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, 2010
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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). þ Yes o 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. o
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 þ
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Non-accelerated filer
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o (Do
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, 2010, the aggregate market value of the
voting and non-voting common equity held by non-affiliates was:
$436,140,000
The number of shares outstanding of each of the
registrants classes of common stock, as of
February 22, 2011, are:
Class A common stock:
41,624,317
Class B common stock: 1,200,000
Class C common stock:
16,755,844
DOCUMENTS
INCORPORATED BY REFERENCE
Portions of Artio Global Investors Inc.s Proxy Statement
for its Annual Meeting of Stockholders to be held on May 6,
2011, 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, 2010
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
1
with capital 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.
©
2011 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.
2
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 four 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), Artio Global
Institutional Services LLC (formerly known as Artio Capital
Management LLC) and Artio Alpha Investment Funds, LLC
(Alpha, the consolidated investment vehicle that
includes the Artio Global Credit Opportunities Fund). We refer
to our consolidated investment vehicles as the
Consolidated Investment Products. As of
December 31, 2010, Holdings was approximately 98% owned by
Investors, 1% owned by Richard Pell, our Chairman, Chief
Executive Officer and Chief Investment Officer
(Pell), and 1% owned by Rudolph-Riad Younes, our
Head of International Equity (Younes, together with
Pell, the Principals). Investment Adviser and Artio
Global Institutional Services LLC are wholly owned subsidiaries
of Holdings. As of December 31, 2010, Alpha was 95% owned
by Holdings as a result of a seed money investment and the
remaining 5% was owned by employees.
Investment Adviser was organized as a corporation in Delaware on
February 1, 1983 and converted to a limited liability
company on May 3, 2004. It 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;
sub-advisory
accounts; and the Consolidated Investment Products.
Our
Business
We are an asset management company that provides investment
management services to institutional and mutual fund clients. We
are best known for our International Equity strategies, which
represented 79% of our assets under management (AuM)
as of December 31, 2010. 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, 2010, eight out of nine composites of these
strategies had outperformed their benchmarks since inception. We
continue to work towards our goal of expanding and diversifying
our asset and revenue mix by judiciously expanding our product
line-up in
asset classes where we believe we can add value for clients.
Currently, we manage and advise the following investment
vehicles through which clients can access our investment
capabilities: proprietary funds; commingled institutional
investment vehicles; institutional separate accounts;
sub-advisory
accounts; and the Consolidated Investment Products.
Our operations and clients are based principally in the U.S.;
however, a substantial portion of our AuM are invested outside
of the U.S. Our revenues are billed primarily in
U.S. dollars, driven by investment management fees earned
from managing clients assets, and are computed on the
U.S. dollar value of the investment assets we manage for
clients. The U.S. dollar value of AuM fluctuates with
changes in foreign currency exchange rates. As of
December 31, 2010, 76% of our AuM were in currencies other
than the U.S. dollar. Changes in foreign currency exchange
rates may therefore have a material impact on our revenues. Our
expenses are primarily billed and paid in U.S. dollars and
not significantly affected by foreign currency exchange rates.
As of December 31, 2010, 79% of our AuM were held in the
International Equity I and International Equity II
strategies, and 87% of our investment management fees for the
year ended December 31, 2010 were attributable to fees
earned from those strategies.
Our primary business objective is to consistently generate
superior investment returns for our clients; investment
performance remains our paramount goal. 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
3
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 our clients investment objectives and
we seek to outsource support functions, where appropriate, to
industry leaders thereby allowing us to focus our business on
the areas where we believe we can add the most value for our
clients.
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, 2010, we provided investment management
services to a broad and diversified spectrum of approximately
1,350 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 manage assets for more than 775,000 retail mutual
fund shareholders through SEC-registered funds and other retail
investors through 12 funds that we
sub-advise
for others. We continue to focus on expanding our distribution
efforts 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.
Our AuM as of December 31, 2010, by investment vehicle and
investment strategy, are as follows:
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Investment Vehicles (As of
December 31, 2010)
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Investment Strategies (As of
December 31, 2010)
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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 over the past several 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 AuM. Managers of such portfolios in the
U.S. 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.
4
Competitive
Strengths
We believe our success as an investment management company is
based on the following competitive strengths:
Long-Term
Track Record of Strong Investment Performance
We have a well-established track record of achieving strong
investment returns over the longer term across our key
investment strategies relative to our competitors and the
relevant benchmarks, as demonstrated by the following:
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our International Equity I composite has outperformed its
benchmark, the MSCI AC World ex USA
Indexsm
ND, by 7.2% on an annualized basis since its inception in 1995
through December 31, 2010 (calculated on a gross basis
before payment of fees);
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as of December 31, 2010, eight out of nine
publicly-reported composites outperformed their benchmarks on a
gross basis since inception;
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as of December 31, 2010, seven out of nine mutual funds (as
represented by Class I shares), representing over 99% of
our mutual fund AuM, were rated 4- or 5- stars by
Morningstar; and
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as of December 31, 2010, seven out of nine (as represented
by Class I shares) were in the top quartile of Lipper
rankings for performance since inception.
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(1)
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Excess annual return for Artio
International Equity I Aggregate Composite (net of fees)
from May 1, 1995 to December 31, 2009: 3.7%, 13.0%,
15.2%, 14.7%, 45.9%, 7.4%, 0.7%, 11.3%, (5.2)%, 1.9%, 0.5%,
4.9%, 0.8%, 1.0%, (16.4)%, respectively.
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(2)
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Excess annual return for Artio
International Equity I Aggregate Composite (net of fees)
from May 1, 1995 to December 31, 2009: 2.6%, 11.6%,
13.6%, 7.1%, 49.5%, 6.2%, 2.4%, 12.2%, (2.9)%, 2.5%, 3.6%, 5.2%,
6.3%, (1.1)%, (6.7)%, respectively.
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(3)
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Performance inception May 1,
1995. Performance data for 1995 is based on returns from
May 1, 1995 to December 31, 1995.
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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
(including our portfolio managers) has expanded from
approximately 24 to approximately 60 people. Further, our
team of senior managers (including portfolio managers, marketing
and sales directors, and client service managers) averages
approximately 26 years of industry experience.
5
Leading
Position in International Equity
We have a leading position in international equity investment
management and, as of December 31, 2010, we ranked as the
15th
largest manager of international equity mutual funds in the
U.S. out of 217, according to Strategic Insight. We
believe that we are well-positioned to take advantage of
opportunities in this asset class over the next several years.
However, for 2009 and 2010, our International Equity strategies
performed below their benchmarks, which, despite our strong
long-term investment performance, could negatively impact our
competitive position. We believe that amid more
fundamentally-driven markets, rather than sentiment driven, we
will begin to see stronger performance as we have positioned our
client portfolios for the long-term with confidence and
conviction. Moreover, we expect equity markets generally to
perform well in 2011.
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
2nd
quartile of its Lipper universe over the three-year
period and in the
1st quartile
over the past five-year period and since inception, as of
December 31, 2010. Our Global High Income Fund ranked in
the top decile over the three- and five-year periods ended
December 31, 2010 and since inception, as of
December 31, 2010. Our Global Equity Fund ranked in the
2nd
quartile over the three-year period and since inception as of
December 31, 2010, and in the
1st quartile
for the five-year period as of December 31, 2010.
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, 2010, we provided
investment management services to approximately 1,350
institutional clients invested in separate accounts, commingled
funds or proprietary funds. We have found that institutional
investors generally have a longer and more extensive due
diligence process prior to investing, resulting in clients who
are more focused on our method of investing and our long-term
results. 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 AuM 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, enabling us access to a broad
range of institutional clients. As of December 31, 2010, no
single consulting firm represented more than approximately 4% of
our AuM and our largest single client represented approximately
3% of our total AuM. 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, but already represent a
substantial portion of our mutual fund AuM. However, given
our continued and increasing focus on this segment, and as a
result of consolidation among broker dealers with whom we have
established relationships, we believe we have opportunities to
reach additional retail investors through our existing
relationships.
Organic
Growth in Assets under Management
In the period from December 31, 2003 through
December 31, 2007, our AuM grew from $7.5 billion to
$75.4 billion, largely as a result of a combination of
general market appreciation, our record of outperforming the
relevant benchmarks and 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 the second half of 2008 and early 2009
had a significant negative impact on our AuM. Subsequent to the
market downturn in the latter part of 2009 and through 2010,
positive market conditions helped to increase AuM to
$53.4 billion as of December 31, 2010. We have
continued to see net client cash outflows related to the
International Equity strategies that we believe is in part due
to recent underperformance, as well as client rebalancing
decisions, asset reallocations, and clients adopting a different
investment approach.
6
Focused
Business Model
Our business model is designed to focus the majority of our
resources on meeting our clients investment objectives in
areas where we believe we can add the most value. Accordingly,
we take internal ownership of the aspects of our operations that
directly influence the investment process, our client
relationships and risk management. Whenever appropriate, we seek
to outsource support functions, including middle- and
back-office activities, to industry leaders, whose services we
closely monitor. 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 2010, 2009 and 2008, we produced Adjusted
operating income of $184 million, $173 million and
$252 million from total revenues and other operating income
of $335 million, $307 million and $422 million,
representing Adjusted operating margins of 55.0%, 56.4% and
59.8%, respectively. See Item 7. Managements
Discussion and Analysis of Financial Condition and Results of
Operations (MD&A) 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 aim to continue improving our relative performance within our
International Equity strategies for existing clients and also to
grow AuM over time. Our International Equity I strategy, which
had $18.8 billion in AuM as of December 31, 2010, was
closed to new investors in 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 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
$23.3 billion (as of December 31, 2010) in AuM in
approximately six years. We believe we have the capacity to
handle significant 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 AuM 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 both domestically and
offshore.
7
Grow our
other Investment Strategies
Historically, we have 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 AuM as a result. We expect our
U.S. Equity strategies to provide additional growth now
that they are approaching five-year performance track records,
which is an important pre-requisite to investing for many
institutional investors.
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, we have added employees to our
broker-dealer team in 2010 to target a broader set of financial
advisors. We also began focusing on family offices by dedicating
an employee to this client segment. In addition, for the first
time we have resources dedicated to building distribution for
our products in the large developed pension fund markets of the
United Kingdom, Northern Europe and Scandinavia, as well as with
Sovereign Wealth Funds globally. We believe that over time these
markets will present good opportunities for the Company,
particularly for our Global Equity strategy.
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 meaningful growth
in our AuM 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.
To that end, we intend to continue diversifying the business and
broadening the Companys engines of growth both organically
and, in the appropriate circumstances, non-organically. As we
move forward, we will seek to maintain our operating philosophy
which 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 evaluating each new opportunity 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 investors in 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.
However, the International Equity II strategy employs a
substitution strategy that aims to replicate the returns of the
small-cap component of the International Equity I strategy.
Continue
to Focus on Risk Management
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.
This framework is intended to identify, assess and manage the
full range of risks to which our Company is subject.
At the investment portfolio level, we seek to manage risk daily
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
8
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.
Our
History
2009
Initial Public Offering and Changes in the Principals
Interests
Prior to the completion of our initial public offering
(IPO) on September 29, 2009, Investors was a
wholly owned subsidiary of GAM Holding AG (formerly known as
Julius Baer Holding Ltd.), a Swiss corporation
(GAM), and 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, 9.0 million shares of voting, non-participating,
Investors Class B common stock. In addition, the
Principals entered into a tax receivable agreement with the
Company, under which the Principals are entitled to 85% of
certain tax benefits realized by us in our tax returns as a
result of the exchange of New Class A Units for
Class A common stock.
Exchange
of New Class A Units
Concurrent with the IPO, we entered into an exchange agreement
with the Principals, which granted each Principal and certain
permitted transferees the right to exchange New Class A
Units for shares of Investors Class A common stock,
on a
one-for-one
basis, subject to certain restrictions. In connection with the
IPO, each Principal sold 1.2 million shares of New
Class A Units, leaving them each with 7.8 million New
Class A Units.
Any exchange of New Class A Units is generally a taxable
event for the exchanging Principal. As a result, under the
exchange agreement, as amended, (the exchange
agreement) each Principal is permitted to sell shares of
Class A common stock in connection with any exchange up to
an amount necessary to generate proceeds (after deducting
discounts and commissions) sufficient to cover taxes payable, as
defined in the exchange agreement, on such exchange.
In 2010, each Principal exchanged 7.2 million New
Class A Units for 7.2 million restricted shares of
Class A common stock in accordance with the terms of the
exchange agreement. At the time of each exchange, an equivalent
number of shares of Class B common stock were surrendered
by the Principals and canceled.
To enable the Principals to sell shares of Class A common
stock to cover their taxes payable, as defined in the exchange
agreement, on the exchanges discussed above, in 2010, we
completed a synthetic secondary offering (the secondary
offering) of approximately 3.8 million shares of
Class A common stock at $17.33 per share, before the
underwriting discount, for net proceeds of $62.1 million.
We used all of the net proceeds to purchase at the same price
and retire approximately 1.9 million shares of Class A
common stock from each Principal. In connection with the
secondary offering in 2010, the underwriters exercised a portion
of their option to purchase additional shares of Class A
common stock at the secondary offering price, net of the
underwriting discount, resulting in the issuance of
approximately 0.4 million shares of Class A common
stock. We used all of the proceeds to repurchase at the same
price and retire approximately 0.2 million shares of
Class A common stock from each of the Principals.
After the exchanges in 2010, each Principal owned, and continues
to own, 600,000 shares of Class B common stock and
600,000 New Class A Units, representing approximately 1% of
the outstanding New Class A Units of Holdings.
Investment
Strategies, Products and Performance
Overview
Our investment strategies are grouped into five asset classes:
International Equity; Global Equity; U.S. Equity; High
Grade Fixed Income; and High Yield.
9
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. The following practices
are core to each teams philosophy and process:
|
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A team-based approach;
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|
A reliance on internally generated research and independent
thinking;
|
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|
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;
|
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|
A significant emphasis on top-down/macro inputs and broad-based
global investment themes to complement unique industry specific
bottom-up
analysis;
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|
An intense focus on risk management, but not an aversion to
taking risk that is rewarded with an appropriate premium; and
|
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|
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.
Our investment capabilities are offered to clients through the
following vehicles: proprietary funds, institutional commingled
funds, separate accounts, a hedge fund and
sub-advisory
accounts. While many of our strategies are available through
these vehicles, we do not offer all of these vehicles within
each strategy. 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
varies 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 six 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 the
products of external managers with specific expertise, which we
provide.
The investment decisions we make and the activities of our
investment professionals may subject us to litigation and damage
to our professional reputation if our investment strategies
perform poorly. See Risk Factors Risks Related
to our Business If our investment strategies perform
poorly, clients could withdraw their funds and we could suffer a
decline in AuM
and/or
become subject to litigation which would reduce our
earnings and Risk Factors Risks Related
to our Business Employee misconduct could expose us
to significant legal liability and reputational harm.
10
Investment
Strategies
The table below sets forth the total AuM for each of our
investment strategies as of December 31, 2010, 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.
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Quartile Ranking
|
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|
|
|
|
|
|
|
Since Inception as
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|
Total AuM as of
|
|
|
Strategy
|
|
|
of December 31,
|
|
Strategy
|
|
December 31, 2010
|
|
|
Inception Date
|
|
|
2010
|
|
|
|
(in millions)
|
|
|
|
|
|
|
|
|
International Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
International Equity I
|
|
$
|
18,781
|
|
|
|
May 1995
|
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|
|
1
|
|
International Equity II
|
|
|
23,272
|
|
|
|
April 2005
|
(1)
|
|
|
1
|
|
Other International Equity
|
|
|
72
|
|
|
|
Various
|
|
|
|
|
|
High Grade Fixed Income
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Return Bond
|
|
|
4,406
|
|
|
|
February 1995
|
|
|
|
1
|
|
U.S. Fixed Income & Cash
|
|
|
682
|
|
|
|
Various
|
|
|
|
|
|
High Yield
|
|
|
|
|
|
|
|
|
|
|
|
|
High Yield
|
|
|
4,907
|
|
|
|
April 2003
|
|
|
|
1
|
|
Global Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Global Equity
|
|
|
1,025
|
|
|
|
July 1995
|
|
|
|
2
|
|
U.S. Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Micro-Cap
|
|
|
15
|
|
|
|
August 2006
|
|
|
|
1
|
|
Small-Cap
|
|
|
196
|
|
|
|
August 2006
|
|
|
|
1
|
|
Mid-Cap
|
|
|
7
|
|
|
|
August 2006
|
|
|
|
2
|
|
Multi-Cap
|
|
|
9
|
|
|
|
August 2006
|
|
|
|
1
|
|
Other
|
|
|
35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
53,407
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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.
|
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
U.S. and held approximately 375 positions as of
December 31, 2010. 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 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
11
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 34 professionals that comprise this team are responsible for
managing International Equity investment strategies which, in
the aggregate, accounted for $42.1 billion of our total
assets under management as of December 31, 2010, with 43%
of these assets in proprietary funds, 30% in separate accounts,
21% in commingled funds and 6% in
sub-advised
accounts.
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International Equity I (IE I)
|
We launched this strategy in May 1995 and, as of
December 31, 2010, it accounted for approximately
$18.8 billion of AuM, including the $9.5 billion Artio
International Equity Fund. IE I was closed to new investors in
2005 in order to preserve the return opportunity in our smaller
capitalization investments for existing IE I investors. As of
December 31, 2010, the Artio International Equity Fund
ranked in the
39th
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 AuM for the years
ended December 31, 2010, 2009 and 2008:
|
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|
|
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|
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|
|
|
|
|
|
Year Ended December 31,
|
|
International Equity I
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(in millions)
|
|
|
Beginning AuM
|
|
$
|
21,656
|
|
|
$
|
20,188
|
|
|
$
|
42,517
|
|
Gross client cash inflows
|
|
|
1,345
|
|
|
|
1,759
|
|
|
|
3,126
|
|
Gross client cash outflows
|
|
|
(5,520
|
)
|
|
|
(4,406
|
)
|
|
|
(7,384
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net client cash flows
|
|
|
(4,175
|
)
|
|
|
(2,647
|
)
|
|
|
(4,258
|
)
|
Transfers between investment strategies
|
|
|
|
|
|
|
10
|
|
|
|
(155
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total client cash flows
|
|
|
(4,175
|
)
|
|
|
(2,637
|
)
|
|
|
(4,413
|
)
|
Market appreciation (depreciation)
|
|
|
1,300
|
|
|
|
4,105
|
|
|
|
(17,916
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending AuM
|
|
$
|
18,781
|
|
|
$
|
21,656
|
|
|
$
|
20,188
|
|
|
|
|
|
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. However, the
International Equity II strategy aims to replicate the
returns of the small-cap component of the International Equity I
strategy through a substitution strategy. We direct all new
International Equity mandates into this strategy. As of
December 31, 2010, IE II accounted for approximately
$23.3 billion of AuM. 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, 2010, the Artio
International Equity Fund II ranked in the
52nd
percentile of its Lipper universe for the one year and in
the 2nd
and
1st quartiles
over the three- and five -year periods.
12
The following table sets forth the changes in AuM for the years
ended December 31, 2010, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
International Equity II
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(in millions)
|
|
|
Beginning AuM
|
|
$
|
24,716
|
|
|
$
|
18,697
|
|
|
$
|
26,050
|
|
Gross client cash inflows
|
|
|
3,229
|
|
|
|
6,349
|
|
|
|
11,532
|
|
Gross client cash outflows
|
|
|
(6,187
|
)
|
|
|
(5,249
|
)
|
|
|
(5,706
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net client cash flows
|
|
|
(2,958
|
)
|
|
|
1,100
|
|
|
|
5,826
|
|
Transfers between investment strategies
|
|
|
50
|
|
|
|
|
|
|
|
109
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total client cash flows
|
|
|
(2,908
|
)
|
|
|
1,100
|
|
|
|
5,935
|
|
Market appreciation (depreciation)
|
|
|
1,464
|
|
|
|
4,919
|
|
|
|
(13,288
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending AuM
|
|
$
|
23,272
|
|
|
$
|
24,716
|
|
|
$
|
18,697
|
|
|
|
|
|
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
AuM as of December 31, 2010.
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, 2010, and
in the five-, three- and one-year periods ended
December 31, 2010, relative to the performance of the
market indices that are most commonly used by our clients to
compare the performance of the relevant composite.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period Ended December 31, 2010
|
|
|
|
Since
|
|
|
|
|
|
|
|
|
|
|
|
|
Inception
|
|
|
5 Years
|
|
|
3 Years
|
|
|
1 Year
|
|
|
International Equity I
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annualized Gross Returns
|
|
|
12.8%
|
|
|
|
3.8%
|
|
|
|
(8.5
|
)%
|
|
|
8.9%
|
|
Annualized Net Returns
|
|
|
11.3%
|
|
|
|
3.0%
|
|
|
|
(9.1
|
)%
|
|
|
8.1%
|
|
MSCI EAFE
Index®
|
|
|
4.8%
|
|
|
|
2.5%
|
|
|
|
(7.0
|
)%
|
|
|
7.8%
|
|
MSCI AC World
ex USA
Indexsm
ND
|
|
|
5.5%
|
|
|
|
4.8%
|
|
|
|
(5.0
|
)%
|
|
|
11.2%
|
|
International Equity II
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annualized Gross Returns
|
|
|
6.5%
|
|
|
|
4.1%
|
|
|
|
(7.6
|
)%
|
|
|
8.2%
|
|
Annualized Net Returns
|
|
|
5.7%
|
|
|
|
3.4%
|
|
|
|
(8.2
|
)%
|
|
|
7.5%
|
|
MSCI EAFE
Index®
|
|
|
4.4%
|
|
|
|
2.5%
|
|
|
|
(7.0
|
)%
|
|
|
7.8%
|
|
MSCI AC World
ex USA
Indexsm
ND
|
|
|
7.0%
|
|
|
|
4.8%
|
|
|
|
(5.0
|
)%
|
|
|
11.2%
|
|
|
13
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 five years ended December 31, 2010,
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,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
International Equity I
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Returns
|
|
|
8.9
|
%
|
|
|
26.0%
|
|
|
|
(44.1
|
)%
|
|
|
18.4%
|
|
|
|
32.9%
|
|
Net Returns
|
|
|
8.1
|
%
|
|
|
25.0%
|
|
|
|
(44.5
|
)%
|
|
|
17.5%
|
|
|
|
31.5%
|
|
MSCI EAFE
Index®
|
|
|
7.8
|
%
|
|
|
31.8%
|
|
|
|
(43.4
|
)%
|
|
|
11.2%
|
|
|
|
26.3%
|
|
MSCI ACWI ex
USA
Indexsm
ND
|
|
|
11.2
|
%
|
|
|
41.4%
|
|
|
|
(45.5
|
)%
|
|
|
16.7%
|
|
|
|
26.7%
|
|
International Equity II
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Returns
|
|
|
8.2
|
%
|
|
|
26.1%
|
|
|
|
(42.2
|
)%
|
|
|
18.2%
|
|
|
|
31.0%
|
|
Net Returns
|
|
|
7.5
|
%
|
|
|
25.3%
|
|
|
|
(42.6
|
)%
|
|
|
17.4%
|
|
|
|
30.0%
|
|
MSCI EAFE
Index®
|
|
|
7.8
|
%
|
|
|
31.8%
|
|
|
|
(43.4
|
)%
|
|
|
11.2%
|
|
|
|
26.3%
|
|
MSCI ACWI ex
USA
Indexsm
ND
|
|
|
11.2
|
%
|
|
|
41.4%
|
|
|
|
(45.5
|
)%
|
|
|
16.7%
|
|
|
|
26.7%
|
|
|
The returns generated by the proprietary funds,
sub-advisory
accounts, separate accounts and institutional commingled funds
invested in our International Equity strategies for 2010 and
2009 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 at least 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 nine 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
$5.1 billion of our total AuM as of December 31, 2010.
We have focused our distribution efforts on these strategies
since the beginning of 2007 and have increased our AuM invested
in these strategies by $3.1 billion as a result. As of
December 31, 2010, 29% of the $5.1 billion in AuM were
in proprietary funds, 58% were in separate accounts and 13% were
in
sub-advised
accounts.
We launched this product in February 1995 and, as of
December 31, 2010, it accounted for approximately
$4.4 billion of AuM. As of December 31, 2010, the
Total Return Bond Fund (Class I Shares) ranked in the
2nd
quartile of its Lipper universe over the past one- and
three-year periods, and in the
1st quartile
over the
five-year
period.
14
|
|
|
U.S. Fixed Income & Cash
|
As of December 31, 2010, these products accounted for
approximately $0.7 billion of AuM, mostly through
sub-advisory
arrangements with GAMs offshore funds. See
Item 8. Financial Statements and Supplementary Data:
Notes to the Financial Consolidated Statements, Note 6.
Related Party Activities.
The following table sets forth the changes in AuM for 2010, 2009
and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
High Grade Fixed Income
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(in millions)
|
|
|
Beginning AuM
|
|
$
|
5,293
|
|
|
$
|
4,566
|
|
|
$
|
4,657
|
|
Gross client cash inflows
|
|
|
922
|
|
|
|
1,481
|
|
|
|
1,550
|
|
Gross client cash outflows
|
|
|
(1,537
|
)
|
|
|
(1,230
|
)
|
|
|
(1,523
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net client cash flows
|
|
|
(615
|
)
|
|
|
251
|
|
|
|
27
|
|
Transfers between investment strategies
|
|
|
10
|
|
|
|
(16
|
)
|
|
|
(117
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total client cash flows
|
|
|
(605
|
)
|
|
|
235
|
|
|
|
(90
|
)
|
Market appreciation (depreciation)
|
|
|
400
|
|
|
|
492
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending AuM
|
|
$
|
5,088
|
|
|
$
|
5,293
|
|
|
$
|
4,566
|
|
|
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, 2010 and in the five-, three- and one-year
periods ended December 31, 2010, relative to the
performance of the market indices that are most commonly used by
our clients to compare the performance of the composite.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period Ended December 31, 2010
|
|
|
|
Since
|
|
|
|
|
|
|
|
|
|
|
|
|
Inception
|
|
|
5 Years
|
|
|
3 Years
|
|
|
1 Year
|
|
|
Annualized Gross Returns
|
|
|
7.9
|
%
|
|
|
6.8
|
%
|
|
|
6.7
|
%
|
|
|
8.4
|
%
|
Annualized Net Returns
|
|
|
7.1
|
%
|
|
|
6.3
|
%
|
|
|
6.3
|
%
|
|
|
7.9
|
%
|
Barclays Capital U.S. Aggregate Bond Index
|
|
|
6.7
|
%
|
|
|
5.8
|
%
|
|
|
5.9
|
%
|
|
|
6.5
|
%
|
Customized
Index(1)
|
|
|
6.3
|
%
|
|
|
6.0
|
%
|
|
|
5.7
|
%
|
|
|
6.2
|
%
|
|
|
|
|
(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 five years ended
December 31, 2010, 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
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Gross Returns
|
|
|
8.4%
|
|
|
|
11.2%
|
|
|
|
0.9%
|
|
|
|
8.3%
|
|
|
|
5.5%
|
|
Net Returns
|
|
|
7.9%
|
|
|
|
10.7%
|
|
|
|
0.4%
|
|
|
|
7.7%
|
|
|
|
4.8%
|
|
Barclays Capital U.S. Aggregate Bond Index
|
|
|
6.5%
|
|
|
|
5.9%
|
|
|
|
5.2%
|
|
|
|
7.0%
|
|
|
|
4.3%
|
|
Customized
Index(1)
|
|
|
6.2%
|
|
|
|
5.4%
|
|
|
|
5.6%
|
|
|
|
8.2%
|
|
|
|
4.7%
|
|
|
|
|
|
(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.
|
15
The returns generated by the proprietary funds,
sub-advisory
accounts and separate accounts invested in our High Grade Fixed
Income strategy for 2010 and 2009, 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.
We have expanded our High Yield strategy by launching and
seeding Artio Global Credit Opportunities Fund, a global credit
hedge fund, in September 2010. The fund 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 believe that over time
this product will contribute to the growth of the Company in
terms of both AuM and revenues.
The eight professionals comprising our High Yield team are
responsible for managing the High Yield strategy which accounted
for approximately $4.9 billion of our total AuM as of
December 31, 2010, with 64% of these assets in proprietary
funds, 12% in separate accounts, 18% in
sub-advised
accounts and 6% 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, 2010. The Global High Income Fund also ranked
in the
4th
quartile of its Lipper universe over the one-year period,
and the top decile over the three- and five-year periods ending
December 31, 2010 and since inception, as of
December 31, 2010.
The following table sets forth the changes in AuM for 2010, 2009
and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
High Yield
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(in millions)
|
|
|
Beginning AuM
|
|
$
|
3,516
|
|
|
$
|
977
|
|
|
$
|
852
|
|
Gross client cash inflows
|
|
|
3,066
|
|
|
|
2,399
|
|
|
|
807
|
|
Gross client cash outflows
|
|
|
(2,017
|
)
|
|
|
(639
|
)
|
|
|
(442
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net client cash flows
|
|
|
1,049
|
|
|
|
1,760
|
|
|
|
365
|
|
Transfers between investment strategies
|
|
|
(10
|
)
|
|
|
6
|
|
|
|
117
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total client cash flows
|
|
|
1,039
|
|
|
|
1,766
|
|
|
|
482
|
|
Market appreciation (depreciation)
|
|
|
352
|
|
|
|
773
|
|
|
|
(357
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending AuM
|
|
$
|
4,907
|
|
|
$
|
3,516
|
|
|
$
|
977
|
|
|
16
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, 2010, and in the five-, three-,
and one-year periods ended December 31, 2010, relative to
the performance of the market indices which are most commonly
used by our clients to compare the performance of the composite.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period Ended December 31, 2010
|
|
|
|
Since
|
|
|
|
|
|
|
|
|
|
|
High Yield
|
|
Inception
|
|
|
5 Years
|
|
|
3 Years
|
|
|
1 Year
|
|
|
Annualized Gross Returns
|
|
|
11.5%
|
|
|
|
10.0%
|
|
|
|
10.7%
|
|
|
|
13.5%
|
|
Annualized Net Returns
|
|
|
10.3%
|
|
|
|
8.8%
|
|
|
|
9.7%
|
|
|
|
12.4%
|
|
ML Global High Yield USD Constrained Index
|
|
|
10.4%
|
|
|
|
9.2%
|
|
|
|
10.2%
|
|
|
|
13.8%
|
|
|
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 five
years ended December 31, 2010, 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
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Gross Returns
|
|
|
13.5%
|
|
|
|
56.4%
|
|
|
|
(23.6
|
)%
|
|
|
5.2%
|
|
|
|
12.6%
|
|
Net Returns
|
|
|
12.4%
|
|
|
|
55.0%
|
|
|
|
(24.3
|
)%
|
|
|
4.1%
|
|
|
|
11.2%
|
|
ML Global High Yield USD Constrained Index
|
|
|
13.8%
|
|
|
|
62.2%
|
|
|
|
(27.5
|
)%
|
|
|
3.4%
|
|
|
|
12.2%
|
|
|
The returns generated by the proprietary funds,
sub-advisory
accounts, separate accounts and institutional commingled funds
invested in our High Yield strategies for 2010 and 2009 are
substantially similar to the returns presented in the tables
above.
Global
Equity
Global Equity is a core 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 a growing number of 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.
In addition to managing our International Equity strategies, the
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,
2010, Global Equity accounted for approximately
$1.0 billion of AuM, with 6% of these assets in our
proprietary funds, 62% in separate accounts and 32% in
commingled funds. As of December 31, 2010, the Artio Global
Equity Fund ranked in the
2nd
quartile of its Lipper universe over the past one-year
period, in the
2nd
quartile over the past three-year period, in the
1st quartile
over the past five-year period, and had a
4-star
Morningstar rating.
17
The table below sets forth the changes in assets under
management for 2010, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
Global Equity
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(in millions)
|
|
|
Beginning AuM
|
|
$
|
618
|
|
|
$
|
591
|
|
|
$
|
761
|
|
Gross client cash inflows
|
|
|
460
|
|
|
|
89
|
|
|
|
210
|
|
Gross client cash outflows
|
|
|
(141
|
)
|
|
|
(186
|
)
|
|
|
(95
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net client cash flows
|
|
|
319
|
|
|
|
(97
|
)
|
|
|
115
|
|
Transfers between investment strategies
|
|
|
(50
|
)
|
|
|
|
|
|
|
46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total client cash flows
|
|
|
269
|
|
|
|
(97
|
)
|
|
|
161
|
|
Market appreciation (depreciation)
|
|
|
138
|
|
|
|
124
|
|
|
|
(331
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending AuM
|
|
$
|
1,025
|
|
|
$
|
618
|
|
|
$
|
591
|
|
|
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, 2010, and in the five-, three-
and one-year periods ended December 31, 2010, relative to
the performance of the market indices that are most commonly
used by our clients to compare the performance of the composite.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period Ended December 31, 2010
|
|
|
|
Since
|
|
|
|
|
|
|
|
|
|
|
Global Equity
|
|
Inception
|
|
|
5 Years
|
|
|
3 Years
|
|
|
1 Year
|
|
|
Annualized Gross Returns
|
|
|
10.0%
|
|
|
|
4.4%
|
|
|
|
(3.6
|
)%
|
|
|
14.5%
|
|
Annualized Net Returns
|
|
|
8.8%
|
|
|
|
3.6%
|
|
|
|
(4.1
|
)%
|
|
|
13.9%
|
|
MSCI World Index
|
|
|
6.0%
|
|
|
|
2.4%
|
|
|
|
(4.9
|
)%
|
|
|
11.8%
|
|
MSCI AC World
Indexsm
|
|
|
5.9%
|
|
|
|
3.4%
|
|
|
|
(4.3
|
)%
|
|
|
12.7%
|
|
|
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
five years ended December 31, 2010, 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
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Gross Returns
|
|
|
14.5%
|
|
|
|
32.2%
|
|
|
|
(40.8
|
)%
|
|
|
12.5%
|
|
|
|
23.2%
|
|
Net Returns
|
|
|
13.9%
|
|
|
|
31.5%
|
|
|
|
(41.2
|
)%
|
|
|
11.7%
|
|
|
|
21.4%
|
|
MSCI World Index
|
|
|
11.8%
|
|
|
|
30.0%
|
|
|
|
(40.7
|
)%
|
|
|
9.0%
|
|
|
|
20.1%
|
|
MSCI AC World
Indexsm
|
|
|
12.7%
|
|
|
|
34.6%
|
|
|
|
(42.2
|
)%
|
|
|
11.7%
|
|
|
|
21.0%
|
|
|
The returns generated by the proprietary funds,
sub-advisory
accounts, separate accounts and institutional commingled funds
invested in our Global Equity strategies for the periods ended
December 31, 2010 and 2009 are substantially similar to the
returns presented in the tables above.
U.S.
Equity
Our U.S. Equity strategies were launched in July 2006 and
are comprised of Microcap, Smallcap, Midcap and Multicap
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:
18
(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 nine professionals comprising our U.S. Equity team are
responsible for managing the four distinct investment strategies
which, in the aggregate, accounted for $227 million of our
total AuM as of December 31, 2010, with 54% in proprietary
funds and 46% in
sub-advised
accounts.
|
|
|
Multicap We launched this strategy in July
2006 and, as of December 31, 2010, it accounted for
approximately $9 million of AuM. The Multicap strategy
ranked in the
1st quartile
of the Lipper
Multi-Cap
Core Funds class category since inception as of
December 31, 2010.
|
|
|
Midcap We launched this strategy in July 2006
and, as of December 31, 2010, it accounted for
approximately $7 million of AuM. The Midcap strategy ranked
in the
2nd
quartile of the Lipper
Mid-Cap
Core Funds class category since inception as of
December 31, 2010.
|
|
|
Smallcap We launched this strategy in July
2006 and, as of December 31, 2010, it accounted for
approximately $196 million of AuM. The Smallcap strategy
ranked in the top decile in the Lipper
Small-Cap
Core Funds class category since inception as of
December 31, 2010.
|
|
|
Microcap We launched this strategy in July
2006 and, as of December 31, 2010, it accounted for
approximately $15 million of AuM. The Microcap strategy
ranked in the
1st quartile
of its Lipper universe since inception as of
December 31, 2010.
|
The table below sets forth the changes in AuM for 2010, 2009 and
2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
U.S. Equity
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(in millions)
|
|
|
Beginning AuM
|
|
$
|
81
|
|
|
$
|
49
|
|
|
$
|
133
|
|
Gross client cash inflows
|
|
|
194
|
|
|
|
14
|
|
|
|
18
|
|
Gross client cash outflows
|
|
|
(88
|
)
|
|
|
(9
|
)
|
|
|
(38
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net client cash flows
|
|
|
106
|
|
|
|
5
|
|
|
|
(20
|
)
|
Transfers between investment strategies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total client cash flows
|
|
|
106
|
|
|
|
5
|
|
|
|
(20
|
)
|
Market appreciation (depreciation)
|
|
|
40
|
|
|
|
27
|
|
|
|
(64
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending AuM
|
|
$
|
227
|
|
|
$
|
81
|
|
|
$
|
49
|
|
|
19
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, 2010, relative to the
performance of the market indices which are most commonly used
by our clients to compare the performance of the relevant
composite.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period Ended December 31, 2010
|
|
|
|
Since
|
|
|
|
|
|
|
U.S. Equity
|
|
Inception
|
|
|
3 Years
|
|
1 Year
|
|
|
Multi-Cap
|
|
|
|
|
|
|
|
|
|
|
|
|
Annualized Gross Returns
|
|
|
6.5%
|
|
|
|
2
|
.1%
|
|
|
20.0%
|
|
Annualized Net Returns
|
|
|
5.6%
|
|
|
|
1
|
.3%
|
|
|
19.1%
|
|
Russell
3000®
Index
|
|
|
2.4%
|
|
|
|
(2
|
.0)%
|
|
|
16.9%
|
|
Mid-Cap
|
|
|
|
|
|
|
|
|
|
|
|
|
Annualized Gross Returns
|
|
|
6.7%
|
|
|
|
2
|
.7%
|
|
|
27.9%
|
|
Annualized Net Returns
|
|
|
5.8%
|
|
|
|
2
|
.0%
|
|
|
26.9%
|
|
Russell
Mid-Cap®
Index
|
|
|
4.7%
|
|
|
|
1
|
.1%
|
|
|
25.5%
|
|
Small-Cap
|
|
|
|
|
|
|
|
|
|
|
|
|
Annualized Gross Returns
|
|
|
10.3%
|
|
|
|
6
|
.5%
|
|
|
22.9%
|
|
Annualized Net Returns
|
|
|
9.4%
|
|
|
|
5
|
.6%
|
|
|
21.9%
|
|
Russell
2000®
Index
|
|
|
4.0%
|
|
|
|
2
|
.2%
|
|
|
26.9%
|
|
Micro-Cap
|
|
|
|
|
|
|
|
|
|
|
|
|
Annualized Gross Returns
|
|
|
5.7%
|
|
|
|
3
|
.0%
|
|
|
37.0%
|
|
Annualized Net Returns
|
|
|
4.7%
|
|
|
|
2
|
.0%
|
|
|
35.6%
|
|
Russell
2000®
Index
|
|
|
4.0%
|
|
|
|
2
|
.2%
|
|
|
26.9%
|
|
Russell
Micro-Cap®
Index
|
|
|
0.8%
|
|
|
|
(0
|
.4)%
|
|
|
28.9%
|
|
|
20
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 five years ended December 31, 2010, 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,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006(1)
|
|
|
Multi-Cap
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Returns
|
|
|
20.0%
|
|
|
|
51.1%
|
|
|
|
(41.4
|
)%
|
|
|
6.1
|
%
|
|
|
17.1%
|
|
Net Returns
|
|
|
19.1%
|
|
|
|
49.9%
|
|
|
|
(41.8
|
)%
|
|
|
5.1
|
%
|
|
|
16.4%
|
|
Russell
3000®
Index
|
|
|
16.9%
|
|
|
|
28.3%
|
|
|
|
(37.3
|
)%
|
|
|
5.1
|
%
|
|
|
12.2%
|
|
Mid-Cap
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Returns
|
|
|
27.9%
|
|
|
|
53.4%
|
|
|
|
(44.7
|
)%
|
|
|
3.7
|
%
|
|
|
18.3%
|
|
Net Returns
|
|
|
26.9%
|
|
|
|
52.1%
|
|
|
|
(45.1
|
)%
|
|
|
3.0
|
%
|
|
|
17.7%
|
|
Russell
Mid-Cap®
Index
|
|
|
25.5%
|
|
|
|
40.5%
|
|
|
|
(41.5
|
)%
|
|
|
5.6
|
%
|
|
|
12.4%
|
|
Small-Cap
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Returns
|
|
|
22.9%
|
|
|
|
66.9%
|
|
|
|
(41.1
|
)%
|
|
|
11.3
|
%
|
|
|
14.5%
|
|
Net Returns
|
|
|
21.9%
|
|
|
|
65.3%
|
|
|
|
(41.5
|
)%
|
|
|
10.7
|
%
|
|
|
13.9%
|
|
Russell
2000®
Index
|
|
|
26.9%
|
|
|
|
27.2%
|
|
|
|
(33.8
|
)%
|
|
|
(1.6
|
)%
|
|
|
13.1%
|
|
Micro-Cap
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Returns
|
|
|
37.0%
|
|
|
|
60.8%
|
|
|
|
(50.4
|
)%
|
|
|
(0.2
|
)%
|
|
|
17.0%
|
|
Net Returns
|
|
|
35.6%
|
|
|
|
59.3%
|
|
|
|
(50.8
|
)%
|
|
|
(1.0
|
)%
|
|
|
16.3%
|
|
Russell
2000®
Index
|
|
|
26.9%
|
|
|
|
27.2%
|
|
|
|
(33.8
|
)%
|
|
|
(1.6
|
)%
|
|
|
13.1%
|
|
Russell
Micro-Cap®
Index
|
|
|
28.9%
|
|
|
|
27.5%
|
|
|
|
(39.8
|
)%
|
|
|
(8.0
|
)%
|
|
|
13.7%
|
|
|
|
|
|
(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 2010 and 2009 are substantially similar to the
returns presented in the tables above.
Private
Offshore Fund
In addition to our core strategies, we have approximately
$35 million of AuM invested in other strategies, all of
which was invested in a private offshore fund as of
December 31, 2010.
New
Initiatives
In September 2010 we launched and seeded Artio Global Credit
Opportunities Fund, a global credit hedge fund, which aims 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 takes a conservative approach to
leverage and is invested in bank debt, bonds, credit default
swaps, mezzanine capital and equity-like instruments. As of
December 31, 2010, the funds capital consists
primarily of $19 million of seed money that we invested.
We expect to seed and launch the Artio Local Emerging Markets
Debt Fund (LEMDF) in the first quarter of 2011 with
$22 million of firm capital. LEMDF will be our tenth
SEC-registered fund. LEMDF will seek to provide a high level of
total return consisting of income and capital appreciation by
primarily investing in fixed income instruments denominated in
emerging market currencies.
We also plan to make investments of approximately
$10 million into our U.S. Equity strategies in
conjunction with the expected redemption of GAMs seed
capital investments in the funds.
21
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.
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, 2010, 43% of AuM were in
proprietary funds and 57% were in other institutional assets,
including separate accounts (32%),
sub-advisory
accounts (8%) and commingled funds (17%). 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 that our client base is largely institutional in
nature and exhibits buying behavior that would be expected of
such institutional actors; these clients invest for the
long-term and are less likely to withdraw their assets during
stressed market conditions. We further believe that 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 and, for
the first time we have resources dedicated to building
distribution for our products in the large developed pension
fund markets of the United Kingdom, Northern Europe and
Scandinavia, as well as with Sovereign Wealth Funds globally. We
believe that over time these markets will present future growth
opportunities for the Company, particularly for our Global
Equity strategy.
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, we have added employees to our
broker-dealer team in 2010 to target a broader set of financial
advisors. We also began focusing on family offices by dedicating
an employee to this client segment.
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, 2010, we provided asset
management services to approximately 1,350 institutional clients
invested in separate accounts, commingled funds and proprietary
funds, including approximately 147 state and local
governments nationwide and approximately 483 corporate clients.
In addition, we manage assets for approximately
188 foundations; approximately 104 colleges, universities
or other educational endowments; approximately 133 of the
countrys hospital or healthcare systems; and approximately
124 Taft-Hartley plans and 18 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 U.S. We have also established a sales
presence in Canada and have begun expanding overseas to London.
We will continue to focus on expanding distribution in countries
where we believe there is significant demand for our investment
expertise.
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
22
diversified across a wide range of consultants. As of
December 31, 2010, our largest consultant relationship
represented approximately 4% of our total AuM. Our largest
individual client represented approximately 3% of our total AuM
as of December 31, 2010, and our top ten clients
represented approximately 17% of our total AuM as of
December 31, 2010.
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
in the role of 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.
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 that display an
institutional buying behavior.
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 new wholesalers. As of
December 31, 2010, our largest broker-dealer relationship
accounted for approximately 5% of our total AuM.
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. As of
December 31, 2010, our largest mutual fund platform
represented approximately 10% of our total AuM.
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.
23
Investment
Management Fees
We earn investment management fees directly on the proprietary
funds, commingled funds and separate accounts that we manage and
indirectly 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 AuM, investment strategy
servicing requirements, multiple or related account
relationships and client type. Most of our fees are calculated
based on daily or monthly average AuM, rather than quarter-end
balances of AuM. 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)% of our Total
revenues and other operating income for the year ended
December 31, 2009. In one account, performance fees are
paid annually and were subject to a clawback provision that was
evaluated cumulatively at the end of each year over a span of
three years ending in 2009. See Item 7.
Managements Discussion and Analysis of Financial Condition
and Results of Operations. We did not earn any performance
fees in 2010. To the extent that we offer alternative products
in the future, including our recently-launched global credit
hedge fund, the Artio Global Credit Opportunities Fund, we
expect that performance fees will 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 for clients. 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 AuM. 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;
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corporate positioning and business reputation;
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continuity of our selling arrangements with intermediaries; and
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differentiated products.
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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, 2010, we employed 215 full-time and
two part-time employees, including 60 investment professionals,
53 in distribution and client service, 27 in enterprise risk
management and 77 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.
Properties
Our corporate headquarters and principal offices are located 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, Toronto,
Canada and London, England, where we maintain short-term leases.
We believe our existing facilities are adequate to meet our
requirements.
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.
Regulatory
Environment and Compliance
Our business is subject to extensive regulation in the
U.S. at both the federal and state level, as well as by
self-regulatory organizations and outside the U.S. 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
Artio Global Management LLC is registered with the SEC as an
investment advisor pursuant to the Advisers Act, and our retail
investment company clients are registered under 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 rules, 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
25
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,
such as 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.
ERISA-Related
Regulation
To the extent that Artio Global Management 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 U.S., 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
Our Enterprise Risk Management Committee focuses on the key
risks to which the firm is subject. Our
10-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, 2010.
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.
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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 now consider to be
material or of which we are not now 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
We
derive a substantial portion of our revenues from a limited
number of our strategies.
As of December 31, 2010, 79% of our assets under management
(AuM) were invested in the International Equity I
and International Equity II strategies, and 87% of our
investment management fees for the year ended December 31,
2010 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. Our results have been
impacted in 2009 and 2010 by net client cash outflows from these
strategies.
Difficult
market conditions can adversely affect our business in many
ways, including by reducing the value of our AuM 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 agreements are
typically based on the market value of our AuM. 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 AuM with us for any number of reasons,
including investment performance, changes in prevailing interest
rates and financial market performance. Clients in commingled
funds and separately managed accounts may redeem their
investments typically with 30 to 60 days notice. 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. During extreme periods of market illiquidity, we may
be forced to accept a lower price on securities in order to meet
redemption requests. As we have seen in connection with the
market dislocations of 2008 and 2009, as well as during 2010,
amid challenging economic and 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. If our
AuM decline for any of these reasons, it would result in lower
investment management fees.
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 significant
declines in stock prices worldwide resulted in substantial
withdrawals from equity funds during 2008 throughout the asset
management industry.
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 relative 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 during 2009 and 2010, 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;
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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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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, investment decisions to
overweight or underweight specific markets, sectors or
individual stocks may lead our strategies to underperform.
Additionally, currency positioning relative to the benchmark may
be a detractor.
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 laws
and/or state
law.
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.
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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. Our strategies have
also experienced performance results below specified benchmarks.
Notably, our International Equity strategies performed well
below their benchmark during 2009 and also underperformed their
benchmark to a lesser extent during 2010.
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, 2010, approximately 81% of our AuM
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 AuM, 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 aggregate amount 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.
During 2010, concerns surrounding an escalating sovereign debt
crisis centered on the eurozone led the euro to decline relative
to the U.S. dollar. As a result, this decline in the euro
magnified negative returns within many European markets in
U.S. dollar terms.
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 employee compensation is a significant
expense, 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, in the event
our investment strategies underperform or there is a general
deterioration of market conditions, a lack of motivation or
productivity among employees may result, even if compensation
levels remain competitive.
Additionally, we utilize equity awards as part of our
compensation strategy and as a means for recruiting and
retaining highly skilled talent. A decline in our stock price or
a failure of employees to meet the goals set by the
performance-based awards, 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. For example, the awards that were granted in
connection with our IPO in 2009 have significantly declined in
value. There can be no assurance that we will continue to
successfully attract and retain key personnel.
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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
proprietary 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 AuM 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, 2010, our largest mutual
fund platform represented approximately 10% of our total AuM,
our largest intermediary accounted for approximately 5% of our
total AuM and our largest
sub-advisory
relationship represented approximately 3% of our total AuM. 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, 2010, the consultant advising the largest
portion of our client assets under management represented
approximately 4% of our AuM. 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.
We
have experienced both significant growth and significant
declines in AuM from 2003 through 2010. No particular period may
be indicative of future performance.
Our AuM increased from approximately $7.5 billion as of
December 31, 2003 to approximately $75.4 billion as of
December 31, 2007, and then declined to $45.2 billion
as of December 31, 2008, and have stabilized as of year end
in 2009 and 2010 at $56.0 billion and 53.4 billion,
respectively. Future growth of our business will depend on a
variety of factors including, among other things, global market
conditions and volatility, 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 and changing appetites for
investment strategies, 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 several 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
foreign currencies. This general decline in the U.S. dollar
also added to the allure of international investments on the
part of US dollar-based investors seeing to capitalize on these
trends. These trends may not continue. For example, concerns
surrounding the sovereign debt crisis within the eurozone have
led to declines in the euro. In addition, if we believe that in
order to continue to produce attractive returns from our
investment strategies we should close certain of those
strategies to new investors, we may choose to do so. Also, we
expect there to be significant demands on our infrastructure and
investment teams 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.
30
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 AuM, 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 Investment Company Act of
1940, as amended (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,
investment performance calculations 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.
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 human 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,
for the years ended 2008 through 2010 we experienced trading
errors that cost us approximately $5.5 million,
$0.8 million and $1.7 million, respectively. 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
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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 a material 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 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 (which was increased to
$100.0 million in accordance with the terms of the credit
agreement in January 2011). 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
32
economic downturns and reduce our flexibility in responding to
changing business, regulatory and economic conditions.
We are
subject to risks relating to new initiatives which may adversely
affect our growth strategy and business.
A key component of our growth and diversification 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 Item 1.
Business Investment Strategies, Products and
Performance New Initiatives.
Failure
to effectively manage our cash flow, liquidity and capital
position could negatively affect our business.
We expect to fund our currently planned operations with existing
capital resources, including cash flows from operations and our
debt facility. We continue to strengthen our liquidity and
capital position. If we are unable to effectively manage our
cash flows and liquidity position or unable to continue to
generate and maintain positive operating cash flows and
operating income in the future, we may not be able to repay our
debt obligations, compensate for an increase in expenses, pay
dividends to stockholders or invest in our business.
Failure
to comply with fair value pricing, market
timing and late trading policies and procedures may
adversely affect us.
The U.S. Securities and Exchange Commission
(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.
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 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
33
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 has, in the past, led to a
reduction in fees. Fee reductions on existing or future new
business could have a material adverse effect on our profit
margins
and/or
results of operations.
We may
suffer losses from our seed capital investments.
In September 2010, we launched and seeded a global credit hedge
fund with $19 million of firm capital, 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. We also plan to launch and seed a Local
Emerging Market Debt Fund in the first quarter of 2011, seeding
it with $22 million of firm capital, which will aim to
provide a high level of total return consisting of income and
capital appreciation by investing in fixed income instruments
denominated in emerging market currencies. We also plan to make
investments of approximately $10 million into our
U.S. Equity strategies in conjunction with the redemption
of GAM Holding AGs (GAM) investments in the
funds. See Item 1. Business Investment
Strategies, Products and Performance New
Initiatives. We could suffer losses from these seed
capital investments to the extent that the market risk
associated with the investments is not hedged. Further, our
efforts to hedge any potential market risk in these funds could
be unsuccessful.
The
cost of insuring our business and providing benefits to our
employees 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, but have decreased in 2010 even with an increase
in the firms insurance coverage. 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.
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.
34
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 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 Item 1. 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.
Changing laws, regulations and standards relating to corporate
governance and public disclosure, including the Dodd-Frank Wall
Street Reform and Consumer Protection Act and the rules and
regulations promulgated thereunder, the Sarbanes-Oxley Act and
SEC regulations, have created uncertainty for public companies
and significantly increased the costs and risks associated with
accessing the U.S. public markets. This has resulted in
significant changes in the legislative and regulatory
environment in which we operate and while there is an ordinary
evolution to regulation, we believe there will be further
regulatory changes as a result of the recent changing laws,
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
Item 1. Business Regulatory Environment
and Compliance.
In addition, 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
35
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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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 included in this annual report is
managements 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, 2010, 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
36
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 expect 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 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, i.e. to 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 (i.e. to 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 or to fund the firms 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 benefits
of any depreciation or amortization deductions we may claim as a
result of the tax basis step up we receive in connection with
their exchanges of New Class A Units and our purchase of
other 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
(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, 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 the increases in
tax basis created by their exchanges or our purchases of New
37
Class A Units. 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. See
Item 8. Financial Statement and Supplementary Data.
Note 2. Initial Public Offering, Changes in
Principals Interests and Exchange of New Class A
Units: Exchange of New Class A Units.
The actual increase in tax basis, as well as the amount and
timing of any payments under this agreement, will depend upon a
number of factors, including 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 Item 8. Financial
Statement and Supplementary Data. Note 13. Income Taxes:
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 assumption that we would
have enough taxable income in the future to fully utilize the
tax benefits 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. In addition, the
availability of the tax benefits may be limited by change in law
or regulations, possibly with a retroactive effect.
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. See Description of Capital Stock for
additional information on the anti-takeover measures applicable
to us.
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,
38
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
$50.0 million and, at the same time, total
stockholders equity is less than $50.0 million, and
in either case 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 if the NYSE determines that the trading price of our
shares is abnormally low or we otherwise fail to comply with
applicable NYSE regulations or criteria used in evaluating
continued listing status. As of February 1, 2011, during
the previous 30 consecutive trading days, the average closing
share price of our Class A common stock was $14.91 per
share and the average market capitalization of our Class A
common stock was approximately $887 million, excluding
securities exchangeable for, or convertible into, shares of our
Class A common stock.
The
price of our Class A common stock could continue to
decline.
Since our IPO in September 2009, the price of our common stock
has declined and such declines could continue. From
September 24, 2009, to February 1, 2011, our common
stock has closed as low as $12.91 per share and as high as
$27.25 per share. Factors that may contribute to fluctuations in
our stock price include, but are not limited to, general stock
market conditions, general market conditions for the asset
management industry, our investment performance, net client cash
flows and our operating results. The decline in our stock price
could affect employee sentiment as the value of equity an
employee holds declines. Further, declines in the stock price
could alter client perceptions of our future investment
performance.
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. See
Price Range of Our Class A Common Stock. 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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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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39
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fluctuations in the performance or share price of other industry
participants, hedge funds or alternative asset managers;
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poor investment performance or other complications affecting our
funds or current or proposed investments;
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redemptions by clients of their assets;
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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, 2010, we had 41,552,328 outstanding shares of
our Class A common stock on a fully diluted basis and
1,856,997 restricted stock units (RSUs) granted to
employees, excluding dividend equivalents.
As of December 31, 2010, each of our Principals owned an
aggregate of 0.6 million shares of New Class A Units
of Holdings, which are exchangeable for shares of our
Class A common stock, and also owned the same number of
shares of our Class B common stock, and approximately
5.1 million shares of Class A Common stock. Each
Principal also has the right to exchange his remaining 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, 2010, 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 September 29,
2011, 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.
We cannot predict the size of future issuances of our
Class A common stock or the effect, if any, that future
issuances and sales of shares of our Class A common stock
may have on the market price of our Class A common stock.
Sales or distributions of substantial amounts of our
Class A common stock (including shares issued in connection
with an acquisition), or the perception that such sales could
occur, may cause the market price of our Class A common
stock to decline. See Shares Eligible for Future
Sale.
|
|
Item 1B.
|
Unresolved
Staff Comments.
|
The Company has no unresolved SEC comments.
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, Toronto, Canada, and London, England, 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.
|
|
Item 4.
|
(Removed
and Reserved).
|
40
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 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
|
Low
|
|
|
Last Sale
|
|
|
Dividends Declared
|
|
|
2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the quarter ended March 31, 2010
|
|
$
|
26.50
|
|
|
$
|
22.30
|
|
|
$
|
24.74
|
|
|
$
|
0.06
|
|
For the quarter ended June 30, 2010
|
|
|
25.65
|
|
|
|
15.74
|
|
|
|
15.74
|
|
|
|
0.06
|
|
For the quarter ended September 30, 2010
|
|
|
16.98
|
|
|
|
13.70
|
|
|
|
15.30
|
|
|
|
0.06
|
|
For the quarter ended December 31, 2010
|
|
|
17.70
|
|
|
|
12.91
|
|
|
|
14.75
|
|
|
|
0.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 24, 2009 (date of IPO) through September 30,
2009
|
|
|
27.25
|
|
|
|
25.50
|
|
|
|
26.15
|
|
|
|
|
|
For the quarter ended December 31, 2009
|
|
|
26.54
|
|
|
|
22.66
|
|
|
|
25.49
|
|
|
|
|
|
|
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 February 22, 2011, the closing price for our
Class A shares, as reported on the NYSE, was $15.59.
The approximate number of shareholders of record as of
February 22, 2011 was 96 for our Class A common stock,
two (Richard Pell and Rudolph-Riad Younes) for our Class B
common stock and one (GAM Holding AG) for our Class C
common stock. Class B common stock has voting rights but no
economic rights.
Investors share repurchase activity for each of the three
months in the period ended December 31, 2010, was as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number of
|
|
|
Approximate
|
|
|
|
|
|
|
|
|
|
Shares Purchased
|
|
|
Shares that May
|
|
|
|
Total Number of
|
|
|
|
|
|
as Part of Publicly
|
|
|
Yet be Purchased
|
|
|
|
Shares
|
|
|
Average Price Paid
|
|
|
Announced Plans
|
|
|
Under the Plans or
|
|
Period
|
|
Repurchased(a)
|
|
|
Per Share
|
|
|
or
Programs(a)
|
|
|
Programs(a)
|
|
|
October 1, 2010 through October 31, 2010
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
468,800
|
|
November 1, 2010 through November 30, 2010
|
|
|
468,800
|
|
|
|
14.25
|
|
|
|
468,800
|
|
|
|
|
|
December 1, 2010 through December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the quarter ended December 31, 2010
|
|
|
468,800
|
|
|
|
14.25
|
|
|
|
468,800
|
|
|
|
3,000,000
|
|
|
|
|
|
(a)
|
|
In July 2010, our Board of
Directors authorized a share repurchase program of up to
1,000,000 shares of our common stock, which would expire on
December 31, 2011. During the quarter ended
December 31, 2010, we purchased 468,800 shares of our
Class A common stock for $6.7 million under this
program. As of December 31, 2010, this program has been
completed. In December 2010, our Board of Directors authorized a
share repurchase program of up to 3.0 million shares of our
common stock, which would expire on December 31, 2013. As
of December 31, 2010, we have made no share repurchases
under this program.
|
41
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, 2010, 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 24, 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
Performance
of $100 Chart
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Index
|
|
12/31/10
|
|
|
12/31/09
|
|
|
09/24/09
|
|
|
Artio Global Investors Inc.
|
|
$
|
57.48
|
|
|
$
|
98.04
|
|
|
$
|
100.00
|
|
SNL Asset Manager Index
|
|
|
119.74
|
|
|
|
104.02
|
|
|
|
100.00
|
|
S&P 500
|
|
|
121.63
|
|
|
|
105.71
|
|
|
|
100.00
|
|
|
42
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 Year Ended December 31,
|
|
(in thousands, except as indicated and per share
information)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Statement of Operations data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues and other operating income
|
|
$
|
335,129
|
|
|
$
|
307,392
|
|
|
$
|
422,046
|
|
|
$
|
445,744
|
|
|
$
|
300,432
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee compensation and benefits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries, incentive compensation and benefits
|
|
|
98,981
|
|
|
|
79,035
|
|
|
|
92,487
|
|
|
|
92,277
|
|
|
|
69,677
|
|
Allocation of Class B profits interests
|
|
|
|
|
|
|
33,663
|
|
|
|
76,074
|
|
|
|
83,512
|
|
|
|
53,410
|
|
Change in redemption value of Class B profits interests
|
|
|
|
|
|
|
266,110
|
|
|
|
54,558
|
|
|
|
76,844
|
|
|
|
46,932
|
|
Tax receivable agreement
|
|
|
|
|
|
|
97,909
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total employee compensation and benefits
|
|
|
98,981
|
|
|
|
476,717
|
|
|
|
223,119
|
|
|
|
252,633
|
|
|
|
170,019
|
|
Shareholder servicing and marketing
|
|
|
20,125
|
|
|
|
16,886
|
|
|
|
23,369
|
|
|
|
25,356
|
|
|
|
20,134
|
|
General and administrative
|
|
|
42,807
|
|
|
|
42,317
|
|
|
|
62,833
|
|
|
|
50,002
|
|
|
|
31,510
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
161,913
|
|
|
|
535,920
|
|
|
|
309,321
|
|
|
|
327,991
|
|
|
|
221,663
|
|
Non-operating income (loss)
|
|
|
(1,295
|
)
|
|
|
(1,395
|
)
|
|
|
3,181
|
|
|
|
7,034
|
|
|
|
3,288
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
171,921
|
|
|
|
(229,923
|
)
|
|
|
115,906
|
|
|
|
124,787
|
|
|
|
82,057
|
|
Income taxes relating to income from continuing operations
|
|
|
68,193
|
|
|
|
134,287
|
|
|
|
54,755
|
|
|
|
58,417
|
|
|
|
38,514
|
|
Income (loss) from discontinued operations, net of taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,616
|
|
|
|
1,231
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
103,728
|
|
|
|
(364,210
|
)
|
|
|
61,151
|
|
|
|
67,986
|
|
|
|
44,774
|
|
Net income attributable to non-controlling interests in Holdings
|
|
|
20,123
|
|
|
|
14,104
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to non-controlling interests in the
Consolidated Investment Products
|
|
|
44
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Artio Global Investors
|
|
$
|
83,561
|
|
|
$
|
(378,314
|
)
|
|
$
|
61,151
|
|
|
$
|
67,986
|
|
|
$
|
44,774
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attributable to Artio Global Investors per share
information
basic and diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
$
|
1.58
|
|
|
$
|
(8.88
|
)
|
|
$
|
1.46
|
|
|
$
|
1.58
|
|
|
$
|
1.04
|
|
Income from discontinued operations, net of taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.04
|
|
|
|
0.03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
1.58
|
|
|
$
|
(8.88
|
)
|
|
$
|
1.46
|
|
|
$
|
1.62
|
|
|
$
|
1.07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends declared per basic share
|
|
$
|
0.24
|
|
|
$
|
5.16
|
|
|
$
|
2.79
|
|
|
$
|
1.43
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares used to calculate per share
information basic
|
|
|
52,830
|
|
|
|
42,620
|
|
|
|
42,000
|
|
|
|
42,000
|
|
|
|
42,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares used to calculate per share
information diluted
|
|
|
53,003
|
|
|
|
42,620
|
|
|
|
42,000
|
|
|
|
42,000
|
|
|
|
42,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance sheet data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
80,043
|
|
|
$
|
60,842
|
|
|
$
|
86,563
|
|
|
$
|
133,447
|
|
|
$
|
61,055
|
|
Total assets
|
|
|
388,447
|
|
|
|
195,954
|
|
|
|
319,476
|
|
|
|
355,355
|
|
|
|
244,704
|
|
Debt
|
|
|
57,459
|
|
|
|
60,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued compensation and benefits
|
|
|
39,256
|
|
|
|
31,478
|
|
|
|
268,925
|
|
|
|
245,245
|
|
|
|
138,087
|
|
Total liabilities
|
|
|
282,164
|
|
|
|
191,973
|
|
|
|
286,231
|
|
|
|
266,261
|
|
|
|
163,820
|
|
Total stockholders equity
|
|
$
|
103,647
|
|
|
$
|
6,892
|
|
|
$
|
33,245
|
|
|
$
|
89,094
|
|
|
$
|
80,884
|
|
Non-controlling interests
|
|
|
2,636
|
|
|
|
(2,911
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
$
|
106,283
|
|
|
$
|
3,981
|
|
|
$
|
33,245
|
|
|
$
|
89,094
|
|
|
$
|
80,884
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets under management data (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets under management, excluding legacy
|
|
$
|
53,407
|
|
|
$
|
55,993
|
|
|
$
|
45,200
|
|
|
$
|
75,362
|
|
|
$
|
53,486
|
|
Net client cash flows
|
|
|
(6,287
|
)
|
|
|
338
|
|
|
|
1,930
|
|
|
|
12,150
|
|
|
|
7,582
|
|
Market appreciation (depreciation)
|
|
|
3,701
|
|
|
|
10,455
|
|
|
|
(32,092
|
)
|
|
|
9,726
|
|
|
|
11,054
|
|
|
Notes:
|
|
|
(i)
|
|
In 2010, Artio Global Investors
Inc. made a $19.0 million seed money investment in Artio
Alpha Investment Funds, LLC.
|
(ii)
|
|
On September 29, 2009, Artio
Global Investors Inc. (Investors) completed an
initial public offering (the IPO). Before the IPO,
Richard Pell, our Chairman, Chief Executive Officer and Chief
Investment Officer (Pell) and Rudolph-Riad Younes,
our Head of International Equity (Younes together
with Pell, the Principals) each had a 15%
Class B profits interest in Artio Global Management LLC,
which was accounted for as compensation. Immediately prior to
the IPO, each Principal exchanged his Class B profits
interest for a non-voting Class A member interest in Artio
Global Holdings LLC (New Class A Units), which
are accounted for as non-controlling interests. Concurrent with
the IPO, the Principals entered into an exchange agreement which
provides that they may exchange their New Class A Units for
shares of Investors Class A common stock. The
Principals also entered into an agreement providing them with
85% of certain future tax benefits. 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.
|
(iii)
|
|
In 2007, we distributed our wholly
owned subsidiary, Julius Baer Financial Markets LLC, to our
former parent.
|
(iv)
|
|
In 2006, we closed our equity
brokerage businesses.
|
43
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 four 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, Artio Global Institutional Services LLC (formerly known
as Artio Capital Management LLC) and Artio Alpha Investment
Funds, LLC (Alpha, the consolidated investment
vehicle that includes the Artio Global Credit Opportunities
Fund). We refer to the consolidated investment vehicles as the
Consolidated Investment Products. As of
December 31, 2010, Holdings was approximately 98% owned by
Investors, 1% owned by Richard Pell, our Chairman, Chief
Executive Officer and Chief Investment Officer
(Pell), and 1% 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
Global Institutional Services LLC are wholly owned subsidiaries
of Holdings. As of December 31, 2010, Alpha was 95% owned
by Holdings as a result of a seed money investment and the
remaining 5% was owned by employees.
Our MD&A is provided in addition to the accompanying
consolidated financial statements and footnotes to assist
readers in understanding our results of operations, and
liquidity and capital resources. The MD&A is organized as
follows:
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General Overview. Beginning on page 45, we
provide a summary of our overall business, our 2009 initial
public offering (IPO), the exchanges of New
Class A Units by the Principals in 2010 and the related
synthetic offering (the secondary offering), our
critical accounting policies and the economic environment.
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|
Key Performance Indicators. Beginning on
page 48, we discuss some of the operating and financial
indicators that guide managements review of our
performance.
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Assets Under Management. Beginning on page 50,
we provide a detailed discussion of our assets under management
(AuM), which are a major driver of our operating
revenues and key performance indicators.
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|
Revenues and Other Operating Income. Beginning on
page 57, we compare our revenue and other operating income
to the previous two years.
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|
Operating Expenses. Beginning on page 58, we
compare our operating expenses to the previous two years.
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|
Non-Operating Income (Loss). Beginning on
page 60, we compare our non-operating income (loss) to the
prior two years.
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|
Income Taxes. Beginning on page 60, we compare
our effective tax rates to the prior two years.
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|
Liquidity and Capital Resources. Beginning on
page 61, we analyze our working capital as of
December 31, 2010 and 2009, and cash flows for 2010, 2009
and 2008. Also included is a discussion of the amount of
financial capacity available to help fund our future activities.
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New Accounting Standards. Beginning on page 64,
we discuss new accounting pronouncements that may apply to us.
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Cautionary Note Regarding Forward-Looking
Statements. Beginning on page 64, we describe the
risks and uncertainties to which we are subject; these 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.
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44
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; institutional separate accounts;
sub-advisory
accounts; and the Consolidated Investment Products. While our
operations are based principally in the U.S. and our
clients are primarily
U.S.-based,
a substantial portion of our AuM are invested outside of the
U.S. Our revenues are primarily billed in U.S. dollars
and are calculated based on the U.S. dollar value of the
investment assets we manage for clients, which can fluctuate
with changes in foreign currency exchange rates. As of
December 31, 2010, 76% of our AuM were in currencies other
than the U.S. dollar. Consequently, changes in foreign
currency exchange rates may have a material impact on our
revenues. Our expenses are primarily billed and paid in
U.S. dollars and not significantly impacted by foreign
currency exchange rates, although our shareholder servicing
expenses are driven by the average daily market value of
proprietary fund AuM and therefore, indirectly impacted by
foreign currency exchange rates.
Initial
Public Offering, Changes in Principals Interests and
Exchange of New Class A Units
2009
Initial Public Offering and Changes in Principals
Interests
Prior to the completion of our September 29, 2009, IPO of
Investors Class A common stock, which was then listed
on the New York Stock Exchange under the symbol ART,
Investors was a wholly owned subsidiary of GAM Holding AG
(GAM), a Swiss corporation formerly known as Julius
Baer Holding Ltd. 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 member interest in Holdings (New Class A
Units). Subsequent to the IPO, the Principals New
Class A Units have been accounted for as non-controlling
interests.
Exchange
of New Class A Units
In 2010, each Principal exchanged 7.2 million New
Class A Units for 7.2 million restricted shares of
Class A common stock. At the time of the exchanges,
7.2 million shares of Class B common stock were
surrendered by each of the Principals and canceled.
Also in 2010, in order to enable the Principals to sell shares
of Class A common stock to cover their taxes payable, as
defined in the exchange agreement, as amended, (the
exchange agreement) on the exchanges discussed
above, 4.2 million shares of Class A common stock were
issued to the public in connection with a secondary offering,
including 0.4 million shares issued to the underwriters
that exercised a portion of their option to purchase shares of
Class A common stock. The net proceeds were used to
purchase and retire 2.1 million shares of Class A
common stock from each Principal. We did not retain any of the
proceeds related to the secondary offering.
Following the exchanges in 2010, each Principal retained 600,000
New Class A Units, representing an approximate 1% interest
in Holdings, which are accounted for as non-controlling
interests.
As a result of the exchanges of New Class A Units, we
increased the tax basis of Holdings assets, resulting in a
$161.2 million increase in deferred tax assets. (See
Item 8. Financial Statements and Supplementary Data, Notes
to Consolidated Financial Statements, Note 13. Income
Taxes: Tax Receivable Agreement.)
45
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 earned 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.
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 AuM. 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 and an insignificant amount of assets provide for
performance fees. Performance fees, if earned, are recognized on
the contractually determined measurement date. Performance fee
clawback provisions, if any, are recognized when the amount is
probable and estimable.
Income
Taxes
The majority of our deferred tax assets are recoverable over a
15-year
period. Recovery will depend on our ability to generate
sufficient taxable income.
Uncertainty in income tax positions is accounted for by
recognizing in the consolidated financial statements the benefit
of a tax position that we have taken in a jurisdiction 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. The ultimate outcome of the examination of
a tax position may differ from 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 under
Non-operating income (loss) on the Consolidated Statement of
Operations. Penalties are accrued and reported as General and
administrative expenses on the Consolidated Statement of
Operations.
Contingencies
Investors accrues for estimated costs, including, if applicable,
legal costs, when it is probable that a loss has been incurred
and the costs can be reasonably estimated. Accruals are reviewed
at least quarterly and are adjusted to reflect the impact of
current developments. Differences could exist between the actual
outcome of a contingency and managements estimate.
Although we may not have an explicit obligation to do so, we
have, at our discretion, reimbursed client accounts for certain
operational losses incurred.
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
46
composition of our AuM, as well as by our fee structure, making
our business results sensitive to the prevailing global economic
climate and its impact on investor sentiment and capital markets.
With the notable exception of many of the countries on
Europes periphery, most global equity and fixed income
markets moved higher for full-year 2010. Returns were generally
far below levels achieved in 2009, but reflected a gradual
improvement in investor sentiment. Continued accommodative
monetary policies in the developed world, underscored by a
second round of quantitative easing by the U.S. Federal
Reserve, added to the belief that the economic recovery will
remain on course. However, this optimism was tempered by the
deteriorated fiscal positions of Greece, Ireland and other
peripheral members of the eurozone. This led to joint
International Monetary Fund and European Union financial rescue
packages, forcing many members into austerity programs. Amid
these challenges, the euro declined versus the U.S. dollar
for the full year, although it did manage to move above lows
reached in mid-year. The Japanese yen, perceived as a safe haven
amid the sovereign debt crisis advanced versus the dollar.
Within emerging markets, which collectively outperformed
developed markets, China was a laggard in the face of increases
in reserve requirements and interest rates and corresponding
concerns over the impact these actions will have on domestic
growth in that country. Across the larger developed markets,
Japan had relatively strong returns due primarily to strength in
the yen, while European market performance was mixed in the
midst of the sovereign debt crisis and a weakened euro. The
U.S. market also posted solid gains, with small
capitalization stocks providing particularly strong results.
Within fixed income markets, global high yield outperformed
investment grade markets, the latter of which began to see
weakness in the final quarter of the year on mounting
speculation that the U.S. Federal Reserves asset
purchases and the extension of tax cuts will provide momentum to
the economic recovery, placing upward pressure on interest rates.
47
Key
Performance Indicators
Our management reviews our performance on a monthly basis,
focusing on the indicators described below.
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of and for the Year Ended December 31,
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|
(in millions, except basis points, percentages and per share
amounts)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Operating
indicators(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
AuM at end of year
|
|
$
|
53,407
|
|
|
$
|
55,993
|
|
|
$
|
45,200
|
|
Average
AuM(b)
|
|
|
52,930
|
|
|
|
48,166
|
|
|
|
64,776
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|
Net client cash flows
|
|
|
(6,287
|
)
|
|
|
338
|
|
|
|
1,930
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial indicators
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment management fees
|
|
|
334
|
|
|
|
305
|
|
|
|
425
|
|
Effective fee rate (basis
points)(c)
|
|
|
63.1
|
|
|
|
63.4
|
|
|
|
65.6
|
|
Adjusted operating
income(d)
|
|
|
184
|
|
|
|
173
|
|
|
|
252
|
|
Adjusted operating
margin(e)
|
|
|
55.0
|
%
|
|
|
56.4
|
%
|
|
|
59.8
|
%
|
Adjusted
EBITDA(d)
|
|
|
188
|
|
|
|
176
|
|
|
|
255
|
|
Adjusted EBITDA
margin(e)
|
|
|
56.2
|
%
|
|
|
57.4
|
%
|
|
|
60.5
|
%
|
Adjusted compensation
ratio(d)(f)
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|
|
26.2
|
%
|
|
|
24.3
|
%
|
|
|
19.8
|
%
|
Adjusted net income attributable to Artio Global
Investors(d)
|
|
|
103
|
|
|
|
105
|
|
|
|
143
|
|
Diluted earnings per share
|
|
$
|
1.58
|
|
|
$
|
(8.88
|
)
|
|
$
|
1.46
|
|
Adjusted diluted earnings per
share(g)
|
|
$
|
1.72
|
|
|
$
|
1.75
|
|
|
$
|
2.38
|
|
|
|
|
|
(a)
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|
Excluding legacy activities.
|
|
(b)
|
|
Average AuM is computed on the
beginning-of-first-month
balance and all
end-of-month
balances within the year.
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|
(c)
|
|
The effective fee rate is computed
by dividing Investment management fees by average AuM for
the year.
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|
(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.
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|
(e)
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|
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.
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|
(g)
|
|
Adjusted diluted earnings per share
is calculated by dividing Adjusted net income attributable to
Artio Global Investors by Adjusted weighted average diluted
shares (see the Adjusted Performance Measures
section of this MD&A).
|
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 year-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 primarily by the performance of our investment
strategies relative to their respective benchmark
and/or
peers, absolute levels of performance, competitiveness of our
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 investment portfolio managers. Our net
client cash outflows of $6.3 billion in 2010 include gross
client cash outflows of $15.5 billion that in our view
reflect a variety of contributing factors, including
underperformance in our International Equity strategies, client
rebalancing decisions, asset reallocations, and clients adopting
a different investment approach.
As of December 31, 2010, AuM of $53.4 billion had
decreased 5% from December 31, 2009, as market appreciation
was more than offset by net client cash outflows.
Industry commentators have recently identified several industry
trends that may affect our client cash flows in the future,
including: growing interest from U.S. institutions in
cross-border investing across asset classes;
48
growing interest in passive equity investments; and a move by
certain corporate pension plans towards a liability-driven
investment approach.
Appetite for cross-border investing across asset classes is
constructive for many of our investment strategies, in
particular, interest from U.S. institutions in global
equity as an asset class. In light of a general move away from
home-country bias, a gradual increase in risk appetite in line
with a global economic recovery and the potential for continued
weakness in the U.S. dollar, we expect increased interest
in cross-border investing to continue. While we believe there
remains a strong case for active investment management across
many asset classes, sustained growth in the market share of
passive investments is viewed as unfavorable for active
managers, such as us, as would a sustained move towards a
liability-driven investment approach. The extent to which our
strategies participate in activity resulting from these trends
will depend upon a number of factors, including investment
performance.
While the second half of 2010 was strong for financial markets,
continued sovereign debt worries within the eurozone, as well as
concerns over sustainability of the global economic recovery,
may continue to support a cautious stance by investors,
impacting the level of equity search activity in the first
quarter of 2011. In addition, further underperformance in our
International Equity strategies may negatively impact our net
client cash flows.
Financial
Indicators
Management reviews certain financial ratios to monitor progress
with internal forecasts, monitor our business drivers and
compare our firm with others in the asset management 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. GAAP.) Other ratios shown in the
table above allow us to review expenses in comparison with our
revenues.
Our effective fee rate of 63.1 basis points for 2010
decreased compared to 2009, as AuM allocation shifted to lower
margin strategies. The decrease was partially offset by the
impact of a clawback of performance fees recorded in 2009.
Our Adjusted operating income and Adjusted EBITDA margins in
2010 decreased compared to 2009, as expense growth exceeded
revenue growth. Although the economic events since the latter
part of 2008 severely impacted our business in 2009 and 2010, 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 a portion of our expense
base.
Adjusted
Performance Measures
Certain of our financial indicators are adjusted versions of
balances in our consolidated financial statements and are not
prepared in conformity with U.S. GAAP. We believe these
adjusted financial indicators are meaningful as they exclude
certain compensation costs related to a compensation structure
that was discontinued after the IPO, and are more representative
of our ongoing organizational structure. In addition, we exclude
the amortization expense associated with equity awards granted
to employees at the time of the IPO. We have adjusted Income
taxes 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
the Principals non-controlling interests for Class A
common stock at the beginning of each year 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.
49
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:
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|
|
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|
|
|
|
|
|
|
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|
Year Ended December 31,
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|
(in millions)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Employee compensation and benefits
|
|
$
|
99
|
|
|
$
|
477
|
|
|
$
|
223
|
|
Less compensation adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Allocation of Class B profits interests
|
|
|
|
|
|
|
34
|
|
|
|
76
|
|
Change in redemption value of Class B profits interests
|
|
|
|
|
|
|
266
|
|
|
|
54
|
|
Tax receivable agreement
|
|
|
|
|
|
|
98
|
|
|
|
|
|
Principals deferred compensation
|
|
|
|
|
|
|
|
|
|
|
9
|
|
Amortization expense of IPO-related restricted stock unit grants
|
|
|
11
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total compensation adjustments
|
|
|
11
|
|
|
|
402
|
|
|
|
139
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted compensation
|
|
$
|
88
|
|
|
$
|
75
|
|
|
$
|
84
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) before income tax expense
|
|
$
|
173
|
|
|
$
|
(229
|
)
|
|
$
|
113
|
|
Add: total compensation adjustments
|
|
|
11
|
|
|
|
402
|
|
|
|
139
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted operating income
|
|
$
|
184
|
|
|
$
|
173
|
|
|
$
|
252
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Artio Global Investors
|
|
$
|
84
|
|
|
$
|
(378
|
)
|
|
$
|
61
|
|
Add: net income attributable to non-controlling interests in
Holdings
|
|
|
20
|
|
|
|
14
|
|
|
|
|
|
Add: income taxes
|
|
|
68
|
|
|
|
134
|
|
|
|
55
|
|
Add: deferred bonus stock
|
|
|
1
|
|
|
|
|
|
|
|
|
|
Less: non-operating (income)
loss(a)
|
|
|
1
|
|
|
|
1
|
|
|
|
(3
|
)
|
Add: depreciation and
amortization(b)
|
|
|
3
|
|
|
|
3
|
|
|
|
3
|
|
Add: total compensation adjustments
|
|
|
11
|
|
|
|
402
|
|
|
|
139
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
$
|
188
|
|
|
$
|
176
|
|
|
$
|
255
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Artio Global Investors
|
|
$
|
84
|
|
|
$
|
(378
|
)
|
|
$
|
61
|
|
Add: net income attributable to non-controlling interests in
Holdings
|
|
|
20
|
|
|
|
14
|
|
|
|
|
|
Add: total compensation adjustments
|
|
|
11
|
|
|
|
402
|
|
|
|
139
|
|
Tax impact of adjustments
|
|
|
(12
|
)
|
|
|
67
|
|
|
|
(57
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted net income attributable to Artio Global Investors
|
|
$
|
103
|
|
|
$
|
105
|
|
|
$
|
143
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average diluted shares
|
|
|
53
|
|
|
|
43
|
|
|
|
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 funds held for cash management and on
investments of the Consolidated Investment Products.
|
|
(b)
|
|
Excludes amortization expense
associated with equity awards granted at the time of 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 year and that the
Principals had 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 year 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 our investment decisions and
fluctuations in both the financial markets and foreign currency
exchange rates;
|
|
client cash flows into and out of our investment products;
|
50
|
|
|
the mix of AuM among our various strategies; and
|
|
our introduction or closure of investment strategies and
products.
|
Our core investment strategies are:
|
|
|
International Equity;
|
|
Global Equity;
|
|
U.S. Equity;
|
|
High Grade Fixed Income; and
|
|
High Yield.
|
Investors have invested in our strategies through the investment
vehicles set forth in the following table.
The following table sets forth a summary of our AuM (excluding
legacy activities) by investment vehicle type as of
December 31, 2010, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
As a % of AuM as of December 31,
|
|
(in millions, except percentages)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Proprietary
funds(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A shares
|
|
$
|
7,421
|
|
|
$
|
7,919
|
|
|
$
|
6,251
|
|
|
|
|
|
|
|
|
|
|
|
|
|
I
shares(b)
|
|
|
15,592
|
|
|
|
16,563
|
|
|
|
13,215
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
23,013
|
|
|
|
24,482
|
|
|
|
19,466
|
|
|
|
43.1
|
%
|
|
|
43.7
|
%
|
|
|
43.1
|
%
|
Institutional commingled funds
|
|
|
9,236
|
|
|
|
9,198
|
|
|
|
7,056
|
|
|
|
17.3
|
|
|
|
16.4
|
|
|
|
15.6
|
|
Separate accounts
|
|
|
16,801
|
|
|
|
17,854
|
|
|
|
14,342
|
|
|
|
31.4
|
|
|
|
31.9
|
|
|
|
31.7
|
|
Sub-advisory
accounts
|
|
|
4,357
|
|
|
|
4,459
|
|
|
|
4,336
|
|
|
|
8.2
|
|
|
|
8.0
|
|
|
|
9.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending AuM
|
|
$
|
53,407
|
|
|
$
|
55,993
|
|
|
$
|
45,200
|
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
|
|
(a)
|
|
Proprietary funds include both SEC
registered funds and private offshore funds. SEC registered
mutual funds within our 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.
|
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 from our separate and
sub-advised
accounts.
51
The following table sets forth the changes in AuM by investment
vehicle type:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
YE 10/09
|
|
|
YE 09/08
|
|
(in millions, except percentages)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
% Change
|
|
|
% Change
|
|
|
Proprietary Funds:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning AuM
|
|
$
|
24,482
|
|
|
$
|
19,466
|
|
|
$
|
37,117
|
|
|
|
26
|
%
|
|
|
(48
|
)%
|
Gross client cash inflows
|
|
|
5,989
|
|
|
|
7,659
|
|
|
|
8,716
|
|
|
|
(22
|
)
|
|
|
(12
|
)
|
Gross client cash outflows
|
|
|
(8,919
|
)
|
|
|
(7,038
|
)
|
|
|
(10,973
|
)
|
|
|
(27
|
)
|
|
|
36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net client cash flows
|
|
|
(2,930
|
)
|
|
|
621
|
|
|
|
(2,257
|
)
|
|
|
(572
|
)
|
|
|
128
|
|
Transfers between investment vehicles
|
|
|
|
|
|
|
(38
|
)
|
|
|
(188
|
)
|
|
|
100
|
|
|
|
80
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total client cash flows
|
|
|
(2,930
|
)
|
|
|
583
|
|
|
|
(2,445
|
)
|
|
|
(603
|
)
|
|
|
124
|
|
Market appreciation (depreciation)
|
|
|
1,461
|
|
|
|
4,433
|
|
|
|
(15,206
|
)
|
|
|
(67
|
)
|
|
|
129
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending AuM
|
|
|
23,013
|
|
|
|
24,482
|
|
|
|
19,466
|
|
|
|
(6
|
)
|
|
|
26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Institutional Commingled Funds:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning AuM
|
|
|
9,198
|
|
|
|
7,056
|
|
|
|
9,357
|
|
|
|
30
|
|
|
|
(25
|
)
|
Gross client cash inflows
|
|
|
802
|
|
|
|
1,391
|
|
|
|
3,617
|
|
|
|
(42
|
)
|
|
|
(62
|
)
|
Gross client cash outflows
|
|
|
(1,451
|
)
|
|
|
(1,118
|
)
|
|
|
(1,135
|
)
|
|
|
(30
|
)
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net client cash flows
|
|
|
(649
|
)
|
|
|
273
|
|
|
|
2,482
|
|
|
|
(338
|
)
|
|
|
(89
|
)
|
Transfers between investment vehicles
|
|
|
22
|
|
|
|
29
|
|
|
|
194
|
|
|
|
(24
|
)
|
|
|
(85
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total client cash flows
|
|
|
(627
|
)
|
|
|
302
|
|
|
|
2,676
|
|
|
|
(308
|
)
|
|
|
(89
|
)
|
Market appreciation (depreciation)
|
|
|
665
|
|
|
|
1,840
|
|
|
|
(4,977
|
)
|
|
|
(64
|
)
|
|
|
137
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending AuM
|
|
|
9,236
|
|
|
|
9,198
|
|
|
|
7,056
|
|
|
|
|
|
|
|
30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Separate Accounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning AuM
|
|
|
17,854
|
|
|
|
14,342
|
|
|
|
22,897
|
|
|
|
24
|
|
|
|
(37
|
)
|
Gross client cash inflows
|
|
|
1,521
|
|
|
|
2,273
|
|
|
|
2,361
|
|
|
|
(33
|
)
|
|
|
(4
|
)
|
Gross client cash outflows
|
|
|
(3,912
|
)
|
|
|
(2,028
|
)
|
|
|
(1,803
|
)
|
|
|
(93
|
)
|
|
|
(12
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net client cash flows
|
|
|
(2,391
|
)
|
|
|
245
|
|
|
|
558
|
|
|
|
(1,076
|
)
|
|
|
(56
|
)
|
Transfers between investment vehicles
|
|
|
(22
|
)
|
|
|
9
|
|
|
|
(53
|
)
|
|
|
(344
|
)
|
|
|
117
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total client cash flows
|
|
|
(2,413
|
)
|
|
|
254
|
|
|
|
505
|
|
|
|
(1,050
|
)
|
|
|
(50
|
)
|
Market appreciation (depreciation)
|
|
|
1,360
|
|
|
|
3,258
|
|
|
|
(9,060
|
)
|
|
|
(58
|
)
|
|
|
136
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending AuM
|
|
|
16,801
|
|
|
|
17,854
|
|
|
|
14,342
|
|
|
|
(6
|
)
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub-advisory
Accounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning AuM
|
|
|
4,459
|
|
|
|
4,336
|
|
|
|
5,991
|
|
|
|
3
|
|
|
|
(28
|
)
|
Gross client cash inflows
|
|
|
904
|
|
|
|
768
|
|
|
|
2,557
|
|
|
|
18
|
|
|
|
(70
|
)
|
Gross client cash outflows
|
|
|
(1,221
|
)
|
|
|
(1,569
|
)
|
|
|
(1,410
|
)
|
|
|
22
|
|
|
|
(11
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net client cash flows
|
|
|
(317
|
)
|
|
|
(801
|
)
|
|
|
1,147
|
|
|
|
60
|
|
|
|
(170
|
)
|
Transfers between investment vehicles
|
|
|
|
|
|
|
|
|
|
|
47
|
|
|
|
|
|
|
|
(100
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total client cash flows
|
|
|
(317
|
)
|
|
|
(801
|
)
|
|
|
1,194
|
|
|
|
60
|
|
|
|
(167
|
)
|
Market appreciation (depreciation)
|
|
|
215
|
|
|
|
924
|
|
|
|
(2,849
|
)
|
|
|
(77
|
)
|
|
|
132
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending AuM
|
|
|
4,357
|
|
|
|
4,459
|
|
|
|
4,336
|
|
|
|
(2
|
)
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Legacy Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning AuM
|
|
|
|
|
|
|
4
|
|
|
|
|
|
|
|
(100
|
)
|
|
|
|
|
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
|
)
|
|
|
100
|
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending AuM
|
|
|
|
|
|
|
|
|
|
|
4
|
|
|
|
|
|
|
|
(100
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
YE 10/09
|
|
|
YE 09/08
|
|
(in millions, except percentages)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
% Change
|
|
|
% Change
|
|
|
Total AuM (including legacy activities):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning AuM
|
|
|
55,993
|
|
|
|
45,204
|
|
|
|
75,362
|
|
|
|
24
|
|
|
|
(40
|
)
|
Gross client cash inflows
|
|
|
9,216
|
|
|
|
12,091
|
|
|
|
17,295
|
|
|
|
(24
|
)
|
|
|
(30
|
)
|
Gross client cash outflows
|
|
|
(15,503
|
)
|
|
|
(11,753
|
)
|
|
|
(15,356
|
)
|
|
|
(32
|
)
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net client cash flows
|
|
|
(6,287
|
)
|
|
|
338
|
|
|
|
1,939
|
|
|
|
(1,960
|
)
|
|
|
(83
|
)
|
Transfers between investment vehicles
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total client cash flows
|
|
|
(6,287
|
)
|
|
|
338
|
|
|
|
1,939
|
|
|
|
(1,960
|
)
|
|
|
(83
|
)
|
Market appreciation (depreciation)
|
|
|
3,701
|
|
|
|
10,451
|
|
|
|
(32,097
|
)
|
|
|
(65
|
)
|
|
|
133
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending AuM
|
|
|
53,407
|
|
|
|
55,993
|
|
|
|
45,204
|
|
|
|
(5
|
)
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total AuM (excluding legacy activities):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning AuM
|
|
|
55,993
|
|
|
|
45,200
|
|
|
|
75,362
|
|
|
|
24
|
|
|
|
(40
|
)
|
Gross client cash inflows
|
|
|
9,216
|
|
|
|
12,091
|
|
|
|
17,251
|
|
|
|
(24
|
)
|
|
|
(30
|
)
|
Gross client cash outflows
|
|
|
(15,503
|
)
|
|
|
(11,753
|
)
|
|
|
(15,321
|
)
|
|
|
(32
|
)
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net client cash flows
|
|
|
(6,287
|
)
|
|
|
338
|
|
|
|
1,930
|
|
|
|
(1,960
|
)
|
|
|
(82
|
)
|
Transfers between investment vehicles
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total client cash flows
|
|
|
(6,287
|
)
|
|
|
338
|
|
|
|
1,930
|
|
|
|
(1,960
|
)
|
|
|
(82
|
)
|
Market appreciation (depreciation)
|
|
|
3,701
|
|
|
|
10,455
|
|
|
|
(32,092
|
)
|
|
|
(65
|
)
|
|
|
133
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending AuM
|
|
$
|
53,407
|
|
|
$
|
55,993
|
|
|
$
|
45,200
|
|
|
|
(5
|
)
|
|
|
24
|
|
|
Net client cash flows across all investment vehicles decreased
$6.6 billion during 2010 compared to 2009, mainly as a
result of:
|
|
|
a $4.1 billion decrease in our International Equity II
strategys net client cash flows, as 2010 had net client
cash outflows compared to net client cash inflows during 2009;
|
|
a $1.5 billion increase in net client cash outflows from
our International Equity I strategy, which is closed to new
investors;
|
|
a $0.9 billion decrease in our High Grade Fixed Income
strategys net client cash flows, as 2010 had net client
cash outflows compared to net client cash inflows during 2009;
and
|
|
a $0.7 billion decrease in our High Yield strategys
net client cash inflows,
|
partially offset by:
|
|
|
a $0.4 billion increase in our Global Equity
strategys net client cash flows, as 2010 had net client
cash inflows compared to net client cash outflows during 2009;
and
|
|
a $0.1 billion increase in our U.S. Equity
strategies net client cash inflows.
|
Net client cash flows across all investment vehicles decreased
$1.6 billion during 2009 compared to 2008, mainly as a
result of:
|
|
|
a $4.7 billion decrease in our International Equity II
strategys net client cash inflows,
|
partially offset by:
|
|
|
a $1.6 billion decrease in our International Equity I
strategys net client cash outflows; and
|
|
a $1.4 billion increase in our High Yield strategys
net client cash inflows.
|
53
Market appreciation (depreciation) for 2010, 2009 and 2008 were
primarily attributable to the following strategies:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
YE 10/09
|
|
|
YE 09/08
|
|
(in millions, except percentages)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
% Change
|
|
|
% Change
|
|
|
Market appreciation (depreciation)
(excluding legacy activities):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International Equity I
|
|
$
|
1,300
|
|
|
$
|
4,105
|
|
|
$
|
(17,916
|
)
|
|
|
(68
|
)%
|
|
|
123
|
%
|
International Equity II
|
|
|
1,464
|
|
|
|
4,919
|
|
|
|
(13,288
|
)
|
|
|
(70
|
)
|
|
|
137
|
|
Other strategies
|
|
|
937
|
|
|
|
1,431
|
|
|
|
(888
|
)
|
|
|
(35
|
)
|
|
|
261
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total market appreciation (depreciation)
|
|
$
|
3,701
|
|
|
$
|
10,455
|
|
|
$
|
(32,092
|
)
|
|
|
(65
|
)
|
|
|
133
|
|
|
The MSCI AC World ex USA Index increased 11.1% during 2010,
41.4% during 2009, and declined 45.5% in 2008. In 2010, the
gross performances of our International Equity I strategy
trailed the index by 2.3% and our International Equity II
strategy trailed the index by 3.0%. 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%.
Absolute returns for our International Equity strategies and the
index were positive for 2010, but below levels achieved in 2009.
During the first half of 2010, markets declined amid sovereign
debt worries in the eurozone. However, the second half of 2010
more than made up for these declines as economic data began to
show signs of improvement within the U.S., further supported by
an anticipated second round of quantitative easing by the
U.S. Federal Reserve to ensure that the economic recovery
remains on course. Against this backdrop, our international
equity strategies trailed the index during 2010, largely due to
positions in Asia. Our focus within China and Hong Kong is on
domestically oriented companies. Given concerns over the impact
that rising Chinese interest rates may have on economic growth
prospects there, our stocks underperformed. Our positions in
India also trailed the index. Our continued underweight to Japan
also negatively impacted performance. This was largely due to
the underweight in the Japanese yen, a currency which had strong
appreciation for the year. While we did have some currency
hedges into the Japanese yen to move us closer to the index
weighting in Japan, we were still underweight. Stock selection
in developed and emerging market financials also detracted.
Benefitting performance relative to the index was our
positioning in Russia and Taiwan. Within developed markets, we
benefitted from positioning within the materials sector,
particularly precious metals and mining stocks.
Proprietary
Funds
Net client cash flows related to proprietary funds decreased
$3.6 billion during 2010, compared to 2009, mainly as a
result of:
|
|
|
a $2.4 billion decrease in our International Equity II
Funds net client cash flows, as 2010 had net client cash
outflows compared to net client cash inflows during 2009;
|
|
a $0.5 billion decrease in our Global High Income
Funds net client cash inflows;
|
|
a $0.4 billion decrease in our Total Return Bond
Funds net client cash flows, as 2010 had net client cash
outflows compared to net client cash inflows during
2009; and
|
|
a $0.2 billion increase in our International Equity I
Funds net client cash outflows.
|
Net client cash flows related to proprietary funds increased
$2.9 billion during 2009 compared to 2008, mainly as a
result of:
|
|
|
a $2.1 billion decrease in our International Equity I
Funds net client cash outflows; and
|
|
a $1.0 billion increase in our Global High Income
Funds net client cash inflows,
|
partially offset by:
|
|
|
a $0.2 billion decrease in our International Equity II
Funds net client cash inflows; and
|
|
a $0.1 billion decrease in our Total Return Bond
Funds net client cash inflows.
|
54
Institutional
Commingled Funds
Net client cash flows related to institutional commingled funds
decreased $0.9 billion during 2010, compared to 2009,
mainly as a result of:
|
|
|
a $0.7 billion decrease in our International Equity II
vehicles net client cash flows, as 2010 had net client
cash outflows compared to net client cash inflows during
2009; and
|
|
a $0.2 billion increase in our International Equity I
vehicles net client cash outflows.
|
Net client cash flows related to institutional commingled funds
decreased $2.2 billion during 2009 compared to 2008, mainly
as a result of:
|
|
|
a $2.1 billion decrease in our International Equity II
vehicles net client cash inflow.
|
Separate
Accounts
Net client cash flows related to separate accounts decreased
$2.6 billion during 2010, compared to 2009, mainly as a
result of:
|
|
|
a $1.5 billion decrease in our International Equity II
strategies net client cash flows, as 2010 had net client
cash outflows compared to net client cash inflows during 2009;
|
|
a $1.1 billion increase in our International Equity I
strategies net client cash outflows; and
|
|
a $0.3 billion decrease in our High Grade Fixed Income
strategies net client cash flows, as 2010 had net client
cash outflows compared to net client cash inflows during 2009,
|
partially offset by:
|
|
|
a $0.3 billion increase in our Global Equity
strategys net client cash flows, as 2010 had net client
cash inflows compared to net client cash outflows during 2009.
|
Net client cash flows related to separate accounts decreased
$0.3 billion during 2009, compared to 2008, mainly as a
result of:
|
|
|
a $0.5 billion increase in our International Equity I
strategys net client cash outflows,
|
partially offset by:
|
|
|
a $0.1 billion increase in our High Yield strategys
net client cash flows, as 2009 had net client cash inflows
compared to net client cash outflows in 2008.
|
Sub-advisory
Accounts
Net client cash flows related to
sub-advised
accounts increased $0.5 billion during 2010, compared to
2009, mainly as a result of:
|
|
|
a $0.6 billion decrease in our International Equity II
strategys net client cash outflows,
|
partially offset by:
|
|
|
a $0.1 billion decrease in our High Yield strategys
net client cash inflows.
|
Net client cash flows related to
sub-advised
accounts decreased $1.9 billion during 2009, compared to
2008, mainly a result of:
|
|
|
a $2.4 billion decrease in our International Equity II
strategys net client cash flows, as 2009 had net client
cash outflows 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,
|
partially offset by:
|
|
|
a $0.3 billion increase in our High Yield strategys
net client cash inflows; and
|
|
a $0.2 billion decrease in certain low-margin
U.S. dollar fixed income products net client cash
outflows.
|
55
Fair
Value of AuM
The valuation policies of the proprietary funds are approved by
their Boards. Valuation of institutional commingled funds is
similar to that of the proprietary funds, while responsibility
for the valuation of separate accounts rests with the custodians
of our clients accounts. Fair value polices for
sub-advised
accounts are determined by the primary adviser.
Fair value is defined as the price that the funds would receive
upon selling an investment in a timely transaction to an
independent buyer in the principal or most advantageous market
for the investment. Fair value measurements are determined
within a framework that has established a three-tier hierarchy
to maximize the use of observable market data and minimize the
use of unobservable inputs and to establish classification of
fair value measurements for disclosure purposes. Inputs refer
broadly to the assumptions that market participants would use in
pricing the asset or liability, including assumptions about
risk, such as the risk inherent in a particular valuation
technique used to measure fair value including such a pricing
model and/or
the risk inherent in the inputs to the valuation technique.
Inputs may be observable or unobservable. Observable inputs are
inputs that reflect the assumptions market participants would
use in pricing the assets or liabilities developed based on
market data obtained from sources independent of the reporting
entity. Unobservable inputs are inputs that reflect the
reporting entitys own assumptions about the assumptions
participants would use in pricing the asset or liability
developed based on the best information available in the
circumstances. The three-tier hierarchy of inputs is summarized
into three broad levels, as follows:
Level 1 Quoted prices in active markets
for identical investments.
|
|
Level 2
|
Other observable inputs (including quoted prices for
similar investments, interest rates, prepayment speeds, credit
risk, etc.).
|
Level 3
|
Significant unobservable inputs (including the
funds own assumptions in determining the fair value of
investments).
|
Assets for which market quotations are readily available, are
valued at fair value on the basis of quotations furnished by a
pricing service or provided by securities dealers. Equity
investments are generally valued using the last sale price or
official closing price taken from the primary market in which
each security trades, or if no sales occurred during the day, at
the mean of the current quoted bid and asked prices. Fixed
income securities are generally valued using prices provided
directly by independent third party services or provided
directly from one or more broker dealers or market makers.
The pricing services may use valuation models or matrix pricing,
which considers yield or prices with respect to comparable bond
quotations from bond dealers or by reference to other securities
that are considered comparable in such characteristics as
rating, interest rate and maturity date, to determine current
value. Assets and liabilities initially expressed in foreign
currency are converted into U.S. dollar values. Short-term
dollar-denominated investments of appropriate credit quality
that mature in 60 days or less are valued on the basis of
amortized cost. Investments in net asset value-based investment
vehicles are valued at the net asset value (NAV) of
the underlying fund.
When market quotations or exchange rates are not readily
available, or if the primary adviser believes that such market
quotations do not accurately reflect fair value, fair values are
determined in good faith in accordance with the valuation
policies. For options, swaps and warrants, a fair value price
may be determined using an industry accepted modeling tool using
inputs, which may include yield data, risk free rate,
volatility, contract terms, and others, as applicable. In
addition, we, through our pricing committee, may determine the
fair value price based upon multiple factors as set forth in the
valuation policies. These inputs may include prices of similar
securities, yield data, the financial condition of the issuer,
and other factors, as applicable. We use both market and income
approaches.
The closing prices of domestic or foreign securities may not
reflect their market values at the New York market close if an
event that materially affects the value of those securities has
occurred since the closing prices were established on the
domestic or foreign exchange market. Under certain conditions,
we fair value foreign securities. This is generally
accomplished by adjusting the closing price for movements in
other
56
correlated indices, securities, derivatives, etc. Fair value
pricing may cause the value of the security to be different from
the closing value on the
non-U.S. exchange
and may affect the calculation of a funds NAV. Certain
funds may fair value securities in other situations,
for example, when a particular foreign market is closed but the
funds are open. Fair value pricing may be applied to both mutual
funds and commingled fund assets.
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, 2010,
2009 and 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 2
|
|
|
Level 3
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
Significant
|
|
|
|
|
|
|
Level 1
|
|
|
Observable
|
|
|
Unobservable
|
|
(in millions)
|
|
Total(a)
|
|
|
Quoted Prices
|
|
|
Inputs
|
|
|
Inputs
|
|
|
December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proprietary funds
|
|
$
|
22,527
|
|
|
$
|
16,780
|
|
|
$
|
5,488
|
|
|
$
|
259
|
|
Institutional commingled funds
|
|
|
9,082
|
|
|
|
8,517
|
|
|
|
556
|
|
|
|
9
|
|
December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proprietary funds
|
|
|
23,813
|
|
|
|
1,987
|
|
|
|
21,482
|
|
|
|
344
|
|
Institutional commingled funds
|
|
|
8,998
|
|
|
|
1,894
|
|
|
|
7,069
|
|
|
|
35
|
|
December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proprietary funds
|
|
|
15,802
|
|
|
|
13,545
|
|
|
|
1,817
|
|
|
|
440
|
|
Institutional commingled funds
|
|
|
6,494
|
|
|
|
6,384
|
|
|
|
79
|
|
|
|
31
|
|
|
|
|
|
(a)
|
|
Total differs from aggregate AuM
due to uninvested cash, among other factors.
|
When fair value techniques are used as described
above, Level 1 securities are revalued and considered
Level 2 securities after such revaluations. Fair value
techniques were employed as of December 31, 2009, but not
as of December 31, 2010 or 2008. As a result, a much higher
percentage of the overall portfolio was considered to be
Level 2 as of December 31, 2009.
We are not responsible 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, 2010
|
|
$
|
20,876
|
|
|
$
|
15,588
|
|
|
$
|
5,249
|
|
|
$
|
39
|
|
December 31, 2009
|
|
|
21,698
|
|
|
|
17,272
|
|
|
|
4,368
|
|
|
|
58
|
|
December 31, 2008
|
|
|
17,958
|
|
|
|
14,061
|
|
|
|
3,753
|
|
|
|
144
|
|
|
|
|
|
(a)
|
|
Total differs from aggregate AuM
due to uninvested cash, among other factors.
|
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 are eligible
to earn performance based fees, the investment performance of
those accounts.
In one account, performance fees paid annually were subject to a
clawback provision that was evaluated cumulatively at the end of
each year over a span of three years ending in 2009. Performance
fees recognized in 2008 and 2007 were subject to clawback
provisions due to performance declines in 2009. The clawback was
recognized when the amount was probable and estimable. As of
December 31, 2009, the clawback provision was no longer in
effect.
57
The following table sets forth average AuM, the effective fee
rate and Total revenues and other operating income for
2010, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands, except for Average AuM,
|
|
Year Ended December 31,
|
|
|
YE 10/09
|
|
|
YE 09/08
|
|
effective fee rate and percentages)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
% Change
|
|
|
% Change
|
|
|
Average AuM (in millions)
|
|
$
|
52,930
|
|
|
$
|
48,166
|
|
|
$
|
64,776
|
|
|
|
10
|
%
|
|
|
(26
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective fee rate (basis points)
|
|
|
63.1
|
|
|
|
63.4
|
|
|
|
65.6
|
|
|
|
(0.3
|
)bp
|
|
|
(2.2
|
)bp
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment management fees
|
|
$
|
334,037
|
|
|
$
|
305,335
|
|
|
$
|
425,003
|
|
|
|
9
|
%
|
|
|
(28
|
)%
|
Net gains (losses) on securities held for deferred compensation
|
|
|
1,077
|
|
|
|
1,970
|
|
|
|
(2,857
|
)
|
|
|
(45
|
)
|
|
|
169
|
|
Foreign currency gains (losses)
|
|
|
15
|
|
|
|
87
|
|
|
|
(101
|
)
|
|
|
(83
|
)
|
|
|
186
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues and other operating income
|
|
$
|
335,129
|
|
|
$
|
307,392
|
|
|
$
|
422,045
|
|
|
|
9
|
|
|
|
(27
|
)
|
|
Total revenues and other operating income increased by
$27.7 million for 2010 compared to 2009, due primarily to a
10% increase in average AuM. The increase in average AuM relates
to the recovery of equity markets since the end of the first
quarter of 2009.
Total revenues and other operating income decreased by
$114.7 million for 2009 compared to 2008, due primarily to
a 26% decline in average AuM and, to a lesser extent, a
2.2 basis point decline 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 our
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 and 1.2% for
2008. There were no performance fees in 2010. The negative
performance fee in 2009 resulted from a clawback.
Operating
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
YE 10/09
|
|
|
YE 09/08
|
|
(in thousands, except percentages)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
% Change
|
|
|
% Change
|
|
|
Total employee compensation and benefits
|
|
$
|
98,981
|
|
|
$
|
476,717
|
|
|
$
|
223,118
|
|
|
|
*
|
%
|
|
|
*
|
%
|
Shareholder servicing and marketing
|
|
|
20,125
|
|
|
|
16,886
|
|
|
|
23,369
|
|
|
|
19
|
|
|
|
(28
|
)
|
General and administrative
|
|
|
42,807
|
|
|
|
42,317
|
|
|
|
62,833
|
|
|
|
1
|
|
|
|
(33
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
$
|
161,913
|
|
|
$
|
535,920
|
|
|
$
|
309,320
|
|
|
|
*
|
|
|
|
*
|
|
|
|
|
|
*
|
|
Calculation is not meaningful, due
to the impact of the reorganization transactions at the time of
the IPO.
|
Operating expenses decreased by $374.0 million for 2010
compared to 2009, mainly due to changes in the nature of the
Principals economic interests after the IPO, partially
offset by higher salaries, incentive compensation and benefits,
and higher shareholder servicing costs, which are highly
correlated to the average daily market value of proprietary
fund AuM, and higher marketing expenses.
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 after the IPO.
58
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 certain situations, we receive research
credits from broker dealers that would have had the effect of
reducing our operating expenses by $1.3 million in 2010,
$0.7 million in 2009 and $0.8 million in 2008. Our
operating expenses could increase if the research credits were
reduced or eliminated.
Employee
Compensation and Benefits
The following table sets forth our Employee compensation and
benefits expenses.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
YE 10/09
|
|
|
YE 09/08
|
|
(in thousands, except percentages)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
% Change
|
|
|
% Change
|
|
|
Salaries, incentive compensation and benefits
|
|
$
|
98,981
|
|
|
$
|
79,035
|
|
|
$
|
92,487
|
|
|
|
25
|
%
|
|
|
(15
|
)%
|
Allocation of Class B profits
interests(a)
|
|
|
|
|
|
|
33,663
|
|
|
|
76,074
|
|
|
|
|
*
|
|
|
|
*
|
Change in redemption value of Class B profits
interests(a)
|
|
|
|
|
|
|
266,110
|
|
|
|
54,557
|
|
|
|
|
*
|
|
|
|
*
|
Tax receivable agreement
|
|
|
|
|
|
|
97,909
|
|
|
|
|
|
|
|
|
*
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee compensation and benefits
|
|
$
|
98,981
|
|
|
$
|
476,717
|
|
|
$
|
223,118
|
|
|
|
|
*
|
|
|
|
*
|
|
|
|
|
*
|
|
Calculation is not meaningful, due
to the reorganization transactions at the time of the IPO.
|
|
(a)
|
|
At the time of the IPO (see the
Initial Public Offering, Changes in the Principals
Interests and New Class A Units section of this
MD&A), the Class B profits interests were exchanged
for New Class A Units that are reflected as non-controlling
interests subsequent to the IPO.
|
Prior to the IPO, the Principals did not receive bonuses, but
instead benefited from the increased value of their Class B
profits interests, as well as distributions in respect of such
interests. Subsequent to the IPO, each Principal entered into an
employment agreement, which entitles them to incentive
compensation awards, subject to approval by the Compensation
Committee of the Board of Directors and subject to a deferral
plan, in addition to an annual base salary. For 2010 and the
post-IPO portion of 2009, Salaries, incentive compensation
and benefits includes incentive compensation accruals for
the Principals.
Salaries, incentive compensation and benefits increased
$19.9 million for 2010 compared to 2009, due primarily to
an increase in incentive compensation accruals
($8.8 million), relating in part to the Principals
incentive compensation discussed above, amortization of
share-based awards granted at the time of the IPO
($6.8 million), and an increase in costs resulting from an
increased headcount, which were primarily within portfolio
management, sales and client service.
The Health Care and Education Reconciliation Act of 2010 and
Patient Protection and Affordable Care Act did not have a
significant impact on our financial statements in 2010.
Employee compensation and benefits increased
$253.6 million for 2009 compared to 2008, due primarily to
non-recurring compensation charges incurred in connection with
the IPO and changes in the nature of the Principals
economic interests after the IPO discussed above and the
amortization of share-based compensation expense in 2009,
partially offset by 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.
Shareholder
Servicing and Marketing
Shareholder servicing and marketing expenses increased
$3.2 million for 2010 compared to 2009, due primarily to
the increase in the average daily market value of proprietary
fund AuM increasing shareholder servicing costs, higher
platform and custody fees, as well as increased marketing
expenses.
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, decreasing shareholder servicing costs.
59
General
and Administrative
General and administrative expenses increased slightly
for 2010 compared to 2009, as the higher expenses of being a
public company and non-recurring professional fees resulting
from the secondary offering in 2010 were partially offset by the
costs related to the IPO and licensing fees incurred in 2009,
neither of which recurred in 2010.
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.
Non-operating
Income (Loss)
Non-operating income (loss) primarily results from
interest income earned on invested funds, interest expense
incurred on borrowings under our term credit facility and
mark-to-market
gains and losses on investments of the Consolidated Investment
Products. The following table sets forth Non-operating income
(loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
YE 10/09
|
|
|
YE 09/08
|
|
(in thousands, except percentages)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
% Change
|
|
|
% Change
|
|
|
Interest income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments of the Consolidated Investment Products
|
|
$
|
279
|
|
|
$
|
|
|
|
$
|
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Other investments
|
|
|
10
|
|
|
|
327
|
|
|
|
3,011
|
|
|
|
(97
|
)%
|
|
|
(89
|
)%
|
Interest expense
|
|
|
(2,601
|
)
|
|
|
(1,194
|
)
|
|
|
(63
|
)
|
|
|
|
*
|
|
|
|
*
|
Net gains on investments of the Consolidated Investment Products
|
|
|
677
|
|
|
|
|
|
|
|
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Net gains (losses) on other investments
|
|
|
336
|
|
|
|
(528
|
)
|
|
|
252
|
|
|
|
164
|
|
|
|
(310
|
)
|
Other income (loss)
|
|
|
4
|
|
|
|
|
|
|
|
(19
|
)
|
|
|
N/A
|
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-operating income (loss)
|
|
$
|
(1,295
|
)
|
|
$
|
(1,395
|
)
|
|
$
|
3,181
|
|
|
|
7
|
|
|
|
(144
|
)
|
|
|
|
|
*
|
|
Calculation not meaningful, due to
the impact of our $60 million borrowing under our term
credit facility in the fourth quarter of 2009.
|
N/A Not applicable.
Total non-operating loss decreased for 2010 compared to 2009,
primarily due to net gains on investments and interest income of
the Consolidated Investment Products, mostly offset by an
increase in interest expense related to our borrowings under our
term credit facility, which occurred in the fourth quarter of
2009, and interest expense related to amended tax returns.
We recorded a non-operating loss for 2009 compared to
non-operating income for 2008, primarily due to interest expense
related to our borrowings under our term credit facility,
accrued interest expense related to the anticipated amendments
of prior years tax returns, lower invested balances and
lower yields on investment securities.
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 subsidiaries.
Our effective tax rates were 40% for 2010, (58)% for 2009 and
47% for 2008. 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 member interests in Holdings
as non-controlling interests, whereas they had been accounted
for as compensation expense prior
60
to the IPO. For income tax purposes, the Principals, through
their member interests, are taxed on their share of
Holdings income. Accordingly, we do not account for the
U.S. Federal and state income taxes on the income of
Holdings allocable to the Principals member interests. At
the time of the IPO, the Principals
non-controlling
interests in Holdings were approximately 26%. Subsequent to the
Principals exchanges of New Class A Units for shares
of Class A common stock in 2010, the Principals
non-controlling interests are approximately 2% and as a result,
our effective tax rate was, and will continue to be, higher.
Our effective tax rate would have been approximately 45% for
2010 had the Principals exchanged all of their New Class A
Units at the beginning of the year.
Liquidity
and Capital Resources
Working
Capital
Below is a table showing our liquid assets.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
|
(in thousands, except percentages)
|
|
2010
|
|
|
2009
|
|
|
% Change
|
|
|
Cash and cash equivalents
|
|
$
|
80,043
|
|
|
$
|
60,842
|
|
|
|
|
*%
|
Less: cash held by the Consolidated Investment Products
|
|
|
(811
|
)
|
|
|
|
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
79,232
|
|
|
|
60,842
|
|
|
|
30
|
|
Fees receivable and accrued fees, net of allowance for doubtful
accounts
|
|
|
54,373
|
|
|
|
56,911
|
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liquid assets
|
|
$
|
133,605
|
|
|
$
|
117,753
|
|
|
|
13
|
|
|
|
|
|
*
|
|
Calculation not meaningful, due to
the impact of our seed money capital investment in the
Consolidated Investment Products.
|
In 2010, we made a seed money capital investment of
$19.0 million, paid to GAM a capital distribution declared
prior to the IPO of $40.1 million, repurchased one million
shares of our Class A common stock for $14.6 million
under a share repurchase program and repaid $4.5 million in
borrowings under our term credit facility. We may make
additional seed capital investments of up to an aggregate of
approximately $30.0 million in early 2011. In addition, our
term credit facility requires quarterly principal payments of
$4.5 million for the next two years, with a final payment
of $24.0 million at maturity in 2012. Incentive
compensation payments will be paid primarily in the first
quarter of 2011.
In December 2010, our Board of Directors authorized a share
repurchase program of up to 3.0 million shares of our
common stock, which will expire on December 31, 2013. As of
December 31, 2010, we have made no share repurchases under
this program.
On January 24, 2011, our Board of Directors declared a
dividend of $0.06 per share to be paid on February 23,
2011, to holders of record of our Class A and Class C
common stock at the close of business on February 14, 2011.
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, Changes in Principals
Interests and Exchange of New Class A Units section
of this MD&A) will be paid to all members of Holdings,
including the Principals.
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. We believe our current working
capital and, as of January 2011, $100.0 million undrawn
revolving credit facility are sufficient to meet our current
obligations and support our organic growth initiatives. We did
not use the revolving debt facility during 2010.
The Consolidated Investment Products employ leverage with the
goal of enhancing investment returns.
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, we borrowed
61
$60.0 million under the term credit facility. In December
2010, we repaid $4.5 million on our borrowings under the
term credit facility.
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, 2010, our consolidated leverage
ratio was 0.3:1 and our consolidated interest coverage ratio was
76:1, each in compliance with our debt covenants.
In January 2011, Holdings increased the capacity of its undrawn
revolving credit facility from $50.0 million to
$100.0 million.
Cash
Flows
The following table sets forth our cash flows for 2010, 2009 and
2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
YE 10/09
|
|
|
YE 09/08
|
|
(in thousands, except percentages)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
% Change
|
|
|
% Change
|
|
|
Cash flow data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
$
|
104,671
|
|
|
$
|
51,707
|
|
|
$
|
100,109
|
|
|
|
102
|
%
|
|
|
(48
|
)%
|
Net cash provided by (used in) investing activities
|
|
|
(2,477
|
)
|
|
|
63,762
|
|
|
|
(29,892
|
)
|
|
|
(104
|
)
|
|
|
313
|
|
Net cash used in financing activities
|
|
|
(83,008
|
)
|
|
|
(141,277
|
)
|
|
|
(117,000
|
)
|
|
|
41
|
|
|
|
(21
|
)
|
Effect of exchange rate changes on cash
|
|
|
15
|
|
|
|
87
|
|
|
|
(101
|
)
|
|
|
(83
|
)
|
|
|
186
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
$
|
19,201
|
|
|
$
|
(25,721
|
)
|
|
$
|
(46,884
|
)
|
|
|
175
|
|
|
|
45
|
|
|
Net cash provided by operating activities increased
$53.0 million in 2010 compared to 2009, primarily
reflecting higher revenues and a lower effective income tax rate
in 2010, and non-recurring payments made to the Principals under
the Class B profits interests agreement in 2009.
Net cash provided by operating activities decreased
$48.4 million in 2009 compared to 2008, primarily
reflecting lower revenues due to lower average AuM.
Net cash used in investing activities was
$2.5 million in 2010, compared to Net cash provided by
investing activities of $63.8 million in 2009,
primarily reflecting the sales of investments in 2009. We
liquidated our holdings of investment securities in 2009 to fund
distributions to GAM and the Principals.
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 investments in 2009. We
liquidated our holdings of investment securities in 2009 to fund
distributions to GAM and the Principals.
Net cash used by financing activities decreased
$58.3 million in 2010 compared to 2009, primarily
reflecting lower dividend payments in 2010 and borrowings of
$60.0 million under our term credit facility in 2009,
partially offset by the $40.1 million payment to GAM of a
capital distribution declared prior to the IPO, higher
distributions to non-controlling interests, $14.6 million
of share repurchases under our share repurchase program and a
$4.5 million repayment of borrowings under the term credit
facility in 2010.
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.
Deferred
Taxes
Concurrent with the IPO, the Principals entered into an exchange
agreement which provides that they may exchange their New
Class A Units for shares of Investors Class A
common stock. Upon such exchanges, Holdings has made an election
under Section 754 of the Internal Revenue Code of 1986, as
amended, to increase the tax basis of its assets. A tax
receivable agreement with the Principals entitles each Principal
to receive 85% of the tax benefits realized by us in our tax
returns as a result of the increases in tax basis created
62
by that Principals exchange (see Item 8. Financial
Statements and Supplementary Data, Notes to Consolidated
Financial Statements, Note 13. Income Taxes: Tax
Receivable Agreement).
In 2010 and 2009, the Principals exchanged a total of
16.8 million New Class A Units for an equivalent
number of shares of Investors Class A common stock
(see Item 8. Financial Statements and Supplementary Data,
Notes to Consolidated Financial Statements, Note 2.
Initial Public Offering, Changes in the Principals
Interests and Exchange of New Class A Units:
Exchange of New Class A Units). The tax benefits
arising from the resultant
step-up in
tax basis became determinable and based on the exchange dates,
an aggregate deferred tax asset of $199.6 million was
established for the estimated future tax benefits resulting from
the amortization of the increased tax basis. Of the deferred tax
asset recorded at the time of the exchanges,
$169.7 million, representing 85% of the benefits, was
recorded in Due under tax receivable agreement, and the
remaining 15%, or $29.9 million, was recorded in
Additional paid-in capital on the Consolidated Statement
of Financial Position.
The majority of our deferred tax assets are recoverable over a
15-year
period. Recovery will depend on our ability to generate
sufficient taxable income. The
step-up in
tax basis resulting from the exchanges of New Class A Units
resulted in $197.0 million of deferred tax assets, which
would require annual average taxable income of
$32.8 million (at an estimated effective tax rate of 40%)
to be recovered in full. Based on several factors, including
historical taxable income and current levels of AuM, we believe
that it is more likely than not that there will be sufficient
annual taxable income to realize the deferred tax asset and,
therefore, no valuation allowance is necessary. We realized
$0.4 million of the deferred tax asset in our 2009 income
tax return and expect to realize approximately $5.8 million
of the deferred tax asset in our 2010 income tax return.
The tax benefits arising from the
step-up in
tax basis will be shared between us and the Principals under a
tax receivable agreement (see Item 8. Financial Statements
and Supplementary Data, Notes to Consolidated Financial
Statements, Note 13. Income Taxes: Tax Receivable
Agreement). If we are unable to utilize all of the tax
benefits from the
step-up in
tax basis, 85% of the unused amount, representing the
Principals portion of such benefits, will reduce the
amounts payable to them, which are classified as Due under
tax receivable agreement on the Consolidated Statement of
Financial Position, and the remaining 15% will be charged to
Income taxes on the Consolidated Statement of Operations.
In 2009, 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.
Contractual
Obligations
The following table sets forth our contractual obligations as of
December 31, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due By Pay Period
|
|
(in thousands)
|
|
Total
|
|
|
Less than 1 Year
|
|
|
1-3 Years
|
|
|
3-5 Years
|
|
|
More than 5 Years
|
|
|
Borrowings under term credit
facility(a)
|
|
$
|
55,500
|
|
|
$
|
18,000
|
|
|
$
|
37,500
|
|
|
$
|
|
|
|
$
|
|
|
Operating lease obligations
|
|
|
13,161
|
|
|
|
3,756
|
|
|
|
9,405
|
|
|
|
|
|
|
|
|
|
Recordkeeping service provider
|
|
|
6,400
|
|
|
|
1,600
|
|
|
|
3,200
|
|
|
|
1,600
|
|
|
|
|
|
Other
|
|
|
12,607
|
|
|
|
8,870
|
|
|
|
3,737
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
87,668
|
|
|
$
|
32,226
|
|
|
$
|
53,842
|
|
|
$
|
1,600
|
|
|
$
|
|
|
|
|
|
|
(a)
|
|
Excludes accrued interest expense.
Interest is payable at a variable rate.
|
Off-Balance
Sheet Arrangements
The Consolidated Investment Products held credit default swaps
and foreign exchange forward contracts as of December 31,
2010. As of December 31, 2010, the notional amount of
credit default swaps and foreign exchange forward contracts
outstanding was $7.8 million. See Item 8. Financial
Statements and Supplementary Data, Notes to Consolidated
Financial Statements, Note 8. Derivative Contracts
for additional information.
63
New
Accounting Standards
In February 2010, the Financial Accounting Standards Board
(FASB) issued an Accounting Standards Update which
defers the effective date of ASC 810.10, Amendments to
FASB Interpretation No. 46(R), for companies, such as
ours, that have interests in certain investment entities.
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 January 2010, the FASB issued an Accounting Standards Update
to ASC 820.10, Fair Value Measurements and Disclosures
(FAS 157), to improve disclosures about fair value
measurements. In the third quarter of 2010, we invested seed
money in the Consolidated Investment Products. We have included
the applicable expanded disclosure requirements in Item 8.
Financial Statements and Supplementary Data, Notes to
Consolidated Financial Statements, Note 7. Investments,
at Fair Value and Investments Sold, Not Yet Purchased by the
Consolidated Investment Products, at Fair Value.
Upon the IPO in 2009, we adopted the provisions of
ASC 810.10.65, Noncontrolling Interests in Consolidated
Financial Statements, for the Principals ownership in
Holdings.
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 2010 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, investor behavior, our
free cash flow and anticipated trends in our business. These
statements are only predictions based on our current
expectations and 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.
|
|
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 value of
the proprietary funds, institutional commingled funds, separate
accounts,
sub-advised
accounts and the Consolidated Investment Products we manage.
Substantially all of our revenue is derived from investment
advisory agreements with these funds and
64
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.
|
Our AuM were $53.4 billion as of December 31, 2010.
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
$5.3 billion, which would cause an annualized increase or
decrease in Total revenues and other operating income of
approximately $33.7 million at our current effective fee
rate.
We have not adopted a corporate-level risk management policy
regarding the hedging of 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.
Investments
We are subject to market risk from a decline in the price of
investments that we own to manage our investable cash and fund
future deferred compensation liabilities, as well as from a
decline in the price of investments held by the Consolidated
Investment Products. As of December 31, 2010, the
securities we own to fund future deferred compensation
liabilities consisted of Artio Global Funds. 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. Gains or losses on investments that we own to manage
future deferred compensation liabilities correlate with related
adjustments to compensation expense over the service period of
the deferred compensation. As of December 31, 2010, the
securities owned by the Consolidated Investment Products
consisted primarily of common stock, corporate bonds, term loans
and preferred stock. The fair value of these investments was
$24.6 million as of December 31, 2010. Assuming a 10%
increase or decrease in the values of these investments, the
fair value would increase or decrease by $2.5 million as of
December 31, 2010.
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 are 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 $53.4 billion as of
December 31, 2010. The U.S. dollar fair value of 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. Our exposure to foreign currencies may
change significantly on a daily basis, therefore, our average
daily foreign currency exposure may be significantly different
than at period end. A 10% increase or decrease in the value of
the U.S. dollar would decrease or increase the fair value
of the AuM by $4.1 billion, which would cause an annualized
increase or decrease in Total revenues and other operating
income of $25.8 million. As of December 31, 2010,
approximately 76% of our AuM were denominated in currencies
other than the U.S. dollar.
65
Our AuM were predominantly denominated in foreign currencies as
follows:
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2010
|
|
|
Euro
|
|
|
15
|
%
|
British pound
|
|
|
14
|
|
Hong Kong dollar
|
|
|
10
|
|
Japanese yen
|
|
|
7
|
|
Canadian dollar
|
|
|
5
|
|
Other (representing approximately 40 currencies)
|
|
|
25
|
|
|
|
|
|
|
|
|
|
76
|
%
|
|
The investments held as of December 31, 2010, were
primarily denominated in U.S. dollars. The investments held
in relation to the deferred compensation plan include Artio
Global Funds whose underlying assets are primarily non-dollar
denominated. The effect of a 10% change in exchange rates on
such securities would not have a material effect on the
financial statements.
Interest
Rate Risk
The Consolidated Investment Products and certain of the accounts
we advise or
sub-advise
own fixed income securities. Further, from time to time, we may
invest 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 interest
rates, we estimate that the value of the fixed income securities
we manage or
sub-advise
would change by approximately $370.9 million. The impact of
such changes would not be material to our revenues or net income.
In connection with borrowings under our $60 million term
credit facility, assuming a 100 basis point increase or
decrease in the LIBOR rate, the impact of such a change would
not be material to our net income.
66
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,
2010 and 2009, 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, 2010.
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, 2010 and 2009, and the results of their
operations and their cash flows for each of the years in the
three-year period ended December 31, 2010, in conformity
with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), Artio
Global Investors Inc. and subsidiaries internal control
over financial reporting as of December 31, 2010, based on
criteria established in Internal Control
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO), and our report
dated February 25, 2011 expressed an unqualified opinion on
the effectiveness of the Companys internal control over
financial reporting.
New York, New York
February 25, 2011
67
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
Artio Global Investors Inc.:
We have audited Artio Global Investors Inc. and
subsidiaries (the Company) internal control
over financial reporting as of December 31, 2010, based on
criteria established in Internal Control
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). The
Companys management is responsible for maintaining
effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over
financial reporting, included in the accompanying
Managements Report on Internal Control over Financial
Reporting. Our responsibility is to express an opinion on the
Companys internal control over financial reporting based
on our audit.
We conducted our audit 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 effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, and testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk. Our audit also included performing such other
procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our
opinion.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, Artio Global Investors Inc. and subsidiaries
maintained, in all material respects, effective internal control
over financial reporting as of December 31, 2010, based on
criteria established in Internal Control
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO).
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated statements of financial position of Artio Global
Investors Inc. and subsidiaries as of December 31, 2010 and
2009, 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, 2010, and our report
dated February 25, 2011 expressed an unqualified opinion on
those consolidated financial statements.
New York, New York
February 25, 2011
68
MANAGEMENTS
REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management of the Company is responsible for establishing and
maintaining adequate internal control over financial reporting,
as defined in the Securities Exchange Act of 1934,
Rules 13a-15(f)
and
15d-15(f).
The Companys internal control over financial reporting is
a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. Because of its
inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Also, projections of
any evaluation of effectiveness to future periods are subject to
the risk that controls may become inadequate because of changes
in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
Under the supervision and with the participation of the Chief
Executive Officer and Principal Financial and Accounting
Officer, management assessed the effectiveness of our internal
control over financial reporting as of December 31, 2010.
In making this assessment, management used the criteria set
forth by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO) in Internal Control
Integrated Framework. Based on this assessment, management
concluded that our internal control over financial reporting was
effective as of December 31, 2010.
The Companys independent auditors, KPMG LLP, have issued
an audit report on the effectiveness of our internal control
over financial reporting, which is included herein.
Richard Pell
Chairman, Chief Executive Officer and Chief Investment Officer
(Principal Executive Officer)
Francis Harte
Chief Financial Officer
(Principal Financial and Accounting Officer)
69
ARTIO
GLOBAL INVESTORS INC. AND SUBSIDIARIES
Consolidated Statements of Financial
Position
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
(in thousands, except for share amounts)
|
|
2010
|
|
|
2009
|
|
|
ASSETS
|
Cash and cash equivalents
|
|
$
|
80,043
|
|
|
$
|
60,842
|
|
Investments, at fair value:
|
|
|
|
|
|
|
|
|
Artio Global funds held for deferred compensation and other
investments
|
|
|
10,405
|
|
|
|
7,910
|
|
Investments owned by the Consolidated Investment Products
|
|
|
24,642
|
|
|
|
|
|
Fees receivable and accrued fees, net of allowance for doubtful
accounts
|
|
|
54,373
|
|
|
|
56,911
|
|
Deferred taxes
|
|
|
198,863
|
|
|
|
46,316
|
|
Income taxes receivable
|
|
|
8,586
|
|
|
|
10,983
|
|
Other assets
|
|
|
11,535
|
|
|
|
12,992
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
388,447
|
|
|
$
|
195,954
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY
|
Debt:
|
|
|
|
|
|
|
|
|
Term loan
|
|
$
|
55,500
|
|
|
$
|
60,000
|
|
Due to prime broker by the Consolidated Investment Products
|
|
|
1,959
|
|
|
|
|
|
Due to GAM Holding AG
|
|
|
|
|
|
|
40,100
|
|
Accrued compensation and benefits
|
|
|
39,256
|
|
|
|
31,478
|
|
Accounts payable and accrued expenses
|
|
|
7,761
|
|
|
|
9,093
|
|
Investments sold, not yet purchased by the Consolidated
Investment Products,
at fair value
|
|
|
1,288
|
|
|
|
|
|
Accrued income taxes payable
|
|
|
4,749
|
|
|
|
13,017
|
|
Due under tax receivable agreement
|
|
|
167,058
|
|
|
|
33,655
|
|
Other liabilities
|
|
|
4,593
|
|
|
|
4,630
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
282,164
|
|
|
|
191,973
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Notes 13, 15 and 16)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock:
|
|
|
|
|
|
|
|
|
Class A common stock (500,000,000 shares authorized,
2010 41,552,328 shares issued and outstanding;
2009 27,658,799 shares issued and outstanding )
|
|
|
42
|
|
|
|
28
|
|
Class B common stock (50,000,000 shares authorized,
2010 1,200,000 shares issued and outstanding;
2009 15,600,000 shares issued and outstanding)
|
|
|
1
|
|
|
|
15
|
|
Class C common stock (210,000,000 shares authorized,
2010 and 2009 16,755,844 shares issued and
outstanding)
|
|
|
168
|
|
|
|
168
|
|
Additional paid-in capital
|
|
|
613,065
|
|
|
|
586,956
|
|
Accumulated deficit
|
|
|
(509,629
|
)
|
|
|
(580,275
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
103,647
|
|
|
|
6,892
|
|
Non-controlling interests in Holdings
|
|
|
1,505
|
|
|
|
(2,911
|
)
|
Non-controlling interests in the Consolidated Investment Products
|
|
|
1,131
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
106,283
|
|
|
|
3,981
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
$
|
388,447
|
|
|
$
|
195,954
|
|
|
See accompanying notes to consolidated financial statements.
70
ARTIO
GLOBAL INVESTORS INC. AND SUBSIDIARIES
Consolidated Statements of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
(in thousands, except per share information)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Revenues and other operating income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment management fees
|
|
$
|
334,037
|
|
|
$
|
305,335
|
|
|
$
|
425,003
|
|
Net gains (losses) on funds held for deferred compensation
|
|
|
1,077
|
|
|
|
1,970
|
|
|
|
(2,857
|
)
|
Foreign currency gains (losses)
|
|
|
15
|
|
|
|
87
|
|
|
|
(101
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues and other operating income
|
|
|
335,129
|
|
|
|
307,392
|
|
|
|
422,045
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee compensation and benefits:
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries, incentive compensation and benefits
|
|
|
98,981
|
|
|
|
79,035
|
|
|
|
92,487
|
|
Allocation of Class B profits interests
|
|
|
|
|
|
|
33,663
|
|
|
|
76,074
|
|
Change in redemption value of Class B profits interests
|
|
|
|
|
|
|
266,110
|
|
|
|
54,557
|
|
Tax receivable agreement
|
|
|
|
|
|
|
97,909
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee compensation and benefits
|
|
|
98,981
|
|
|
|
476,717
|
|
|
|
223,118
|
|
Shareholder servicing and marketing
|
|
|
20,125
|
|
|
|
16,886
|
|
|
|
23,369
|
|
General and administrative
|
|
|
42,807
|
|
|
|
42,317
|
|
|
|
62,833
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
161,913
|
|
|
|
535,920
|
|
|
|
309,320
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) before income tax expense
|
|
|
173,216
|
|
|
|
(228,528
|
)
|
|
|
112,725
|
|
Non-operating income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments of the Consolidated Investment Products
|
|
|
279
|
|
|
|
|
|
|
|
|
|
Other investments
|
|
|
10
|
|
|
|
327
|
|
|
|
3,011
|
|
Interest expense
|
|
|
(2,601
|
)
|
|
|
(1,194
|
)
|
|
|
(63
|
)
|
Net gains (losses):
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments of the Consolidated Investment Products
|
|
|
677
|
|
|
|
|
|
|
|
|
|
Other investments
|
|
|
336
|
|
|
|
(528
|
)
|
|
|
252
|
|
Other income (loss)
|
|
|
4
|
|
|
|
|
|
|
|
(19
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-operating income (loss)
|
|
|
(1,295
|
)
|
|
|
(1,395
|
)
|
|
|
3,181
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income tax expense
|
|
|
171,921
|
|
|
|
(229,923
|
)
|
|
|
115,906
|
|
Income taxes
|
|
|
68,193
|
|
|
|
134,287
|
|
|
|
54,755
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
103,728
|
|
|
|
(364,210
|
)
|
|
|
61,151
|
|
Net income attributable to non-controlling interests in Holdings
|
|
|
20,123
|
|
|
|
14,104
|
|
|
|
|
|
Net income attributable to non-controlling interests in the
Consolidated Investment Products
|
|
|
44
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Artio Global Investors
|
|
$
|
83,561
|
|
|
$
|
(378,314
|
)
|
|
$
|
61,151
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per share information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income (loss) attributable to Artio Global Investors
|
|
$
|
1.58
|
|
|
$
|
(8.88
|
)
|
|
$
|
1.46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income (loss) attributable to Artio Global Investors
|
|
$
|
1.58
|
|
|
$
|
(8.88
|
)
|
|
$
|
1.46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares used to calculate per share information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
52,830
|
|
|
|
42,620
|
|
|
|
42,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
53,003
|
|
|
|
42,620
|
|
|
|
42,000
|
|
|
See accompanying notes to consolidated financial statements.
71
ARTIO
GLOBAL INVESTORS INC. AND SUBSIDIARIES
Consolidated Statements of Changes in
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
controlling
|
|
|
|
|
|
|
Class A
|
|
|
Class B
|
|
|
Class C
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interests
|
|
|
|
|
|
|
Common
|
|
|
Common
|
|
|
Common
|
|
|
|
|
|
Retained
|
|
|
Total
|
|
|
Non-
|
|
|
in the
|
|
|
|
|
|
|
Stock
|
|
|
Stock
|
|
|
Stock
|
|
|
Additional
|
|
|
Earnings
|
|
|
Stock-
|
|
|
controlling
|
|
|
Consolidated
|
|
|
|
|
(in thousands, except per
|
|
(par value
|
|
|
(par value
|
|
|
(par value
|
|
|
Paid-in
|
|
|
(Accumulated
|
|
|
holders
|
|
|
Interests in
|
|
|
Investment
|
|
|
Total
|
|
share information)
|
|
$0.001)
|
|
|
$0.001)
|
|
|
$0.01)
|
|
|
Capital
|
|
|
Deficit)
|
|
|
Equity
|
|
|
Holdings
|
|
|
Products
|
|
|
Equity
|
|
|
Balance as of January 1, 2008
|
|
$
|
|
|
|
$
|
|
|
|
$
|
420
|
|
|
$
|
17,930
|
|
|
$
|
70,744
|
|
|
$
|
89,094
|
|
|
|
|
|
|
|
|
|
|
$
|
89,094
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
61,151
|
|
|
|
61,151
|
|
|
|
|
|
|
|
|
|
|
|
61,151
|
|
Dividends ($2.79 per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(117,000
|
)
|
|
|
(117,000
|
)
|
|
|
|
|
|
|
|
|
|
|
(117,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
420
|
|
|
|
17,930
|
|
|
|
14,895
|
|
|
|
33,245
|
|
|
|
|
|
|
|
|
|
|
|
33,245
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(378,314
|
)
|
|
|
(378,314
|
)
|
|
$
|
14,104
|
|
|
|
|
|
|
|
(364,210
|
)
|
Reclassification of liability awards (see Note 2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
565,909
|
|
|
|
|
|
|
|
565,909
|
|
|
|
|
|
|
|
|
|
|
|
565,909
|
|
Issuance of Class B common stock (see Note 2 )
|
|
|
|
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
|
18
|
|
Net benefit from
step-up in
tax basis (see Note 13)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,762
|
|
|
|
|
|
|
|
5,762
|
|
|
|
|
|
|
|
|
|
|
|
5,762
|
|
Initial public offering
|
|
|
25
|
|
|
|
|
|
|
|
|
|
|
|
614,875
|
|
|
|
|
|
|
|
614,900
|
|
|
|
|
|
|
|
|
|
|
|
614,900
|
|
Underwriters option exercise
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
65,033
|
|
|
|
|
|
|
|
65,036
|
|
|
|
|
|
|
|
|
|
|
|
65,036
|
|
Holdings units exchanged for Class A common stock and
cancelation of Class B common stock (see Note 2)
|
|
|
3
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock repurchases
|
|
|
(3
|
)
|
|
|
|
|
|
|
(252
|
)
|
|
|
(679,681
|
)
|
|
|
|
|
|
|
(679,936
|
)
|
|
|
|
|
|
|
|
|
|
|
(679,936
|
)
|
Establishment of non-controlling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,425
|
|
|
|
|
|
|
|
10,425
|
|
|
|
(10,425
|
)
|
|
|
|
|
|
|
|
|
Distribution to GAM Holding AG, including dividends ($5.16 per
share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(17,950
|
)
|
|
|
(216,856
|
)
|
|
|
(234,806
|
)
|
|
|
|
|
|
|
|
|
|
|
(234,806
|
)
|
Share-based payments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Directors awards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
360
|
|
|
|
|
|
|
|
360
|
|
|
|
|
|
|
|
|
|
|
|
360
|
|
Amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,319
|
|
|
|
|
|
|
|
4,319
|
|
|
|
|
|
|
|
|
|
|
|
4,319
|
|
Forfeitures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(26
|
)
|
|
|
|
|
|
|
(26
|
)
|
|
|
|
|
|
|
|
|
|
|
(26
|
)
|
Distribution to non-controlling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,590
|
)
|
|
|
|
|
|
|
(6,590
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2009
|
|
|
28
|
|
|
|
15
|
|
|
|
168
|
|
|
|
586,956
|
|
|
|
(580,275
|
)
|
|
|
6,892
|
|
|
|
(2,911
|
)
|
|
|
|
|
|
|
3,981
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
83,561
|
|
|
|
83,561
|
|
|
|
20,123
|
|
|
$
|
44
|
|
|
|
103,728
|
|
Holdings units exchanged for Class A common stock and
cancelation of Class B common stock (see Note 2)
|
|
|
14
|
|
|
|
(14
|
)
|
|
|
|
|
|
|
3,253
|
|
|
|
|
|
|
|
3,253
|
|
|
|
(3,253
|
)
|
|
|
|
|
|
|
|
|
Net benefit from
step-up in
tax basis (see Note 13)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,176
|
|
|
|
|
|
|
|
24,176
|
|
|
|
|
|
|
|
|
|
|
|
24,176
|
|
Shares issued to the public (see Note 2)
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
69,286
|
|
|
|
|
|
|
|
69,290
|
|
|
|
|
|
|
|
|
|
|
|
69,290
|
|
Stock repurchases (see Note 2)
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
(83,931
|
)
|
|
|
|
|
|
|
(83,935
|
)
|
|
|
|
|
|
|
|
|
|
|
(83,935
|
)
|
Share-based payments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Directors awards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
180
|
|
|
|
|
|
|
|
180
|
|
|
|
|
|
|
|
|
|
|
|
180
|
|
Amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,811
|
|
|
|
|
|
|
|
12,811
|
|
|
|
|
|
|
|
|
|
|
|
12,811
|
|
Forfeiture
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(185
|
)
|
|
|
|
|
|
|
(185
|
)
|
|
|
|
|
|
|
|
|
|
|
(185
|
)
|
RSU dividend equivalents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
523
|
|
|
|
(523
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited dividend equivalents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4
|
)
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital contributions from non-controlling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,087
|
|
|
|
1,087
|
|
Distribution to non-controlling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12,454
|
)
|
|
|
|
|
|
|
(12,454
|
)
|
Cash dividends paid ($0.24 per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12,396
|
)
|
|
|
(12,396
|
)
|
|
|
|
|
|
|
|
|
|
|
(12,396
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2010
|
|
$
|
42
|
|
|
$
|
1
|
|
|
$
|
168
|
|
|
$
|
613,065
|
|
|
$
|
(509,629
|
)
|
|
$
|
103,647
|
|
|
$
|
1,505
|
|
|
$
|
1,131
|
|
|
$
|
106,283
|
|
|
See accompanying notes to consolidated financial statements.
72
ARTIO
GLOBAL INVESTORS INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
(in thousands)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
103,728
|
|
|
$
|
(364,210
|
)
|
|
$
|
61,151
|
|
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
2,918
|
|
|
|
3,029
|
|
|
|
2,904
|
|
Deferred compensation
|
|
|
4,258
|
|
|
|
269,904
|
|
|
|
57,001
|
|
Share-based compensation
|
|
|
12,806
|
|
|
|
4,653
|
|
|
|
|
|
Deferred income taxes
|
|
|
5,380
|
|
|
|
85,803
|
|
|
|
(21,520
|
)
|
Interest accrued on investments and accretion and amortization
of premium and discount
|
|
|
(49
|
)
|
|
|
269
|
|
|
|
(60
|
)
|
(Gains)/losses on investments
|
|
|
(2,090
|
)
|
|
|
(1,442
|
)
|
|
|
2,605
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of investments owned by the Consolidated Investment
Products
|
|
|
(29,438
|
)
|
|
|
|
|
|
|
|
|
Proceeds from sales or maturities of investments owned by the
Consolidated Investment Products
|
|
|
6,809
|
|
|
|
|
|
|
|
|
|
Due to prime broker by the Consolidated Investment Products
|
|
|
1,959
|
|
|
|
|
|
|
|
|
|
Fees receivable and accrued fees, net of allowance for doubtful
accounts
|
|
|
2,538
|
|
|
|
(2,112
|
)
|
|
|
32,578
|
|
Due to/from GAM Holding AG
|
|
|
|
|
|
|
(1,307
|
)
|
|
|
5,288
|
|
Income taxes receivable
|
|
|
2,397
|
|
|
|
(9,699
|
)
|
|
|
(1,284
|
)
|
Other assets
|
|
|
(65
|
)
|
|
|
(2,397
|
)
|
|
|
(407
|
)
|
Accrued compensation and benefits
|
|
|
3,520
|
|
|
|
58,558
|
|
|
|
(33,322
|
)
|
Accounts payable and accrued expenses
|
|
|
(1,347
|
)
|
|
|
(366
|
)
|
|
|
(4,750
|
)
|
Accrued income taxes payable
|
|
|
(8,268
|
)
|
|
|
11,778
|
|
|
|
(2,551
|
)
|
Due under tax receivable agreement
|
|
|
(348
|
)
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
|
(37
|
)
|
|
|
(754
|
)
|
|
|
2,476
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
104,671
|
|
|
|
51,707
|
|
|
|
100,109
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of Artio Global funds held for deferred compensation
and other investments
|
|
|
(5,519
|
)
|
|
|
(2,529
|
)
|
|
|
(120,807
|
)
|
Proceeds from sales or maturities of Artio Global funds held for
deferred compensation and other investments
|
|
|
4,438
|
|
|
|
67,122
|
|
|
|
94,400
|
|
Purchase of fixed assets
|
|
|
(1,396
|
)
|
|
|
(831
|
)
|
|
|
(3,485
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
(2,477
|
)
|
|
|
63,762
|
|
|
|
(29,892
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from borrowing under term credit facility
|
|
|
|
|
|
|
60,000
|
|
|
|
|
|
Repayments of borrowing under term credit facility
|
|
|
(4,500
|
)
|
|
|
|
|
|
|
|
|
Distribution paid to GAM Holding AG
|
|
|
(40,100
|
)
|
|
|
|
|
|
|
|
|
Proceeds from secondary offering
|
|
|
69,290
|
|
|
|
|
|
|
|
|
|
Proceeds from initial public offering
|
|
|
|
|
|
|
614,900
|
|
|
|
|
|
Proceeds from underwriters option exercise
|
|
|
|
|
|
|
65,036
|
|
|
|
|
|
Repurchase and retirement of Class A common stock
|
|
|
(83,935
|
)
|
|
|
(59,030
|
)
|
|
|
|
|
Repurchase and retirement of Class C common stock
|
|
|
|
|
|
|
(620,905
|
)
|
|
|
|
|
Issuance of Class B common stock
|
|
|
|
|
|
|
18
|
|
|
|
|
|
Distributions paid to non-controlling interests in Holdings
|
|
|
(12,454
|
)
|
|
|
(6,590
|
)
|
|
|
|
|
Contributions from non-controlling interests in the Consolidated
Investment Products
|
|
|
1,087
|
|
|
|
|
|
|
|
|
|
Cash dividends paid
|
|
|
(12,396
|
)
|
|
|
(194,706
|
)
|
|
|
(117,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(83,008
|
)
|
|
|
(141,277
|
)
|
|
|
(117,000
|
)
|
|
See accompanying notes to consolidated financial statements.
73
ARTIO
GLOBAL INVESTORS INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
(in thousands)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Effect of exchange rates on cash
|
|
|
15
|
|
|
|
87
|
|
|
|
(101
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
19,201
|
|
|
|
(25,721
|
)
|
|
|
(46,884
|
)
|
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of period
|
|
|
60,842
|
|
|
|
86,563
|
|
|
|
133,447
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of period
|
|
$
|
80,043
|
|
|
$
|
60,842
|
|
|
$
|
86,563
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during period for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes, net of refunds
|
|
$
|
69,023
|
|
|
$
|
47,248
|
|
|
$
|
80,110
|
|
Interest expense
|
|
|
2,027
|
|
|
|
|
|
|
|
|
|
Supplementary information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash transactions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred taxes from
step-up in
tax basis
|
|
$
|
161,173
|
|
|
$
|
39,417
|
|
|
$
|
|
|
Due under tax receivable agreement
|
|
|
(136,997
|
)
|
|
|
(33,655
|
)
|
|
|
|
|
Net benefit from
step-up in
tax basis
|
|
|
(24,176
|
)
|
|
|
(5,762
|
)
|
|
|
|
|
Exchange of New Class A Units for Shares of Class A
common stock
|
|
|
(3,267
|
)
|
|
|
|
|
|
|
|
|
Cancelation of Class B common stock
|
|
|
14
|
|
|
|
3
|
|
|
|
|
|
Dividend equivalents
|
|
|
(74
|
)
|
|
|
|
|
|
|
|
|
Declared distribution to GAM Holding AG
|
|
|
|
|
|
|
40,100
|
|
|
|
|
|
Reclassification of liability awards
|
|
|
|
|
|
|
565,909
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
74
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 four 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, Artio Global Institutional Services LLC (formerly known
as Artio Capital Management LLC) and Artio Alpha Investment
Funds, LLC (Alpha, the consolidated investment
vehicle that includes the Artio Global Credit Opportunities
Fund). We refer to our consolidated investment vehicles as the
Consolidated Investment Products. As of
December 31, 2010, Holdings was approximately 98% owned by
Investors, 1% owned by Richard Pell, our Chairman, Chief
Executive Officer and Chief Investment Officer
(Pell), and 1% owned by Rudolph-Riad Younes, our
Head of International Equity (Younes, together with
Pell, the Principals). (See Note 2. Initial
Public Offering, Changes in Principals Interests and
Exchange of New Class A Units: Exchange of New
Class A Units.) The Principals interests are
reflected in the consolidated financial statements as
non-controlling interests. Investment Adviser and Artio Global
Institutional Services LLC are wholly owned subsidiaries of
Holdings. As of December 31, 2010, Alpha was 95% owned by
Holdings as a result of a seed money investment and the
remaining 5% was owned by employees.
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;
sub-advisory
accounts; and the Consolidated Investment Products. A
substantial portion of our assets under management
(AuM) are invested outside of the U.S. Our
clients are primarily
U.S.-based.
Note 2. Initial
Public Offering, Changes in the Principals Interests and
Exchange of New Class A Units
Initial
Public Offering and Changes in the Principals
Interests
Prior to September 29, 2009, Investors was a wholly owned
subsidiary of GAM Holding AG (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. We used all of the net proceeds 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 all
of 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 28% 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 and Unfunded Deferred
Compensation Plan: Class B Profits Interests),
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 member 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 13. Income Taxes: 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.
In addition, we recorded a compensation charge of
$97.9 million relating to the estimated present value of
the tax receivable agreement (see Note 13. Income
Taxes: Tax Receivable Agreement).
75
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 was de-recognized and
charged to expense. The Principals New Class A Units,
which then represented approximately 26% of Holdings, were
accounted for as non-controlling interests.
Concurrent with the IPO, we entered into an exchange agreement
with the Principals, which granted each Principal and certain
permitted transferees the right to exchange New Class A
Units for shares of Investors Class A common stock,
on a
one-for-one
basis, subject to certain restrictions.
Any exchange of New Class A Units is generally a taxable
event for the exchanging Principal. As a result, under the
exchange agreement, as amended, (the exchange
agreement) each Principal is permitted to sell shares of
Class A common stock in connection with any exchange up to
an amount necessary to generate proceeds (after deducting
discounts and commissions) sufficient to cover taxes payable, as
defined in the exchange agreement, on such exchange.
Exchange
of New Class A Units
In 2010, each Principal exchanged 7.2 million New
Class A Units for 7.2 million restricted shares of
Class A common stock in accordance with the terms of the
exchange agreement. At the time of each exchange, an equivalent
number of shares of Class B common stock were surrendered
by the Principals and canceled.
To enable the Principals to sell shares of Class A common
stock to cover their taxes payable, as defined in the exchange
agreement, on the exchanges discussed above, in 2010, we
completed a synthetic secondary offering (the secondary
offering) of approximately 3.8 million shares of
Class A common stock at $17.33 per share, before the
underwriting discount, for net proceeds of $62.1 million.
We used all of the net proceeds to purchase at the same price
and retire approximately 1.9 million shares of Class A
common stock from each Principal. Also in 2010, the underwriters
exercised a portion of their option to purchase additional
shares of Class A common stock at the secondary offering
price, net of the underwriting discount, resulting in the
issuance of approximately 0.4 million shares of
Class A common stock. We used all of the net proceeds to
repurchase at the same price and retire approximately
0.2 million shares of Class A common stock from each
of the Principals.
After the exchanges in 2010, each Principal continues to own
600,000 shares of Class B common stock and 600,000 New
Class A Units, representing approximately 1% of the
outstanding New Class A Units of Holdings. The
Principals ownership of New Class A Units are
accounted for as non-controlling interests.
The table below sets forth the effect of the change in our
ownership of Holdings as of December 31, 2010, after the
exchange by the Principals of New Class A Units for shares
of Class A common stock.
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
Net income attributable to Artio Global Investors for the year
ended December 31, 2010
|
|
$
|
83,561
|
|
Increase in Additional paid-in capital due to exchange by
the Principals of New Class A Units for shares of
Class A common stock
|
|
|
3,253
|
|
|
|
|
|
|
As of December 31, 2010
|
|
$
|
86,814
|
|
|
As a result of the exchanges of New Class A Units, we
increased the tax basis of Holdings assets. This resulted
in a $161.2 million increase in deferred tax assets. (See
Note 13. Income Taxes: Tax Receivable
Agreement.)
76
ARTIO
GLOBAL INVESTORS INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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.
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, 2010, 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.
Investment vehicles through which we provide investment
management services are evaluated for consolidation. From time
to time, we may make investments in the investment vehicles we
manage, primarily as seed money. We also evaluate these
investment vehicles for consolidation. These investment vehicles
are consolidated if (i) they are variable interest entities
(VIEs), and we are the primary beneficiary, or
(ii) they are voting interest entities, and we have a
controlling interest. The net gains and losses of these
investment vehicles are included in Net income in the
Consolidated Statement of Operations. The assessment for
consolidation occurs at the inception date of the investment
vehicle. The conclusion is reassessed only when certain events
take place.
Holdings has a controlling financial interest in the
Consolidated Investment Products, which are therefore included
in our consolidated financial statements. The assets and
liabilities of the Consolidated Investment Products are included
in their respective accounts in our Consolidated Statement of
Financial Position, and the investment income is included in
Non-operating income (loss) in our Consolidated Statement
of Operations.
As of December 31, 2010 and 2009, we did not consolidate
any of the other investment vehicles, due primarily to the
following reasons:
|
|
|
Artio Global Funds (the Funds) are considered voting
interest entities and 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.
77
ARTIO
GLOBAL INVESTORS INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Investments,
at Fair Value
Investments are carried at fair value. We elected the fair value
option for investments made to achieve certain stated investment
objectives.
Investments, at fair value, includes the Consolidated
Investment Products investments in securities, loans and
other investments. Such investments are carried at fair value.
Gains or losses on such investments, together with related
interest income, accretion and amortization, are reported in
Non-operating income on the Consolidated Statements of
Operations. The investments owned by the Consolidated Investment
Products, for which market quotations are readily available, are
valued at fair value on the basis of quotations furnished by a
pricing service or provided by securities dealers. Equity
securities are generally valued using the last sale price or
official closing price taken from the primary market in which
each security trades, or if no sales occurred during the day, at
the mean of the current quoted bid and asked prices. Fixed
income investments are generally valued using prices provided
directly by independent third party services or provided
directly from one or more broker dealers or market makers. The
pricing services and broker dealers or market makers may use
valuation models or matrix pricing, which considers yield or
price with respect to comparable bonds, quotations from bond
dealers or by reference to other securities that are considered
comparable in such characteristics as rating, interest rate and
maturity date, to determine current value. Inputs other than
quoted prices that are observable for the assets or liabilities,
include such factors as interest rates, yield curves,
volatilities, prepayment speeds, loss severities, credit risks
and default rates, or other market corroborated inputs (i.e.
debt securities, government securities, swap contracts, foreign
currency exchange contracts, foreign securities utilizing
international fair value). Derivative products are generally
valued using prices provided directly by independent third party
services or one or more broker dealers or market makers. Assets
and liabilities initially expressed in foreign currency values
are converted into U.S. dollar values. Investments in net
asset value-based investment vehicles are valued at the net
asset value of the underlying fund.
Excess cash may be invested for current yield, not for capital
gains. Gains and losses on such investments, 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 (see Note 3. Summary of Significant Accounting
Principles: Compensation Plans), which are valued at
their net asset values. Over the vesting period, 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 funds held for deferred
compensation on the Consolidated Statements of Operations.
We carry our investment portfolios 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). Unobservable inputs are inputs that
reflect our own assumptions about the assumptions participants
would use in pricing the asset or liability, developed based on
the best information available in the circumstances.
Fees
Receivable and Accrued Fees, Net of Allowance for Doubtful
Accounts
Fees receivable and accrued fees, net of allowance for
doubtful accounts represent fees earned that have been, or
will be, billed to our clients. We review receivables and
provide an allowance for doubtful accounts when appropriate.
78
ARTIO
GLOBAL INVESTORS INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Due Under
Tax Receivable Agreement
Certain tax benefits are shared with the Principals (see
Note 13. Income Taxes: 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 the 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 the Consolidated Statement of Financial Position. If we
adjust the deferred tax asset, as noted above, 15% of the
adjustment is recorded in Income taxes on the
Consolidated Statement of Operations.
|
Investment
Management Fees
Investment management fees are recognized as
earned. Fees on the Funds are computed and billed
monthly as a percentage of average daily fair value of the
Funds AuM. 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 and an insignificant amount of assets provide for
performance fees. Performance fees, if earned, are recognized on
the contractually determined measurement date. Performance fee
clawback provisions, if any, are recognized 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
Certain of our employees participate in the Artio Global
Investors Inc. 2009 Stock Incentive Plan (see Note 12.
Share-Based Payments). The cost of the Artio Global
Investors Inc. 2009 Stock Incentive Plan is accrued over the
vesting period of the awards on a straight-line basis.
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). Some deferred bonuses are funded at
the time of deferral through the purchase of shares of the Artio
Global Funds. Such investment assets are included in
Investments, at fair value. Realized and unrealized gains
and losses related to these assets are recognized in Net
gains (losses) on funds held for deferred compensation.
Employees who participate in the deferred compensation plan 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 Class B profits
interests 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 10. Class B Profits Interests and Unfunded
Deferred Compensation Plan: Class B Profits
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.
79
ARTIO
GLOBAL INVESTORS INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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
the reporting date in order to determine the appropriate tax
benefit to recognize including tax legislation and statutes,
legislative intent, regulations, rulings and case law.
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 expense relating to unrecognized tax benefits, as well
as actual tax liabilities, is included in Interest expense
on the Consolidated Statement of Operations. Penalties
relating to unrecognized tax benefits and actual tax liabilities
are included in General and administrative on the
Consolidated Statement of Operations.
Contingencies
Investors accrues for estimated costs, including, if applicable,
legal costs, when it is probable that a loss has been incurred
and the costs can be reasonably estimated. The status of
contingencies is reviewed at least quarterly and accruals, if
any, are adjusted to reflect the impact of current developments.
Differences could exist between the actual outcome of a
contingency and managements estimate.
80
ARTIO
GLOBAL INVESTORS INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 4. Stockholders
Equity
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.
|
|
81
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 and 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A
|
|
|
Class B
|
|
|
Class C
|
|
(in thousands)
|
|
Common Stock
|
|
|
Common Stock
|
|
|
Common Stock
|
|
|
As of January 1, 2009
|
|
|
|
|
|
|
|
|
|
|
42,000
|
|
Activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued to the
Principals(a)
|
|
|
|
|
|
|
18,000
|
|
|
|
|
|
Shares issued to the
public(b)
|
|
|
27,644
|
|
|
|
|
|
|
|
|
|
Shares issued to the independent
directors(c)
|
|
|
15
|
|
|
|
|
|
|
|
|
|
Exchange by the
Principals(d)
|
|
|
2,400
|
|
|
|
(2,400
|
)
|
|
|
|
|
Repurchase from the
Principals(d)
|
|
|
(2,400
|
)
|
|
|
|
|
|
|
|
|
Repurchase from
GAM(g)
|
|
|
|
|
|
|
|
|
|
|
(25,244
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
2009(i)
|
|
|
27,659
|
|
|
|
15,600
|
|
|
|
16,756
|
|
Activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchange by the
Principals(e)
|
|
|
14,400
|
|
|
|
(14,400
|
)
|
|
|
|
|
Shares issued to the
public(b)
|
|
|
4,209
|
|
|
|
|
|
|
|
|
|
Repurchase from the
Principals(f)
|
|
|
(4,209
|
)
|
|
|
|
|
|
|
|
|
Share repurchase
program(h)
|
|
|
(1,000
|
)
|
|
|
|
|
|
|
|
|
Shares issued pursuant to vesting of
RSUs(i)
|
|
|
485
|
|
|
|
|
|
|
|
|
|
Shares issued to the independent
directors(c)
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
2010(i)
|
|
|
41,552
|
|
|
|
1,200
|
|
|
|
16,756
|
|
|
|
|
|
(a)
|
|
Represents the effect of
9.0 million shares of non-participating Class B common
stock issued to each of the Principals (see Note 2.
Initial Public Offering, Changes in the Principals
Interests and Exchange of New Class A Units) in 2009.
|
|
(b)
|
|
Represents the 27.6 million
shares of Class A common stock that were issued to the
public in connection with the IPO, including 2.6 million
shares issued to the underwriters in connection with exercising
their option to purchase shares of Class A common stock in
2009, and the 4.2 million shares of Class A common
stock that were issued to the public in connection with the
secondary offering in 2010, including 0.4 million shares
issued to the underwriters in connection with exercising a
portion of their option to purchase additional 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 2009, and the
8,376 shares of fully-vested Class A common stock
(subject to transfer restrictions) that were awarded to our
independent directors in 2010.
|
|
(d)
|
|
Represents 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)
|
|
Represents the issuance of
7.2 million shares of Class A common stock to each of
the Principals upon exchange of an equivalent number of New
Class A Units in 2010. Upon the exchange of New
Class A Units for Class A common stock, corresponding
shares of Class B common stock were canceled.
|
|
(f)
|
|
Represents the effect of the
retirement of Class A common stock repurchased by us from
the Principals with the net proceeds of the secondary offering
and the shares issued pursuant to the underwriters exercising a
portion of their option to purchase additional shares of
Class A common stock in 2010.
|
|
(g)
|
|
Represents 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 in 2009.
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|
(h)
|
|
In July 2010, our Board of
Directors authorized a share repurchase program of up to
1.0 million shares of our common stock. As of
December 31, 2010, we have purchased and retired
1.0 million shares of our common stock for approximately
$14.6 million under this share repurchase program.
|
|
(i)
|
|
The table does not reflect
2.1 million in 2009 and 1.9 million in 2010 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.
|
82
ARTIO
GLOBAL INVESTORS INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
In December 2010, our Board of Directors authorized a share
repurchase program of up to 3.0 million shares of our
common stock, which will expire on December 31, 2013. As of
December 31, 2010, we have made no share repurchases under
this program.
|
|
Note 5.
|
Consolidated
Investment Products
|
A condensed consolidating statement of financial position as of
December 31, 2010, including balances attributable to the
Consolidated Investment Products, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Artio Global
|
|
|
|
Before
|
|
|
Consolidated
|
|
|
|
|
|
Investors Inc. and
|
|
|
|
Consolidation
|
|
|
Investment
|
|
|
|
|
|
Subsidiaries
|
|
(in thousands)
|
|
(a)
|
|
|
Products
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
79,232
|
|
|
$
|
811
|
|
|
$
|
|
|
|
$
|
80,043
|
|
Investments, at fair value
|
|
|
10,405
|
|
|
|
24,642
|
|
|
|
|
|
|
|
35,047
|
|
Investment in the Consolidated Investment Products
|
|
|
19,912
|
|
|
|
|
|
|
|
(19,912
|
)
|
|
|
|
|
Other assets
|
|
|
273,107
|
|
|
|
250
|
|
|
|
|
|
|
|
273,357
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
382,656
|
|
|
$
|
25,703
|
|
|
$
|
(19,912
|
)
|
|
$
|
388,447
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt
|
|
$
|
55,500
|
|
|
$
|
1,959
|
|
|
$
|
|
|
|
$
|
57,459
|
|
Investments sold, not yet purchased by the Consolidated
Investment Products, at fair value
|
|
|
|
|
|
|
1,288
|
|
|
|
|
|
|
|
1,288
|
|
Other liabilities
|
|
|
222,004
|
|
|
|
1,413
|
|
|
|
|
|
|
|
223,417
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
277,504
|
|
|
|
4,660
|
|
|
|
|
|
|
|
282,164
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Members equity of the Consolidated Investment Products
|
|
|
|
|
|
|
21,043
|
|
|
|
(21,043
|
)
|
|
|
|
|
Common stock
|
|
|
211
|
|
|
|
|
|
|
|
|
|
|
|
211
|
|
Additional paid-in capital
|
|
|
613,065
|
|
|
|
|
|
|
|
|
|
|
|
613,065
|
|
Retained earnings (deficit)
|
|
|
(509,629
|
)
|
|
|
|
|
|
|
|
|
|
|
(509,629
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
103,647
|
|
|
|
21,043
|
|
|
|
(21,043
|
)
|
|
|
103,647
|
|
Non-controlling interests
|
|
|
1,505
|
|
|
|
|
|
|
|
1,131
|
|
|
|
2,636
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
105,152
|
|
|
|
21,043
|
|
|
|
(19,912
|
)
|
|
|
106,283
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
$
|
382,656
|
|
|
$
|
25,703
|
|
|
$
|
(19,912
|
)
|
|
$
|
388,447
|
|
|
|
|
|
(a)
|
|
Represents Artio Global Investors
Inc. and Subsidiaries with the investment in the Consolidated
Investment Products accounted for under the equity method.
|
We did not have balances attributable to the Consolidated
Investment Products as of December 31, 2009.
83
ARTIO
GLOBAL INVESTORS INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
A condensed consolidating statement of operations for 2010,
including amounts attributable to the Consolidated Investment
Products, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Artio Global
|
|
|
|
Before
|
|
|
Consolidated
|
|
|
|
|
|
Investors Inc.
|
|
|
|
Consolidation
|
|
|
Investment
|
|
|
|
|
|
and Subsidiaries
|
|
(in thousands)
|
|
(a)
|
|
|
Products
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Total revenues and other operating income
|
|
$
|
335,129
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
335,129
|
|
Total expenses
|
|
|
161,913
|
|
|
|
|
|
|
|
|
|
|
|
161,913
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income before income tax expense
|
|
|
173,216
|
|
|
|
|
|
|
|
|
|
|
|
173,216
|
|
Non-operating income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in earnings of the Consolidated Investment Products
|
|
|
912
|
|
|
|
|
|
|
|
(912
|
)
|
|
|
|
|
Interest income
|
|
|
10
|
|
|
|
279
|
|
|
|
|
|
|
|
289
|
|
Interest expense
|
|
|
(2,601
|
)
|
|
|
|
|
|
|
|
|
|
|
(2,601
|
)
|
Net gains on investments
|
|
|
336
|
|
|
|
677
|
|
|
|
|
|
|
|
1,013
|
|
Other income
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non operating income (loss)
|
|
|
(1,339
|
)
|
|
|
956
|
|
|
|
(912
|
)
|
|
|
(1,295
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense
|
|
|
171,877
|
|
|
|
956
|
|
|
|
(912
|
)
|
|
|
171,921
|
|
Income taxes
|
|
|
68,193
|
|
|
|
|
|
|
|
|
|
|
|
68,193
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
103,684
|
|
|
|
956
|
|
|
|
(912
|
)
|
|
|
103,728
|
|
Net income attributable to non-controlling interests
|
|
|
20,123
|
|
|
|
|
|
|
|
44
|
|
|
|
20,167
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income, excluding non-controlling interests
|
|
$
|
83,561
|
|
|
$
|
956
|
|
|
$
|
(956
|
)
|
|
$
|
83,561
|
|
|
|
|
|
(a)
|
|
Represents Artio Global Investors
Inc. and Subsidiaries with the investment in the Consolidated
Investment Products accounted for under the equity method.
|
We did not have amounts attributable to the Consolidated
Investment Products for 2009 and 2008.
Note 6. Related
Party Activities
Prior to the IPO, we engaged in transactions with GAM and other
affiliates, as well as our mutual funds, in the ordinary course
of business. Currently, we continue to engage in transactions
with our mutual funds and with affiliates of GAM.
Affiliate
Transactions Mutual and Offshore Funds
We earn management fees from the Funds, as Investment Adviser
provides investment management services to the Funds pursuant to
investment management agreements with the Funds and makes
investment decisions for the Funds, which are subject to review
and approval by their boards. 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
(in thousands)
|
|
2010
|
|
2009
|
|
2008
|
|
Funds investment management fees
|
|
$
|
189,057
|
|
|
$
|
173,336
|
|
|
$
|
253,926
|
|
Sub-advisory
investment management fees on GAM-sponsored funds
|
|
|
2,665
|
|
|
|
1,925
|
|
|
|
2,376
|
|
|
84
ARTIO
GLOBAL INVESTORS INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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)
|
|
2010
|
|
2009
|
|
Funds investment management fees
|
|
$
|
15,850
|
|
|
$
|
17,190
|
|
Advisory and
sub-advisory
investment management fees on GAM-sponsored funds
|
|
|
802
|
|
|
|
615
|
|
|
Other
Related Party Transactions
In 2010, we made a $40.1 million payment to GAM, a capital
distribution declared prior to the IPO. There is no remaining
balance related to such capital distributions.
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 and $6.4 million for 2008. This
arrangement was terminated in September of 2009.
Investors manages, at no cost to the plans, the assets of the
Qualified and Non-Qualified Plans (as defined in
Note 11. Benefit Plans and Deferred Compensation).
In 2010, we completed the secondary offering, the net proceeds
of which were used to purchase and retire shares of Class A
common stock from each Principal. In 2009, we completed the IPO,
the net proceeds of which were used to purchase and retire
shares of Class A common stock from each Principal and
shares of Class C common stock from GAM. (See
Note 2. Initial Public Offering, Changes in the
Principals Interests and Exchange of New Class A
Units: Exchange of New Class A Units.)
In 2009, we entered into a tax receivable agreement with the
Principals. (See Note 13. Income Taxes: Tax
Receivable Agreement.)
Note 7. Investments,
at Fair Value and Investments Sold, Not Yet Purchased by the
Consolidated Investment Products, at Fair Value
Investments as of December 31, 2010 and 2009, consist of
the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
(in thousands)
|
|
2010
|
|
|
2009
|
|
|
Artio Global funds held for deferred compensation and other
investments:
|
|
|
|
|
|
|
|
|
Artio Global funds
|
|
$
|
9,069
|
|
|
$
|
7,892
|
|
Equity securities
|
|
|
1,317
|
|
|
|
|
|
Other investments
|
|
|
19
|
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
Total Artio Global funds held for deferred compensation and
other investments
|
|
$
|
10,405
|
|
|
$
|
7,910
|
|
|
|
|
|
|
|
|
|
|
Investments owned by the Consolidated Investment Products:
|
|
|
|
|
|
|
|
|
Equity securities
|
|
$
|
3,142
|
|
|
|
|
|
Fixed income investments:
|
|
|
|
|
|
|
|
|
Corporate bonds
|
|
|
17,075
|
|
|
|
|
|
Term loans
|
|
|
4,425
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments owned by the Consolidated Investment Products
|
|
$
|
24,642
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments sold, not yet purchased by the Consolidated
Investment Products
|
|
|
|
|
|
|
|
|
Equity
|
|
$
|
(62
|
)
|
|
|
|
|
Corporate bonds
|
|
|
(1,226
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments sold, not yet purchased by the Consolidated
Investments Products
|
|
$
|
(1,288
|
)
|
|
|
|
|
|
85
ARTIO
GLOBAL INVESTORS INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
We did not have investments owned by, or sold, not yet purchased
by, the Consolidated Investment Products as of December 31,
2009.
Net gains (losses) for the years ended December 31, 2010,
2009 and 2008 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
(in thousands)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Net gains (losses) in the year on Artio Global funds held for
deferred compensation
|
|
$
|
1,077
|
|
|
$
|
1,970
|
|
|
$
|
(2,857
|
)
|
Less: Net gains (losses) in the year on Artio Global funds held
for deferred compensation sold during the year
|
|
|
122
|
|
|
|
(157
|
)
|
|
|
(173
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains (losses) in the year on Artio Global funds held
for deferred compensation as of December 31,
|
|
$
|
955
|
|
|
$
|
2,127
|
|
|
$
|
(2,684
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gains in the year on investments of the Consolidated
Investment Products
|
|
$
|
677
|
|
|
|
|
|
|
|
|
|
Less: Net gains in the year on investments of the Consolidated
Investment Products sold during the year
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains in the year on investments of the Consolidated
Investment Products held as of December 31,
|
|
$
|
637
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gains (losses) in the year on other investments
|
|
$
|
336
|
|
|
$
|
(528
|
)
|
|
$
|
252
|
|
Less: Net gains (losses) in the year on other investments sold
during the year
|
|
|
104
|
|
|
|
7
|
|
|
|
(291
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains (losses) in the year on other investments held
as of December 31,
|
|
$
|
232
|
|
|
$
|
(535
|
)
|
|
$
|
543
|
|
|
The Consolidated Investment Products investment income,
including income from derivative contracts, is recorded in
Non-operating income (loss): Net gains (losses):
Investments of the Consolidated Investment Products on
the Consolidated Statement of Operations and is derived from the
following investment categories:
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
(in thousands)
|
|
2010
|
|
|
Equity securities
|
|
$
|
310
|
|
Fixed income investments:
|
|
|
|
|
Corporate bonds
|
|
|
478
|
|
Term loans
|
|
|
47
|
|
Credit default swaps
|
|
|
(152
|
)
|
Foreign currency
|
|
|
(6
|
)
|
|
|
|
|
|
Total
|
|
$
|
677
|
|
|
86
ARTIO
GLOBAL INVESTORS INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Our investments as of December 31, 2010 and 2009, are
valued using prices as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 2
|
|
|
Level 3
|
|
|
|
|
|
|
Level 1
|
|
|
Other Observable
|
|
|
Significant
|
|
(in thousands)
|
|
Total
|
|
|
Quoted Prices
|
|
|
Inputs
|
|
|
Unobservable Inputs
|
|
|
As of December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Artio Global funds held for deferred compensation and other
investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Artio Global funds
|
|
$
|
9,069
|
|
|
$
|
9,069
|
|
|
$
|
|
|
|
$
|
|
|
Equity securities
|
|
|
1,317
|
|
|
|
1,317
|
|
|
|
|
|
|
|
|
|
Other investments
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Artio Global funds held for deferred compensation and
other investments
|
|
$
|
10,405
|
|
|
$
|
10,386
|
|
|
$
|
|
|
|
$
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments owned by the Consolidated Investment Products:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities
|
|
$
|
3,142
|
|
|
$
|
2,367
|
|
|
$
|
629
|
|
|
$
|
146
|
|
Fixed income investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds
|
|
|
17,075
|
|
|
|
|
|
|
|
17,075
|
|
|
|
|
|
Term loans
|
|
|
4,425
|
|
|
|
|
|
|
|
3,470
|
|
|
|
955
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments owned by the Consolidated Investment Products
|
|
$
|
24,642
|
|
|
$
|
2,367
|
|
|
$
|
21,174
|
|
|
$
|
1,101
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments sold, not yet purchased by the Consolidated
Investment Products:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities
|
|
$
|
(62
|
)
|
|
$
|
(62
|
)
|
|
$
|
|
|
|
$
|
|
|
Fixed income investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds
|
|
|
(1,226
|
)
|
|
|
|
|
|
|
(1,226
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments sold, not yet purchased by the Consolidated
Investment Products
|
|
$
|
(1,288
|
)
|
|
$
|
(62
|
)
|
|
$
|
(1,226
|
)
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Artio Global funds held for deferred compensation and other
investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Artio Global funds
|
|
$
|
7,892
|
|
|
$
|
7,892
|
|
|
$
|
|
|
|
$
|
|
|
Other investments
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Artio Global funds held for deferred compensation and
other investments
|
|
$
|
7,910
|
|
|
$
|
7,892
|
|
|
$
|
|
|
|
$
|
18
|
|
|
Derivative contracts, which are included in Other assets
and Other liabilities on the Consolidated Statement
of Financial Position, are valued using Level 2 inputs.
There were no transfers between Level 1 and Level 2
securities.
87
ARTIO
GLOBAL INVESTORS INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The change in Level 3 securities is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
(in thousands)
|
|
2010
|
|
|
2009
|
|
|
Artio Global funds held for deferred compensation and other
investments:
|
|
|
|
|
|
|
|
|
Beginning of year
|
|
$
|
18
|
|
|
$
|
15
|
|
Unrealized gains
|
|
|
1
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
End of period
|
|
$
|
19
|
|
|
$
|
18
|
|
|
|
|
|
|
|
|
|
|
Investments owned by the Consolidated Investment Products:
|
|
|
|
|
|
|
|
|
At inception
|
|
$
|
|
|
|
|
|
|
Purchases
|
|
|
1,095
|
|
|
|
|
|
Net unrealized gains
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of period
|
|
$
|
1,101
|
|
|
|
|
|
|
Unrealized gains are included in Non-operating income
(loss): Net gains (losses): Other investments
on the Consolidated Statement of Operations.
Note 8. Derivative
Contracts
The Consolidated Investment Products employ credit default swaps
and foreign exchange forward contracts as part of their trading
strategies and are accounted for as trading products.
|
|
|
|
|
|
|
|
|
Notional Amount
|
|
|
|
As of
|
|
|
|
December 31,
|
|
(in thousands)
|
|
2010
|
|
|
Credit default swaps
|
|
$
|
5,200
|
|
Foreign exchange forward contracts
|
|
|
2,582
|
|
|
The notional amount as of December 31, 2010, reflects
trading volume for only a limited period, as the Consolidated
Investment Products were active for only a short period at the
end of 2010.
Fair value of derivative contracts as of December 31, 2010,
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
Liabilities
|
|
|
|
Statement of
|
|
|
|
|
Statement of
|
|
|
|
|
|
Financial Position
|
|
|
|
|
Financial Position
|
|
|
|
(in thousands)
|
|
Location
|
|
Fair Value
|
|
|
Location
|
|
Fair Value
|
|
|
Credit default swaps
|
|
Other assets
|
|
$
|
21
|
|
|
Other assets
|
|
$
|
107
|
|
Foreign exchange forward contracts
|
|
|
|
|
|
|
|
Other liabilities
|
|
|
58
|
|
|
Please see Note 7. Investments, at Fair Value and
Investments Sold, Not Yet Purchased by the Consolidated
Investment Products, at Fair Value for income from
derivative contracts that is included in investment income by
investment categories.
Note 9. Debt
Term
Loan
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 was 3.52% (LIBOR plus
300 basis points) as of December 31, 2010. The
88
ARTIO
GLOBAL INVESTORS INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
amortization schedule requires quarterly principal payments of
$4.5 million in both years two and three, beginning on
December 31, 2010, with a final payment of $24 million
at maturity. In 2009, a portion of the $60.0 million
borrowing was used to fund distributions to GAM and the
Principals. As of December 31, 2010, $55.5 million is
outstanding under the term credit facility.
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 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, 2010, Holdings was in
compliance with all such covenants.
Due to
Prime Broker
The Consolidated Investment Products employs leverage to finance
its investments. Interest is payable on such loans at the Fed
Funds rate plus a range of 40 to 125 basis points. The
loans are collateralized by securities held by the Consolidated
Investment Products.
Note 10. Class B
Profits Interests and Unfunded Deferred Compensation
Plan
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 was expensed as incurred
and included in Employee compensation and benefits on the
Consolidated Statement of Operations. Each Principal exchanged
his Class B profits interests for an equivalent percentage
of New Class A Units in connection with the IPO (see
Note 2. Initial Public Offering, Changes in
Principals Interests and Exchange of New Class A
Units) and the remaining balance of undistributed
Class B profits interests was paid to each of the
Principals in the fourth quarter of 2009.
Unfunded
Deferred Compensation Plan
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.
89
ARTIO
GLOBAL INVESTORS INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Expenses related to the Unfunded Plan were $8.9 million in
2008 and are included in Salaries, incentive compensation and
benefits on the Consolidated Statement of Operations. There
were no expenses related to the Unfunded Plan in 2010 or 2009.
|
|
Note 11.
|
Benefit
Plans and Funded 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.
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.
Earnings on an individuals account in both plans are
limited to the performance of the underlying plan investments in
the account.
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.
We purchase shares in the Funds equal to the amount of deferred
compensation at the time the bonuses are deferred. The shares
are sold when the deferred bonus vests, or when the employee
forfeits the shares. Assets related to the Funded Plan are
included in Artio Global funds held for deferred compensation
and other investments 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, 2010
|
|
|
As of December 31, 2009
|
|
(in thousands)
|
|
Assets
|
|
|
Liabilities
|
|
|
Assets
|
|
|
Liabilities
|
|
|
Funded Plan
|
|
$
|
9,069
|
|
|
$
|
3,168
|
|
|
$
|
7,892
|
|
|
$
|
3,742
|
|
|
Expenses related to the plans are included in Salaries,
incentive compensation and benefits on the Consolidated
Statement of Operations as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
(in thousands)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Qualified Plan
|
|
$
|
2,698
|
|
|
$
|
2,381
|
|
|
$
|
2,848
|
|
Non-qualified Plan
|
|
|
11
|
|
|
|
148
|
|
|
|
223
|
|
Funded Plan
|
|
|
5,828
|
|
|
|
3,794
|
|
|
|
2,444
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
8,537
|
|
|
$
|
6,323
|
|
|
$
|
5,515
|
|
|
Employees who participate in the Funded Plan may also
participate in our share-based payment plan (see
Note 12. Share-Based Payments).
|
|
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.
90
ARTIO
GLOBAL INVESTORS INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Activity under the Plan was as follows:
|
|
|
|
|
|
|
|
|
Units
|
|
|
Available for grant at inception
|
|
|
9,700,000
|
|
RSUs granted and unvested as of December 31, 2010
|
|
|
(1,856,997
|
)
|
RSUs vested as of December 31, 2010
|
|
|
(481,070
|
)
|
RSU dividend equivalents vested as of December 31, 2010
|
|
|
(4,111
|
)
|
RSU dividend equivalents outstanding as of December 31, 2010
|
|
|
(27,225
|
)
|
Fully-vested shares of restricted stock granted to independent
directors
|
|
|
(23,019
|
)
|
|
|
|
|
|
Available for grant as of December 31, 2010
|
|
|
7,307,578
|
|
|
A summary of restricted stock unit (RSU) activity
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average
|
|
|
|
|
|
|
|
|
|
Grant Date Fair
|
|
|
|
|
|
RSU Dividend
|
|
|
|
Value(a)
|
|
|
Number of RSUs
|
|
|
Equivalents
|
|
|
Granted and unvested as of January 1, 2009
|
|
$
|
|
|
|
|
|
|
|
|
|
|
Grants:
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested RSUs granted to certain officers and employees in
connection with the IPO
|
|
|
26.25
|
|
|
|
2,147,758
|
|
|
|
|
|
Forfeitures:
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested RSUs granted to certain officers and employees in
connection with the IPO
|
|
|
26.25
|
|
|
|
(1,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted and unvested as of December 31, 2009
|
|
|
|
|
|
|
2,146,758
|
|
|
|
|
|
Grants:
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested RSUs granted to certain officers and employees
|
|
|
21.86
|
|
|
|
232,983
|
|
|
|
|
|
Dividend equivalents
|
|
|
|
|
|
|
|
|
|
|
31,542
|
|
Vesting:
|
|
|
|
|
|
|
|
|
|
|
|
|
RSUs
|
|
|
26.25
|
|
|
|
(481,070
|
)
|
|
|
|
|
Dividend equivalents
|
|
|
|
|
|
|
|
|
|
|
(4,111
|
)
|
Forfeitures:
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested RSUs granted to certain officers and employees
|
|
|
26.10
|
|
|
|
(41,674
|
)
|
|
|
|
|
Dividend equivalents
|
|
|
|
|
|
|
|
|
|
|
(206
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted and unvested as of December 31, 2010
|
|
|
|
|
|
|
1,856,997
|
|
|
|
27,225
|
|
|
|
|
|
(a)
|
|
Weighted-average grant date fair
value for grants are based on closing price on the grant date.
|
We also granted approximately 450,000 RSUs in February 2011 in
connection with annual awards under the Plan.
Upon the vesting of RSUs, a corresponding number of New
Class A Units are issued to Investors.
Under the Plan, holders of RSUs are entitled to RSU dividend
equivalents in the form of additional RSUs, which are determined
by, and equivalent to, dividends declared and paid on
Investors common stock during the period. The RSU dividend
equivalents vest at the same time and on the same basis as the
underlying RSUs to which they relate, and accordingly, are
forfeitable.
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 award). Compensation
expense related to the amortization of RSU grants, included in
Salaries, incentive
91
ARTIO
GLOBAL INVESTORS INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
compensation and benefits on the Consolidated Statement
of Operations, was $12.6 million in 2010 and
$4.3 million in 2009.
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
(in thousands)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
43,033
|
|
|
$
|
43,529
|
|
|
$
|
54,128
|
|
State and local
|
|
|
19,780
|
|
|
|
4,955
|
|
|
|
22,147
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
62,813
|
|
|
|
48,484
|
|
|
|
76,275
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
3,997
|
|
|
|
59,401
|
|
|
|
(17,381
|
)
|
State and local
|
|
|
1,383
|
|
|
|
26,402
|
|
|
|
(4,139
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
5,380
|
|
|
|
85,803
|
|
|
|
(21,520
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
$
|
68,193
|
|
|
$
|
134,287
|
|
|
$
|
54,755
|
|
|
Net deferred tax assets comprise the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
(in thousands)
|
|
2010
|
|
|
2009
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Deferred compensation other
|
|
$
|
4,466
|
|
|
$
|
3,605
|
|
Depreciation and amortization
|
|
|
1,708
|
|
|
|
1,161
|
|
Provisions and other
|
|
|
1,909
|
|
|
|
2,417
|
|
Step-up of
tax
basis(a)
|
|
|
190,780
|
|
|
|
39,133
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
198,863
|
|
|
|
46,316
|
|
Less: valuation allowance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset
|
|
$
|
198,863
|
|
|
$
|
46,316
|
|
|
|
|
|
(a)
|
|
Under the tax receivable agreement,
85% of the 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 in 2009 (see Note 13. Income Taxes:
Tax Receivable Agreement) allowed Holdings 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
deductible for tax purposes generally over a
15-year
period. Based on the exchange date, in 2009, 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. In 2010, the Principals
exchanged 14.4 million shares of the New Class A Units
for an equivalent number of Investors Class A common
stock (see Note 2. Initial Public Offering, Changes in
Principals Interests and Exchange of New Class A
Units: Exchange of New Class A Units). At the
time of the exchanges in 2010, an aggregate deferred tax asset
of $161.2 million was established for the estimated future
tax benefits, resulting from the amortization of the
92
ARTIO
GLOBAL INVESTORS INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
increased tax basis. Of the aggregate $199.6 million
deferred tax asset recorded at the time of the exchanges in 2010
and 2009, $169.7 million, representing 85% of the benefits,
was recorded in Due under tax receivable agreement, and
the remaining 15%, or $29.9 million, 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. Based on several factors,
including historical taxable income and current levels of AuM,
we believe that it is more likely than not that there will be
sufficient annual taxable income to realize the deferred tax
asset and, therefore, no valuation allowance is necessary.
A reconciliation between the Federal statutory tax rate of 35%
and the effective tax rates are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
(in percentages)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Federal statutory rate
|
|
|
35
|
%
|
|
|
35
|
%
|
|
|
35
|
%
|
State and local, net of Federal benefit, and other
|
|
|
8
|
|
|
|
7
|
|
|
|
10
|
|
Anticipated amendment to prior year tax returns
|
|
|
|
|
|
|
3
|
|
|
|
|
|
Non-controlling interests
|
|
|
(5
|
)
|
|
|
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, net
|
|
|
2
|
|
|
|
(1
|
)
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
40
|
%
|
|
|
(58
|
)%
|
|
|
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 the fourth quarter of 2009.
Holdings is subject to New York City UBT, of which a substantial
portion is credited against Investors tax liability.
As of December 31, 2010, $3.0 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, 2009
|
|
$
|
|
|
Additions (reductions) for tax provisions of prior years
|
|
|
|
|
Additions based on tax provisions related to current year
|
|
|
3,282
|
|
Reductions for settlements with taxing authorities
|
|
|
|
|
Lapse of statute of limitations
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2009
|
|
|
3,282
|
|
Additions (reductions) for tax provisions of prior years
|
|
|
(308
|
)
|
Additions based on tax provisions related to current year
|
|
|
|
|
Reductions for settlements with taxing authorities
|
|
|
|
|
Lapse of statute of limitations
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2010
|
|
$
|
2,974
|
|
|
93
ARTIO
GLOBAL INVESTORS INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
We believe that the total amount of unrecognized tax benefits
will not materially change over the next 12 months.
In 2010, 2009 and 2008, there were no material charges related
to interest and penalties for unrecognized tax benefits.
Tax years 2007 to the present are open for examination by
Federal, state and local tax authorities. We are currently under
examination by New York State tax authorities for the years 2006
through 2008 and by New York City tax authorities for Investment
Adviser for the years 2006 and 2007. There are waivers extending
the statute of limitations to examine and assess tax on our 2006
New York State and New York City tax returns to September 2011.
Tax
Receivable Agreement
Concurrent with IPO, the Principals entered into an exchange
agreement with us which provides that they may exchange their
New Class A Units for shares of Class A common stock.
Holdings has made an election pursuant to Section 754 of
the Internal Revenue Code of 1986, as amended, upon such an
exchange, to increase the tax basis of its 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 each Principal is 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 that
Principals exchange. Amounts due 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.
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.
Although the tax receivable agreement payments are calculated
based on annual tax savings, for 2010, the payments which would
have been made pursuant to the tax receivable agreement, if such
period was calculated by itself, are estimated to be
$5.2 million.
94
ARTIO
GLOBAL INVESTORS INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
|
|
Note 14.
|
Earnings
Per Share (EPS)
|
Basic and diluted EPS were calculated using the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
(in thousands)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Net income (loss) attributable to Artio Global
Investors Basic
|
|
$
|
83,561
|
|
|
$
|
(378,314
|
)
|
|
$
|
61,151
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to non-controlling
interests(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax related to non-controlling
interests(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) Diluted
|
|
$
|
83,561
|
|
|
$
|
(378,314
|
)
|
|
$
|
61,151
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares for basic EPS
|
|
|
52,830
|
|
|
|
42,620
|
|
|
|
42,000
|
|
Dilutive potential shares from exchange of New Class A
Units by the
Principals(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive potential shares from grants of
RSUs(b)
|
|
|
173
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares for diluted EPS
|
|
|
53,003
|
|
|
|
42,620
|
|
|
|
42,000
|
|
|
|
|
|
(a)
|
|
The potential impact of 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 of 7.1 million
weighted average shares for 2010 was antidilutive. The exchanges
of New Class A Units were antidilutive for 2009.
|
|
(b)
|
|
The potential impact of an
additional 1.8 million granted RSUs was antidilutive for
2010. The RSUs were antidilutive for 2009.
|
On January 24, 2011, our Board of Directors declared a
dividend of $0.06 per share to be paid on February 23,
2011, to holders of record of our Class A and Class C
common stock at the close of business on February 14, 2011.
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 will
be paid to all members of Holdings, including the Principals.
We lease office space under non-cancelable agreements that
expire in June 2014. Minimum annual rental payments under the
lease as of December 31, 2010, are as follows:
|
|
|
|
|
|
|
Years ending December 31,
|
|
(in thousands)
|
|
|
2011
|
|
$
|
3,756
|
|
2012
|
|
|
3,762
|
|
2013
|
|
|
3,762
|
|
2014
|
|
|
1,881
|
|
|
|
|
|
|
|
|
$
|
13,161
|
|
|
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 $2.6 million in 2010, $2.5 million in
2009 and $3.3 million in 2008.
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. 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 on the
Consolidated Statement of Operations. In May 2010, Investment
Adviser entered into an
95
ARTIO
GLOBAL INVESTORS INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
agreement to sublet a portion of the unused office space. The
sublet arrangement did not result in a material additional
charge to expense.
The following table represents the liability related to the exit
activity discussed above.
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
Balance, January 1, 2008
|
|
$
|
2,869
|
|
2009 disbursements
|
|
|
(889
|
)
|
Fair value adjustment
|
|
|
622
|
|
|
|
|
|
|
Balance, December 31, 2009
|
|
|
2,602
|
|
2010 disbursements
|
|
|
(1,070
|
)
|
2010 sublet rent receipts
|
|
|
219
|
|
Fair value adjustment
|
|
|
(140
|
)
|
|
|
|
|
|
Balance, December 31, 2010
|
|
$
|
1,611
|
|
|
In 2010 and 2009, we reassessed the fair value of the liability
based on current market conditions.
|
|
Note 16.
|
Commitments
and Contingencies
|
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.
Although we may not have an explicit obligation to do so, we
have, at our discretion, reimbursed client accounts for certain
operational losses incurred.
|
|
Note 17.
|
Segment
information
|
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
26% in 2010, 30% in 2009 and 39% in 2008. Clients are primarily
based in the U.S.
|
|
Note 18.
|
Recently
Issued Accounting Pronouncements
|
In February 2010, the Financial Accounting Standards Board (the
FASB) issued an Accounting Standards Update
(ASU), which defers the effective date of
ASC 810.10, Amendments to FASB Interpretation
No. 46(R), for companies, such as ours, that have
interests in certain investment entities. 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 January 2010, the FASB issued an ASU to ASC 820.10,
Fair Value Measurements and Disclosures (FAS 157),
to improve disclosures about fair value measurements. In 2010,
we invested seed money in the Consolidated Investment Products.
We have included the expanded disclosure requirements, if
applicable in Note 7. Investments, at Fair Value and
Investments Sold, Not Yet Purchased by the Consolidated
Investment Products, at Fair Value.
|
|
Note 19.
|
Subsequent
Events
|
In January 2011, Holdings increased the capacity of its undrawn
revolving credit facility from $50.0 million to
$100.0 million.
In February 2011, we adopted a long-term incentive plan (the
LTIP) under the Plan (see Note 12.
Share-Based Payments). Also in February 2011, we granted two
million RSUs under the LTIP. They include certain performance
and market criteria and have
3-year cliff
vesting to the extent targets have been achieved.
96
ARTIO
GLOBAL INVESTORS INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
|
|
Note 20.
|
Selected
Quarterly Information (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
(in thousands, except per share amounts)
|
|
1st
Quarter
|
|
|
2nd
Quarter
|
|
|
3rd
Quarter(a)
|
|
|
4th
Quarter
|
|
|
Total revenues and other operating income
|
|
$
|
85,631
|
|
|
$
|
83,335
|
|
|
$
|
80,930
|
|
|
$
|
85,233
|
|
Operating income before income tax expense
|
|
|
45,629
|
|
|
|
42,645
|
|
|
|
39,903
|
|
|
|
45,039
|
|
Net income attributable to Artio Global Investors
|
|
|
18,868
|
|
|
|
18,955
|
|
|
|
19,999
|
|
|
|
25,739
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic EPS, net income (loss) attributable to Artio Global
Investors(a)(b)(c)
|
|
$
|
0.42
|
|
|
$
|
0.38
|
|
|
$
|
0.34
|
|
|
$
|
0.44
|
|
Diluted EPS, net income (loss) attributable to Artio Global
Investors(d)
|
|
$
|
0.42
|
|
|
$
|
0.38
|
|
|
$
|
0.34
|
|
|
$
|
0.44
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends per basic share declared
|
|
$
|
0.06
|
|
|
$
|
0.06
|
|
|
$
|
0.06
|
|
|
$
|
0.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock price per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
$
|
26.50
|
|
|
$
|
25.65
|
|
|
$
|
16.98
|
|
|
$
|
17.70
|
|
Low
|
|
$
|
22.30
|
|
|
$
|
15.74
|
|
|
$
|
13.70
|
|
|
$
|
12.91
|
|
Close
|
|
$
|
24.74
|
|
|
$
|
15.74
|
|
|
$
|
15.30
|
|
|
$
|
14.75
|
|
|
|
|
|
(a)
|
|
In the second quarter of 2010, each
Principal exchanged 7.2 million New Class A Units for
7.2 million shares of our Class A common stock;
4.2 million shares of our Class A common stock were
issued to the public in connection with a secondary offering;
and the proceeds from the secondary offering were used to
purchase and retire 2.1 million shares of our Class A
common stock from each Principal.
|
|
(b)
|
|
In the third quarter of 2010, we
purchased and retired 531,200 shares of our Class A
common stock.
|
|
(c)
|
|
In the fourth quarter of 2010, we
purchased and retired 468,800 shares of our Class A
common stock.
|
|
(d)
|
|
Second-quarter and fourth-quarter
2010 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.
|
97
ARTIO
GLOBAL INVESTORS INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
(in thousands, except per share amounts)
|
|
1st
Quarter
|
|
|
2nd
Quarter
|
|
|
3rd
Quarter(a)
|
|
|
4th
Quarter
|
|
|
Total revenues and other operating income
|
|
$
|
62,527
|
|
|
$
|
70,793
|
|
|
$
|
84,488
|
|
|
$
|
89,584
|
|
Operating income (loss) before income tax
expense(a)
|
|
|
6,003
|
|
|
|
10,604
|
|
|
|
(298,304
|
)
|
|
|
53,169
|
|
Net income (loss) attributable to Artio Global
Investors(a)
|
|
|
3,045
|
|
|
|
5,354
|
|
|
|
(412,423
|
)
|
|
|
25,710
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
|
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.
98
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. 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 and accounting officer concluded
that our disclosure controls and procedures are effective in
alerting them in a timely manner to 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.
Managements Report on Internal Control Over Financial
Reporting and KPMG LLPs Report of Independent Registered
Public Accounting Firm are included in Item 8 of
Part II, Financial Statements and Supplementary Data, of
this Annual Report on
Form 10-K.
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 Annual Meeting of
Stockholders to be held on May 6, 2011, which will be filed
within 120 days of the end of our fiscal year ended
December 31, 2010, (2011 Proxy Statement) and
is incorporated herein by reference.
Item 11. Executive
Compensation.
Information required by this item will be in the 2011 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 2011 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 2011 Proxy
Statement and is incorporated herein by reference.
Item 14. Principal
Accountant Fees and Services
Information required by this item will be in the 2011 Proxy
Statement and is incorporated herein by reference.
99
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, 2010 and 2009
ii) Consolidated Statements of Operations for the
years ended December 31, 2010, 2009 and 2008
|
|
|
|
iii)
|
Consolidated Statements of Changes in Equity for the years ended
December 31, 2010, 2009 and 2008
|
|
iv)
|
Consolidated Statements of Cash Flows for the years ended
December 31, 2010, 2009 and 2008
|
|
v)
|
Notes to Consolidated Financial Statements
|
(b) Exhibit Index:
|
|
|
|
|
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).
|
100
|
|
|
|
|
|
|
|
|
|
|
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).
|
|
|
|
|
|
|
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.
|
101
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
(Principal Financial and
Accounting Officer)
|
Date: February 25, 2011
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,
Chief Executive Officer
and Chief Investment Officer
(Principal Executive Officer)
|
|
February 25, 2011
|
|
|
|
|
|
/s/ Glen
Wisher
Glen
Wisher
|
|
Director, President
|
|
February 25, 2011
|
|
|
|
|
|
/s/ Elizabeth
Buse
Elizabeth
Buse
|
|
Director
|
|
February 25, 2011
|
|
|
|
|
|
/s/ Duane
Kullberg
Duane
Kullberg
|
|
Director
|
|
February 25, 2011
|
|
|
|
|
|
/s/ Francis
Ledwidge
Francis
Ledwidge
|
|
Director
|
|
February 25, 2011
|
102