, changes in the investment management fee rates on
our products and, for the few accounts on which we earn
performance based fees, the investment performance of those
accounts. Performance fees may be subject to clawback provisions
as a result of performance declines. If such declines occur, the
performance fee clawback provisions are recognized when the
amount is probable and estimable. (See also the Assets
under Management section of this MD&A.)
The following table sets forth average AuM, the effective fee
rate and Total revenues and other operating income for
2009, 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands, except for Average AuM,
|
|
Years Ended December 31,
|
|
|
YE 09/08
|
|
|
YE 08/07
|
|
effective fee rate and percentages)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
% Change
|
|
|
% Change
|
|
|
Average
AuM(a)
(in millions)
|
|
$
|
48,166
|
|
|
$
|
64,776
|
|
|
$
|
66,619
|
|
|
|
(26
|
)%
|
|
|
(3
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective fee rate (basis points)
|
|
|
63.4
|
|
|
|
65.6
|
|
|
|
66.9
|
|
|
|
(2.2
|
)bp
|
|
|
(1.3
|
)bp
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment management fees
|
|
$
|
305,334.9
|
|
|
$
|
425,002.6
|
|
|
$
|
445,558.4
|
|
|
|
(28
|
)%
|
|
|
(5
|
)%
|
Net gains (losses) on securities held for deferred compensation
|
|
|
1,970.1
|
|
|
|
(2,856.5
|
)
|
|
|
|
|
|
|
169
|
|
|
|
|
|
Foreign currency gains (losses)
|
|
|
87.0
|
|
|
|
(100.6
|
)
|
|
|
185.9
|
|
|
|
186
|
|
|
|
(154
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues and other operating income
|
|
$
|
307,392.0
|
|
|
$
|
422,045.5
|
|
|
$
|
445,744.3
|
|
|
|
(27
|
)
|
|
|
(5
|
)
|
|
|
|
|
(a)
|
|
Excluding legacy activities.
|
54
Total revenues and other operating income decreased by
$114.7 million for 2009 compared to 2008, due primarily to
a decline in average AuM and, to a lesser extent, a decrease in
the effective fee rate, partially offset by net gains on
securities held for deferred compensation in 2009 compared to
net losses on securities held for deferred compensation in 2008.
The decline in the average AuM related to the significant
deterioration in equity markets that began in the second half of
2008 and extended into the first quarter of 2009. The decline in
the effective fee rate is primarily the result of a lower
proportion of average AuM in the International Equity strategies
and proprietary funds, our highest margin products and vehicle.
Total revenues and other operating income decreased by
$23.7 million for 2008 compared to 2007, due primarily to a
decline in average AuM, driven primarily by deteriorating equity
markets, and a shift in the composition of AuM among our
investment strategies and investment vehicles. The decline in
the effective fee rate is primarily the result of a lower
proportion of assets in the International Equity strategies and
proprietary funds, our highest margin products and vehicle.
Performance fees as a percentage of Total revenues and other
operating income approximated (0.5)% for 2009, 1.2% for 2008
and 0.9% for 2007. The negative performance fee in 2009 resulted
from a clawback.
Operating
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
YE 09/08
|
|
|
YE 08/07
|
|
(in thousands, except percentages)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
% Change
|
|
|
% Change
|
|
|
Total employee compensation and benefits
|
|
$
|
476,716.6
|
|
|
$
|
223,118.3
|
|
|
$
|
252,633.1
|
|
|
|
*
|
%
|
|
|
(12
|
)%
|
Shareholder servicing and marketing
|
|
|
16,886.0
|
|
|
|
23,369.1
|
|
|
|
25,356.3
|
|
|
|
(28
|
)
|
|
|
(8
|
)
|
General and administrative
|
|
|
42,317.1
|
|
|
|
62,833.1
|
|
|
|
50,001.5
|
|
|
|
(33
|
)
|
|
|
26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
$
|
535,919.7
|
|
|
$
|
309,320.5
|
|
|
$
|
327,990.9
|
|
|
|
*
|
|
|
|
(6
|
)
|
|
|
|
|
*
|
|
Calculation is not meaningful, due
to the impact of the IPO in 2009.
|
Operating expenses increased by $226.6 million for 2009
compared to 2008. The increase was largely due to non-recurring
compensation charges of approximately $313.8 million
incurred in connection with the IPO and changes in the nature of
the Principals economic interests.
Operating expenses decreased by $18.7 million for 2008
compared to 2007. The decrease was largely due to expense
reduction initiatives implemented in the second half of 2008,
including significant reductions to the accrual of incentive
compensation awards for 2008 to reflect the deterioration of
global markets. In the fourth quarter of 2008, we also reduced
headcount, principally support personnel, reduced our office
space requirements and reduced certain information technology
and market data costs.
On behalf of our mutual fund and investment advisory clients, we
make decisions to buy and sell securities for each portfolio and
select broker dealers to execute trades and negotiate brokerage
commission rates. In connection with these activities, we
receive research reports from executing broker-dealers. In
certain situations, we receive research credits from broker
dealers that would have had the effect of reducing our operating
expenses by $0.7 million in 2009, $0.8 million in 2008
and $0.7 million in 2007. Our operating expenses would
increase if the research credits were reduced or eliminated.
55
Employee
Compensation and Benefits
The following table sets forth our Employee compensation and
benefits expenses.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
YE 09/08
|
|
|
YE 08/07
|
|
(in thousands, except percentages)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
% Change
|
|
|
% Change
|
|
|
Salaries, incentive compensation and benefits
|
|
$
|
79,035.7
|
|
|
$
|
92,487.1
|
|
|
$
|
92,276.9
|
|
|
|
(15
|
)%
|
|
|
|
%
|
Allocation of Class B profits
interests(a)
|
|
|
33,662.5
|
|
|
|
76,073.8
|
|
|
|
83,512.3
|
|
|
|
(56
|
)
|
|
|
(9
|
)
|
Change in redemption value of Class B profits
interests(a)
|
|
|
266,109.8
|
|
|
|
54,557.4
|
|
|
|
76,843.9
|
|
|
|
|
*
|
|
|
(29
|
)
|
Tax receivable agreement
|
|
|
97,908.6
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee compensation and benefits
|
|
$
|
476,716.6
|
|
|
$
|
223,118.3
|
|
|
$
|
252,633.1
|
|
|
|
|
*
|
|
|
(12
|
)
|
|
|
|
|
*
|
|
Calculation is not meaningful, due
to the impact of the IPO in 2009.
|
|
(a)
|
|
In connection with the IPO (see the
Initial Public Offering and Changes in the
Principals Interests section of this MD&A), the
Class B profits interests were exchanged for New
Class A Units that are reflected as equity.
|
Employee compensation and benefits increased
$253.6 million for 2009 compared to 2008, due primarily to
the non-recurring charges discussed above and the amortization
of share-based compensation expense in 2009, partially offset by
a $42.4 million decrease in Allocation of Class B
profits interests, a decrease in incentive compensation,
including sales incentives, and the amortization of deferred
compensation relating to the Principals in 2008 that totaled
$8.9 million and did not recur in 2009.
Employee compensation and benefits decreased
$29.5 million for 2008 compared to 2007, due primarily to
lower accruals associated with the Change in redemption value
of Class B profits interests, a decrease in
Allocation of Class B profits interests and a
decrease in incentive compensation, partially offset by the
accelerated vesting of deferred compensation related to the
Principals, an increase in headcount in 2008 in anticipation of
the IPO and expansion in certain of our product offerings.
Shareholder
Servicing and Marketing
Shareholder servicing and marketing expenses decreased
$6.5 million for 2009 compared to 2008, due primarily to a
32% decrease in the average market value of proprietary
fund AuM, which are correlated to shareholder servicing
costs.
Shareholder servicing and marketing expenses decreased
$2.0 million for 2008 compared to 2007, due primarily to an
8% decrease in the average market value of proprietary
fund AuM, which are correlated to shareholder servicing
costs.
General
and Administrative
General and administrative expenses decreased
$20.5 million for 2009 compared to 2008, due primarily to
lower client-related trading errors, lower non-recurring
professional fees related to the completion of the IPO, lower
licensing fees and lower occupancy costs. The licensing fees
associated with the use of the Julius Baer name in our products
and marketing strategies were reduced in mid-2008, as we
rebranded to the use of the Artio Global name, and ended upon
the IPO.
General and administrative expenses increased
$12.8 million for 2008 compared to 2007, due primarily to
higher occupancy, information technology and system support, and
client-related trading errors, partially offset by a decrease in
professional fees. Occupancy costs increased due to additional
rent expense resulting from leasing additional office space in
our corporate headquarters, costs related to managements
decision to cease use of excess office space and occupancy costs
which were previously allocated to affiliates that shared office
space with us. Information and technology and support system
costs increased as a result of costs previously allocated to
affiliates in 2007. During 2008, we also incurred costs to
improve our infrastructure in anticipation of the IPO.
56
Non-operating
Income (Loss)
Non-operating income (loss) primarily results from
interest income earned on invested funds and interest expense
incurred on borrowings under our term credit facility. The
following table sets forth Non-operating income (loss)
and average invested funds:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
YE 09/08
|
|
YE 08/07
|
(in thousands, except percentages)
|
|
2009
|
|
2008
|
|
2007
|
|
% Change
|
|
% Change
|
|
Total non-operating income (loss)
|
|
$
|
(1,395.4
|
)
|
|
$
|
3,181.4
|
|
|
$
|
7,033.6
|
|
|
|
(144
|
)%
|
|
|
(55
|
)%
|
Average invested
funds(a)
|
|
|
68,276.3
|
|
|
|
149,146.5
|
|
|
|
126,848.7
|
|
|
|
(54
|
)
|
|
|
18
|
|
|
|
|
|
(a)
|
|
Computed using the beginning and
ending balances for the period of cash equivalents and
marketable securities, exclusive of securities held for deferred
compensation.
|
We recorded a non-operating loss for 2009 compared to
non-operating income for 2008, primarily due to accrued interest
expense related to anticipated amendments of prior years
tax returns, interest expense related to our borrowings under
our term credit facility, lower invested balances and lower
yields on investment securities.
Total non-operating income (loss) decreased for 2008
compared to 2007, due primarily to lower invested balances in
the latter half of 2008 as dividends totaling $117 million
were paid, with $61 million paid in the first quarter of
2008 reducing excess funds available for investment for the
balance of the year.
Non-operating income is expected to be lower in 2010,
primarily due to a full year of interest expense associated with
borrowings under our $60.0 million term credit facility.
Income
Taxes
Investors is organized as a Delaware corporation, and therefore
is subject to U.S. Federal, state and local income taxes.
As a member of Holdings, Investors incurs U.S. Federal,
state and local income taxes on its allocable share of income of
Holdings, including its wholly owned operating company,
Investment Adviser.
Our effective tax rates were (58.4)% for 2009, 47.2% for 2008
and 46.8% for 2007. Although we had a pre-tax loss for 2009, we
still incurred tax expense as a result of the de-recognition of
a deferred tax asset and permanent items associated with the
Principals ownership interests in connection with the IPO.
Since the IPO, our effective tax rate has been lower, due to the
accounting for the Principals membership interests in
Holdings (approximately 26%) as non-controlling interests
(accounted for as compensation expense prior to the IPO), while
for tax purposes, their membership interests are treated as
partnership income. Accordingly, except for New York City
Unincorporated Business Tax, we pay taxes on approximately 74%
of our income before taxes.
As the Principals exchange their membership interests
(represented by New Class A Units) for Class A common
stock, Investors ownership in Holdings will increase, as
will our tax liability. If the Principals had exchanged all of
their New Class A Units for shares of Class A common
stock and excluding the impact of permanent items, our current
effective tax rate would have been approximately 43%.
57
Liquidity
and Capital Resources
Working
Capital
Below is a table showing our liquid assets.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
|
(in thousands, except percentages)
|
|
2009
|
|
|
2008
|
|
|
% Change
|
|
|
Cash and cash equivalents
|
|
$
|
60,841.7
|
|
|
$
|
86,563.0
|
|
|
|
(30
|
)%
|
Marketable securities less securities held for deferred
compensation
|
|
|
18.0
|
|
|
|
65,418.1
|
|
|
|
(100
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
60,859.7
|
|
|
|
151,981.1
|
|
|
|
(60
|
)
|
Fees receivable and accrued fees, net of allowance for doubtful
accounts
|
|
|
56,911.1
|
|
|
|
54,799.1
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liquid assets
|
|
$
|
117,770.8
|
|
|
$
|
206,780.2
|
|
|
|
(43
|
)
|
|
Prior to the IPO, we declared a dividend and capital
distribution payable to GAM totaling $220.8 million, of
which $180.7 million was paid in the fourth quarter of
2009, and $40.1 million is payable by September 29,
2010. The payments are being funded from our cash balances,
which included $60.0 million under our term credit facility.
Our working capital requirements historically have been met
through operating cash flows. In the future we may rely on both
our operating cash flows and borrowing facilities to meet our
working capital requirements. Our current working capital and
$50.0 million revolving credit facility are sufficient to
meet our current obligations.
Debt
In September 2009, Holdings entered into a $110.0 million
credit facility consisting of a $60.0 million three-year
term credit facility and a $50.0 million three-year
revolving credit facility.
In October 2009, Holdings borrowed $60.0 million under the
term credit facility. The interest associated with the
$60.0 million borrowing is LIBOR plus 300 basis
points, which is currently set at 3.25125%, and resets in April
2010. The amortization schedule requires quarterly principal
payments of 7.5% in both years two and three, beginning on
December 31, 2010, with a final payment of 40% at maturity.
There is no remaining capacity under the term credit facility. A
portion of the $60.0 million borrowing was used to fund
distributions to GAM and the Principals. The balance of the
$60.0 million borrowing is being used for working capital
needs and to potentially provide seed capital to fund future
investment products.
The $50.0 million revolving credit facility would be drawn
primarily for working capital needs. Borrowings under the
revolving credit facility bear interest at a rate equal to, at
our option, (i) LIBOR plus a range of 300 to 400 basis
points or (ii) the base rate (as defined in the credit
facility agreement) plus a range of 200 to 300 basis
points. The interest rate resets at certain intervals. There
have been no borrowings under the revolving credit facility.
The spread to LIBOR or the base rate is correlated to the
consolidated leverage ratio as prescribed within the credit
facility agreement. The current spread to LIBOR and the base
rate is 300 basis points and 200 basis points,
respectively. These spreads could increase if our consolidated
leverage ratio exceeds 1.0x.
The covenants in the credit facility agreement require
compliance with the following financial ratios (each in
accordance with the definitions, including EBITDA, in the credit
facility agreement), to be calculated on a consolidated basis at
the end of each fiscal quarter:
|
|
|
maintenance of a maximum consolidated leverage ratio of less
than or equal to 2.00x (calculated as the ratio of consolidated
funded indebtedness plus the remaining amount of a deferred
payment to GAM of $40.1 million, which is payable by
September 29, 2010, to consolidated EBITDA for the last six
months multiplied by two); and
|
58
|
|
|
maintenance of a minimum consolidated interest coverage ratio of
greater than or equal to 4.00x (calculated as the ratio of
consolidated EBITDA for the last six months to consolidated
interest charges for such period).
|
The credit facility agreement also contains customary
affirmative and negative covenants, including limitations on
indebtedness, liens, cash dividends and fundamental corporate
changes. As of December 31, 2009, our consolidated leverage
ratio was 0.5:1 and our consolidated interest coverage ratio was
205:1, in compliance with our debt covenants.
Cash
Flows
The following table sets forth our cash flows for 2009, 2008 and
2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
YE 09/08
|
|
|
YE 08/07
|
|
(in thousands, except percentages)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
% Change
|
|
|
% Change
|
|
|
Cash flow data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
$
|
51,707.4
|
|
|
$
|
100,108.8
|
|
|
$
|
112,215.3
|
|
|
|
(48
|
)%
|
|
|
(11
|
)%
|
Net cash provided by (used in) investing activities
|
|
|
63,761.7
|
|
|
|
(29,892.3
|
)
|
|
|
19,991.0
|
|
|
|
313
|
|
|
|
(250
|
)
|
Net cash used in financing activities
|
|
|
(141,277.4
|
)
|
|
|
(117,000.0
|
)
|
|
|
(60,000.0
|
)
|
|
|
(21
|
)
|
|
|
(95
|
)
|
Effect of exchange rate changes on cash
|
|
|
87.0
|
|
|
|
(100.6
|
)
|
|
|
185.9
|
|
|
|
186
|
|
|
|
(154
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
$
|
(25,721.3
|
)
|
|
$
|
(46,884.1
|
)
|
|
$
|
72,392.2
|
|
|
|
45
|
|
|
|
(165
|
)
|
|
Net cash provided by operating activities decreased
$48.4 million in 2009 compared to 2008, primarily
reflecting lower revenues due mainly to lower average AuM.
Net cash provided by operating activities decreased
$12.1 million in 2008 compared to 2007, primarily
reflecting lower revenues, as a result of reduced average AuM
and reduced effective fee rates, and net cash provided by
discontinued operations of $7.9 million in 2007.
Net cash provided by investing activities was
$63.8 million in 2009 compared to Net cash used in
investing activities of $29.9 million in 2008,
primarily reflecting the sales of marketable securities. We
liquidated our holdings of investment securities to fund
distributions to GAM and the Principals in connection with the
IPO.
Net cash used in investing activities was
$29.9 million in 2008 compared to Net cash provided by
investing activities of $20.0 million in 2007,
primarily reflecting lower sales and purchases of marketable
securities.
Net cash used in financing activities increased
$24.3 million in 2009 compared to 2008, reflecting
distribution and dividend payments of $194.7 million in
2009, partially offset by borrowings of $60.0 million under
our term credit facility.
Net cash used in financing activities increased
$57.0 million in 2008 compared to 2007, reflecting higher
dividend payments in 2008.
A distribution to GAM of $40.1 million is payable by
September 29, 2010.
On January 28, 2010, the Board of Directors declared a
dividend of $0.06 per share to be paid on February 24,
2010, to holders of record of our Class A and Class C
common stock at the close of business on February 10, 2010.
To provide funding for the dividend payable to the holders of
record of our Class A and Class C common stock, a
distribution by Holdings of $0.06 per New Class A Unit (see
the Initial Public Offering and Changes in
Principals Interests section of this MD&A) will
be paid to all members of Holdings, including the Principals.
Deferred
Taxes
As a result of the Principals exchange of their
Class B profits interests in Investment Adviser for New
Class A Units, the Principals ownership interests
were reclassified to equity and the related deferred tax asset
was de-recognized.
59
In connection with the IPO, each Principal exchanged
1.2 million of his New Class A Units for an equivalent
number of shares of Class A common stock. In connection
with the exchange, we elected to step up our tax basis in the
incremental assets acquired in accordance with Section 754
of the Internal Revenue Code of 1986, as amended. The tax
benefits arising from the resultant
step-up in
tax basis became determinable and based on the exchange date,
deferred tax benefits of $38.4 million were recorded, and
will be recovered generally over a
15-year
period. These benefits will be shared between us and each
Principal under a tax receivable agreement (see Item 8.
Financial Statements and Supplementary Data, Notes to the
Consolidated Financial Statements, Note 5. Tax
Receivable Agreement).
Recovery of deferred tax benefits over the
15-year
period will depend on our ability to generate sufficient taxable
income. The deferred tax asset of $39.6 million as of
December 31, 2009, will require annual taxable income of
$6.2 million over the
15-year
amortization period (at current tax rates) to be recovered in
full. As our taxable income has historically been significantly
in excess of such amount, we believe that it is more likely than
not that the deferred tax asset will be recovered and,
therefore, no valuation allowance is necessary.
Contractual
Obligations
The following table sets forth our contractual obligations as of
December 31, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due By Pay Period
|
|
|
|
|
|
|
Less Than
|
|
|
|
|
|
|
|
|
More than
|
|
(in thousands)
|
|
Total
|
|
|
1 Year
|
|
|
1-3 Years
|
|
|
3-5 Years
|
|
|
5 Years
|
|
|
Borrowings under term credit
facility(a)
|
|
$
|
60,000.0
|
|
|
$
|
|
|
|
$
|
60,000.0
|
|
|
$
|
|
|
|
$
|
|
|
Operating lease obligations
|
|
|
16,899.2
|
|
|
|
3,738.7
|
|
|
|
11,279.6
|
|
|
|
1,880.9
|
|
|
|
|
|
Recordkeeping service provider
|
|
|
8,000.0
|
|
|
|
1,600.0
|
|
|
|
3,200.0
|
|
|
|
3,200.0
|
|
|
|
|
|
Other
|
|
|
16,933.6
|
|
|
|
10,218.8
|
|
|
|
5,571.8
|
|
|
|
1,143.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
101,832.8
|
|
|
$
|
15,557.5
|
|
|
$
|
80,051.4
|
|
|
$
|
6,223.9
|
|
|
$
|
|
|
|
|
|
|
(a)
|
|
Excludes accrued interest expense.
Interest is payable at a variable rate.
|
Off-Balance
Sheet Arrangements
We did not have any off-balance sheet arrangements as of
December 31, 2009.
New
Accounting Standards
Recently
Adopted Accounting Pronouncements
Upon the IPO, we adopted the provisions of ASC 810.10.65,
Noncontrolling Interests in Consolidated Financial
Statements, for the Principals ownership in Holdings.
New
Accounting Pronouncements Not Yet Adopted
In June 2009, the Financial Accounting Standards Board (the
FASB) issued ASC 810.10, Amendments to FASB
Interpretation No. 46(R). ASC 810.10 gives additional
guidance on determining whether an entity is a variable interest
entity and requires ongoing assessments of whether an enterprise
is the primary beneficiary of a variable interest entity. In
February 2010, the FASB issued an Accounting Standards Update
which defers the effective date of ASC 810.10 for companies,
such as us, that have interests in certain investment entities.
CAUTIONARY
NOTE REGARDING FORWARD-LOOKING STATEMENTS
We have made statements in our Managements
Discussion and Analysis of Financial Condition and Results of
Operations and in other sections of this 2009 Annual
Report on
Form 10-K
(Form 10-K)
that are forward-looking statements. In some cases, you can
identify these statements by forward-looking words such as
may, might, will,
should, expects, plans,
anticipates, believes,
estimates, predicts,
potential or continue, the negative of
these terms and other comparable terminology. These
forward-looking statements, which are subject to risks,
uncertainties and assumptions, may include projections of our
future financial performance, our anticipated growth strategies,
descriptions of new business initiatives and anticipated trends
in our business. These statements are only predictions based on
our current expectations and
60
projections about future events. There are important factors
that could cause our actual results, level of activity,
performance or achievements to differ materially from the
results, level of activity, performance or achievements
expressed or implied by the forward-looking statements.
Although we believe the expectations reflected in the
forward-looking statements are reasonable, we cannot guarantee
future results, level of activity, performance or achievements.
Moreover, neither we nor any other person assumes responsibility
for the accuracy and completeness of any of these
forward-looking statements. We are under no duty to update any
of these forward-looking statements after the date of this
Form 10-K
to conform our prior statements to actual results or revised
expectations.
The section included in this
Form 10-K
under the heading Risk Factors lists various
important factors that could cause actual results to differ
materially from projected and historic results. We note these
factors for investors as permitted by the Private Securities
Litigation Reform Act of 1995. You should understand that it is
not possible to predict or identify all such factors.
Consequently, you should not consider any such list to be a
complete set of all potential risks or uncertainties.
In this
Form 10-K
we state that we may experience a reduced number of
institutional mandates, and net client cash flows, as a result
of decreased portfolio rebalancing following recent market
turbulence. Many factors influence our overall number of
institutional mandates, as well as levels of net client cash
flows, including, but not limited to, the performance of our
investment strategies, interest in the particular strategies we
offer and general market and economic conditions.
Item 7A. Quantitative
and Qualitative Disclosures About Market Risk
Market Risk
Revenues
and Other Operating Income
Our exposure to market risk is directly related to the role of
Investment Adviser as investment adviser for the proprietary
funds, institutional commingled funds, separate accounts and
sub-advised accounts it manages. Substantially all of our
revenue is derived from investment advisory agreements with
these funds and accounts. Under these agreements, the fees we
receive are based on the fair value of the assets under
management (AuM) and our fee rates. Accordingly, our
revenue and income may decline as a result of:
|
|
|
the value of AuM decreasing;
|
|
our clients withdrawing funds; or
|
|
a shift in product mix to lower margin products.
|
The fair value of AuM was $56.0 billion as of
December 31, 2009. Assuming a 10% increase or decrease in
the value of the AuM and the change being proportionally
distributed over all our products, the fair value would increase
or decrease by $5.6 billion, which would cause an
annualized increase or decrease in Total revenues and other
operating income of approximately $35.5 million at our
current effective fee rate.
We have not adopted a corporate-level risk management policy
regarding client assets, nor have we historically attempted to
hedge revenue risks that would arise from fluctuations in the
fair value of separate client portfolios or our overall AuM.
Marketable
Securities
We are subject to market risk from a decline in the price of
marketable securities that we own to manage our excess cash and
fund future deferred compensation liabilities. As of
December 31, 2009, the securities we own to fund future
deferred compensation liabilities consisted primarily of Artio
Global Funds. The fair value of these securities was
$7.9 million as of December 31, 2009. Management
regularly monitors the value of these investments; however,
given their nature and relative size, we have not adopted a
specific risk management policy to manage the associated market
risk. Assuming a 10% increase or decrease in the values of these
marketable securities, the fair value would increase or decrease
by $0.8 million as of December 31, 2009. Gains and
losses on marketable securities that we own to manage future
deferred compensation liabilities correlate with related
adjustments to compensation expense over the service period of
the deferred compensation.
61
The marketable securities held as of December 31, 2009,
were denominated in U.S. dollars. The securities held in
relation to the deferred compensation plan include Artio Global
Funds whose underlying assets are primarily non-dollar
denominated. The effect of a change in exchange rates on such
securities would not have a significant effect on the financial
statements.
Exchange
Rate Risk
A substantial portion of the accounts that we advise, or
sub-advise, hold investments that are denominated in currencies
other than the U.S. dollar. These client portfolios may
hold currency forwards or other derivative instruments. The fair
value of these investments and instruments may be affected by
movements in the rate of exchange between the U.S. dollar
and the underlying foreign currency. Such movements in exchange
rates affect the fair value of assets held in accounts we
manage, thereby affecting the amount of revenue we earn. The
fair value of the assets we manage was $56.0 billion as of
December 31, 2009. The fair value of the AuM would
decrease, with an increase in the value of the U.S. dollar,
or increase, with a decrease in the value of the
U.S. dollar. Excluding the impact of any hedging
arrangements, a 10% increase or decrease in the value of the
U.S. dollar would decrease or increase the fair value of
the AuM by $4.2 billion, which would cause an annualized
increase or decrease in Total revenues and other operating
income of $26.7 million. As of December 31, 2009,
approximately 75.3% of our AuM was denominated in currencies
other than the U.S. dollar.
Interest
Rate Risk
Certain of the accounts we advise or sub-advise own fixed income
securities. Further, we have historically invested our excess
cash balances in short-term U.S. government fixed income
securities. Interest rate changes affect the fair value of such
investments or the revenue we earn from them.
Assuming a 100 basis point increase or decrease in the
U.S. Treasury Note rate (and rates directly or indirectly
tied to such rate), we estimate that the value of the fixed
income securities we manage or sub-advise would change by
approximately $302.2 million. The impact of such change
would not have a material impact on our revenues or net income.
In connection with borrowings under our $60.0 million term
credit facility, assuming a 100 basis point increase or
decrease in the LIBOR rate, the impact of such a change would
not have a material impact on our net income.
62
Item 8. Financial
Statements and Supplementary Data
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
Artio Global Investors Inc.:
We have audited the accompanying consolidated statements of
financial position of Artio Global Investors Inc. and
subsidiaries (the Company) as of December 31,
2009 and 2008, and the related consolidated statements of
operations, changes in equity, and cash flows for each of the
years in the three-year period ended December 31, 2009.
These consolidated financial statements are the responsibility
of the Companys management. Our responsibility is to
express an opinion on these consolidated financial statements
based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of Artio Global Investors Inc. and subsidiaries as of
December 31, 2009 and 2008, and the results of their
operations and their cash flows for each of the years in the
three-year period ended December 31, 2009, in conformity
with U.S. generally accepted accounting principles.
New York, New York
March 5, 2010
63
ARTIO
GLOBAL INVESTORS INC. AND SUBSIDIARIES
Consolidated Statements of Financial
Position
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
(in thousands, except for share amounts)
|
|
2009
|
|
|
2008
|
|
|
ASSETS
|
Cash and cash equivalents
|
|
$
|
60,841.7
|
|
|
$
|
86,563.0
|
|
Marketable securities, at fair value
|
|
|
7,910.5
|
|
|
|
71,329.5
|
|
Fees receivable and accrued fees, net of allowance for doubtful
accounts
|
|
|
56,911.1
|
|
|
|
54,799.1
|
|
Deferred taxes, net
|
|
|
46,316.3
|
|
|
|
92,702.3
|
|
Income taxes receivable
|
|
|
10,982.5
|
|
|
|
1,283.6
|
|
Property and equipment, net
|
|
|
7,634.9
|
|
|
|
9,833.2
|
|
Other assets
|
|
|
5,357.2
|
|
|
|
2,964.9
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
195,954.2
|
|
|
$
|
319,475.6
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY
|
Debt
|
|
$
|
60,000.0
|
|
|
$
|
|
|
Accrued compensation and benefits
|
|
|
31,478.0
|
|
|
|
268,924.7
|
|
Accounts payable and accrued expenses
|
|
|
9,092.7
|
|
|
|
9,372.4
|
|
Accrued income taxes payable
|
|
|
13,017.0
|
|
|
|
1,238.6
|
|
Due to GAM Holding Ltd.
|
|
|
40,100.0
|
|
|
|
1,311.4
|
|
Due under tax receivable agreement
|
|
|
33,655.1
|
|
|
|
|
|
Other liabilities
|
|
|
4,629.8
|
|
|
|
5,383.4
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
191,972.6
|
|
|
|
286,230.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Notes 5, 16 and 17)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A common stock (2009
500,000,000 shares authorized, 27,658,799 shares
issued and outstanding; 2008 none authorized and
outstanding)
|
|
|
27.6
|
|
|
|
|
|
Class B common stock (2009
50,000,000 shares authorized, 15,600,000 shares issued
and outstanding; 2008 none authorized and
outstanding)
|
|
|
15.6
|
|
|
|
|
|
Class C common stock (210,000,000 shares authorized,
2009 16,755,844 shares issued and outstanding;
2008 42,000,000 shares issued and outstanding)
|
|
|
167.6
|
|
|
|
420.0
|
|
Additional paid-in capital
|
|
|
586,956.2
|
|
|
|
17,930.0
|
|
Retained earnings (deficit)
|
|
|
(580,274.8
|
)
|
|
|
14,895.1
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
6,892.2
|
|
|
|
33,245.1
|
|
Non-controlling interests
|
|
|
(2,910.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
3,981.6
|
|
|
|
33,245.1
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
$
|
195,954.2
|
|
|
$
|
319,475.6
|
|
|
See accompanying notes to consolidated financial statements.
64
ARTIO
GLOBAL INVESTORS INC. AND SUBSIDIARIES
Consolidated Statements of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
(in thousands, except per share information)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Revenues and other operating income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment management fees
|
|
$
|
305,334.9
|
|
|
$
|
425,002.6
|
|
|
$
|
445,558.4
|
|
Net gains (losses) on securities held for deferred compensation
|
|
|
1,970.1
|
|
|
|
(2,856.5
|
)
|
|
|
|
|
Foreign currency gains (losses)
|
|
|
87.0
|
|
|
|
(100.6
|
)
|
|
|
185.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues and other operating income
|
|
|
307,392.0
|
|
|
|
422,045.5
|
|
|
|
445,744.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee compensation and benefits:
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries, incentive compensation and benefits
|
|
|
79,035.7
|
|
|
|
92,487.1
|
|
|
|
92,276.9
|
|
Allocation of Class B profits interests
|
|
|
33,662.5
|
|
|
|
76,073.8
|
|
|
|
83,512.3
|
|
Change in redemption value of Class B profits interests
|
|
|
266,109.8
|
|
|
|
54,557.4
|
|
|
|
76,843.9
|
|
Tax receivable agreement
|
|
|
97,908.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee compensation and benefits
|
|
|
476,716.6
|
|
|
|
223,118.3
|
|
|
|
252,633.1
|
|
Shareholder servicing and marketing
|
|
|
16,886.0
|
|
|
|
23,369.1
|
|
|
|
25,356.3
|
|
General and administrative
|
|
|
42,317.1
|
|
|
|
62,833.1
|
|
|
|
50,001.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
535,919.7
|
|
|
|
309,320.5
|
|
|
|
327,990.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) before income tax expense
|
|
|
(228,527.7
|
)
|
|
|
112,725.0
|
|
|
|
117,753.4
|
|
Non-operating income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income, net of interest expense
|
|
|
(867.5
|
)
|
|
|
2,947.9
|
|
|
|
6,930.4
|
|
Net gains (losses) on marketable securities
|
|
|
(527.9
|
)
|
|
|
252.1
|
|
|
|
81.8
|
|
Other income (loss)
|
|
|
|
|
|
|
(18.6
|
)
|
|
|
21.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-operating income (loss)
|
|
|
(1,395.4
|
)
|
|
|
3,181.4
|
|
|
|
7,033.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income tax
expense
|
|
|
(229,923.1
|
)
|
|
|
115,906.4
|
|
|
|
124,787.0
|
|
Income taxes relating to income from continuing operations
|
|
|
134,287.2
|
|
|
|
54,755.1
|
|
|
|
58,417.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations, net of taxes
|
|
|
(364,210.3
|
)
|
|
|
61,151.3
|
|
|
|
66,369.6
|
|
Income from discontinued operations, net of taxes
|
|
|
|
|
|
|
|
|
|
|
1,616.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
(364,210.3
|
)
|
|
|
61,151.3
|
|
|
|
67,985.8
|
|
Net income attributable to non-controlling interests
|
|
|
14,103.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Artio Global Investors
|
|
$
|
(378,314.1
|
)
|
|
$
|
61,151.3
|
|
|
$
|
67,985.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per share data:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Artio Global Investors per
share information Basic and Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations, net of taxes
|
|
$
|
(8.88
|
)
|
|
$
|
1.46
|
|
|
$
|
1.58
|
|
Income from discontinued operations, net of taxes
|
|
|
|
|
|
|
|
|
|
|
0.04
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(8.88
|
)
|
|
$
|
1.46
|
|
|
$
|
1.62
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares used to calculate per share information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
42,620.4
|
|
|
|
42,000.0
|
|
|
|
42,000.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
42,620.4
|
|
|
|
42,000.0
|
|
|
|
42,000.0
|
|
|
See accompanying notes to consolidated financial statements.
65
ARTIO
GLOBAL INVESTORS INC. AND SUBSIDIARIES
Consolidated Statements of Changes in
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A
|
|
|
Class B
|
|
|
Class C
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
|
|
|
Common
|
|
|
Common
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
|
|
|
Stock
|
|
|
Stock
|
|
|
Additional
|
|
|
Retained
|
|
|
Other
|
|
|
|
|
|
Non-
|
|
|
|
|
(in thousands, except per
|
|
(par value
|
|
|
(par value
|
|
|
(par value
|
|
|
Paid-in
|
|
|
Earnings
|
|
|
Comprehensive
|
|
|
Stockholders
|
|
|
controlling
|
|
|
Total
|
|
share information)
|
|
$0.001)
|
|
|
$0.001)
|
|
|
$0.01)
|
|
|
Capital
|
|
|
(Deficit)
|
|
|
Income
|
|
|
Equity
|
|
|
Interests
|
|
|
Equity
|
|
|
Balance as of January 1, 2007
|
|
$
|
|
|
|
$
|
|
|
|
$
|
420.0
|
|
|
$
|
17,930.0
|
|
|
$
|
62,534.2
|
|
|
$
|
|
|
|
$
|
80,884.2
|
|
|
$
|
|
|
|
$
|
80,884.2
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
67,985.8
|
|
|
|
|
|
|
|
67,985.8
|
|
|
|
|
|
|
|
67,985.8
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains on available for sale securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
632.1
|
|
|
|
632.1
|
|
|
|
|
|
|
|
632.1
|
|
Income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(308.3
|
)
|
|
|
(308.3
|
)
|
|
|
|
|
|
|
(308.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
323.8
|
|
|
|
323.8
|
|
|
|
|
|
|
|
323.8
|
|
Dividends ($1.43 per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(60,100.0
|
)
|
|
|
|
|
|
|
(60,100.0
|
)
|
|
|
|
|
|
|
(60,100.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
420.0
|
|
|
|
17,930.0
|
|
|
|
70,420.0
|
|
|
|
323.8
|
|
|
|
89,093.8
|
|
|
|
|
|
|
|
89,093.8
|
|
Cumulative effect of adoption of fair value option
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
323.8
|
|
|
|
(323.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of January 1, 2008
|
|
|
|
|
|
|
|
|
|
|
420.0
|
|
|
|
17,930.0
|
|
|
|
70,743.8
|
|
|
$
|
|
|
|
|
89,093.8
|
|
|
|
|
|
|
|
89,093.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
61,151.3
|
|
|
|
|
|
|
|
61,151.3
|
|
|
|
|
|
|
|
61,151.3
|
|
Dividends ($2.79 per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(117,000.0
|
)
|
|
|
|
|
|
|
(117,000.0
|
)
|
|
|
|
|
|
|
(117,000.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
420.0
|
|
|
|
17,930.0
|
|
|
|
14,895.1
|
|
|
|
|
|
|
|
33,245.1
|
|
|
|
|
|
|
|
33,245.1
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(378,314.1
|
)
|
|
|
|
|
|
|
(378,314.1
|
)
|
|
|
14,103.8
|
|
|
|
(364,210.3
|
)
|
Reclassification of liability awards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
565,908.6
|
|
|
|
|
|
|
|
|
|
|
|
565,908.6
|
|
|
|
|
|
|
|
565,908.6
|
|
Issuance of Class B common stock (see Note 2)
|
|
|
|
|
|
|
18.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18.0
|
|
|
|
|
|
|
|
18.0
|
|
Net benefit from
step-up in
tax basis (see Note 5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,762.1
|
|
|
|
|
|
|
|
|
|
|
|
5,762.1
|
|
|
|
|
|
|
|
5,762.1
|
|
Initial public offering
|
|
|
25.0
|
|
|
|
|
|
|
|
|
|
|
|
614,875.0
|
|
|
|
|
|
|
|
|
|
|
|
614,900.0
|
|
|
|
|
|
|
|
614,900.0
|
|
Underwriters option exercise
|
|
|
2.6
|
|
|
|
|
|
|
|
|
|
|
|
65,033.1
|
|
|
|
|
|
|
|
|
|
|
|
65,035.7
|
|
|
|
|
|
|
|
65,035.7
|
|
Holdings units exchanged for Class A common stock and
cancelation of Class B common stock (see Note 2)
|
|
|
2.4
|
|
|
|
(2.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock repurchases
|
|
|
(2.4
|
)
|
|
|
|
|
|
|
(252.4
|
)
|
|
|
(679,680.9
|
)
|
|
|
|
|
|
|
|
|
|
|
(679,935.7
|
)
|
|
|
|
|
|
|
(679,935.7
|
)
|
Establishment of non-controlling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,424.8
|
|
|
|
|
|
|
|
|
|
|
|
10,424.8
|
|
|
|
(10,424.8
|
)
|
|
|
|
|
Distribution to GAM Holding Ltd., including dividends ($5.16 per
share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(17,950.0
|
)
|
|
|
(216,855.8
|
)
|
|
|
|
|
|
|
(234,805.8
|
)
|
|
|
|
|
|
|
(234,805.8
|
)
|
Issuance and amortization of share-based payments, net of
forfeitures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,653.5
|
|
|
|
|
|
|
|
|
|
|
|
4,653.5
|
|
|
|
|
|
|
|
4,653.5
|
|
Distribution to non-controlling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,589.6
|
)
|
|
|
(6,589.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2009
|
|
$
|
27.6
|
|
|
$
|
15.6
|
|
|
$
|
167.6
|
|
|
$
|
586,956.2
|
|
|
$
|
(580,274.8
|
)
|
|
|
|
|
|
$
|
6,892.2
|
|
|
$
|
(2,910.6
|
)
|
|
$
|
3,981.6
|
|
|
See accompanying notes to consolidated financial statements.
66
ARTIO
GLOBAL INVESTORS INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
(in thousands)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(364,210.3
|
)
|
|
$
|
61,151.3
|
|
|
$
|
67,985.8
|
|
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
3,029.1
|
|
|
|
2,904.1
|
|
|
|
1,925.4
|
|
Deferred compensation and share-based compensation
|
|
|
274,557.1
|
|
|
|
57,001.4
|
|
|
|
80,433.7
|
|
Deferred income taxes
|
|
|
85,803.2
|
|
|
|
(21,519.9
|
)
|
|
|
(35,509.4
|
)
|
Interest accrued on marketable securities and accretion and
amortization of discount and premium
|
|
|
268.7
|
|
|
|
(60.2
|
)
|
|
|
(1,304.8
|
)
|
(Gains)/losses on marketable securities and securities held for
deferred compensation
|
|
|
(1,442.2
|
)
|
|
|
2,604.4
|
|
|
|
(81.8
|
)
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees receivable and accrued fees, net of allowance for doubtful
accounts
|
|
|
(2,112.0
|
)
|
|
|
32,578.4
|
|
|
|
(31,851.3
|
)
|
Due to/from GAM Holding Ltd.
|
|
|
(1,307.0
|
)
|
|
|
5,287.5
|
|
|
|
(7,142.5
|
)
|
Income taxes receivable
|
|
|
(9,698.9
|
)
|
|
|
(1,283.6
|
)
|
|
|
|
|
Other assets
|
|
|
(2,396.8
|
)
|
|
|
(407.0
|
)
|
|
|
(348.9
|
)
|
Accrued compensation and benefits
|
|
|
58,558.3
|
|
|
|
(33,322.1
|
)
|
|
|
26,724.6
|
|
Accounts payable and accrued expenses
|
|
|
(366.6
|
)
|
|
|
(4,750.0
|
)
|
|
|
3,336.7
|
|
Accrued income taxes payable
|
|
|
11,778.4
|
|
|
|
(2,551.0
|
)
|
|
|
522.2
|
|
Other liabilities
|
|
|
(753.6
|
)
|
|
|
2,475.5
|
|
|
|
(412.9
|
)
|
Cash flows provided by discontinued operations
|
|
|
|
|
|
|
|
|
|
|
7,938.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
51,707.4
|
|
|
|
100,108.8
|
|
|
|
112,215.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of marketable securities and securities held for
deferred compensation
|
|
|
(2,528.9
|
)
|
|
|
(120,807.4
|
)
|
|
|
(199,936.4
|
)
|
Proceeds from sales or maturities of marketable securities and
securities held for deferred compensation
|
|
|
67,121.4
|
|
|
|
94,399.6
|
|
|
|
221,931.3
|
|
Purchase of fixed assets
|
|
|
(830.8
|
)
|
|
|
(3,484.5
|
)
|
|
|
(2,003.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
63,761.7
|
|
|
|
(29,892.3
|
)
|
|
|
19,991.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from borrowings
|
|
|
60,000.0
|
|
|
|
|
|
|
|
|
|
Proceeds from initial public offering
|
|
|
614,900.0
|
|
|
|
|
|
|
|
|
|
Proceeds from underwriters option exercise
|
|
|
65,035.7
|
|
|
|
|
|
|
|
|
|
Repurchase and retirement of Class C common stock
|
|
|
(620,905.3
|
)
|
|
|
|
|
|
|
|
|
Repurchase of Class A common stock
|
|
|
(59,030.4
|
)
|
|
|
|
|
|
|
|
|
Issuance of Class B common stock
|
|
|
18.0
|
|
|
|
|
|
|
|
|
|
Distributions paid to non-controlling interests
|
|
|
(6,589.6
|
)
|
|
|
|
|
|
|
|
|
Dividends paid
|
|
|
(194,705.8
|
)
|
|
|
(117,000.0
|
)
|
|
|
(60,000.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used by financing activities
|
|
|
(141,277.4
|
)
|
|
|
(117,000.0
|
)
|
|
|
(60,000.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rates on cash
|
|
|
87.0
|
|
|
|
(100.6
|
)
|
|
|
185.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
(25,721.3
|
)
|
|
|
(46,884.1
|
)
|
|
|
72,392.2
|
|
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of period
|
|
|
86,563.0
|
|
|
|
133,447.1
|
|
|
|
61,054.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of period
|
|
$
|
60,841.7
|
|
|
$
|
86,563.0
|
|
|
$
|
133,447.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during period for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes, net of refunds
|
|
$
|
47,248.9
|
|
|
$
|
80,109.6
|
|
|
$
|
94,783.3
|
|
Supplementary information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash transactions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Distribution to GAM Holding Ltd.
|
|
$
|
|
|
|
$
|
|
|
|
$
|
100.0
|
|
Distribution to GAM Holding Ltd. payable by September 29,
2010
|
|
|
40,100.0
|
|
|
|
|
|
|
|
|
|
Reclassification of liability awards
|
|
|
565,908.6
|
|
|
|
|
|
|
|
|
|
Deferred taxes from
step-up in
tax basis
|
|
|
39,417.2
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
67
ARTIO
GLOBAL INVESTORS INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 1. Organization
and Description of Business
Artio Global Investors Inc. (Investors or the
Company) and subsidiaries (collectively,
we, us or our) comprises
Investors and its three subsidiaries, Artio Global Holdings LLC
(Holdings), an intermediate holding company, Artio
Global Management LLC (Investment Adviser), a
registered investment adviser under the Investment Advisers Act
of 1940, and Artio Capital Management LLC. Holdings is
approximately 74% owned by Investors, 13% owned by Richard Pell,
our Chairman, Chief Executive Officer and Chief Investment
Officer (Pell), and 13% owned by Rudolph-Riad
Younes, our Head of International Equity (Younes,
together with Pell, the Principals). The
Principals interests are reflected in the consolidated
financial statements as non-controlling interests. Investment
Adviser and Artio Capital Management LLC are wholly owned
subsidiaries of Holdings.
Investment Adviser is our primary operating entity and provides
investment management services to institutional and mutual fund
clients. It manages and advises the Artio Global Funds (the
Funds), which are U.S. registered investment
companies; commingled institutional investment vehicles;
separate accounts; and
sub-advisory
accounts. Our assets under management (AuM) are
invested primarily outside of the U.S.
Note 2. Initial
Public Offering and Changes in the Principals
Interests
Prior to September 29, 2009, Investors was a wholly owned
subsidiary of GAM Holding Ltd. (formerly known as Julius Baer
Holding Ltd.), a Swiss corporation (GAM). On
September 29, 2009, we completed an initial public offering
(IPO) of 25.0 million shares of Investors
Class A common stock at a price of $26.00 per share, before
the underwriting discount, for net proceeds of
$614.9 million. The net proceeds were used to repurchase
and retire 22.6 million shares of Investors
Class C common stock from GAM, and to repurchase
1.2 million shares of Class A common stock from each
of the Principals.
On October 5, 2009, the underwriters exercised their option
to purchase additional shares of Class A common stock at
the IPO price, net of the underwriting discount, resulting in
the issuance of 2,644,156 shares of Class A common
stock. We used the net proceeds to repurchase and retire
2,644,156 shares of Class C common stock from GAM.
After the IPO and the exercise of the underwriters option,
GAM owns approximately 27.9% of the outstanding shares of our
capital stock through its ownership of all the outstanding
shares of Class C common stock.
Before the IPO, each Principal had a 15% Class B profits
interest in Investment Adviser (see Note 10.
Class B Profits Interests), which was accounted for as
compensation. Prior to the IPO, each of the Principals
transferred a portion of his existing Class B profits
interest in Investment Adviser to a Grantor Retained Annuity
Trust (GRAT) for which such Principal serves as
settlor and trustee. Each Principal is deemed the beneficial
holder of the securities held by his GRAT, and references to
securities held by a Principal, unless otherwise indicated,
include the securities held in his GRAT. Immediately prior to
the IPO, each Principal exchanged his Class B profits
interest for a 15% non-voting Class A membership interest
in Holdings (New Class A Units). Each Principal
also purchased, at par value, nine million shares of voting,
non-participating, Investors Class B common stock. In
addition, the Principals entered into a tax receivable agreement
with the Company (see Note 5. Tax Receivable
Agreement). Upon the exchange of their Class B profits
interests for New Class A Units, the fair value of the
Class B profits interests was adjusted to reflect the
offering price of Class A common stock, and totaled
$468.0 million. This resulted in an additional compensation
charge related to the redemption value of the Class B
profits interests of $215.8 million that was recorded
concurrent with the IPO and represents the difference between
the fair value of $468.0 million and the related liability
immediately prior to the IPO of $252.2 million
($201.9 million as of December 31, 2008). In addition,
we recorded a compensation charge of $97.9 million relating
to the estimated present value of the tax receivable agreement
(see Note 5. Tax Receivable Agreement).
68
ARTIO
GLOBAL INVESTORS INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As the Principals new economic interests are accounted for
as equity, the adjusted liability of $565.9 million was
reclassified into Additional paid-in capital on the
Consolidated Statement of Financial Position. The related
deferred tax asset of $110.3 million ($88.3 million as
of December 31, 2008) was de-recognized and charged to
expense. The Principals New Class A Units,
representing an approximate 26% interest in Holdings, are
accounted for as non-controlling interests.
Note 3. Summary
of Significant Accounting Principles
Basis of
Preparation
The consolidated financial statements are prepared in conformity
with accounting principles generally accepted in the United
States of America (U.S. GAAP). These principles
require management to make estimates and assumptions that affect
the reported amounts of assets, liabilities (including
contingent liabilities), revenues, and expenses at the date of
the consolidated financial statements. Actual results could
differ from those estimates and may have a material effect on
the consolidated financial statements.
Prior years Consolidated Statements of Operations,
including Notes to the Consolidated Financial Statements, have
been conformed to the current years presentation. Also, in
accordance with Securities and Exchange Commissions Staff
Accounting Bulletin Topic 4:C, the Consolidated Financial
Statements give retroactive effect to a 10,500:1 stock split
that was effected as of August 28, 2009.
As part of the preparation of the consolidated financial
statements, we performed an evaluation of subsequent events
occurring after the Consolidated Statement of Financial Position
date of December 31, 2009, through to the date the
consolidated financial statements were issued.
Consolidation
The consolidated financial statements include the accounts of
Investors and its subsidiaries. All material inter-company
balances have been eliminated in consolidation.
In addition, investment vehicles through which we provide
investment management services are evaluated for consolidation.
Consolidation is required if we hold a controlling financial
interest in the investment vehicle as defined by U.S. GAAP.
The assessment for consolidation occurs at the inception date of
the investment vehicle. The conclusion is reassessed only when
certain events take place, as prescribed by U.S. GAAP.
As of December 31, 2009 and 2008, we did not consolidate
any of the investment vehicles, due primarily to the following
reasons:
|
|
|
Artio Global Funds (the Funds) are considered voting
interest entities but are controlled by their independent Boards
of Directors or Trustees.
|
|
|
Certain of the commingled investment vehicles are trusts and are
considered variable interest entities (VIEs). We are
not the primary beneficiary of these trusts.
|
|
|
Other investment vehicles are membership organizations and are
considered voting interest entities. Although our interests in
these vehicles are nominal and do not meet the ownership
threshold for consolidation, we are the managing member of these
organizations. Each operating agreement of the organizations
provides to its unaffiliated non-managing members substantive
rights to remove us as managing member. As a result, we do not
have a controlling financial interest in these organizations.
|
Cash and
Cash Equivalents
Cash equivalents are composed of money market and other highly
liquid instruments with remaining maturities of less than three
months as of the acquisition date.
69
ARTIO
GLOBAL INVESTORS INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Marketable
Securities
Marketable securities are carried at fair value. We
elected the fair value option for investments made to achieve
certain stated investment objectives.
Excess cash is invested for current yield, not for capital
gains. Gains and losses on such marketable securities, together
with related interest income, accretion and amortization, are
reported in Non-operating income on the Consolidated
Statements of Operations.
Certain unvested deferred bonuses due employees are invested in
the Funds. As these bonuses vest, the principal and any gains or
losses are reflected as liabilities in the Consolidated
Statement of Financial Position. Expenses are reported in
Employee compensation and benefits and the realized and
unrealized gains or losses on these securities are reported in
Net gains (losses) on securities held for deferred
compensation on the Consolidated Statements of Operations.
Realized gains and losses are computed on a specific
identification basis. Interest income is recognized as earned.
Discounts and premiums are accreted or amortized over the term
of the instrument.
Fees
Receivable and Accrued Fees, Net of Allowance for Doubtful
Accounts
Fees receivable and accrued fees, net of allowance for
doubtful accounts represent fees that have been, or will be
billed to our clients. We review receivables and provide an
allowance for doubtful accounts for any receivables when
appropriate. As of December 31, 2009 and 2008, the
allowance for doubtful accounts was not material to our
receivables balance.
Property
and Equipment
Property and equipment are carried at cost. Depreciation of
property and equipment is expensed using the straight-line
method based on the estimated useful lives of the assets.
Furniture and fixtures are depreciated over five years.
Equipment is depreciated over three and five year periods.
Amortization of leasehold improvements is computed over the
lesser of the economic useful life of the improvement or the
remaining term of the lease. Internal-use software that
qualifies for capitalization is capitalized and subsequently
amortized over the estimated useful life of the software,
generally three years.
Due Under
Tax Receivable Agreement
Certain tax benefits are shared with the Principals (see
Note 5. Tax Receivable Agreement). When we record a
deferred tax asset for these benefits, the benefits are recorded
as follows:
|
|
|
The benefits payable to the Principals, which amount to 85% of
such deferred tax asset, are recorded as Due under tax
receivable agreement on our Consolidated Statement of
Financial Position. If we adjust the deferred tax asset, we
adjust the payable for 85% of the adjustment.
|
|
|
The remaining 15% is recorded in Additional paid-in capital
on our Consolidated Statement of Financial Position. If we
adjust the deferred tax asset, 15% of the adjustment is recorded
in Income taxes relating to income from continuing operations
on our Consolidated Statement of Operations.
|
Investment
Management Fees
Investment management fees are recognized as earned. Fees
on registered investment companies are computed and billed
monthly as a percentage of average daily fair value of the
Funds assets under management. Fees on other vehicles and
on separate accounts are computed and billed in accordance with
the provisions of the applicable investment management
agreements.
The investment management agreements for a small number of
accounts provide for performance fees. Performance fees, if
earned, are recognized on the contractually determined
measurement date. Performance
70
ARTIO
GLOBAL INVESTORS INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
fees on certain accounts are subject to clawback if the
performance declines after the most recent measurement date. If
such declines occur, we recognize the clawback when the amount
is probable and estimable.
Foreign
Currency Transactions
Foreign currency balances are translated to our functional
currency (U.S. dollars) at rates prevailing on the
reporting date. Transactions in foreign currency are translated
at average rates during the reporting period. Gains and losses
arising from translation of foreign currency transactions are
recognized in Foreign currency gains (losses) on the
Consolidated Statement of Operations.
Compensation
Plans
In September 2009, the Board of Directors of Investors and GAM,
which at the time was Investors sole stockholder, approved
the Artio Global Investors Inc. 2009 Stock Incentive Plan, in
which certain of our employees participate (see Note 12.
Share-Based Payments).
Certain of our employees also participate in a deferred
compensation plan. Deferred compensation expense is recognized
using a straight-line method over the vesting period (generally
over a three-year period). Assets of the funded deferred bonus
plan are invested in the Funds, and are included in
Marketable securities at fair value. Realized and
unrealized gains and losses related to these assets are
recognized in Net gains (losses) on securities held for
deferred compensation. Employees who participate in the
deferred compensation plan may also receive a portion of their
compensation in the form of restricted stock units under the
2009 Stock Incentive Plan.
Prior to the IPO, the Principals had a Class B profits
interest in Investment Adviser, which entitled them to a
combined 30% of profits, as well as a combined 30% of the
increase in the value of the business, both of which were
defined in Investment Advisers operating agreement. (See
Note 2. Initial Public Offering and Changes in the
Principals Interests.) The allocation of the profits
associated with this plan was expensed on an accrual basis. We
recorded the obligation associated with these profits interests
as a liability at fair value.
Retirement
Plans
Investors sponsors two non-contributory defined contribution
retirement plans for employees (the Non-Contributory
Plans), as well as a 401(k) plan. The Non-Contributory
Plans include a qualified and non-qualified plan. Contributions
to the Non-Contributory Plans are based on employees
eligible compensation.
Contributions to the Non-Contributory Plans are accrued over the
period of employees active service. Forfeitures from
employees who leave prior to completion of the vesting period
are used to reduce the contribution. The Non-Contributory Plans
do not require contributions after the employees active
service has ended.
Income
Taxes
Income taxes are accounted for under the asset and liability
method. Deferred taxes are recognized for the future tax
benefits or consequences attributable to temporary differences
between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases. Deferred
tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled.
Uncertainty in income tax positions is accounted for by
recognizing in the consolidated financial statements the impact
of a tax position when it is more likely than not that the tax
position would be sustained upon examination by the tax
authorities based on the technical merits of the position.
Management considers the facts and circumstances available as of
December 31 in order to determine the appropriate tax benefit to
recognize including tax legislation and statutes, legislative
intent, regulations, rulings and case law. Significant
differences could exist between the ultimate outcome of the
examination of a tax position and managements
71
ARTIO
GLOBAL INVESTORS INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
estimate. These differences could have a material impact on our
effective tax rate, results of operations, financial position
and/or cash
flows.
Interest and penalties relating to tax liabilities are
recognized on actual tax liabilities and exposure items.
Interest is accrued according to the provisions of the relevant
tax law and is reported as interest expense. Penalties are
accrued and reported as General and administrative
expenses.
Note 4. Stockholders
Equity
Subsequent to the IPO, Investors has three classes of common
stock.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Economic Rights,
|
|
|
|
|
|
|
|
Including Rights to
|
|
|
|
|
|
|
|
Dividends and
|
|
|
|
|
|
|
|
Distributions Upon
|
|
|
Class
|
|
|
Voting Rights
|
|
Liquidation
|
|
Special Provisions
|
|
|
A
|
|
|
One vote per share
|
|
Yes
|
|
|
|
B
|
|
|
One vote per share
|
|
No
|
|
|
|
C
|
|
|
Voting power is the greater of the
number of votes on a one-vote-per-share basis and 20% of the
combined voting power of all classes of common stock.
|
|
Yes
|
|
If GAM transfers any of its shares to
anyone other than any of its subsidiaries, or us, such shares
automatically convert to an equal number of shares of Class A
common stock.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior to the IPO, GAM entered into an
agreement under which it agreed that, if it has voting power as
holder of Class C common stock in excess of what it would be
entitled to on a one-vote-per-share basis, it would on all
matters vote those excess shares on the same basis and in the
same proportion as the votes cast by Class A and Class B
shareholders.
|
|
|
|
On the second anniversary of the IPO,
all outstanding shares of Class C common stock will
automatically convert to shares of Class A common stock on a
one-for-one basis.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A
|
|
Class B
|
|
Class C
|
|
|
Common Stock
|
|
Common Stock
|
|
Common Stock
|
|
As of December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
Authorized
|
|
|
500,000,000
|
|
|
|
50,000,000
|
|
|
|
210,000,000
|
|
Reserved under 2009 Stock Incentive Plan
|
|
|
9,685,357
|
|
|
|
|
|
|
|
|
|
Par value
|
|
$
|
0.001
|
|
|
$
|
0.001
|
|
|
$
|
0.01
|
|
|
72
ARTIO
GLOBAL INVESTORS INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The table below sets forth the number of shares of Class A,
Class B and Class C common stock issued and
outstanding as of December 31, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A
|
|
Class B
|
|
Class C
|
(in thousands)
|
|
Common Stock
|
|
Common Stock
|
|
Common Stock
|
|
As of January 1, 2007
|
|
|
|
|
|
|
|
|
|
|
42,000.0
|
|
Activity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
42,000.0
|
|
Activity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
42,000.0
|
|
Activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued to the
Principals(a)
|
|
|
|
|
|
|
18,000.0
|
|
|
|
|
|
Shares issued to the
public(b)
|
|
|
27,644.2
|
|
|
|
|
|
|
|
|
|
Shares issued to the independent
directors(c)
|
|
|
14.6
|
|
|
|
|
|
|
|
|
|
Exchange by the
Principals(d)
|
|
|
2,400.0
|
|
|
|
(2,400.0
|
)
|
|
|
|
|
Repurchase from
GAM(e)
|
|
|
|
|
|
|
|
|
|
|
(25,244.2
|
)
|
Repurchase from the
Principals(d)
|
|
|
(2,400.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2009
|
|
|
27,658.8
|
|
|
|
15,600.0
|
|
|
|
16,755.8
|
|
|
|
|
|
(a)
|
|
Represents the 9.0 million
shares of non-participating Class B common stock issued to
each of the Principals (see Note 2. Initial Public
Offering and Changes in the Principals Interests).
|
|
(b)
|
|
Represents the 25.0 million
shares of Class A common stock that were issued to the
public in connection with the IPO and the underwriters
exercising their option to purchase 2,644,156 shares of
Class A common stock.
|
|
(c)
|
|
Represents the 6,924 shares of
fully-vested Class A common stock (subject to transfer
restrictions) that were awarded to our independent directors in
connection with the IPO and 7,719 shares of fully-vested
Class A common stock (subject to transfer restrictions)
granted to our independent directors in December 2009. The table
does not reflect 2.1 million of unvested restricted stock
units (see Note 12. Share-Based Payments) awarded to
certain employees (other than the Principals), each of which
represents the right to receive one share of Class A common
stock upon vesting.
|
|
(d)
|
|
Represents the effect of the
issuance of 1.2 million shares of Class A common stock
to each of the Principals upon exchange of an equivalent number
of New Class A Units and subsequent repurchase of such
Class A common stock by us with a portion of the net
proceeds from the IPO. Upon the exchange of New Class A
Units for Class A common stock, corresponding shares of
Class B common stock were canceled.
|
|
(e)
|
|
Includes the 25.2 million
shares of Class C common stock we repurchased from GAM and
retired with a portion of the net proceeds from the IPO and the
shares issued pursuant to the underwriters exercising their
option.
|
Note 5. Tax
Receivable Agreement
Concurrent with IPO, the Principals (whose ownership in Holdings
represents the non-controlling interests) entered into an
exchange agreement which provides that they may exchange their
New Class A Units for shares of Class A common stock.
Upon such an exchange, Holdings expects to make an election
under Section 754 of the Internal Revenue Code of 1986, as
amended, to increase the tax basis of its tangible and
intangible assets. The amortization of the increased basis is
available to reduce future taxable income generally over a
15-year
period.
We entered into a tax receivable agreement with the Principals
under which they are entitled to receive 85% of the tax benefits
realized by us in our tax returns as a result of the increases
in tax basis created by each Principals exchange described
above.
In 2009, we recorded compensation expense of $97.9 million
representing the present value of the future tax benefits that
would have been realized had the Principals exchanged all of
their shares at the IPO price, and assuming that we have future
taxable income to utilize the increased tax deductions.
73
ARTIO
GLOBAL INVESTORS INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Actual recognition of a deferred tax benefit in our consolidated
financial statements occurs at the time of exchange. At the time
of the IPO, the Principals each exchanged approximately 13.3% of
their New Class A Units and a deferred tax asset of
$38.4 million was established for the estimated future tax
benefits resulting from the amortization of the increased basis.
Of the deferred tax asset recorded at the time of the IPO,
$32.7 million, representing 85% of the benefits, was
recorded in Due under tax receivable agreement, and the
remaining 15% was recorded in Additional paid-in capital
on the Consolidated Statement of Financial Position. These
amounts are adjusted periodically for changes to effective tax
rates.
Amounts payable to the Principals under the tax receivable
agreement are payable approximately 60 days after we file
our income tax returns. Should the deductions resulting from the
increased depreciation and amortization be subsequently
disallowed by the taxing authorities, we would not be able to
recover amounts already paid to the Principals.
Note 6. Related
Party Activities
Prior to the IPO, we engaged in transactions with GAM and other
affiliates in the ordinary course of business. We also engaged
in transactions with our mutual funds.
Affiliate
Transactions Mutual and Offshore Funds
We earn management fees from the Funds, which are considered
related parties, as Investment Adviser manages the operations
and makes investment decisions for these Funds. Investment
Adviser provides investment management services to the Funds
pursuant to investment management agreements with the Funds,
which are subject to review and approval by their boards of
directors or trustees. Investment Adviser also derives
investment management revenue from
sub-advising
certain offshore funds sponsored by affiliates of GAM. Revenues
related to these services are included in Investment
management fees in the Consolidated Statement of Operations
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
(in thousands)
|
|
2009
|
|
2008
|
|
2007
|
|
Funds investment management fees
|
|
$
|
173,336.3
|
|
|
$
|
253,926.0
|
|
|
$
|
278,696.7
|
|
Sub-advisory
investment management fees on
GAM-sponsored
funds
|
|
|
1,924.8
|
|
|
|
2,376.2
|
|
|
|
2,310.3
|
|
|
Fees receivable related to investment management fees are
included in Fees receivable and accrued fees, net of
allowance for doubtful accounts in the Consolidated
Statement of Financial Position as follows:
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
(in thousands)
|
|
2009
|
|
2008
|
|
Funds investment management fees
|
|
$
|
17,189.6
|
|
|
$
|
14,231.2
|
|
Sub-advisory
investment management fees on GAM-sponsored funds
|
|
|
614.9
|
|
|
|
509.9
|
|
|
Other
Affiliate Transactions
Prior to the IPO, we had a licensing fee arrangement with GAM
for the use of the Julius Baer name in our products and
marketing strategies. These licensing fees were
$2.7 million for 2009, $6.4 million for 2008 and
$7.3 million for 2007. This arrangement terminated in 2009.
In 2007, we shared office space with certain unconsolidated GAM
affiliates and allocated both direct and indirect expenses for
occupancy (including rent and depreciation), information
technology and support systems costs (including depreciation),
administration and management, under the terms of service level
agreements. In 2008, the unconsolidated affiliates moved from
our offices and the service level agreements were canceled. In
2007, we allocated $4.7 million to the unconsolidated
affiliates, which is reflected in General and administrative
expenses in the Consolidated Statement of Operations. There
are no allocated expenses in 2009 and 2008.
74
ARTIO
GLOBAL INVESTORS INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Other
Related Party Transactions
Certain participants in the Funded Plan (as defined in
Note 11. Benefit Plans and Deferred Compensation)
invest a portion of their deferred bonuses in their choice of
the Funds. Assets related to the Funded Plan are included in
Marketable securities on the Consolidated Statement of
Financial Position and realized and unrealized gains (losses) on
investments in the Funds are recorded in Net gains (losses)
on securities held for deferred compensation on the
Consolidated Statement of Operations (see Note 7.
Marketable Securities, at Fair Value).
Investors manages, at no cost to the plans, the assets of the
Qualified Plan (as defined in Note 11. Benefit Plans and
Deferred Compensation).
Note 7. Marketable
Securities, at Fair Value
We carry our marketable securities portfolio at fair value using
a valuation hierarchy based on the transparency of the inputs to
the valuation techniques used to measure fair value.
Classification within the hierarchy is based upon the lowest
level of input that is significant to the fair value
measurement. The valuation hierarchy contains three levels:
(i) valuation inputs comprising unadjusted quoted market
prices for identical assets or liabilities in active markets
(Level 1); (ii) valuation inputs
comprising quoted prices for identical assets or liabilities in
markets that are not active, quoted market prices for similar
assets and liabilities in active markets, and other observable
inputs directly or indirectly related to the asset or liability
being measured (Level 2); and
(iii) valuation inputs that are unobservable and are
significant to the fair value measurement
(Level 3).
Marketable securities as of December 31, 2009 and 2008,
consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Fair Value
|
|
|
Amortized Cost
|
|
|
Unrealized Gains
|
|
|
Unrealized Losses
|
|
|
As of December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Artio Global Funds
|
|
$
|
7,892.5
|
|
|
$
|
8,448.6
|
|
|
$
|
|
|
|
$
|
(556.1
|
)
|
Other investments
|
|
|
18.0
|
|
|
|
10.0
|
|
|
|
8.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total marketable securities
|
|
$
|
7,910.5
|
|
|
$
|
8,458.6
|
|
|
$
|
8.0
|
|
|
$
|
(556.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and agency instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due within 1 year
|
|
$
|
60,375.2
|
|
|
$
|
60,277.3
|
|
|
$
|
97.9
|
|
|
$
|
|
|
Due 5 - 10 years
|
|
|
5,028.3
|
|
|
|
4,587.6
|
|
|
|
440.7
|
|
|
|
|
|
Artio Global Funds
|
|
|
5,911.4
|
|
|
|
8,594.9
|
|
|
|
|
|
|
|
(2,683.5
|
)
|
Other investments
|
|
|
14.6
|
|
|
|
10.0
|
|
|
|
4.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total marketable securities
|
|
$
|
71,329.5
|
|
|
$
|
73,469.8
|
|
|
$
|
543.2
|
|
|
$
|
(2,683.5
|
)
|
|
In 2009, we liquidated our holdings of investment securities to
fund distributions to GAM and the Principals.
75
ARTIO
GLOBAL INVESTORS INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Our marketable securities and cash equivalents as of
December 31, 2009 and 2008, are valued using prices as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 2
|
|
|
Level 3
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
Significant
|
|
|
|
|
|
|
Level 1
|
|
|
Observable
|
|
|
Unobservable
|
|
(in thousands)
|
|
Total
|
|
|
Quoted Prices
|
|
|
Inputs
|
|
|
Inputs
|
|
|
As of December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Marketable securities
|
|
|
7,910.5
|
|
|
|
7,892.5
|
|
|
|
|
|
|
|
18.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
7,910.5
|
|
|
$
|
7,892.5
|
|
|
$
|
|
|
|
$
|
18.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents
|
|
$
|
71,116.6
|
|
|
$
|
71,116.6
|
|
|
$
|
|
|
|
$
|
|
|
Marketable securities
|
|
|
71,329.5
|
|
|
|
71,314.9
|
|
|
|
|
|
|
|
14.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
142,446.1
|
|
|
$
|
142,431.5
|
|
|
$
|
|
|
|
$
|
14.6
|
|
|
The change in Level 3 securities is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
(in thousands)
|
|
2009
|
|
|
2008
|
|
|
Beginning of year
|
|
$
|
14.6
|
|
|
$
|
10.0
|
|
Unrealized gains
|
|
|
3.4
|
|
|
|
4.6
|
|
|
|
|
|
|
|
|
|
|
End of period
|
|
$
|
18.0
|
|
|
$
|
14.6
|
|
|
The change in unrealized gains (losses) and realized gains
(losses) are recorded in Net gains (losses) on marketable
securities and Net gains (losses) on securities held for
deferred compensation on the Consolidated Statement of
Operations, as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
(in thousands)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
U.S. government and agency and other securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in unrealized gains (losses)
|
|
$
|
(535.2
|
)
|
|
$
|
543.2
|
|
|
$
|
|
|
Realized gains (losses)
|
|
|
7.3
|
|
|
|
(291.1
|
)
|
|
|
81.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gains (losses) on marketable securities
|
|
$
|
(527.9
|
)
|
|
$
|
252.1
|
|
|
$
|
81.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Artio Global Funds:
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in unrealized gains (losses)
|
|
$
|
2,127.4
|
|
|
$
|
(2,683.5
|
)
|
|
$
|
|
|
Realized gains (losses)
|
|
|
(157.3
|
)
|
|
|
(173.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gains (losses) on securities held for deferred compensation
|
|
$
|
1,970.1
|
|
|
$
|
(2,856.5
|
)
|
|
$
|
|
|
|
76
ARTIO
GLOBAL INVESTORS INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 8. Property
and Equipment
The major classifications of property and equipment are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
(in thousands)
|
|
2009
|
|
|
2008
|
|
|
Furniture, fixtures, software and equipment
|
|
$
|
10,127.6
|
|
|
$
|
9,574.6
|
|
Leasehold improvements
|
|
|
10,636.2
|
|
|
|
10,358.4
|
|
Less: accumulated depreciation and amortization
|
|
|
(13,128.9
|
)
|
|
|
(10,099.8
|
)
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
$
|
7,634.9
|
|
|
$
|
9,833.2
|
|
|
Note 9. Debt
In September 2009, Holdings entered into a $110.0 million
credit facility consisting of a $60.0 million three-year
term credit facility and a $50.0 million three-year
revolving credit facility.
In October 2009, Holdings borrowed $60.0 million under the
term credit facility. The interest associated with the
$60.0 million borrowing is LIBOR plus 300 basis
points, which is currently set at 3.25125%, and resets in April
2010. The amortization schedule requires quarterly principal
payments of 7.5% in both years two and three, beginning on
December 31, 2010, with a final payment of 40% at maturity.
There is no remaining capacity under the term credit facility. A
portion of the $60.0 million borrowing was used to fund
distributions to GAM and the Principals.
Borrowings under the $50.0 million revolving credit
facility would bear interest at a rate equal to, at our option,
(i) LIBOR plus a range of 300 to 400 basis points or
(ii) the base rate (as defined in the credit facility
agreement) plus a range of 200 to 300 basis points. The
interest rate would reset at certain intervals. Holdings has
made no borrowings under the revolving credit facility.
The spread to LIBOR or the base rate is correlated to the
consolidated leverage ratio as prescribed within the credit
facility agreement. Our current spread to LIBOR and the base
rate is 300 basis points and 200 basis points,
respectively. These spreads could increase if our consolidated
leverage ratio exceeds 1.0x.
The covenants in the credit facility agreement require
compliance with the following financial ratios (each in
accordance with the definitions, including earnings before
interest, taxes, depreciation and amortization
(EBITDA), in the credit facility agreement), to be
calculated on a consolidated basis at the end of each fiscal
quarter:
|
|
|
maintenance of a maximum consolidated leverage ratio of less
than or equal to 2.00x (calculated as the ratio of consolidated
funded indebtedness plus the remaining amount of a deferred
payment to GAM of $40.1 million, which is payable by
September 29, 2010, to consolidated EBITDA for the last six
months multiplied by two); and
|
|
|
maintenance of a minimum consolidated interest coverage ratio of
greater than or equal to 4.00x (calculated as the ratio of
consolidated EBITDA for the last six months to consolidated
interest charges for such period).
|
The credit facility agreement also contains customary
affirmative and negative covenants, including limitations on
indebtedness, liens, cash dividends and fundamental corporate
changes. As of December 31, 2009, Holdings was in
compliance with all such covenants.
Note 10. Class B
Profits Interests
In 2004, each Principal was granted a Class B, non-voting
profits interest in Investment Adviser, which entitled each of
them to receive 15% of the profits (30% in the aggregate) of our
asset management business, as defined in Investment
Advisers then-effective operating agreement. The
allocation of such profits interests
77
ARTIO
GLOBAL INVESTORS INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
was expensed as incurred and included in Employee
compensation and benefits on the Consolidated Statement of
Operations. The liability for these interests was
$34.1 million as of December 31, 2008. Each Principal
exchanged his Class B profits interests for an equivalent
percentage of New Class A Units in connection with the IPO
and the remaining balance of undistributed Class B profits
interests was paid to each of the Principals in the fourth
quarter of 2009.
Prior to the IPO, we were required to repurchase the
Class B profits interests upon the occurrence of certain
events. The repurchase price was computed utilizing a model
based on the average profitability of Investment Adviser and the
average price-earnings multiple of the common stock of GAM. The
benefits vested ratably over a ten-year period ending in 2014.
We recorded the obligation associated with the full value of the
Class B profits interests as a liability at fair value in
Accrued compensation and benefits in the Consolidated
Statements of Financial Position, and recognized the expense as
Employee compensation and benefits in the Consolidated
Statement of Operations. The redemption value and liabilities of
this obligation were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Redemption Value
|
|
Liabilities
|
|
Unvested Balance
|
|
December 31, 2009
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
December 31, 2008
|
|
|
504,725.0
|
|
|
|
201,890.3
|
|
|
|
302,834.7
|
|
|
In connection with the IPO, each of the Principals exchanged his
Class B profits interests for New Class A Units (see
Note 2. Initial Public Offering and Changes in
Principals Interests).
Note 11. Benefit
Plans and Deferred Compensation
Investors sponsors a non-contributory qualified defined
contribution retirement plan that covers most employees (the
Qualified Plan). Employees with at least one year of
service are eligible to participate in this plan. The
Companys contributions to this plan are calculated at 10%
of annual salary up to the Social Security taxable wage base
plus 15.7% of annual base salary in excess of the Social
Security taxable wage base up to the Internal Revenue Service
compensation limit for qualified plans. Earnings on an
individuals account in the plan are limited to the
performance of the underlying plan investments in the account.
Investors also sponsors a supplemental non-qualified defined
contribution retirement plan (the Non-qualified
Plan). Contributions to this plan are calculated as 15.7%
of annual base salary that exceeds the Internal Revenue Service
compensation limit for qualified plans. Contributions to both
the qualified and non-qualified retirement plans have three-year
vesting.
Investors sponsors a deferred compensation plan for employees
whose annual discretionary bonus award exceeds certain
predefined amounts (the Funded Plan). Amounts
contributed to this plan vest ratably over a three-year period.
Additionally, in 2008 and 2007, Investors sponsored an unfunded,
non-qualified deferred compensation plan for the Principals (the
Unfunded Plan). In December 2007, the Unfunded Plan
was amended to be payable in a lump sum upon the earlier of the
IPO or December 31, 2008. In 2008, we expensed the
remaining amount of the Unfunded Plan and made the payments.
Assets related to the Funded Plan are included in Marketable
securities and liabilities related to this plan are included
in Accrued compensation and benefits on the Consolidated
Statement of Financial Position, as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2009
|
|
As of December 31, 2008
|
(in thousands)
|
|
Assets
|
|
Liabilities
|
|
Assets
|
|
Liabilities
|
|
Funded Plan
|
|
$
|
7,892.5
|
|
|
$
|
3,741.8
|
|
|
$
|
5,911.4
|
|
|
$
|
2,499.7
|
|
|
78
ARTIO
GLOBAL INVESTORS INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Expenses related to the plans are included in Salaries,
incentive compensation and benefits on the Consolidated
Statement of Operations as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
(in thousands)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Qualified Plan
|
|
$
|
2,380.7
|
|
|
$
|
2,847.9
|
|
|
$
|
1,553.7
|
|
Non-qualified Plan
|
|
|
148.0
|
|
|
|
223.2
|
|
|
|
273.4
|
|
Funded Plan
|
|
|
3,793.8
|
|
|
|
2,444.0
|
|
|
|
2,187.8
|
|
Unfunded Plan
|
|
|
|
|
|
|
8,877.7
|
|
|
|
1,402.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
6,322.5
|
|
|
$
|
14,392.8
|
|
|
$
|
5,416.9
|
|
|
Note 12. Share-Based
Payments
In September 2009, the Board of Directors of Investors approved
the Artio Global Investors Inc. 2009 Stock Incentive Plan (the
Plan), and reserved 9.7 million shares of
Class A common stock for share awards. Under the Plan, the
Board of Directors is authorized to grant incentive stock
options, non-qualified stock options, stock appreciation rights,
restricted stock, restricted stock units, performance awards and
other stock-based awards to Directors, officers and other
employees of, and consultants to, Investors and its affiliates.
A summary of restricted stock activity follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average
|
|
|
|
|
|
|
Grant Date Fair
|
|
|
|
|
|
|
Value(a)
|
|
|
Number of Shares
|
|
|
Outstanding as of December 31, 2008
|
|
$
|
|
|
|
|
|
|
Grants:
|
|
|
|
|
|
|
|
|
Fully-vested shares granted to independent directors, subject to
transfer restrictions
|
|
|
25.62
|
|
|
|
14,643
|
|
|
|
|
|
|
|
|
|
|
Outstanding as of December 31, 2009
|
|
|
|
|
|
|
14,643
|
|
|
|
|
|
(a)
|
|
Weighted-average grant date fair
value for grants are based on closing price on the grant date.
|
A summary of restricted stock unit (RSU) activity
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average
|
|
|
|
|
|
|
Grant Date Fair
|
|
|
|
|
|
|
Value(a)
|
|
|
Number of Shares
|
|
|
Outstanding as of December 31, 2008
|
|
$
|
|
|
|
|
|
|
Grants:
|
|
|
|
|
|
|
|
|
Unvested RSUs granted to certain employees (other than the
Principals) in connection with the IPO
|
|
|
26.25
|
|
|
|
2,147,758
|
|
Forfeitures
|
|
|
26.25
|
|
|
|
(1,000
|
)
|
|
|
|
|
|
|
|
|
|
Outstanding as of December 31, 2009
|
|
|
|
|
|
|
2,146,758
|
|
|
|
|
|
(a)
|
|
Weighted-average grant date fair
value for grants are based on closing price on the grant date.
|
Approximately $54.4 million (2,071,758 shares) of the
granted RSUs will vest pro rata, on an annual basis, over a
five-year period from the date of the grant, and approximately
$2.0 million (74,500 shares) vested in February 2010.
Upon the vesting of RSUs, a corresponding number of New
Class A Units are issued to Investors.
Compensation expense related to share-based payments is
recognized using a straight-line method over the requisite
service period (generally over a three- or five-year period from
the date of the grant for the entire
79
ARTIO
GLOBAL INVESTORS INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
award). Compensation expense related to the amortization of RSU
grants, included in Salaries, incentive compensation and
benefits on the Consolidated Statement of Operations, was
$4.3 million in 2009.
Note 13. Income
Taxes
We are a C Corporation under the Internal Revenue
Code of 1986, as amended (the Code), and liable for
Federal, state and local taxes on the income derived from
Investors economic interest in Holdings. Holdings is a
limited liability company that is treated as a partnership for
tax purposes and as such is not subject to Federal or state
income taxes. Holdings is subject to the New York City
Unincorporated Business Tax (UBT).
Income taxes reflect not only the portion attributable to
our stockholders but also the portion of New York City UBT
attributable to non-controlling interests. A summary of the
provisions for income taxes is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
(in thousands)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
43,529.2
|
|
|
$
|
54,127.6
|
|
|
$
|
59,806.1
|
|
State and local
|
|
|
4,954.8
|
|
|
|
22,147.4
|
|
|
|
34,109.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
48,484.0
|
|
|
|
76,275.0
|
|
|
|
93,915.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
59,401.5
|
|
|
|
(17,380.9
|
)
|
|
|
(23,851.9
|
)
|
State and local
|
|
|
26,401.7
|
|
|
|
(4,139.0
|
)
|
|
|
(11,646.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
85,803.2
|
|
|
|
(21,519.9
|
)
|
|
|
(35,498.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
$
|
134,287.2
|
|
|
$
|
54,755.1
|
|
|
$
|
58,417.4
|
|
|
Taxes are computed using the asset and liability method.
Deferred income taxes reflect the net tax effect of temporary
differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts
used for income tax purposes.
Net deferred tax assets comprise the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
(in thousands)
|
|
2009
|
|
|
2008
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Deferred compensation Class B profits
interests(a)
|
|
$
|
|
|
|
$
|
88,316.5
|
|
Deferred compensation other
|
|
|
3,605.0
|
|
|
|
1,117.6
|
|
Depreciation and amortization
|
|
|
1,161.2
|
|
|
|
764.5
|
|
Provisions and other
|
|
|
2,417.0
|
|
|
|
2,503.7
|
|
Step-up of
tax
basis(b)
|
|
|
39,133.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
46,316.3
|
|
|
|
92,702.3
|
|
Less: valuation allowance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset
|
|
$
|
46,316.3
|
|
|
$
|
92,702.3
|
|
|
|
|
|
(a)
|
|
As a result of the Principals
exchange of their Class B profits interests for New
Class A Units, the Principals ownership interests
were reclassified to equity and the related deferred tax asset
was de-recognized.
|
|
(b)
|
|
Under the tax receivable agreement,
85% of the estimated future tax benefit is payable to the
Principals.
|
The exchange by the Principals of a portion of their New
Class A Units for 2.4 million shares of Class A
common stock (see Note 5. Tax Receivable Agreement)
has allowed us to make an election to step up our tax basis in
accordance with Section 754 of the Code. The amortization
expense resulting from this
step-up is
80
ARTIO
GLOBAL INVESTORS INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
deductible for tax purposes generally over a
15-year
period. Based on the exchange date, this election gave rise to a
$38.4 million deferred tax asset and a corresponding
$32.7 million liability to the Principals under the tax
receivable agreement. These amounts are adjusted periodically
for changes to effective tax rates. Based on our history of
taxable income, we assessed whether the deferred tax asset would
be realizable and determined that the benefit would more likely
than not be realized. Accordingly, no valuation allowance is
required.
A reconciliation between the Federal statutory tax rate of 35%
and the effective tax rates are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
(in percentages)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Federal statutory rate
|
|
|
35
|
%
|
|
|
35
|
%
|
|
|
35
|
%
|
State and local, net of Federal benefit, and other
|
|
|
7
|
|
|
|
10
|
|
|
|
12
|
|
Anticipated amendment to prior year tax returns
|
|
|
3
|
|
|
|
|
|
|
|
|
|
Non-controlling interests
|
|
|
3
|
|
|
|
|
|
|
|
|
|
Permanent differences:
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation expenses fully vested Class B
profits interests
|
|
|
(49
|
)
|
|
|
|
|
|
|
|
|
Compensation expenses tax receivable agreement
|
|
|
(18
|
)
|
|
|
|
|
|
|
|
|
De-recognition of deferred tax asset
|
|
|
(38
|
)
|
|
|
|
|
|
|
|
|
Other
|
|
|
(1
|
)
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
(58
|
)%
|
|
|
47
|
%
|
|
|
47
|
%
|
|
In connection with the filing of our 2008 tax returns, we
changed our methodology for apportioning receipts to state
jurisdictions. The impact of the change in methodology for 2008,
2007 and 2006 was recorded in 2009.
Other permanent differences consist of the non-deductible
portion of meals, entertainment, gifts and certain costs related
to the IPO.
Holdings is subject to New York City UBT, of which a substantial
portion is credited against Investors tax liability.
As of December 31, 2009, $3.3 million of unrecognized
tax benefits, if recognized, would affect the effective tax rate.
A reconciliation of the change in unrecognized tax benefits is
as follows:
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
Balance, January 1, 2008
|
|
$
|
|
|
Additions (reductions) for tax provisions of prior years
|
|
|
|
|
Additions based on tax provisions related to current year
|
|
|
|
|
Reductions for settlements with taxing authorities
|
|
|
|
|
Lapse of statute of limitations
|
|
|
|
|
|
|
|
|
|
Balance, January 1, 2009
|
|
|
|
|
Additions (reductions) for tax provisions of prior years
|
|
|
|
|
Additions based on tax provisions related to current year
|
|
|
3,281.6
|
|
Reductions for settlements with taxing authorities
|
|
|
|
|
Lapse of statute of limitations
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2009
|
|
$
|
3,281.6
|
|
|
We believe that the total amount of unrecognized tax benefits
will not significantly increase or decrease over the next
12 months.
81
ARTIO
GLOBAL INVESTORS INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Interest expense relating to unrecognized tax benefits is
included in Interest income, net of interest expense on
the Consolidated Statement of Operations. Penalties relating to
unrecognized tax benefits are included in General and
administrative on the Consolidated Statement of Operations.
In 2009, 2008 and 2007, there were no material charges relating
to interest and penalties.
Tax years 2006 to the present are open for examination by
Federal, state and local tax authorities. We are not currently
under examination by any significant tax jurisdiction.
Note 14. Discontinued
Operations
In December 2007, the foreign exchange operations of a former
subsidiary were distributed to GAM. There was no gain or loss on
the distribution. Assets and liabilities of the former
subsidiary were distributed at their carrying amounts, with the
net asset of $100,000 reflected as a non-cash dividend. The
foreign exchange operations of the former subsidiary were
classified as discontinued operations for 2007.
Summary financial information relating to discontinued
operations follows. There were no discontinued operations in
2009 and 2008.
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
(in thousands)
|
|
2007
|
|
|
Revenues
|
|
$
|
8,694.8
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
$
|
2,994.9
|
|
Income taxes
|
|
|
1,378.7
|
|
|
|
|
|
|
Income from discontinued operations, net of taxes
|
|
$
|
1,616.2
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by discontinued operations
|
|
$
|
7,938.5
|
|
|
Note 15. Earnings
Per Share (EPS)
Basic and diluted EPS from continuing operations were calculated
using the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
(in thousands)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Net income (loss) attributable to Artio Global Investors
|
|
$
|
(378,314.1
|
)
|
|
$
|
61,151.3
|
|
|
$
|
67,985.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares for basic EPS
|
|
|
42,620.4
|
|
|
|
42,000.0
|
|
|
|
42,000.0
|
|
Dilutive potential shares from exchange of New Class A
Units by the
Principals(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive potential shares from grants of
RSUs(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares for diluted EPS
|
|
|
42,620.4
|
|
|
|
42,000.0
|
|
|
|
42,000.0
|
|
|
|
|
|
(a)
|
|
The potential impact of both the
exchange of New Class A Units by the Principals, and
cancelation of corresponding shares of Class B common
stock, for Class A common stock and the RSU grants were
anti-dilutive for 2009.
|
82
ARTIO
GLOBAL INVESTORS INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 16. Leases
We lease office space under non-cancelable agreements that
expire in June 2014. Minimum annual rental payments under the
lease as of December 31, 2009, are as follows:
|
|
|
|
|
|
|
Years ending December 31,
|
|
(in thousands)
|
|
|
2010
|
|
$
|
3,738.7
|
|
2011
|
|
|
3,756.0
|
|
2012
|
|
|
3,761.8
|
|
2013
|
|
|
3,761.8
|
|
2014
|
|
|
1,880.9
|
|
|
|
|
|
|
|
|
$
|
16,899.2
|
|
|
In addition to the minimum annual rentals, the lease also
includes provisions for escalations. The lease provides for a
rent holiday and leasehold improvement incentives. These
concessions are recognized on a straight-line basis as
reductions in rent expense over the term of the lease.
Rent expense was $2.5 million in 2009, $3.3 million in
2008 and $2.6 million in 2007. In 2007, a portion of the
annual rental expense was charged to affiliates who occupied
portions of the space.
In December 2008, we decided not to use a portion of our office
space and activity related to the preparation of that space was
terminated. We recorded a liability related to this exit
activity at fair value in the period in which the liability was
incurred. In 2008, we also reclassified approximately
$0.5 million previously recorded for lease incentives
related to this space to Other liabilities on the
Consolidated Statement of Financial Position. The total
liability related to this space is included in Other
liabilities on the Consolidated Statement of Financial
Position and the amortization of the liability is included in
General and administrative expenses in the Consolidated
Statement of Operations.
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
Balance, January 1, 2008
|
|
$
|
2,868.7
|
|
2009 rent payments
|
|
|
(889.2
|
)
|
Fair value adjustment
|
|
|
622.5
|
|
|
|
|
|
|
Balance, December 31, 2009
|
|
$
|
2,602.0
|
|
|
In 2009, we reassessed the fair value of the liability based on
current market conditions.
Note 17. Commitments
and Contingencies
Although we have no obligation to do so, we have, at our
discretion, reimbursed client accounts for certain operational
losses incurred. Such amounts were not material in the years
ended December 31, 2009, 2008 and 2007.
There are no claims against us that are considered probable or
reasonably possible of having a material effect on our cash
flows, results of operations or financial position.
Note 18. Segment
information
Continuing operations are classified as one segment: investment
advisory and management services. Management evaluates
performance and allocates resources for the management of each
type of investment vehicle on a combined basis. Fees from the
largest fund as a percentage of Investment management fees
were 30% in 2009, 39% in 2008 and 47% in 2007. Clients are
primarily based in the U.S.
83
ARTIO
GLOBAL INVESTORS INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 19. Recently
Issued Accounting Pronouncements
Upon the IPO, we adopted the provisions of ASC 810.10.65,
Noncontrolling Interests in Consolidated Financial
Statements, for the Principals ownership in Holdings.
In June 2009, the Financial Accounting Standards Board (the
FASB) issued ASC 810.10, Amendments to FASB
Interpretation No. 46(R). ASC 810.10 gives additional
guidance on determining whether an entity is a variable interest
entity and requires ongoing assessments of whether an enterprise
is the primary beneficiary of a variable interest entity. In
February 2010, the FASB issued an Accounting Standards Update
which defers the effective date of ASC 810.10 for companies,
such as us, that have interests in certain investment entities.
Note 20. Selected
Quarterly Information (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
(in thousands, except per share amounts)
|
|
1st
Quarter
|
|
2nd
Quarter
|
|
3rd
Quarter(a)
|
|
4th
Quarter
|
|
Total revenues and other operating income
|
|
$
|
62,526.9
|
|
|
$
|
70,793.1
|
|
|
$
|
84,487.9
|
|
|
$
|
89,584.1
|
|
Operating income (loss) before income tax
expense(a)
|
|
|
6,003.0
|
|
|
|
10,604.0
|
|
|
|
(298,303.7
|
)
|
|
|
53,169.0
|
|
Net income (loss) attributable to Artio Global
Investors(a)
|
|
|
3,045.2
|
|
|
|
5,354.4
|
|
|
|
(412,423.1
|
)
|
|
|
25,709.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic EPS, net income (loss) attributable to Artio Global
Investors(a)
|
|
$
|
0.07
|
|
|
$
|
0.13
|
|
|
$
|
(9.81
|
)
|
|
$
|
0.58
|
|
Diluted EPS, net income (loss) attributable to Artio Global
Investors(a)(b)(d)
|
|
$
|
0.07
|
|
|
$
|
0.13
|
|
|
$
|
(9.81
|
)
|
|
$
|
0.56
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends per basic share
declared(e)
|
|
$
|
0.33
|
|
|
$
|
|
|
|
$
|
4.83
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock price per
share(c):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
|
N/A
|
|
|
|
N/A
|
|
|
$
|
27.25
|
|
|
$
|
26.54
|
|
Low
|
|
|
N/A
|
|
|
|
N/A
|
|
|
$
|
25.50
|
|
|
$
|
22.66
|
|
Close
|
|
|
N/A
|
|
|
|
N/A
|
|
|
$
|
26.15
|
|
|
$
|
25.49
|
|
|
N/A Not applicable
|
|
|
(a)
|
|
The third quarter of 2009 includes
non-recurring compensation charges of $313.8 million in
connection with the IPO.
|
|
(b)
|
|
RSUs were granted in connection
with the IPO in the third quarter of 2009. The RSUs were
anti-dilutive for both the third and fourth quarters of 2009.
|
|
(c)
|
|
On September 29, 2009, we
completed an IPO of 25.0 million shares of Class A
common stock.
|
|
(d)
|
|
Fourth-quarter 2009 diluted EPS
assumes the full exchange of the Principals New
Class A Units, and cancelation of corresponding shares of
Class B common stock, to shares of Class A common
stock and reflects the elimination of non-controlling interests
and resulting increase in the effective tax rate.
|
|
(e)
|
|
Represents dividends declared prior
to the IPO.
|
84
ARTIO
GLOBAL INVESTORS INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
(in thousands, except per share amounts)
|
|
1st
Quarter
|
|
2nd
Quarter
|
|
3rd
Quarter
|
|
4th
Quarter
|
|
Total revenues and other operating income
|
|
$
|
116,316.9
|
|
|
$
|
126,567.7
|
|
|
$
|
106,528.2
|
|
|
$
|
72,632.7
|
|
Operating income before income tax expense
|
|
|
22,590.3
|
|
|
|
39,626.3
|
|
|
|
27,054.5
|
|
|
|
23,453.9
|
|
Net income (loss) attributable to Artio Global Investors
|
|
|
11,410.4
|
|
|
|
20,211.6
|
|
|
|
16,280.2
|
|
|
|
13,249.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic EPS, net income attributable to Artio Global Investors
|
|
$
|
0.27
|
|
|
$
|
0.48
|
|
|
$
|
0.39
|
|
|
$
|
0.32
|
|
Diluted EPS, net income attributable to Artio Global Investors
|
|
$
|
0.27
|
|
|
$
|
0.48
|
|
|
$
|
0.39
|
|
|
$
|
0.32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends per basic share declared
|
|
$
|
1.45
|
|
|
$
|
0.50
|
|
|
$
|
|
|
|
$
|
0.84
|
|
|
Basic and diluted EPS are computed independently for each of the
periods presented. Accordingly, the sum of the quarterly EPS
amounts may not agree to the total for the year.
85
Item 9. Changes
in and Disagreements with Accountants on Accounting and
Financial Disclosure
There were no changes in or disagreements with accountants on
accounting and financial disclosure during the last two fiscal
years.
Item 9A(T). Controls
and Procedures
As of the end of the period covered by this report, we carried
out an evaluation, under the supervision and with the
participation of our principal executive officer and principal
financial officer, of the effectiveness of the design and
operation of our disclosure controls and procedures (as such
term is defined in
Rules 13a-15(e)
and
15d-15(e)
under the Securities Exchange Act of 1934 (the Exchange
Act)). Based on this evaluation, our principal executive
officer and principal financial officer concluded that our
disclosure controls and procedures are effective in alerting
them in a timely manner to material information required to be
disclosed in our periodic reports filed with the SEC.
During our most recent fiscal quarter, there has not occurred
any change in our internal control over financial reporting (as
such term is defined in
Rules 13a-15(f)
and
15d-15(f)
under the Exchange Act) that has materially affected, or is
reasonably likely to materially affect, our internal control
over financial reporting.
The annual report does not include a report of managements
assessment regarding internal control over financial reporting
or an attestation report of the Companys registered public
accounting firm due to a transition period established by rules
of the Securities and Exchange Commission for newly public
companies.
Item 9B. Other
Information
Not applicable.
PART III
Item 10. Directors,
Executive Officers and Corporate Governance
Information relating to our executive officers and directors,
including our audit committee and audit committee financial
experts and the procedures by which stockholders can recommend
director nominees, and our executive officers will be in our
definitive Proxy Statement for our 2010 Annual Meeting of
Stockholders to be held on May 11, 2010, which will be
filed within 120 days of the end of our fiscal year ended
December 31, 2009, (2010 Proxy Statement) and
is incorporated herein by reference.
Item 11. Executive
Compensation
Information required by this item will be in the 2010 Proxy
Statement and is incorporated herein by reference.
Item 12. Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
Information required by this item will be in the 2010 Proxy
Statement and is incorporated herein by reference.
Item 13. Certain
Relationships and Related Transactions, and Director
Independence
Information required by this item will be in the 2010 Proxy
Statement and is incorporated herein by reference.
Item 14. Principal
Accountant Fees and Services
Information required by this item will be in the 2010 Proxy
Statement and is incorporated herein by reference.
PART IV
Item 15. Exhibits
and Financial Statement Schedules
|
|
(a)
|
Documents
filed as part of this Report:
|
1) Consolidated Financial Statements
|
|
|
|
i)
|
Consolidated Statements of Financial Position as of
December 31, 2009 and 2008
|
86
|
|
|
|
ii)
|
Consolidated Statements of Operations for the years ended
December 31, 2009, 2008 and 2007
|
|
iii)
|
Consolidated Statements of Changes in Equity for the years ended
December 31, 2009, 2008 and 2007
|
|
iv)
|
Consolidated Statements of Cash Flows for the years ended
December 31, 2009, 2008 and 2007
|
|
v)
|
Notes to Consolidated Financial Statements
|
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
|
|
|
|
|
3
|
.1
|
|
Form of Amended and Restated Certificate of Incorporation of
Artio Global Investors Inc. (incorporated by reference to
Amendment No. 7 to the Companys Registration
Statement on
Form S-1
(File
No. 333-149178)
Exhibit 3.1).
|
|
|
|
|
|
|
3
|
.2
|
|
Form of Amended and Restated Bylaws of Artio Global Investors
Inc. (incorporated by reference to Amendment No. 6 to the
Companys Registration Statement on
Form S-1
(File
No. 333-149178)
Exhibit 3.2).
|
|
|
|
|
|
|
4
|
.1
|
|
Form of Class A common stock certificate (incorporated by
reference to Amendment No. 6 to the Companys
Registration Statement on
Form S-1
(File
No. 333-149178)
Exhibit 4.1).
|
|
|
|
|
|
|
10
|
.1
|
|
Form of Amended and Restated Limited Liability Company Agreement
of Artio Global Holdings LLC (incorporated by reference to
Amendment No. 7 to the Companys Registration
Statement on
Form S-1
(File
No. 333-149178)
Exhibit 10.1).
|
|
|
|
|
|
|
10
|
.2
|
|
Form of Registration Rights Agreement (incorporated by reference
to Amendment No. 1 to the Companys Registration
Statement on
Form S-1
(File
No. 333-149178)
Exhibit 10.2).
|
|
|
|
|
|
|
10
|
.3
|
|
Form of Exchange Agreement (incorporated by reference to
Amendment No. 7 to the Companys Registration
Statement on
Form S-1
(File
No. 333-149178)
Exhibit 10.3).
|
|
|
|
|
|
|
10
|
.4
|
|
Form of Tax Receivable Agreement (incorporated by reference to
Amendment No. 6 to the Companys Registration
Statement on
Form S-1
(File
No. 333-149178)
Exhibit 10.4).
|
|
|
|
|
|
|
10
|
.5
|
|
Form of Transition Services Agreement among Julius Baer Group
Ltd., Bank Julius Baer & Co. Ltd. and Artio Global
Management LLC (incorporated by reference to Amendment
No. 7 to the Companys Registration Statement on
Form S-1
(File
No. 333-149178)
Exhibit 10.5).
|
|
|
|
|
|
|
10
|
.6
|
|
Julius Baer Holding Ltd. Shareholders Agreement (incorporated by
reference to Amendment No. 7 to the Companys
Registration Statement on
Form S-1
(File
No. 333-149178)
Exhibit 10.7).
|
|
|
|
|
|
|
10
|
.7
|
|
Form of Younes Shareholders Agreement (incorporated by reference
to Amendment No. 3 to the Companys Registration
Statement on
Form S-1
(File
No. 333-149178)
Exhibit 10.8).
|
|
|
|
|
|
|
10
|
.8
|
|
Form of Employment Agreement with Richard Pell (incorporated by
reference to Amendment No. 6 to the Companys
Registration Statement on
Form S-1
(File
No. 333-149178)
Exhibit 10.9).
|
|
|
|
|
|
|
10
|
.9
|
|
Form of Employment Agreement with Glen Wisher (incorporated by
reference to Amendment No. 6 to the Companys
Registration Statement on
Form S-1
(File
No. 333-149178)
Exhibit 10.10).
|
|
|
|
|
|
|
10
|
.10
|
|
Form of Employment Agreement with Francis Harte (incorporated by
reference to Amendment No. 6 to the Companys
Registration Statement on
Form S-1
(File
No. 333-149178)
Exhibit 10.11).
|
|
|
|
|
|
|
10
|
.11
|
|
Form of Employment Agreement with Tony Williams (incorporated by
reference to Amendment No. 6 to the Companys
Registration Statement on
Form S-1
(File
No. 333-149178)
Exhibit 10.12).
|
87
|
|
|
|
|
|
|
|
|
|
|
10
|
.12
|
|
Form of Employment Agreement with Rudolph-Riad Younes
(incorporated by reference to Amendment No. 6 to the
Companys Registration Statement on
Form S-1
(File
No. 333-149178)
Exhibit 10.13).
|
|
|
|
|
|
|
10
|
.13
|
|
Form of Stock Repurchase Agreement (incorporated by reference to
Amendment No. 6 to the Companys Registration
Statement on
Form S-1
(File
No. 333-149178)
Exhibit 10.14).
|
|
|
|
|
|
|
10
|
.14
|
|
Form of Pell Shareholders Agreement (incorporated by reference
to Amendment No. 3 to the Companys Registration
Statement on
Form S-1
(File
No. 333-149178)
Exhibit 10.15).
|
|
|
|
|
|
|
10
|
.15
|
|
Artio Global Investors Inc. 2009 Stock Incentive Plan
(incorporated by reference to Amendment No. 6 to the
Companys Registration Statement on
Form S-1
(File
No. 333-149178)
Exhibit 10.16).
|
|
|
|
|
|
|
10
|
.16
|
|
Artio Global Investors Inc. Management Incentive Plan
(incorporated by reference to Amendment No. 6 to the
Companys Registration Statement on
Form S-1
(File
No. 333-149178)
Exhibit 10.17).
|
|
|
|
|
|
|
10
|
.17
|
|
Forms of Restricted Stock Unit Award Agreements under the Artio
Global Investors Inc. 2009 Stock Incentive Plan (incorporated by
reference to Amendment No. 7 to the Companys
Registration Statement on
Form S-1
(File
No. 333-149178)
Exhibit 10.18).
|
|
|
|
|
|
|
10
|
.18
|
|
Form of Independent Director Stock Award Agreement under the
Artio Global Investors Inc. 2009 Stock Incentive Plan
(incorporated by reference to Amendment No. 7 to the
Companys Registration Statement on
Form S-1/A
(File
No. 333-149178)
Exhibit 10.19).
|
|
|
|
|
|
|
10
|
.19
|
|
Credit Facility dated as of September 4, 2009 among Artio
Global Holdings LLC, the Guarantors party thereto and Bank of
America, N.A., as Administrative Agent and L/C Issuer and the
other lenders party thereto (incorporated by reference to
Amendment No. 7 to the Companys Registration
Statement on
Form S-1
(File
No. 333-149178)
Exhibit 10.20).
|
|
|
|
|
|
|
10
|
.20
|
|
Form of Indemnification Agreement (incorporated by reference to
Amendment No. 7 to the Companys Registration
Statement on
Form S-1
(File
No. 333-149178)
Exhibit 10.21).
|
|
|
|
|
|
|
10
|
.21
|
|
Form of Indemnification and Co-operation Agreement between Artio
Global Management LLC and Julius Baer Holding Ltd. (incorporated
by reference to Amendment No. 7 to the Companys
Registration Statement on
Form S-1/A
(File
No. 333-149178)
Exhibit 10.22).
|
|
|
|
|
|
|
21
|
|
|
Subsidiaries of the Company (incorporated by reference to
Amendment No. 3 to the Companys Registration
Statement on
Form S-1/A
(File
No. 333-149178)
Exhibit 21).
|
|
|
|
|
|
|
23
|
.1
|
|
Consent of KPMG LLP
|
|
|
|
|
|
|
31
|
.1
|
|
Certification by the Chief Executive Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
|
|
|
31
|
.2
|
|
Certification by the Chief Financial Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
|
|
|
32
|
.1
|
|
Certification by the Chief Executive Officer Pursuant to
18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
|
|
|
32
|
.2
|
|
Certification by the Chief Financial Officer Pursuant to
18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
|
88
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
ARTIO GLOBAL INVESTORS INC.
Name: Francis Harte
Title: Chief Financial Officer
Date: March 5, 2010
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the Registrant and in the capacities and on the
dates indicated.
|
|
|
|
|
|
|
Signature
|
|
Capacity
|
|
Date
|
|
|
|
|
|
|
/s/ Richard
Pell
Richard
Pell
|
|
Director, Chairman and
Chief Executive Officer
|
|
March 5, 2010
|
|
|
|
|
|
/s/ Glen
Wisher
Glen
Wisher
|
|
Director, President
|
|
March 5, 2010
|
|
|
|
|
|
/s/ Elizabeth
Buse
Elizabeth
Buse
|
|
Director
|
|
March 5, 2010
|
|
|
|
|
|
/s/ Duane
Kullberg
Duane
Kullberg
|
|
Director
|
|
March 5, 2010
|
|
|
|
|
|
/s/ Francis
Ledwidge
Francis
Ledwidge
|
|
Director
|
|
March 5, 2010
|
89