sv1za
As filed with the Securities and Exchange Commission on
June 1, 2010
Registration
No. 333-166992
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Amendment No. 1
to
Form S-1
REGISTRATION
STATEMENT
UNDER
THE SECURITIES ACT OF
1933
Artio Global Investors
Inc.
(Exact name of registrant as
specified in its charter)
|
|
|
|
|
Delaware
|
|
6282
|
|
13-6174048
|
(State or other jurisdiction
of
incorporation or organization)
|
|
(Primary Standard Industrial
Classification Code Number)
|
|
(I.R.S. Employer
Identification Number)
|
330 Madison Avenue
New York, NY 10017
(212) 297-3600
(Address, including zip code,
and telephone number, including area code, of registrants
principal executive offices)
ADAM SPILKA
General Counsel and Corporate Secretary
Artio Global Investors Inc.
330 Madison Avenue
New York, NY 10017
(212) 297-3600
(Name, address, including zip
code, and telephone number, including area code, of agent for
service)
Copies to:
|
|
|
|
|
MICHAEL KAPLAN
Davis Polk & Wardwell LLP
450 Lexington Avenue
New York, NY 10017
(212) 450-4000
|
|
CATHERINE CLARKIN
JAY CLAYTON
Sullivan & Cromwell LLP
125 Broad Street
New York, NY 10004
(212) 558-4000
|
|
JAMES GERKIS
Proskauer Rose LLP
1585 Broadway
New York, NY 10036
(212) 969-3000
|
Approximate date of commencement of proposed sale to the
public: As soon as practicable after the
effective date of this registration statement.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to
Rule 415 under the Securities Act of 1933 check the
following
box. o
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act,
please check the following box and list the Securities Act
registration statement number of the earlier effective
registration statement for the same
offering. o
If this Form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering. o
If this Form is a post-effective amendment filed pursuant to
Rule 462(d) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering. 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. (Check one):
|
|
|
|
Large accelerated
filer o
|
Accelerated
filer o
|
Non-accelerated
filer þ
|
Smaller reporting
company o
|
(Do not check if a smaller reporting company)
The Registrant hereby amends this Registration Statement on
such date or dates as may be necessary to delay its effective
date until the Registrant shall file a further amendment which
specifically states that this Registration Statement shall
thereafter become effective in accordance with Section 8(a)
of the Securities Act of 1933 or until the Registration
Statement shall become effective on such date as the Commission,
acting pursuant to said Section 8(a), may determine.
The
information in this preliminary prospectus is not complete and
may be changed. These securities may not be sold until the
registration statement filed with the Securities and Exchange
Commission is effective. This preliminary prospectus is not an
offer to sell nor does it seek an offer to buy these securities
in any jurisdiction where the offer or sale is not permitted.
|
Subject to Completion. Dated
June 1, 2010.
3,700,000 Shares
Class A Common Stock
Artio Global Investors Inc. is offering 3,700,000 shares of
Class A common stock. The Class A common stock is
listed on the New York Stock Exchange under the symbol
ART. On May 28, 2010, the last reported sale
price of our Class A common stock was $18.49 per share.
In connection with the completion of our initial public
offering, we entered into an exchange agreement with Richard
Pell, our Chief Executive Officer and Chief Investment Officer,
and Rudolph-Riad Younes, our Head of International Equity, to
whom we collectively refer as our Principals. The exchange
agreement grants each Principal and certain permitted
transferees, the right to exchange his New Class A Units,
which represent membership interests in Artio Global Holdings
LLC (an intermediate holding company), for shares of our
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, 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 the taxes payable
on such exchange calculated at an assumed tax rate, which is
subject to change.
In connection with this offering, we expect each Principal to
exchange an aggregate of 5,350,000 New Class A Units for
5,350,000 shares of Class A common stock (inclusive of
the 3,000,000 New Class A Units each Principal exchanged
for shares of Class A common stock prior to this offering)
and to surrender an equivalent number of shares of Class B
common stock on or before the date of the closing of this
offering, leaving each with 2,450,000 New Class A Units. As
a result of such exchanges, in accordance with the terms of the
exchange agreement, each of the Principals has elected to sell
to us a number of New Class A Units
and/or
shares of Class A common stock at a price equal to the
offering price (net of underwriting discount) of the
Class A common stock in this offering in order to cover
taxes payable on such exchanges. Accordingly, we will use the
net proceeds of this offering to purchase 1,850,000 New
Class A Units from each of our Principals and, if the
underwriters exercise in full their option to purchase
additional shares, to repurchase and retire 250,000 shares
of Class A common stock from each of our Principals. We
will not retain any proceeds from the sale of shares of our
Class A common stock.
See Risk Factors on page 17 to read about
factors you should consider before buying shares of the
Class A common stock.
Neither the Securities and Exchange Commission nor any other
regulatory body has approved or disapproved of these securities
or passed upon the accuracy or adequacy of this prospectus. Any
representation to the contrary is a criminal offense.
|
|
|
|
|
|
|
|
|
|
|
Per Share
|
|
|
Total
|
|
|
Public offering price
|
|
$
|
|
|
|
$
|
|
|
Underwriting discount
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds, before expenses, to Artio Global Investors Inc.
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
To the extent the underwriters sell more than
3,700,000 shares of Class A common stock, the
underwriters have the option to purchase up to an additional
500,000 shares of Class A common stock from Artio
Global Investors Inc. at the public offering price less the
underwriting discount.
The underwriters expect to deliver the shares of Class A
common stock against payment in New York, New York
on ,
2010.
Goldman, Sachs &
Co.
|
|
BofA
Merrill Lynch |
J.P. Morgan |
Prospectus
dated ,
2010.
Historical
Returns of Largest Global and International Investment
Strategies
(Returns Since Strategy Inception Through March 31, 2010)*
|
|
|
International Equity
I
|
|
International Equity
II
|
Inception: May 1995; AuM: $21.0bn
|
|
Inception: April 2005; AuM: $24.6bn
|
|
|
|
|
|
|
|
|
|
Global Equity
|
|
Total Return Bond
|
Inception: July 1995; AuM: $0.9bn
|
|
Inception: February 1995; AuM: $4.5bn
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High Yield
|
|
|
|
|
|
Inception: April 2003; AuM: $4.5bn
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Note: Historical returns presented above represent an aggregate
of various performance composites and are not indicative of
future returns, or of returns of other strategies. The above
five strategies accounted for 98.2% of assets under management
(AuM) at March 31, 2010. See also
Performance Information Used in this Prospectus. |
TABLE OF
CONTENTS
|
|
|
|
|
|
|
Page
|
|
|
|
|
1
|
|
|
|
|
17
|
|
|
|
|
33
|
|
|
|
|
34
|
|
|
|
|
36
|
|
|
|
|
37
|
|
|
|
|
38
|
|
|
|
|
39
|
|
|
|
|
48
|
|
|
|
|
80
|
|
|
|
|
102
|
|
|
|
|
104
|
|
|
|
|
106
|
|
|
|
|
110
|
|
|
|
|
112
|
|
|
|
|
119
|
|
|
|
|
121
|
|
|
|
|
123
|
|
|
|
|
127
|
|
|
|
|
127
|
|
|
|
|
127
|
|
|
|
|
128
|
|
|
|
|
F-1
|
|
EX-1 |
EX-5 |
EX-23.1 |
We have not authorized anyone to provide any information or to
make any representations other than those contained or
incorporated by reference in this prospectus or in any free
writing prospectuses we have prepared. We take no responsibility
for, and can provide no assurance as to the reliability of, any
other information that others may give you. This prospectus is
an offer to sell only the shares offered hereby, but only under
circumstances and in jurisdictions where it is lawful to do so.
The information contained in this prospectus is current only as
of its date.
Except where the context requires otherwise, in this prospectus:
|
|
|
|
|
Artio Global Investors Inc., the
Company, we, us and
our refer to Artio Global Investors Inc. and, unless
the context otherwise requires, its direct and indirect
subsidiaries;
|
|
|
|
operating company and Holdings refer to
Artio Global Holdings LLC and, unless the context otherwise
requires, its subsidiary Artio Global Management LLC, or
Investment Adviser, our operating
subsidiary; and
|
|
|
|
GAM refers to GAM Holding Ltd., a Zurich-based
financial holding company whose shares are listed on the SIX
Swiss Exchange, the sole holder of our Class C common stock.
|
Performance
Information Used in This Prospectus
We manage investments through proprietary funds (the
Artio Global 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
i
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.
None of the information in this prospectus or the registration
statement 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.
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 prospectus, 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 prospectus. It is not possible to
invest directly in any of the indices described above. The
returns of these indices, as presented in this prospectus, have
not been reduced by fees and expenses associated with investing
in securities, but do include the reinvestment of dividends. In
this prospectus, 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 prospectus 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
prospectus.
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 prospectus.
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 prospectus.
The S&P
500®
Index is a registered trademark of Standard &
Poors, a division of The McGraw-Hill Companies, Inc.,
which is the owner of all copyrights relating to this index and
the source of the performance statistics of this index that are
referred to in this prospectus.
In this prospectus we present Morningstar, Inc.
(Morningstar) and Lipper Analytical Services, Inc.
(Lipper) ratings for our SEC-registered mutual
funds. The Morningstar ratings refer to the ratings by
Morningstar of the Class A and Class I shares of our
SEC-registered mutual funds and are based on a 5-star scale. The
Lipper ratings refer to the ratings by Lipper of the
Class I shares of our SEC-registered mutual funds and are
based on a percentile. Morningstar and Lipper provide
independent, third-party ratings using their own defined
methodologies.
ii
Unless we tell you otherwise, all performance information that
we present, including assets under management, relate to the
operations that are part of our company as of the time of this
offering. In previous years, our company conducted certain
businesses that are no longer part of our continuing operations,
which we refer to as legacy or
discontinued businesses. For a description of these
businesses, see Managements Discussion and Analysis
of Financial Condition and Results of Operations. In most
cases, those businesses are considered discontinued operations
in our financial statements. In order to make the information
comparable, we present performance information exclusive of such
legacy businesses, unless otherwise indicated.
Any discrepancies in any table included in this prospectus
between totals and the sums of the amounts listed are due to
rounding.
iii
PROSPECTUS
SUMMARY
This summary highlights information contained elsewhere in
this prospectus. This summary does not contain all of the
information that you should consider before deciding to invest
in our Class A common stock. You should read this entire
prospectus carefully, including the Risk Factors
section and our unaudited pro forma financial information, each
included elsewhere in this prospectus.
Our
Business
We are an asset manager that is best known for our International
Equity strategies, which represented 81% of our assets under
management as of March 31, 2010 and 89% of our investment
management fees for the three months ended March 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. We offer the following investment
vehicles through which clients access our investment
capabilities: proprietary funds, institutional commingled funds,
separate accounts and
sub-advisory
mandates where we advise other client funds. Our revenues
consist almost entirely of investment management fees, which are
based primarily on the fair value of our assets under management
rather than investment performance-based fees.
Our primary business objective is to consistently generate
superior investment returns for our clients. We manage our
investment portfolios based on a philosophy of style-agnostic
investing across a broad range of opportunities, focusing on
macro-economic factors and broad-based global investment themes.
We also emphasize fundamental research and analysis in order to
identify specific investment opportunities and capitalize on
price inefficiencies. We believe that the depth and breadth of
the intellectual capital and experience of our investment
professionals, together with this investment philosophy and
approach, have been the key drivers of our investment
performance. As an organization, we concentrate our resources on
meeting our clients investment objectives and we seek to
outsource, whenever appropriate, support functions to industry
leaders thereby allowing us to focus our business on the areas
where we believe we can add the most value.
Our distribution efforts target institutions and organizations
that demonstrate institutional buying behavior and longer-term
investment horizons, such as pension fund consultants, broker
dealers, registered investment advisors (RIAs),
mutual fund platforms and
sub-advisory
relationships, enabling us to achieve significant leverage from
our focused sales force and client service infrastructure. As of
March 31, 2010, we provided investment management services
to a broad and diversified spectrum of approximately 1,500
institutional clients, including some of the worlds
leading corporations, public and private pension funds,
endowments and foundations and major financial institutions
through our separate accounts, commingled funds and proprietary
funds. We also managed assets for more than 812,000 retail
mutual fund shareholders through SEC-registered funds and other
retail investors through 14 funds that we
sub-advise
for others.
In the mid-1990s, Richard Pell and Rudolph-Riad Younes, to
whom we collectively refer as our Principals, assumed
responsibility for managing our International Equity strategy.
In the years that followed, we attracted attention from third
parties such as Morningstar, which awarded a 5-star rating to
the Artio International Equity Fund in 1998. Consequently, we
began to attract significant inflows. Since 1999, we have
expanded to other strategies, added portfolio managers and
increased our assets under management to $56.3 billion as
of April 30, 2010.
1
Competitive
Strengths
We believe our success as an investment management company is
based on the following competitive strengths:
Long-Term Track
Record of Superior Investment Performance
We have a well-established track record of achieving superior
investment returns over the longer term across our key
investment strategies relative to our competitors and the
relevant benchmarks, as reflected by the following:
|
|
|
|
|
our International Equity I composite has outperformed its
benchmark, the MSCI AC World ex USA
Indexsm
ND, by 7.67% on an annualized basis since its inception in 1995
through March 31, 2010 (calculated on a gross basis before
payment of fees);
|
|
|
|
as of March 31, 2010, eight out of nine publicly-reported
composites had also outperformed their benchmarks on a gross
basis since inception; and
|
|
|
|
as of March 31, 2010, six out of nine mutual funds (as
represented by the Class I-shares), representing over 99% of our
mutual fund assets under management, were rated 4- or 5- stars
by Morningstar and of those nine funds, six were in the
top quartile of Lipper rankings for performance since
inception.
|
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 23 years of industry experience among them.
Over the past five years, our team of investment professionals
(including our portfolio managers) has expanded from
approximately 20 to approximately 50 people and we have
experienced only minimal departures during this period.
Furthermore, our entire team of senior managers (including
marketing and sales directors and client service managers)
averages approximately 26 years of industry experience.
Leading Position
in International Equity
We have a leading position in international equity investment
management and, as of March 31, 2010, we ranked as the
11th largest manager of international equity mutual funds
in the United States according to Strategic Insight. We
believe that we are well-positioned to take advantage of
opportunities in this attractive asset class over the next
several years. However, in 2009, our International Equity
strategies generated returns that are well below their
benchmarks, which, despite our strong long-term investment
performance, could negatively impact our competitive position.
Strong Track
Records in Other Investment Strategies
In addition to our leading position in international equity, we
enjoy strong long-term track records in several of our other key
strategies. Our Total Return Bond Fund ranked in the
1st quartile of its Lipper universe over the three-
and five-year periods ended March 31, 2010 and since
inception, as of March 31, 2010. Our Global High Income
Fund ranked in the top decile over the three- and five-year
periods ended March 31, 2010 and since inception, as of
March 31, 2010. Our Global Equity Fund ranked in the in the
3rd quartile over the three year-period ended
March 31, 2010, and in the 2nd quartile for the
five-year period and since inception, as of March 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 March 31, 2010, we provided
investment
2
management services to approximately 1,500 institutional clients
invested in separate accounts, commingled funds or proprietary
funds. We have found that while institutional investors
generally have a longer and more extensive due diligence process
prior to investing, this results in clients who are more focused
on our method of investing and our long-term results, and, as a
result, our institutional relationships tend to be longer, with
less
year-to-year
turnover, than is typical among retail clients.
Effective and
Diverse Distribution
Our assets under management are distributed through multiple
channels. By utilizing our intermediated distribution sources
and focusing on institutions and organizations that exhibit
institutional buying behavior, we are able to achieve
significant leverage from our focused sales force and client
service infrastructure. We have developed strong relationships
with most of the major pension and industry consulting firms,
which have allowed us access to a broad range of institutional
clients. As of March 31, 2010, no single consulting firm
represented greater than approximately 5% of our assets under
management and our largest individual client represented
approximately 3% of our total assets under management. We access
retail investors through our relationships with intermediaries
such as RIAs and broker dealers as well as through mutual fund
platforms and
sub-advisory
relationships. Our distribution efforts with retail
intermediaries, particularly broker dealers, are more recent
than our institutional efforts and, as a result, our assets
sourced through the largest broker dealers represent a
relatively small portion of our assets under management.
However, given our continued and increasing focus on this
segment, and as a result of recent consolidation among broker
dealers with whom we have established relationships, we believe
we have opportunities to reach additional retail investors
through our existing relationships.
Strong Organic
Growth in Assets under Management and Sustained Net Client
Inflows
In the period from December 31, 2003 through April 30,
2010, our assets under management grew from $7.5 billion to
$56.3 billion, representing a compound annual growth rate
(CAGR) of 37%. Until mid-2008, our assets under
management growth was the result of a combination of general
market appreciation, our record of outperforming the relevant
benchmarks and an increase in net client cash inflows, which we
define as the amount by which client additions to new and
existing accounts exceed withdrawals from client accounts.
However, market depreciation in the second half of 2008 and
early 2009 had a significant negative impact on our assets under
management. During the period between December 31, 2003 and
March 31, 2010, net client cash inflows represented 85% of
our overall growth, including $0.1 billion of net client
cash inflows during the three months ended March 31, 2010.
Focused Business
Model
Our business model is designed to focus the vast majority of our
resources on meeting our clients investment objectives.
Accordingly, we take internal ownership of the aspects of our
operations that directly influence the investment process, our
client relationships and risk management. Whenever appropriate,
we seek to outsource support functions, including middle- and
back-office activities, to industry leaders, whose services we
closely monitor. This allows us to focus our efforts where we
believe we can add the most value. We believe this approach has
also resulted in an efficient and streamlined operating model,
which has generated strong operating margins, limited fixed
expenses and an ability to maintain profitability during
difficult periods.
3
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 to grow our International Equity assets under
management over time. Our International Equity I strategy, which
had $21.0 billion in assets under management as of
March 31, 2010, was closed to new investors in August 2005
in order to preserve its ability to invest effectively in
smaller capitalization investments. The successor strategy,
International Equity II, which mirrors the International Equity
I strategy in all respects except that it does not allocate
assets to these small capitalization investments and therefore
does not have the same capacity constraint as International
Equity I, was launched in March 2005. International
Equity II has grown to $24.6 billion (as of
March 31, 2010) in assets under management in
approximately five years. We believe we have the capacity to
handle additional assets within our International Equity II
strategy. Given our reputation as a manager of international
equity and our expectation of continued strong institutional
demand for international equity, we aim to continue to grow
international equity assets under management over the longer
term and leverage our experience in International Equity to grow
our Global Equity strategy in order to capitalize on increasing
flows into this strategy from investors both in and outside of
the United States.
Grow our other
Investment Strategies
Historically, we concentrated our distribution efforts primarily
on our International Equity strategies. In recent years, we have
focused on expanding and growing our other strategies as well,
including our High Grade Fixed Income, High Yield and Global
Equity strategies, which have experienced significant growth in
assets under management as a result. We expect our
U.S. Equity strategies to provide additional growth now
that they have achieved their three-year performance track
records, which are an important pre-requisite to investing for
many institutional investors. As of March 31, 2010,
Morningstar ratings for Class I shares are: 5-star
rating for Artio US Smallcap Fund, 3-star rating for Artio US
Multicap Fund, 2-star rating for Artio US Midcap Fund and 2-star
rating for Artio US Microcap Fund. We also intend to continue to
selectively initiate new product offerings in additional asset
classes where we believe we have the potential to produce
attractive risk-adjusted returns.
Further Extend
our Distribution Capabilities
We continue to focus on expanding our distribution capabilities
into those markets and client segments where we see demand for
our product offerings and which we believe are consistent with
our philosophy of focusing on distributors who display
institutional buying behavior through their selection process
and due diligence. For example, we have added employees to our
broker-dealer team in 2010 to target a broader set of financial
advisors. We have also begun focusing on family offices by
dedicating an employee to this client segment. In addition, we
plan to strengthen our international distribution through a
dedicated employee who will focus on institutional and
sub-advisory
relationships, particularly in Northern Europe.
Maintain a
Disciplined Approach to Growth
We are an investment-centric firm that focuses on the delivery
of superior long-term investment returns for our clients through
the application of our established investment processes and risk
management discipline. While we have generated significant
growth in our assets under management over the past several
years and have continued to develop a broader range of
investment offerings,
4
we are focused on long-term success and we will only pursue
those expansion opportunities that are consistent with our
operating philosophy. This philosophy requires that:
|
|
|
|
|
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;
|
|
|
|
new client segments or distribution sources must value our
approach and be willing to appropriately compensate us for our
services; and
|
|
|
|
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.
|
By ensuring that each new opportunity is evaluated against these
criteria we intend to maintain a disciplined approach to growth
for the long-term. For example, we closed our International
Equity I strategy to new investments in August 2005, in order to
preserve return opportunity in our smaller capitalization
investments for existing International Equity I investors. In
anticipation of this, we launched our International
Equity II strategy in March 2005 with the same focus as our
International Equity I strategy except that it does not invest
in small-cap companies.
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,
which identifies, assesses and manages the full range of risks
that face our Company and reports to the Board of Directors.
At the investment portfolio level, we seek to manage risk daily
on a real-time basis with an emphasis on identifying which
investments are working, which investments are not, and what
factors are influencing performance on both an intended and
unintended basis. This approach to managing portfolio-level risk
is not designed to avoid taking risks, but to seek to ensure
that the risks we choose to take are rewarded with an
appropriate premium opportunity for those risks. This approach
to managing portfolio-level risk is an integral component of our
investment processes.
Recent
Developments
As of April 30, 2010, we had $56.3 billion of assets
under management, down slightly from $56.4 billion as of
March 31, 2010. This decrease was the result of
approximately $5 million in net client cash outflows and
approximately $0.1 billion in market depreciation. The
following table summarizes the performance of our composites
through April 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period Ended April 30, 2010
|
|
|
Since
|
|
|
|
|
|
|
|
|
|
|
International Equity
I
|
|
Inception
|
|
5 Years
|
|
3 Years
|
|
1 Year
|
|
YTD
|
|
One Month
|
|
Annualized Gross Returns
|
|
|
12.7
|
%
|
|
|
6.1
|
%
|
|
|
(9.1
|
)%
|
|
|
34.5
|
%
|
|
|
0.2
|
%
|
|
|
(0.5
|
)%
|
Annualized Net Returns
|
|
|
11.2
|
%
|
|
|
5.2
|
%
|
|
|
(9.8
|
)%
|
|
|
33.5
|
%
|
|
|
(0.1
|
)%
|
|
|
(0.5
|
)%
|
MSCI EAFE
Index®
|
|
|
4.5
|
%
|
|
|
3.9
|
%
|
|
|
(8.9
|
)%
|
|
|
34.4
|
%
|
|
|
(1.0
|
)%
|
|
|
(1.8
|
)%
|
MSCI AC World
ex USA
Indexsm
ND
|
|
|
5.1
|
%
|
|
|
6.5
|
%
|
|
|
(5.9
|
)%
|
|
|
40.4
|
%
|
|
|
0.7
|
%
|
|
|
(0.9
|
)%
|
International Equity II
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annualized Gross Returns
|
|
|
5.6
|
%
|
|
|
6.3
|
%
|
|
|
(8.0
|
)%
|
|
|
32.8
|
%
|
|
|
(0.5
|
)%
|
|
|
(0.6
|
)%
|
Annualized Net Returns
|
|
|
4.9
|
%
|
|
|
5.6
|
%
|
|
|
(8.6
|
)%
|
|
|
31.9
|
%
|
|
|
(0.8
|
)%
|
|
|
(0.7
|
)%
|
MSCI EAFE
Index®
|
|
|
3.3
|
%
|
|
|
3.9
|
%
|
|
|
(8.9
|
)%
|
|
|
34.4
|
%
|
|
|
(1.0
|
)%
|
|
|
(1.8
|
)%
|
MSCI AC World
ex USA
Indexsm
ND
|
|
|
5.8
|
%
|
|
|
6.5
|
%
|
|
|
(5.9
|
)%
|
|
|
40.4
|
%
|
|
|
0.7
|
%
|
|
|
(0.9
|
)%
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Since
|
|
|
|
|
|
|
|
|
|
|
Total Return Bond
|
|
Inception
|
|
5 Years
|
|
3 Years
|
|
1 Year
|
|
YTD
|
|
One Month
|
|
Annualized Gross Returns
|
|
|
8.0
|
%
|
|
|
6.3
|
%
|
|
|
7.2
|
%
|
|
|
13.5
|
%
|
|
|
3.8
|
%
|
|
|
1.3
|
%
|
Annualized Net Returns
|
|
|
7.1
|
%
|
|
|
5.7
|
%
|
|
|
6.8
|
%
|
|
|
13.1
|
%
|
|
|
3.6
|
%
|
|
|
1.3
|
%
|
Barclays Capital U.S. Aggregate Bond Index
|
|
|
6.7
|
%
|
|
|
5.4
|
%
|
|
|
6.3
|
%
|
|
|
8.3
|
%
|
|
|
2.8
|
%
|
|
|
1.0
|
%
|
Customized Index(1)
|
|
|
6.3
|
%
|
|
|
5.0
|
%
|
|
|
6.2
|
%
|
|
|
7.8
|
%
|
|
|
1.6
|
%
|
|
|
0.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Since
|
|
|
|
|
|
|
|
|
|
|
High Yield
|
|
Inception
|
|
5 Years
|
|
3 Years
|
|
1 Year
|
|
YTD
|
|
One Month
|
|
Annualized Gross Returns
|
|
|
11.7
|
%
|
|
|
10.3
|
%
|
|
|
8.8
|
%
|
|
|
43.8
|
%
|
|
|
7.0
|
%
|
|
|
2.1
|
%
|
Annualized Net Returns
|
|
|
10.5
|
%
|
|
|
9.1
|
%
|
|
|
7.7
|
%
|
|
|
42.4
|
%
|
|
|
6.6
|
%
|
|
|
2.0
|
%
|
ML Global High Yield USD Constrained Index
|
|
|
10.4
|
%
|
|
|
8.7
|
%
|
|
|
7.4
|
%
|
|
|
47.9
|
%
|
|
|
6.5
|
%
|
|
|
1.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Since
|
|
|
|
|
|
|
|
|
|
|
Global Equity
|
|
Inception
|
|
5 Years
|
|
3 Years
|
|
1 Year
|
|
YTD
|
|
One Month
|
|
Annualized Gross Returns
|
|
|
9.7
|
%
|
|
|
5.8
|
%
|
|
|
(5.3
|
)%
|
|
|
42.6
|
%
|
|
|
3.8
|
%
|
|
|
0.1
|
%
|
Annualized Net Returns
|
|
|
8.5
|
%
|
|
|
4.9
|
%
|
|
|
(5.9
|
)%
|
|
|
41.8
|
%
|
|
|
3.6
|
%
|
|
|
0.1
|
%
|
MSCI World Index
|
|
|
5.7
|
%
|
|
|
3.4
|
%
|
|
|
(6.8
|
)%
|
|
|
37.0
|
%
|
|
|
3.3
|
%
|
|
|
0.0
|
%
|
MSCI AC World
Indexsm
|
|
|
5.6
|
%
|
|
|
4.4
|
%
|
|
|
(5.7
|
)%
|
|
|
39.3
|
%
|
|
|
3.3
|
%
|
|
|
0.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Since
|
|
|
|
|
|
|
|
|
|
|
US Equity
|
|
Inception
|
|
|
|
3 Years
|
|
1 Year
|
|
YTD
|
|
One Month
|
|
Multi-Cap
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annualized Gross Returns
|
|
|
5.0
|
%
|
|
|
|
|
|
|
(0.7
|
)%
|
|
|
48.5
|
%
|
|
|
9.0
|
%
|
|
|
2.3
|
%
|
Annualized Net Returns
|
|
|
4.1
|
%
|
|
|
|
|
|
|
(1.5
|
)%
|
|
|
47.4
|
%
|
|
|
8.7
|
%
|
|
|
2.3
|
%
|
Russell
3000®
Index
|
|
|
0.7
|
%
|
|
|
|
|
|
|
(4.6
|
)%
|
|
|
40.9
|
%
|
|
|
8.2
|
%
|
|
|
2.2
|
%
|
Mid-Cap
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annualized Gross Returns
|
|
|
4.0
|
%
|
|
|
|
|
|
|
(2.8
|
)%
|
|
|
49.3
|
%
|
|
|
11.4
|
%
|
|
|
3.7
|
%
|
Annualized Net Returns
|
|
|
3.2
|
%
|
|
|
|
|
|
|
(3.4
|
)%
|
|
|
48.1
|
%
|
|
|
11.1
|
%
|
|
|
3.6
|
%
|
Russell
Mid-Cap®
Index
|
|
|
2.6
|
%
|
|
|
|
|
|
|
(3.3
|
)%
|
|
|
50.8
|
%
|
|
|
12.8
|
%
|
|
|
3.8
|
%
|
Small-Cap
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annualized Gross Returns
|
|
|
10.7
|
%
|
|
|
|
|
|
|
6.4
|
%
|
|
|
66.9
|
%
|
|
|
16.6
|
%
|
|
|
3.8
|
%
|
Annualized Net Returns
|
|
|
9.7
|
%
|
|
|
|
|
|
|
5.6
|
%
|
|
|
65.3
|
%
|
|
|
16.2
|
%
|
|
|
3.7
|
%
|
Russell
2000®
Index
|
|
|
2.0
|
%
|
|
|
|
|
|
|
(2.8
|
)%
|
|
|
48.9
|
%
|
|
|
15.0
|
%
|
|
|
5.7
|
%
|
Micro-Cap
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annualized Gross Returns
|
|
|
3.4
|
%
|
|
|
|
|
|
|
(1.7
|
)%
|
|
|
70.3
|
%
|
|
|
21.8
|
%
|
|
|
3.6
|
%
|
Annualized Net Returns
|
|
|
2.5
|
%
|
|
|
|
|
|
|
(2.6
|
)%
|
|
|
68.7
|
%
|
|
|
21.4
|
%
|
|
|
3.5
|
%
|
Russell
2000®
Index
|
|
|
2.0
|
%
|
|
|
|
|
|
|
(2.8
|
)%
|
|
|
48.9
|
%
|
|
|
15.0
|
%
|
|
|
5.7
|
%
|
Russell
Micro-Cap®
Index
|
|
|
(1.2
|
)%
|
|
|
|
|
|
|
(6.3
|
)%
|
|
|
54.5
|
%
|
|
|
19.2
|
%
|
|
|
8.5
|
%
|
|
|
|
(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. |
Reminiscent of the heightened volatility and risk aversion
levels witnessed toward the end of 2008, the market environment
in May turned decidedly negative as fears over the growing
credit crisis in Europe led investors to sell equities and other
risky assets. Exacerbating the impact of the declines within
international equity markets was extreme weakness in the euro,
leading to magnified declines for US dollar-based investors.
Against this backdrop, our International Equity I and II
strategies (I share class of respective SEC registered
mutual fund, net of fees) generated returns of (10.85)% and
(10.66)%, respectively, for the period from May 1, 2010 through
May 28, 2010, while the MSCI ACWI (ex USA) generated a
return of (10.68)% for the comparable period.
Preliminary assets under management as of May 28, 2010 are
expected to be between $50.0 billion and
$50.5 billion. Net client cash outflows for the period of
May 1, 2010 through May 28, 2010 are estimated to be
between $700 million and $900 million, with such net
outflows primarily due
6
to net outflows within our International Equity strategies. We
have not yet finalized our determination of assets under
management for May 31, 2010, and our systems are generally
designed to provide month-end information, not for days during
the month. Accordingly, the preliminary data set out in this
paragraph is subject to adjustment that could be material as we
finalize our AuM determination for May 31, 2010.
Risk
Factors
An investment in our Class A common stock involves
substantial risks and uncertainties. These risks and
uncertainties include, among others, those listed below:
|
|
|
|
|
The loss of either of our Principals or other key investment
professionals or members of our senior management team could
have a material adverse effect on our business. Our ability to
attract and retain qualified investment professionals is
critical to our success.
|
|
|
|
If our investment strategies perform poorly for any reason,
including due to a declining stock market, general economic
downturn or otherwise, clients could withdraw their funds and we
could suffer a decline in assets under management, which would
reduce our earnings.
|
|
|
|
The historical returns of our existing investment strategies may
not be indicative of their future results or of the results of
investment strategies we are in the process of developing.
|
|
|
|
Most of our investment strategies consist of investments in the
securities of issuers located outside of the United States,
which involve foreign currency exchange, tax, political, social
and economic uncertainties and risks.
|
|
|
|
We derive a substantial portion of our revenues from a limited
number of our products.
|
|
|
|
The deterioration in global economic and market conditions over
the past two years has adversely affected and may continue to
adversely affect our business.
|
The foregoing is not a comprehensive list of the risks and
uncertainties we face. Please read the section entitled
Risk Factors for a discussion of the risk factors
you should carefully consider before deciding to invest in our
Class A common stock.
Our
Structure
Prior to the completion of our initial public offering
(IPO) in September 2009 of our Class A common
stock, we were a wholly owned subsidiary of Julius Baer Holding
Ltd. (a Swiss corporation now known as GAM Holding Ltd.,
GAM). As a holding company, we conduct all of our
business activities through Artio Global Management LLC
(Investment Adviser), a subsidiary of Artio Global
Holdings LLC (Holdings), our direct subsidiary and
an intermediate holding company. Investment Adviser is a
registered investment adviser that provides investment
management services to institutional and mutual fund clients,
including the Artio Global Funds.
Following our IPO and the related reorganization, our Principals
each held 7.8 million New Class A Units in Holdings.
They also held 7.8 million shares of our Class B
common stock (Class B common stock), which has
voting but no economic rights. Each Principal has the right to
exchange New Class A Units for shares of Class A
common stock on a
one-for-one
basis. As set forth in greater detail below, in connection with
this offering and inclusive of the 3,000,000 New Class A
Units each Principal exchanged for shares of Class A common
stock prior to this offering, we expect Richard Pell will
exchange or sell all but 600,000 New Class A Units and will
surrender for cancellation all but 600,000 shares of
Class B common stock and Rudolph-Riad Younes will exchange
or sell all but 600,000 New Class A Units and will
surrender for cancellation all but 600,000 shares of
Class B common stock.
Net profits and net losses are allocated based on the ownership
of New Class A Units of Holdings. Net profits and net
losses of Holdings will be allocated, and distributions will be
made, 98%
7
to us and 1% to each of our Principals after giving effect to
this offering and the application of the net proceeds as
described under Use of Proceeds.
The diagram below depicts our organizational structure
immediately after the consummation of this offering and the
application of the net proceeds as described under Use of
Proceeds (assuming the underwriters do not exercise their
option to purchase additional shares).
Note: Percentages in this table include 24,919 shares of
fully-vested Class A common stock held by our non-employee
directors, but exclude the 2,227,300 restricted stock units,
each of which represents the right to receive one share of our
Class A common stock upon the lapse of restrictions, which
lapse over either a three- or five-year period, held by our
employees (other than our Principals).
|
|
(1) |
Represents shares beneficially owned by Messrs. Pell and
Younes, including shares held by their respective grantor
retained annuity trust (GRAT) as to which they
retain beneficial ownership.
|
8
Exchange of
New Class A Units, Purchase of New Class A Units and
Repurchase of Class A Common Stock
In connection with this offering, we expect each Principal to
exchange an aggregate of 5,350,000 New Class A Units for
5,350,000 shares of Class A common stock (inclusive of
the 3,000,000 New Class A Units each Principal exchanged
for shares of Class A common stock prior to this offering)
(the Exchange) and to surrender an equivalent number
of shares of Class B common stock on or before the date of
the closing of this offering, leaving each with 2,450,000 New
Class A Units.
At the time of the IPO, we entered into an exchange agreement
with the Principals that granted each Principal, and certain
permitted transferees, the right to exchange his New
Class A Units, which represent membership interests in
Holdings, for shares of our 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,
each Principal is permitted to sell shares of Class A
common stock in connection with any exchange in an amount
necessary to generate proceeds (after deducting discounts and
commissions) sufficient to cover the taxes payable on such
exchange calculated at an assumed tax rate (the amount of shares
permitted to be sold determined based upon the stock price on
the date of exchange whether such shares are sold then or
thereafter). The assumed tax rate, which is subject to change,
is calculated assuming each Principal is a resident of New York
City paying the highest individual federal, New York State and
New York City tax rates, which may be higher than the actual tax
rate applicable to them.
In connection with this offering, we entered into an amendment
to the exchange agreement with the Principals that permits each
Principal to sell a number of shares of Class A common
stock to cover taxes payable upon any exchange (calculated at an
assumed rate), based upon, at the irrevocable written election
of the Principals or their permitted transferees at the time of
the exchange, either the stock price on the date of the exchange
or the offering price of the Class A common stock in the
case of a public offering. In connection with the Exchange, the
Principals elected to use the public offering price of the
Class A common stock issued in connection with this
offering.
In lieu of selling shares of our Class A common stock to
cover taxes incurred upon the Exchange, in accordance with the
terms of the amended exchange agreement, the Principals will
enter into a unit sale and repurchase agreement with us prior to
this offering, pursuant to which we will use the net proceeds of
this offering to purchase 1,850,000 New Class A Units from
each of the Principals upon completion of this offering, such
amounts representing the amount necessary to cover taxes payable
by the Principals (calculated at an assumed rate) and, if the
underwriters exercise in full their option to purchase
additional shares, to repurchase and retire 250,000 shares
of Class A common stock from each Principal. Following the
Exchange and these unit sales, Richard Pell will own
5,350,000 shares of Class A common stock and 600,000
New Class A Units, or 9.9% of our outstanding Class A
common stock on a fully exchanged basis (assuming the
underwriters do not exercise their option to purchase additional
shares), and Rudolph-Riad Younes will own 5,350,000 shares
of Class A common stock and 600,000 New Class A Units
New Class A Units, or 9.9% of our outstanding Class A
common stock on a fully exchanged basis (assuming the
underwriters do not exercise their option to purchase additional
shares).
In connection with the IPO we entered into a tax receivable
agreement with our Principals. As a result of the Exchange and
purchase of New Class A Units, we expect to incur payment
obligations to our Principals of approximately
$153.4 million in the aggregate (assuming no changes in the
relevant tax law and that we can earn sufficient taxable income
to realize the full tax benefits generated by the exchange
and/or
purchase of an aggregate of 14,400,000 New Class A Units)
over the
15-year
period from the assumed year of Exchange and purchase based on
an assumed price of $21.49 per share of our Class A common
stock (the last reported sale price for our Class A common
stock on May 18, 2010, which is the date on which each
Principal exchanged 3,000,000 shares of New Class A
Units for 3,000,000 shares of Class A common stock).
See Related Party Transactions Tax Receivable
Agreement.
9
Under the terms of the exchange agreement, each Principal will
be permitted to sell up to 20% of the remaining shares of
Class A common stock that he owns (calculated assuming all
New Class A Units have been exchanged by him) on or after
September 23, 2010 and an additional 20% of such remaining
shares of Class A common stock on or after each of the next
four anniversaries of such date. See Related Party
Transactions Exchange Agreement.
Following the application of the net proceeds of this offering
(assuming the underwriters do not exercise their option to
purchase additional shares), Richard Pell will have
approximately 9.9% of the voting power in us through his
ownership of the 5,350,000 shares of our Class A
common stock and 600,000 shares of Class B common
stock (which corresponds to an equivalent number of New
Class A Units), Rudolph-Riad Younes will have approximately
9.9% of the voting power in us through his ownership of the
5,350,000 shares of our Class A common stock and
600,000 shares of Class B common stock (which
corresponds to an equivalent number of New Class A Units),
and GAM will have approximately 27.9% through its ownership of
the shares of our Class C common stock.
The number of shares of our Class A common stock issued in
connection with this offering (and related purchase by us of New
Class A Units or shares of Class A common stock from
our Principals) may vary from the 3,700,000 shares (or
4,200,000 shares if the underwriters exercise in full their
option to purchase additional shares) currently contemplated as
a result of the price at which we sell shares of our
Class A common stock to the underwriters in connection with
this offering. This is because the net proceeds of this offering
will be used to purchase a number of New Class A Units and
shares of Class A common stock from each of the Principals
to generate net proceeds sufficient to cover taxes payable by
them on the expected exchange or sale of an aggregate of
7,200,000 New Class A Units by each Principal in connection
with this offering (which includes 3,000,000 New Class A
Units previously exchanged by each Principal on May 18,
2010, the tax liability of which was determined prior to the
pricing of this offering). Should either Principal exchange
additional New Class A Units prior to the pricing of this
offering, additional variability may result from the tax
liability related to such exchange and any change in market
price from the time of such exchange compared to the pricing of
the offering. The table below presents a range of assumed
offering prices and the resulting increase or decrease in the
size of this offering (assuming the underwriters do not exercise
their option to purchase additional shares) that would result
from such increase or decrease in order to generate net proceeds
sufficient to cover the tax liability relating to the expected
exchanges and sales by each Principal in connection with this
offering (inclusive of the 3,000,000 New Class A Units each
Principal exchanged on May 18, 2010 and assuming that the
Principals each exchange or sell an additional 4,200,000 New
Class A Units on the date of the pricing of this offering).
|
|
|
|
|
|
|
|
|
Price per share of Class A common
|
|
Aggregate number of shares
|
|
Increase (decrease) in aggregate
|
stock (net of assumed underwriting
|
|
of Class A common
|
|
number of shares of Class A
|
discounts and commissions)
|
|
stock sold in this offering
|
|
common stock sold in this offering
|
|
$23.49
|
|
|
3,327,639
|
|
|
|
(372,361
|
)
|
$22.49
|
|
|
3,381,242
|
|
|
|
(318,758
|
)
|
$21.49
|
|
|
3,439,833
|
|
|
|
(260,167
|
)
|
$20.49
|
|
|
3,504,144
|
|
|
|
(195,856
|
)
|
$19.49
|
|
|
3,575,054
|
|
|
|
(124,946
|
)
|
$18.49
|
|
|
3,653,635
|
|
|
|
(46,365
|
)
|
$17.49
|
|
|
3,741,201
|
|
|
|
41,201
|
|
$16.49
|
|
|
3,839,387
|
|
|
|
139,387
|
|
Our Corporate
Information
Our headquarters are located at 330 Madison Ave, New York, NY
10017. Our telephone number at this address is
(212) 297-3600
and our website address is www.artioglobal.com.
Information contained on our website is not part of this
prospectus. The Company was incorporated on November 21,
1962 in Delaware.
10
THE
OFFERING
|
|
|
Class A common stock we are
offering
|
|
3,700,000 shares of Class A common stock. |
|
Class A common stock to be outstanding immediately after
this offering and the application of the net proceeds as
described under Use of Proceeds
|
|
42,141,675 shares of Class A common stock. If all
holders of New Class A Units (other than us) immediately
after this offering elected to exchange them for shares of our
Class A common stock and all shares of Class C common
stock were converted into shares of Class A common stock,
60,097,519 shares of Class A common stock would be
outstanding immediately after this offering. |
|
Class B common stock to be outstanding immediately after
this offering and the application of the net proceeds as
described under Use of Proceeds
|
|
1,200,000 shares of Class B common stock. Shares of
our Class B common stock have voting but no economic rights
(including no rights to dividends and distributions upon
liquidation). When a New Class A Unit is exchanged by a
Principal for a share of Class A common stock, a share of
Class B common stock held by such Principal is cancelled.
At the time of the Exchange and the purchase of New Class A
Units in connection with this offering, 14,400,000 shares
of Class B common stock will be surrendered and cancelled. |
|
Class C common stock to be outstanding immediately after
this offering
|
|
16,755,844 shares of Class C common stock. Shares of
Class C common stock have economic rights (including rights
to dividends and distributions upon liquidation) equal to the
economic rights of the Class A common stock. If GAM
transfers any shares of Class C common stock to anyone
other than any of its subsidiaries or us, such shares will
automatically convert into 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 into Class A common stock on a
one-for-one
basis. |
|
Voting rights
|
|
One vote per share of Class A common stock and Class B
common stock. Shares of Class C common stock have an
aggregate vote equal to the greater of (1) the number of
votes they would be entitled to on a one-vote per share basis
and (2) 20% of the combined voting power of all classes of
common stock. GAM entered into a shareholders agreement under
which it agreed that, to the extent it has voting power as a
holder of the Class C common stock in excess of that which
it would be entitled to on a one-vote per share basis, it will
on all matters vote the shares representing such excess |
11
|
|
|
|
|
on the same basis and in the same proportion as the votes cast
by the holders of our Class A and Class B common
stock. Under this shareholders agreement, as long as GAM owns
shares of our Class C common stock constituting at least
10% of our outstanding common stock, it is entitled to appoint a
member to our Board of Directors or to exercise observer rights.
GAM has appointed an observer to our Board, but may in the
future decide to appoint a member to our Board in lieu of
exercising such observer rights. |
|
|
|
Following the application of the net proceeds of this offering,
our Principals will each have approximately 9.9% of the voting
power in us through their respective ownership of the shares of
our Class A and Class B common stock, and GAM will
have approximately 27.9% through its ownership of the shares of
our Class C common stock. |
|
|
|
Use of proceeds
|
|
We estimate that the net proceeds from the sale of shares of our
Class A common stock in this offering will be approximately
$65.0 million, or approximately $73.8 million if the
underwriters exercise their option to purchase additional shares
of Class A common stock in full, based on an offering price
of $18.49 per share, in each case after deducting assumed
underwriting discounts payable by us. |
|
|
|
|
|
We intend to use the net proceeds from this offering to purchase
1,850,000 New Class A Units and, if the underwriters
exercise in full their option to purchase additional shares, to
repurchase and retire 250,000 shares of Class A common
stock, from each of Richard Pell and Rudolph-Riad Younes. We
will not retain any of the net proceeds from this offering. |
|
|
|
As a result of the Exchange and purchase of New Class A
Units, we expect to incur payment obligations to our Principals
of approximately $153.4 million in the aggregate (assuming
no changes in the relevant tax law and that we can earn
sufficient taxable income to realize the full tax benefits
generated by the exchange and/or purchase of an aggregate of
14,400,000 New Class A Units) over the
15-year
period from the assumed year of Exchange and purchase based on
an assumed price of $21.49 per share of our Class A common
stock (the last reported sale price for our Class A common
stock on May 18, 2010, which is the date on which each
Principal exchanged 3,000,000 shares of New Class A
Units for 3,000,000 shares of Class A common stock).
See Related Party Transactions Tax Receivable
Agreement. |
|
Dividend policy
|
|
In respect of each of the last quarter of 2009 and the first
quarter of 2010, we declared a cash dividend of $0.06 per share
of Class A and Class C common stock. |
|
|
|
The declaration and payment of all future dividends, if any,
will be at the sole discretion of our Board of Directors and may
be discontinued at any time. In determining the amount of any
future dividends, our Board of Directors will take into account
any legal or contractual limitations, our actual and anticipated |
12
|
|
|
|
|
future earnings, cash flow, debt service and capital
requirements and the amount of distributions to us from our
operating company. See Dividend Policy. |
|
|
|
As a holding company, we have no material assets other than our
ownership of New Class A Units of Holdings and,
accordingly, depend on distributions from it to fund any
dividends we may pay. We intend to cause it to make
distributions to us with available cash generated from its
subsidiaries operations in an amount sufficient to cover
dividends, if any, declared by us. If Holdings makes such
distributions, the other holders of New Class A Units will
be entitled to receive equivalent distributions on a pro rata
basis. |
|
Risk Factors
|
|
The Risk Factors section included in this prospectus
contains a discussion of factors that you should carefully
consider before deciding to invest in shares of our Class A
common stock. |
|
New York Stock Exchange symbol
|
|
ART |
The number of shares of Class A common stock outstanding
immediately after this offering excludes:
|
|
|
|
|
1,200,000 shares of Class A common stock reserved for
issuance upon the exchange of the remaining New Class A
Units held by the Principals and 16,755,844 shares of
Class A common stock reserved for issuance upon the
conversion of the Class C common stock held by GAM;
|
|
|
|
7,319,502 shares of Class A common stock reserved for
issuance under the Artio Global Investors Inc. 2009 Stock
Incentive Plan; and
|
|
|
|
|
|
2,277,300 shares of Class A common stock, reserved for
delivery upon vesting of outstanding restricted stock units.
|
13
SUMMARY SELECTED
HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL DATA
The following tables set forth the summary historical and pro
forma consolidated financial and other data for Artio Global
Investors Inc. and subsidiaries as of the dates and for the
periods indicated. In accordance with Securities and Exchange
Commissions Staff Accounting Bulletin Topic 4:C, the
summary of selected consolidated statement of income data for
the years ended December 31, 2009, 2008 and 2007, and the
three months ended March 31, 2009 give retroactive effect
to a 10,500:1 stock split that was effected as of
August 28, 2009. The summary of selected consolidated
statement of income data for the years ended December 31,
2009, 2008 and 2007, and the selected consolidated statement of
financial position data as of December 31, 2009 and 2008
have been derived from our audited consolidated financial
statements, included elsewhere in the prospectus or incorporated
by reference herein. The selected consolidated statement of
income data for the three months ended March 31, 2010 and
2009 and the consolidated statement of financial position data
as of March 31, 2010 have been derived from our unaudited
interim consolidated financial statements. These unaudited
interim consolidated financial statements have been prepared on
substantially the same basis as our audited consolidated
financial statements and include all adjustments that we
consider necessary for a fair presentation of our consolidated
results of operations and financial condition for the periods
presented therein. Our results for the three months ended
March 31, 2010 and 2009 are not necessarily indicative of
our results for a full fiscal year.
The unaudited pro forma consolidated financial data table gives
effect to all of the transactions described under
Unaudited Pro Forma Consolidated Financial
Information, including the reversal of the effect of
certain transactions related to the IPO, as well as the issuance
of 3,700,000 shares of Class A common stock in
connection with this offering, the Exchange and the purchase of
1,850,000 New Class A Units from each of our Principals.
You should read the summary selected historical and pro forma
consolidated financial and other data in conjunction with
Unaudited Pro Forma Consolidated Financial
Information, Managements Discussion and
Analysis of Financial Condition and Results of Operations,
the historical consolidated financial statements and related
notes and the unaudited pro forma financial statements and
related notes included elsewhere in this prospectus or
incorporated by reference into this prospectus.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical
|
|
|
Pro Forma
|
|
|
|
|
|
|
Three Months
|
|
|
Three Months
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Year Ended
|
|
|
|
Years Ended December 31,
|
|
|
March 31,
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands, except per share data)
|
|
|
Statement of Income Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues and other operating income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment management fees
|
|
$
|
305,335
|
|
|
$
|
425,003
|
|
|
$
|
445,558
|
|
|
$
|
85,287
|
|
|
$
|
62,816
|
|
|
$
|
85,287
|
|
|
$
|
305,335
|
|
Net gains (losses) on securities held for deferred compensation
|
|
|
1,970
|
|
|
|
(2,856
|
)
|
|
|
|
|
|
|
321
|
|
|
|
(273
|
)
|
|
|
321
|
|
|
|
1,970
|
|
Foreign currency gains (losses)
|
|
|
87
|
|
|
|
(101
|
)
|
|
|
186
|
|
|
|
23
|
|
|
|
(16
|
)
|
|
|
23
|
|
|
|
87
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues and other operating income
|
|
|
307,392
|
|
|
|
422,046
|
|
|
|
445,744
|
|
|
|
85,631
|
|
|
|
62,527
|
|
|
|
85,631
|
|
|
|
307,392
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee compensation and benefits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries, incentive compensation and benefits
|
|
|
79,036
|
|
|
|
92,487
|
|
|
|
92,277
|
|
|
|
25,169
|
|
|
|
16,940
|
|
|
|
24,726
|
|
|
|
88,274
|
|
Allocation of Class B profits interests
|
|
|
33,662
|
|
|
|
76,074
|
|
|
|
83,512
|
|
|
|
|
|
|
|
10,215
|
|
|
|
|
|
|
|
|
|
Change in redemption value of Class B profits interests
|
|
|
266,110
|
|
|
|
54,558
|
|
|
|
76,844
|
|
|
|
|
|
|
|
18,126
|
|
|
|
|
|
|
|
|
|
Tax Receivable Agreement
|
|
|
97,909
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical
|
|
|
Pro Forma
|
|
|
|
|
|
|
Three Months
|
|
|
Three Months
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Year Ended
|
|
|
|
Years Ended December 31,
|
|
|
March 31,
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands, except per share data)
|
|
|
Total employee compensation and benefits
|
|
|
476,717
|
|
|
|
223,119
|
|
|
|
252,633
|
|
|
|
25,169
|
|
|
|
45,281
|
|
|
|
24,726
|
|
|
|
88,274
|
|
Shareholder servicing and marketing
|
|
|
16,886
|
|
|
|
23,369
|
|
|
|
25,356
|
|
|
|
4,548
|
|
|
|
3,069
|
|
|
|
4,548
|
|
|
|
16,886
|
|
General and administrative
|
|
|
42,317
|
|
|
|
62,833
|
|
|
|
50,002
|
|
|
|
10,285
|
|
|
|
8,174
|
|
|
|
10,285
|
|
|
|
34,144
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
535,920
|
|
|
|
309,321
|
|
|
|
327,991
|
|
|
|
40,002
|
|
|
|
56,524
|
|
|
|
39,559
|
|
|
|
139,304
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-operating income (loss)
|
|
|
(1,395
|
)
|
|
|
3,181
|
|
|
|
7,034
|
|
|
|
(661
|
)
|
|
|
(81
|
)
|
|
|
(661
|
)
|
|
|
(3,592
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income tax
expense
|
|
|
(229,923
|
)
|
|
|
115,906
|
|
|
|
124,787
|
|
|
|
44,968
|
|
|
|
5,922
|
|
|
|
45,411
|
|
|
|
164,496
|
|
Income tax expense
|
|
|
134,287
|
|
|
|
54,755
|
|
|
|
58,417
|
|
|
|
14,767
|
|
|
|
2,877
|
|
|
|
19,142
|
|
|
|
69,830
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
(364,210
|
)
|
|
|
61,151
|
|
|
|
66,370
|
|
|
|
30,201
|
|
|
|
3,045
|
|
|
|
26,269
|
|
|
|
94,666
|
|
Income from discontinued operations, net of taxes
|
|
|
|
|
|
|
|
|
|
|
1,616
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
(364,210
|
)
|
|
|
61,151
|
|
|
|
67,986
|
|
|
|
30,201
|
|
|
|
3,045
|
|
|
|
26,269
|
|
|
|
94,666
|
|
Less: Net income attributable to non-controlling interests
|
|
|
14,104
|
|
|
|
|
|
|
|
|
|
|
|
11,333
|
|
|
|
|
|
|
|
874
|
|
|
|
3,252
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Artio Global Investors
|
|
$
|
(378,314
|
)
|
|
$
|
61,151
|
|
|
$
|
67,986
|
|
|
$
|
18,868
|
|
|
$
|
3,045
|
|
|
$
|
25,395
|
|
|
$
|
91,414
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
$
|
(8.88
|
)
|
|
$
|
1.46
|
|
|
$
|
1.58
|
|
|
$
|
0.42
|
|
|
$
|
0.07
|
|
|
$
|
0.43
|
|
|
$
|
1.55
|
|
Income from discontinued operations, net of taxes
|
|
|
|
|
|
|
|
|
|
|
0.04
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Artio Global Investors per
share information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic:
|
|
$
|
(8.88
|
)
|
|
$
|
1.46
|
|
|
$
|
1.62
|
|
|
$
|
0.42
|
|
|
$
|
0.07
|
|
|
$
|
0.43
|
|
|
$
|
1.55
|
|
Diluted:
|
|
|
(8.88
|
)
|
|
|
1.46
|
|
|
|
1.62
|
|
|
|
0.42
|
|
|
|
0.07
|
|
|
$
|
0.43
|
|
|
$
|
1.55
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends per basic share
|
|
$
|
5.16
|
|
|
$
|
2.79
|
|
|
$
|
1.43
|
|
|
$
|
0.06
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Weighted average shares used to calculate per share
information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic:
|
|
|
42,620
|
|
|
|
42,000
|
|
|
|
42,000
|
|
|
|
44,460
|
|
|
|
42,000
|
|
|
|
59,304
|
|
|
|
58,890
|
|
Diluted:
|
|
|
42,620
|
|
|
|
42,000
|
|
|
|
42,000
|
|
|
|
44,629
|
|
|
|
42,000
|
|
|
|
60,510
|
|
|
|
60,090
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
As of
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
As of March 31, 2010
|
|
|
|
2009
|
|
|
2008
|
|
|
Historical
|
|
|
Pro Forma
|
|
|
|
(In thousands)
|
|
|
Statement of Financial Position Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
60,842
|
|
|
$
|
86,563
|
|
|
$
|
74,771
|
|
|
$
|
74,771
|
|
Total assets
|
|
|
195,954
|
|
|
|
319,476
|
|
|
|
210,077
|
|
|
|
390,559
|
|
Accrued compensation and benefits
|
|
|
31,478
|
|
|
|
268,925
|
|
|
|
10,896
|
|
|
|
10,896
|
|
Long-term debt
|
|
|
60,000
|
|
|
|
|
|
|
|
60,000
|
|
|
|
60,000
|
|
Total liabilities
|
|
|
191,973
|
|
|
|
286,231
|
|
|
|
176,094
|
|
|
|
329,504
|
|
Total stockholders equity
|
|
|
6,892
|
|
|
|
33,245
|
|
|
|
26,497
|
|
|
|
60,479
|
|
Non-controlling interests
|
|
|
(2,911
|
)
|
|
|
|
|
|
|
7,486
|
|
|
|
576
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
$
|
3,981
|
|
|
$
|
33,245
|
|
|
$
|
33,983
|
|
|
$
|
61,055
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
Three Months Ended March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2010
|
|
|
2009
|
|
|
|
(In millions)
|
|
|
Selected Unaudited Operating Data (excluding legacy
activities):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets under management(1)
|
|
$
|
55,993
|
|
|
$
|
45,200
|
|
|
$
|
75,362
|
|
|
$
|
56,417
|
|
|
$
|
38,941
|
|
Net client cash flows(2)
|
|
|
338
|
|
|
|
1,930
|
|
|
|
12,150
|
|
|
|
95
|
|
|
|
222
|
|
Market appreciation (depreciation)(3)
|
|
|
10,455
|
|
|
|
(32,092
|
)
|
|
|
9,726
|
|
|
|
329
|
|
|
|
(6,481
|
)
|
|
|
|
(1) |
|
Reflects the amount of money our clients have invested in our
strategies as of the period-end date. |
|
(2) |
|
Reflects the amount of money our clients have invested in our
strategies during the period, net of outflows and excluding
appreciation (depreciation) due to changes in market value. |
|
(3) |
|
Represents the appreciation (depreciation) of the value of
assets under our management during the period due to market
performance and fluctuations in exchange rates. |
16
RISK
FACTORS
We face a variety of significant and diverse risks, many of
which are inherent in our business. Described below are certain
risks that we currently believe could materially affect us.
Other risks and uncertainties that we do not presently consider
to be material or of which we are not presently aware may become
important factors that affect us in the future. The occurrence
of any of the risks discussed below could materially and
adversely affect our business, prospects, financial condition,
results of operations or cash flow. You should carefully
consider each of the risks below, together with all other
information contained in or incorporated by reference in, this
prospectus before deciding to invest in shares of our
Class A common stock.
Risks Related to
our Business
The loss of
any key investment professionals, including Messrs. Pell
and Younes, or members of our senior management team and senior
marketing personnel could have a material adverse effect on our
business.
We depend on the skills and expertise of qualified investment
professionals and our success depends on our ability to retain
the key members of our investment team and to attract new
qualified investment professionals. In particular, we depend on
Messrs. Pell and Younes, who were the architects of our
International Equity strategies. Messrs. Pell and Younes,
as well as other key members of our investment team, possess
substantial experience in investing and have developed strong
relationships with our clients. The purchase of New Class A
Units and repurchase of Class A common stock in connection
with this offering will result in a reduction in the interests
Messrs. Pell and Younes hold in us and in Holdings. The
loss of either of Messrs. Pell or Younes or any of our
other key investment professionals could limit our ability to
successfully execute our business strategy and may prevent us
from sustaining the performance of our investment strategies or
adversely affect our ability to retain existing and attract new
client assets. In addition, our investment professionals and
senior marketing personnel have direct contact with our
institutional separate account clients and their consultants,
and with key individuals within each of our other distribution
sources and the loss of these personnel could jeopardize those
relationships and result in the loss of such accounts. We do not
carry any key man insurance that would provide us
with proceeds in the event of the death or disability of
Messrs. Pell or Younes or other key members of senior
management, our investment team, or senior marketing personnel.
We also anticipate that it will be necessary for us to hire
additional investment professionals, both within our existing
teams and as we further diversify our investment products and
strategies. Competition for employees with the necessary
qualifications is intense and we may not be successful in our
efforts to recruit and retain the required personnel. Our
ability to retain and attract these personnel will depend
heavily on the amount of compensation we offer. Compensation
levels in the investment management industry are highly
competitive and can fluctuate significantly from year to year.
Consequently, our profitability could decline as we compete for
personnel. An inability to recruit and retain qualified
personnel could affect our ability to provide acceptable levels
of service to our clients and funds and hinder our ability to
attract new clients and investors to our strategies, each of
which could have a material adverse effect on our business.
If our
investment strategies perform poorly, clients could withdraw
their funds and we could suffer a decline in assets under
management and/or become subject to litigation which would
reduce our earnings.
The performance of our investment strategies is critical in
retaining existing clients as well as attracting new clients. If
our investment strategies perform poorly, as our International
Equity strategies did in 2009 and in the first quarter of 2010,
our earnings could be reduced because:
|
|
|
|
|
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;
|
17
|
|
|
|
|
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;
|
|
|
|
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
|
|
|
|
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.
|
Our investment strategies can perform poorly for a number of
reasons, including general market conditions and investment
decisions that we make. For instance, heading into 2009, our
positioning in International Equity proved too defensive, as
markets turned decidedly positive in March. This caused
performance to suffer as markets improved. The rallies witnessed
in financials and emerging markets in early March 2009 in
response to global stimulus, led to our underperformance given
our underweight to both of these areas. Although we made
adjustments during this period, the speed and amplitude of the
move negatively impacted us and as a result, we significantly
underperformed relative to our respective benchmarks in 2009.
During the second half of the year, the strategies were
repositioned to take advantage of positive market tailwinds
which had a stabilizing effect, resulting in more muted
underperformance for the second half of 2009, but our full year
results did trail the index, which could impact net client cash
inflows in 2010. During the first quarter of 2010, the continued
underweight Japan and overweight to Europe and emerging markets,
hindered performance in January and February, but proved
beneficial to relative performance in March. In contrast, when
our strategies experience strong results relative to the market
or other asset classes, clients allocations to our
strategies may increase relative to their other investments and
we could suffer withdrawals as our clients rebalance their
investments to fit their asset allocation preferences.
While clients do not have legal recourse against us solely on
the basis of poor investment results, if our investment
strategies perform poorly, we are more likely to become subject
to litigation brought by dissatisfied clients. In addition, to
the extent clients are successful in claiming that their losses
resulted from fraud, negligence, willful misconduct, breach of
contract or other similar misconduct, such clients may have
remedies against us, our investment funds, our investment
professionals
and/or our
affiliates under the federal securities law
and/or state
law.
The historical
returns of our existing investment strategies may not be
indicative of their future results or of the investment
strategies we are in the process of developing.
We have presented the historical returns of our existing
investment strategies under Business
Investment Strategies, Products and
Performance. The historical returns of our strategies and
the rankings we have received in the past should not be
considered indicative of the future results of these strategies
or of any other strategies that we may be in the process of
developing or that we may develop in the future. Our
strategies returns have benefited during some periods from
investment opportunities and positive economic and market
conditions. More recent general economic and market conditions
have negatively affected investment opportunities and our
strategies returns, and there can be no assurance that
such negative conditions will not continue or that, in the
future, we will be able to identify and invest in profitable
investment opportunities within our current or future
strategies. For example, in 2009, our International Equity
strategies performed well below historical averages on a
relative basis.
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 March 31, 2010, approximately 82% of our assets under
management across our investment strategies were invested in
strategies that primarily invest in securities of companies
located outside the United States. Fluctuations in foreign
currency exchange rates could negatively
18
affect the returns of our clients who are invested in these
strategies. In addition, an increase in the value of the
U.S. dollar relative to
non-U.S. currencies
is likely to result in a decrease in the U.S. dollar value
of our assets under management, which, in turn, could result in
lower
U.S.-dollar
denominated revenue.
Investments in
non-U.S. issuers
may also be affected by tax positions taken in countries or
regions in which we are invested as well as political, social
and economic uncertainty, particularly as a result of the recent
decline in economic conditions. Many financial markets are not
as developed, or as efficient, as the U.S. financial
market, and, as a result, liquidity may be reduced and price
volatility may be higher. Liquidity may also be adversely
affected by political or economic events within a particular
country, and by increasing the size of our investments in
smaller
non-U.S. issuers.
Non-U.S. legal
and regulatory environments, including financial accounting
standards and practices, may also be different, and there may be
less publicly available information in respect of such
companies. These risks could adversely affect the performance of
our strategies that are invested in securities of
non-U.S. issuers.
Recent economic conditions in certain European Union member
states, Greece in particular, have adversely affected investor
sentiment, particularly with respect to international
investments. As the Greek government has attempted to tackle its
debt crisis, concerns have grown over other members of European
Union with swelling debt levels, including, Spain, Portugal,
Italy and Ireland. As concerns over an escalating eurozone
sovereign debt crisis have intensified, the U.S. dollar has
strengthened against most major currencies.
Difficult
market conditions can adversely affect our business in many
ways, including by reducing the value of our assets under
management and causing clients to withdraw funds, each of which
could materially reduce our revenues and adversely affect our
financial condition.
The fees we earn under our investment management fee agreements
are typically based on the market value of our assets under
management. Investors in open-end funds can redeem their
investments in those funds at any time without prior notice and
our clients may reduce the aggregate amount of assets under
management with us for any number of reasons, including
investment performance, changes in prevailing interest rates and
financial market performance. 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, in difficult market
conditions, the pace of client redemptions or withdrawals from
our investment strategies could accelerate if clients move
assets to investments they perceive as offering greater
opportunity or lower risk. Any of these sources of declining
assets under management would result in lower investment
management fees.
For example, during 2008 and the early part of 2009, the global
economic and financial crisis led to dramatic declines across
financial markets. Global equity markets fell, particularly as
the financial crisis intensified in the third and fourth
quarters of 2008 and the first quarter of 2009. The sizeable
declines in stock prices worldwide resulted in substantial
withdrawals from equity funds during 2008 throughout the asset
management industry. Although the economic environment began to
improve in early March of 2009 and continued to gain momentum
throughout the year in response to substantial global stimulus
efforts resulting in improved returns for global stocks and
bonds and positive flows into equity and fixed income products
over that time period, the recent credit crisis faced by Greece,
Portugal, Spain and other indebted countries has led to a
dramatic increase in volatility across markets. While the
governments of the 16 euro nations have agreed to a package to
contain the crisis, it remains to be seen how effective this
will be in calming financial markets and the effect it will have
on potential redemptions or withdrawals by our clients
and/or our
investment performance.
19
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 have begun to incorporate equity awards as part
of our compensation strategy and as a means for recruiting and
retaining this highly skilled talent. A decline in our stock
price could result in a significant deterioration in the value
of restricted stock units granted, thus lessening the
effectiveness of retaining employees through stock-based awards.
There can be no assurance that we will continue to successfully
attract and retain key personnel.
We derive a
substantial portion of our revenues from a limited number of our
strategies.
As of March 31, 2010, 81% of our assets under management
were concentrated in the International Equity I and
International Equity II strategies, and 89% of our
investment management fees for the quarter ended March 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.
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 assets under management is highly
dependent on access to third-party intermediaries, including
RIAs and broker dealers. We also provide our services to retail
clients through mutual fund platforms and
sub-advisory
relationships. As of March 31, 2010, our largest mutual
fund platform represented approximately 10% of our total assets
under management, our largest intermediary accounted for
approximately 5% of our total assets under management and our
largest
sub-advisory
relationship represented approximately 2% of our total assets
under management. We cannot assure you that these sources and
client bases will continue to be accessible to us on
commercially reasonable terms, or at all. The absence of such
access could have a material
20
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 March 31, 2010,
the consultant advising the largest portion of our client assets
under management represented approximately 5% of our assets
under management. In addition, the recent economic downturn and
consolidation in the broker-dealer industry have led to
increased competition to market through broker dealers and
higher costs, and may lead to reduced distribution access and
further cost increases.
The
significant growth we have experienced over the past six years
may not be indicative of future growth.
Our assets under management have increased from approximately
$7.5 billion as of December 31, 2003 to approximately
$56.3 billion as of April 30, 2010. The growth of our
business will depend on, 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, our ability to maintain
adequate financial and business controls and our ability to
comply with new legal and regulatory requirements arising in
response to both the increased sophistication of the investment
management market and the significant market and economic events
of the last two years. In addition, the growth in our assets
under management since December 31, 2004 has benefited from
a general depreciation of the U.S. dollar relative to many
of the currencies in which we invest and such currency trends
may not continue, as evidenced by recent volatility and
strengthening of the U.S. dollar. 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. In
addition, we expect there to be significant demand on our
infrastructure and investment team and we cannot assure you that
we will be able to manage our growing business effectively or
that we will be able to sustain the level of growth we have
achieved historically, and any failure to do so could adversely
affect our ability to generate revenue and control our expenses.
Our failure to
comply with investment guidelines set by our clients, including
the boards of mutual funds, could result in damage awards
against us and a loss of assets under management, either of
which could cause our earnings to decline.
As an investment advisor, we have a fiduciary duty to our
clients. When clients retain us to manage assets on their
behalf, they generally specify certain guidelines regarding
investment allocation and strategy that we are required to
follow in the management of their portfolios. In addition, the
boards of mutual funds we manage generally establish similar
guidelines regarding the investment of assets in those funds. We
are also required to invest the mutual funds assets in
accordance with limitations under the 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
21
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 trading errors or
interruption of our financial, accounting, trading, compliance
and other data processing systems, whether caused by fire, other
natural disaster or pandemic, power or telecommunications
failure, act of terrorism or war or otherwise, could result in a
disruption of our business, liability to clients, regulatory
intervention or reputational damage, and thus materially
adversely affect our business. The risks related to trading
errors are increased by the recent extraordinary market
volatility, which can magnify the cost of an error. For example,
in 2008 we suffered trading errors that cost us approximately
$5.5 million. Insurance and other safeguards might not be
available or might only partially reimburse us for our losses.
Although we have
back-up
systems in place, our
back-up
procedures and capabilities in the event of a failure or
interruption may not be adequate. The inability of our systems
to accommodate an increasing volume of transactions also could
constrain our ability to expand our businesses. Additionally,
any upgrades or expansions to our operations
and/or
technology may require significant expenditures and may increase
the probability that we will suffer system degradations and
failures. We also depend on access to our headquarters in New
York City, where a majority of our employees are located, for
the continued operation of our business. Any significant
disruption to our headquarters could have a material adverse
effect on us.
Employee
misconduct could expose us to significant legal liability and
reputational harm.
We are vulnerable to reputational harm as we operate in an
industry where integrity and the confidence of our clients are
of critical importance. Our employees could engage in misconduct
that adversely affects our business. For example, if an employee
were to engage in illegal or suspicious activities, we could be
subject to regulatory sanctions and suffer serious harm to our
reputation (as a consequence of the negative perception
resulting from such activities), financial position, client
relationships and ability to attract new clients. Our business
often requires that we deal with confidential information. If
any of our employees were to improperly use or disclose this
information, we could suffer serious harm to our reputation,
financial position and current and future business
relationships. It is not always possible to deter employee
misconduct, and the precautions we take to detect and prevent
this activity may not always be effective. Misconduct by our
employees, or even unsubstantiated allegations of misconduct,
could result in an adverse effect on our reputation and our
business.
If our
techniques for managing risk are ineffective, we may be exposed
to material unanticipated losses.
In order to manage the significant risks inherent in our
business, we must maintain effective policies, procedures and
systems that enable us to identify, assess and manage the full
spectrum of our risks including, market, fiduciary, operational,
legal, regulatory and reputational risks. Our risk management
methods may prove to be ineffective due to their design or
implementation, or as a result of the lack of adequate, accurate
or timely information or otherwise. If our risk management
efforts are ineffective, we could suffer losses that could have
a material adverse effect on our financial condition
22
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. In October 2009, Holdings borrowed
$60.0 million under the term credit facility. The
incurrence of this debt exposes us to the typical risks
associated with the use of leverage. Increased leverage makes it
more difficult for us to withstand adverse economic conditions
or business plan variances, to take advantage of new business
opportunities, or to make necessary capital expenditures. The
agreements governing our debt facilities contain covenant
restrictions that limit our ability to conduct our business,
including restrictions on our ability to incur additional
indebtedness. A substantial portion of our cash flow could be
required for debt service and, as a result, might not be
available for our operations or other purposes. Any substantial
decrease in net operating cash flows or any substantial increase
in expenses could make it difficult for us to meet our debt
service requirements or force us to modify our operations. Our
level of indebtedness may make us more vulnerable to economic
downturns and reduce our flexibility in responding to changing
business, regulatory and economic conditions.
We are subject
to risks relating to new initiatives which may adversely affect
our growth strategy and business.
A key component of our growth strategy is to focus on achieving
superior, long-term investment performance. Any new initiative
we pursue will be subject to numerous risks, some unknown and
some known, which may be different from and in addition to the
risks we face in our existing business, including, among others,
risks associated with newly established strategies without any
operating history, risks associated with potential, perceived or
actual conflicts of interest, risks relating to the misuse of
confidential information, risks due to potential lack of
liquidity in the securities in which these initiatives invest
and risks due to a general lack of liquidity in the global
financial market that could make it harder to obtain equity or
debt financing.
In developing any new initiatives, we may decide to utilize the
expertise and research of our current investment professionals,
which may place significant strain on resources and distract our
23
investment professionals from the strategies that they currently
manage. This reliance on our existing investment teams may also
increase the possibility of a conflict of interest arising,
given the differing fee structures associated with these new
initiatives. Our growth strategy may require significant
investment, including capital commitments to seed new products
and to fund additional operating expenses as well as the hiring
of additional investment professionals, which may place
significant strain on our financial, operational and management
resources. We cannot assure you that we will be able to achieve
our growth strategy or that we will succeed in any new
initiatives. Failure to achieve or manage such growth could have
a material adverse effect on our business, financial condition
and results of operations. See Business
Investment Strategies, Products and Performance New
Initiatives.
Failure to
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 remain in the process of strengthening 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 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 investment management fees relative to those of our
competitors. In recent years, however, there has been a general
trend toward lower fees in the investment management industry.
In order to maintain our fee structure in a competitive
environment, we must be able to continue to provide clients with
investment returns and service that incentivize our investors to
pay our fees. We cannot assure you that we will succeed in
providing investment returns and service that will allow us to
maintain our current fee structure.
The board of directors of each mutual fund we manage must make
certain findings as to the reasonableness of our fees and can
renegotiate them annually which, in the past, led to a reduction
in fees. Fee reductions on existing or future new business could
have an adverse effect on our profit margins
and/or
results of operations.
24
The cost of
insuring our business and providing benefits to our employees is
substantial and may increase.
Our insurance costs and the costs of our benefit plans are
substantial and have increased in recent years. In 2009,
insurance costs increased as coverage was extended to meet the
needs of being a public company. In addition, certain insurance
coverage may not be available or may only be available at
prohibitive costs. As we renew our insurance policies, we may be
subject to additional costs resulting from rising premiums, the
assumption of higher deductibles
and/or
co-insurance liability and, to the extent certain of our
U.S. funds purchase separate director and officer
and/or error
and omission liability coverage, an increased risk of insurance
companies disputing responsibility for joint claims. Higher
insurance costs and incurred deductibles would reduce our net
income.
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.
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
25
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 Regulatory Environment and Compliance.
The regulatory
environment in which we operate is subject to continual change
and regulatory developments designed to increase oversight may
adversely affect our business.
The legislative and regulatory environment in which we operate
has undergone significant changes in the recent past and while
there is an ordinary evolution to regulation, we believe there
will be significant regulatory changes in our industry, which
will result in subjecting participants to additional regulation.
The requirements imposed by our regulators are designed to
ensure the integrity of the financial markets and to protect
customers and other third parties who deal with us, and are not
designed to protect our stockholders. Consequently, these
regulations often serve to limit our activities, including
through customer protection and market conduct requirements. New
laws or regulations, or changes in the enforcement of existing
laws or regulations, applicable to us and our clients may
adversely affect our business. Our ability to function in this
environment will depend on our ability to constantly monitor and
promptly react to legislative and regulatory changes. For
investment management firms in general, there have been a number
of highly publicized regulatory inquiries that focus on the
mutual fund industry. These inquiries already have resulted in
increased scrutiny in the industry and new rules and regulations
for mutual funds and their investment managers. This regulatory
scrutiny may limit our ability to engage in certain activities
that might be beneficial to our stockholders. See
Regulatory Environment and Compliance.
In addition, as a result of the recent economic downturn, acts
of serious fraud in the asset management industry and perceived
lapses in regulatory oversight, U.S. and
non-U.S. governmental
and regulatory authorities may increase regulatory oversight of
our businesses. We may be adversely affected as a result of new
or revised legislation or regulations imposed by the SEC, other
U.S. or
non-U.S. governmental
regulatory authorities or self-regulatory organizations that
supervise the financial markets. We also may be adversely
affected by changes in the interpretation or enforcement of
existing laws and rules by these governmental authorities and
self-regulatory organizations. It is impossible to determine the
extent of the impact of any new laws, regulations or initiatives
that may be proposed, or whether any of the proposals will
become law. Compliance with any new laws or regulations could
make compliance more difficult and expensive and affect the
manner in which we conduct business.
The investment
management business is intensely competitive.
The investment management business is intensely competitive,
with competition based on a variety of factors, including
investment performance, continuity of investment professionals
and client relationships, the quality of services provided to
clients, corporate positioning and business reputation,
continuity of selling arrangements with intermediaries and
differentiated products. A number of factors, including the
following, serve to increase our competitive risks:
|
|
|
|
|
a number of our competitors have greater financial, technical,
marketing and other resources, better name recognition and more
personnel than we do;
|
|
|
|
there are relatively low barriers impeding entry to new
investment funds, including a relatively low cost of entering
these businesses;
|
26
|
|
|
|
|
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;
|
|
|
|
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;
|
|
|
|
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;
|
|
|
|
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
|
|
|
|
other industry participants, hedge funds and alternative asset
managers may seek to recruit our qualified investment
professionals.
|
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 we must produce a management
assessment in accordance with Section 404 of the
Sarbanes-Oxley Act of 2002 for the period ended
December 31, 2010. While management believes that our
internal control over financial reporting was effective as of
March 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 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
27
control over financial reporting. This could lead to a material
adverse effect on our business, a decline in our share price and
impair our ability to raise capital.
Risks Relating to
our Structure
Our ability to
pay regular dividends to our stockholders is subject to the
discretion of our board of directors and may be limited by our
holding company structure and applicable provisions of Delaware
law.
We intend to continue to pay cash dividends to holders of our
Class A and Class C common stock on a quarterly basis.
Our Board of Directors may, in its sole discretion, change the
amount or frequency of dividends or discontinue the payment of
dividends entirely. In addition, as a holding company, we will
be dependent upon the ability of our subsidiaries to generate
earnings and cash flows and distribute them to us so that we may
pay dividends to our stockholders. We expect to cause Holdings
to make distributions to its members, including us. However, its
ability to make such distributions will be subject to its
operating results, cash requirements and financial condition,
the applicable provisions of Delaware law which may limit the
amount of funds available for distribution to its members, its
compliance with covenants and financial ratios 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 our operations, we may have to
borrow funds and thus, our liquidity and financial condition
could be materially adversely affected.
We may not be
able to realize all or a portion of the tax benefits of any
depreciation or amortization deductions that we currently expect
to be available (and that are currently reflected in our pro
forma balance sheet) resulting from the Principals
exchanges of New Class A Units and our purchase of
other New Class A Units from the Principals.
Our ability to benefit from any depreciation or amortization
deductions, which we currently expect to be available as a
result of the increases in tax basis created by the
Principals exchanges of New Class A Units and our
purchase of other New Class A Units from the Principals,
depends on a number of assumptions, including that we earn
sufficient taxable income each year during the
15-year
period over which such deductions are available and that there
are no adverse changes in applicable law or regulations. Our pro
forma balance sheet reflects a deferred tax asset, a
corresponding liability for amounts due under the tax receivable
agreement and an increase in stockholders equity related
to our 15% share of this expected benefit. If our actual taxable
income were insufficient
and/or there
were adverse changes in applicable law or regulations, we may be
unable to realize this expected benefit and our cash flows and
stockholders equity could be negatively affected. See
Related Party Transactions Tax Receivable
Agreement.
28
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 and any
purchases by us of other New Class A Units (including the
exchanges that occurred prior to this offering and the purchases
that will occur in connection with this offering) 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
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. The actual
increase in tax basis, as well as the amount and timing of any
payments under this agreement, will vary depending on a number
of factors, including the timing of each Principals
exchanges, the price of our Class A common stock at the
time of the exchange, the extent to which such exchanges are
taxable, the amount and timing of our income and the tax rates
then applicable. Payments under the tax receivable agreement are
expected to give rise to certain additional tax benefits
attributable to further increases in basis or, in certain
circumstances, in the form of deductions for imputed interest.
Any such benefits are covered by the tax receivable agreement
and will increase the amounts due thereunder. In addition, the
tax receivable agreement provides for interest accrued from the
due date (without extensions) of the corresponding tax return to
the date of payment specified by the tax receivable agreement.
We expect that, as a result of the size and increases in the tax
basis of the tangible and intangible assets of Holdings
attributable to the exchanged New Class A Units, the
payments that we may make to the Principals will be substantial.
See Related Party Transactions Tax Receivable
Agreement.
As a result of the Exchange and purchase of New Class A
Units in connection with this offering, we expect to incur
payment obligations to our Principals of approximately
$153.4 million in the aggregate (assuming no changes in the
relevant tax law and that we can earn sufficient taxable income
to realize the full tax benefits generated by the exchange
and/or
purchase of an aggregate of 14,400,000 New Class A Units)
over the
15-year
period from the assumed year of Exchange and purchase based on
an assumed price of $21.49 per share of our Class A common
stock (the last reported sale price for our Class A common
stock on May 18, 2010, which is the date on which each
Principal exchanged 3,000,000 shares of New Class A
Units for 3,000,000 shares of Class A common stock).
See Related Party Transactions 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
29
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 changes in
law or regulations, possibly with retroactive effects.
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, 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
May 28, 2010, during the previous 30 consecutive trading
days, the average closing share price of our Class A common
stock was $21.63 per share and the average market capitalization
of our Class A common stock was approximately
$634.8 million, excluding securities exchangeable for, or
convertible into, shares of our Class A common stock.
The market
price and trading volume of our Class A common stock may be
volatile, which could result in rapid and substantial losses for
our stockholders.
The market price of our Class A common stock may be highly
volatile and could be subject to wide fluctuations. 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
30
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:
|
|
|
|
|
variations in our quarterly operating results or dividends, or a
decision to continue not paying a regular dividend;
|
|
|
|
failure to meet analysts earnings estimates;
|
|
|
|
difficulty in complying with the provisions in our credit
agreement such as financial covenants and amortization
requirements;
|
|
|
|
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;
|
|
|
|
additions or departures of our Principals and other key
management personnel;
|
|
|
|
adverse market reaction to any indebtedness we may incur or
securities we may issue in the future;
|
|
|
|
actions by stockholders;
|
|
|
|
changes in market valuations of similar companies;
|
|
|
|
speculation in the press or investment community;
|
|
|
|
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;
|
|
|
|
litigation or governmental investigations;
|
|
|
|
fluctuations in the performance or share price of other industry
participants, hedge funds or alternative asset managers;
|
|
|
|
poor performance or other complications affecting our funds or
current or proposed investments;
|
|
|
|
adverse publicity about the asset management industry generally
or individual scandals, specifically;
|
|
|
|
sales of a large number of our Class A common stock or the
perception that such sales could occur; and
|
|
|
|
general market and economic conditions.
|
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
March 31, 2010, we had 60,089,143 outstanding shares of our
Class A common stock on a fully exchanged basis (assuming
all New Class A Units are exchanged for, and all shares of
Class C common stock are converted into, shares of
Class A common stock) and 2,277,300 restricted stock units
granted to employees.
Following the application of the net proceeds of this offering
and assuming that the underwriters do not exercise their option
to purchase additional shares, Richard Pell will own
5,350,000 shares of our Class A common stock and
600,000 New Class A Units of Holdings, which are
exchangeable for shares of Class A common stock, and
Rudolph-Riad Younes will own 5,350,000 shares of our
Class A common stock and 600,000 New Class A Units of
Holdings, which are exchangeable for shares of Class A
common stock. GAM will own 16,755,844 shares of our
Class C common stock which are convertible upon sale into
shares of our Class A common stock. Each of our Principals
and GAM has registration rights permitting them to sell their
stock, subject to transfer restrictions in the case of our
Principals. See Related Party Transactions
Registration Rights Agreement.
31
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.
32
CAUTIONARY
NOTE REGARDING FORWARD-LOOKING STATEMENTS
We have made statements under the captions Prospectus
Summary, Risk Factors, Managements
Discussion and Analysis of Financial Condition and Results of
Operations and in other sections of this prospectus that
are forward-looking statements. In some cases, you can identify
these statements by forward-looking words such as
may, might, will,
should, expects, plans,
anticipates, believes,
estimates, predicts,
potential or continue, the negative of
these terms and other comparable terminology. These
forward-looking statements, which are subject to risks,
uncertainties and assumptions, may include projections of our
future financial performance, our anticipated growth strategies,
descriptions of new business initiatives and anticipated trends
in our business. These statements are only predictions based on
our current expectations and 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
prospectus to conform our prior statements to actual results or
revised expectations.
The Risk Factors section of this prospectus lists
various important factors that could cause actual results to
differ materially from future and historical results. We note
these factors for investors as permitted by the Private
Securities Litigation Reform Act of 1995. You should understand
that it is not possible to predict or identify all such factors.
Consequently, you should not consider any such list to be a
complete set of all potential risks or uncertainties.
In this prospectus, we state that we may experience a reduced
number of clients, and net client cash flows, as a result of
underperformance or decreased portfolio rebalancing following
recent market turbulence. Many factors influence our overall
number of mandates, as well as levels of net client cash flows,
including, but not limited to, the performance of our investment
strategies, interest in the particular strategies we offer and
general market and economic conditions.
33
DIVIDEND
POLICY
We intend to continue to pay quarterly cash dividends. Our first
cash dividend was paid in the first quarter of 2010 (in respect
of the fourth quarter of 2009) and was $0.06 per share of
our Class A common stock and Class C common stock. Our
Board of Directors also declared a dividend of $0.06 per share
of our Class A common stock and Class C common stock
in April 2010 (in respect of the first quarter of 2010), payable
to stockholders of record as of May 12, 2010, on
May 26, 2010. We funded each of these dividends, and intend
to fund our future dividends, from our portion of distributions
made by our operating company from its available cash generated
from operations. The holders of our Class B common stock
will not be entitled to any cash dividends in their capacity as
stockholders, but will, in their capacity as members of
Holdings, participate on a pro rata basis in distributions by
Holdings.
The declaration and payment of all future dividends, if any,
will be at the sole discretion of our Board of Directors. In
determining the amount of any future dividends, our Board of
Directors will take into account: (i) the financial results
of the operating company, (ii) our available cash, as well
as anticipated cash requirements (including debt servicing),
(iii) our capital requirements and the capital requirements
of our subsidiaries (including the operating company),
(iv) contractual, legal, tax and regulatory restrictions
on, and implications of, the payment of dividends by us to our
stockholders or by our subsidiaries (including the operating
company) to us, (v) general economic and business
conditions and (vi) any other factors that our Board of
Directors may deem relevant.
As a holding company, we have no material assets other than our
ownership of New Class A Units of Holdings and certain
related tax assets. Accordingly, we depend on distributions from
Holdings to fund any dividends and taxes we pay. We cause
Holdings to distribute cash to its members, including us, in an
amount sufficient to cover any dividends we declare. When
Holdings makes such distributions, other holders of New
Class A Units (i.e., our Principals) receive
equivalent distributions on a pro rata basis.
Our dividend policy has certain risks and limitations,
particularly with respect to liquidity. Although we expect to
pay dividends according to our dividend policy, we may not pay
dividends according to our policy, or at all, if, among other
things, Holdings is unable to make distributions to us as a
result of its operating results, cash requirements and financial
condition, the applicable laws of the State of Delaware (which
may limit the amount of funds available for distribution), its
compliance with covenants and financial ratios related to
existing or future indebtedness (including the term debt
facility and revolving credit facility) and its other agreements
with third parties. Under Delaware law, we may only pay
dividends from legally available surplus or, if there is no such
surplus, out of our net profits for the fiscal year in which the
dividend is declared
and/or the
preceding fiscal year. Surplus is defined as the excess of a
companys total assets over the sum of its total
liabilities plus the par value of its outstanding capital stock.
Under Delaware law, our Board of Directors can use the fair
value of assets and liabilities, rather than book value, in
making this determination. To the extent we do not have
sufficient cash to pay dividends, we may decide not to pay
dividends. By paying cash dividends rather than investing that
cash in our future growth, we risk slowing the pace of our
growth, or not having a sufficient amount of cash to fund our
operations or unanticipated capital expenditures. Holdings
term debt facility and revolving credit facility contain
covenants limiting Holdings ability to make dividend
payments if its consolidated leverage ratio (as defined in the
credit facility agreement) would exceed 1.5x on a pro forma
basis after giving effect to such payments or if Holdings is in
default under the term debt facility or the revolving credit
facility.
We are taxable as a corporation for U.S. federal income tax
purposes and therefore holders of our Class A common stock
are not taxed directly on our earnings. Distributions of cash or
other property that we pay to our stockholders constitutes
dividends for U.S. federal income tax purposes to the
extent paid from our current or accumulated earnings and profits
(as determined under U.S. federal income tax rules). If the
amount of a distribution by us to our stockholders exceeds our
current and
34
accumulated earnings and profits, such excess will be treated
first as a tax-free return of capital to the extent of a
holders basis in the Class A common stock and
thereafter as capital gain.
Historical
Dividend Information
The following table sets forth the total ordinary dividends
declared by us in respect of the periods indicated:
|
|
|
|
|
Period
|
|
Amount
|
|
|
(In thousands)
|
|
Year ended December 31, 2008
|
|
$
|
117,000
|
|
Year ended December 31, 2009
|
|
$
|
219,525
|
|
Quarter ended March 31, 2010
|
|
$
|
2,669
|
|
These dividends were not declared pursuant to any agreement. The
dividends we declared in respect of the first three quarters of
2009 were payable to our former sole stockholder which, prior to
the IPO, held all of our outstanding common stock. The dividends
we declared in respect of the fourth quarter of 2009 and the
first quarter of 2010 were paid in respect of our Class A
common stock and Class C common stock.
35
USE OF
PROCEEDS
We estimate that the net proceeds from this offering, after
deducting estimated underwriting discounts and commissions, will
be approximately $65.0 million, or approximately
$73.8 million if the underwriters exercise in full their
option to purchase additional shares of Class A common
stock, based on an assumed public offering price of $18.49 per
share (the last reported sale price for our Class A common
stock on May 28, 2010).
We intend to use the net proceeds from this offering to purchase
1,850,000 New Class A Units and, if the underwriters
exercise in full their option to purchase additional shares, to
repurchase and retire 250,000 shares of Class A common
stock, from each of Richard Pell and Rudolph-Riad Younes. We
will not retain any of the net proceeds from this offering.
As a result of the Exchange and purchase of New Class A
Units, we expect to incur payment obligations to our Principals
of approximately $153.4 million in the aggregate (assuming
no changes in the relevant tax law and that we can earn
sufficient taxable income to realize the full tax benefits
generated by the exchange
and/or
purchase of an aggregate of 14,400,000 New Class A Units)
over the
15-year
period from the assumed year of Exchange and purchase based on
an assumed price of $21.49 per share of our Class A common
stock (the last reported sale price for our Class A common
stock on May 18, 2010, which is the date on which each
Principal exchanged 3,000,000 shares of New Class A
Units for 3,000,000 shares of Class A common stock).
See Related Party Transactions Tax Receivable
Agreement.
36
PRICE RANGE OF
OUR CLASS A COMMON STOCK
Shares of our Class A common stock have been listed and
traded on the NYSE under the symbol ART since
September 24, 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
|
|
|
High
|
|
Low
|
|
Last Sale
|
|
Declared
|
|
September 24, 2009 through September 30, 2009
|
|
$
|
27.25
|
|
|
$
|
25.50
|
|
|
$
|
26.15
|
|
|
$
|
|
|
For the quarter ended December 31, 2009
|
|
$
|
26.54
|
|
|
$
|
22.66
|
|
|
$
|
25.49
|
|
|
$
|
0.06
|
|
For the quarter ended March 31, 2010
|
|
$
|
26.50
|
|
|
$
|
22.30
|
|
|
$
|
24.74
|
|
|
$
|
0.06
|
|
For the quarter ended June 30, 2010 (through May 28,
2010)
|
|
$
|
25.65
|
|
|
$
|
18.26
|
|
|
$
|
18.49
|
|
|
$
|
|
|
There is no trading market for shares of our Class B or
Class C common stock.
On May 28, 2010, the last reported sale price for our
Class A common stock on the NYSE was $18.49 per share. As
of May 28, 2010, there were approximately 79 stockholders
of record of our Class A common stock, four stockholders of
record of our Class B common stock and one stockholder of
record of our Class C common stock. These figures do not
reflect the beneficial ownership or shares held in nominee name,
nor do they include holders of any restricted stock units.
37
CAPITALIZATION
The following table sets forth our cash and cash equivalents and
our capitalization as of March 31, 2010:
|
|
|
|
|
on an actual basis; and
|
|
|
|
on a pro forma basis after giving effect to the transactions
described under Unaudited Pro Forma Consolidated Financial
Information.
|
You should read the following table in conjunction with our
consolidated financial statements and related notes and
Managements Discussion and Analysis of Financial
Condition and Results of Operations appearing elsewhere in
this prospectus.
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2010
|
|
|
|
Actual
|
|
|
Pro Forma
|
|
|
|
(In thousands except shares and per share amounts)
|
|
|
Cash and cash equivalents
|
|
$
|
74,771
|
|
|
$
|
74,771
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
$
|
60,000
|
|
|
$
|
60,000
|
|
Artio Global Investors stockholders equity:
|
|
|
|
|
|
|
|
|
Class A common stock, $0.001 par value per share
(500,000,000 shares authorized, 27,733,299 shares
issued and outstanding, actual; 42,133,299 issued and
outstanding on a pro forma basis)
|
|
|
28
|
|
|
|
43
|
|
Class B common stock, $0.001 par value per share
(50,000,000 shares authorized, 15,600,000 shares
issued and outstanding, actual; 1,200,000 issued and outstanding
on a pro forma basis)
|
|
|
15
|
|
|
|
1
|
|
Class C common stock, $0.01 par value per share
(210,000,000 shares authorized, 16,755,844 shares
issued and outstanding, actual and on a pro forma basis);
|
|
|
168
|
|
|
|
168
|
|
Additional paid-in capital
|
|
|
590,499
|
|
|
|
624,481
|
|
Accumulated deficit
|
|
|
(564,214
|
)
|
|
|
(564,214
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
26,496
|
|
|
|
60,479
|
|
Non-controlling interests
|
|
|
7,486
|
|
|
|
576
|
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
$
|
33,982
|
|
|
$
|
61,055
|
|
|
|
|
|
|
|
|
|
|
Total capitalization
|
|
$
|
93,982
|
|
|
$
|
121,055
|
|
|
|
|
|
|
|
|
|
|
38
UNAUDITED PRO
FORMA CONSOLIDATED FINANCIAL INFORMATION
The following unaudited pro forma consolidated financial
statements present the consolidated statements of operations and
financial position of Artio Global Investors Inc. and
subsidiaries, assuming that all of the transactions described in
the bullet points below had been completed prior to:
(i) January 1, 2009, with respect to the unaudited pro
forma consolidated statements of operations and
(ii) March 31, 2010, with respect to the unaudited pro
forma consolidated statement of financial position. In this pro
forma presentation, we assume that the IPO took place before
January 1, 2009. The pro forma adjustments are based on
available information and upon assumptions that our management
believes are reasonable in order to reflect, on a pro forma
basis, the impact of these transactions and this offering on the
historical financial information of Artio Global Investors Inc.
and subsidiaries. These adjustments are described in the notes
to the unaudited pro forma consolidated financial statements.
The pro forma adjustments give effect to the following
transactions:
|
|
|
|
|
the reversal of the effect of certain transactions related to
the IPO and recorded in 2009. These transactions are assumed in
the unaudited pro forma consolidated statements of operations to
have occurred prior to January 1, 2009;
|
|
|
|
the exchange or sale by the Principals of 14,400,000 New
Class A Units of Artio Global Holdings LLC in connection
with this offering through the exchange by each of the
Principals of 5,350,000 New Class A Units of Artio Global
Holdings LLC for 5,350,000 shares of our Class A
common stock (inclusive of the 3,000,000 New Class A Units
of Artio Global Holdings LLC each Principal exchanged for shares
of our Class A common stock prior to this offering), and
the purchase by us of 1,850,000 New Class A Units of Artio
Global Holdings LLC from each of our Principals. After such
exchanges and unit sales, the Principals will each own 600,000
New Class A Units of Artio Global Holdings LLC;
|
|
|
|
upon the exchange and sales, the cancellation of
14,400,000 shares of our Class B common stock;
|
|
|
|
|
|
the sale by us of 3,700,000 shares of Class A common
stock in this offering at an assumed offering price of $21.49
per share; and
|
|
|
|
|
|
the recording of a deferred tax asset as a result of the
step-up in
tax basis that is expected to result from the exchange by each
of our Principals of 5,350,000 New Class A Units and the
purchase by us, from each of our Principals, of 1,850,000 New
Class A Units, and the liability that is expected to be
incurred as a result under the tax receivable agreement that
requires us to pay 85% of such benefits to our Principals.
|
The amount of the deferred tax asset and amounts payable under
the tax receivable agreement arising from the
step-up in
tax basis in connection with the exchanges and purchases of New
Class A Units in connection with this offering is based on
the value of Class A common stock on the date of each
relevant exchange or purchase. The Principals exchanged
6,000,000 New Class A Units for an equivalent number of
shares of our Class A common stock on May 18, 2010.
The value of the deferred tax asset associated with the
step-up in
basis in connection with such exchange and corresponding amounts
payable under the tax receivable agreement presented in our pro
forma statement of financial position is based on a price of
$21.49 per share (the last reported sale price for our
Class A common stock on May 18, 2010, the date on
which such exchange occurred). We expect the Principals to
either exchange or sell an additional 8,400,000 New Class A
Units in connection with this offering. The value of the
deferred tax asset associated with the
step-up in
basis in connection with the exchange or sale of such additional
8,400,000 New Class A Units presented in our pro forma
statement of financial position is also based on an assumed
price of $21.49 per share, which may
39
differ from the closing price of our Class A common stock
on the date such New Class A Units are in fact exchanged or
sold. Each positive or negative change of $1.00 per share in the
value of our Class A common stock from the assumed price of
$21.49 on the actual date of exchange or sale of such 8,400,000
New Class A Units will have a $4.8 million positive or
negative impact on the related deferred tax asset and a
$4.1 million positive or negative impact on the amounts due
to the Principals under the tax receivable agreement as
presented in our pro forma statement of financial position.
The unaudited pro forma consolidated financial information is
included for informational purposes only. It should not be
relied upon as being indicative of our statement of operations
or financial position had the transactions described above been
completed on the dates assumed. The unaudited pro forma
consolidated financial information also does not project the
statement of operations or financial position for any future
period or date.
40
UNAUDITED PRO
FORMA CONSOLIDATED STATEMENT OF OPERATIONS
For the Year Ended December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual
|
|
|
Adjustments
|
|
|
Pro Forma
|
|
|
|
(In thousands, except per share amounts)
|
|
|
Revenues and other operating income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment management fees
|
|
$
|
305,335
|
|
|
$
|
|
|
|
$
|
305,335
|
|
Net gains on securities held for deferred compensation
|
|
|
1,970
|
|
|
|
|
|
|
|
1,970
|
|
Foreign currency gains
|
|
|
87
|
|
|
|
|
|
|
|
87
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues and other operating income
|
|
|
307,392
|
|
|
|
|
|
|
|
307,392
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee compensation and benefits
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries, incentive compensation and benefits
|
|
|
79,036
|
|
|
|
6,585
|
(a)
|
|
|
88,274
|
|
|
|
|
|
|
|
|
2,653
|
(b)
|
|
|
|
|
Allocation of Class B profits interests
|
|
|
33,663
|
|
|
|
(33,663
|
)(c)
|
|
|
|
|
Change in redemption value of Class B profits interests
|
|
|
266,109
|
|
|
|
(50,309
|
)(c)
|
|
|
|
|
|
|
|
|
|
|
|
(215,800
|
)(d)
|
|
|
|
|
Tax receivable agreement
|
|
|
97,909
|
|
|
|
(97,909
|
)(d)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total employee compensation and benefits
|
|
|
476,717
|
|
|
|
(388,443
|
)
|
|
|
88,274
|
|
Shareholder servicing and marketing
|
|
|
16,886
|
|
|
|
|
|
|
|
16,886
|
|
General and administrative
|
|
|
42,317
|
|
|
|
(2,653
|
)(e)
|
|
|
34,144
|
|
|
|
|
|
|
|
|
(5,520
|
)(f)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
535,920
|
|
|
|
(396,616
|
)
|
|
|
139,304
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income before income tax expense
|
|
|
(228,528
|
)
|
|
|
396,616
|
|
|
|
168,088
|
|
Interest income
|
|
|
327
|
|
|
|
(327
|
)(g)
|
|
|
|
|
Interest expense
|
|
|
(1,194
|
)
|
|
|
(1,870
|
)(h)
|
|
|
(3,064
|
)
|
Net gains (losses) on marketable securities
|
|
|
(528
|
)
|
|
|
|
|
|
|
(528
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-operating loss
|
|
|
(1,395
|
)
|
|
|
(2,197
|
)
|
|
|
(3,592
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense
|
|
|
(229,923
|
)
|
|
|
394,419
|
|
|
|
164,496
|
|
Income tax expense
|
|
|
134,287
|
|
|
|
(88,317
|
)(d)
|
|
|
69,830
|
|
|
|
|
|
|
|
|
10,599
|
(i)
|
|
|
|
|
|
|
|
|
|
|
|
5,752
|
(j)
|
|
|
|
|
|
|
|
|
|
|
|
7,509
|
(k)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
(364,210
|
)
|
|
|
458,876
|
|
|
|
94,666
|
|
Less: Net income attributable to non-controlling interests
|
|
|
14,104
|
|
|
|
(10,852
|
)(l)
|
|
|
3,252
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Artio Global Investors
|
|
$
|
(378,314
|
)
|
|
$
|
469,728
|
|
|
$
|
91,414
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income per share attributable to Artio Global Investors
|
|
$
|
(8.88
|
)
|
|
|
|
|
|
$
|
1.55
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per share attributable to Artio Global
Investors
|
|
$
|
(8.88
|
)
|
|
|
|
|
|
$
|
1.55
|
|
Weighted average shares used in basic net income per share
attributable to Artio Global Investors
|
|
|
42,620
|
|
|
|
16,270
|
(m)
|
|
|
58,890
|
|
Weighted average shares used in diluted net income per share
attributable to Artio Global Investors
|
|
|
42,620
|
|
|
|
17,470
|
(n)
|
|
|
60,090
|
|
The accompanying notes are an integral part of these unaudited
pro forma consolidated financial statements.
41
UNAUDITED PRO
FORMA CONSOLIDATED STATEMENT OF OPERATIONS
For the Three Months Ended March 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual
|
|
|
Adjustments
|
|
|
Pro Forma
|
|
|
|
(In thousands, except per share amounts)
|
|
|
Revenues and other operating income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment management fees
|
|
$
|
85,287
|
|
|
$
|
|
|
|
$
|
85,287
|
|
Net gains on securities held for deferred compensation
|
|
|
321
|
|
|
|
|
|
|
|
321
|
|
Foreign currency gains
|
|
|
23
|
|
|
|
|
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues and other operating income
|
|
|
85,631
|
|
|
|
|
|
|
|
85,631
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries, incentive compensation and benefits
|
|
|
25,169
|
|
|
|
(443
|
)(a)
|
|
|
24,726
|
|
Shareholder servicing and marketing
|
|
|
4,548
|
|
|
|
|
|
|
|
4,548
|
|
General and administrative
|
|
|
10,285
|
|
|
|
|
|
|
|
10,285
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
40,002
|
|
|
|
(443
|
)
|
|
|
39,559
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income before income tax expense
|
|
|
45,629
|
|
|
|
443
|
|
|
|
46,072
|
|
Interest income
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
Interest expense
|
|
|
(661
|
)
|
|
|
|
|
|
|
(661
|
)
|
Net (losses) on marketable securities
|
|
|
(1
|
)
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-operating income (loss)
|
|
|
(661
|
)
|
|
|
|
|
|
|
(661
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense
|
|
|
44,968
|
|
|
|
443
|
|
|
|
45,411
|
|
Income tax expense
|
|
|
14,767
|
|
|
|
193
|
(i)
|
|
|
19,142
|
|
|
|
|
|
|
|
|
4,182
|
(j)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
30,201
|
|
|
|
(3,932
|
)
|
|
|
26,269
|
|
Less: Net income attributable to non-controlling interests
|
|
|
11,333
|
|
|
|
(10,459
|
)(l)
|
|
|
874
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Artio Global Investors
|
|
|
18,868
|
|
|
$
|
6,527
|
|
|
$
|
25,395
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income per share attributable to Artio Global Investors
|
|
$
|
0.42
|
|
|
|
|
|
|
$
|
0.43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per share attributable to Artio Global
Investors
|
|
$
|
0.42
|
|
|
|
|
|
|
$
|
0.43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares used in basic net income per share
attributable to Artio Global Investors
|
|
|
44,460
|
|
|
|
14,844
|
(m)
|
|
|
59,304
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares used in diluted net income per share
attributable to Artio Global Investors
|
|
|
44,629
|
|
|
|
15,881
|
(n)
|
|
|
60,510
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these unaudited
pro forma consolidated financial statements.
42
Notes to
Unaudited Pro Forma Consolidated Statement of Operations
For the Year Ended December 31, 2009, and the Three Months
Ended March 31, 2010
(a) In connection with the IPO, we granted 2,147,758
restricted stock units to our employees (other than our
Principals), approximating $56.4 million in value (based on
a price of $26.25 per share, which was the last reported sale
price of our Class A common stock on the NYSE on the date
such restricted stock units were awarded). Approximately
$54.4 million of these restricted stock units vest pro
rata, on an annual basis, over a five-year period from the date
of grant. The remaining 74,500 restricted stock units vested in
February 2010. As the restricted stock units that vested in
February 2010 represent a non-recurring expense, they are
assumed to have vested immediately at the date of the completion
of the IPO and to have been outstanding during the entire
period. This adjustment represents the change in compensation
expense associated only with the awards that vest over a
five-year period and assumes the completion of the IPO, and the
grant of restricted stock units in connection with the IPO, were
made at the beginning of 2009. Costs related to the amortization
of the 74,500 restricted stock units vested in February 2010 are
excluded from 2009 and 2010.
(b) Upon the completion of the IPO, each of the Principals
entered into an employment agreement with us that provided for
an annual base salary of not less than $0.5 million and an
annual bonus for each calendar year, targeted at a minimum of
$3.5 million annually for each of the first two years after
the date of the completion of the IPO. This adjustment
represents the increase (net of deferrals) in compensation
expense from these contracts.
(c) Prior to the completion of the IPO, each Principal had
a 15% Class B profits interests in Investment Adviser,
which was accounted for as compensation expense. In connection
with the IPO, each Principal exchanged his profits interest for
New Class A Units of Holdings, resulting in the
compensation liability being reclassified as equity.
Accordingly, we no longer record as a compensation expense the
allocation of income relating to the profits interests of the
Principals or changes in the redemption value of each
Principals profits interests. These adjustments represent
the reversal of these compensation expenses, since the IPO is
assumed to have occurred prior to January 1, 2009.
(d) We incurred compensation charges (including the present
value of projected future benefits under the tax receivable
agreement) as a result of the Principals exchanges of
their profits interests for New Class A Units. Because
these expenses are non-recurring (after the IPO), we have
eliminated them in this pro forma statement of operations. We
also excluded the existing $88.3 million deferred tax asset
resulting from the financial accounting treatment of prior
years profits interests.
(e) Represents license fees paid to GAM, our former sole
stockholder, that were no longer payable after the IPO. This
adjustment represents the reversal of those expenses that were
paid in 2009.
(f) Represents expenses incurred during 2009 that were
directly associated with the IPO and that are not expected to
recur.
(g) We earned interest in 2009 on certain balances that
were held for distribution to GAM. This adjustment represents
the estimated decrease in non-operating income in 2009 if these
balances had been paid at the beginning of 2009.
43
Notes to
Unaudited Pro Forma Consolidated Statement of
Operations (Continued)
For the Year Ended December 31, 2009, and the Three Months
Ended March 31, 2010
(h) Represents the additional interest expenses on the
$60 million term debt facility of Holdings that would have
been paid had the debt been drawn down at the beginning of 2009.
(i) Reflects the 2009 income tax expense relating to the
2009 adjustments set forth above, including:
|
|
|
|
|
|
|
|
|
|
|
Pro Forma
|
|
|
|
|
Footnote Reference
|
|
|
|
Increase/(decrease) in pre-tax income:
|
|
|
|
|
|
|
|
|
Increase in compensation expense associated with share grants of
restricted stock units to employees
|
|
|
(a
|
)
|
|
|
$(6.6) million
|
|
Incremental increase in salary and incentive compensation expense
|
|
|
(b
|
)
|
|
|
(2.7
|
)
|
Elimination of compensation expense associated with the
allocation of income relating to profits interests
|
|
|
(c
|
)
|
|
|
33.6
|
|
Elimination of compensation charge associated with the changes
in redemption value of our Principals profits interests
|
|
|
(c
|
)
|
|
|
*
|
|
Elimination of compensation charges recorded upon the exchange
of Class B profits interests for New Class A Units
|
|
|
(d
|
)
|
|
|
*
|
|
Elimination of license fees expense that will be no longer paid
to GAM
|
|
|
(e
|
)
|
|
|
2.7
|
|
Elimination of general and administrative costs directly
associated with the IPO
|
|
|
(f
|
)
|
|
|
*
|
|
Elimination of non-operating income associated with invested
cash balances
|
|
|
(g
|
)
|
|
|
(0.3
|
)
|
Increased expenses due to interest costs, commitment fees, and
amortization of deferred financing costs
|
|
|
(h
|
)
|
|
|
(1.9
|
)
|
|
|
|
|
|
|
|
|
|
Decrease in pre-tax income
|
|
|
|
|
|
|
24.8
|
|
Effective tax rate(1)
|
|
|
|
|
|
|
43
|
%
|
|
|
|
|
|
|
|
|
|
Tax effect
|
|
|
|
|
|
$
|
10.6 million
|
|
|
|
|
* |
|
No tax effect, as the IPO and related transactions are assumed
to have occurred prior to 2009. |
|
(1) |
|
Effective tax rate utilized represents the incremental tax rate
for the year ended December 31, 2009. |
The 2010 adjustment to income tax expense is as follows:
|
|
|
|
|
|
|
|
|
|
|
Pro Forma
|
|
|
|
|
Footnote Reference
|
|
|
|
Decrease in compensation expense associated with share grants of
restricted stock units to employees
|
|
|
(a
|
)
|
|
$
|
0.4 million
|
|
|
|
|
|
|
|
|
|
|
Increase in pre-tax income
|
|
|
|
|
|
|
0.4
|
|
Effective tax rate(1)
|
|
|
|
|
|
|
43
|
%
|
|
|
|
|
|
|
|
|
|
Tax effect
|
|
|
|
|
|
$
|
0.2 million
|
|
|
|
|
(1) |
|
Effective tax rate utilized represents the incremental tax rate
for the quarter ended March 31, 2010. |
44
Notes to
Unaudited Pro Forma Consolidated Statement of
Operations (Continued)
For the Year Ended December 31, 2009, and the Three Months
Ended March 31, 2010
(j) The adjustments to 2009 and 2010 tax expense reflect
the increase in the expected tax rate following the exchange and
sale of New Class A Units. Currently, approximately 74% of
our income is subject to the corporate tax rate, and the
remaining 26 percent is subject only to the much lower New
York City unincorporated business tax (UBT) rate.
After the exchange and sale, approximately 98% of our income
will be subject to the corporate business tax rate, and only 2%
to the lower UBT rate.
(k) Represents non-recurring tax benefits in 2009 primarily
relating to the tax benefits associated with the anticipated
amendments of prior years tax returns as well as a true up
to reflect a lower apportionment of income for state and local
tax purposes.
(l) Represent adjustments to reduce the non-controlling
interests of the Principals remaining interest in
Holdings Income before income tax expense as a result of
the exchanges and sales of their New Class A Units.
(m) Adjustment to reflect the following shares outstanding
for 2009 and 2010 for basic EPS (in thousands):
|
|
|
|
|
Common shares outstanding immediately prior to IPO
|
|
|
42,000
|
|
Additional shares issued in connection with IPO
|
|
|
2,400
|
|
Additional shares being issued in connection with Exchange
|
|
|
10,700
|
|
Additional shares being issued in this offering
|
|
|
3,700
|
|
Shares issued to employees vesting in February 2010, assumed in
this presentation to vest upon issuance (see note(a) above)
|
|
|
75
|
|
Shares issued to directors
|
|
|
15
|
|
|
|
|
|
|
Weighted average shares outstanding during 2009
|
|
|
58,890
|
|
Shares vesting to employees, one-fifth assumed vesting as of the
beginning of 2010
|
|
|
414
|
|
|
|
|
|
|
Weighted average shares outstanding during 2010
|
|
|
59,304
|
|
|
|
|
|
|
(n) The adjustments in 2009 and 2010 reflect the
potentially dilutive effect of these shares, as follows (in
thousands):
|
|
|
|
|
Weighted average shares for basic EPS during 2009
|
|
|
58,890
|
|
Dilutive potential of shares from exchange of remaining New
Class A Units by the Principals
|
|
|
1,200
|
|
Dilutive potential of shares from grants of RSUs
|
|
|
|
|
|
|
|
|
|
Weighted average shares for diluted EPS during 2009
|
|
|
60,090
|
|
|
|
|
|
|
Weighted average shares for basic EPS during 2010
|
|
|
59,304
|
|
Dilutive potential of shares from exchange of remaining New
Class A Units by the Principals
|
|
|
1,200
|
|
Dilutive potential of shares from grants of RSUs
|
|
|
6
|
|
|
|
|
|
|
Weighted average shares for diluted EPS in 2010
|
|
|
60,510
|
|
|
|
|
|
|
Anti-dilutive shares totaled 2.1 million in 2009 and
1.7 million in 2010.
45
UNAUDITED PRO
FORMA CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As of March 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual
|
|
|
Adjustments
|
|
|
Pro Forma
|
|
|
|
(In thousands, except shares and per share amounts)
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
74,771
|
|
|
$
|
75,554
|
(b)
|
|
$
|
74,771
|
|
|
|
|
|
|
|
|
(75,554
|
)(b)
|
|
|
|
|
Marketable securities, at fair value
|
|
|
8,253
|
|
|
|
|
|
|
|
8,253
|
|
Fees receivable and accrued fees, net of allowance for doubtful
accounts
|
|
|
55,065
|
|
|
|
|
|
|
|
55,065
|
|
Deferred taxes, net
|
|
|
46,829
|
|
|
|
180,482
|
(d)
|
|
|
227,311
|
|
Income taxes receivable
|
|
|
11,668
|
|
|
|
|
|
|
|
11,668
|
|
Property and equipment, net
|
|
|
7,290
|
|
|
|
|
|
|
|
7,290
|
|
Other assets
|
|
|
6,201
|
|
|
|
|
|
|
|
6,201
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
210,077
|
|
|
$
|
180,482
|
|
|
$
|
390,559
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and stockholders equity (deficit)
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
$
|
60,000
|
|
|
$
|
|
|
|
$
|
60,000
|
|
Accrued compensation and benefits
|
|
|
10,896
|
|
|
|
|
|
|
|
10,896
|
|
Accounts payable and accrued expenses
|
|
|
7,146
|
|
|
|
|
|
|
|
7,146
|
|
Accrued income taxes payable
|
|
|
20,006
|
|
|
|
|
|
|
|
20,006
|
|
Due to affiliates
|
|
|
40,100
|
|
|
|
|
|
|
|
40,100
|
|
Amounts payable pursuant to tax receivable agreement
|
|
|
33,655
|
|
|
|
153,410
|
(d)
|
|
|
187,065
|
|
Other liabilities
|
|
|
4,291
|
|
|
|
|
|
|
|
4,291
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
176,094
|
|
|
|
153,410
|
|
|
|
329,504
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Artio Global Investors stockholders equity (deficit)
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A common stock $0.001 par value per
share, 500,000,000 shares authorized,
27,733,299 shares issued and outstanding on an actual basis
and 42,133,299 outstanding on a pro forma basis
|
|
|
28
|
|
|
|
11
|
(a)
|
|
|
43
|
|
|
|
|
|
|
|
|
4
|
(b)
|
|
|
|
|
Class B common stock $0.001 par value per
share, 50,000,000 shares authorized, 15,600,000 shares
issued and outstanding on an actual basis and
1,200,000 shares issued and outstanding on a pro forma basis
|
|
|
16
|
|
|
|
(11
|
)(a)
|
|
|
1
|
|
|
|
|
|
|
|
|
(4
|
)(b)
|
|
|
|
|
Class C common stock $0.01 par value per
share, 210,000,000 authorized; 16,755,844 issued and outstanding
on an actual and pro forma basis
|
|
|
168
|
|
|
|
|
|
|
|
168
|
|
Additional paid-in capital
|
|
|
590,499
|
|
|
|
5,135
|
(c)
|
|
|
624,481
|
|
|
|
|
|
|
|
|
1,775
|
(c)
|
|
|
|
|
|
|
|
|
|
|
|
75,550
|
(b)
|
|
|
|
|
|
|
|
|
|
|
|
(75,550
|
)(b)
|
|
|
|
|
|
|
|
|
|
|
|
27,072
|
(d)
|
|
|
|
|
Accumulated deficit
|
|
|
(564,214
|
)
|
|
|
|
|
|
|
(564,214
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
26,497
|
|
|
|
33,982
|
|
|
|
60,479
|
|
Non-controlling interests
|
|
|
|
|
|
|
(5,135
|
)(c)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,486
|
|
|
|
(1,775
|
)(c)
|
|
|
576
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
33,983
|
|
|
|
27,072
|
|
|
|
61,055
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
$
|
210,077
|
|
|
$
|
180,482
|
|
|
$
|
390,559
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these unaudited
pro forma consolidated financial statements.
46
Notes to
Unaudited Pro Forma Consolidated Statement of Financial
Position
As of March 31, 2010
(a) Represents the effect of each of the Principals
exchanging an aggregate of 5,350,000 New Class A Units for
an aggregate of 5,350,000 shares Class A common stock
(inclusive of the 3,000,000 New Class A Units each
Principal exchanged for shares of Class A common stock
prior to this offering). At the time of such exchanges, an
aggregate of 10,700,000 shares Class B common stock
will be cancelled.
(b) Represents the proceeds of the issuance of
3,700,000 shares of Class A common stock in this
offering (assuming the underwriters do not exercise their option
to purchase additional shares) at an assumed price of $21.49
(the last reported sale price for our Class A common stock
on May 18, 2010, which is the date on which each Principal
exchanged 3,000,000 shares of New Class A Units for
3,000,000 shares of Class A common stock), less
underwriting discount, and the use of the proceeds to purchase
1,850,000 New Class A Units from each Principal. One share
of Class B common stock will be cancelled for each New
Class A Unit purchased from a Principal.
(c) Represents the reduction in non-controlling interests
resulting from the exchange and purchase of New Class A
Units described in (a) and (b).
(d) Represents the deferred tax benefit resulting from the
increase in tax basis of Holdings resulting from the exchange of
an aggregate of 10,700,000 New Class A Units by the
Principals, as referred to in (a), at an assumed closing price
on an assumed March 31, 2010 exercise date of $21.49 per
share of Class A common stock (the last reported sale price
for our Class A common stock on May 18, 2010, which is
the date on which each Principal exchanged 3,000,000 shares
of New Class A Units for 3,000,000 shares of
Class A common stock), less underwriting discount, and the
purchase by us, from the Principals, of an aggregate of
3,700,000 New Class A Units. Under the provisions of the tax
receivable agreement, 85 percent of the expected deferred
tax benefit is payable to the Principals.
47
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Introduction
The following discussion should be read in conjunction with the
consolidated financial statements and related footnotes included
elsewhere in this prospectus. The MD&A is organized as
follows:
|
|
|
|
|
General Overview. Beginning on
page 48, we provide a summary of our overall business, our
2009 initial public offering (IPO) and the economic
environment.
|
|
|
|
|
|
Key Performance Indicators. Beginning
on page 50, we discuss some of the operating and financial
indicators that guide managements review of our
performance.
|
|
|
|
|
|
Assets Under Management. Beginning on
page 54, we provide a detailed discussion of our assets
under management (AuM), which is a major driver of
our operating revenues and key performance indicators.
|
|
|
|
|
|
Revenues and Other Operating
Income. Beginning on pages 59, 66 and 74, we
discuss our revenue and other operating income compared to the
corresponding period a year ago.
|
|
|
|
|
|
Operating Expenses. Beginning on pages
60, 66 and 74, we discuss our operating expenses compared to the
corresponding period a year ago.
|
|
|
|
|
|
Non-operating Income (Loss). Beginning
on pages 61, 68 and 76, we discuss our non-operating income
(loss) compared to the corresponding period a year ago.
|
|
|
|
|
|
Income Taxes. Beginning on pages 61, 68
and 76, we discuss our effective tax rates compared to the
corresponding period a year ago.
|
|
|
|
|
|
Liquidity and Capital
Resources. Beginning on page 76, we
discuss our working capital as of March 31, 2010, and
December 31, 2009, and cash flows for the first three
months of 2010 and 2009. Also included is a discussion of the
amount of financial capacity available to help fund our future
activities.
|
|
|
|
|
|
New Accounting Standards. Beginning on
page 79, we discuss new accounting pronouncements that may
apply to us.
|
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 and
sub-advisory
accounts. Our operations are based principally in the United
States. However, our AuM are invested primarily outside of the
United States and are denominated in currencies other than the
U.S. dollar. Our revenues are primarily billed in
U.S. dollars and are computed on the U.S. dollar value
of the investment assets we manage for clients.
Initial
Public Offering and Changes in Principals
Interests
Prior to the IPO, each Principal had a 15% Class B profits
interest in Investment Adviser, which was accounted for as
compensation for financial accounting purposes. Immediately
prior to the IPO, each Principal exchanged his Class B
profits interest for New Class A Units of Holdings.
Subsequent to the IPO, the Principals New Class A
Units, representing an approximate 26% interest in Holdings, are
accounted for by us as non-controlling interests. Following the
exchange and purchase of New Class A Units in connection
with this offering, each of our Principals will hold directly an
approximate 1% interest in Holdings. Following the application
of the net proceeds of this offering (assuming the
48
underwriters do not exercise their option to purchase additional
shares), our Principals will each have approximately 9.9% of the
voting power in Artio Global Investors Inc. through their
respective ownership of the shares of our Class A and
Class B common stock.
Economic
Environment
As an investment manager, we derive substantially all of our
operating revenues from providing investment management services
to our institutional and mutual fund clients. Such revenues are
driven by the amount and composition of our AuM, as well as by
our fee structure. Accordingly, our business results are highly
dependent upon the prevailing global economic climate and its
impact on investor sentiment and capital markets.
In the aftermath of the economic and financial turmoil of 2008
and early 2009, financial markets took on a positive tone
beginning in March 2009 as global stimulus efforts began to take
hold. Corporate credit spreads narrowed and cyclical and
financial stocks led global equity markets higher. Investors
began to re-evaluate risk tolerance levels within their
portfolios, as evidenced by outperformance by emerging markets,
high yield and more cyclically-oriented sectors. In the fourth
quarter of 2009 economic fundamentals further supported the
markets more positive tone. For example, while
unemployment remained high, the rate of job losses slowed,
manufacturing levels, capacity utilization, consumer confidence,
and vehicle and retail sales all continued to climb. The housing
market also showed signs of stabilization, despite increasing
mortgage delinquencies, and inflation remained muted, leading to
expectations of an extended period of low interest rates.
Although 2010 began as a difficult environment for global
equities, investor sentiment turned more positive in late
February and throughout most of March. Notwithstanding positive
moves in most equity markets for the last month of the 2010
first quarter, events surrounding the Greek and Chinese
economies affected investor sentiment. As the Greek government
attempted to tackle its debt crisis, concerns grew over other
members of the European Union with swelling debt levels,
including Spain, Portugal, Italy and Ireland. Some of these
fears were heightened in late March 2010 when a leading credit
rating agency downgraded Greece and Portugals debt amid
growing concern over the governments ability to service
its borrowings. As the quarter progressed, the potential impact
of these events on a global economic recovery contributed to a
strengthening of the U.S. dollar against most major
currencies. Since quarter-end, concerns over an escalating
eurozone sovereign debt crisis have intensified, leading to
increased volatility levels and declining global equities.
Additionally, the U.S. dollar has continued to strengthen,
particularly versus the Euro.
Within emerging markets, Chinese exports posted a rebound in
February 2010 over the prior year, signaling rising consumer
demand from Western nations. In an effort to cool the
fast-growing economy after loan growth accelerated and property
prices surged, the Chinese government twice ordered banks to set
aside more deposits as reserves during the quarter. Also at the
forefront of investors minds was the issue of the
countrys currency peg to the U.S. dollar and whether
it should be allowed to fluctuate, which could make Chinese
exports less competitive in the global market.
Evidence that economic recovery is underway in the United States
and other economies helped provide more fundamental
underpinnings for equities during the 2010 first quarter,
although since quarter end, macro factors, particularly events
unfolding in the eurozone have been principal drivers for stock
prices.
The first quarter of 2010 also proved constructive for corporate
bonds amid an improving global economy. The Federal
Reserves continued zero interest rate stance has nudged
investors toward higher-yielding investments. In Europe, German
bonds benefited from its safe-haven status amid concerns over
Greeces debt challenges.
Key Performance
Indicators
Our management reviews our performance on a monthly basis,
focusing on the indicators described below.
49
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31,
|
|
|
For The Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In millions, except basis points, percentages and per share
amounts)
|
|
|
Operating indicators(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AuM at end of period
|
|
$
|
56,417
|
|
|
$
|
38,941
|
|
|
$
|
55,993
|
|
|
$
|
45,200
|
|
|
$
|
75,362
|
|
Average AuM for period(2)
|
|
|
54,711
|
|
|
|
40,711
|
|
|
|
48,166
|
|
|
|
64,776
|
|
|
|
66,619
|
|
Net client cash flows
|
|
|
95
|
|
|
|
222
|
|
|
|
338
|
|
|
|
1,930
|
|
|
|
12,150
|
|
Financial indicators
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment management fees
|
|
|
85
|
|
|
|
63
|
|
|
|
305
|
|
|
|
425
|
|
|
|
446
|
|
Effective fee rate (basis points)(3)
|
|
|
63.2
|
|
|
|
62.6
|
|
|
|
63.4
|
|
|
|
65.6
|
|
|
|
66.9
|
|
Adjusted operating income(4)
|
|
|
49
|
|
|
|
34
|
|
|
|
173
|
|
|
|
252
|
|
|
|
280
|
|
Adjusted operating margin(5)
|
|
|
57.0
|
%
|
|
|
54.9
|
%
|
|
|
56.4
|
%
|
|
|
59.8
|
%
|
|
|
62.7
|
%
|
Adjusted EBITDA(4)
|
|
|
50
|
|
|
|
35
|
|
|
|
176
|
|
|
|
255
|
|
|
|
282
|
|
Adjusted EBITDA margin(5)
|
|
|
58.1
|
%
|
|
|
55.9
|
%
|
|
|
57.4
|
%
|
|
|
60.5
|
%
|
|
|
63.1
|
%
|
Adjusted compensation ratio(4)(6)
|
|
|
25.7
|
%
|
|
|
27.1
|
%
|
|
|
24.3
|
%
|
|
|
19.8
|
%
|
|
|
20.4
|
%
|
Adjusted net income attributable to Artio Global Investors(4)
|
|
|
27
|
|
|
|
19
|
|
|
|
105
|
|
|
|
143
|
|
|
|
156
|
|
Diluted earnings per share
|
|
$
|
0.42
|
|
|
$
|
0.07
|
|
|
$
|
(8.88
|
)
|
|
$
|
1.46
|
|
|
$
|
1.62
|
|
Adjusted diluted earnings per share(7)
|
|
$
|
0.46
|
|
|
$
|
0.32
|
|
|
$
|
1.75
|
|
|
$
|
2.38
|
|
|
$
|
2.61
|
|
|
|
|
(1) |
|
Excluding legacy activities. |
|
(2) |
|
Average AuM for a period is computed on the
beginning-of-first-month
balance and all
end-of-month
balances within the period. |
|
(3) |
|
The effective fee rate is computed by dividing annualized
investment management fees (based on the number of days in the
period) by average AuM for the period. |
|
(4) |
|
Represents financial measures that are not presented in
accordance with U.S. Generally Accepted Accounting Principles
(GAAP). See Adjusted Performance
Measures for reconciliations of these items to the most
directly comparable GAAP items (Employee compensation and
benefits to Adjusted compensation; Operating income
before income tax expense to Adjusted operating income;
Net income attributable to Artio Global Investors to
Adjusted Earnings before Interest, Taxes, Depreciation and
Amortization (EBITDA); and Net income
attributable to Artio Global Investors to Adjusted net
income attributable to Artio Global Investors). |
|
(5) |
|
Adjusted operating and Adjusted EBITDA margins are calculated by
dividing Adjusted operating income and Adjusted EBITDA by
Total revenues and other operating income. |
|
(6) |
|
Calculated as Adjusted compensation(4) divided by Total
revenues and other operating income. |
|
(7) |
|
Adjusted diluted earnings per share is calculated by dividing
Adjusted net income attributable to Artio Global Investors by
Adjusted weighted average diluted shares. See
Adjusted Performance Measures . |
Operating
Indicators
Our revenues are driven by the amount and composition of our
AuM, as well as by our fee structure. As a result, management
closely monitors our AuM. We believe average AuM is important as
most of our fees are calculated based on daily or monthly AuM,
rather than quarter-end balances of AuM.
50
Net client cash flows represent sales either to new or existing
clients, less redemptions. Our net client cash flows are driven
by the performance of our investment strategies, competitiveness
of fee rates, the success of our marketing and client service
efforts, and the state of the overall equity and fixed income
markets. In addition, our net client cash flows reflect
client-specific actions, such as portfolio rebalancing or
decisions to change portfolio managers.
As of March 31, 2010, AuM was up 45% as compared to
March 31, 2009, primarily reflecting the impact the global
economic recovery has had on the market value of the assets we
manage, which has also resulted in a 34% increase in average AuM
over the same period. In addition, we experienced net client
cash inflows of $95 million for the first quarter of 2010.
While our net client cash flows are influenced by a number of
factors, including client asset allocation preferences and the
performance of our products, we expect a more constructive
market environment in 2010 to support increased search activity
industry-wide compared to 2009. During the first quarter, we saw
early evidence of this in certain of our strategies. For
example, our Global Equity and Fixed Income strategies
experienced meaningful increases in Request for Proposal
(RFP) activity compared to 2009 average levels. For
our International Equity strategies, first quarter 2010 RFP
activity was consistent with 2009 average levels.
Financial
Indicators
Management reviews certain financial ratios to monitor progress
with internal forecasts, understand the underlying business and
compare our firm with others in the financial services industry.
The effective fee rate represents the amount of investment
management fees we earn divided by the average dollar value of
client assets we manage. We use this information to evaluate the
contribution to revenue of our products. Adjusted operating and
adjusted EBITDA margins are important indicators of our
profitability and the efficiency of our business model. Other
ratios shown in the Key Performance Indicators table
above allow us to review expenses in comparison with our
revenues. See Adjusted Performance
Measures for a discussion of financial indicators not
prepared in conformity with GAAP.
Our effective fee rate for the three months ended March 31,
2010, increased over the corresponding period in 2009, due
primarily to a greater proportion of our average AuM being
within our proprietary and institutional commingled fund
vehicles, both of which have higher average fee rates than our
overall effective fee rate for all of our investment vehicles.
The proportion of our proprietary fund assets increased to
approximately 44% of average AuM in the three months ended
March 31, 2010, from approximately 43% in the three months
ended March 31, 2009. Our commingled funds increased to
approximately 16% of average AuM in the three months ended
March 31, 2010, from approximately 15% of average AuM in
the three months ended March 31, 2009.
Our effective fee rate for 2009 decreased from 2008 due
primarily to a greater proportion of our average AuM being
within our institutional separate accounts and fixed income
strategies, both of which have lower average fee rates than our
overall blended rate. Our institutional separate accounts
increased to approximately 32% of average AuM in 2009 from
approximately 30% of average AuM in 2008. Our fixed income
strategies increased to approximately 14% of average AuM for
2009 from approximately 9% of average AuM in 2008. In addition,
we earn higher investment management fees from our proprietary
funds, compared to our other investment vehicles, and from our
International Equity strategies, compared to our other
investment strategies. Our proprietary funds declined to
approximately 43% of average AuM for 2009 from approximately 47%
of average AuM for 2008. Our International Equity strategies
represented approximately 84% of average AuM for 2009 compared
to approximately 90% of average AuM for 2008.
Our Adjusted operating income and Adjusted EBITDA margins in the
three months ended March 31, 2010, increased compared to
the corresponding period last year, as revenue growth exceeded
expense growth. Although the economic events in the latter part
of 2008 severely impacted our business in 2009 and 2010, we
continued to generate strong Adjusted operating income and
51
Adjusted EBITDA margins, which we believe reflects the strength
of our franchise and the variability of our expense base.
Our Adjusted operating income and Adjusted EBITDA margins in
2009 declined compared to 2008. Revenues declined faster than
expenses, primarily in the first half of 2009. Operating income
(loss) before income tax expense margins decreased in 2009, due
primarily to non-recurring compensation charges in connection
with the IPO and the reasons discussed above.
Adjusted
Performance Measures
Certain of our financial indicators are not prepared in
conformity with GAAP. These indicators are adjusted versions of
balances in our consolidated financial statements. The
adjustments are not in conformity with GAAP. We believe these
adjustments are meaningful as they are more representative of
our current organizational structure. The adjustments primarily
relate to certain expenses recorded in Employee compensation
and benefits and the tax effect associated with those
adjustments. For the three months ended March 31, 2010, we
have excluded the amortization expense associated with one-time
equity awards granted to employees at the time of the IPO, as
these awards were one-time in nature. For the three months ended
March 31, 2009, we have excluded the non-recurring
compensation charges associated with the former compensation
structure of our principals. In addition, we have adjusted
Income taxes to reflect the appropriate effective tax
rate for each period after taking into consideration these
non-GAAP adjustments. We also present Adjusted net income
attributable to Artio Global Investors per diluted share, which
assumes the full exchange of our Principals
non-controlling interests for Class A common stock at the
beginning of each period presented. These adjustments are
reflected in Adjusted operating income, Adjusted operating
margin, Adjusted EBITDA, Adjusted EBITDA margin, Adjusted
compensation ratio, Adjusted net income attributable to Artio
Global Investors and Adjusted diluted earnings per share.
52
The following table provides reconciliations of Employee
compensation and benefits to Adjusted compensation,
Operating income before income tax expense to Adjusted
operating income, Net income attributable to Artio Global
Investors to Adjusted EBITDA, and Net income attributable
to Artio Global Investors to Adjusted net income
attributable to Artio Global Investors:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In millions)
|
|
|
Employee compensation and benefits
|
|
$
|
25
|
|
|
$
|
45
|
|
|
$
|
477
|
|
|
$
|
223
|
|
|
$
|
253
|
|
Less compensation adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allocation of Class B profits interests
|
|
|
|
|
|
|
10
|
|
|
|
34
|
|
|
|
76
|
|
|
|
84
|
|
Change in redemption value of Class B profits interests
|
|
|
|
|
|
|
18
|
|
|
|
266
|
|
|
|
54
|
|
|
|
77
|
|
Tax receivable agreement
|
|
|
|
|
|
|
|
|
|
|
98
|
|
|
|
|
|
|
|
|
|
Principals deferred compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9
|
|
|
|
1
|
|
Amortization expense of IPO-related RSU grants
|
|
|
3
|
|
|
|
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total compensation adjustments
|
|
|
3
|
|
|
|
28
|
|
|
|
402
|
|
|
|
139
|
|
|
|
162
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted compensation
|
|
$
|
22
|
|
|
$
|
17
|
|
|
$
|
75
|
|
|
$
|
84
|
|
|
$
|
91
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income before income tax expense
|
|
|
46
|
|
|
|
6
|
|
|
|
(229
|
)
|
|
|
113
|
|
|
|
118
|
|
Add: total compensation adjustments
|
|
|
3
|
|
|
|
28
|
|
|
|
402
|
|
|
|
139
|
|
|
|
162
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted operating income
|
|
$
|
49
|
|
|
$
|
34
|
|
|
$
|
173
|
|
|
$
|
252
|
|
|
$
|
280
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Artio Global Investors
|
|
$
|
19
|
|
|
$
|
3
|
|
|
$
|
(378
|
)
|
|
$
|
61
|
|
|
$
|
68
|
|
Add: net income attributable to non-controlling interests
|
|
|
11
|
|
|
|
|
|
|
|
14
|
|
|
|
|
|
|
|
|
|
Add: income taxes
|
|
|
15
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: income from discontinued operations, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
Add: income taxes relating to income from continuing operations
|
|
|
|
|
|
|
|
|
|
|
134
|
|
|
|
55
|
|
|
|
59
|
|
Less: non-operating (income) loss(1)
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
|
|
(3
|
)
|
|
|
(7
|
)
|
Add: depreciation and amortization(2)
|
|
|
1
|
|
|
|
1
|
|
|
|
3
|
|
|
|
3
|
|
|
|
2
|
|
Add: total compensation adjustments
|
|
|
3
|
|
|
|
28
|
|
|
|
402
|
|
|
|
139
|
|
|
|
162
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
$
|
50
|
|
|
$
|
35
|
|
|
$
|
176
|
|
|
$
|
255
|
|
|
$
|
282
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Artio Global Investors
|
|
$
|
19
|
|
|
$
|
3
|
|
|
$
|
(378
|
)
|
|
$
|
61
|
|
|
$
|
68
|
|
Add: net income attributable to non-controlling interests
|
|
|
11
|
|
|
|
|
|
|
|
14
|
|
|
|
|
|
|
|
|
|
Less: income from discontinued operations, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
Tax impact of adjustments
|
|
|
(6
|
)
|
|
|
(12
|
)
|
|
|
67
|
|
|
|
(57
|
)
|
|
|
(72
|
)
|
Add: total compensation adjustments
|
|
|
3
|
|
|
|
28
|
|
|
|
402
|
|
|
|
139
|
|
|
|
162
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted net income attributable to Artio Global Investors
|
|
$
|
27
|
|
|
$
|
19
|
|
|
$
|
105
|
|
|
$
|
143
|
|
|
$
|
156
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average diluted shares
|
|
|
45
|
|
|
|
42
|
|
|
|
43
|
|
|
|
42
|
|
|
|
42
|
|
Adjusted weighted average diluted shares(3)
|
|
|
60
|
|
|
|
60
|
|
|
|
60
|
|
|
|
60
|
|
|
|
60
|
|
|
|
|
(1) |
|
Non-operating income (loss) represents primarily interest
income and expense, including gains and losses on
interest-bearing marketable securities. |
|
(2) |
|
Excludes amortization expense associated with one-time equity
awards granted at the time of the IPO, as such expense is
included in total compensation adjustments. |
|
(3) |
|
Adjusted weighted average diluted shares assumes Investors
ownership structure following the IPO was in effect at the
beginning of each period and that the Principals have exchanged
all of their New Class A Units for Class A common
stock. These figures do not reflect the purchase of New
Class A Units and, in the event that the underwriters
exercise their option to purchase additional shares, the
repurchase of Class A common stock, in connection with this
offering. |
53
Assets under
Management
Changes to our AuM, the distribution of our AuM among our
investment products and investment strategies, and the effective
fee rates on our products, all affect our operating results from
one period to another.
The amount and composition of our AuM are, and will continue to
be, influenced by a variety of factors including, among other
things:
|
|
|
|
|
investment performance, including fluctuations in both the
financial markets and foreign currency exchange rates and our
investment decisions;
|
|
|
|
client cash flows into and out of our investment products;
|
|
|
|
the mix of AuM among our various strategies; and
|
|
|
|
our introduction or closure of investment strategies and
products.
|
Our five core investment strategies are:
|
|
|
|
|
International Equity;
|
|
|
|
Global Equity;
|
|
|
|
U.S. Equity;
|
|
|
|
High Grade Fixed Income; and
|
|
|
|
High Yield.
|
Investors are able to invest in our strategies through the
investment vehicles set forth in the following table, which sets
forth a summary of our AuM by investment vehicle type as of
March 31, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31,
|
|
|
As a % of AuM as of March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
(In millions, except percentages)
|
|
|
Proprietary funds(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A shares
|
|
$
|
7,851
|
|
|
$
|
5,309
|
|
|
|
|
|
|
|
|
|
I shares(2)
|
|
|
16,900
|
|
|
|
11,058
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
24,751
|
|
|
|
16,367
|
|
|
|
43.9
|
%
|
|
|
42.0
|
%
|
Institutional commingled funds
|
|
|
9,256
|
|
|
|
5,943
|
|
|
|
16.4
|
|
|
|
15.3
|
|
Separate accounts
|
|
|
17,786
|
|
|
|
12,757
|
|
|
|
31.5
|
|
|
|
32.8
|
|
Sub-advisory
accounts
|
|
|
4,624
|
|
|
|
3,874
|
|
|
|
8.2
|
|
|
|
9.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending AuM
|
|
$
|
56,417
|
|
|
$
|
38,941
|
|
|
$
|
100.0
|
%
|
|
$
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
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. |
|
(2) |
|
Amounts invested in private offshore funds are categorized as
I shares. |
54
The following table sets forth a summary of our AuM (including
legacy activities) by investment vehicle type as of
December 31, 2009, 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
As a % of AuM as of December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In millions, except percentages)
|
|
|
Proprietary funds(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A shares
|
|
$
|
7,919
|
|
|
$
|
6,251
|
|
|
$
|
13,217
|
|
|
|
|
|
|
|
|
|
|
|
|
|
I shares(2)
|
|
|
16,563
|
|
|
|
13,215
|
|
|
|
23,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
24,482
|
|
|
|
19,466
|
|
|
|
37,117
|
|
|
|
43.7
|
%
|
|
|
43.1
|
%
|
|
|
49.3
|
%
|
Institutional commingled funds
|
|
|
9,198
|
|
|
|
7,056
|
|
|
|
9,357
|
|
|
|
16.4
|
|
|
|
15.6
|
|
|
|
12.4
|
|
Separate accounts
|
|
|
17,854
|
|
|
|
14,342
|
|
|
|
22,897
|
|
|
|
31.9
|
|
|
|
31.7
|
|
|
|
30.4
|
|
Sub-advisory
accounts
|
|
|
4,459
|
|
|
|
4,336
|
|
|
|
5,991
|
|
|
|
8.0
|
|
|
|
9.6
|
|
|
|
7.9
|
|
Legacy activities(3)
|
|
|
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending AuM
|
|
$
|
55,993
|
|
|
$
|
45,204
|
|
|
$
|
75,362
|
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Proprietary funds include both SEC registered funds and private
offshore funds. SEC registered mutual funds within proprietary
funds are: Artio International Equity Fund; Artio International
Equity Fund II; Artio Total Return Bond Fund; Artio Global
High Income Fund; Artio Global Equity Fund Inc.; Artio U.S.
Microcap Fund; Artio U.S. Midcap Fund; Artio U.S. Multicap Fund;
and Artio U.S. Smallcap Fund. |
|
(2) |
|
Amounts invested in private offshore funds are categorized as
I shares. |
|
(3) |
|
Legacy activities relate to a hedge fund product which we
discontinued in the fourth quarter of 2008. |
The different fee structures associated with each type of
investment vehicle make the composition of our AuM an important
determinant of the investment management fees we earn. We
typically earn higher effective investment management fee rates
from our proprietary funds and institutional commingled funds as
compared to our separate and
sub-advised
accounts. As of March 31, 2010, the amount of AuM related
to proprietary and institutional commingled funds as a
percentage of total AuM increased due to positive net client
cash flows, while the proportion of separate accounts and
sub-advised
accounts to total AuM decreased due to net client cash outflows.
55
Results of
Operations
Three Months
Ended March 31, 2010 Compared to Three Months Ended
March 31, 2009
The following table sets forth the changes in AuM by investment
vehicle type:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
|
|
|
|
Ended March 31,
|
|
|
%
|
|
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
|
(In millions, except percentages)
|
|
|
Proprietary Funds:
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning AuM
|
|
$
|
24,482
|
|
|
$
|
19,466
|
|
|
|
26
|
%
|
Gross client cash inflows
|
|
|
2,021
|
|
|
|
1,908
|
|
|
|
6
|
|
Gross client cash outflows
|
|
|
(1,995
|
)
|
|
|
(1,970
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net client cash flows
|
|
|
26
|
|
|
|
(62
|
)
|
|
|
142
|
|
Transfers between investment vehicles
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total client cash flows
|
|
|
26
|
|
|
|
(62
|
)
|
|
|
142
|
|
Market appreciation (depreciation)
|
|
|
243
|
|
|
|
(3,037
|
)
|
|
|
108
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending AuM
|
|
|
24,751
|
|
|
|
16,367
|
|
|
|
51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Institutional Commingled Funds:
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning AuM
|
|
|
9,198
|
|
|
|
7,056
|
|
|
|
30
|
|
Gross client cash inflows
|
|
|
302
|
|
|
|
270
|
|
|
|
12
|
|
Gross client cash outflows
|
|
|
(262
|
)
|
|
|
(302
|
)
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net client cash flows
|
|
|
40
|
|
|
|
(32
|
)
|
|
|
225
|
|
Transfers between investment vehicles
|
|
|
|
|
|
|
(4
|
)
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total client cash flows
|
|
|
40
|
|
|
|
(36
|
)
|
|
|
211
|
|
Market appreciation (depreciation)
|
|
|
18
|
|
|
|
(1,077
|
)
|
|
|
102
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending AuM
|
|
|
9,256
|
|
|
|
5,943
|
|
|
|
56
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Separate Accounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning AuM
|
|
|
17,854
|
|
|
|
14,342
|
|
|
|
24
|
|
Gross client cash inflows
|
|
|
418
|
|
|
|
563
|
|
|
|
(26
|
)
|
Gross client cash outflows
|
|
|
(567
|
)
|
|
|
(273
|
)
|
|
|
(108
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net client cash flows
|
|
|
(149
|
)
|
|
|
290
|
|
|
|
(151
|
)
|
Transfers between investment vehicles
|
|
|
|
|
|
|
4
|
|
|
|
(100
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total client cash flows
|
|
|
(149
|
)
|
|
|
294
|
|
|
|
(151
|
)
|
Market appreciation (depreciation)
|
|
|
81
|
|
|
|
(1,879
|
)
|
|
|
104
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending AuM
|
|
|
17,786
|
|
|
|
12,757
|
|
|
|
39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub-advisory
Accounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning AuM
|
|
|
4,459
|
|
|
|
4,336
|
|
|
|
3
|
|
Gross client cash inflows
|
|
|
313
|
|
|
|
204
|
|
|
|
53
|
|
Gross client cash outflows
|
|
|
(135
|
)
|
|
|
(178
|
)
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net client cash flows
|
|
|
178
|
|
|
|
26
|
|
|
|
584
|
|
Transfers between investment vehicles
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total client cash flows
|
|
|
178
|
|
|
|
26
|
|
|
|
584
|
|
Market appreciation (depreciation)
|
|
|
(13
|
)
|
|
|
(488
|
)
|
|
|
97
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending AuM
|
|
|
4,624
|
|
|
|
3,874
|
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
56
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
|
|
|
|
Ended March 31,
|
|
|
%
|
|
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
|
(In millions, except percentages)
|
|
|
Legacy Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning AuM
|
|
|
|
|
|
|
4
|
|
|
|
(100
|
)
|
Gross client cash inflows
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross client cash outflows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net client cash flows
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfers between investment vehicles
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total client cash flows
|
|
|
|
|
|
|
|
|
|
|
|
|
Market appreciation (depreciation)
|
|
|
|
|
|
|
(4
|
)
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending AuM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total AuM:
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning AuM
|
|
|
55,993
|
|
|
|
45,204
|
|
|
|
24
|
|
Gross client cash inflows
|
|
|
3,054
|
|
|
|
2,945
|
|
|
|
4
|
|
Gross client cash outflows
|
|
|
(2,959
|
)
|
|
|
(2,723
|
)
|
|
|
(9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net client cash flows
|
|
|
95
|
|
|
|
222
|
|
|
|
(57
|
)
|
Transfers between investment vehicles
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total client cash flows
|
|
|
95
|
|
|
|
222
|
|
|
|
(57
|
)
|
Market appreciation (depreciation)
|
|
|
329
|
|
|
|
(6,485
|
)
|
|
|
105
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending AuM
|
|
|
56,417
|
|
|
|
38,941
|
|
|
|
45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total AuM (excluding legacy activities):
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning AuM
|
|
|
55,993
|
|
|
|
45,200
|
|
|
|
24
|
|
Gross client cash inflows
|
|
|
3,054
|
|
|
|
2,945
|
|
|
|
4
|
|
Gross client cash outflows
|
|
|
(2,959
|
)
|
|
|
(2,723
|
)
|
|
|
(9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net client cash flows
|
|
|
95
|
|
|
|
222
|
|
|
|
(57
|
)
|
Transfers between investment vehicles
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total client cash flows
|
|
|
95
|
|
|
|
222
|
|
|
|
(57
|
)
|
Market appreciation (depreciation)
|
|
|
329
|
|
|
|
(6,481
|
)
|
|
|
105
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending AuM
|
|
$
|
56,417
|
|
|
$
|
38,941
|
|
|
|
45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net client cash flows across all investment vehicles decreased
$0.1 billion during the three months ended March 31,
2010, compared to the corresponding period in 2009, mainly as a
result of $0.7 billion decrease in net client cash flows
into our International Equity II strategy, as the three
months ended March 31, 2010 had net client cash outflows
compared to net client cash inflows during the corresponding
period in 2009, a $0.3 billion increase in net client cash
outflows from our International Equity I strategy and a
$0.3 billion decrease in net client cash flows into our
High Grade Fixed Income strategy, as the three months ended
March 31, 2010 had net client cash outflows compared to net
client cash inflows during the corresponding period in 2009.
These decreases were partially offset by a $0.7 billion
increase in net client cash inflows to our High Yield strategy
and a $0.4 billion increase in net client cash flows into
our Global Equity strategy, as the three months ended
March 31, 2010, had net client cash inflows compared to net
client cash outflows during the corresponding period in 2009.
57
Market appreciation for the three months ended March 31,
2010, compared to market depreciation for the three months ended
March 31, 2009 was primarily attributable to the following
strategies:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
%
|
|
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
|
(In millions, except percentages)
|
|
|
Market appreciation (depreciation) (excluding legacy
activities):
|
|
|
|
|
|
|
|
|
|
|
|
|
International Equity I
|
|
$
|
60
|
|
|
$
|
(3,485
|
)
|
|
|
102
|
%
|
International Equity II
|
|
|
(12
|
)
|
|
|
(2,968
|
)
|
|
|
100
|
|
Other strategies
|
|
|
281
|
|
|
|
(28
|
)
|
|
|
1,104
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total market appreciation (depreciation)
|
|
$
|
329
|
|
|
$
|
(6,481
|
)
|
|
|
105
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The MSCI AC World ex USA Index increased 1.6% during the three
months ended March 31, 2010, and declined by 10.7% during
the three months ended March 31, 2009. In the three months
ended March 31, 2010, the gross performances of our
International Equity I strategy trailed the index by 1.0%, while
our International Equity II strategy trailed the index by
1.5%.
Proprietary
Funds
Net client cash flows related to proprietary funds increased
$0.1 billion during the three months ended March 31,
2010, compared to the corresponding period in 2009, mainly as a
result of a $0.4 billion increase in net client cash
inflows to our Global High Income Fund and a $0.1 billion
decrease in net client cash outflows from our International
Equity I Fund, partially offset by a $0.4 billion decrease
in net client cash flows into our International Equity II
Fund, as the three months ended March 31, 2010, had net
client cash outflows compared to net client cash inflows during
the corresponding period in 2009.
Institutional
Commingled Funds
Net client cash flows related to institutional commingled funds
increased $0.1 billion during the three months ended
March 31, 2010, compared to the corresponding period in
2009, mainly as a result of a $0.1 billion increase in net
client cash inflows to our Global Equity vehicles.
Separate
Accounts
Net client cash flows related to separate accounts decreased
$0.4 billion during the three months ended March 31,
2010, compared to the corresponding period in 2009, mainly as a
result of a $0.3 billion decrease in net client cash flows
into our International Equity I strategy, as the three months
ended March 31, 2010, had net client cash outflows compared
to net client cash inflows during the corresponding period in
2009, a $0.3 billion decrease in net client cash flows into
our International Equity II strategy, as the three months
ended March 31, 2010, had net client cash outflows compared
to net client cash inflows during the corresponding period in
2009, and a $0.3 billion decrease in net client cash flows
into our High Grade Fixed Income strategy, as the three months
ended March 31, 2010, had net client cash outflows compared
to net client cash inflows during the corresponding period in
2009. These decreases were partially offset by a
$0.3 billion increase net client cash flows into our Global
Equity strategy, as the three months ended March 31, 2010,
had net client cash inflows compared to net client cash outflows
during the corresponding period in 2009, and a $0.1 billion
increase in net client cash flows into the Global High Income
strategy, as there were no net client cash flows in the
corresponding period in 2009.
58
Sub-advisory
Accounts
Net client cash flows related to
sub-advised
accounts increased $0.2 billion during the three months
ended March 31, 2010, compared to the corresponding period
in 2009, mainly as a result of a $0.2 billion increase in
net client cash inflows to our High Yield strategy.
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. Performance fees may be subject to clawback
provisions as a result of performance declines. If such declines
occur, the performance fee clawback provisions are recognized
when the amount is probable and estimable. (See also
Assets under Management).
The following table sets forth average AuM, the effective fee
rate and Total revenues and other operating income for
the three months ended March 31, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
%
|
|
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
|
(In thousands, except for Average AuM, effective fee rate and
percentages)
|
|
|
Average AuM (in millions)(1)
|
|
$
|
54,711
|
|
|
$
|
40,711
|
|
|
|
34
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective fee rate (basis points)
|
|
|
63.2
|
|
|
|
62.6
|
|
|
|
0.6
|
bp
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment management fees
|
|
$
|
85,286.5
|
|
|
$
|
62,815.8
|
|
|
|
36
|
%
|
Net gains (losses) on securities held for deferred compensation
|
|
|
321.4
|
|
|
|
(273.3
|
)
|
|
|
218
|
|
Foreign currency gains (losses)
|
|
|
23.2
|
|
|
|
(15.6
|
)
|
|
|
249
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues and other operating income
|
|
$
|
85,631.1
|
|
|
$
|
62,526.9
|
|
|
|
37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Excluding legacy activities. |
Total revenues and other operating income increased by
$23.1 million for the three months ended March 31,
2010, compared to the corresponding period in 2009, due
primarily to a 34% increase in average AuM and net gains on
securities held for deferred compensation in the first quarter
of 2010 compared to net losses on securities held for deferred
compensation in the first quarter of 2009. The increase in
average AuM related to the recovery of equity markets since the
end of the first quarter of 2009. The increase of the effective
fee rate is primarily the result of a higher proportion of
average AuM in proprietary and commingled funds, our highest
margin vehicles.
Performance fees as a percentage of Total revenues and other
operating income approximated 0.1% for the three months
ended March 31, 2009. There were no performance fees for
the three months ended March 31, 2010.
59
Operating
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
%
|
|
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
|
(In thousands, except percentages)
|
|
|
Total employee compensation and benefits
|
|
$
|
25,168.7
|
|
|
$
|
45,281.1
|
|
|
|
*
|
%
|
Shareholder servicing and marketing
|
|
|
4,548.3
|
|
|
|
3,069.4
|
|
|
|
48
|
|
General and administrative
|
|
|
10,285.3
|
|
|
|
8,173.4
|
|
|
|
26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
$
|
40,002.3
|
|
|
$
|
56,523.9
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Calculation not meaningful, due to the impact of the
reorganization transactions in connection with the IPO. |
Operating expenses decreased by $16.5 million for the three
months ended March 31, 2010, compared to the corresponding
period in 2009, mainly due to changes in the nature of the
Principals economic interests after the IPO.
Employee
Compensation and Benefits
The following table sets forth Employee compensation and
benefits expenses.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
%
|
|
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
|
(In thousands, except percentages)
|
|
|
Salaries, incentive compensation and benefits
|
|
$
|
25,168.7
|
|
|
$
|
16,939.9
|
|
|
|
49
|
%
|
Allocation of Class B profits interests(1)
|
|
|
|
|
|
|
10,215.2
|
|
|
|
*
|
|
Change in redemption value of Class B profits interests(1)
|
|
|
|
|
|
|
18,126.0
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total employee compensation and benefits
|
|
|
25,168.7
|
|
|
|
45,281.1
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Calculation not meaningful, due to the impact of the
reorganization transactions in connection with the IPO. |
|
(1) |
|
At the time of the IPO (see General
Overview Initial Public Offering and Changes in
Principals Interests), the Class B profits
interests were exchanged for New Class A Units that are
reflected as equity subsequent to the IPO. |
Total employee compensation and benefits decreased
$20.1 million for the three months ended March 31,
2010, compared to the corresponding period in 2009, due
primarily to changes in the nature of the Principals
economic interests after the IPO, partially offset by an
increase in incentive compensation accruals and the amortization
of share-based compensation expense for the three months ended
March 31, 2010.
Shareholder
Servicing and Marketing
Shareholder servicing and marketing expenses increased
$1.5 million to $4.5 million for the three months
ended March 31, 2010, compared to the corresponding period
in 2009, due primarily to the increase in the average market
value of proprietary fund AuM increasing shareholder
servicing costs.
60
General and
Administrative
General and administrative expenses increased
$2.1 million to $10.3 million for the three months
ended March 31, 2010, compared to the corresponding period
in 2009, due primarily to an increase in business-related
activities and costs associated with our status as a public
company, partially offset by the cessation of licensing fee
payments, which ended upon the IPO.
Non-operating
Income (Loss)
Non-operating income (loss) primarily results from
interest income earned on invested funds and interest expense
incurred on borrowings under our term credit facility. The
following table sets forth Non-operating income (loss).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
%
|
|
|
2010
|
|
2009
|
|
Change
|
|
|
(In thousands, except percentages)
|
|
Total non-operating income (loss)
|
|
$
|
(660.6
|
)
|
|
$
|
(81.0
|
)
|
|
|
(716
|
)%
|
Total non-operating loss increased for the three months ended
March 31, 2010, compared to the corresponding period in
2009, primarily due to interest expense related to our
$60.0 million borrowing under our term credit facility.
Income
Taxes
We are organized as a Delaware corporation, and therefore are
subject to U.S. federal, state and local income taxes. As a
member of Holdings, we incur U.S. federal, state and local
income taxes on its allocable share of income of Holdings,
including its wholly owned operating company, Investment Adviser.
Our effective tax rates were 32.8% for the three months ended
March 31, 2010, and 48.6% for the three months ended
March 31, 2009.
Since the IPO, our effective tax rate has been lower, due to the
reclassification for financial accounting purposes of the
Principals membership interests in Holdings (approximately
26%) as non-controlling interests after the IPO from
compensation expense prior to the IPO. For U.S. federal
income tax purposes, the Principals, through their membership
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 membership interests.
As the Principals exchange their membership interests
(represented by New Class A Units) for Class A common
stock or otherwise reduce their ownership in Holdings, our
ownership in Holdings will increase, as will our allocable share
of the income of Holdings, and thus our tax liability. If the
Principals had already exchanged all of their New Class A
Units for shares of Class A common stock, our current
effective tax rate would have been approximately 43%.
61
Year Ended
December 31, 2009 Compared to Year Ended December 31,
2008
The following table sets forth the changes in AuM by investment
vehicle type:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
%
|
|
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
|
|
(In millions, except percentages)
|
|
|
Proprietary Funds:
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning AuM
|
|
$
|
19,466
|
|
|
$
|
37,117
|
|
|
|
(48
|
)%
|
Gross client cash inflows
|
|
|
7,659
|
|
|
|
8,716
|
|
|
|
(12
|
)
|
Gross client cash outflows
|
|
|
(7,038
|
)
|
|
|
(10,973
|
)
|
|
|
36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net client cash flows
|
|
|
621
|
|
|
|
(2,257
|
)
|
|
|
128
|
|
Transfers between investment vehicles
|
|
|
(38
|
)
|
|
|
(188
|
)
|
|
|
80
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total client cash flows
|
|
|
583
|
|
|
|
(2,445
|
)
|
|
|
124
|
|
Market appreciation (depreciation)
|
|
|
4,433
|
|
|
|
(15,206
|
)
|
|
|
129
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending AuM
|
|
|
24,482
|
|
|
|
19,466
|
|
|
|
26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Institutional Commingled Funds:
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning AuM
|
|
|
7,056
|
|
|
|
9,357
|
|
|
|
(25
|
)
|
Gross client cash inflows
|
|
|
1,391
|
|
|
|
3,617
|
|
|
|
(62
|
)
|
Gross client cash outflows
|
|
|
(1,118
|
)
|
|
|
(1,135
|
)
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net client cash flows
|
|
|
273
|
|
|
|
2,482
|
|
|
|
(89
|
)
|
Transfers between investment vehicles
|
|
|
29
|
|
|
|
194
|
|
|
|
(85
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total client cash flows
|
|
|
302
|
|
|
|
2,676
|
|
|
|
(89
|
)
|
Market appreciation (depreciation)
|
|
|
1,840
|
|
|
|
(4,977
|
)
|
|
|
137
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending AuM
|
|
|
9,198
|
|
|
|
7,056
|
|
|
|
30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Separate Accounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning AuM
|
|
|
14,342
|
|
|
|
22,897
|
|
|
|
(37
|
)
|
Gross client cash inflows
|
|
|
2,273
|
|
|
|
2,361
|
|
|
|
(4
|
)
|
Gross client cash outflows
|
|
|
(2,028
|
)
|
|
|
(1,803
|
)
|
|
|
(12
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net client cash flows
|
|
|
245
|
|
|
|
558
|
|
|
|
(56
|
)
|
Transfers between investment vehicles
|
|
|
9
|
|
|
|
(53
|
)
|
|
|
117
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total client cash flows
|
|
|
254
|
|
|
|
505
|
|
|
|
(50
|
)
|
Market appreciation (depreciation)
|
|
|
3,258
|
|
|
|
(9,060
|
)
|
|
|
136
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending AuM
|
|
|
17,854
|
|
|
|
14,342
|
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub-advisory
Accounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning AuM
|
|
|
4,336
|
|
|
|
5,991
|
|
|
|
(28
|
)
|
Gross client cash inflows
|
|
|
768
|
|
|
|
2,557
|
|
|
|
(70
|
)
|
Gross client cash outflows
|
|
|
(1,569
|
)
|
|
|
(1,410
|
)
|
|
|
(11
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net client cash flows
|
|
|
(801
|
)
|
|
|
1,147
|
|
|
|
(170
|
)
|
Transfers between investment vehicles
|
|
|
|
|
|
|
47
|
|
|
|
(100
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total client cash flows
|
|
|
(801
|
)
|
|
|
1,194
|
|
|
|
(167
|
)
|
Market appreciation (depreciation)
|
|
|
924
|
|
|
|
(2,849
|
)
|
|
|
132
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending AuM
|
|
|
4,459
|
|
|
|
4,336
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
62
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
%
|
|
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
|
|
(In millions, except percentages)
|
|
|
Legacy Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning AuM
|
|
|
4
|
|
|
|
|
|
|
|
|
|
Gross client cash inflows
|
|
|
|
|
|
|
44
|
|
|
|
(100
|
)
|
Gross client cash outflows
|
|
|
|
|
|
|
(35
|
)
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net client cash flows
|
|
|
|
|
|
|
9
|
|
|
|
(100
|
)
|
Transfers between investment vehicles
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total client cash flows
|
|
|
|
|
|
|
9
|
|
|
|
(100
|
)
|
Market appreciation (depreciation)
|
|
|
(4
|
)
|
|
|
(5
|
)
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending AuM
|
|
|
|
|
|
|
4
|
|
|
|
(100
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total AuM:
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning AuM
|
|
|
45,204
|
|
|
|
75,362
|
|
|
|
(40
|
)
|
Gross client cash inflows
|
|
|
12,091
|
|
|
|
17,295
|
|
|
|
(30
|
)
|
Gross client cash outflows
|
|
|
(11,753
|
)
|
|
|
(15,356
|
)
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net client cash flows
|
|
|
338
|
|
|
|
1,939
|
|
|
|
(83
|
)
|
Transfers between investment vehicles
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total client cash flows
|
|
|
338
|
|
|
|
1,939
|
|
|
|
(83
|
)
|
Market appreciation (depreciation)
|
|
|
10,451
|
|
|
|
(32,097
|
)
|
|
|
133
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending AuM
|
|
|
55,993
|
|
|
|
45,204
|
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total AuM (excluding legacy activities):
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning AuM
|
|
|
45,200
|
|
|
|
75,362
|
|
|
|
(40
|
)
|
Gross client cash inflows
|
|
|
12,091
|
|
|
|
17,251
|
|
|
|
(30
|
)
|
Gross client cash outflows
|
|
|
(11,753
|
)
|
|
|
(15,321
|
)
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net client cash flows
|
|
|
338
|
|
|
|
1,930
|
|
|
|
(82
|
)
|
Transfers between investment vehicles
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total client cash flows
|
|
|
338
|
|
|
|
1,930
|
|
|
|
(82
|
)
|
Market appreciation (depreciation)
|
|
|
10,455
|
|
|
|
(32,092
|
)
|
|
|
133
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending AuM
|
|
$
|
55,993
|
|
|
$
|
45,200
|
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net client cash flows across all investment vehicles decreased
$1.6 billion for 2009 compared to 2008, mainly as a result
of a $4.7 billion decrease in net client cash inflows to
the International Equity II strategy, partially offset by a
$1.6 billion decrease in net client cash outflows from our
International Equity I strategy and a $1.4 billion increase
in net client cash inflows to our High Yield strategy.
63
Market appreciation for the year ended December 31, 2009,
compared to market depreciation for the year ended
December 31, 2008 was primarily attributable to the
following strategies:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
%
|
|
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
|
|
(In millions, except percentages)
|
|
|
Market appreciation (depreciation) (excluding legacy
activities):
|
|
|
|
|
|
|
|
|
|
|
|
|
International Equity I
|
|
$
|
4,105
|
|
|
$
|
(17,916
|
)
|
|
|
123
|
%
|
International Equity II
|
|
|
4,919
|
|
|
|
(13,288
|
)
|
|
|
137
|
|
Other strategies
|
|
|
1,431
|
|
|
|
(888
|
)
|
|
|
261
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total market appreciation (depreciation)
|
|
|
10,455
|
|
|
|
(32,092
|
)
|
|
|
133
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The MSCI AC World ex USA Index experienced a 41.4% increase
during 2009 and declined 45.5% in 2008. 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%.
Proprietary
Funds
Net client cash flows related to proprietary funds increased
$2.9 billion for 2009 compared to 2008, mainly as a result
of a $2.1 billion decrease in net client cash outflows from
our International Equity I Fund and a $1.0 billion increase
in net client cash inflows to our Global High Income Fund,
partially offset by a $0.2 billion decrease in net client
cash inflows to our International Equity II Fund and a
$0.1 billion decrease in net client cash inflows to our
Total Return Bond Fund.
Institutional
Commingled Funds
Net client cash flows related to institutional commingled funds
decreased $2.2 billion for 2009 compared to 2008, mainly as
a result of a $2.1 billion decrease in net client cash
inflows to our International Equity II vehicles.
Separate
Accounts
Net client cash flows related to separate accounts decreased
$0.3 billion for 2009 compared to 2008, mainly as a result
of a $0.5 billion increase in net client cash outflows from
the International Equity I strategy, partially offset by a
$0.1 billion increase in net client cash flows into the
High Yield strategy, as 2009 had net client cash inflows
compared to net client cash outflows in 2008.
Sub-advisory
Accounts
Net client cash flows related to
sub-advised
accounts decreased $1.9 billion for 2009 compared to 2008.
The decrease was mainly a result of a $2.4 billion decrease
in net client cash flows to our International Equity II
accounts, which resulted from net client cash outflows in 2009
compared to net client cash inflows in 2008, as 2008 included
the impact of a $1.5 billion funding related to a new
client, and 2009 included the partial redemption of
approximately $0.8 billion by our largest
sub-advisory
client. The decrease is partially offset by a $0.3 billion
increase in net client cash inflows to our High Yield strategy
and a $0.2 billion decrease in net client cash outflows
from certain low-margin U.S. dollar fixed income products.
64
Fair Value of
AuM
The valuation policies of the proprietary funds are approved by
the Board of Trustees of the Artio Global Investment Funds and
the Board of Directors of the Artio Global Equity Fund.
Valuation of institutional commingled funds is similar to that
of the proprietary funds. Primary responsibility for the
valuation of separate accounts rests with the custodians of our
clients accounts. Fair value polices for
sub-advised
accounts are determined by the primary adviser.
As of
December 31, 2009 and 2008
Our proprietary funds and institutional commingled funds adopted
the fair value measurement reporting requirement for their
financial statements in 2008.
The table below shows the composition of the investments in
securities of the proprietary funds and institutional commingled
funds by Levels 1, 2, and 3 as of December 31, 2008
and 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 2
|
|
|
Level 3
|
|
|
|
|
|
|
Level 1
|
|
|
Other
|
|
|
Significant
|
|
|
|
|
|
|
Quoted
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
Total(1)
|
|
|
Prices
|
|
|
Inputs
|
|
|
Inputs
|
|
|
|
(In millions)
|
|
|
December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proprietary funds
|
|
$
|
15,802
|
|
|
$
|
13,545
|
|
|
$
|
1,817
|
|
|
$
|
440
|
|
Institutional commingled funds
|
|
|
6,494
|
|
|
|
6,384
|
|
|
|
79
|
|
|
|
31
|
|
December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proprietary funds
|
|
|
23,813
|
|
|
|
1,987
|
|
|
|
21,482
|
|
|
|
344
|
|
Institutional commingled Funds
|
|
|
8,998
|
|
|
|
1,894
|
|
|
|
7,069
|
|
|
|
35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Total differs from aggregate AuM primarily due to uninvested
cash. |
We do not have responsibility for fair valuing the assets of
separate accounts or
sub-advised
accounts, and do not have access to the fair value methodology
of the custodians responsible for such valuation. Accordingly,
we do not compute fair value data for these assets. The table
below represents our estimate of what the data for our separate
accounts and
sub-advised
assets might have been had we made such a computation.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 2
|
|
|
Level 3
|
|
|
|
|
|
|
Level 1
|
|
|
Other
|
|
|
Significant
|
|
|
|
|
|
|
Quoted
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
Total(1)
|
|
|
Prices
|
|
|
Inputs
|
|
|
Inputs
|
|
|
|
(In millions)
|
|
|
December 31, 2008
|
|
$
|
17,958
|
|
|
$
|
14,061
|
|
|
$
|
3,753
|
|
|
$
|
144
|
|
December 31, 2009
|
|
|
21,698
|
|
|
|
17,272
|
|
|
|
4,368
|
|
|
|
58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Total differs from aggregate AuM primarily due to uninvested
cash. |
65
Revenues and
Other Operating Income
The following table sets forth average AuM, the effective fee
rate and Total revenues and other operating income for
the years ended December 31, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
%
|
|
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
|
|
(In thousands, except for Average AuM, effective fee rate and
percentages)
|
|
|
Average AuM (in millions)(1)
|
|
$
|
48,166
|
|
|
$
|
64,776
|
|
|
|
(26
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective fee rate (basis points)
|
|
|
63.4
|
|
|
|
65.6
|
|
|
|
(2.2
|
)bp
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment management fees
|
|
$
|
305,334.9
|
|
|
$
|
425,002.6
|
|
|
|
(28
|
)%
|
Net gains (losses) on securities held for deferred compensation
|
|
|
1,970.1
|
|
|
|
(2,856.5
|
)
|
|
|
169
|
|
Foreign currency gains (losses)
|
|
|
87.0
|
|
|
|
(100.6
|
)
|
|
|
186
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues and other operating income
|
|
$
|
307,392.0
|
|
|
$
|
422,045.5
|
|
|
|
(27
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Excluding legacy activities. |
Total revenues and other operating income decreased by
$114.7 million for 2009 compared to 2008, due primarily to
a decline in average AuM and, to a lesser extent, a decrease in
the effective fee rate, partially offset by net gains on
securities held for deferred compensation in 2009 compared to
net losses on securities held for deferred compensation in 2008.
The decline in the average AuM related to the significant
deterioration in equity markets that began in the second half of
2008 and extended into the first quarter of 2009. The decline in
the effective fee rate is primarily the result of a lower
proportion of average AuM in the International Equity strategies
and proprietary funds, our highest margin products and vehicle.
Performance fees as a percentage of Total revenues and other
operating income approximated (0.5)% for 2009 and 1.2% for
2008. The negative performance fee in 2009 resulted from a
clawback.
Operating
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
|
|
|
|
|
December 31,
|
|
|
%
|
|
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
|
|
(In thousands, except percentages)
|
|
|
Total employee compensation and benefits
|
|
$
|
476,716.6
|
|
|
$
|
223,118.3
|
|
|
|
|
*%
|
Shareholder servicing and marketing
|
|
|
16,886.0
|
|
|
|
23,369.1
|
|
|
|
(28
|
)
|
General and administrative
|
|
|
42,317.1
|
|
|
|
62,833.1
|
|
|
|
(33
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
$
|
535,919.7
|
|
|
$
|
309,320.5
|
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Calculation not meaningful, due to the impact of the
reorganization transactions in connection with the IPO. |
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.
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
66
commission rates. In connection with these activities, we
receive research reports from executing broker-dealers. In
certain situations, we receive research credits from broker
dealers that would have had the effect of reducing our operating
expenses by $0.7 million in 2009 and $0.8 million in
2008. Our operating expenses would increase if the research
credits were reduced or eliminated.
Employee
Compensation and Benefits
The following table sets forth Employee compensation and
benefits expenses.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
%
|
|
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
|
|
(In thousands, except percentages)
|
|
|
Salaries, incentive compensation and benefits
|
|
$
|
79,035.7
|
|
|
$
|
92,487.1
|
|
|
|
(15
|
)%
|
Allocation of Class B profits interests(1)
|
|
|
33,662.5
|
|
|
|
76,073.8
|
|
|
|
(56
|
)
|
Change in redemption value of Class B profits interests(1)
|
|
|
266,109.8
|
|
|
|
54,557.4
|
|
|
|
|
*
|
Tax receivable agreement
|
|
|
97,908.6
|
|
|
|
|
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total employee compensation and benefits
|
|
$
|
476,716.6
|
|
|
$
|
223,118.3
|
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Calculation not meaningful, due to the impact of the IPO and the
related transactions. |
|
(1) |
|
At the time of the IPO (see General
Overview Initial Public Offering and Changes in
Principals Interests), the Class B profits
interests were exchanged for New Class A Units that are
reflected as equity subsequent to the IPO. |
Employee compensation and benefits increased
$253.6 million for 2009 compared to 2008, due primarily to
the non-recurring charges discussed above and the amortization
of share-based compensation expense in 2009, partially offset by
a $42.4 million decrease in Allocation of Class B
profits interests, a decrease in incentive compensation,
including sales incentives, and the amortization of deferred
compensation relating to the Principals in 2008 that totaled
$8.9 million and did not recur in 2009.
Shareholder
Servicing and Marketing
Shareholder servicing and marketing expenses decreased
$6.5 million for 2009 compared to 2008, due primarily to a
32% decrease in the average market value of proprietary
fund AuM, which are correlated to shareholder servicing
costs.
General and
Administrative
General and administrative expenses decreased
$20.5 million for 2009 compared to 2008, due primarily to
lower client-related trading errors, lower non-recurring
professional fees related to the completion of the IPO, lower
licensing fees and lower occupancy costs. The licensing fees
associated with the use of the Julius Baer name in our products
and marketing strategies were reduced in mid-2008, as we
rebranded to the use of the Artio Global name, and ended upon
the IPO.
67
Non-operating
Income (Loss)
Non-operating income (loss) primarily results from
interest income earned on invested funds and interest expense
incurred on borrowings under our term credit facility. The
following table sets forth Non-operating income (loss)
and average invested funds.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
%
|
|
|
2009
|
|
2008
|
|
Change
|
|
|
(In thousands, except percentages)
|
|
Total non-operating income (loss)
|
|
$
|
(1,395.4
|
)
|
|
$
|
3,181.4
|
|
|
|
(144
|
)%
|
Average invested funds(1)
|
|
|
68,276.3
|
|
|
|
149,146.5
|
|
|
|
(54
|
)
|
|
|
|
(1) |
|
Computed using the beginning and ending balances for the period
of cash equivalents and marketable securities, exclusive of
securities held for deferred compensation. |
We recorded a non-operating loss for 2009 compared to
non-operating income for 2008, primarily due to accrued interest
expense related to anticipated amendments of prior years
tax returns, interest expense related to our borrowings under
our term credit facility, lower invested balances and lower
yields on investment securities.
Income
Taxes
Our effective tax rates were (58.4)% for 2009 and 47.2% 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.
Year Ended
December 31, 2008 Compared to Year Ended December 31,
2007
The following table sets forth the changes in AuM by investment
vehicle type:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
|
|
|
|
|
December 31,
|
|
|
%
|
|
|
|
2008
|
|
|
2007
|
|
|
Change
|
|
|
|
(In millions, except percentages)
|
|
|
Proprietary Funds:
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning AuM
|
|
$
|
37,117
|
|
|
$
|
26,600
|
|
|
|
40
|
%
|
Gross client cash inflows
|
|
|
8,716
|
|
|
|
10,999
|
|
|
|
(21
|
)
|
Gross client cash outflows
|
|
|
(10,973
|
)
|
|
|
(5,103
|
)
|
|
|
(115
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net client cash flows
|
|
|
(2,257
|
)
|
|
|
5,896
|
|
|
|
(138
|
)
|
Transfers between investment vehicles
|
|
|
(188
|
)
|
|
|
(92
|
)
|
|
|
(104
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total client cash flows
|
|
|
(2,445
|
)
|
|
|
5,804
|
|
|
|
(142
|
)
|
Market appreciation (depreciation)
|
|
|
(15,206
|
)
|
|
|
4,713
|
|
|
|
(423
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending AuM
|
|
|
19,466
|
|
|
|
37,117
|
|
|
|
(48
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
68
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
|
|
|
|
|
December 31,
|
|
|
%
|
|
|
|
2008
|
|
|
2007
|
|
|
Change
|
|
|
|
(In millions, except percentages)
|
|
|
Institutional Commingled Funds:
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning AuM
|
|
|
9,357
|
|
|
|
5,676
|
|
|
|
65
|
|
Gross client cash inflows
|
|
|
3,617
|
|
|
|
2,886
|
|
|
|
25
|
|
Gross client cash outflows
|
|
|
(1,135
|
)
|
|
|
(813
|
)
|
|
|
(40
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net client cash flows
|
|
|
2,482
|
|
|
|
2,073
|
|
|
|
20
|
|
Transfers between investment vehicles
|
|
|
194
|
|
|
|
371
|
|
|
|
(48
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total client cash flows
|
|
|
2,676
|
|
|
|
2,444
|
|
|
|
9
|
|
Market appreciation (depreciation)
|
|
|
(4,977
|
)
|
|
|
1,237
|
|
|
|
(502
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending AuM
|
|
|
7,056
|
|
|
|
9,357
|
|
|
|
(25
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Separate Accounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning AuM
|
|
|
22,897
|
|
|
|
16,574
|
|
|
|
38
|
|
Gross client cash inflows
|
|
|
2,361
|
|
|
|
5,928
|
|
|
|
(60
|
)
|
Gross client cash outflows
|
|
|
(1,803
|
)
|
|
|
(2,315
|
)
|
|
|
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net client cash flows
|
|
|
558
|
|
|
|
3,613
|
|
|
|
(85
|
)
|
Transfers between investment vehicles
|
|
|
(53
|
)
|
|
|
(279
|
)
|
|
|
81
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total client cash flows
|
|
|
505
|
|
|
|
3,334
|
|
|
|
(85
|
)
|
Market appreciation (depreciation)
|
|
|
(9,060
|
)
|
|
|
2,989
|
|
|
|
(403
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending AuM
|
|
|
14,342
|
|
|
|
22,897
|
|
|
|
(37
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub-advisory
Accounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning AuM
|
|
|
5,991
|
|
|
|
4,636
|
|
|
|
29
|
|
Gross client cash inflows
|
|
|
2,557
|
|
|
|
1,359
|
|
|
|
88
|
|
Gross client cash outflows
|
|
|
(1,410
|
)
|
|
|
(791
|
)
|
|
|
78
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net client cash flows
|
|
|
1,147
|
|
|
|
568
|
|
|
|
102
|
|
Transfers between investment vehicles
|
|
|
47
|
|
|
|
|
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total client cash flows
|
|
|
1,194
|
|
|
|
568
|
|
|
|
110
|
|
Market appreciation (depreciation)
|
|
|
(2,849
|
)
|
|
|
787
|
|
|
|
(462
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending AuM
|
|
|
4,336
|
|
|
|
5,991
|
|
|
|
(28
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Legacy Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning AuM
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross client cash inflows
|
|
|
44
|
|
|
|
|
|
|
|
|
|
Gross client cash outflows
|
|
|
(35
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net client cash flows
|
|
|
9
|
|
|
|
|
|
|
|
|
|
Transfers between investment vehicles
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total client cash flows
|
|
|
9
|
|
|
|
|
|
|
|
|
|
Market appreciation (depreciation)
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending AuM
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
69
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
|
|
|
|
|
December 31,
|
|
|
%
|
|
|
|
2008
|
|
|
2007
|
|
|
Change
|
|
|
|
(In millions, except percentages)
|
|
|
Total AuM:
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning AuM
|
|
|
75,362
|
|
|
|
53,486
|
|
|
|
41
|
|
Gross client cash inflows
|
|
|
17,295
|
|
|
|
21,172
|
|
|
|
(18
|
)
|
Gross client cash outflows
|
|
|
(15,356
|
)
|
|
|
(9,022
|
)
|
|
|
(70
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net client cash flows
|
|
|
1,939
|
|
|
|
12,150
|
|
|
|
(84
|
)
|
Transfers between investment vehicles
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total client cash flows
|
|
|
1,939
|
|
|
|
12,150
|
|
|
|
(84
|
)
|
Market appreciation (depreciation)
|
|
|
(32,097
|
)
|
|
|
9,726
|
|
|
|
(430
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending AuM
|
|
|
45,204
|
|
|
|
75,362
|
|
|
|
(40
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total AuM (excluding legacy activities):
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning AuM
|
|
|
75,362
|
|
|
|
53,486
|
|
|
|
41
|
|
Gross client cash inflows
|
|
|
17,251
|
|
|
|
21,172
|
|
|
|
(19
|
)
|
Gross client cash outflows
|
|
|
(15,321
|
)
|
|
|
(9,022
|
)
|
|
|
(70
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net client cash flows
|
|
|
1,930
|
|
|
|
12,150
|
|
|
|
(84
|
)
|
Transfers between investment vehicles
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total client cash flows
|
|
|
1,930
|
|
|
|
12,150
|
|
|
|
(84
|
)
|
Market appreciation (depreciation)
|
|
|
(32,092
|
)
|
|
|
9,726
|
|
|
|
(430
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending AuM
|
|
$
|
45,200
|
|
|
$
|
75,362
|
|
|
|
(40
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net client cash flows across all investment vehicles decreased
$10.2 billion for 2008 compared to 2007, mainly as a result
of a $4.5 billion decrease in net client cash inflows to
the International Equity II strategy, $3.0 billion
increase in net client cash outflows from the International
Equity I strategy and $2.3 billion decrease in net client
cash inflows to the High Grade Fixed Income strategy.
Market depreciation for the year ended December 31, 2008,
compared to market appreciation for the year ended
December 31, 2007 was primarily attributable to the
following strategies:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
%
|
|
|
|
2008
|
|
|
2007
|
|
|
Change
|
|
|
|
(In millions, except percentages)
|
|
|
Market appreciation (depreciation) (excluding legacy
activities):
|
|
|
|
|
|
|
|
|
|
|
|
|
International Equity I
|
|
$
|
(17,916
|
)
|
|
$
|
6,372
|
|
|
|
(381
|
)%
|
International Equity II
|
|
|
(13,288
|
)
|
|
|
2,803
|
|
|
|
(574
|
)
|
Other strategies
|
|
|
(888
|
)
|
|
|
551
|
|
|
|
(261
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total market appreciation (depreciation)
|
|
|
(32,092
|
)
|
|
|
9,726
|
|
|
|
(430
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The MSCI AC World ex USA Index declined 45.5% in 2008 and grew
by 16.7% in 2007. In 2008, the gross performances of our
International Equity I strategy outperformed the index by 1.4%
and our International Equity II strategy outperformed the
index by 3.3%. In 2007, the gross performances of our
International Equity I strategy outperformed the index by 1.8%
and our International Equity II strategy outperformed the
index by 1.6%.
70
Proprietary
Funds
Net client cash flows related to proprietary funds decreased
$8.2 billion for 2008 compared to 2007, mainly as a result
of a $4.1 billion decrease in net client cash flows to our
International Equity I strategy, as 2008 had net client cash
outflows compared to net client cash inflows in 2007, and a
$3.8 billion decrease in net client cash inflows to our
International Equity II strategy.
Institutional
Commingled Funds
Net client cash flows related to institutional commingled funds
increased $0.4 billion for 2008 compared to 2007, mainly as
a result of an increase in net client cash inflows of
$0.2 billion to our International Equity II vehicles
and a decrease in net client cash outflows of $0.1 billion
from our International Equity I vehicles.
Separate
Accounts
Net client cash flows related to separate accounts decreased
$3.1 billion for 2008 compared to 2007, mainly as a result
of a combined $2.3 billion decrease in net client cash
flows to our High Grade Fixed Income and High Yield strategies,
as 2007 included a $1.6 billion fixed income mandate
relating to one account. Further, the reduction in net client
cash inflows was also attributable to a $1.7 billion
decrease in net client cash inflows to our International
Equity II strategy, partially offset by a $1.0 billion
decrease in net client cash outflows from our International
Equity I strategy.
Sub-Advisory
Accounts
Net client cash flows related to
sub-advised
accounts increased $0.6 billion for 2008 compared to 2007,
mainly as a result of a $1.5 billion mandate relating to a
new International Equity II client in 2008, partially
offset by a decrease in net client cash inflows to our
International Equity II strategy by other clients, as well
as a $0.3 billion increase in net client cash outflows
during 2008 in certain low-margin short-term U.S. dollar
fixed income products.
Fair Value of
AuM
The valuation policies of the proprietary funds are approved by
the Board of Trustees of the Artio Global Investment Funds and
the Board of Directors of the Artio Global Equity Fund.
Valuation of institutional commingled funds is similar to that
of the proprietary funds. Primary responsibility for the
valuation of separate accounts rests with the custodians of our
clients accounts. Fair value polices for
sub-advised
accounts are determined by the primary adviser.
As of
December 31, 2007
During 2007, the valuation committee implemented a
standard-industry correlation model, which was applied to
closing prices when markets rose or fell by a level it
determined was materially significant, to determine fair value.
Since a large number of the underlying holdings were
international investments, the valuation committee recognized
that the last price traded on a local exchange may not
necessarily be the best price to use in calculating
the funds net asset value on a given day. The best
price represented an assessment of the effect that a local
market would have assigned to the event that gave rise to the
fair value pricing, had that local market been open
for business at the time of the funds close of business.
The approach applied stock-specific factor models which include
prices of index-linked futures, such as the S&P 500 or
Nikkei 225 Futures.
Prices obtained using the standard-industry correlation model
are referred to below as prices obtained from independent
pricing agents using adjusted market prices. These prices
were obtained through application of the model, without any
subjective input by our pricing committee or other internal
employees. The pricing committee did, however, monitor the
results derived from the model to ensure that policies were
being consistently applied. As of December 31, 2007, the
substantial
71
majority of AuM that were not valued solely using data from
independent pricing agents were valued using this third-party
correlation model. During 2007, the use of adjusted market
prices had an immaterial (less than 0.1%) impact on our Total
revenues and other operating income.
On certain occasions, a specific stock, sector, or market may
not trade or abruptly halt trading during a given day.
Additionally, a post-market event may have required the pricing
committee to evaluate whether the last quoted price reflected
fair value. In the rare circumstances where these post-market
events were determined by the pricing committee to result in the
last quoted market price, as adjusted by the correlation model,
not reflecting fair value, the pricing committee established its
own view in light of the best price or fair value of the
relevant circumstances. These prices are referred to below as
being valued using valuations other than from
independent pricing agents. As of December 31, 2007, less
than 5% of the AuM in our registered investment companies were
valued on this other basis. To establish this
valuation, the pricing committee evaluated available facts and
information, including but not limited to, the following:
|
|
|
|
|
fundamental analytical data relating to the investment and its
issuer;
|
|
|
|
the value of other comparable securities or relevant financial
instruments, including derivative securities, traded on other
markets or among dealers;
|
|
|
|
an evaluation of the forces which influence the market in which
these securities are purchased and sold (e.g., the
existence of merger proposals or tender offers for similarly
situated companies that might affect the value of the security);
|
|
|
|
information obtained from the issuer, analysts, other financial
institutions
and/or the
appropriate stock exchange (for exchange-traded securities);
|
|
|
|
government (domestic or foreign) actions or
pronouncements; and
|
|
|
|
other news events.
|
Additional factors that were considered by the pricing committee
when fair value pricing a portfolio security as a result of a
significant event may have included: the nature and duration of
the event and the forces influencing the operation of the
financial markets; the factors that precipitated the event;
whether the event is likely to recur; and whether the effects of
the event were isolated or whether they affected entire markets,
countries, or regions.
In addition to establishing a best price, the implementation of
these policies were designed to help reduce arbitrage
opportunities. Management supported the boards policy and
adopted a similar policy for its commingled investment vehicles.
As of December 31, 2007, conditions merited the application
of this procedure.
As of December 31, 2007, the sources of fair values of
assets of the registered investment companies were as follows:
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
% of
|
|
|
|
December 31,
|
|
|
Ending
|
|
|
|
2007
|
|
|
AuM
|
|
|
|
(In millions, except percentages)
|
|
|
Independent pricing agents using quoted market prices
|
|
$
|
11,734
|
|
|
|
31.6
|
%
|
Independent pricing agents using adjusted market prices to
reflect best price at U.S. market closing
|
|
|
23,709
|
|
|
|
63.9
|
|
Other
|
|
|
1,674
|
|
|
|
4.5
|
|
|
|
|
|
|
|
|
|
|
Ending AuM
|
|
$
|
37,117
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
The information in the table above reflects the valuation of our
sponsored proprietary funds. Because the assets of commingled
investment vehicles are very similar to those held in the
72
proprietary funds, the valuation of commingled investment
vehicles would mirror that of the proprietary funds in terms of
composition and valuation.
Independent pricing agents were sources such as Reuters or
Bloomberg, which provided quoted market prices. Other pricing
sources may also have been independent. However, the prices were
often determined by a market-makers price levels, as
opposed to exchange prints or evaluated bid/ask or sale
transactions. As described above, with respect to the assets
valued using adjusted market prices, substantially all of such
assets were valued based on their quoted market price, adjusted
by the pricing committee to more closely reflect fair value at
the closing of U.S. markets rather than at the time of
their local exchanges closing, due to significant movement
in the value of equity securities during the relevant day.
During 2007, the adjustments to market price had no material
impact on our revenues, as the impact on Total revenues and
other operating income in 2007 compared to Total revenues
and other operating income we would have earned if we had
used quoted market prices was less than 0.1%.
The information in the table above reflects the valuation of our
sponsored registered investment companies. Because the assets of
commingled investment vehicles are substantially identical to
those held in registered investment companies, the valuation of
commingled investment vehicles would substantially mirror that
of the registered investment companies in terms of composition
and valuation.
We are not responsible for determining the fair values of the
assets of separate accounts or
sub-advised
accounts, and did not have access to the precise fair value
methodology of the custodians responsible for such valuation.
However, as noted above, we maintained our own internal
valuation of the assets in these vehicles and tested these
valuations, on a monthly basis, against the values provided by
these custodians and did not find material deviations. Set out
below, are the sources of fair value of assets of separate,
sub-advised,
and hedge fund accounts according to our internal valuation
methodology as of December 31, 2007.
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
% of
|
|
|
|
December 31,
|
|
|
Ending
|
|
|
|
2007
|
|
|
AuM
|
|
|
|
(In millions, except percentages)
|
|
|
Independent pricing agents using quoted market prices
|
|
$
|
28,179
|
|
|
|
97.5
|
%
|
Independent pricing agents using adjusted market prices to
reflect best price at U.S. market closing
|
|
|
709
|
|
|
|
2.5
|
|
|
|
|
|
|
|
|
|
|
Ending AuM
|
|
$
|
28,888
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
73
Revenues and
Other Operating Income
The following table sets forth average AuM, the effective fee
rate and Total revenues and other operating income for
the years ended December 31, 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
|
|
|
|
|
December 31,
|
|
|
%
|
|
|
|
2008
|
|
|
2007
|
|
|
Change
|
|
|
|
(In thousands, except for Average
|
|
|
|
AuM, effective fee rate and
|
|
|
|
percentages)
|
|
|
Average AuM (in millions)(1)
|
|
$
|
64,776
|
|
|
$
|
66,619
|
|
|
|
(3
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective fee rate (basis points)
|
|
|
65.6
|
|
|
|
66.9
|
|
|
|
(1.3
|
)bp
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment management fees
|
|
$
|
425,002.6
|
|
|
$
|
445,558.4
|
|
|
|
(5
|
)%
|
Net gains (losses) on securities held for deferred compensation
|
|
|
(2,856.5
|
)
|
|
|
|
|
|
|
|
|
Foreign currency gains (losses)
|
|
|
(100.6
|
)
|
|
|
185.9
|
|
|
|
(154
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues and other operating income
|
|
$
|
422,045.5
|
|
|
$
|
445,744.3
|
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Excluding legacy activities. |
Total revenues and other operating income decreased by
$23.7 million for 2008 compared to 2007, due primarily to a
decline in average AuM, driven primarily by deteriorating equity
markets, and a shift in the composition of AuM among our
investment strategies and investment vehicles. The decline in
the effective fee rate is primarily the result of a lower
proportion of assets in the International Equity strategies and
proprietary funds, our highest margin products and vehicle.
Performance fees as a percentage of Total revenues and other
operating income approximated 1.2% for 2008 and 0.9% for
2007.
Operating
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
|
|
|
|
|
December 31,
|
|
|
%
|
|
|
|
2008
|
|
|
2007
|
|
|
Change
|
|
|
|
(In thousands, except percentages)
|
|
|
Total employee compensation and benefits
|
|
$
|
223,118.3
|
|
|
$
|
252,633.1
|
|
|
|
(12
|
)%
|
Shareholder servicing and marketing
|
|
|
23,369.1
|
|
|
|
25,356.3
|
|
|
|
(8
|
)
|
General and administrative
|
|
|
62,833.1
|
|
|
|
50,001.5
|
|
|
|
26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
$
|
309,320.5
|
|
|
$
|
327,990.9
|
|
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses decreased by $18.7 million for 2008
compared to 2007. The decrease was largely due to expense
reduction initiatives implemented in the second half of 2008,
including significant reductions to the accrual of incentive
compensation awards for 2008 to reflect the deterioration of
global markets. In the fourth quarter of 2008, we also reduced
headcount, principally support personnel, reduced our office
space requirements and reduced certain information technology
and market data costs.
On behalf of our mutual fund and investment advisory clients, we
make decisions to buy and sell securities for each portfolio and
select broker dealers to execute trades and negotiate brokerage
commission rates. In connection with these activities, we
receive research reports from executing broker-dealers. In
certain situations, we receive research credits from broker
dealers that would have
74
had the effect of reducing our operating expenses by
$0.8 million in 2008 and $0.7 million in 2007. Our
operating expenses would increase if the research credits were
reduced or eliminated.
Employee
Compensation and Benefits
The following table sets forth Employee compensation and
benefits expenses.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
%
|
|
|
|
2008
|
|
|
2007
|
|
|
Change
|
|
|
|
(In thousands, except percentages)
|
|
|
Salaries, incentive compensation and benefits
|
|
$
|
92,487.1
|
|
|
$
|
92,276.9
|
|
|
|
|
%
|
Allocation of Class B profits interests(1)
|
|
|
76,073.8
|
|
|
|
83,512.3
|
|
|
|
(9
|
)
|
Change in redemption value of Class B profits interests(1)
|
|
|
54,557.4
|
|
|
|
76,843.9
|
|
|
|
(29
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total employee compensation and benefits
|
|
$
|
223,118.3
|
|
|
$
|
252,633.1
|
|
|
|
(12
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
At the time of the IPO (see General
Overview Initial Public Offering and Changes in
Principals Interests), the Class B profits
interests were exchanged for New Class A Units that are
reflected as equity subsequent to the IPO. |
Employee compensation and benefits decreased
$29.5 million for 2008 compared to 2007, due primarily to
lower accruals associated with the Change in redemption value
of Class B profits interests, a decrease in
Allocation of Class B profits interests and a
decrease in incentive compensation, partially offset by the
accelerated vesting of deferred compensation related to the
Principals, an increase in headcount in 2008 in anticipation of
the IPO and expansion in certain of our product offerings.
Shareholder
Servicing and Marketing
Shareholder servicing and marketing expenses decreased
$2.0 million for 2008 compared to 2007, due primarily to an
8% decrease in the average market value of proprietary
fund AuM, which are correlated to shareholder servicing
costs.
General and
Administrative
General and administrative expenses increased
$12.8 million for 2008 compared to 2007, due primarily to
higher occupancy, information technology and system support, and
client-related trading errors, partially offset by a decrease in
professional fees. Occupancy costs increased due to additional
rent expense resulting from leasing additional office space in
our corporate headquarters, costs related to managements
decision to cease use of excess office space and occupancy costs
which were previously allocated to affiliates that shared office
space with us. Information and technology and support system
costs increased as a result of costs previously allocated to
affiliates in 2007. During 2008, we also incurred costs to
improve our infrastructure in anticipation of the IPO.
75
Non-operating
Income (Loss)
Non-operating income (loss) primarily results from
interest income earned on invested funds and interest expense
incurred on borrowings under our term credit facility. The
following table sets forth Non-operating income (loss)
and average invested funds.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
%
|
|
|
2008
|
|
2007
|
|
Change
|
|
|
(In thousands, except percentages)
|
|
Total non-operating income (loss)
|
|
$
|
3,181.4
|
|
|
$
|
7,033.6
|
|
|
|
(55
|
)%
|
Average invested funds(1)
|
|
|
149,146.5
|
|
|
|
126,848.7
|
|
|
|
18
|
|
|
|
|
(1) |
|
Computed using the beginning and ending balances for the period
of cash equivalents and marketable securities, exclusive of
securities held for deferred compensation. |
Total non-operating income (loss) decreased for 2008 compared to
2007, due primarily to lower invested balances in the latter
half of 2008 as dividends totaling $117 million were paid,
with $61 million paid in the first quarter of 2008 reducing
excess funds available for investment for the balance of the
year.
Income
Taxes
Our effective tax rates were 47.2% for 2008 and 46.8% for 2007.
Liquidity and
Capital Resources
Working
Capital
Below is a table showing our liquid assets.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
As of
|
|
|
|
|
|
As of
|
|
|
%
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
%
|
|
|
December 31,
|
|
|
Change
|
|
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
2008
|
|
|
09/08
|
|
|
|
(In thousands, except percentages)
|
|
|
Cash
|
|
$
|
74,771.2
|
|
|
$
|
60,841.7
|
|
|
|
23
|
%
|
|
$
|
86,563.0
|
|
|
|
(30
|
)%
|
Marketable securities less securities held for deferred
compensation
|
|
|
|
|
|
|
18.0
|
|
|
|
(100
|
)
|
|
|
65,418.1
|
|
|
|
(100
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
74,771.2
|
|
|
|
60,859.7
|
|
|
|
23
|
|
|
|
151,981.1
|
|
|
|
(60
|
)
|
Fees receivable and accrued fees, net of allowance for doubtful
accounts
|
|
|
55,064.5
|
|
|
|
56,911.1
|
|
|
|
(3
|
)
|
|
|
54,799.1
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liquid assets
|
|
$
|
129,835.7
|
|
|
$
|
117,770.8
|
|
|
|
10
|
|
|
$
|
206,780.2
|
|
|
|
(43
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior to the IPO, we declared a dividend and capital
distribution payable to GAM, of which $40.1 million remains
payable by September 29, 2010.
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 $50.0 million revolving credit facility are
sufficient to meet our current obligations.
76
Debt
In September 2009, Holdings entered into a $110.0 million
credit facility consisting of a $60.0 million three-year
term credit facility and a $50.0 million three-year
revolving credit facility. In October 2009, Holdings borrowed
$60.0 million under the term credit facility. As of
March 31, 2010, the interest rate associated with the
$60.0 million borrowing was set at 3.25%, and reset to
3.30% in April 2010. The amortization schedule requires
quarterly principal payments of 7.5% in both years two and
three, beginning on December 31, 2010, with a final payment
of 40% at maturity. There is no remaining capacity under the
term credit facility. A portion of the $60.0 million
borrowing was used to fund distributions to GAM and the
Principals. The balance of the $60.0 million borrowing is
being used for working capital needs and to potentially provide
seed capital to fund future investment products.
The credit facility agreement also contains customary
affirmative and negative covenants, including limitations on
indebtedness, liens, cash dividends and fundamental corporate
changes. As of March 31, 2010, our consolidated leverage
ratio was 0.5:1 and our consolidated interest coverage ratio was
103:1, each in compliance with our debt covenants.
Cash
Flows
The following table sets forth our cash flows for the first
three months of 2010 and 2009 and the three years ended
December 31, 2009, 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
Years Ended December 31,
|
|
|
YE 09/08
|
|
|
YE 08/07
|
|
|
|
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
%
|
|
|
%
|
|
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Change
|
|
|
Change
|
|
|
|
(In thousands, except percentages)
|
|
|
Cash flow data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
$
|
17,864.5
|
|
|
$
|
(18,565.8
|
)
|
|
|
196
|
%
|
|
$
|
51,707.4
|
|
|
$
|
100,108.8
|
|
|
$
|
112,215.3
|
|
|
|
(48
|
)%
|
|
|
(11
|
)%
|
Net cash provided by (used in) investing activities
|
|
|
(352.8
|
)
|
|
|
42,220.4
|
|
|
|
(101
|
)
|
|
|
63,761.7
|
|
|
|
(29,892.3
|
)
|
|
|
19,991.0
|
|
|
|
313
|
|
|
|
(250
|
)
|
Net cash used in financing activities
|
|
|
(3,605.4
|
)
|
|
|
(14,000.0
|
)
|
|
|
74
|
|
|
|
(141,277.4
|
)
|
|
|
(117,000.0
|
)
|
|
|
(60,000.0
|
)
|
|
|
(21
|
)
|
|
|
(95
|
)
|
Effect of exchange rate changes on cash
|
|
|
23.2
|
|
|
|
(15.6
|
)
|
|
|
249
|
|
|
|
87.0
|
|
|
|
(100.6
|
)
|
|
|
185.9
|
|
|
|
186
|
|
|
|
(154
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
$
|
13,929.5
|
|
|
$
|
9,639.0
|
|
|
|
45
|
|
|
$
|
(25,721.3
|
)
|
|
$
|
(46,884.1
|
)
|
|
$
|
72,392.2
|
|
|
|
45
|
|
|
|
(165
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities was
$17.9 million for the three months ended March 31,
2010, compared to Net cash used in operating activities
of $18.6 million in the corresponding period in 2009,
primarily reflecting higher revenues in the first quarter of
2010 and payments made to the Principals under the Class B
profits interests agreement in the first quarter of 2009.
Net cash provided by operating activities decreased
$48.4 million in 2009 compared to 2008, primarily
reflecting lower revenues due mainly to lower average AuM.
Net cash provided by operating activities decreased
$12.1 million in 2008 compared to 2007, primarily
reflecting lower revenues, as a result of reduced average AuM
and reduced effective fee rates, and net cash provided by
discontinued operations of $7.9 million in 2007.
Net cash used by investing activities was
$0.4 million in the three months ended March 31, 2010,
compared to Net cash provided by investing activities of
$42.2 million in the corresponding period in 2009,
primarily reflecting the sales of marketable securities in the
first quarter of 2009. We liquidated our holdings of investment
securities to fund distributions to GAM and the Principals.
77
Net cash provided by investing activities was
$63.8 million in 2009 compared to Net cash used in
investing activities of $29.9 million in 2008,
primarily reflecting the sales of marketable securities. We
liquidated our holdings of investment securities to fund
distributions to GAM and the Principals in connection with the
IPO.
Net cash used in investing activities was
$29.9 million in 2008 compared to Net cash provided by
investing activities of $20.0 million in 2007,
primarily reflecting lower sales and purchases of marketable
securities.
Net cash used by financing activities decreased
$10.4 million in the three months ended March 31,
2010, compared to the corresponding period in 2009, primarily
reflecting lower dividend payments 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.
Net cash used in financing activities increased
$57.0 million in 2008 compared to 2007, reflecting higher
dividend payments in 2008.
A distribution to GAM of $40.1 million is payable by
September 29, 2010.
On April 26, 2010, the Board of Directors declared a
dividend of $0.06 per share which was paid on May 26, 2010,
to holders of record of our Class A and Class C common
stock at the close of business on May 12, 2010. To provide
funding for the dividend payable to the holders of record of our
Class A and Class C common stock, a distribution by
Holdings of $0.06 per New Class A Unit (see
General Overview Initial Public
Offering and Changes in Principals Interests) will
be paid to all members of Holdings, including the Principals.
On January 28, 2010, the Board of Directors declared a
dividend of $0.06 per share which was paid on February 24,
2010, to holders of record of our Class A and Class C
common stock at the close of business on February 10, 2010.
To provide funding for the dividend payable to the holders of
record of our Class A and Class C common stock, a
distribution by Holdings of $0.06 per New Class A Unit (see
General Overview Initial Public
Offering and Changes in Principals Interests) was
paid to all members of Holdings, including the Principals.
Holdings is required to make distributions to the Principals and
to us for estimated tax payments.
Deferred
Taxes
As a result of the Principals exchange of their
Class B profits interests in Investment Adviser for New
Class A Units, the Principals ownership interests
were reclassified for financial accounting purposes to equity
and the related deferred tax asset was de-recognized.
In connection with the IPO, each Principal exchanged
1.2 million of his New Class A Units for an equivalent
number of shares of Class A common stock. In connection
with the exchange, we elected to step up our tax basis in the
incremental assets acquired in accordance with Section 754
of the Code. The tax benefits arising from the resultant
step-up in
tax basis became determinable and based on the exchange date,
deferred tax benefits of $38.4 million were recorded, and
are expected to be recovered generally over a
15-year
period. These benefits will be shared between us and each
Principal under a tax receivable agreement (see Related
Party Transactions Tax Receivable Agreement
and Item 8. Financial Statements and Supplementary Data,
Notes to the Consolidated Financial Statements, Note 5.
Tax Receivable Agreement).
As each Principal exchanges his New Class A Units into
shares of our Class A common stock, or sells New
Class A Units to us, the tax benefits arising from the
resultant
step-up in
tax basis will become determinable, and the deferred tax
benefits will be recorded at that time, to be recovered
generally over a
15-year
period in each instance. The amount of the deferred tax benefit
arising from the
step-up in
tax basis in connection with the Exchange and purchase of New
Class A Units in connection with this offering is expected
to be approximately $153.4 million (assuming no changes in
the relevant tax law and that we can earn sufficient taxable
income to realize the full tax benefits
78
generated by the exchange
and/or
purchase of an aggregate of 14,400,000 New Class A Units),
which will be recorded and is expected to be recovered generally
over a
15-year
period from the assumed year of Exchange and purchase based on
an assumed price of $21.49 per share of our Class A common
stock (the last reported sale price for our Class A common
stock on May 18, 2010, which is the date on which each
Principal exchanged 3,000,000 shares of New Class A
Units for 3,000,000 shares of Class A common stock).
These benefits will be shared between us and the Principals
under a tax receivable agreement (see Related Party
Transactions Tax Receivable Agreement).
As noted above, the majority of our deferred tax benefits is
recoverable over a
15-year
period and will depend on our ability to generate sufficient
taxable income. Based on an analysis of our deferred tax assets,
as of March 31, 2010, there will be sufficient annual
taxable income to realize these deferred tax assets. In
addition, as we have historically generated taxable income, we
believe that it is more likely than not that the deferred tax
asset will be recovered and, therefore, no valuation allowance
is necessary.
Contractual
Obligations
The following table sets forth our contractual obligations as of
December 31, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due By Pay Period
|
|
|
|
|
|
|
Less Than
|
|
|
1-3
|
|
|
3-5
|
|
|
More Than
|
|
|
|
Total
|
|
|
1 Year
|
|
|
Years
|
|
|
Years
|
|
|
5 Years
|
|
|
|
(In thousands)
|
|
|
Borrowings under term credit facility(1)
|
|
$
|
60,000.0
|
|
|
$
|
|
|
|
$
|
60,000.0
|
|
|
$
|
|
|
|
$
|
|
|
Operating lease obligations
|
|
|
16,899.2
|
|
|
|
3,738.7
|
|
|
|
11,279.6
|
|
|
|
1,880.9
|
|
|
|
|
|
Recordkeeping service provider
|
|
|
8,000.0
|
|
|
|
1,600.0
|
|
|
|
3,200.0
|
|
|
|
3,200.0
|
|
|
|
|
|
Other
|
|
|
16,933.6
|
|
|
|
10,218.8
|
|
|
|
5,571.8
|
|
|
|
1,143.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
101,832.8
|
|
|
$
|
15,557.5
|
|
|
$
|
80,051.4
|
|
|
$
|
6,223.9
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Excludes accrued interest expense. Interest is payable at a
variable rate. |
Off-Balance
Sheet Arrangements
We did not have any off-balance sheet arrangements as of
March 31, 2010, or as of December 31, 2009.
New Accounting
Standards
Recently
Adopted Accounting Pronouncements
Upon the IPO, we adopted the provisions of ASC 810.10.65,
Noncontrolling Interests in Consolidated Financial
Statements, for the Principals ownership in Holdings.
New
Accounting Pronouncements Not Yet Adopted
In February 2010, the Financial Accounting Standards Board (the
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
us, 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.
79
BUSINESS
Overview
Our
Structure
Prior to the completion of our IPO in September 2009, we were a
wholly owned subsidiary of Julius Baer Holding Ltd. (a Swiss
corporation now known as GAM Holding Ltd.). We have three direct
or indirect subsidiaries, Holdings, an intermediate holding
company, Investment Adviser, a registered investment adviser
under the Investment Advisers Act of 1940 (the Advisers
Act), and Artio Capital Management LLC. Investment Adviser
and Artio Capital Management LLC are wholly owned subsidiaries
of Holdings.
As a holding company, we conduct all of our business activities
through Investment Adviser. Investment Adviser was organized as
a corporation in Delaware on February 4, 1983 and converted
to a limited liability company on May 3, 2004. Investment
Adviser is a registered investment adviser that provides
investment management services to institutional and mutual fund
clients, including the Artio Global Funds.
Following our IPO and the related reorganization, our Principals
each held 7.8 million New Class A Units in
Holdings. They also held 7.8 million shares of our
Class B common stock, which has voting but no economic
rights. Each Principal has the right to exchange New
Class A Units for shares of Class A common stock on a
one-for-one
basis. As set forth in greater detail below, in connection with
this offering and inclusive of the 3,000,000 New Class A
Units each Principal exchanged for shares of Class A common
stock prior to this offering, we expect Richard Pell will
exchange or sell all but 600,000 New Class A Units and will
surrender for cancellation all but 600,000 shares of
Class B common stock and Rudolph-Riad Younes will exchange
or sell all but 600,000 New Class A Units and will
surrender for cancellation all but 600,000 shares of
Class B common stock. See Related Party
Transactions Exchange Agreement.
Following the application of the net proceeds of this offering
(assuming the underwriters do not exercise their option to
purchase additional shares), our Principals will each have
approximately 9.9% of the voting power in Artio Global Investors
Inc. through their respective ownership of the shares of our
Class A and Class B common stock, and GAM will have
approximately 27.9% through its ownership of the shares of our
Class C common stock. Net profits and net losses of
Holdings will be allocated, and distributions will be made, 98%
to us and 1% to each of our Principals.
The number of shares of our Class A common stock issued in
connection with this offering (and related purchase by us of New
Class A Units or shares of Class A common stock from
our Principals) may vary from the 3,700,000 shares (or
4,200,000 shares if the underwriters exercise in full their
option to purchase additional shares) currently contemplated as
a result of the price at which we sell shares of our
Class A common stock to the underwriters in connection with
this offering. This is because the net proceeds of this offering
will be used to purchase a number of New Class A Units and
shares of Class A common stock from each of the Principals
to generate net proceeds sufficient to cover taxes payable by
them on the expected exchange or sale of an aggregate of
7,200,000 New Class A Units by each Principal in connection
with this offering (which includes 3,000,000 New Class A
Units previously exchanged by each Principal on May 18,
2010, the tax liability of which was determined prior to the
pricing of this offering). Should either Principal exchange
additional New Class A Units prior to the pricing of this
offering, additional variability may result from the tax
liability related to such exchange and any change in market
price from the time of such exchange compared to the pricing of
this offering. The table below presents a range of assumed
offering prices and the resulting increase or decrease in the
size of this offering (assuming the underwriters do not exercise
their option to purchase additional shares) that would result
from such increase or decrease in order to generate net proceeds
sufficient to cover the tax liability relating to the expected
exchanges and sales by each Principal in connection with this
offering (inclusive of the 3,000,000 New Class A Units
80
each Principal exchanged on May 18, 2010 and assuming that
the Principals each exchange or sell an additional 4,200,000 New
Class A Units on the date of the pricing of this offering).
|
|
|
|
|
|
|
|
|
Price per Share of Class A common
|
|
Aggregate number of shares
|
|
Increase (decrease) in aggregate
|
stock (net of assumed underwriting
|
|
of Class A common
|
|
number of shares of Class A
|
discounts and commissions)
|
|
stock sold in this offering
|
|
common stock sold in this offering
|
|
$23.49
|
|
|
3,327,639
|
|
|
|
(372,361
|
)
|
$22.49
|
|
|
3,381,242
|
|
|
|
(318,758
|
)
|
$21.49
|
|
|
3,439,833
|
|
|
|
(260,167
|
)
|
$20.49
|
|
|
3,504,144
|
|
|
|
(195,856
|
)
|
$19.49
|
|
|
3,575,054
|
|
|
|
(124,946
|
)
|
$18.49
|
|
|
3,653,635
|
|
|
|
(46,365
|
)
|
$17.49
|
|
|
3,741,201
|
|
|
|
41,201
|
|
$16.49
|
|
|
3,839,387
|
|
|
|
139,387
|
|
Our
Business
We are an asset manager that is best known for our International
Equity strategies, which represented 81% of our assets under
management as of March 31, 2010 and 89% of our investment
management fees for the three months ended March 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. We offer the following investment
vehicles through which clients access our investment
capabilities: proprietary funds, institutional commingled funds,
separate accounts and
sub-advisory
mandates where we advise other client funds. Our revenues
consist almost entirely of investment management fees, which are
based primarily on the fair value of our assets under management
rather than investment performance-based fees.
Our primary business objective is to consistently generate
superior investment returns for our clients. We manage our
investment portfolios based on a philosophy of style-agnostic
investing across a broad range of opportunities, focusing on
macro-economic factors and broad-based global investment themes.
We also emphasize fundamental research and analysis in order to
identify specific investment opportunities and capitalize on
price inefficiencies. We believe that the depth and breadth of
the intellectual capital and experience of our investment
professionals, together with this investment philosophy and
approach, have been the key drivers of our investment
performance. As an organization, we concentrate our resources on
meeting our clients investment objectives and we seek to
outsource, whenever appropriate, support functions to industry
leaders thereby allowing us to focus our business on the areas
where we believe we can add the most value.
Our distribution efforts target institutions and organizations
that demonstrate institutional buying behavior and longer-term
investment horizons, such as pension fund consultants, broker
dealers, registered investment advisors (RIAs),
mutual fund platforms and
sub-advisory
relationships, enabling us to achieve significant leverage from
our focused sales force and client service infrastructure. As of
March 31, 2010, we provided investment management services
to a broad and diversified spectrum of approximately 1,500
institutional clients, including some of the worlds
leading corporations, public and private pension funds,
endowments and foundations and major financial institutions
through our separate accounts, commingled funds and proprietary
funds. We also managed assets for more than 812,000 retail
mutual fund shareholders through SEC-registered funds and other
retail investors through 14 funds that we
sub-advise
for others.
In the mid-1990s, our Principals assumed responsibility
for managing our International Equity strategy. In the years
that followed, we attracted attention from third parties such as
Morningstar, which awarded a 5-star rating to the Artio
International Equity Fund in 1998. Consequently, we began to
attract significant inflows. Since 1999, we have expanded to
other strategies, added portfolio managers and increased our
assets under management to $56.3 billion as of
April 30, 2010.
81
Our assets under management as of March 31, 2010 by
investment vehicle and investment strategy are as follows:
|
|
|
Investment Vehicles (As of
March 31, 2010)
|
|
Investment Strategies (As of
March 31, 2010)
|
|
|
|
|
Industry
Overview
Investment management is the professional management of
securities and other assets on behalf of institutional and
individual investors. This industry has enjoyed significant
growth in recent years due to the capital inflows from sources
such as households, pension plans and insurance companies.
Traditional investment managers, such as separate account and
mutual fund managers, generally manage and advise investment
portfolios of equity and fixed income securities. The investment
objectives of these portfolios include maximizing total return,
capital appreciation, current income
and/or
tracking the performance of a particular index. Performance is
typically evaluated over various time periods based on
investment returns relative to the appropriate market index
and/or peer
group. Traditional managers are generally compensated based on a
small percentage of assets under management. Managers of such
portfolios in the United States are registered with the SEC
under the Advisers Act. Generally, investors have unrestricted
access to their capital through market transactions in the case
of closed-end funds and exchange-traded funds, or through
withdrawals in the case of separate accounts and mutual funds,
or open-end funds.
Competitive
Strengths
We believe our success as an investment management company is
based on the following competitive strengths:
Long-Term Track
Record of Superior Investment Performance
We have a well-established track record of achieving superior
investment returns over the longer term across our key
investment strategies relative to our competitors and the
relevant benchmarks, as reflected by the following:
|
|
|
|
|
our International Equity I composite has outperformed its
benchmark, the MSCI AC World ex USA
Indexsm
ND, by 7.67% on an annualized basis since its inception in 1995
through March 31, 2010 (calculated on a gross basis before
payment of fees);
|
|
|
|
as of March 31, 2010, eight out of nine publicly-reported
composites had also outperformed their benchmarks on a gross
basis since inception; and
|
|
|
|
as of March 31, 2010, six out of nine mutual funds (as
represented by
Class I-shares),
representing over 99% of our mutual fund assets under
management, were rated 4- or 5- stars
|
82
|
|
|
|
|
by Morningstar and of those nine mutual funds, six were
in the top quartile of Lipper rankings for performance
since inception.
|
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 23 years of industry experience among them.
Over the past five years, our team of investment professionals
(including our portfolio managers) has expanded from
approximately 20 to approximately 50 people and we have
experienced only minimal departures during this period.
Furthermore, our entire team of senior managers (including
marketing and sales directors and client service managers)
averages approximately 26 years of industry experience.
Leading Position
in International Equity
We have a leading position in international equity investment
management and, as of March 31, 2010, we ranked as the
11th largest manager of international equity mutual funds
in the United States according to Strategic Insight. We
believe that we are well-positioned to take advantage of
opportunities in this attractive asset class over the next
several years. In 2009, our International Equity strategies
generated returns that were well below their benchmarks, which,
despite our strong long-term investment performance, could
negatively impact our competitive position. However, amid more
fundamentally driven markets, performance in our flagship
international equity strategies is improving and overall we have
a positive outlook for international equity markets.
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
1st quartile of its Lipper universe over the three-
and five-year periods ended March 31, 2010 and since
inception, as of March 31, 2010. Our Global High Income
Fund ranked in the top decile over the three- and five-year
periods ended March 31, 2010 and since inception, as of
March 31, 2010. Our Global Equity Fund ranked in the
3rd quartile over the three year-period ended
March 31, 2010, and in the 2nd quartile for the
five-year period and since inception, as of March 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 March 31, 2010, we provided
investment management services to approximately 1,500
institutional clients invested in separate accounts, commingled
funds or proprietary funds. We have found that while
institutional investors generally have a longer and more
extensive due diligence process prior to investing, this results
in clients who are more focused on our method of investing and
our long-term results, and, as a result, our institutional
relationships tend to be longer, with less
year-to-year
turnover, than is typical among retail clients.
Effective and
Diverse Distribution
Our assets under management are distributed through multiple
channels. By utilizing our intermediated distribution sources
and focusing on institutions and organizations that exhibit
institutional buying behavior, we are able to achieve
significant leverage from our focused sales force and client
service infrastructure. We have developed strong relationships
with most of the major pension and industry consulting firms,
which have allowed us access to a broad range of institutional
clients. As of March 31, 2010, no single consulting firm
represented greater than approximately 5% of our assets under
management and our largest individual client represented
approximately 3% of our total assets under management. We access
retail investors through our relationships with intermediaries
such as RIAs and broker dealers as well as through mutual fund
platforms and
sub-advisory
relationships. Our distribution efforts with retail
intermediaries, particularly broker dealers, are more recent
than our institutional efforts and, as a result, our assets
sourced through the largest broker
83
dealers represent a relatively small portion of our assets under
management. However, given our continued and increasing focus on
this segment, and as a result of recent consolidation among
broker dealers with whom we have established relationships, we
believe we have opportunities to reach additional retail
investors through our existing relationships.
Strong Organic
Growth in Assets under Management and Sustained Net Client
Inflows
In the period from December 31, 2003 through April 30,
2010, our assets under management grew from $7.5 billion to
$56.3 billion, representing a compound annual growth rate
(CAGR) of 37%. Until mid-2008, our assets under
management growth was the result of a combination of general
market appreciation, our record of outperforming the relevant
benchmarks and an increase in net client cash inflows, which we
define as the amount by which client additions to new and
existing accounts exceed withdrawals from client accounts.
However, market depreciation in the second half of 2008 and
early 2009 had a significant negative impact on our assets under
management. During the period between December 31, 2003 and
March 31, 2010, net client cash inflows represented 85% of
our overall growth, including $0.1 billion of net client
cash inflows during the three months ended March 31, 2010.
Focused Business
Model
Our business model is designed to focus the vast majority of our
resources on meeting our clients investment objectives.
Accordingly, we take internal ownership of the aspects of our
operations that directly influence the investment process, our
client relationships and risk management. Whenever appropriate,
we seek to outsource support functions, including middle- and
back-office activities, to industry leaders, whose services we
closely monitor. This allows us to focus our efforts where we
believe we can add the most value. We believe this approach has
also resulted in an efficient and streamlined operating model,
which has generated strong operating margins, limited fixed
expenses and an ability to maintain profitability during
difficult periods. As a result, in the three months ended
March 31, 2010 and the year ended December 31, 2009,
we produced Adjusted operating income of $49 million and
$173 million from total revenues and other operating income
of $86 million and $307 million, representing Adjusted
operating margins of 57.0% and 56.4%, respectively. See
Managements Discussion and Analysis of Financial
Condition and Results of Operations Adjusted
Performance Measures for a reconciliation of Operating
income (loss) before income tax expense to Adjusted operating
income.
Strategy
We seek to achieve consistent and superior long-term investment
performance for our clients. Our strategy for continued success
and future growth is guided by the following principles:
Continue to
Capitalize on our Reputation in International Equity
We aim to continue to grow our International Equity assets under
management over time. Our International Equity I strategy, which
had $21.0 billion in assets under management as of
March 31, 2010, was closed to new investors in August 2005
in order to preserve its ability to invest effectively in
smaller capitalization investments. The successor strategy,
International Equity II, which mirrors the International Equity
I strategy in all respects except that it does not allocate
assets to these small capitalization investments and therefore
does not have the same capacity constraint as International
Equity I, was launched in March 2005. International
Equity II has grown to $24.6 billion (as of
March 31, 2010) in assets under management in
approximately five years. We believe we have the capacity to
handle additional assets within our International Equity II
strategy. Given our reputation as a manager of international
equity and our expectation of continued strong institutional
demand for international equity, we aim to continue to grow
international equity assets under management over the longer
term and leverage our experience in International Equity to grow
our Global Equity strategy in order to capitalize on increasing
flows into this strategy from investors both in and outside of
the United States.
84
Grow our other
Investment Strategies
Historically, we concentrated our distribution efforts primarily
on our International Equity strategies. In recent years, we have
focused on expanding and growing our other strategies as well,
including our High Grade Fixed Income, High Yield and Global
Equity strategies, which have experienced significant growth in
assets under management as a result. We expect our
U.S. Equity strategies to provide additional growth now
that they have achieved their three-year performance track
records, which are an important pre-requisite to investing for
many institutional investors. As of March 31, 2010,
Morningstar ratings for Class I shares are: 5-star
rating for Artio US Smallcap Fund, 3-star rating for Artio US
Multicap Fund, 2-star rating for Artio US Midcap Fund and 2-star
rating for Artio US Microcap Fund. We also intend to continue to
selectively initiate new product offerings in additional asset
classes where we believe we have the potential to produce
attractive risk-adjusted returns.
Further Extend
our Distribution Capabilities
We continue to focus on expanding our distribution capabilities
into those markets and client segments where we see demand for
our product offerings and which we believe are consistent with
our philosophy of focusing on distributors who display
institutional buying behavior through their selection process
and due diligence. For example, 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, we plan to
strengthen our international distribution through a dedicated
employee who will focus on institutional and
sub-advisory
relationships, particularly in Northern Europe.
Maintain a
Disciplined Approach to Growth
We are an investment-centric firm that focuses on the delivery
of superior long-term investment returns for our clients through
the application of our established investment processes and risk
management discipline. While we have generated significant
growth in our assets under management over the past several
years and have continued to develop a broader range of
investment offerings, we are focused on long-term success and we
will only pursue those expansion opportunities that are
consistent with our operating philosophy. This philosophy
requires that:
|
|
|
|
|
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;
|
|
|
|
new client segments or distribution sources must value our
approach and be willing to appropriately compensate us for our
services; and
|
|
|
|
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.
|
By ensuring that each new opportunity is evaluated against these
criteria we intend to maintain a disciplined approach to growth
for the long-term. For example, we closed our International
Equity I strategy to new investments in August 2005, in order to
preserve return opportunity in our smaller capitalization
investments for existing International Equity I investors. In
anticipation of this, we launched our International
Equity II strategy in March 2005 with the same focus as our
International Equity I strategy except that it does not invest
in small-cap companies.
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,
which identifies, assesses and manages the full range of risks
that face our Company and reports to the Board of Directors.
At the investment portfolio level, we seek to manage risk daily
on a real-time basis with an emphasis on identifying which
investments are working, which investments are not, and what
factors
85
are influencing performance on both an intended and unintended
basis. This approach to managing portfolio-level risk is not
designed to avoid taking risks, but to seek to ensure that the
risks we choose to take are rewarded with an appropriate premium
opportunity for those risks. This approach to managing
portfolio-level risk is an integral component of our investment
processes.
Investment
Strategies, Products and Performance
Overview
Our investment strategies are grouped into five asset classes:
International Equity (which as of March 31, 2010 included:
five proprietary funds, six institutional commingled funds, 68
separate accounts and nine
sub-advisory
accounts); Global Equity (which as of March 31, 2010
included: two proprietary funds, four separate accounts and two
institutional commingled funds); U.S. Equity (which as of
March 31, 2010 included: eight proprietary funds and one
sub-advisory
account); High Grade Fixed Income (which as of March 31,
2010 included: three proprietary funds, 12 separate accounts and
three
sub-advisory
accounts); and High Yield (which as of March 31, 2010
included: two proprietary funds, two institutional commingled
funds, four separate accounts and one
sub-advisory
account).
While each of our investment teams has a distinct process and
approach to managing their investment portfolios, we foster an
open, collaborative culture that encourages the sharing of ideas
and insights across teams. This approach serves to unify and
define us as an asset manager and has contributed to the strong
results across our range of strategies. Although not
specifically designed as such nor centrally mandated, the
following practices are core to each teams philosophy and
process:
|
|
|
|
|
A team-based approach;
|
|
|
|
A reliance on internally generated research and independent
thinking;
|
|
|
|
A belief that broad-based quantitative screening prior to the
application of a fundamental research overlay is as likely to
hide opportunities as it is to reveal them;
|
|
|
|
A significant emphasis on top-down/macro inputs and broad-based
global investment themes to complement unique industry specific
bottom-up
analysis;
|
|
|
|
An intense focus on risk management, but not an aversion to
taking risk that is rewarded with an appropriate
premium; and
|
|
|
|
A belief that ultimate investment authority and accountability
should reside with individuals within each investment team
rather than committees.
|
We further believe that sharing ideas and analyses across
investment teams allows us to leverage our knowledge of markets
across the globe. In addition, this collaboration has enabled us
to successfully translate profitable ideas from one asset class
or market to another across our range of investment strategies.
We offer the following investment vehicles through which clients
access our investment capabilities: proprietary funds,
institutional commingled funds, separate accounts and
sub-advisory
accounts. We currently serve as investment advisor to nine
SEC-registered mutual funds that offer no-load open-end share
classes. In addition, we offer two private offshore funds to
select offshore clients. Our institutional commingled funds are
private pooled investment vehicles which we offer to qualified
institutional clients such as public and private pension funds,
foundations and endowments, membership organizations and trusts.
We similarly manage separate accounts for institutional clients
such as public and private pension funds, foundations and
endowments and generally offer these accounts to institutional
investors making the required minimum initial investment, which
vary by strategy. Due to the size of the plans and specific
reporting requirements of these investors, a separately managed
account is often necessary to meet our clients needs. Our
sub-advisory
accounts include six SEC-registered mutual funds managed
pursuant to
sub-advisory
agreements and eight non-SEC registered funds. Our
sub-advisory
account services are primarily focused on our International
Equity strategies. Clients include financial services companies
looking to supplement their own product offerings with products
externally managed by managers with specific expertise, which we
provide.
86
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 assets under management
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.
Investment
Strategies
The table below sets forth the total assets under management for
each of our investment strategies as of March 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
Total AuM as of
|
|
Strategy
|
|
Quartile Ranking
|
Strategy
|
|
March 31, 2010
|
|
Inception Date
|
|
Since Inception
|
|
|
(In millions)
|
|
|
|
|
|
International Equity
|
|
|
|
|
|
|
|
|
|
|
International Equity I
|
|
$
|
20,955
|
|
|
May 1995
|
|
|
1
|
|
International Equity II
|
|
|
24,559
|
|
|
April 2005(1)
|
|
|
1
|
|
Other International Equity
|
|
|
74
|
|
|
Various
|
|
|
|
|
High Grade Fixed Income
|
|
|
|
|
|
|
|
|
|
|
Total Return Bond
|
|
|
4,473
|
|
|
February 1995
|
|
|
1
|
|
U.S. Fixed Income & Cash
|
|
|
778
|
|
|
Various
|
|
|
|
|
High Yield
|
|
|
|
|
|
|
|
|
|
|
High Yield
|
|
|
4,523
|
|
|
April 2003
|
|
|
1
|
|
Global Equity
|
|
|
|
|
|
|
|
|
|
|
Global Equity
|
|
|
892
|
|
|
July 1995
|
|
|
2
|
|
U.S. Equity
|
|
|
|
|
|
|
|
|
|
|
Micro-Cap
|
|
|
64
|
|
|
August 2006
|
|
|
1
|
|
Small-Cap
|
|
|
48
|
|
|
August 2006
|
|
|
1
|
|
Mid-Cap
|
|
|
6
|
|
|
August 2006(2)
|
|
|
3
|
|
Multi-Cap
|
|
|
8
|
|
|
August 2006(3)
|
|
|
2
|
|
Other
|
|
|
37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
56,417
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
We classify within International Equity II certain
sub-advised
mandates that were initially part of our International Equity I
strategy because net client cash flows into these mandates,
since 2005, have been invested according to the International
Equity II strategy and the overall portfolios of these
mandates are currently more similar to our International
Equity II strategy. |
|
(2) |
|
Lipper compares our Mid-Cap fund with the Lipper
Mid-Cap Growth Funds class category. We believe
the Lipper Mid-Cap Core Funds class category
is better aligned with the strategies with which we compete. Our
ranking since inception in the Mid-Cap Core Funds
class category as of March 31, 2010 was in the 2nd
quartile. See Performance Information Used in This
Prospectus. |
|
(3) |
|
Lipper compares our Multi-Cap fund with the Lipper
Multi-Cap Growth Funds class category. We
believe the Lipper Multi-Cap Core Funds class
category is better aligned with the strategies with which we
compete. Our ranking since inception in the Multi-Cap Core
Funds class category as of March 31, 2010 was in the
1st quartile. See Performance Information Used in This
Prospectus. |
Set forth below is a description of each of our strategies and
their performance.
87
International
Equity
Our International Equity strategies are core strategies that do
not attempt to follow either a growth approach or a
value approach to investing. The International
Equity strategies invest in equity securities and equity
derivatives in developed and emerging markets outside the United
States. We believe that maintaining a diversified core
portfolio, driven by dynamic sector and company fundamental
analysis, is the key to delivering superior, risk-adjusted,
long-term performance in the international equity markets. The
investment process for the International Equity strategy is a
three phase process consisting of: (i) thinking
conducting broad global fundamental analysis to
establish relative values and priorities across and between
sectors and geographies; (ii) screening
conducting a detailed fundamental analysis of
the competitive relationship between companies and the sectors
and countries in which they operate; and (iii) selecting
carefully considering whether the investment
opportunity results from (a) an attractive relative value,
(b) a catalyst for change, (c) in the case of emerging
markets, in a market, sector or region undergoing transformation
from emerging toward developed status, (d) a company in a
dominant competitive position or (e) a company exhibiting a
strong financial position with strong management talent and
leadership. The overall objective of our investment process is
to create a highly diversified portfolio of the most relatively
attractive securities in over 20 countries. The portfolio is
monitored on a daily basis using a proprietary attribution
system that permits us to track how particular investments
contribute to performance.
The 30 professionals that comprise this team are responsible for
managing International Equity investment strategies which, in
the aggregate, accounted for $45.6 billion of our total
assets under management as of March 31, 2010, with 44% of
these assets in proprietary funds, 31% in separate accounts, 19%
in commingled funds and 6% in
sub-advised
accounts.
|
|
|
|
|
International Equity I (IE I)
|
We launched this strategy in May 1995 and, as of March 31,
2010, it accounted for approximately $21.0 billion of
assets under management, including the $10.6 billion Artio
International Equity Fund. IE I was closed to new investors in
August 2005 in order to preserve the return opportunity in our
smaller capitalization investments for existing IE I investors.
As of March 31, 2010, the Artio International Equity Fund
ranked in the 51st percentile of its Lipper universe
over the past one-year period and in the 3rd and
1st quartile over the past three- and five-year periods,
respectively.
The following table sets forth the changes in assets under
management for the years ended December 31, 2009 and 2008
and the three months ended March 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Year Ended
|
|
|
|
Ended March 31,
|
|
|
December 31,
|
|
International Equity
I
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
Beginning assets under management
|
|
$
|
21,656
|
|
|
$
|
20,188
|
|
|
$
|
42,517
|
|
Gross client cash inflows
|
|
|
340
|
|
|
|
1,759
|
|
|
|
3,126
|
|
Gross client cash outflows
|
|
|
(1,101
|
)
|
|
|
(4,406
|
)
|
|
|
(7,384
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net client cash flows
|
|
|
(761
|
)
|
|
|
(2,647
|
)
|
|
|
(4,258
|
)
|
Transfers between investment strategies
|
|
|
|
|
|
|
10
|
|
|
|
(155
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total client cash flows
|
|
|
(761
|
)
|
|
|
(2,637
|
)
|
|
|
(4,413
|
)
|
Market appreciation (depreciation)
|
|
|
60
|
|
|
|
4,105
|
|
|
|
(17,916
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending assets under management
|
|
$
|
20,955
|
|
|
$
|
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. We direct all
new International Equity mandates into this strategy. As of
March 31, 2010, IE II accounted for approximately
$24.6 billion of assets under management. We classify
within IE II certain
sub-advised
88
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 March 31, 2010, the Artio
International Equity Fund II ranked in the
62nd percentile of its Lipper universe for the one
year and in the 2nd quartile over the three-year period.
The following table sets forth the changes in assets under
management for the years ended December 31, 2009 and 2008
and the three months ended March 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Year Ended
|
|
|
|
Ended March 31,
|
|
|
December 31,
|
|
International Equity
II
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
Beginning assets under management
|
|
$
|
24,716
|
|
|
$
|
18,697
|
|
|
$
|
26,050
|
|
Gross client cash inflows
|
|
|
984
|
|
|
|
6,349
|
|
|
|
11,532
|
|
Gross client cash outflows
|
|
|
(1,179
|
)
|
|
|
(5,249
|
)
|
|
|
(5,706
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net client cash flows
|
|
|
(195
|
)
|
|
|
1,100
|
|
|
|
5,826
|
|
Transfers between investment strategies
|
|
|
50
|
|
|
|
|
|
|
|
109
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total client cash flows
|
|
|
(145
|
)
|
|
|
1,100
|
|
|
|
5,935
|
|
Market appreciation (depreciation)
|
|
|
(12
|
)
|
|
|
4,919
|
|
|
|
(13,288
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending assets under management
|
|
$
|
24,559
|
|
|
$
|
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
assets under management as of March 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 March 31, 2010, and in
the five-year, three-year and one-year periods ended
March 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 March 31, 2010
|
|
|
Since Inception
|
|
5 Years
|
|
3 Years
|
|
1 Year
|
|
International Equity I
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annualized Gross Returns
|
|
|
12.9
|
%
|
|
|
5.6
|
%
|
|
|
(7.2
|
)%
|
|
|
51.0
|
%
|
Annualized Net Returns
|
|
|
11.3
|
%
|
|
|
4.7
|
%
|
|
|
(7.9
|
)%
|
|
|
49.9
|
%
|
MSCI EAFE
Index®
|
|
|
4.6
|
%
|
|
|
3.8
|
%
|
|
|
(7.0
|
)%
|
|
|
54.4
|
%
|
MSCI AC World
ex USA
Indexsm
ND
|
|
|
5.2
|
%
|
|
|
6.1
|
%
|
|
|
(4.2
|
)%
|
|
|
60.9
|
%
|
International Equity II
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annualized Gross Returns
|
|
|
5.8
|
%
|
|
|
5.8
|
%
|
|
|
(6.1
|
)%
|
|
|
49.1
|
%
|
Annualized Net Returns
|
|
|
5.1
|
%
|
|
|
5.1
|
%
|
|
|
(6.7
|
)%
|
|
|
48.1
|
%
|
MSCI EAFE
Index®
|
|
|
3.8
|
%
|
|
|
3.8
|
%
|
|
|
(7.0
|
)%
|
|
|
54.4
|
%
|
MSCI AC World
ex USA
Indexsm
ND
|
|
|
6.1
|
%
|
|
|
6.1
|
%
|
|
|
(4.2
|
)%
|
|
|
60.9
|
%
|
89
The table below sets forth the annualized returns, gross and net
(which represent annualized returns prior to and after payment
of fees, respectively) of our largest International Equity
composites for the years ended December 31, 2009, 2008,
2007, 2006 and 2005, and the three months ended March 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Year Ended December 31,
|
|
Ended March 31,
|
|
|
2009
|
|
2008
|
|
2007
|
|
2006
|
|
2005
|
|
2010
|
|
International Equity I
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Returns
|
|
|
26.0
|
%
|
|
|
(44.1
|
)%
|
|
|
18.4
|
%
|
|
|
32.9
|
%
|
|
|
18.3
|
%
|
|
|
0.6
|
%
|
Net Returns
|
|
|
25.0
|
%
|
|
|
(44.6
|
)%
|
|
|
17.5
|
%
|
|
|
31.5
|
%
|
|
|
17.1
|
%
|
|
|
0.4
|
%
|
MSCI EAFE
Index®
|
|
|
31.8
|
%
|
|
|
(43.4
|
)%
|
|
|
11.2
|
%
|
|
|
26.3
|
%
|
|
|
13.5
|
%
|
|
|
0.9
|
%
|
MSCI ACWI ex
USA
Indexsm
ND
|
|
|
41.4
|
%
|
|
|
(45.5
|
)%
|
|
|
16.7
|
%
|
|
|
26.7
|
%
|
|
|
16.6
|
%
|
|
|
1.6
|
%
|
International Equity II (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Returns
|
|
|
26.1
|
%
|
|
|
(42.3
|
)%
|
|
|
18.2
|
%
|
|
|
31.0
|
%
|
|
|
17.4
|
%
|
|
|
0.1
|
%
|
Net Returns
|
|
|
25.3
|
%
|
|
|
(42.6
|
)%
|
|
|
17.4
|
%
|
|
|
30.0
|
%
|
|
|
16.9
|
%
|
|
|
(0.1
|
)%
|
MSCI EAFE
Index®
|
|
|
31.8
|
%
|
|
|
(43.4
|
)%
|
|
|
11.2
|
%
|
|
|
26.3
|
%
|
|
|
13.7
|
%
|
|
|
0.9
|
%
|
MSCI ACWI ex
USA
Indexsm
ND
|
|
|
41.4
|
%
|
|
|
(45.5
|
)%
|
|
|
16.7
|
%
|
|
|
26.7
|
%
|
|
|
16.3
|
%
|
|
|
1.6
|
%
|
|
|
|
(1) |
|
Results for the year ended December 31, 2005 are for the
period from April 1, 2005 (the inception of IE
II) through December 31, 2005. |
The returns generated by the proprietary funds,
sub-advisory
accounts, separate accounts and institutional commingled funds
invested in our International Equity strategies for the periods
ended December 31, 2009 and March 31, 2010 are
substantially similar to the returns presented in the tables
above.
High Grade Fixed
Income
We manage investment grade fixed income strategies that include
high grade debt of both U.S. and
non-U.S. issuers.
Our main offering is our Total Return Bond strategy, also known
as the Core Plus strategy, which invests over 60% of portfolio
assets in the U.S. fixed income markets (the
Core) but also seeks to take advantage of those
opportunities available in the investment grade components of
non-U.S. markets
(the Plus). We also offer a Core Plus Plus strategy,
which combines our Total Return Bond strategy with allocations
to high yield. The High Yield portion of these assets is
reflected in the High Yield section of our discussion. In
addition, we manage several U.S. fixed income and cash
strategies.
We believe an investment grade fixed income portfolio can
consistently deliver a source of superior risk-adjusted returns
when enhanced through effective duration budgeting, expansion to
include foreign sovereign debt, yield curve positioning across
multiple curves and sector-oriented credit analysis. The
investment process for the investment grade fixed income
strategies involves five key steps: (i) market
segmentation; (ii) macro fundamental analysis and screening
of global macro-economic factors; (iii) internal rating
assignment; (iv) target portfolio construction; and
(v) risk distribution examination. The portfolio is
constantly monitored and rebalanced as needed.
The seven professionals in our High Grade Fixed Income team are
responsible for both the global high grade and U.S. fixed
income products which, in the aggregate, accounted for
$5.3 billion of our total assets under management as of
March 31, 2010. We have focused our distribution efforts on
these strategies since the beginning of 2007 and have increased
our assets under management invested in these strategies by
$3.3 billion as a result. As of March 31, 2010, 32% of
the $5.3 billion in assets under management was in
proprietary funds, 53% was in separate accounts and 15% was in
sub-advised
accounts.
90
|
|
|
|
|
Total Return Bond We launched this
product in February 1995 and, as of March 31, 2010, it
accounted for approximately $4.5 billion of assets under
management. As of March 31, 2010, the Total Return Bond
Fund (I-Shares) ranked in the 3rd quartile of its
Lipper universe over the past one-year period and in the
1st quartile over the past three- and five-year periods.
|
|
|
|
U.S. Fixed Income & Cash
As of March 31, 2010, these products
accounted for approximately $0.8 billion of assets under
management, mostly through
sub-advisory
arrangements with GAMs offshore funds. See Notes to the
Financial Consolidated Statements, Note 6.
Related Party Transactions.
|
The following table sets forth the changes in assets under
management for the years ended December 31, 2009 and 2008
and the three months ended March 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Year Ended
|
|
|
|
Ended March 31,
|
|
|
December 31,
|
|
High Grade Fixed
Income
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In millions)
|
|
|
Beginning assets under management
|
|
$
|
5,293
|
|
|
$
|
4,566
|
|
|
$
|
4,657
|
|
Gross client cash inflows
|
|
|
191
|
|
|
|
1,481
|
|
|
|
1,550
|
|
Gross client cash outflows
|
|
|
(389
|
)
|
|
|
(1,230
|
)
|
|
|
(1,523
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net client cash flows
|
|
|
(198
|
)
|
|
|
251
|
|
|
|
27
|
|
Transfers between investment strategies
|
|
|
10
|
|
|
|
(16
|
)
|
|
|
(117
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total client cash flows
|
|
|
(188
|
)
|
|
|
235
|
|
|
|
(90
|
)
|
Market appreciation (depreciation)
|
|
|
146
|
|
|
|
492
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending assets under management
|
|
$
|
5,251
|
|
|
$
|
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
March 31, 2010 and in the five-year, three-year, and
one-year periods ended March 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 March 31, 2010
|
Total Return Bond
|
|
Since Inception
|
|
5 Years
|
|
3 Years
|
|
1 Year
|
|
Annualized Gross Returns
|
|
|
7.9
|
%
|
|
|
6.3
|
%
|
|
|
7.1
|
%
|
|
|
13.9
|
%
|
Annualized Net Returns
|
|
|
7.0
|
%
|
|
|
5.7
|
%
|
|
|
6.7
|
%
|
|
|
13.4
|
%
|
Barclays Capital U.S. Aggregate Bond Index
|
|
|
6.7
|
%
|
|
|
5.4
|
%
|
|
|
6.1
|
%
|
|
|
7.7
|
%
|
Customized Index(1)
|
|
|
6.2
|
%
|
|
|
5.1
|
%
|
|
|
6.2
|
%
|
|
|
7.6
|
%
|
|
|
|
(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. |
91
The table below sets forth the annualized returns, gross and net
(which represent annualized returns prior to and after payment
of fees, respectively) of our principal composite, the Total
Return Bond (Core Plus) composite, for the years ended
December 31, 2009, 2008, 2007, 2006 and 2005, and the three
months ended March 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Year Ended December 31,
|
|
Ended March 31,
|
Total Return Bond
|
|
2009
|
|
2008
|
|
2007
|
|
2006
|
|
2005
|
|
2010
|
|
Gross Returns
|
|
|
11.2
|
%
|
|
|
0.9
|
%
|
|
|
8.3
|
%
|
|
|
5.5
|
%
|
|
|
3.1
|
%
|
|
|
2.4
|
%
|
Net Returns
|
|
|
10.7
|
%
|
|
|
0.4
|
%
|
|
|
7.7
|
%
|
|
|
4.8
|
%
|
|
|
2.0
|
%
|
|
|
2.3
|
%
|
Barclays Capital U.S. Aggregate Bond Index
|
|
|
5.9
|
%
|
|
|
5.2
|
%
|
|
|
7.0
|
%
|
|
|
4.3
|
%
|
|
|
2.4
|
%
|
|
|
1.8
|
%
|
Customized Index(1)
|
|
|
5.4
|
%
|
|
|
5.6
|
%
|
|
|
8.2
|
%
|
|
|
4.7
|
%
|
|
|
(0.6
|
)%
|
|
|
0.9
|
%
|
|
|
|
(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. |
The returns generated by the proprietary funds,
sub-advisory
accounts and separate accounts invested in our High Grade Fixed
Income strategy for the periods ended December 31, 2009 and
March 31, 2010, are substantially similar to the returns
presented in the tables above.
High
Yield
Our High Yield strategy invests in securities issued by
non-investment grade issuers in both developed markets and
emerging markets. By bringing a global perspective to the
management of high yield securities and combining it with a
disciplined, credit-driven investment process, we believe we can
provide our clients with a more diversified/higher yielding
portfolio that is designed to deliver superior risk-adjusted
returns. The investment process for the High Yield strategy
seeks to generate high total returns by following five
broad-based fundamental investment rules: (i) applying a
global perspective on industry risk analysis and the search for
investment opportunities; (ii) intensive credit research
based on a business economics approach;
(iii) stop-loss discipline that begins and ends with the
question Why should we not be selling the position?;
(iv) avoiding over-diversification to become more expert on
specific credits; and (v) low portfolio turnover. The
investment process is primarily a
bottom-up
approach to investing, bringing together the teams issuer,
industry and asset class research and more macro-economic,
industry and sector-based insights. With this information, the
team seeks to identify stable to improving credits. Once the
team has established a set of buyable candidates, it
constructs a portfolio through a process of relative value
considerations that seek to maximize the total return potential
of the portfolio within a set of risk management constraints.
The six professionals comprising our High Yield team are
responsible for managing the High Yield strategy which accounted
for approximately $4.5 billion of our total assets under
management as of March 31, 2010, with 61% of these assets
in proprietary funds, 12% in separate accounts, 21% 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
March 31, 2010. The Global High Income Fund also ranked in
the 2nd quartile of its Lipper universe over the
one-year period, and the top decile over the three- and
five-year periods ending March 31, 2010 and since
inception, as of March 31, 2010.
92
The following table sets forth the changes in assets under
management for the years ended December 31, 2009 and 2008,
and the three months ended March 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Year Ended
|
|
|
|
Ended March 31,
|
|
|
December 31,
|
|
High Yield
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In millions)
|
|
|
Beginning assets under management
|
|
$
|
3,516
|
|
|
$
|
977
|
|
|
$
|
852
|
|
Gross client cash inflows
|
|
|
1,199
|
|
|
|
2,399
|
|
|
|
807
|
|
Gross client cash outflows
|
|
|
(274
|
)
|
|
|
(639
|
)
|
|
|
(442
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net client cash flows
|
|
|
925
|
|
|
|
1,760
|
|
|
|
365
|
|
Transfers between investment strategies
|
|
|
(10
|
)
|
|
|
6
|
|
|
|
117
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total client cash flows
|
|
|
915
|
|
|
|
1,766
|
|
|
|
482
|
|
Market appreciation (depreciation)
|
|
|
92
|
|
|
|
773
|
|
|
|
(357
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending assets under management
|
|
$
|
4,523
|
|
|
$
|
3,516
|
|
|
$
|
977
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 March 31, 2010, and in the five-year,
three-year, and one-year periods ended March 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 March 31, 2010
|
High Yield
|
|
Since Inception
|
|
5 Years
|
|
3 Years
|
|
1 Year
|
|
Annualized Gross Returns
|
|
|
11.6
|
%
|
|
|
9.7
|
%
|
|
|
8.6
|
%
|
|
|
54.8
|
%
|
Annualized Net Returns
|
|
|
10.3
|
%
|
|
|
8.6
|
%
|
|
|
7.6
|
%
|
|
|
53.3
|
%
|
ML Global High Yield USD Constrained Index
|
|
|
10.2
|
%
|
|
|
8.1
|
%
|
|
|
7.3
|
%
|
|
|
61.2
|
%
|
The table below sets forth the annualized returns, gross and net
(which represent annualized returns prior to and after payment
of fees, respectively) of our High Yield composite for the years
ended December 31, 2009, 2008, 2007, 2006 and 2005, and the
three months ended March 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Year Ended December 31,
|
|
Ended March 31,
|
High Yield
|
|
2009
|
|
2008
|
|
2007
|
|
2006
|
|
2005
|
|
2010
|
|
Gross Returns
|
|
|
56.4
|
%
|
|
|
(23.6
|
)%
|
|
|
5.2
|
%
|
|
|
12.6
|
%
|
|
|
5.7
|
%
|
|
|
4.8
|
%
|
Net Returns
|
|
|
55.0
|
%
|
|
|
(24.3
|
)%
|
|
|
4.1
|
%
|
|
|
11.2
|
%
|
|
|
4.4
|
%
|
|
|
4.5
|
%
|
ML Global High Yield USD Constrained Index
|
|
|
62.2
|
%
|
|
|
(27.5
|
)%
|
|
|
3.4
|
%
|
|
|
12.2
|
%
|
|
|
1.6
|
%
|
|
|
4.5
|
%
|
The returns generated by the proprietary funds,
sub-advisory
accounts, separate accounts and institutional commingled funds
invested in our High Yield strategies for the periods ended
December 31, 2009 and March 31, 2010 are substantially
similar to the returns presented in the tables above.
Global
Equity
Global Equity is a core, multi-cap equity strategy that invests
in companies worldwide. While U.S. investors have
traditionally split investment decisions into U.S. versus
non-U.S. categories,
we believe that some 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
93
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 March 31,
2010, Global Equity accounted for approximately
$892 million of assets under management, with 10% of these
assets in our proprietary funds, 61% in separate accounts and
29% in commingled funds. As of March 31, 2010, the Artio
Global Equity Fund ranked in the 1st quartile of its
Lipper universe over the past one-year period, in the
3rd quartile over the past three-year period, in the
2nd quartile over the past five-year period, and had a
4-star Morningstar rating.
The table below sets forth the changes in assets under
management for the years ended December 31, 2009 and 2008
and the three months ended March 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Year Ended
|
|
|
|
Ended March 31,
|
|
|
December 31,
|
|
Global Equity
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In millions)
|
|
|
Beginning assets under management
|
|
$
|
618
|
|
|
$
|
591
|
|
|
$
|
761
|
|
Gross client cash inflows
|
|
|
305
|
|
|
|
89
|
|
|
|
210
|
|
Gross client cash outflows
|
|
|
(12
|
)
|
|
|
(186
|
)
|
|
|
(95
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net client cash flows
|
|
|
293
|
|
|
|
(97
|
)
|
|
|
115
|
|
Transfers between investment strategies
|
|
|
(50
|
)
|
|
|
|
|
|
|
46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total client cash flows
|
|
|
243
|
|
|
|
(97
|
)
|
|
|
161
|
|
Market appreciation (depreciation)
|
|
|
31
|
|
|
|
124
|
|
|
|
(331
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending assets under management
|
|
$
|
892
|
|
|
$
|
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 March 31, 2010, and in the five-year,
three-year and one-year periods ended March 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 March 31, 2010
|
Global Equity
|
|
Since Inception
|
|
5 Years
|
|
3 Years
|
|
1 Year
|
|
Annualized Gross Returns
|
|
|
9.7
|
%
|
|
|
5.2
|
%
|
|
|
(3.9
|
)%
|
|
|
57.6
|
%
|
Annualized Net Returns
|
|
|
8.5
|
%
|
|
|
4.2
|
%
|
|
|
(4.4
|
)%
|
|
|
56.7
|
%
|
MSCI World Index
|
|
|
5.7
|
%
|
|
|
2.9
|
%
|
|
|
(5.4
|
)%
|
|
|
52.4
|
%
|
MSCI AC World
Indexsm
|
|
|
5.6
|
%
|
|
|
3.9
|
%
|
|
|
(4.4
|
)%
|
|
|
55.5
|
%
|
94
The table below sets forth the annualized returns, gross and net
(which represent annualized returns prior to and after payment
of fees, respectively) of our Global Equity composite for the
years ended December 31, 2009, 2008, 2007, 2006 and 2005,
and the three months ended March 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Year Ended December 31,
|
|
Ended March 31,
|
Global Equity
|
|
2009
|
|
2008
|
|
2007
|
|
2006
|
|
2005
|
|
2010
|
|
Gross Returns
|
|
|
32.2
|
%
|
|
|
(40.8
|
)%
|
|
|
12.5
|
%
|
|
|
23.2
|
%
|
|
|
13.9
|
%
|
|
|
3.6
|
%
|
Net Returns
|
|
|
31.5
|
%
|
|
|
(41.2
|
)%
|
|
|
11.7
|
%
|
|
|
21.4
|
%
|
|
|
11.8
|
%
|
|
|
3.5
|
%
|
MSCI World Index
|
|
|
30.0
|
%
|
|
|
(40.7
|
)%
|
|
|
9.0
|
%
|
|
|
20.1
|
%
|
|
|
9.5
|
%
|
|
|
3.2
|
%
|
MSCI AC World
Indexsm
|
|
|
34.6
|
%
|
|
|
(42.2
|
)%
|
|
|
11.7
|
%
|
|
|
21.0
|
%
|
|
|
10.8
|
%
|
|
|
3.1
|
%
|
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, 2009 and March, 31, 2010, are substantially
similar to the returns presented in the tables above.
U.S.
Equity
Our various U.S. Equity strategies were launched in July
2006 and include 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:
(i) sector and industry quantitative and qualitative
screening; (ii) conducting fundamental research; and
(iii) valuing investments based on upside/downside scenario
analysis. Our investment process focuses on both quantitative
and qualitative factors.
The seven professionals comprising our U.S. Equity team are
responsible for managing the four distinct investment strategies
which, in the aggregate, accounted for $126 million of our
total assets under management as of March 31, 2010, with
58% in proprietary funds and 42% in
sub-advised
accounts.
|
|
|
|
|
Multicap We launched this strategy in
July 2006 and, as of March 31, 2010, it accounted for
approximately $8 million of assets under management. The
Multicap strategy ranked in the 2nd quartile of the Lipper
Multi-Cap Growth Funds class category since
inception as of March 31, 2010.
|
|
|
|
Midcap We launched this strategy in
July 2006 and, as of March 31, 2010, it accounted for
approximately $6 million of assets under management. The
Midcap strategy ranked in the 3rd quartile of the Lipper
Mid-Cap Growth Funds class category since inception
as of March 31, 2010.
|
|
|
|
Smallcap We launched this strategy in
July 2006 and, as of March 31, 2010, it accounted for
approximately $48 million of assets under management. The
Smallcap strategy ranked in the top decile in the Lipper
Small-Cap Growth Funds class category since
inception as of March 31, 2010.
|
|
|
|
Microcap We launched this strategy in
July 2006 and, as of March 31, 2010, it accounted for
approximately $64 million of assets under management. The
Microcap strategy ranked in the 1st quartile of its Lipper
universe since inception as of March 31, 2010.
|
95
The table below sets forth the changes in assets under
management for the years ended December 31, 2009 and 2008,
and the three months ended March 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Year Ended
|
|
|
|
Ended March 31,
|
|
|
December 31,
|
|
US Equity
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In millions)
|
|
|
Beginning assets under management
|
|
$
|
81
|
|
|
$
|
49
|
|
|
$
|
133
|
|
Gross client cash inflows
|
|
|
35
|
|
|
|
14
|
|
|
|
18
|
|
Gross client cash outflows
|
|
|
(3
|
)
|
|
|
(9
|
)
|
|
|
(38
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net client cash flows
|
|
|
32
|
|
|
|
5
|
|
|
|
(20
|
)
|
Transfers between investment strategies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total client cash flows
|
|
|
32
|
|
|
|
5
|
|
|
|
(20
|
)
|
Market appreciation (depreciation)
|
|
|
13
|
|
|
|
27
|
|
|
|
(64
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending assets under management
|
|
$
|
126
|
|
|
$
|
81
|
|
|
$
|
49
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 March 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 March 31, 2010
|
US Equity
|
|
Since Inception
|
|
3 Years
|
|
1 Year
|
|
Multi-Cap
|
|
|
|
|
|
|
|
|
|
|
|
|
Annualized Gross Returns
|
|
|
4.4
|
%
|
|
|
(0.1
|
)%
|
|
|
66.3
|
%
|
Annualized Net Returns
|
|
|
3.5
|
%
|
|
|
(0.9
|
)%
|
|
|
65.1
|
%
|
Russell
3000®
Index
|
|
|
0.2
|
%
|
|
|
(4.0
|
)%
|
|
|
52.4
|
%
|
Mid-Cap
|
|
|
|
|
|
|
|
|
|
|
|
|
Annualized Gross Returns
|
|
|
3.1
|
%
|
|
|
(2.5
|
)%
|
|
|
68.6
|
%
|
Annualized Net Returns
|
|
|
2.3
|
%
|
|
|
(3.2
|
)%
|
|
|
67.2
|
%
|
Russell
Mid-Cap®
Index
|
|
|
1.6
|
%
|
|
|
(3.3
|
)%
|
|
|
67.7
|
%
|
Small-Cap
|
|
|
|
|
|
|
|
|
|
|
|
|
Annualized Gross Returns
|
|
|
9.8
|
%
|
|
|
5.8
|
%
|
|
|
95.5
|
%
|
Annualized Net Returns
|
|
|
8.9
|
%
|
|
|
5.0
|
%
|
|
|
93.7
|
%
|
Russell
2000®
Index
|
|
|
0.5
|
%
|
|
|
(4.0
|
)%
|
|
|
62.8
|
%
|
Micro-Cap
|
|
|
|
|
|
|
|
|
|
|
|
|
Annualized Gross Returns
|
|
|
2.5
|
%
|
|
|
(2.4
|
)%
|
|
|
103.8
|
%
|
Annualized Net Returns
|
|
|
1.6
|
%
|
|
|
(3.3
|
)%
|
|
|
101.9
|
%
|
Russell
2000®
Index
|
|
|
0.5
|
%
|
|
|
(4.0
|
)%
|
|
|
62.7
|
%
|
Russell
Micro-Cap®
Index
|
|
|
(3.4
|
)%
|
|
|
(8.4
|
)%
|
|
|
65.1
|
%
|
96
The table below sets forth the annualized returns, gross and net
(which represent annualized returns prior to and after payment
of fees, respectively) of our U.S. Equity composites for
the years ended December 31, 2009, 2008, 2007, 2006 and
2005, and the three months ended March 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Year Ended December 31,
|
|
Ended March 31,
|
|
|
2009
|
|
2008
|
|
2007
|
|
2006(1)
|
|
2005
|
|
2010
|
|
Multi-Cap
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Returns
|
|
|
51.1
|
%
|
|
|
(41.4
|
)%
|
|
|
6.1
|
%
|
|
|
17.1
|
%
|
|
|
N/A
|
|
|
|
6.5
|
%
|
Net Returns
|
|
|
49.9
|
%
|
|
|
(41.8
|
)%
|
|
|
5.1
|
%
|
|
|
16.4
|
%
|
|
|
N/A
|
|
|
|
6.3
|
%
|
Russell
3000®
Index
|
|
|
28.3
|
%
|
|
|
(37.3
|
)%
|
|
|
5.1
|
%
|
|
|
12.2
|
%
|
|
|
N/A
|
|
|
|
5.9
|
%
|
Mid-Cap
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Returns
|
|
|
53.4
|
%
|
|
|
(44.7
|
)%
|
|
|
3.7
|
%
|
|
|
18.3
|
%
|
|
|
N/A
|
|
|
|
7.4
|
%
|
Net Returns
|
|
|
52.1
|
%
|
|
|
(45.1
|
)%
|
|
|
3.0
|
%
|
|
|
17.7
|
%
|
|
|
N/A
|
|
|
|
7.2
|
%
|
Russell
Mid-Cap®
Index
|
|
|
40.5
|
%
|
|
|
(41.5
|
)%
|
|
|
5.6
|
%
|
|
|
12.4
|
%
|
|
|
N/A
|
|
|
|
8.7
|
%
|
Small-Cap
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Returns
|
|
|
66.9
|
%
|
|
|
(41.1
|
)%
|
|
|
11.3
|
%
|
|
|
14.5
|
%
|
|
|
N/A
|
|
|
|
12.4
|
%
|
Net Returns
|
|
|
65.3
|
%
|
|
|
(41.5
|
)%
|
|
|
10.7
|
%
|
|
|
13.9
|
%
|
|
|
N/A
|
|
|
|
12.1
|
%
|
Russell
2000®
Index
|
|
|
27.2
|
%
|
|
|
(33.8
|
)%
|
|
|
(1.6
|
)%
|
|
|
13.1
|
%
|
|
|
N/A
|
|
|
|
8.9
|
%
|
Micro-Cap
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Returns
|
|
|
60.8
|
%
|
|
|
(50.4
|
)%
|
|
|
(0.2
|
)%
|
|
|
17.0
|
%
|
|
|
N/A
|
|
|
|
17.6
|
%
|
Net Returns
|
|
|
59.3
|
%
|
|
|
(50.8
|
)%
|
|
|
(1.0
|
)%
|
|
|
16.3
|
%
|
|
|
N/A
|
|
|
|
17.3
|
%
|
Russell
2000®
Index
|
|
|
27.2
|
%
|
|
|
(33.8
|
)%
|
|
|
(1.6
|
)%
|
|
|
13.1
|
%
|
|
|
N/A
|
|
|
|
8.9
|
%
|
Russell
Micro-Cap®
Index
|
|
|
27.5
|
%
|
|
|
(39.8
|
)%
|
|
|
(8.0
|
)%
|
|
|
13.7
|
%
|
|
|
N/A
|
|
|
|
9.9
|
%
|
|
|
|
(1) |
|
Results for the year ended December 31, 2006 are for the
period from July 31, 2006 to December 31, 2006. |
The returns generated by the proprietary funds,
sub-advisory
accounts and separate accounts invested in our U.S. Equity
strategies for the periods ended December 31, 2009 and
March 31, 2010 are substantially similar to the returns
presented in the tables above.
Private Offshore
Fund
In addition to our core strategies, we have approximately
$37 million of assets under management invested in other
strategies, all of which was invested in a private offshore fund
as of March 31, 2010.
New
Initiatives
We expect to launch a global credit hedge fund, which will aim
to deliver absolute returns with low volatility and a low
correlation to other asset classes by exploiting overlooked
areas of value in stressed capital structures and
under-researched international credits utilizing the experience
of our investment teams. It will take a conservative approach to
leverage and will be invested in bank debt, bonds, credit
default swaps, mezzanine capital and equity-like instruments. We
will provide seed money for this initiative.
Distribution and
Client Service
We have historically distributed our products largely through
intermediaries, including investment consultants, broker
dealers, RIAs, mutual fund platforms and
sub-advisory
relationships. This distribution model has allowed us to achieve
significant leverage from a relatively small sales and client
97
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 March 31, 2010, 44% of assets under
management were in proprietary funds and 56% were in other
institutional assets, including separate accounts (32%),
sub-advisory
accounts (8%) and commingled funds (16%). The recent economic
downturn and consolidation in the broker-dealer industry have
led to increased competition to market through broker dealers
and higher costs, and may lead to reduced distribution access
and further cost increases; however, we believe the recent
consolidation provides us with opportunities to expand our reach
to additional retail investors through our existing
broker-dealer relationships.
We believe our client base to be more institutional in nature
and to a large extent exhibit buying behavior that demonstrates
such. We believe that institutional clients invest for the
long-term and given such are less likely to withdraw their
assets during stressed market conditions. The institutional
nature of our business has resulted in lower redemptions as
compared to asset management businesses that service primarily
retail clients.
Historically, we have concentrated our distribution efforts
primarily on our International Equity strategies. In recent
years, we have also begun to focus on other strategies as well,
including our High Grade Fixed Income, High Yield and Global
Equity strategies. In addition, we have selectively strengthened
our international distribution by expanding into Canada.
Institutional
Distribution and Client Service
We service a broad spectrum of institutional clients, including
some of the worlds leading corporations, public and
private pension funds, endowments and foundations and financial
institutions. As of March 31, 2010, we provided asset
management services to approximately 1,500 institutional clients
invested in separate accounts, commingled funds and proprietary
funds, including approximately 156 state and local
governments nationwide and approximately 526 corporate clients.
In addition, we manage assets for approximately 199 foundations;
approximately 123 colleges, universities or other educational
endowments; approximately 146 of the countrys hospital or
healthcare systems; and approximately 129 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 United States. We have also established a sales
presence in Canada and are considering expanding overseas in
countries where we believe there is significant demand for our
investment expertise, particularly our Global Equity and Global
Fixed Income strategies.
Our institutional sales professionals focus their efforts on
building strong relationships with the influential institutional
consultants in their regions, while seeking to establish direct
relationships with the largest potential institutional clients
in their region. Their efforts have led to consultant
relationships that are broadly diversified across a wide range
of consultants. As of March 31, 2010, our largest
consultant relationship represented approximately 5% of our
total assets under management. Our largest individual client
represented approximately 3% of our total assets under
management as of March 31, 2010, and our top ten clients
represented approximately 17% of our total assets under
management as of March 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
as product specialists. These specialists participate in the
investment process but their primary responsibility is
communicating with clients any developments in the portfolio and
answering questions beyond those where the client service staff
can provide adequate responses.
98
Proprietary
Fund and Retail Distribution
Within the proprietary fund and retail marketplace, we have
assembled a small team of sales professionals for the areas and
client segments where it can have meaningful impact. Our
approach to retail distribution is to focus on: (i) broker
dealers and major intermediaries; (ii) the RIA marketplace;
(iii) direct brokerage platforms; and (iv) major
financial institutions through
sub-advisory
channels. In general, their penetration has been greatest in
those areas of the intermediated marketplace which display an
institutional buying behavior.
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
March 31, 2010, our largest broker-dealer relationship
accounted for approximately 5% of our total assets under
management.
Registered
Investment Advisor (RIA)
We are also actively pursuing distribution opportunities in the
RIA marketplace. Through the end of 2005, we relied on a
third-party to market our strategies to the RIA community, at
which point we terminated that relationship and developed an
internal capability. The professionals dedicated to the RIA
opportunity employ tailored communications to sophisticated
RIAs. Our professionals also maintain relationships with key
opinion leaders within the RIA community.
Brokerage
Platforms
Our funds are available on various mutual fund platforms
including Charles Schwab & Co., Inc., where our funds
have been available since the first quarter of 2000, and on
Fidelitys Funds Network, where our funds have been
available since the fourth quarter of 1998. As of March 31,
2010, our largest mutual fund platform represented approximately
10% of our total assets under management.
Sub-Advisory
We have accepted selected
sub-advisory
mandates that provide access to market segments we would not
otherwise serve. For example, we currently serve as
sub-advisor
to funds offered by major financial institutions in retail
channels that require mutual funds with front-end sales
commissions. These mandates are attractive to us because we have
chosen not to build the large team of sales professionals
typically required to service those channels. Once we have
sourced these
sub-advisory
mandates, we typically approach the servicing of the
relationships in a manner similar to our approach with other
large institutional separate account clients.
Investment
Management Fees
We earn investment management fees on the proprietary funds,
commingled funds and separate accounts that we manage and under
our
sub-advisory
agreements for proprietary funds and other investment funds. The
fees we earn depend on the type of investment product we manage
and are typically negotiated after consultation with the client
based upon factors such as amount of assets under management,
investment strategy servicing requirements, multiple or related
account relationships and client type. Most of our fees are
calculated based on daily or monthly average assets under
management, rather than quarter-end balances of assets under
management. In addition, a small number of separate account
clients pay us fees according to the performance of their
accounts relative to certain
agreed-upon
benchmarks, which results in a slightly lower base fee, but
allows us to earn higher fees if the relevant investment
strategy outperforms the
agreed-upon
benchmark. Performance fees represented (0.5)% and 1.2% of our
total revenues and other operating income for the
99
years ended December 31, 2009 and December 31, 2008,
respectively, and 0.0% for the three months ended March 31,
2010. Performance fees on certain accounts are subject to
clawback if performance declines after the most recent
measurement date. See Managements Discussion and
Analysis of Financial Condition and Results of Operations.
To the extent that we offer alternative products in the future,
we expect that performance fees may become a greater portion of
total revenues.
Outsourced
Operations, Systems and Technology
As an organization, we have developed a business model which
focuses the vast majority of resources on meeting clients
investment objectives. As a result, we seek to outsource,
whenever appropriate, support functions to industry leaders to
allow us to focus on areas where we believe we can add the most
value. We monitor the performance of our outsourced service
providers.
We outsource middle- and back-office activities to The Northern
Trust Company, which has responsibility for trade
confirmation, trade settlement, custodian reconciliations,
corporate action processing, performance calculation and client
reporting as well as custody, fund accounting and transfer
agency services for our commingled funds. Our separate and
sub-advised
accounts outsource their custody services to service providers
that they select.
Our SEC-registered mutual funds outsource their custody, fund
accounting and administrative services to State Street Bank and
Trust Co. which has responsibility for tracking assets and
providing accurate daily valuations used to calculate each
funds net asset value. In addition, State Street Bank and
Trust Co. provides daily and monthly compliance reviews,
quarterly fund expense budgeting, monthly fund performance
calculations, monthly distribution analysis, SEC reporting,
payment of fund expenses and board reporting. It also provides
annual and periodic reports, regulatory filings and related
services as well as tax preparation services. Our SEC-registered
mutual funds also outsource distribution to Quasar Distributors
LLC and transfer agency services to U.S. Bancorp.
We also outsource our hosting, management and administration of
our front-end trading and compliance systems as well as certain
data center, data replication, file transmission, secure remote
access and disaster recovery services.
Competition
In order to grow our business, we must be able to compete
effectively for assets under management. We compete in all
aspects of our business with other investment management
companies, some of which are part of substantially larger
organizations. We have historically competed principally on the
basis of:
|
|
|
|
|
investment performance;
|
|
|
|
continuity of investment professionals;
|
|
|
|
quality of service provided to clients;
|
|
|
|
corporate positioning and business reputation;
|
|
|
|
continuity of our selling arrangements with
intermediaries; and
|
|
|
|
differentiated products.
|
For information on the competitive risks we face, see Risk
Factors Risks Related to our Industry
The investment management business is intensely
competitive.
Employees
As of March 31, 2010, we employed 200 full-time and
two part-time employees, including 50 investment
professionals, 48 in distribution and client service, 26 in
enterprise risk management and 78 in various other corporate and
support functions. None of our employees are subject to
100
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 and Toronto,
Canada 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.
101
REGULATORY
ENVIRONMENT AND COMPLIANCE
Our business is subject to extensive regulation in the United
States at both the federal and state level, as well as by
self-regulatory organizations and outside the United States.
Under these laws and regulation, agencies that regulate
investment advisors have broad administrative powers, including
the power to limit, restrict or prohibit an investment advisor
from carrying on its business in the event that it fails to
comply with such laws and regulations. Possible sanctions that
may be imposed include the suspension of individual employees,
limitations on engaging in certain lines of business for
specified periods of time, revocation of investment advisor and
other registrations, censures and fines.
SEC
Regulation
Investment Adviser is registered with the SEC as an investment
advisor pursuant to the Advisers Act, and our retail investment
company clients are registered under the 1940 Act. As compared
to other, disclosure-oriented U.S. federal securities laws,
the Advisers Act and the 1940 Act, together with the SECs
regulations and interpretations thereunder, are highly
restrictive regulatory statutes. The SEC is authorized to
institute proceedings and impose sanctions for violations of the
Advisers Act and the 1940 Act, ranging from fines and censures
to termination of an advisors registration.
Under the Advisers Act, an investment advisor (whether or not
registered under the Advisers Act) has fiduciary duties to its
clients. The SEC has interpreted these duties to impose
standards, requirements and limitations on, among other things:
trading for proprietary, personal and client accounts;
allocations of investment opportunities among clients; use of
soft dollars; execution of transactions; and
recommendations to clients. On behalf of our mutual fund and
investment advisory clients, we make decisions to buy and sell
securities for each portfolio, select broker dealers to execute
trades and negotiate brokerage commission rates. In connection
with these transactions, we may receive soft dollar
credits from broker dealers that have the effect of reducing
certain of our expenses. If our ability to use soft
dollars were reduced or eliminated as a result of the
implementation of new regulations, our operating expenses would
likely increase.
The Advisers Act also imposes specific restrictions on an
investment advisors ability to engage in principal and
agency cross transactions. As a registered advisor, we are
subject to many additional requirements that cover, among other
things, disclosure of information about our business to clients;
maintenance of written policies and procedures; maintenance of
extensive books and records; restrictions on the types of fees
we may charge; custody of client assets; client privacy;
advertising; and solicitation of clients. The SEC has legal
authority to inspect any investment advisor and typically
inspects a registered advisor every two to four years to
determine whether the advisor is conducting its activities
(i) in accordance with applicable laws,
(ii) consistent with disclosures made to clients and
(iii) with adequate systems and procedures to ensure
compliance.
A majority of our revenues are derived from our advisory
services to investment companies registered under the 1940
Act i.e., mutual funds. The 1940 Act imposes
significant requirements and limitations on a registered fund,
including with respect to its capital structure, investments and
transactions. While we exercise broad discretion over the
day-to-day
management of these funds, every fund is also subject to
oversight and management by a board of directors, a majority of
whom are not interested persons under the 1940 Act.
The responsibilities of the board include, among other things,
approving our advisory contract with the fund; approving service
providers; determining the method of valuing assets; and
monitoring transactions involving affiliates. Our advisory
contracts with these funds may be terminated by the funds on not
more than 60 days notice, and are subject to annual
renewal by the funds board after an initial two year term.
Under the Advisers Act, our investment management agreements may
not be assigned without the clients consent. Under the
1940 Act, advisory agreements with registered funds (such as the
mutual funds we manage) terminate automatically upon assignment.
The term assignment is broadly defined and includes
direct assignments as well as assignments that may be deemed to
occur upon the transfer, directly or indirectly, of a
controlling interest in us.
102
ERISA-Related
Regulation
To the extent that Investment Adviser is a fiduciary
under ERISA with respect to benefit plan clients, it is subject
to ERISA, and to regulations promulgated thereunder. ERISA and
applicable provisions of the Internal Revenue Code of 1986, as
amended, impose certain duties on persons who are fiduciaries
under ERISA, prohibit certain transactions involving ERISA plan
clients and provide monetary penalties for violations of these
prohibitions.
Non-U.S.
Regulation
In addition to the extensive regulation our asset management
business is subject to in the United States, we are also subject
to regulation internationally by the Ontario Securities
Commission, the Irish Financial Institutions Regulatory
Authority, and the Hong Kong Securities and Futures Commission.
Our business is also subject to the rules and regulations of the
more than 40 countries in which we currently conduct investment
activities.
Risk Management
and Compliance
We categorize our risks into three classes: risks that have
alpha associated with them (portfolio, or market risk),
strategic risk and non-market risk, which are typically
characterized by the risk of loss. We are is subject to many
non-market risks, including fiduciary risk, reputational risk,
operational risk and legal and regulatory risk.
We manage risk at multiple levels throughout the organization,
including directly by the portfolio manager, at the Chief
Investment Officer level, and more broadly through an Enterprise
Risk Management framework overseen by the Management Committee,
which identifies, assesses and manages the full range of risks
that we face and reports to the Board of Directors.
Our Enterprise Risk Management framework includes a number of
internal committees, such as the Compliance Committee, the
Operating Committee, the Information Technology Steering
Committee, and the Trading and Investments Committee, each of
which operates pursuant to a written charter. The Risk
Management Committee, which reports to the Management Committee,
coordinates the risks overseen by each of these committees, and
provides centralized oversight and management thereof.
In addition to the staff committees described above, we have a
ten-person risk management group that focuses on
investment-related risk with responsibility for measuring and
monitoring portfolio level risk, portfolio analysis including
performance attribution, performance reporting and operational
risk. At the investment portfolio level, we seek to manage risk
daily on a real-time basis with an emphasis on identifying which
investments are working, which investments are not, and what
factors are influencing performance on both an intended and
unintended basis. This approach to managing portfolio-level risk
is not designed to avoid taking risks, but to seek to ensure
that the risks we choose to take are rewarded with an
appropriate premium opportunity for those risks. This approach
to managing portfolio-level risk is an integral component of our
investment processes.
Our legal and compliance functions are integrated into one team
of 11 full-time professionals as of March 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.
103
PRINCIPAL
STOCKHOLDERS
The following table sets forth information regarding the
beneficial ownership of our Class A common stock as of
May 28, 2010 for:
|
|
|
|
|
each person who is known by us to beneficially own more than 5%
of any class of our outstanding shares;
|
|
|
|
each of our named executive officers;
|
|
|
|
each of our directors; and
|
|
|
|
all of our executive officers and directors as a group.
|
The number of shares and percentages of beneficial ownership
before the offering set forth below reflect the 3,000,000 New
Class A Units each Principal exchanged for shares of
Class A common stock prior to this offering and the
corresponding cancellation of shares of our Class B common
stock. The number of shares and percentages of beneficial
ownership after the offering set forth below reflect the
application of the net proceeds of this offering (assuming the
underwriters do not exercise their option to purchase additional
shares) to purchase an aggregate of 1,850,000 New Class A
Units from each Principal, and the corresponding cancellation of
1,850,000 shares of our Class B common stock from each
Principal.
Beneficial ownership is determined in accordance with the rules
of the SEC. These rules generally attribute beneficial ownership
of securities to persons who possess sole or shared voting power
or investment power with respect to such securities. Except as
otherwise indicated, all persons listed below have sole voting
and investment power with respect to the shares beneficially
owned by them, subject to applicable community property laws.
Except as otherwise indicated, the address for each of our
principal stockholders is
c/o Artio
Global Investors Inc., 330 Madison Ave, New York, New York 10017.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
Common Stock Beneficially
|
|
Total
|
|
|
Common Stock Beneficially
|
|
Voting
|
|
Owned After Offering and
|
|
Voting
|
|
|
Owned Before Offering
|
|
Power
|
|
Application of the Net Proceeds
|
|
Power
|
|
|
|
|
|
|
Percent of
|
|
Before
|
|
|
|
|
|
Percent of
|
|
After
|
|
|
Number of
|
|
|
|
Class
|
|
Offering
|
|
Number of
|
|
|
|
Class
|
|
Offering
|
Name of Beneficial Owner
|
|
Shares
|
|
Class
|
|
(%)
|
|
(%)
|
|
Shares
|
|
Class
|
|
(%)
|
|
(%)
|
|
Richard Pell
|
|
|
3,000,000
|
(1)
|
|
|
A
|
|
|
|
8.9
|
|
|
|
|
|
|
|
5,350,000
|
|
|
|
A
|
|
|
|
12.7
|
|
|
|
|
|
|
|
|
4,800,000
|
|
|
|
B
|
|
|
|
50.0
|
|
|
|
|
|
|
|
600,000
|
|
|
|
B
|
|
|
|
50.0
|
|
|
|
|
|
|
|
|
7,800,000
|
|
|
|
A,B
|
|
|
|
|
|
|
|
13.0
|
|
|
|
5,950,000
|
|
|
|
A,B
|
|
|
|
|
|
|
|
9.9
|
|
Rudolph-Riad Younes
|
|
|
3,000,000
|
(2)
|
|
|
A
|
|
|
|
8.9
|
|
|
|
|
|
|
|
5,350,000
|
|
|
|
A
|
|
|
|
12.7
|
|
|
|
|
|
|
|
|
4,800,000
|
|
|
|
B
|
|
|
|
50.0
|
|
|
|
|
|
|
|
600,000
|
|
|
|
B
|
|
|
|
50.0
|
|
|
|
|
|
|
|
|
7,800,000
|
|
|
|
A,B
|
|
|
|
|
|
|
|
13.0
|
|
|
|
5,950,000
|
|
|
|
A,B
|
|
|
|
|
|
|
|
9.9
|
|
Glen Wisher
|
|
|
|
(3)
|
|
|
|
|
|
|
0.0
|
|
|
|
0.0
|
|
|
|
|
(3)
|
|
|
|
|
|
|
0.0
|
|
|
|
0.0
|
|
Tony Williams
|
|
|
|
(3)
|
|
|
|
|
|
|
0.0
|
|
|
|
0.0
|
|
|
|
|
(3)
|
|
|
|
|
|
|
0.0
|
|
|
|
0.0
|
|
Francis Harte
|
|
|
|
(3)
|
|
|
|
|
|
|
0.0
|
|
|
|
0.0
|
|
|
|
|
(3)
|
|
|
|
|
|
|
0.0
|
|
|
|
0.0
|
|
Elizabeth Buse
|
|
|
7,673
|
|
|
|
A
|
|
|
|
*
|
|
|
|
*
|
|
|
|
7,673
|
|
|
|
A
|
|
|
|
*
|
|
|
|
*
|
|
Duane Kullberg
|
|
|
7,673
|
|
|
|
A
|
|
|
|
*
|
|
|
|
*
|
|
|
|
7,673
|
|
|
|
A
|
|
|
|
*
|
|
|
|
*
|
|
Francis Ledwidge
|
|
|
9,573
|
(4)
|
|
|
A
|
|
|
|
*
|
|
|
|
*
|
|
|
|
9,573
|
(4)
|
|
|
A
|
|
|
|
*
|
|
|
|
*
|
|
Directors and executive officers as a group
(9 persons)
|
|
|
6,024,919
|
(3)(5)
|
|
|
A
|
|
|
|
17.9
|
|
|
|
|
|
|
|
10,724,919
|
(3)(5)
|
|
|
A
|
|
|
|
25.4
|
|
|
|
|
|
|
|
|
9,600,000
|
|
|
|
B
|
|
|
|
100.0
|
|
|
|
|
|
|
|
1,200,000
|
|
|
|
B
|
|
|
|
100.0
|
|
|
|
|
|
|
|
|
15,624,919
|
|
|
|
A,B
|
|
|
|
|
|
|
|
26.0
|
|
|
|
11,924,919
|
|
|
|
A,B
|
|
|
|
|
|
|
|
19.8
|
|
5% Shareholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAM Holding Ltd.
|
|
|
16,755,844
|
(6)
|
|
|
C
|
|
|
|
100.0
|
|
|
|
27.9
|
|
|
|
16,755,844
|
(6)
|
|
|
C
|
|
|
|
100.0
|
|
|
|
27.9
|
|
Royce & Associates, LLC
|
|
|
3,109,803
|
(7)
|
|
|
A
|
|
|
|
9.2
|
|
|
|
5.2
|
|
|
|
3,109,803
|
(7)
|
|
|
A
|
|
|
|
7.4
|
|
|
|
5.2
|
|
Cramer
|
|
|
2,286,832
|
(8)
|
|
|
A
|
|
|
|
6.8
|
|
|
|
3.8
|
|
|
|
2,286,832
|
(8)
|
|
|
A
|
|
|
|
5.4
|
|
|
|
3.8
|
|
Pennant Capital
|
|
|
2,033,000
|
(9)
|
|
|
A
|
|
|
|
6.0
|
|
|
|
3.4
|
|
|
|
2,033,000
|
(9)
|
|
|
A
|
|
|
|
4.8
|
|
|
|
3.4
|
|
Norges Bank (Central Bank of Norway)
|
|
|
1,825,058
|
(10)
|
|
|
A
|
|
|
|
5.4
|
|
|
|
3.0
|
|
|
|
1,825,058
|
(10)
|
|
|
A
|
|
|
|
4.3
|
|
|
|
3.0
|
|
Samlyn Capital
|
|
|
1,677,700
|
(11)
|
|
|
A
|
|
|
|
5.0
|
|
|
|
2.8
|
|
|
|
1,677,700
|
(11)
|
|
|
A
|
|
|
|
4.0
|
|
|
|
2.8
|
|
|
|
|
* |
|
Less than 1% |
|
(1) |
|
Includes Class A common stock held by a Grantor Retained
Annuity Trust (GRAT), as to which Mr. Pell is
the settlor and trustee and receives annual annuity payments
therefrom. Mr. Pells |
104
|
|
|
|
|
spouse and children are the remaindermen. Pursuant to SEC rules,
Mr. Pell is considered the beneficial owner of such
securities. |
|
(2) |
|
Includes Class A common stock held by a GRAT, as to which
Mr. Younes is the settlor and trustee and receives annual
annuity payments therefrom. Mr. Younes spouse, if
any, and the lineal descendants of his parents (other than
Mr. Younes) are the remaindermen. Pursuant to SEC rules,
Mr. Younes is considered the beneficial owner of such
securities. |
|
(3) |
|
Does not include approximately 226,562 restricted stock units
(including dividend equivalents) held by each of
Messrs. Wisher and Williams or approximately 92,767
restricted stock units (including dividend equivalents) held by
Mr. Harte; these restricted stock units will not convert to
Class A common stock within 60 days. |
|
(4) |
|
Includes 400 shares of Class A common stock held by
Mr. Ledwidges wife and 200 shares of
Class A common stock held by Mr. Ledwidges son,
as to which Mr. Ledwidge serves as custodian pursuant to
the Uniform Transfers to Minors Act. |
|
(5) |
|
Does not include approximately 26,398 restricted stock units
(including dividend equivalents) held by Mr. Spilka; these
restricted stock units will not convert to Class A common
stock within 60 days. |
|
(6) |
|
Based on information contained in a Schedule 13G filed with
the SEC on February 16, 2010, by GAM, Klausstrasse 10, 8034
Zurich, Switzerland. According to the Schedule 13G, GAM
beneficially owns and has sole voting and dispositive power over
16,755,844 shares of Class C common stock. Each share
of Class C common stock has economic rights (including
rights to dividends and distributions upon liquidation) equal to
the economic rights of a share of the Class A common stock.
On September 29, 2011, any outstanding shares of
Class C common stock will automatically convert on a
one-for-one
basis to Class A common stock. If GAM transfers the shares
of Class C common stock to anyone other than any of its
subsidiaries, or us, such shares would automatically convert to
shares of Class A common stock. |
|
(7) |
|
Based on information contained in Schedule 13G filed with
the SEC on May 7, 2010, by Royce & Associates,
LLC, 745 Fifth Avenue, New York, NY 10151. According to the
Schedule 13G, Royce & Associates, LLC has sole
voting and dispositive power over 3,109,803 shares of
Class A common stock. |
|
(8) |
|
Based on information contained in Schedule 13G filed with
the SEC on February 10, 2010, by Cramer Rosenthal McGlynn,
LLC (Cramer), 520 Madison Avenue, New York, New York
10022. According to the Schedule 13G, Cramer has sole
voting power over 2,229,982 shares of our Class A common
stock and sole dispositive power over 2,286,832 shares of
our Class A common stock. |
|
(9) |
|
Based on information contained in Schedule 13G/A filed with
the SEC on December 10, 2009, jointly by Alan Fournier
c/o Pennant
Capital Management, L.L.C., Pennant Capital Management, L.L.C.
and Pennant Windward Master Fund, L.P.
c/o Pennant
Capital Management, L.L.C. (collectively, Pennant
Capital), 26 Main Street, Suite 203, Chatham, New
Jersey 07928. According to the Schedule 13G/A, Alan
Fournier and Pennant Capital Management, L.L.C., each
beneficially own 2,033,000 shares of Class A common
stock and have shared voting and dispositive power over
2,033,000 shares of Class A common stock. Further,
according to the Schedule 13G/A, Pennant Windward Master
Fund, L.P. beneficially owns 1,435,710 shares of Class A
common stock and has shared voting and dispositive power over
1,435,710 shares of Class A common stock. |
|
(10) |
|
Based on information contained in Schedule 13G/A filed with
the SEC on February 3, 2010, by Norges Bank (Central Bank
of Norway), Bankplassen 2, PO Box 1179 Sentrum, NO
0107 Oslo, Norway. According to the Schedule 13G/A, Norges
Bank has sole voting and dispositive power over
1,825,058 shares of Class A common stock. |
|
(11) |
|
Based on information contained in Schedule 13G filed with
the SEC on November 6, 2009, by Samlyn Capital, LLC and
Robert Pohly
c/o Samlyn
Capital, LLC (together with Samlyn Capital, LLC Samlyn
Capital), 500 Park Avenue, 2nd Floor, New York, New York
10022. According to the Schedule 13G, Samlyn Capital, LLC
and Robert Pohly
c/o Samlyn
Capital LLC each have shared voting and dispositive power over
1,677,700 shares of Class A common stock. |
105
DESCRIPTION OF
CAPITAL STOCK
The following description of our capital stock is a summary and
is qualified in its entirety by reference to our amended and
restated certificate of incorporation and bylaws, which are
filed as exhibits to the registration statement of which this
prospectus forms a part, and by applicable law.
Our authorized capital stock consists of 500,000,000 shares
of Class A common stock, par value $0.001 per share,
50,000,000 shares of Class B common stock, par value
$0.001 per share, 210,000,000 shares of Class C common
stock, par value $0.01 per share and 100,000,000 shares of
preferred stock, par value $0.001 per share. The issuance of
Class A common stock in connection with this offering was
authorized by resolutions of the Board of Directors on
May 20, 2010.
Common
Stock
Class A
Common Stock
Holders of our Class A common stock are entitled to one
vote for each share held of record on all matters submitted to a
vote of stockholders.
Holders of our Class A common stock are entitled to receive
dividends when and if declared by our Board of Directors out of
funds legally available therefor, subject to any statutory or
contractual restrictions on the payment of dividends and to any
restrictions on the payment of dividends imposed by the terms of
any outstanding preferred stock. Any dividend paid in respect of
our Class A common stock must also be paid in respect of
our Class C common stock.
Upon our dissolution or liquidation or the sale of all or
substantially all of our assets, after payment in full of all
amounts required to be paid to creditors and to the holders of
preferred stock having liquidation preferences, if any, the
holders of our Class A common stock and Class C common
stock will be entitled to receive pro rata our remaining assets
available for distribution.
Holders of our Class A common stock do not have preemptive,
subscription, redemption or conversion rights.
Class B
Common Stock
Holders of our Class B common stock are entitled to one
vote for each share held of record on all matters submitted to a
vote of stockholders. Our Principals are the holders of all
shares of Class B common stock.
Holders of our Class B common stock do not have any right
to receive dividends (other than dividends consisting of shares
of our Class B common stock or in rights, options, warrants
or other securities convertible or exercisable into or
exchangeable for shares of Class B common stock paid
proportionally with respect to each outstanding share of our
Class B common stock) or to receive a distribution upon the
dissolution, liquidation or sale of all or substantially all of
our assets.
Class C
Common Stock
Holders of our Class C common stock are entitled to an
aggregate vote on all matters submitted to a vote of
stockholders equal to the greater of (1) the number of
votes they would be entitled to on a one-vote-per-share basis
and (2) 20% of the combined voting power of all classes of
common stock. GAM is the holder of all shares of Class C
common stock and entered into a shareholders agreement with us
under which it agreed that, to the extent it has a vote as
holder of the Class C common stock greater than that which
it would be entitled to on a one-vote-per-share basis, it will
on all matters vote such excess on the same basis and in the
same proportion as the votes cast by the holders of our
Class A and Class B common stock.
Holders of our Class C common stock are entitled to receive
dividends when and if declared by our Board of Directors out of
funds legally available therefor, subject to any statutory or
contractual
106
restrictions on the payment of dividends and to any restrictions
on the payment of dividends imposed by the terms of any
outstanding preferred stock. Any dividend paid in respect of our
Class C common stock must also be paid in respect of our
Class A common stock.
Upon our dissolution or liquidation or the sale of all or
substantially all of our assets, after payment in full of all
amounts required to be paid to creditors and to the holders of
preferred stock having liquidation preferences, if any, the
holders of our Class A common stock and Class C common
stock will be entitled to receive pro rata our remaining assets
available for distribution.
Holders of our Class C common stock do not have preemptive,
subscription or redemption rights. If GAM transfers any shares
of Class C common stock to anyone other than any of its
subsidiaries, such shares will automatically convert into shares
of Class A common stock. In addition, on September 29,
2011, any outstanding shares of Class C common stock will
automatically convert on a
one-for-one
basis into Class A common stock.
Voting
Generally, all matters to be voted on by stockholders must be
approved by a majority (or, in the case of election of
directors, by a plurality) of the votes entitled to be cast by
all shares of Class A common stock, Class B common
stock and Class C common stock present in person or
represented by proxy, voting together as a single class.
However, as set forth below under Amendments
to our Governing Documents, certain material amendments to
the amended and restated certificate of incorporation must be
approved by at least
662/3%
of the combined voting power of all of our outstanding capital
stock entitled to vote in the election of our Board of
Directors, voting together as a single class. In addition,
amendments to the amended and restated certificate of
incorporation that would alter or change the powers, preferences
or special rights of the Class B common stock or
Class C common stock so as to affect them adversely also
must be approved by a majority of the votes entitled to be cast
by the holders of the shares affected by the amendment, voting
as a separate class. Notwithstanding the foregoing, any
amendment to our amended and restated certificate of
incorporation to increase or decrease the authorized shares of
any class of common stock shall be approved upon the affirmative
vote of the holders of a majority of the shares of Class A
common stock, Class B common stock and Class C common
stock, voting together as a single class.
No shares of any class of common stock are subject to redemption
or have preemptive rights to purchase additional shares of any
class of common stock. Upon consummation of this offering, all
of our outstanding shares of common stock are legally issued,
fully paid and nonassessable.
Preferred
Stock
Our amended and restated certificate of incorporation authorizes
our Board of Directors to establish one or more series of
preferred stock (including convertible preferred stock). Unless
required by law or by any stock exchange, the authorized shares
of preferred stock will be available for issuance without
further action by you. Our Board of Directors is able to
determine, with respect to any series of preferred stock, the
terms and rights of that series, including:
|
|
|
|
|
the designation of the series;
|
|
|
|
the number of shares of the series, which our Board of Directors
may, except where otherwise provided in the preferred stock
designation, increase or decrease, but not below the number of
shares then outstanding;
|
|
|
|
whether dividends, if any, will be cumulative or non-cumulative
and the dividend rate of the series;
|
|
|
|
the dates at which dividends, if any, will be payable;
|
|
|
|
the redemption rights and price or prices, if any, for shares of
the series;
|
107
|
|
|
|
|
the terms and amounts of any sinking fund provided for the
purchase or redemption of shares of the series;
|
|
|
|
the amounts payable on shares of the series in the event of any
voluntary or involuntary liquidation, dissolution or
winding-up
of our affairs;
|
|
|
|
whether the shares of the series will be convertible into shares
of any other class or series, or any other security, of ours or
any other entity, and, if so, the specification of the other
class or series or other security, the conversion price or
prices or rate or rates, any rate adjustments, the date or dates
at which the shares will be convertible and all other terms and
conditions upon which the conversion may be made;
|
|
|
|
restrictions on the issuance of shares of the same series or of
any other class or series; and
|
|
|
|
the voting rights, if any, of the holders of the series.
|
We could issue a series of preferred stock that could, depending
on the terms of the series, impede or discourage an acquisition
attempt or other transaction that some, or a majority, of our
stockholders may believe is in their best interests or in which
they may receive a premium for their Class A common stock
over the market price of the Class A common stock.
Authorized but
Unissued Capital Stock
Delaware law does not require stockholder approval for any
issuance of authorized shares. However, the listing requirements
of the NYSE, which apply so long as the Class A common
stock remains listed on the NYSE, require stockholder approval
of certain issuances equal to or exceeding 20% of the then
outstanding voting power or then outstanding number of shares of
Class A common stock. These additional shares may be used
for a variety of corporate purposes, including future public
offerings, to raise additional capital or to facilitate
acquisitions.
One of the effects of the existence of unissued and unreserved
common stock or preferred stock may be to enable our Board of
Directors to issue shares to persons friendly to current
management, which issuance could render more difficult or
discourage an attempt to obtain control of our company by means
of a merger, tender offer, proxy contest or otherwise, and
thereby protect the continuity of our management and possibly
deprive the stockholders of opportunities to sell their shares
of common stock at prices higher than prevailing market prices.
Anti-Takeover
Effects of Provisions of Delaware Law
We are a Delaware corporation subject to Section 203 of the
Delaware General Corporation Law. Section 203 provides
that, subject to certain exceptions specified in the law, a
Delaware corporation shall not engage in certain business
combinations with any interested stockholder
for a three-year period after the date of the transaction in
which the person became an interested stockholder unless:
|
|
|
|
|
prior to such time, our Board of Directors approved either the
business combination or the transaction that resulted in the
stockholder becoming an interested stockholder;
|
|
|
|
upon consummation of the transaction that resulted in the
stockholder becoming an interested stockholder, the interested
stockholder owned at least 85% of our voting stock outstanding
at the time the transaction commenced, excluding certain
shares; or
|
|
|
|
at or subsequent to the consummation of the transaction that
resulted in the stockholder becoming an interested stockholder,
the business combination is approved by our Board of Directors
and by the affirmative vote of holders of at least
662/3%
of the outstanding voting stock that is not owned by the
interested stockholder.
|
Generally a business combination includes a merger,
asset or stock sale or other transaction resulting in a
financial benefit to the interested stockholder. Subject to
certain exceptions, an
108
interested stockholder is a person who, together
with that persons affiliates and associates, owns, or
within the previous three years did own, 15% or more of our
voting stock.
Under certain circumstances, Section 203 makes it more
difficult for a person who would be an interested
stockholder to effect various business combinations with a
corporation for a three-year period. The provisions of
Section 203 may encourage companies interested in acquiring
our company to negotiate in advance with our Board of Directors
because the stockholder approval requirement would be avoided if
our Board of Directors approves either the business combination
or the transaction that results in the stockholder becoming an
interested stockholder. These provisions also may make it more
difficult to accomplish transactions that stockholders may
otherwise deem to be in their best interests.
Requirements
for Advance Notification of Stockholder Nominations and
Proposals
Our bylaws establish advance notice procedures with respect to
stockholder proposals and nomination of candidates for election
as directors.
Limits on
Written Consents
Any action required or permitted to be taken by the stockholders
must be effected at a duly called annual or special meeting of
stockholders and may not be effected by any consent in writing
in lieu of a meeting of such stockholders, subject to the rights
of the holders of our Class B common stock or Class C
common stock in connection with actions that require their vote
as a separate class of any series of preferred stock.
Limits on
Special Meetings
Special meetings of the stockholders may be called at any time
only by the Board of Directors, the Chairman of the Board or our
Chief Executive Officer, subject to the rights of the holders of
any series of preferred stock.
Amendments to
our Governing Documents
Generally, the amendment of our amended and restated certificate
of incorporation requires approval by our board and a majority
vote of stockholders; however, certain material amendments
(including amendments with respect to provisions governing board
composition, actions by written consent, special meetings and
the corporate opportunities limitation) require the approval of
at least
662/3%
of the votes entitled to be cast by the outstanding capital
stock in the elections of our board. Any amendment to our bylaws
requires the approval of either a majority of our Board of
Directors or holders of at least
662/3%
of the votes entitled to be cast by the outstanding capital
stock in the election of our board.
Amended and
Restated Limited Liability Company Agreement of Artio Global
Holdings LLC
As a holding company we will depend upon distributions from
Holdings to fund all distributions. For a description of the
material terms of the Amended and Restated Limited Liability
Agreement of Holdings, see Related Party
Transactions Amended and Restated Limited Liability
Company Agreement of Holdings.
Listing
Our Class A common stock is listed on the NYSE under the
symbol ART.
Transfer Agent
and Registrar
The transfer agent and registrar for our Class A common
stock is Mellon Investor Services LLC.
109
MANAGEMENT
Executive
Officers and Directors
The following table provides information regarding our directors
and executive officers.
|
|
|
|
|
|
|
Name
|
|
Age
|
|
Position
|
|
Richard Pell
|
|
|
55
|
|
|
Chief Executive Officer and Chief Investment Officer and Director
|
Glen Wisher
|
|
|
46
|
|
|
President and Director
|
Francis Harte
|
|
|
48
|
|
|
Chief Financial Officer
|
Tony Williams
|
|
|
46
|
|
|
Chief Operating Officer
|
Rudolph-Riad Younes
|
|
|
48
|
|
|
Head of International Equity
|
Adam Spilka
|
|
|
54
|
|
|
General Counsel and Corporate Secretary
|
Elizabeth Buse
|
|
|
49
|
|
|
Director
|
Duane Kullberg
|
|
|
77
|
|
|
Director
|
Francis Ledwidge
|
|
|
60
|
|
|
Director
|
Richard Pell has been our Chief Investment Officer
since 1995, our Chief Executive Officer since December 2007 and
currently serves as a member of our Board of Directors. Prior to
December 2007, Mr. Pell served and continues to serve as
Co-Portfolio Manager of the International Equity strategy and
Co-Portfolio Manager of the Total Return Bond strategy.
Mr. Pell joined the Julius Baer Group in 1995 subsequent to
his tenure as Head of Global Portfolio Management with Bankers
Trust Company, a firm he served for five years. Starting in
1988, Mr. Pell was employed by Mitchell Hutchins
Institutional Investors where he served as Head of Corporate
Bonds and Mortgage-Backed Securities.
Glen Wisher has been our President since December
2007 and currently serves as a member of our Board of Directors.
He joined the Julius Baer Group in 1995 as a fixed income
portfolio manager in London. Mr. Wisher was appointed Head
of Institutional Asset Management in the U.S. in 2001 and
Chief Executive Officer of Julius Baer Americas Inc. in 2004.
Prior to joining the Julius Baer Group, Mr. Wisher worked
at S.G. Warburg Co. Mr. Wisher also serves as Chairman of
the board of managers of Artio Global Management LLC and serves
on the board of directors of Artio Global Equity Fund, Inc. He
is also a trustee of the Artio Global Investment Funds.
Francis Harte has been our Chief Financial Officer
since July 2002. Since joining the Julius Baer Group in 2002,
Mr. Harte has also served as our Financial and Operations
Principal, from 2002 to 2006, and was Senior Vice President and
Chief Financial Officer of Bank Julius Baer & Co.
Ltd. New York Branch from 2002 to 2005 and Treasurer
and Financial and Operations Principal of GAM USA Inc. from 2005
to September 2007. Prior to this, Mr. Harte acted as a
Managing Director and Chief Financial Officer for the North
American based activities of Dresdner Kleinwort Benson and,
prior to that, Mr. Harte held positions at The First Boston
Corporation and Deloitte, Haskins & Sells. He is a
Certified Public Accountant in the State of New York.
Tony Williams has been our Chief Operating Officer
since December 2007 and served as a member of our Board of
Directors prior to the IPO. He joined as Chief Operating Officer
of Artio Global Management LLC in 2003 and, in 2004, became the
Head of Asset Management Americas for Artio Global Management
LLC. Prior to that, Mr. Williams acted as Head of Cross
Border Strategies at JP Morgan Fleming Asset Management and
Chief Operating Officer at Fleming Asset Management in New York.
Prior to this, Mr. Williams was Client Services Director at
Fleming Asset Management, UK.
Rudolph-Riad Younes has been our Head of
International Equity since 2001. He joined Artio Global
Management LLC as a portfolio manager in 1993 and has served as
Co-Portfolio Manager of the International Equity Fund since 1995
and International Equity Fund II since 2005. Prior to
joining
110
the Julius Baer Group in 1993, Mr. Younes was an Associate
Director at Swiss Bank Corp. He is a Chartered Financial Analyst.
Adam Spilka has been our General Counsel and
Corporate Secretary since March 2008. From April 2002,
Mr. Spilka was Senior Vice President, Counsel and Assistant
Secretary of AllianceBernstein L.P., where he was head of the
Corporate, M&A and Securities Practice Group from July
2003. He became Secretary of AllianceBernstein L.P. in July
2004. Prior to 2002, Mr. Spilka served as Vice President
and Counsel at the company now known as AXA Equitable Life
Insurance Company. Mr. Spilka began his legal career in
1987 as a corporate associate at Debevoise & Plimpton
LLP.
Elizabeth Buse became a director of the Company in
September 2009, at the time of the IPO. Since April 2010, she
has been Group Executive, International at Visa Inc. From 2007
to March 2010 she was the Global Head of Product at Visa Inc.
Prior to that, she served as Executive Vice President of Product
Development & Management for Visa USA from 2003 to
2007, Executive Vice President of Emerging Markets &
Technologies from 2000 to 2002, and Senior Vice President of
Emerging Technologies from 1998 to 2000. Before joining Visa,
Ms. Buse was employed by First Data Corporation and
Windermere Associates.
Duane Kullberg became a director of the Company in
September 2009, at the time of the IPO. He was Managing Partner
and Chief Executive Officer of Arthur Andersen, S.C. from 1980
to 1989. Prior to his election as Chief Executive Officer, he
was a partner in the Minneapolis and Chicago offices and Head of
the Audit Practice, worldwide, from 1978 to 1980.
Mr. Kullberg has also served as Vice Chairman of the
U.S. Japanese Business Council and was a member of the
Services Policy Advisory Committee of the Office of the
U.S. Trade Representative. He is currently a Public
Director on the Chicago Board Options Exchange and a past member
of the boards of Carlson Companies, Inc., Nuveen Investments,
Inc. and Visibility, Inc. Mr. Kullberg is a life trustee of
Northwestern University, the Art Institute of Chicago, and the
University of Minnesota Foundation.
Francis Ledwidge became a director of the Company
in September 2009, at the time of the IPO. He has been a
Managing Partner of Eddystone, LLC and the Chief Investment
Officer of Eddystone Capital, LLC since 1997. From 1989 to 1995,
Mr. Ledwidge served as the Chief Investment Officer of
Bankers Trusts international private banking division in
the United States and Switzerland and was later responsible for
much of Bankers Trusts institutional international and
global asset management businesses. Prior to that, he worked at
Robert Fleming from 1976 to 1989, first as a portfolio manager
and director of Robert Fleming Investment Management in London
and then as a sell side research director at Eberstadt Fleming
in New York. Before joining Fleming, he worked as a buy side
analyst at British Electric Traction.
There are no family relationships among any of our directors or
executive officers. The executive officers and directors named
above may act as authorized officers of the company when so
deemed by resolutions of the company.
111
RELATED PARTY
TRANSACTIONS
The following is a summary of material provisions of various
transactions we have entered into with our executive officers,
management, directors or 5% or greater shareholders.
Registration
Rights Agreement
In connection with our IPO, we entered into a registration
rights agreement with our Principals and GAM pursuant to which
we granted them, their affiliates and certain of their
transferees the right, under certain circumstances and subject
to certain restrictions, to require us to register under the
Securities Act shares of our Class A common stock issuable
upon exchange of the New Class A Units or upon conversion
of the Class C common stock, respectively, held or acquired
by them. Under the registration rights agreement, the Principals
and GAM have the right to request us to register the sale of
their shares and can also require us to make available shelf
registration statements permitting sales of shares into the
market from time to time over an extended period. In addition,
the agreement provides our Principals and GAM with the ability
to exercise certain piggyback registration rights in connection
with registered offerings requested by any of such holders or
initiated by us. Our Principals and GAM have waived their
piggyback registration rights in connection with this offering.
Shareholders
Agreements
In connection with our IPO, GAM entered into a shareholders
agreement with us under which it agreed that, to the extent it
has voting power as a holder of Class C common stock in
excess of what it would be entitled to on a one-vote-per-share
basis, it will on all matters vote such excess on the same basis
and in the same proportion as the votes cast by the holders of
our Class A and Class B common stock.
As long as GAM owns shares of our Class C common stock
constituting at least 10% of the aggregate number of shares
outstanding of our Common Stock, the agreement permits it to
appoint a member to our Board or to exercise observer rights.
GAM has opted to appoint an observer to our Board, but may in
the future decide to appoint a member to our Board in lieu of
exercising such observer rights. If GAMs ownership
interest in us falls below 10%, it will no longer be entitled to
appoint a member of our Board but it will be entitled to certain
observer rights until the later of the date upon which
(i) we cease to use the Julius Baer brand name pursuant to
the transition services agreement between us and GAM and
(ii) GAM ceases to own at least 5% of the outstanding
shares of our Common Stock.
Mr. Younes entered into a shareholders agreement with us
under which he is entitled to attend meetings of our Board as an
observer until the later of the date upon which (i) he
ceases to be employed by us and (ii) the restrictions on
sales under the exchange agreement (described below) terminate.
Mr. Pell entered into a shareholders agreement with us
under which, if he ceases to be a member of our Board, he will
be entitled to attend meetings of our Board as an observer until
the date on which the restrictions on sales under the exchange
agreement (described below) terminate.
Exchange
Agreement
In connection with this offering, we expect each Principal to
exchange an aggregate of 5,350,000 New Class A Units for
5,350,000 shares of Class A common stock (inclusive of
the 3,000,000 New Class A Units each Principal exchanged
for shares of Class A common stock prior to this offering)
and to surrender an equivalent number of shares of Class B
common stock on or before the date of the closing of this
offering, leaving each with 2,450,000 New Class A Units.
At the time of the IPO, we entered into an exchange agreement
with the Principals that granted each Principal, and certain
permitted transferees, the right to exchange his New
Class A Units, which represent membership interests in
Holdings, for shares of our Class A common stock, on a
112
one-for-one
basis, subject to customary conversion rate adjustments for
stock splits, stock dividends and reclassifications and other
similar transactions. Any exchange of New Class A Units is
generally a taxable event for the exchanging Principal. As a
result, under the exchange agreement, each Principal is
permitted to sell shares of Class A common stock in
connection with any exchange in an amount necessary to generate
proceeds (after deducting discounts and commissions) sufficient
to cover the taxes payable on such exchange calculated at an
assumed tax rate (the amount of shares permitted to be sold
determined based upon the stock price on the date of exchange,)
whether such shares are sold then or thereafter. The assumed tax
rate, which is subject to change, is calculated assuming each
Principal is a resident of New York City paying the highest
individual federal, New York State and New York City tax rates,
which may be higher than the actual tax rate applicable to them.
In connection with this offering, we entered into an amendment
to the exchange agreement with the Principals that permits each
Principal to sell a number of shares of Class A common
stock to cover taxes payable upon any exchange (calculated at an
assumed tax rate), based upon, at the irrevocable written
election of the Principals or their permitted transferees at the
time of the exchange, either the stock price on the date of the
exchange or the offering price of the Class A common stock
in the case of a public offering. In connection with the
Exchange, the Principals elected to use the public offering
price of the Class A common stock issued in connection with
this offering.
As a result of the exchanges of New Class A Units for
shares of our Class A common stock, our membership
interests in Holdings correspondingly increased and the
Principals corresponding shares of Class B common
stock were cancelled.
Under the terms of the exchange agreement, each Principal will
be permitted to sell up to 20% of the remaining shares of
Class A common stock that he owns (calculated assuming all
New Class A Units have been exchanged by him) on or after
September 23, 2010 and an additional 20% of such remaining
shares of Class A common stock on or after each of the next
four anniversaries of such date.
The restrictions on sales described above will terminate with
respect to each Principal upon the occurrence of (i) any
breach by us of any of the agreements we have with such
Principal that materially and adversely affects such Principal,
after notice and an opportunity to cure, (ii) conduct by us
of any business other than through our operating company or any
of our operating companys subsidiaries, (iii) any
change of control (as defined below) or (iv) the
dissolution, liquidation or winding up of Holdings. As used in
the exchange agreement, the prohibition on selling
Class A common stock is defined broadly to prohibit a
Principal from pledging, selling, contracting to sell, selling
any option or contract to purchase, purchasing any option or
contract to sell, granting any option, right or warrant to
purchase, lending, or otherwise transferring or disposing of,
directly or indirectly, any of his shares of Class A common
stock or his New Class A Units (other than transfers to
permitted transferees) or entering into any swap or other
arrangement that transfers to another, in whole or in part, any
of the economic consequences of ownership of the Class A
common stock or New Class A Units, whether any such
transaction is to be settled by delivery of Class A common
stock or such other securities, in cash or otherwise.
The exchange agreement also includes non-solicit and
non-competition covenants that preclude each Principal from
soliciting our employees or customers and from competing with
our business generally in the period beginning with the closing
of the IPO and ending two years after termination of his
employment with us. The non-compete and non-solicitation
provisions will terminate if a change of control or
a potential change of control occurs and the
relevant Principal is terminated by us without cause or resigns
with good reason.
Change of control is defined under the exchange
agreement as: (i) any person or group, other than the
Principals, GAM and their permitted transferees (or any group
consisting of such persons), (a) is or becomes the
beneficial owner, directly or indirectly, of 50% or more of the
voting stock of the company or, in the context of a
consolidation, merger or other corporate reorganization in which
the company is not the surviving entity, 50% or more of the
voting stock generally entitled to elect
113
directors of such surviving entity (or in the case of a
triangular merger, of the parent entity of such surviving
entity), calculated on a fully diluted basis, or (b) has
obtained the power (whether or not exercised) to elect a
majority of the Board (or equivalent governing body) of our
company or its successors; (ii) the Board (or equivalent
governing body) of our Company or its successors shall cease to
consist of a majority of continuing directors, which is defined
as the directors on the date of the IPO and subsequently elected
directors whose election is approved by the continuing
directors; (iii) we or our successors, alone or together
with the Principals and the permitted transferees of the
Principals, cease to own 50% or more of the equity interests of
Holdings; or (iv) the sale of all or substantially all the
assets of our Company or Holdings.
A potential change of control will deemed to have
occurred if: (i) the Company enters into an agreement, the
consummation of which would result in the occurrence of a change
of control; (ii) the Board of our Company adopts a
resolution to the effect that a potential change of control has
occurred; (iii) any person commences a proxy contest, files
solicitation material with the SEC, files a Statement on
Schedule 13D with the SEC or commences a tender offer or
exchange offer for any of the outstanding shares of our
Companys common stock, and a change of control occurs
within nine months following any of such events; or
(iv) any person commences discussions or negotiations with
our Company regarding the appointment or nomination of one or
more individuals as a director(s) of our Company, or commences
discussions or negotiations with our Company regarding the sale
or other disposition of a material product line of our Company
or of a material portion of our Companys assets, and a
change of control occurs as a result of any such event or events
within nine months following any such event or events.
Unit Sale and
Repurchase Agreement
In lieu of selling shares of our Class A common stock to
cover taxes incurred upon the Exchange, in accordance with the
terms of the amended exchange agreement, the Principals will
enter into a unit sale and repurchase agreement with us prior to
this offering, pursuant to which we will use the net proceeds of
this offering to purchase 1,850,000 New Class A Units from
each of the Principals upon completion of this offering, such
amounts representing the amount necessary to cover taxes payable
by the Principals (calculated at an assumed rate) and, if the
underwriters exercise in full their option to purchase
additional shares, to repurchase and retire 250,000 shares
of Class A common stock from each Principal. Following the
Exchange and these unit sales, Richard Pell will own
5,350,000 shares of Class A common stock and 600,000
New Class A Units, or 9.9% of our outstanding Class A
common stock on a fully exchanged basis (assuming the
underwriters do not exercise their option to purchase additional
shares), and Rudolph-Riad Younes will own 5,350,000 shares
of Class A common stock and 600,000 New Class A Units
New Class A Units, or 9.9% of our outstanding Class A
common stock on a fully exchanged basis (assuming the
underwriters do not exercise their option to purchase additional
shares).
Following the application of the net proceeds of this offering
(assuming the underwriters do not exercise their option to
purchase additional shares), Richard Pell will have
approximately 9.9% of the voting power in us through his
ownership of the 5,350,000 shares of our Class A
common stock and 600,000 shares of Class B common
stock (which corresponds to an equivalent number of New
Class A Units), Rudolph-Riad Younes will have approximately
9.9% of the voting power in us through his ownership of the
5,350,000 shares of our Class A common stock and
600,000 shares of Class B common stock (which
corresponds to an equivalent number of New Class A Units),
and GAM will have approximately 27.9% through its ownership of
the shares of our Class C common stock.
Amended and
Restated Limited Liability Company Agreement of
Holdings
As a result of our reorganization in connection with the IPO,
Holdings is the sole owner of Investment Adviser. The form of
the operating agreement is filed as an exhibit to the
registration statement of which this prospectus is a part, and
the following description of the operating agreement is
qualified by reference thereto.
114
As the sole managing member of Holdings, we control all of its
affairs and decision making. As such, we, through our officers
and directors, will be responsible for all its operational and
administrative decisions and the
day-to-day
management of its business. However, any issuance by Holdings of
equity interests other than New Class A Units and any
voluntary dissolution generally will require the consent of all
members, including the Principals. In addition, any amendments
to the operating agreement will require the consent of each
Principal until such Principal (together with his permitted
transferees) holds less than 2% of the equity interests of
Holdings. The consent of each Principal also will be required
for amendments to certain fundamental provisions of the
operating agreement.
In accordance with the operating agreement, net profits and net
losses of Holdings are allocated to its members pro rata in
accordance with the respective percentages of their New
Class A Units. Net profits and net losses of Holdings will
be allocated, and distributions will be made, 98% to us and 1%
to each of our Principals after giving effect to the Exchange
and this offering and the application of the net proceeds as
described under Use of Proceeds.
The holders of New Class A Units, including us, generally
incur U.S. federal, state and local income taxes on their
proportionate share of any net taxable income of Holdings. Net
profits and net losses are generally allocated to its members,
including us, pro rata in accordance with the percentages of
their respective New Class A Units. The operating agreement
requires pro rata cash distributions to the members of Holdings
in respect of taxable income allocated to such members. The cash
distributions to the holders of its New Class A Units for
this purpose are calculated at an assumed tax rate. Further,
taxable income of Holdings for this purpose is calculated
without regard to (i) any deduction arising out of any
exchange pursuant to the exchange agreement and (ii) any
deduction that we determine is not available to any member,
determined as if all members were individuals, for interest
expense in respect of the indebtedness incurred by it in
connection with the IPO (or any interest expense in respect of
any future indebtedness incurred to repay the principal of such
indebtedness existing before the IPO, up to the aggregate amount
of such indebtedness).
The operating agreement provides that at any time we issue a
share of our Class A common stock, we are entitled to
transfer the net proceeds received by us with respect to such
share, if any, to Holdings and it shall be required to issue to
us one New Class A Unit. Conversely, if at any time, any
shares of our Class A common stock are redeemed by us for
cash, we can cause Holdings, immediately prior to such
redemption of our Class A common stock, to redeem an equal
number of New Class A Units held by us, upon the same terms
and for the same price, as the shares of our Class A common
stock are redeemed.
Tax Receivable
Agreement
Pursuant to the exchange agreement and prior to this offering,
we expect each of the Principals will exchange 5,350,000 of
their New Class A Units for 5,350,000 shares of
Class A common stock (inclusive of the 3,000,000 New
Class A Units each Principal exchanged for shares of
Class A common stock prior to this offering). Prior to this
offering, we entered into a unit sale and repurchase agreement
with the Principals, pursuant to which we will purchase an
aggregate of 1,850,000 New Class A Units from each
Principal. Holdings has made an election under Section 754
of the Code in effect for 2009, 2010 and any other subsequent
taxable year in which an exchange occurs, pursuant to which each
exchange or purchase of New Class A Units is expected to
result in an increase in the tax basis of tangible and
intangible assets of Holdings with respect to such New
Class A Units acquired by us in such exchanges. This
increase in tax basis is likely to increase (for tax purposes)
depreciation and amortization allocable to us from Holdings and
therefore reduce the amount of income tax we would otherwise be
required to pay in the future. This increase in tax basis may
also decrease gain (or increase loss) on future dispositions of
certain capital assets to the extent increased tax basis is
allocated to those capital assets.
In connection with the IPO, we entered into a tax receivable
agreement with the Principals requiring us to pay 85% of the
amount of the reduction in tax payments, if any, in
U.S. federal, state
115
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 the exchanges or purchases of
New Class A Units described above. For purposes of the tax
receivable agreement, reduction in tax payments will be computed
by comparing our actual income tax liability to the amount of
such taxes that we would otherwise have been required to pay had
there been no increase in the tax basis of the tangible and
intangible assets of Holdings. The term of the tax receivable
agreement commenced upon the completion of the IPO and will
continue until all such tax benefits have been utilized or
expired, unless we exercise our right to terminate the tax
receivable agreement early. 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 each 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.
The actual increase in tax basis, as well as the amount and
timing of any payments under the tax receivable agreement, will
vary depending upon a number of factors, including the timing of
exchanges, the price of our Class A common stock at the
time of an exchange, the extent to which such exchanges are
taxable, the amount and timing of our income and the tax rates
then applicable.
The tax benefits arising from the
step-up in
tax basis that resulted from the exchange in connection with the
IPO became determinable and based on the exchange date, a
deferred tax benefit of $38.4 million was recorded, and is
expected to be recovered generally over a
15-year
period. In connection with the exchange that occurred in
connection with the IPO, the Exchange that occurred prior to
this offering and the purchase of New Class A Units that
will occur in connection with this offering, we have elected or
will elect to step up our tax basis in the incremental assets
acquired in accordance with Section 754 of the Code. The
amount of the deferred tax benefit arising from the
step-up in
tax basis in connection with the Exchange and purchase of New
Class A Units in connection with this offering is expected
to be approximately $153.4 million (assuming no changes in
the relevant tax law and that we can earn sufficient taxable
income to realize the full tax benefits generated by the
exchange
and/or
purchase of an aggregate of 14,400,000 New Class A Units),
which will be recorded and is expected to be recovered generally
over a
15-year
period from the assumed year of Exchange and purchase based on
an assumed price of $21.49 per share of our Class A common
stock (the last reported sale price for our Class A common
stock on May 18, 2010, which is the date on which each
Principal exchanged 3,000,000 shares of New Class A
Units for 3,000,000 shares of Class A common stock).
As noted above, recovery of deferred tax benefits over the
15-year
period will depend on our ability to generate sufficient taxable
income. Based on an analysis of our deferred tax assets, as of
March 31, 2010, we believe that there will be sufficient
annual taxable income to realize those deferred tax assets. In
addition, as we have historically generated taxable income, we
believe that it is more likely than not that the deferred tax
asset will be recovered and, therefore, no valuation allowance
is necessary.
The payments under the tax receivable agreement are not
conditioned on the Principals maintaining an ownership interest
in us. 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 will provide for interest accrued from the due date
(without extensions) of the corresponding tax return to the date
of payment specified by the agreement.
116
Although we are not aware of any issue that would cause the IRS
to challenge a tax basis increase, 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 changes in law or regulations, possibly with retroactive
effects.
Transition
Services and Indemnification Agreements
In connection with the IPO, we entered into an indemnification
and co-operation agreement with GAM under which it will
indemnify us for any future losses relating to certain of our
legacy activities. In addition, we entered into a transition
services agreement with Julius Baer Group Ltd., pursuant to
which Julius Baer Group Ltd. will provide us with certain
services in connection with the operation of our business,
principally including the continued use of the Julius
Baer brand in a limited form and for a transitional period
following the IPO.
Indemnification
Agreements with Executive Officers and Directors
We have entered into separate indemnification agreements with
our executive officers and directors, which require us to
indemnify them against liabilities to the fullest extent
permitted by Delaware law.
Other Interested
Party Transactions
We earned revenue from advising our SEC-registered mutual funds,
which are marketed using the Company brand. Amounts earned from
such activity, which are reported in investment management fees,
are as follows:
|
|
|
|
|
Quarter ended March 31, 2010
|
|
$
|
48.9 million
|
|
Year ended December 31, 2009
|
|
$
|
173.3 million
|
|
Year ended December 31, 2008
|
|
$
|
253.9 million
|
|
Year ended December 31, 2007
|
|
$
|
278.7 million
|
|
We engage in transactions with GAM and other affiliates as part
of our business. Compensation for, and expenses of, these
transactions are governed by agreements between the parties. We
earned revenue
sub-advising
certain offshore funds sponsored by affiliates of GAM. The
affiliates whom we
sub-advise
include Bank Julius Baer & Co. Ltd., as well as GAM
International Management Limited.
Amounts earned from
sub-advising
funds for affiliates, which are reported in investment
management fees, are as follows:
|
|
|
|
|
Quarter ended March 31, 2010
|
|
$
|
0.6 million
|
|
Year ended December 31, 2009
|
|
$
|
1.9 million
|
|
Year ended December 31, 2008
|
|
$
|
2.4 million
|
|
Year ended December 31, 2007
|
|
$
|
2.3 million
|
|
We held investments in Company registered investment companies
(pursuant to which certain of our employees had the choice of
investing their deferred bonuses) totaling $7.9 million,
$5.9 million and $4.8 million as of December 31,
2009, 2008 and 2007, respectively, and $8.2 million as of
March 31, 2010. Net gains (losses) on securities held for
deferred compensation were $2.0 million and
$(2.9) million for 2009 and 2008, respectively, and
$0.4 million for the quarter ended March 31, 2010.
There were no gains (losses) on securities held for deferred
compensation for 2007.
We allocated $4.7 million for the year ended
December 31, 2007, to affiliates for both direct and
indirect expenses of occupancy (including rent and
depreciation), information technology and support system costs
(including depreciation), and administration and management
under the terms of service level agreements entered into with
such affiliates. The affiliates include Julius Baer Financial
Markets
117
LLC and GAM USA Inc., both of which are 100% owned by GAM. There
were no allocated expenses for the years ended December 31,
2009 and 2008.
We paid GAM $2.7 million, $6.4 million and
$7.3 million in licensing fees for the years ended
December 31, 2009, 2008 and 2007, respectively, for
licensing under the terms of a service level agreement entered
into with GAM. Following the IPO, we no longer pay these license
fees.
Julius Baer Financial Markets LLC, which was distributed at book
value to GAM as of December 1, 2007, is no longer our
subsidiary and is therefore shown in discontinued operations of
our consolidated financial statements.
Grantor Retained
Annuity Trusts
In September 2009, each of our Principals transferred a portion
of his existing Class B profits interest in Investment
Adviser to a GRAT for which such Principal serves as settlor and
trustee. The Principals, together with the GRATs, contributed
their Class B profits interests to Holdings in connection
with the IPO in exchange for New Class A Units in Holdings.
Each GRAT also acquired a number of shares of our Class B
common stock corresponding to the number of New Class A
Units it received. Pursuant to SEC rules, each Principal is
considered the beneficial owner of the securities held by the
GRAT for which he serves as settlor and trustee.
The GRATs (together with certain permitted transferees of the
Principals) generally have the same rights and obligations as
the Principals (including consent rights) under each of the
agreements described in this Related Party
Transactions section, and each reference to a
Principal in this prospectus, unless the context
otherwise requires, should be deemed to include the GRATs and
such permitted transferees.
118
SHARES ELIGIBLE
FOR FUTURE SALE
Future sales of substantial amounts of our Class A common
stock in the public market could adversely affect market prices
prevailing from time to time. Furthermore, because only a
limited number of shares will be available for sale shortly
after this offering due to existing contractual and legal
restrictions on resale as described below, there may be sales of
substantial amounts of our Class A common stock in the
public market after the restrictions lapse. This may adversely
affect the prevailing market price and our ability to raise
equity capital in the future.
Upon completion of this offering, we will have
42,141,675 shares of Class A common stock outstanding,
excluding the approximately 2,277,300 restricted stock units
held by our employees. Pursuant to the terms of the exchange
agreement, the Principals may from time to time exchange their
New Class A Units for shares of our Class A common
stock on a
one-for-one
basis, subject to customary conversion rate adjustments for
stock splits, stock dividends and reclassifications and other
similar transactions. Immediately following this offering and
giving effect to the application of net proceeds thereof, the
Principals will each beneficially own 600,000 New Class A
Units, all of which will be exchangeable for shares of our
Class A common stock. See Related Party
Transactions Exchange Agreement. In addition,
upon any transfer of shares of Class C common stock by GAM
(other than to one of its subsidiaries or to us), such shares
will automatically be converted into shares of Class A
common stock. Immediately following this offering, GAM will own
16,755,844 shares of Class C common stock.
Of the shares of common stock outstanding following this
offering, 31,418,656 shares of Class A common stock
(or 31,918,656 shares of Class A common stock if the
underwriters exercise their option to purchase additional
shares) sold in the IPO and this offering are freely tradable
without restriction or further registration under the Securities
Act, except for any shares of Class A common stock held by
our affiliates, as defined in Rule 144 under
the Securities Act, which would be subject to the limitations
and restrictions described below. The remaining
10,723,019 shares of Class A common stock that will be
outstanding and the 17,955,844 shares of Class A
common stock that will be reserved for issuance upon exchange or
conversion of New Class A Units or Class C common
stock are restricted shares as defined in
Rule 144. Restricted shares may be sold in the public
market only if registered or if they qualify for an exemption
from registration under Rules 144 or 701 of the Securities
Act. As a result of the contractual
90-day
lock-up
period described in Underwriting and the provisions
of Rules 144 and 701, these shares will be available for
sale in the public market as follows:
|
|
|
Number of Shares
|
|
Date
|
|
31,418,656
|
|
On the date of this prospectus.
|
16,755,844
|
|
On the date of this prospectus (subject to volume limitations).
|
11,900,000
|
|
After 90 days from the date of this prospectus (subject to
volume limitations).(1)
|
|
|
|
(1) |
|
Includes 600,000 shares that each of the Principals would
hold if he exchanged all of his remaining New Class A Units
for shares of Class A common stock following the Exchange
and application of the net proceeds as described in Use of
Proceeds. These shares are subject to additional
contractual restrictions on transfer as described in
Related Party Transactions Exchange
Agreement. |
In connection with our IPO, we entered into a registration
rights agreement with GAM and the Principals that requires us to
register under the Securities Act these 28,655,844 shares
of Class A common stock held by them. See Related
Party Transactions Registration Rights
Agreement.
119
Rule 144
In general, under Rule 144 as currently in effect, our
affiliates who own shares for at least six months or own shares
purchased in the open market, are entitled to sell these shares
as follows. Within any three-month period, each person may sell
a number of shares that does not exceed the greater of 1% of our
then-outstanding shares of common stock, which will equal
approximately 4.2 million shares immediately after this
offering, or the average weekly trading volume of our common
stock on the NYSE during the four calendar weeks preceding the
filing of a notice of the sale on Form 144. Sales under
Rule 144 by affiliates will also be subject to manner of
sale provisions, notice requirements and the availability of
current public information about us.
A person who is not deemed to have been one of our affiliates at
any time during the three months preceding a sale, and who owns
shares within the definition of restricted
securities under Rule 144 that were purchased from
us, or any affiliate, at least six months previously, would also
be entitled to sell shares under Rule 144. Such sales would
be permitted without regard to the volume limitations, manner of
sale provisions or notice requirements described above and,
after one year, without any limits, including the public
information requirement.
We are unable to estimate the number of shares that will be sold
under Rule 144 since this will depend on the market price
for our common stock, the personal circumstances of the
stockholder and other factors.
Equity
Awards
On September 29, 2009, we filed a registration statement
under the Securities Act covering all shares of our Class A
common stock issued and issuable pursuant to the Artio Global
Investors Inc. 2009 Stock Incentive Plan. Shares of our
Class A common stock registered under this registration
statement are available for sale in the open market, subject to
Rule 144 volume limitations applicable to affiliates,
vesting restrictions with us or the contractual restrictions
described under Notes to Consolidated Financial
Statements Note 12. Share-Based Payments.
Registration
Rights Agreement
In connection with our IPO, we entered into a registration
rights agreement with the Principals and GAM pursuant to which
we granted them, their affiliates and certain of their
transferees the right, under certain circumstances and subject
to certain restrictions, to require us to register under the
Securities Act shares of our Class A common stock issuable
upon exchange of their New Class A Units or upon conversion
of their Class C common stock, respectively. Such
securities registered under any registration statement are
available for sale in the open market unless restrictions apply.
See Related Party Transactions Registration
Rights Agreement. The Principals and GAM have each waived
their registration rights under the registration rights
agreement in respect of this offering.
120
MATERIAL U.S.
FEDERAL TAX CONSIDERATIONS FOR
NON-U.S.
HOLDERS
OF OUR CLASS A COMMON STOCK
In the opinion of Davis Polk & Wardwell LLP, the
following is a general discussion of the material
U.S. federal income and estate tax consequences of the
ownership and disposition of our Class A common stock by a
beneficial owner that is a
non-U.S. holder,
other than a
non-U.S. holder
that owns, or has owned, actually or constructively, more than
5% of our Class A common stock. A
non-U.S. holder
is a person or entity that, for U.S. federal income tax
purposes, is a:
|
|
|
|
|
non-resident alien individual, other than certain former
citizens and residents of the United States subject to tax as
expatriates;
|
|
|
|
foreign corporation; or
|
|
|
|
foreign estate or trust.
|
A
non-U.S. holder
does not include an individual who is present in the United
States for 183 days or more in the taxable year of
disposition and is not otherwise a resident of the United States
for U.S. federal income tax purposes. Such an individual is
urged to consult his or her own tax advisor regarding the
U.S. federal income tax consequences of the ownership or
disposition of our Class A common stock.
This discussion is based on the Internal Revenue Code of 1986,
as amended, administrative pronouncements, judicial decisions
and final, temporary and proposed Treasury Regulations, changes
to any of which subsequent to the date of this prospectus may
affect the tax consequences described herein, possibly on a
retroactive basis. This discussion does not address all aspects
of U.S. federal income and estate taxation that may be
relevant to
non-U.S. holders
in light of their particular circumstances and does not address
any tax consequences arising under the laws of any state, local
or foreign jurisdiction.
If a partnership holds Class A common stock, the
U.S. federal income tax treatment of a partner will
generally depend on the status of the partner and the tax
treatment of the partnership. A partner in a partnership holding
Class A common stock should consult its own tax advisor
with respect to the U.S. federal income tax treatment.
Prospective holders are urged to consult their tax advisors with
respect to the particular tax consequences to them of owning and
disposing of our Class A common stock, including the
consequences under the laws of any state, local or foreign
jurisdiction.
Dividends
Dividends paid to a
non-U.S. holder
of our Class A common stock generally will be subject to
withholding tax at a 30% rate or a reduced rate specified by an
applicable income tax treaty. In order to obtain a reduced rate
of withholding, a
non-U.S. holder
will be required to provide an IRS
Form W-8BEN
certifying its entitlement to benefits under an applicable
treaty.
The withholding tax does not apply to dividends paid to a
non-U.S. holder
who provides an IRS
Form W-8ECI,
certifying that the dividends are effectively connected with the
non-U.S. holders
conduct of a trade or business within the United States.
Instead, the effectively connected dividends will be subject to
U.S. income tax as if the
non-U.S. holder
were a U.S. resident, subject to an applicable income tax
treaty providing otherwise. A corporate
non-U.S. holder
recognizing effectively connected dividends may also be subject
to an additional branch profits tax imposed at a
rate of 30% (or a lower treaty rate).
Distributions of cash or other property that we pay to our
stockholders will constitute dividends for U.S. federal
income tax purposes to the extent paid from our current or
accumulated earnings and profits (as determined under
U.S. federal income tax principles). If the amount of a
distribution by us to our stockholders exceeds our current and
accumulated earnings and profits, such excess will be
121
treated first as a tax-free return of capital to the extent of a
holders basis in the Class A common stock and
thereafter as capital gain.
Gain on
Disposition of Our Class A Common Stock
A
non-U.S. holder
generally will not be subject to U.S. federal income tax on
gain realized on a sale or other disposition of our Class A
common stock unless:
|
|
|
|
|
the gain is effectively connected with the conduct of a trade or
business of the
non-U.S. holder
in the United States, subject to an applicable treaty providing
otherwise, or
|
|
|
|
we are or have been a U.S. real property holding
corporation at any time within the five-year period preceding
the disposition or the
non-U.S. holders
holding period, whichever period is shorter, and our
Class A common stock has ceased to be traded on an
established securities market prior to the beginning of the
calendar year in which the sale or disposition occurs.
|
We are not, and do not anticipate becoming, a U.S. real
property holding corporation.
A corporate
non-U.S. holder
recognizing effectively connected gain may also be subject to an
additional branch profits tax imposed at a rate of
30% (or a lower treaty rate).
Information
Reporting Requirements and Backup Withholding
Information returns may be filed with the IRS in connection with
payments of dividends and the proceeds from a sale or other
disposition of our Class A common stock. A
non-U.S. holder
may have to comply with certification procedures to establish
that it is not a United States person in order to avoid
information reporting and backup withholding tax requirements.
The certification procedures required to claim a reduced rate of
withholding under a treaty will satisfy the certification
requirements necessary to avoid the backup withholding tax as
well. The amount of any backup withholding from a payment to a
non-U.S. holder
will be allowed as a credit against such holders
U.S. federal income tax liability and may entitle such
holder to a refund, provided that the required information is
timely furnished to the IRS.
Federal Estate
Tax
Individual
non-U.S. holders
and entities the property of which is potentially includible in
such an individuals gross estate for U.S. federal
estate tax purposes (for example, a trust funded by such an
individual and with respect to which the individual has retained
certain interests or powers), should note that, absent an
applicable treaty benefit, our Class A common stock will be
treated as U.S. situs property subject to U.S. federal
estate tax.
Recent
Legislation
Recently enacted legislation generally imposes a withholding tax
of 30% on payments to certain foreign entities (including
foreign financial intermediaries and foreign investment funds),
after December 31, 2012, of dividends on and the gross
proceeds of dispositions of U.S. common stock, unless
various U.S. information reporting and due diligence
requirements that are different from, and in addition to, the
beneficial owner certification requirements described above have
been satisfied. Holders should consult their tax advisors
regarding the possible implications of this legislation on their
investment in our common stock.
122
UNDERWRITING
The Company and the underwriters named below have entered into
an underwriting agreement with respect to the shares of
Class A common stock being offered. Subject to certain
conditions, each underwriter has severally agreed to purchase
the number of shares indicated in the following table. Goldman,
Sachs & Co. is acting as sole book-running manager of
this offering and is acting as the representative of the
underwriters.
|
|
|
|
|
|
|
Number of Shares of
|
Underwriters
|
|
Class A Common Stock
|
|
Goldman, Sachs & Co.
|
|
|
|
|
J.P. Morgan Securities Inc.
|
|
|
|
|
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
3,700,000
|
|
|
|
|
|
|
The underwriters are committed to take and pay for all of the
shares being offered, if any are taken, other than the shares
covered by the option described below unless and until this
option is exercised.
If the underwriters sell more shares than the total number set
forth in the table above, the underwriters have an option to buy
up to an additional 500,000 shares from us. They may
exercise that option for 30 days. If any shares are
purchased pursuant to this option, the underwriters will
severally purchase shares in approximately the same proportion
as set forth in the table above.
The following tables show the per share and total underwriting
discounts and commissions to be paid to the underwriters by
Artio Global Investors Inc. Such amounts are shown assuming both
no exercise and full exercise of the underwriters option
to purchase additional shares.
|
|
|
|
|
|
|
|
|
|
|
No Exercise
|
|
|
Full Exercise
|
|
|
Per Share
|
|
$
|
|
|
|
$
|
|
|
Total
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Shares sold by the underwriters to the public will initially be
offered at the public offering price set forth on the cover of
this prospectus. Any shares sold by the underwriters to
securities dealers may be sold at a discount of up to
$ per share from the public
offering price. If all the shares are not sold at the public
offering price, the representative may change the offering price
and the other selling terms. The offering of the shares by the
underwriters is subject to receipt and acceptance and subject to
the underwriters right to reject any order in whole or in
part.
The Company and its officers and directors have agreed with the
underwriters, subject to certain exceptions, not to dispose of
or hedge any of their Class A common stock or securities
convertible into or exchangeable for shares of Class A
common stock during the period from the date of this prospectus
continuing through the date 90 days after the date of this
prospectus, except with the prior written consent of Goldman,
Sachs & Co. This agreement does not apply to any
existing employee benefit plans and is subject to certain
exceptions. See Shares Eligible for Future Sale
for a discussion of certain transfer restrictions.
The 90-day
restricted period described in the preceding paragraph will be
automatically extended if: (1) during the last 17 days
of the
90-day
restricted period the Company issues an earnings release or
announces material news or a material event; or (2) prior
to the expiration of the
90-day
restricted period, the Company announces that it will release
earnings results during the
15-day
period following the last day of the
90-day
period, in which case the restrictions described in the
preceding paragraph will continue to apply until the expiration
of the
18-day
period beginning on the issuance of the earnings release of the
announcement of the material news or material event.
123
Artio Global Investors Inc.s Class A common stock is
listed on the NYSE under the symbol ART.
In connection with this offering, the underwriters may purchase
and sell shares of Class A common stock in the open market.
These transactions may include short sales, stabilizing
transactions and purchases to cover positions created by short
sales. Shorts sales involve the sale by the underwriters of a
greater number of shares than they are required to purchase in
this offering. Covered short sales are sales made in
an amount not greater than the underwriters option to
purchase additional shares from the Company in this offering.
The underwriters may close out any covered short position by
either exercising their option to purchase additional shares or
purchasing shares in the open market. In determining the source
of shares to close out the covered short position, the
underwriters will consider, among other things, the price of
shares available for purchase in the open market as compared to
the price at which they may purchase additional shares pursuant
to the option granted to them. Naked short sales are
any sales in excess of such option. The underwriters must close
out any naked short position by purchasing shares in the open
market. A naked short position is more likely to be created if
the underwriters are concerned that there may be downward
pressure on the price of the Class A common stock in the
open market after pricing that could adversely affect investors
who purchase in this offering. Stabilizing transactions consist
of various bids for or purchases of Class A common stock
made by the underwriters in the open market prior to the
completion of this offering.
The underwriters may also impose a penalty bid. This occurs when
a particular underwriter repays to the underwriters a portion of
the underwriting discount received by it because the
representative has repurchased shares sold by or for the account
of such underwriter in stabilizing or short covering
transactions.
Purchases to cover a short position and stabilizing
transactions, as well as other purchases by the underwriters for
their own accounts, may have the effect of preventing or
retarding a decline in the market price of the Companys
Class A common stock, and together with the imposition of
the penalty bid, may stabilize, maintain or otherwise affect the
market price of the Class A common stock. As a result, the
price of the Class A common stock may be higher than the
price that otherwise might exist in the open market. If these
activities are commenced, they may be discontinued at any time.
These transactions may be effected on the NYSE, in the
over-the-counter
market or otherwise.
In relation to each Member State of the European Economic Area
which has implemented the Prospectus Directive (each, a Relevant
Member State), each underwriter has represented and agreed that
with effect from and including the date on which the Prospectus
Directive is implemented in that Relevant Member State (the
Relevant Implementation Date) it has not made and will not make
an offer of shares to the public in that Relevant Member State
prior to the publication of a prospectus in relation to the
shares which has been approved by the competent authority in
that Relevant Member State or, where appropriate, approved in
another Relevant Member State and notified to the competent
authority in that Relevant Member State, all in accordance with
the Prospectus Directive, except that it may, with effect from
and including the Relevant Implementation Date, make an offer of
shares to the public in that Relevant Member State at any time:
(a) to legal entities which are authorized or regulated to
operate in the financial markets or, if not so authorized or
regulated, whose corporate purpose is solely to invest in
securities;
(b) to any legal entity which has two or more of
(1) an average of at least 250 employees during the
last financial year; (2) a total balance sheet of more than
43,000,000 and (3) an annual net turnover of more
than 50,000,000, as shown in its last annual or
consolidated accounts;
(c) to fewer than 100 natural or legal persons (other than
qualified investors as defined in the Prospectus Directive)
subject to obtaining the prior consent of the representative for
any such offer; or
124
(d) in any other circumstances which do not require the
publication by the Issuer of a prospectus pursuant to
Article 3 of the Prospectus Directive.
For the purposes of this provision, the expression an
offer of shares to the public in relation to any
shares in any Relevant Member State means the communication in
any form and by any means of sufficient information on the terms
of the offer and the shares to be offered so as to enable an
investor to decide to purchase or subscribe the shares, as the
same may be varied in that Relevant Member State by any measure
implementing the Prospectus Directive in that Relevant Member
State and the expression Prospectus Directive means Directive
2003/71/EC and includes any relevant implementing measure in
each Relevant Member State.
Each underwriter has represented and agreed that:
(a) it has only communicated or caused to be communicated
and will only communicate or cause to be communicated an
invitation or inducement to engage in investment activity
(within the meaning of Section 21 of the FSMA) received by
it in connection with the issue or sale of the shares in
circumstances in which Section 21(1) of the FSMA does not
apply to the Issuer; and
(b) it has complied and will comply with all applicable
provisions of the FSMA with respect to anything done by it in
relation to the shares in, from or otherwise involving the
United Kingdom.
The shares may not be offered or sold by means of any document
other than (i) in circumstances which do not constitute an
offer to the public within the meaning of the Companies
Ordinance (Cap.32, Laws of Hong Kong), or (ii) to
professional investors within the meaning of the
Securities and Futures Ordinance (Cap.571, Laws of Hong Kong)
and any rules made thereunder, or (iii) in other
circumstances which do not result in the document being a
prospectus within the meaning of the Companies
Ordinance (Cap.32, Laws of Hong Kong), and no advertisement,
invitation or document relating to the shares may be issued or
may be in the possession of any person for the purpose of issue
(in each case whether in Hong Kong or elsewhere), which is
directed at, or the contents of which are likely to be accessed
or read by, the public in Hong Kong (except if permitted to do
so under the laws of Hong Kong) other than with respect to
shares which are or are intended to be disposed of only to
persons outside Hong Kong or only to professional
investors within the meaning of the Securities and Futures
Ordinance (Cap. 571, Laws of Hong Kong) and any rules made
thereunder.
This prospectus has not been registered as a prospectus with the
Monetary Authority of Singapore. Accordingly, this prospectus
and any other document or material in connection with the offer
or sale, or invitation for subscription or purchase, of the
shares may not be circulated or distributed, nor may the shares
be offered or sold, or be made the subject of an invitation for
subscription or purchase, whether directly or indirectly, to
persons in Singapore other than (i) to an institutional
investor under Section 274 of the Securities and Futures
Act, Chapter 289 of Singapore (the SFA),
(ii) to a relevant person, or any person pursuant to
Section 275(1A), and in accordance with the conditions,
specified in Section 275 of the SFA or (iii) otherwise
pursuant to, and in accordance with the conditions of, any other
applicable provision of the SFA.
Where the shares are subscribed or purchased under
Section 275 by a relevant person which is: (a) a
corporation (which is not an accredited investor) the sole
business of which is to hold investments and the entire share
capital of which is owned by one or more individuals, each of
whom is an accredited investor; or (b) a trust (where the
trustee is not an accredited investor) whose sole purpose is to
hold investments and each beneficiary is an accredited investor,
shares, debentures and units of shares and debentures of that
corporation or the beneficiaries rights and interest in
that trust shall not be transferable for six months after that
corporation or that trust has acquired the shares under
Section 275 except: (1) to an institutional investor
under Section 274 of the SFA or to a relevant person, or
any person pursuant to Section 275(1A), and in accordance
with the conditions, specified
125
in Section 275 of the SFA; (2) where no consideration
is given for the transfer; or (3) by operation of law.
The securities have not been and will not be registered under
the Financial Instruments and Exchange Law of Japan (the
Financial Instruments and Exchange Law) and each underwriter has
agreed that it will not offer or sell any securities, directly
or indirectly, in Japan or to, or for the benefit of, any
resident of Japan (which term as used herein means any person
resident in Japan, including any corporation or other entity
organized under the laws of Japan), or to others for re-offering
or resale, directly or indirectly, in Japan or to a resident of
Japan, except pursuant to an exemption from the registration
requirements of, and otherwise in compliance with, the Financial
Instruments and Exchange Law and any other applicable laws,
regulations and ministerial guidelines of Japan.
This document may not be distributed in the Kingdom of Saudi
Arabia except to such persons as are permitted under the Offers
of Securities Regulations issued by the Capital Market Authority
of Saudi Arabia.
The Capital Market Authority of Saudi Arabia does not make any
representation as to the accuracy or completeness of this
document, and expressly disclaims any liability whatsoever for
any loss arising from, or incurred in reliance upon, any part of
this document. Prospective purchasers of the securities offered
hereby should conduct their own due diligence on the accuracy of
the information relating to the securities. If you do not
understand the contents of this document you should consult an
authorized financial adviser.
The underwriters do not expect sales to discretionary accounts
to exceed five percent of the total number of shares offered.
We estimate that our share of the total expenses of this
offering, excluding underwriting discounts and commissions, will
be approximately $1,100,000.
We have agreed to indemnify the several underwriters against
certain liabilities, including liabilities under the Securities
Act of 1933, as amended.
The underwriters and their respective affiliates are full
service financial institutions engaged in various activities,
which may include securities trading, commercial and investment
banking, financial advisory, investment management, principal
investment, hedging, financing and brokerage activities. Certain
of the underwriters and their respective affiliates have, from
time to time, performed, and may in the future perform, various
financial advisory and investment banking services for the
Company and its affiliates, for they received or will receive
customary fees and expenses. Affiliates of certain of the
underwriters are lenders under the term debt facility and the
revolving credit facility established by Holdings in connection
with the IPO. In the ordinary course of their various business
activities, the underwriters and their respective affiliates may
make or hold a broad array of investments and actively trade
debt and equity securities (or related derivative securities)
and financial instruments (including bank loans) for their own
account and for the accounts of their customers and may at any
time hold long and short positions in such securities and
instruments. Such investment and securities activities may
involve securities and instruments of the Company.
126
VALIDITY OF
CLASS A COMMON STOCK
The validity of the issuance of the shares of Class A
common stock offered hereby will be passed upon for Artio Global
Investors Inc. by Davis Polk & Wardwell LLP, New York,
New York and for the underwriters by Sullivan &
Cromwell LLP, New York, New York.
EXPERTS
The consolidated financial statements of Artio Global Investors
Inc. and subsidiaries as of December 31, 2009 and 2008 and
for each of the years ended December 31, 2009, 2008 and
2007, have been included in this prospectus and registration
statement in reliance upon the report of KPMG LLP, independent
registered public accounting firm whose registered address is
345 Park Avenue, New York, NY 10154, appearing elsewhere herein,
and upon the authority of said firm as experts in accounting and
auditing.
INFORMATION
INCORPORATED BY REFERENCE
The SEC allows us to incorporate by reference
information we file with it. This means that we can disclose
important information to you by referring you to those
documents. Any information we reference in this manner is
considered part of this prospectus. Information contained in
this prospectus supersedes information incorporated by reference
that we have filed with the SEC prior to the date of this
prospectus. We incorporate by reference the documents listed
below, except to the extent that any information contained in
any such document is deemed furnished in accordance
with the rules of the SEC:
|
|
|
|
|
Our Annual Report on
Form 10-K
for the year ended December 31, 2009, filed on
March 5, 2010;
|
|
|
|
Our Proxy Statement on Schedule 14A, filed on
March 26, 2010; and
|
|
|
|
Our Quarterly Report on
Form 10-Q
for the quarterly period ended March 31, 2010, filed on
May 6, 2010.
|
We will provide to each person, including any beneficial owner,
to whom a prospectus is delivered, a copy of any or all of the
reports or documents that we incorporate by reference in this
prospectus contained in the registration statement (except
exhibits to the documents that are not specifically incorporated
by reference) at no cost to you, by writing or calling us at:
Artio Global Investors Inc.
330 Madison Avenue
New York, New York 10017
(212) 297-3600
Information about us, including the documents incorporated by
reference to this prospectus, is also available at our website
at
http://www.ir.artioglobal.com.
However, the information in our website is not a part of this
prospectus, and other than the documents specifically
incorporated by reference, is not incorporated by reference into
this prospectus.
127
WHERE YOU CAN
FIND MORE INFORMATION
We have filed with the SEC a registration statement on
Form S-1
under the Securities Act with respect to the Class A common
stock we are offering. This prospectus does not contain all of
the information in the registration statement and the exhibits
to the registration statement. For further information with
respect to us and our Class A common stock, we refer you to
the registration statement and the exhibits thereto. With
respect to documents described in this prospectus, we refer you
to the copy of the document if it is filed as an exhibit to the
registration statement.
You may read and copy the registration statement of which this
prospectus is a part at the SECs Public Reference Room,
which is located at 100 F Street, N.E.,
Washington, D.C. 20549. You can request copies of the
registration statement by writing to the SEC and paying a fee
for the copying cost. Please call the SEC at
1-800-SEC-0330
for more information about the operation of the SECs
Public Reference Room. In addition, the SEC maintains an
Internet website, which is located at
http://www.sec.gov,
that contains reports, proxy and information statements and
other information regarding issuers that file electronically
with the SEC. You may access the registration statement, of
which this prospectus is a part, at the SECs Internet
website. In addition, we are subject to the information
reporting requirements of the Securities Exchange Act of 1934,
as amended, and, as a result, file annual, quarterly and current
reports, proxy statements and other information with the SEC.
128
ARTIO GLOBAL
INVESTORS INC. AND SUBSIDIARIES
Report of
Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Artio Global Investors Inc.:
We have audited the accompanying consolidated statements of
financial position of Artio Global Investors Inc. and
subsidiaries (the Company) as of December 31,
2009 and 2008, and the related consolidated statements of
operations, changes in equity, and cash flows for each of the
years in the three-year period ended December 31, 2009.
These consolidated financial statements are the responsibility
of the Companys management. Our responsibility is to
express an opinion on these consolidated financial statements
based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of Artio Global Investors Inc. and subsidiaries as of
December 31, 2009 and 2008, and the results of their
operations and their cash flows for each of the years in the
three-year period ended December 31, 2009, in conformity
with U.S. generally accepted accounting principles.
New York, New York
March 5, 2010
F-2
ARTIO GLOBAL
INVESTORS INC. AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands, except for share amounts)
|
|
|
ASSETS
|
Cash and cash equivalents
|
|
$
|
60,841.7
|
|
|
$
|
86,563.0
|
|
Marketable securities, at fair value
|
|
|
7,910.5
|
|
|
|
71,329.5
|
|
Fees receivable and accrued fees, net of allowance for doubtful
accounts
|
|
|
56,911.1
|
|
|
|
54,799.1
|
|
Deferred taxes, net
|
|
|
46,316.3
|
|
|
|
92,702.3
|
|
Income taxes receivable
|
|
|
10,982.5
|
|
|
|
1,283.6
|
|
Property and equipment, net
|
|
|
7,634.9
|
|
|
|
9,833.2
|
|
Other assets
|
|
|
5,357.2
|
|
|
|
2,964.9
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
195,954.2
|
|
|
$
|
319,475.6
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY
|
Debt
|
|
$
|
60,000.0
|
|
|
$
|
|
|
Accrued compensation and benefits
|
|
|
31,478.0
|
|
|
|
268,924.7
|
|
Accounts payable and accrued expenses
|
|
|
9,092.7
|
|
|
|
9,372.4
|
|
Accrued income taxes payable
|
|
|
13,017.0
|
|
|
|
1,238.6
|
|
Due to GAM Holding Ltd.
|
|
|
40,100.0
|
|
|
|
1,311.4
|
|
Due under tax receivable agreement
|
|
|
33,655.1
|
|
|
|
|
|
Other liabilities
|
|
|
4,629.8
|
|
|
|
5,383.4
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
191,972.6
|
|
|
|
286,230.5
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Notes 5, 16 and 17)
|
|
|
|
|
|
|
|
|
Class A common stock (2009
500,000,000 shares authorized, 27,658,799 shares
issued and outstanding; 2008 none authorized and
outstanding)
|
|
|
27.6
|
|
|
|
|
|
Class B common stock (2009
50,000,000 shares authorized, 15,600,000 shares issued
and outstanding; 2008 none authorized and
outstanding)
|
|
|
15.6
|
|
|
|
|
|
Class C common stock (210,000,000 shares authorized,
2009 16,755,844 shares issued and outstanding;
2008 42,000,000 shares issued and outstanding)
|
|
|
167.6
|
|
|
|
420.0
|
|
Additional paid-in capital
|
|
|
586,956.2
|
|
|
|
17,930.0
|
|
Retained earnings (deficit)
|
|
|
(580,274.8
|
)
|
|
|
14,895.1
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
6,892.2
|
|
|
|
33,245.1
|
|
Non-controlling interests
|
|
|
(2,910.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
3,981.6
|
|
|
|
33,245.1
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
$
|
195,954.2
|
|
|
$
|
319,475.6
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-3
ARTIO GLOBAL
INVESTORS INC. AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands, except per share information)
|
|
|
Revenues and other operating income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment management fees
|
|
$
|
305,334.9
|
|
|
$
|
425,002.6
|
|
|
$
|
445,558.4
|
|
Net gains (losses) on securities held for deferred compensation
|
|
|
1,970.1
|
|
|
|
(2,856.5
|
)
|
|
|
|
|
Foreign currency gains (losses)
|
|
|
87.0
|
|
|
|
(100.6
|
)
|
|
|
185.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues and other operating income
|
|
|
307,392.0
|
|
|
|
422,045.5
|
|
|
|
445,744.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee compensation and benefits:
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries, incentive compensation and benefits
|
|
|
79,035.7
|
|
|
|
92,487.1
|
|
|
|
92,276.9
|
|
Allocation of Class B profits interests
|
|
|
33,662.5
|
|
|
|
76,073.8
|
|
|
|
83,512.3
|
|
Change in redemption value of Class B profits interests
|
|
|
266,109.8
|
|
|
|
54,557.4
|
|
|
|
76,843.9
|
|
Tax receivable agreement
|
|
|
97,908.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee compensation and benefits
|
|
|
476,716.6
|
|
|
|
223,118.3
|
|
|
|
252,633.1
|
|
Shareholder servicing and marketing
|
|
|
16,886.0
|
|
|
|
23,369.1
|
|
|
|
25,356.3
|
|
General and administrative
|
|
|
42,317.1
|
|
|
|
62,833.1
|
|
|
|
50,001.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
535,919.7
|
|
|
|
309,320.5
|
|
|
|
327,990.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) before income tax expense
|
|
|
(228,527.7
|
)
|
|
|
112,725.0
|
|
|
|
117,753.4
|
|
Non-operating income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income, net of interest expense
|
|
|
(867.5
|
)
|
|
|
2,947.9
|
|
|
|
6,930.4
|
|
Net gains (losses) on marketable securities
|
|
|
(527.9
|
)
|
|
|
252.1
|
|
|
|
81.8
|
|
Other income (loss)
|
|
|
|
|
|
|
(18.6
|
)
|
|
|
21.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-operating income (loss)
|
|
|
(1,395.4
|
)
|
|
|
3,181.4
|
|
|
|
7,033.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income tax
expense
|
|
|
(229,923.1
|
)
|
|
|
115,906.4
|
|
|
|
124,787.0
|
|
Income taxes relating to income from continuing operations
|
|
|
134,287.2
|
|
|
|
54,755.1
|
|
|
|
58,417.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations, net of taxes
|
|
|
(364,210.3
|
)
|
|
|
61,151.3
|
|
|
|
66,369.6
|
|
Income from discontinued operations, net of taxes
|
|
|
|
|
|
|
|
|
|
|
1,616.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
(364,210.3
|
)
|
|
|
61,151.3
|
|
|
|
67,985.8
|
|
Net income attributable to non-controlling interests
|
|
|
14,103.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Artio Global Investors
|
|
$
|
(378,314.1
|
)
|
|
$
|
61,151.3
|
|
|
$
|
67,985.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per share data:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Artio Global Investors per
share information Basic and Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations, net of taxes
|
|
$
|
(8.88
|
)
|
|
$
|
1.46
|
|
|
$
|
1.58
|
|
Income from discontinued operations, net of taxes
|
|
|
|
|
|
|
|
|
|
|
0.04
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(8.88
|
)
|
|
$
|
1.46
|
|
|
$
|
1.62
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares used to calculate per share information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
42,620.4
|
|
|
|
42,000.0
|
|
|
|
42,000.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
42,620.4
|
|
|
|
42,000.0
|
|
|
|
42,000.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-4
ARTIO GLOBAL
INVESTORS INC. AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A
|
|
|
Class B
|
|
|
Class C
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
|
|
|
Common
|
|
|
Common
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
|
|
|
Stock
|
|
|
Stock
|
|
|
Additional
|
|
|
Retained
|
|
|
Other
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
(par value
|
|
|
(par value
|
|
|
(par value
|
|
|
Paid-in
|
|
|
Earnings
|
|
|
Comprehensive
|
|
|
Stockholders
|
|
|
Controlling
|
|
|
Total
|
|
|
|
$0.001)
|
|
|
$0.001)
|
|
|
$0.01)
|
|
|
Capital
|
|
|
(Deficit)
|
|
|
Income
|
|
|
Equity
|
|
|
Interests
|
|
|
Equity
|
|
|
|
(In thousands, except per share information)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of January 1, 2007
|
|
$
|
|
|
|
$
|
|
|
|
$
|
420.0
|
|
|
$
|
17,930.0
|
|
|
$
|
62,534.2
|
|
|
$
|
|
|
|
$
|
80,884.2
|
|
|
$
|
|
|
|
$
|
80,884.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
67,985.8
|
|
|
|
|
|
|
|
67,985.8
|
|
|
|
|
|
|
|
67,985.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains on available for sale securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
632.1
|
|
|
|
632.1
|
|
|
|
|
|
|
|
632.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(308.3
|
)
|
|
|
(308.3
|
)
|
|
|
|
|
|
|
(308.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
323.8
|
|
|
|
323.8
|
|
|
|
|
|
|
|
323.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends ($1.43 per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(60,100.0
|
)
|
|
|
|
|
|
|
(60,100.0
|
)
|
|
|
|
|
|
|
(60,100.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
420.0
|
|
|
|
17,930.0
|
|
|
|
70,420.0
|
|
|
|
323.8
|
|
|
|
89,093.8
|
|
|
|
|
|
|
|
89,093.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative effect of adoption of fair value option
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
323.8
|
|
|
|
(323.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of January 1, 2008
|
|
|
|
|
|
|
|
|
|
|
420.0
|
|
|
|
17,930.0
|
|
|
|
70,743.8
|
|
|
$
|
|
|
|
|
89,093.8
|
|
|
|
|
|
|
|
89,093.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
61,151.3
|
|
|
|
|
|
|
|
61,151.3
|
|
|
|
|
|
|
|
61,151.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends ($2.79 per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(117,000.0
|
)
|
|
|
|
|
|
|
(117,000.0
|
)
|
|
|
|
|
|
|
(117,000.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
420.0
|
|
|
|
17,930.0
|
|
|
|
14,895.1
|
|
|
|
|
|
|
|
33,245.1
|
|
|
|
|
|
|
|
33,245.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(378,314.1
|
)
|
|
|
|
|
|
|
(378,314.1
|
)
|
|
|
14,103.8
|
|
|
|
(364,210.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification of liability awards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
565,908.6
|
|
|
|
|
|
|
|
|
|
|
|
565,908.6
|
|
|
|
|
|
|
|
565,908.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of Class B common stock (see Note 2)
|
|
|
|
|
|
|
18.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18.0
|
|
|
|
|
|
|
|
18.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net benefit from
step-up in
tax basis (see Note 5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,762.1
|
|
|
|
|
|
|
|
|
|
|
|
5,762.1
|
|
|
|
|
|
|
|
5,762.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Initial public offering
|
|
|
25.0
|
|
|
|
|
|
|
|
|
|
|
|
614,875.0
|
|
|
|
|
|
|
|
|
|
|
|
614,900.0
|
|
|
|
|
|
|
|
614,900.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underwriters option exercise
|
|
|
2.6
|
|
|
|
|
|
|
|
|
|
|
|
65,033.1
|
|
|
|
|
|
|
|
|
|
|
|
65,035.7
|
|
|
|
|
|
|
|
65,035.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Holdings units exchanged for Class A common stock and
cancelation of Class B common stock (see Note 2)
|
|
|
2.4
|
|
|
|
(2.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock repurchases
|
|
|
(2.4
|
)
|
|
|
|
|
|
|
(252.4
|
)
|
|
|
(679,680.9
|
)
|
|
|
|
|
|
|
|
|
|
|
(679,935.7
|
)
|
|
|
|
|
|
|
(679,935.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Establishment of non-controlling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,424.8
|
|
|
|
|
|
|
|
|
|
|
|
10,424.8
|
|
|
|
(10,424.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distribution to GAM Holding Ltd., including dividends ($5.16 per
share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(17,950.0
|
)
|
|
|
(216,855.8
|
)
|
|
|
|
|
|
|
(234,805.8
|
)
|
|
|
|
|
|
|
(234,805.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance and amortization of share-based payments, net of
forfeitures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,653.5
|
|
|
|
|
|
|
|
|
|
|
|
4,653.5
|
|
|
|
|
|
|
|
4,653.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distribution to non-controlling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,589.6
|
)
|
|
|
(6,589.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2009
|
|
$
|
27.6
|
|
|
$
|
15.6
|
|
|
$
|
167.6
|
|
|
$
|
586,956.2
|
|
|
$
|
(580,274.8
|
)
|
|
|
|
|
|
$
|
6,892.2
|
|
|
$
|
(2,910.6
|
)
|
|
$
|
3,981.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-5
ARTIO GLOBAL
INVESTORS INC. AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(364,210.3
|
)
|
|
$
|
61,151.3
|
|
|
$
|
67,985.8
|
|
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
3,029.1
|
|
|
|
2,904.1
|
|
|
|
1,925.4
|
|
Deferred compensation and share-based compensation
|
|
|
274,557.1
|
|
|
|
57,001.4
|
|
|
|
80,433.7
|
|
Deferred income taxes
|
|
|
85,803.2
|
|
|
|
(21,519.9
|
)
|
|
|
(35,509.4
|
)
|
Interest accrued on marketable securities and accretion and
amortization of discount and premium
|
|
|
268.7
|
|
|
|
(60.2
|
)
|
|
|
(1,304.8
|
)
|
(Gains)/losses on marketable securities and securities held for
deferred compensation
|
|
|
(1,442.2
|
)
|
|
|
2,604.4
|
|
|
|
(81.8
|
)
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees receivable and accrued fees, net of allowance for doubtful
accounts
|
|
|
(2,112.0
|
)
|
|
|
32,578.4
|
|
|
|
(31,851.3
|
)
|
Due to/from GAM Holding Ltd.
|
|
|
(1,307.0
|
)
|
|
|
5,287.5
|
|
|
|
(7,142.5
|
)
|
Income taxes receivable
|
|
|
(9,698.9
|
)
|
|
|
(1,283.6
|
)
|
|
|
|
|
Other assets
|
|
|
(2,396.8
|
)
|
|
|
(407.0
|
)
|
|
|
(348.9
|
)
|
Accrued compensation and benefits
|
|
|
58,558.3
|
|
|
|
(33,322.1
|
)
|
|
|
26,724.6
|
|
Accounts payable and accrued expenses
|
|
|
(366.6
|
)
|
|
|
(4,750.0
|
)
|
|
|
3,336.7
|
|
Accrued income taxes payable
|
|
|
11,778.4
|
|
|
|
(2,551.0
|
)
|
|
|
522.2
|
|
Other liabilities
|
|
|
(753.6
|
)
|
|
|
2,475.5
|
|
|
|
(412.9
|
)
|
Cash flows provided by discontinued operations
|
|
|
|
|
|
|
|
|
|
|
7,938.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
51,707.4
|
|
|
|
100,108.8
|
|
|
|
112,215.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of marketable securities and securities held for
deferred compensation
|
|
|
(2,528.9
|
)
|
|
|
(120,807.4
|
)
|
|
|
(199,936.4
|
)
|
Proceeds from sales or maturities of marketable securities and
securities held for deferred compensation
|
|
|
67,121.4
|
|
|
|
94,399.6
|
|
|
|
221,931.3
|
|
Purchase of fixed assets
|
|
|
(830.8
|
)
|
|
|
(3,484.5
|
)
|
|
|
(2,003.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
63,761.7
|
|
|
|
(29,892.3
|
)
|
|
|
19,991.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from borrowings
|
|
|
60,000.0
|
|
|
|
|
|
|
|
|
|
Proceeds from initial public offering
|
|
|
614,900.0
|
|
|
|
|
|
|
|
|
|
Proceeds from underwriters option exercise
|
|
|
65,035.7
|
|
|
|
|
|
|
|
|
|
Repurchase and retirement of Class C common stock
|
|
|
(620,905.3
|
)
|
|
|
|
|
|
|
|
|
Repurchase of Class A common stock
|
|
|
(59,030.4
|
)
|
|
|
|
|
|
|
|
|
Issuance of Class B common stock
|
|
|
18.0
|
|
|
|
|
|
|
|
|
|
Distributions paid to non-controlling interests
|
|
|
(6,589.6
|
)
|
|
|
|
|
|
|
|
|
Dividends paid
|
|
|
(194,705.8
|
)
|
|
|
(117,000.0
|
)
|
|
|
(60,000.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used by financing activities
|
|
|
(141,277.4
|
)
|
|
|
(117,000.0
|
)
|
|
|
(60,000.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rates on cash
|
|
|
87.0
|
|
|
|
(100.6
|
)
|
|
|
185.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
(25,721.3
|
)
|
|
|
(46,884.1
|
)
|
|
|
72,392.2
|
|
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of period
|
|
|
86,563.0
|
|
|
|
133,447.1
|
|
|
|
61,054.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of period
|
|
$
|
60,841.7
|
|
|
$
|
86,563.0
|
|
|
$
|
133,447.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during period for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes, net of refunds
|
|
$
|
47,248.9
|
|
|
$
|
80,109.6
|
|
|
$
|
94,783.3
|
|
Supplementary information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash transactions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Distribution to GAM Holding Ltd.
|
|
$
|
|
|
|
$
|
|
|
|
$
|
100.0
|
|
Distribution to GAM Holding Ltd. payable by September 29,
2010
|
|
|
40,100.0
|
|
|
|
|
|
|
|
|
|
Reclassification of liability awards
|
|
|
565,908.6
|
|
|
|
|
|
|
|
|
|
Deferred taxes from
step-up in
tax basis
|
|
|
39,417.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-6
ARTIO GLOBAL
INVESTORS INC. AND SUBSIDIARIES
|
|
Note 1.
|
Organization and
Description of Business
|
Artio Global Investors Inc. (Investors or the
Company) and subsidiaries (collectively,
we, us or our) comprises
Investors and its three subsidiaries, Artio Global Holdings LLC
(Holdings), an intermediate holding company, Artio
Global Management LLC (Investment Adviser), a
registered investment adviser under the Investment Advisers Act
of 1940, and Artio Capital Management LLC. Holdings is
approximately 74% owned by Investors, 13% owned by Richard Pell,
our Chairman, Chief Executive Officer and Chief Investment
Officer (Pell), and 13% owned by Rudolph-Riad
Younes, our Head of International Equity (Younes,
together with Pell, the Principals). The
Principals interests are reflected in the consolidated
financial statements as non-controlling interests. Investment
Adviser and Artio Capital Management LLC are wholly owned
subsidiaries of Holdings.
Investment Adviser is our primary operating entity and provides
investment management services to institutional and mutual fund
clients. It manages and advises the Artio Global Funds (the
Funds), which are U.S. registered investment
companies; commingled institutional investment vehicles;
separate accounts; and
sub-advisory
accounts. While our assets under management (AuM)
are invested primarily outside of the U.S, our clients are
primarily U.S. based.
|
|
Note 2.
|
Initial Public
Offering and Changes in the Principals Interests
|
Prior to September 29, 2009, Investors was a wholly owned
subsidiary of GAM Holding Ltd. (formerly known as Julius Baer
Holding Ltd.), a Swiss corporation (GAM). On
September 29, 2009, we completed an initial public offering
(IPO) of 25.0 million shares of Investors
Class A common stock at a price of $26.00 per share, before
the underwriting discount, for net proceeds of
$614.9 million. The net proceeds were used to repurchase
and retire 22.6 million shares of Investors
Class C common stock from GAM, and to repurchase
1.2 million shares of Class A common stock from each
of the Principals.
On October 5, 2009, the underwriters exercised their option
to purchase additional shares of Class A common stock at
the IPO price, net of the underwriting discount, resulting in
the issuance of 2,644,156 shares of Class A common
stock. We used the net proceeds to repurchase and retire
2,644,156 shares of Class C common stock from GAM.
After the IPO and the exercise of the underwriters option,
GAM owns approximately 27.9% of the outstanding shares of our
capital stock through its ownership of all the outstanding
shares of Class C common stock.
Before the IPO, each Principal had a 15% Class B profits
interest in Investment Adviser (see Note 10.
Class B Profits Interests), which was accounted for as
compensation. Prior to the IPO, each of the Principals
transferred a portion of his existing Class B profits
interest in Investment Adviser to a Grantor Retained Annuity
Trust (GRAT) for which such Principal serves as
settlor and trustee. Each Principal is deemed the beneficial
holder of the securities held by his GRAT, and references to
securities held by a Principal, unless otherwise indicated,
include the securities held in his GRAT. Immediately prior to
the IPO, each Principal exchanged his Class B profits
interest for a 15% non-voting Class A membership interest
in Holdings (New Class A Units). Each Principal
also purchased, at par value, nine million shares of voting,
non-participating, Investors Class B common stock. In
addition, the Principals entered into a tax receivable agreement
with the Company (see Note 5. Tax Receivable
Agreement). Upon the exchange of their Class B profits
interests for New Class A Units, the fair value of the
Class B profits interests was adjusted to reflect the
offering price of Class A common stock, and totaled
$468.0 million. This resulted in an additional compensation
charge related to the redemption value of the Class B
profits interests of $215.8 million that was recorded
concurrent with the IPO and represents the difference between
the fair value of $468.0 million and the related liability
immediately prior to the IPO of $252.2 million
($201.9 million as of December 31, 2008). In
F-7
ARTIO GLOBAL
INVESTORS INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements Continued
addition, we recorded a compensation charge of
$97.9 million relating to the estimated present value of
the tax receivable agreement (see Note 5. Tax Receivable
Agreement).
As the Principals new economic interests are accounted for
as equity, the adjusted liability of $565.9 million was
reclassified into Additional paid-in capital on the
Consolidated Statement of Financial Position. The related
deferred tax asset of $110.3 million ($88.3 million as
of December 31, 2008) was de-recognized and charged to
expense. The Principals New Class A Units,
representing an approximate 26% interest in Holdings, are
accounted for as non-controlling interests.
|
|
Note 3.
|
Summary of
Significant Accounting Principles
|
Basis of
Preparation
The consolidated financial statements are prepared in conformity
with accounting principles generally accepted in the United
States of America (U.S. GAAP). These principles
require management to make estimates and assumptions that affect
the reported amounts of assets, liabilities (including
contingent liabilities), revenues, and expenses at the date of
the consolidated financial statements. Actual results could
differ from those estimates and may have a material effect on
the consolidated financial statements.
Prior years Consolidated Statements of Operations,
including Notes to the Consolidated Financial Statements, have
been conformed to the current years presentation. Also, in
accordance with Securities and Exchange Commissions Staff
Accounting Bulletin Topic 4:C, the Consolidated Financial
Statements give retroactive effect to a 10,500:1 stock split
that was effected as of August 28, 2009.
As part of the preparation of the consolidated financial
statements, we performed an evaluation of subsequent events
occurring after the Consolidated Statement of Financial Position
date of December 31, 2009, through to the date the
consolidated financial statements were issued.
Consolidation
The consolidated financial statements include the accounts of
Investors and its subsidiaries. All material inter-company
balances have been eliminated in consolidation.
In addition, investment vehicles through which we provide
investment management services are evaluated for consolidation.
Consolidation is required if we hold a controlling financial
interest in the investment vehicle as defined by U.S. GAAP.
The assessment for consolidation occurs at the inception date of
the investment vehicle. The conclusion is reassessed only when
certain events take place, as prescribed by U.S. GAAP.
As of December 31, 2009 and 2008, we did not consolidate
any of the investment vehicles, due primarily to the following
reasons:
|
|
|
|
|
Artio Global Funds (the Funds) are considered voting
interest entities but are controlled by their independent Boards
of Directors or Trustees.
|
|
|
|
Certain of the commingled investment vehicles are trusts and are
considered variable interest entities (VIEs). We are
not the primary beneficiary of these trusts.
|
|
|
|
Other investment vehicles are membership organizations and are
considered voting interest entities. Although our interests in
these vehicles are nominal and do not meet the ownership
threshold for consolidation, we are the managing member of these
organizations. Each operating agreement of the organizations
provides to its unaffiliated non-managing members substantive
rights to remove us as managing member. As a result, we do not
have a controlling financial interest in these organizations.
|
F-8
ARTIO GLOBAL
INVESTORS INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements Continued
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.
Marketable
Securities
Marketable securities are carried at fair
value. We elected the fair value option for
investments made to achieve certain stated investment objectives.
Excess cash is invested for current yield, not for capital
gains. Gains and losses on such marketable securities, together
with related interest income, accretion and amortization, are
reported in Non-operating income on the Consolidated
Statements of Operations.
Certain unvested deferred bonuses due employees are invested in
the Funds. As these bonuses vest, the principal and any gains or
losses are reflected as liabilities in the Consolidated
Statement of Financial Position. Expenses are reported in
Employee compensation and benefits and the realized and
unrealized gains or losses on these securities are reported in
Net gains (losses) on securities held for deferred
compensation on the Consolidated Statements of Operations.
Realized gains and losses are computed on a specific
identification basis. Interest income is recognized as earned.
Discounts and premiums are accreted or amortized over the term
of the instrument.
Fees
Receivable and Accrued Fees, Net of Allowance for Doubtful
Accounts
Fees receivable and accrued fees, net of allowance for
doubtful accounts represent fees that have been, or will be
billed to our clients. We review receivables and provide an
allowance for doubtful accounts for any receivables when
appropriate. As of December 31, 2009 and 2008, the
allowance for doubtful accounts was not material to our
receivables balance.
Property and
Equipment
Property and equipment are carried at cost. Depreciation of
property and equipment is expensed using the straight-line
method based on the estimated useful lives of the assets.
Furniture and fixtures are depreciated over five years.
Equipment is depreciated over three and five year periods.
Amortization of leasehold improvements is computed over the
lesser of the economic useful life of the improvement or the
remaining term of the lease. Internal-use software that
qualifies for capitalization is capitalized and subsequently
amortized over the estimated useful life of the software,
generally three years.
Due Under Tax
Receivable Agreement
Certain tax benefits are shared with the Principals (see
Note 5. Tax Receivable Agreement). When we record a
deferred tax asset for these benefits, the benefits are recorded
as follows:
|
|
|
|
|
The benefits payable to the Principals, which amount to 85% of
such deferred tax asset, are recorded as Due under tax
receivable agreement on our Consolidated Statement of
Financial Position. If we adjust the deferred tax asset, we
adjust the payable for 85% of the adjustment.
|
|
|
|
The remaining 15% is recorded in Additional paid-in capital
on our Consolidated Statement of Financial Position. If we
adjust the deferred tax asset, 15% of the adjustment is recorded
in Income taxes relating to income from continuing operations
on our Consolidated Statement of Operations.
|
F-9
ARTIO GLOBAL
INVESTORS INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements Continued
Investment
Management Fees
Investment management fees are recognized as earned. Fees
on registered investment companies are computed and billed
monthly as a percentage of average daily fair value of the
Funds assets under management. Fees on other vehicles and
on separate accounts are computed and billed in accordance with
the provisions of the applicable investment management
agreements.
The investment management agreements for a small number of
accounts provide for performance fees. Performance fees, if
earned, are recognized on the contractually determined
measurement date. Performance fees on certain accounts are
subject to clawback if the performance declines after the most
recent measurement date. If such declines occur, we recognize
the clawback when the amount is probable and estimable.
Foreign
Currency Transactions
Foreign currency balances are translated to our functional
currency (U.S. dollars) at rates prevailing on the
reporting date. Transactions in foreign currency are translated
at average rates during the reporting period. Gains and losses
arising from translation of foreign currency transactions are
recognized in Foreign currency gains (losses) on the
Consolidated Statement of Operations.
Compensation
Plans
In September 2009, the Board of Directors of Investors and GAM,
which at the time was Investors sole stockholder, approved
the Artio Global Investors Inc. 2009 Stock Incentive Plan, in
which certain of our employees participate (see Note 12.
Share-Based Payments).
Certain of our employees also participate in a deferred
compensation plan. Deferred compensation expense is recognized
using a straight-line method over the vesting period (generally
over a three-year period). Assets of the funded deferred bonus
plan are invested in the Funds, and are included in
Marketable securities at fair value. Realized and
unrealized gains and losses related to these assets are
recognized in Net gains (losses) on securities held for
deferred compensation. Employees who participate in the
deferred compensation plan may also receive a portion of their
compensation in the form of restricted stock units under the
2009 Stock Incentive Plan.
Prior to the IPO, the Principals had a Class B profits
interest in Investment Adviser, which entitled them to a
combined 30% of profits, as well as a combined 30% of the
increase in the value of the business, both of which were
defined in Investment Advisers operating agreement. (See
Note 2. Initial Public Offering and Changes in the
Principals Interests.) The allocation of the profits
associated with this plan was expensed on an accrual basis. We
recorded the obligation associated with these profits interests
as a liability at fair value.
Retirement
Plans
Investors sponsors two non-contributory defined contribution
retirement plans for employees (the Non-Contributory
Plans), as well as a 401(k) plan. The Non-Contributory
Plans include a qualified and non-qualified plan. Contributions
to the Non-Contributory Plans are based on employees
eligible compensation.
Contributions to the Non-Contributory Plans are accrued over the
period of employees active service. Forfeitures from
employees who leave prior to completion of the vesting period
are used to reduce the contribution. The Non-Contributory Plans
do not require contributions after the employees active
service has ended.
F-10
ARTIO GLOBAL
INVESTORS INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements Continued
Income
Taxes
Income taxes are accounted for under the asset and liability
method. Deferred taxes are recognized for the future tax
benefits or consequences attributable to temporary differences
between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases. Deferred
tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled.
Uncertainty in income tax positions is accounted for by
recognizing in the consolidated financial statements the impact
of a tax position when it is more likely than not that the tax
position would be sustained upon examination by the tax
authorities based on the technical merits of the position.
Management considers the facts and circumstances available as of
December 31 in order to determine the appropriate tax benefit to
recognize including tax legislation and statutes, legislative
intent, regulations, rulings and case law. Significant
differences could exist between the ultimate outcome of the
examination of a tax position and managements estimate.
These differences could have a material impact on our effective
tax rate, results of operations, financial position
and/or cash
flows.
Interest and penalties relating to tax liabilities are
recognized on actual tax liabilities and exposure items.
Interest is accrued according to the provisions of the relevant
tax law and is reported as interest expense. Penalties are
accrued and reported as General and administrative
expenses.
|
|
Note 4.
|
Stockholders
Equity
|
Subsequent to the IPO, Investors has three classes of common
stock.
|
|
|
|
|
|
|
|
|
|
|
Economic Rights,
|
|
|
|
|
|
|
Including Rights to
|
|
|
|
|
|
|
Dividends and
|
|
|
|
|
|
|
Distributions Upon
|
|
|
Class
|
|
Voting Rights
|
|
Liquidation
|
|
Special Provisions
|
|
A
|
|
One vote per share
|
|
Yes
|
|
|
B
|
|
One vote per share
|
|
No
|
|
|
C
|
|
Voting power is the greater of the
number of votes on a one-vote-per-share basis and 20% of the
combined voting power of all classes of common stock.
|
|
Yes
|
|
If GAM transfers any of its shares to
anyone other than any of its subsidiaries, or us, such shares
automatically convert to an equal number of shares of Class A
common stock.
|
|
|
Prior to the IPO, GAM entered into an
agreement under which it agreed that, if it has voting power as
holder of Class C common stock in excess of what it would be
entitled to on a one-vote-per-share basis, it would on all
matters vote those excess shares on the same basis and in the
same proportion as the votes cast by Class A and Class B
shareholders.
|
|
|
|
On the second anniversary of the IPO,
all outstanding shares of Class C common stock will
automatically convert to shares of Class A common stock on a
one-for-one basis.
|
F-11
ARTIO GLOBAL
INVESTORS INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements Continued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A
|
|
Class B
|
|
Class C
|
|
|
Common Stock
|
|
Common Stock
|
|
Common Stock
|
|
As of December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
Authorized
|
|
|
500,000,000
|
|
|
|
50,000,000
|
|
|
|
210,000,000
|
|
Reserved under 2009 Stock Incentive Plan
|
|
|
9,685,357
|
|
|
|
|
|
|
|
|
|
Par value
|
|
$
|
0.001
|
|
|
$
|
0.001
|
|
|
$
|
0.01
|
|
The table below sets forth the number of shares of Class A,
Class B and Class C common stock issued and
outstanding as of December 31, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A
|
|
|
Class B
|
|
|
Class C
|
|
|
|
Common Stock
|
|
|
Common Stock
|
|
|
Common Stock
|
|
|
|
(In thousands)
|
|
|
As of January 1, 2007
|
|
|
|
|
|
|
|
|
|
|
42,000.0
|
|
Activity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
42,000.0
|
|
Activity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
42,000.0
|
|
Activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued to the Principals(a)
|
|
|
|
|
|
|
18,000.0
|
|
|
|
|
|
Shares issued to the public(b)
|
|
|
27,644.2
|
|
|
|
|
|
|
|
|
|
Shares issued to the independent directors(c)
|
|
|
14.6
|
|
|
|
|
|
|
|
|
|
Exchange by the Principals(d)
|
|
|
2,400.0
|
|
|
|
(2,400.0
|
)
|
|
|
|
|
Repurchase from GAM(e)
|
|
|
|
|
|
|
|
|
|
|
(25,244.2
|
)
|
Repurchase from the Principals(d)
|
|
|
(2,400.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2009
|
|
|
27,658.8
|
|
|
|
15,600.0
|
|
|
|
16,755.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Represents the 9.0 million shares of non-participating
Class B common stock issued to each of the Principals (see
Note 2. Initial Public Offering and Changes in the
Principals Interests). |
|
(b) |
|
Represents the 25.0 million shares of Class A common
stock that were issued to the public in connection with the IPO
and the underwriters exercising their option to purchase
2,644,156 shares of Class A common stock. |
|
(c) |
|
Represents the 6,924 shares of fully-vested Class A
common stock (subject to transfer restrictions) that were
awarded to our independent directors in connection with the IPO
and 7,719 shares of fully-vested Class A common stock
(subject to transfer restrictions) granted to our independent
directors in December 2009. The table does not reflect
2.1 million of unvested restricted stock units (see
Note 12. Share-Based Payments) awarded to certain
employees (other than the Principals), each of which represents
the right to receive one share of Class A common stock upon
vesting. |
|
(d) |
|
Represents the effect of the issuance of 1.2 million shares
of Class A common stock to each of the Principals upon
exchange of an equivalent number of New Class A Units and
subsequent repurchase of such Class A common stock by us
with a portion of the net proceeds from the IPO. Upon the
exchange of New Class A Units for Class A common
stock, corresponding shares of Class B common stock were
canceled. |
F-12
ARTIO GLOBAL
INVESTORS INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements Continued
|
|
|
(e) |
|
Includes the 25.2 million shares of Class C common
stock we repurchased from GAM and retired with a portion of the
net proceeds from the IPO and the shares issued pursuant to the
underwriters exercising their option. |
|
|
Note 5.
|
Tax Receivable
Agreement
|
Concurrent with IPO, the Principals (whose ownership in Holdings
represents the non-controlling interests) entered into an
exchange agreement which provides that they may exchange their
New Class A Units for shares of Class A common stock.
Upon such an exchange, Holdings expects to make an election
under Section 754 of the Internal Revenue Code of 1986, as
amended, to increase the tax basis of its tangible and
intangible assets. The amortization of the increased basis is
available to reduce future taxable income generally over a
15-year
period.
We entered into a tax receivable agreement with the Principals
under which they are entitled to receive 85% of the tax benefits
realized by us in our tax returns as a result of the increases
in tax basis created by each Principals exchange described
above.
In 2009, we recorded compensation expense of $97.9 million
representing the present value of the future tax benefits that
would have been realized had the Principals exchanged all of
their shares at the IPO price, and assuming that we have future
taxable income to utilize the increased tax deductions.
Actual recognition of a deferred tax benefit in our consolidated
financial statements occurs at the time of exchange. At the time
of the IPO, the Principals each exchanged approximately 13.3% of
their New Class A Units and a deferred tax asset of
$38.4 million was established for the estimated future tax
benefits resulting from the amortization of the increased basis.
Of the deferred tax asset recorded at the time of the IPO,
$32.7 million, representing 85% of the benefits, was
recorded in Due under tax receivable agreement, and the
remaining 15% was recorded in Additional paid-in capital
on the Consolidated Statement of Financial Position. These
amounts are adjusted periodically for changes to effective tax
rates.
Amounts payable to the Principals under the tax receivable
agreement are payable approximately 60 days after we file
our income tax returns. Should the deductions resulting from the
increased depreciation and amortization be subsequently
disallowed by the taxing authorities, we would not be able to
recover amounts already paid to the Principals.
|
|
Note 6.
|
Related Party
Activities
|
Prior to the IPO, we engaged in transactions with GAM and other
affiliates in the ordinary course of business. We also engaged
in transactions with our mutual funds.
Affiliate
Transactions Mutual and Offshore Funds
We earn management fees from the Funds, which are considered
related parties, as Investment Adviser manages the operations
and makes investment decisions for these Funds. Investment
Adviser provides investment management services to the Funds
pursuant to investment management agreements with the Funds,
which are subject to review and approval by their boards of
directors or trustees. Investment Adviser also derives
investment management revenue from
sub-advising
certain
F-13
ARTIO GLOBAL
INVESTORS INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements Continued
offshore funds sponsored by affiliates of GAM. Revenues related
to these services are included in Investment management fees
in the Consolidated Statement of Operations as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Funds investment management fees
|
|
$
|
173,336.3
|
|
|
$
|
253,926.0
|
|
|
$
|
278,696.7
|
|
Sub-advisory
investment management fees on GAM-sponsored funds
|
|
|
1,924.8
|
|
|
|
2,376.2
|
|
|
|
2,310.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees receivable related to investment management fees are
included in Fees receivable and accrued fees, net of
allowance for doubtful accounts in the Consolidated
Statement of Financial Position as follows:
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Funds investment management fees
|
|
$
|
17,189.6
|
|
|
$
|
14,231.2
|
|
Sub-advisory
investment management fees on GAM-sponsored funds
|
|
|
614.9
|
|
|
|
509.9
|
|
|
|
|
|
|
|
|
|
|
Other
Affiliate Transactions
Prior to the IPO, we had a licensing fee arrangement with GAM
for the use of the Julius Baer name in our products and
marketing strategies. These licensing fees were
$2.7 million for 2009, $6.4 million for 2008 and
$7.3 million for 2007. This arrangement terminated in 2009.
In 2007, we shared office space with certain unconsolidated GAM
affiliates and allocated both direct and indirect expenses for
occupancy (including rent and depreciation), information
technology and support systems costs (including depreciation),
administration and management, under the terms of service level
agreements. In 2008, the unconsolidated affiliates moved from
our offices and the service level agreements were canceled. In
2007, we allocated $4.7 million to the unconsolidated
affiliates, which is reflected in General and administrative
expenses in the Consolidated Statement of Operations. There
are no allocated expenses in 2009 and 2008.
Other Related
Party Transactions
Certain participants in the Funded Plan (as defined in
Note 11. Benefit Plans and Deferred Compensation)
invest a portion of their deferred bonuses in their choice of
the Funds. Assets related to the Funded Plan are included in
Marketable securities on the Consolidated Statement of
Financial Position and realized and unrealized gains (losses) on
investments in the Funds are recorded in Net gains (losses)
on securities held for deferred compensation on the
Consolidated Statement of Operations (see Note 7.
Marketable Securities, at Fair Value).
Investors manages, at no cost to the plans, the assets of the
Qualified Plan (as defined in Note 11. Benefit Plans and
Deferred Compensation).
|
|
Note 7.
|
Marketable
Securities, at Fair Value
|
We carry our marketable securities portfolio at fair value using
a valuation hierarchy based on the transparency of the inputs to
the valuation techniques used to measure fair value.
Classification
F-14
ARTIO GLOBAL
INVESTORS INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements Continued
within the hierarchy is based upon the lowest level of input
that is significant to the fair value measurement. The valuation
hierarchy contains three levels: (i) valuation inputs
comprising unadjusted quoted market prices for identical assets
or liabilities in active markets (Level 1);
(ii) valuation inputs comprising quoted prices for
identical assets or liabilities in markets that are not active,
quoted market prices for similar assets and liabilities in
active markets, and other observable inputs directly or
indirectly related to the asset or liability being measured
(Level 2); and (iii) valuation inputs that
are unobservable and are significant to the fair value
measurement (Level 3).
Marketable securities as of December 31, 2009 and 2008,
consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
|
Value
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
|
(In thousands)
|
|
|
As of December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Artio Global Funds
|
|
$
|
7,892.5
|
|
|
$
|
8,448.6
|
|
|
$
|
|
|
|
$
|
(556.1
|
)
|
Other investments
|
|
|
18.0
|
|
|
|
10.0
|
|
|
|
8.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total marketable securities
|
|
$
|
7,910.5
|
|
|
$
|
8,458.6
|
|
|
$
|
8.0
|
|
|
$
|
(556.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and agency instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due within 1 year
|
|
$
|
60,375.2
|
|
|
$
|
60,277.3
|
|
|
$
|
97.9
|
|
|
$
|
|
|
Due 5 10 years
|
|
|
5,028.3
|
|
|
|
4,587.6
|
|
|
|
440.7
|
|
|
|
|
|
Artio Global Funds
|
|
|
5,911.4
|
|
|
|
8,594.9
|
|
|
|
|
|
|
|
(2,683.5
|
)
|
Other investments
|
|
|
14.6
|
|
|
|
10.0
|
|
|
|
4.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total marketable securities
|
|
$
|
71,329.5
|
|
|
$
|
73,469.8
|
|
|
$
|
543.2
|
|
|
$
|
(2,683.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In 2009, we liquidated our holdings of investment securities to
fund distributions to GAM and the Principals.
Our marketable securities and cash equivalents as of
December 31, 2009 and 2008, are valued using prices as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 2
|
|
|
Level 3
|
|
|
|
|
|
|
Level 1
|
|
|
Other
|
|
|
Significant
|
|
|
|
|
|
|
Quoted
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
Total
|
|
|
Prices
|
|
|
Inputs
|
|
|
Inputs
|
|
|
|
(In thousands)
|
|
|
As of December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Marketable securities
|
|
|
7,910.5
|
|
|
|
7,892.5
|
|
|
|
|
|
|
|
18.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
7,910.5
|
|
|
$
|
7,892.5
|
|
|
$
|
|
|
|
$
|
18.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents
|
|
$
|
71,116.6
|
|
|
$
|
71,116.6
|
|
|
$
|
|
|
|
$
|
|
|
Marketable securities
|
|
|
71,329.5
|
|
|
|
71,314.9
|
|
|
|
|
|
|
|
14.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
142,446.1
|
|
|
$
|
142,431.5
|
|
|
$
|
|
|
|
$
|
14.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-15
ARTIO GLOBAL
INVESTORS INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements Continued
The change in Level 3 securities is as follows:
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Beginning of year
|
|
$
|
14.6
|
|
|
$
|
10.0
|
|
Unrealized gains
|
|
|
3.4
|
|
|
|
4.6
|
|
|
|
|
|
|
|
|
|
|
End of period
|
|
$
|
18.0
|
|
|
$
|
14.6
|
|
|
|
|
|
|
|
|
|
|
The change in unrealized gains (losses) and realized gains
(losses) are recorded in Net gains (losses) on marketable
securities and Net gains (losses) on securities held for
deferred compensation on the Consolidated Statement of
Operations, as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
U.S. government and agency and other securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in unrealized gains (losses)
|
|
$
|
(535.2
|
)
|
|
$
|
543.2
|
|
|
$
|
|
|
Realized gains (losses)
|
|
|
7.3
|
|
|
|
(291.1
|
)
|
|
|
81.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gains (losses) on marketable securities
|
|
$
|
(527.9
|
)
|
|
$
|
252.1
|
|
|
$
|
81.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Artio Global Funds:
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in unrealized gains (losses)
|
|
$
|
2,127.4
|
|
|
$
|
(2,683.5
|
)
|
|
$
|
|
|
Realized gains (losses)
|
|
|
(157.3
|
)
|
|
|
(173.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gains (losses) on securities held for deferred compensation
|
|
$
|
1,970.1
|
|
|
$
|
(2,856.5
|
)
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 8.
|
Property and
Equipment
|
The major classifications of property and equipment are as
follows:
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Furniture, fixtures, software and equipment
|
|
$
|
10,127.6
|
|
|
$
|
9,574.6
|
|
Leasehold improvements
|
|
|
10,636.2
|
|
|
|
10,358.4
|
|
Less: accumulated depreciation and amortization
|
|
|
(13,128.9
|
)
|
|
|
(10,099.8
|
)
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
$
|
7,634.9
|
|
|
$
|
9,833.2
|
|
|
|
|
|
|
|
|
|
|
In September 2009, Holdings entered into a $110.0 million
credit facility consisting of a $60.0 million three-year
term credit facility and a $50.0 million three-year
revolving credit facility.
In October 2009, Holdings borrowed $60.0 million under the
term credit facility. The interest associated with the
$60.0 million borrowing is LIBOR plus 300 basis
points, which is currently set at 3.25125%, and resets in April
2010. The amortization schedule requires quarterly principal
payments of 7.5% in both years two and three, beginning on
December 31, 2010, with a final payment of 40% at
F-16
ARTIO GLOBAL
INVESTORS INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements Continued
maturity. There is no remaining capacity under the term credit
facility. A portion of the $60.0 million borrowing was used
to fund distributions to GAM and the Principals.
Borrowings under the $50.0 million revolving credit
facility would bear interest at a rate equal to, at our option,
(i) LIBOR plus a range of 300 to 400 basis points or
(ii) the base rate (as defined in the credit facility
agreement) plus a range of 200 to 300 basis points. The
interest rate would reset at certain intervals. Holdings has
made no borrowings under the revolving credit facility.
The spread to LIBOR or the base rate is correlated to the
consolidated leverage ratio as prescribed within the credit
facility agreement. Our current spread to LIBOR and the base
rate is 300 basis points and 200 basis points,
respectively. These spreads could increase if our consolidated
leverage ratio exceeds 1.0x.
The covenants in the credit facility agreement require
compliance with the following financial ratios (each in
accordance with the definitions, including earnings before
interest, taxes, depreciation and amortization
(EBITDA), in the credit facility agreement), to be
calculated on a consolidated basis at the end of each fiscal
quarter:
|
|
|
|
|
maintenance of a maximum consolidated leverage ratio of less
than or equal to 2.00x (calculated as the ratio of consolidated
funded indebtedness plus the remaining amount of a deferred
payment to GAM of $40.1 million, which is payable by
September 29, 2010, to consolidated EBITDA for the last six
months multiplied by two); and
|
|
|
|
maintenance of a minimum consolidated interest coverage ratio of
greater than or equal to 4.00x (calculated as the ratio of
consolidated EBITDA for the last six months to consolidated
interest charges for such period).
|
The credit facility agreement also contains customary
affirmative and negative covenants, including limitations on
indebtedness, liens, cash dividends and fundamental corporate
changes. As of December 31, 2009, Holdings was in
compliance with all such covenants.
|
|
Note 10.
|
Class B
Profits Interests
|
In 2004, each Principal was granted a Class B, non-voting
profits interest in Investment Adviser, which entitled each of
them to receive 15% of the profits (30% in the aggregate) of our
asset management business, as defined in Investment
Advisers then-effective operating agreement. The
allocation of such profits interests was expensed as incurred
and included in Employee compensation and benefits on the
Consolidated Statement of Operations. The liability for these
interests was $34.1 million as of December 31, 2008.
Each Principal exchanged his Class B profits interests for
an equivalent percentage of New Class A Units in connection
with the IPO and the remaining balance of undistributed
Class B profits interests was paid to each of the
Principals in the fourth quarter of 2009.
Prior to the IPO, we were required to repurchase the
Class B profits interests upon the occurrence of certain
events. The repurchase price was computed utilizing a model
based on the average profitability of Investment Adviser and the
average price-earnings multiple of the common stock of GAM. The
benefits vested ratably over a ten-year period ending in 2014.
We recorded the obligation associated with the full value of the
Class B profits interests as a liability at fair value in
Accrued compensation and benefits in the Consolidated
Statements of Financial Position, and
F-17
ARTIO GLOBAL
INVESTORS INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements Continued
recognized the expense as Employee compensation and benefits
in the Consolidated Statement of Operations. The redemption
value and liabilities of this obligation were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redemption
|
|
|
|
Unvested
|
|
|
Value
|
|
Liabilities
|
|
Balance
|
|
|
(In thousands)
|
|
December 31, 2009
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
December 31, 2008
|
|
|
504,725.0
|
|
|
|
201,890.3
|
|
|
|
302,834.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In connection with the IPO, each of the Principals exchanged his
Class B profits interests for New Class A Units (see
Note 2. Initial Public Offering and Changes in
Principals Interests).
|
|
Note 11.
|
Benefit Plans and
Deferred Compensation
|
Investors sponsors a non-contributory qualified defined
contribution retirement plan that covers most employees (the
Qualified Plan). Employees with at least one year of
service are eligible to participate in this plan. The
Companys contributions to this plan are calculated at 10%
of annual salary up to the Social Security taxable wage base
plus 15.7% of annual base salary in excess of the Social
Security taxable wage base up to the Internal Revenue Service
compensation limit for qualified plans. Earnings on an
individuals account in the plan are limited to the
performance of the underlying plan investments in the account.
Investors also sponsors a supplemental non-qualified defined
contribution retirement plan (the Non-qualified
Plan). Contributions to this plan are calculated as 15.7%
of annual base salary that exceeds the Internal Revenue Service
compensation limit for qualified plans. Contributions to both
the qualified and non-qualified retirement plans have three-year
vesting.
Investors sponsors a deferred compensation plan for employees
whose annual discretionary bonus award exceeds certain
predefined amounts (the Funded Plan). Amounts
contributed to this plan vest ratably over a three-year period.
Additionally, in 2008 and 2007, Investors sponsored an unfunded,
non-qualified deferred compensation plan for the Principals (the
Unfunded Plan). In December 2007, the Unfunded Plan
was amended to be payable in a lump sum upon the earlier of the
IPO or December 31, 2008. In 2008, we expensed the
remaining amount of the Unfunded Plan and made the payments.
Assets related to the Funded Plan are included in Marketable
securities and liabilities related to this plan are included
in Accrued compensation and benefits on the Consolidated
Statement of Financial Position, as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2009
|
|
As of December 31, 2008
|
|
|
Assets
|
|
Liabilities
|
|
Assets
|
|
Liabilities
|
|
|
(In thousands)
|
|
Funded Plan
|
|
$
|
7,892.5
|
|
|
$
|
3,741.8
|
|
|
$
|
5,911.4
|
|
|
$
|
2,499.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-18
ARTIO GLOBAL
INVESTORS INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements Continued
Expenses related to the plans are included in Salaries,
incentive compensation and benefits on the Consolidated
Statement of Operations as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Qualified Plan
|
|
$
|
2,380.7
|
|
|
$
|
2,847.9
|
|
|
$
|
1,553.7
|
|
Non-qualified Plan
|
|
|
148.0
|
|
|
|
223.2
|
|
|
|
273.4
|
|
Funded Plan
|
|
|
3,793.8
|
|
|
|
2,444.0
|
|
|
|
2,187.8
|
|
Unfunded Plan
|
|
|
|
|
|
|
8,877.7
|
|
|
|
1,402.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
6,322.5
|
|
|
$
|
14,392.8
|
|
|
$
|
5,416.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 12.
|
Share-Based
Payments
|
In September 2009, the Board of Directors of Investors approved
the Artio Global Investors Inc. 2009 Stock Incentive Plan (the
Plan), and reserved 9.7 million shares of
Class A common stock for share awards. Under the Plan, the
Board of Directors is authorized to grant incentive stock
options, non-qualified stock options, stock appreciation rights,
restricted stock, restricted stock units, performance awards and
other stock-based awards to Directors, officers and other
employees of, and consultants to, Investors and its affiliates.
A summary of restricted stock activity follows:
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average
|
|
|
|
|
|
|
Grant Date Fair
|
|
|
Number of
|
|
|
|
Value(a)
|
|
|
Shares
|
|
|
Outstanding as of December 31, 2008
|
|
$
|
|
|
|
|
|
|
Grants:
|
|
|
|
|
|
|
|
|
Fully-vested shares granted to independent directors, subject to
transfer restrictions
|
|
|
25.62
|
|
|
|
14,643
|
|
|
|
|
|
|
|
|
|
|
Outstanding as of December 31, 2009
|
|
|
|
|
|
|
14,643
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Weighted-average grant date fair value for grants are based on
closing price on the grant date. |
A summary of restricted stock unit (RSU) activity
follows:
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average
|
|
|
|
|
|
|
Grant Date Fair
|
|
|
Number of
|
|
|
|
Value(a)
|
|
|
Shares
|
|
|
Outstanding as of December 31, 2008
|
|
$
|
|
|
|
|
|
|
Grants:
|
|
|
|
|
|
|
|
|
Unvested RSUs granted to certain employees (other than the
Principals) in connection with the IPO
|
|
|
26.25
|
|
|
|
2,147,758
|
|
Forfeitures
|
|
|
26.25
|
|
|
|
(1,000
|
)
|
|
|
|
|
|
|
|
|
|
Outstanding as of December 31, 2009
|
|
|
|
|
|
|
2,146,758
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Weighted-average grant date fair value for grants are based on
closing price on the grant date. |
F-19
ARTIO GLOBAL
INVESTORS INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements Continued
Approximately $54.4 million (2,071,758 shares) of the
granted RSUs will vest pro rata, on an annual basis, over a
five-year period from the date of the grant, and approximately
$2.0 million (74,500 shares) vested in February 2010.
Upon the vesting of RSUs, a corresponding number of New
Class A Units are issued to Investors.
Compensation expense related to share-based payments is
recognized using a straight-line method over the requisite
service period (generally over a three- or five-year period from
the date of the grant for the entire award). Compensation
expense related to the amortization of RSU grants, included in
Salaries, incentive compensation and benefits on the
Consolidated Statement of Operations, was $4.3 million in
2009.
We are a C Corporation under the Internal Revenue
Code of 1986, as amended (the Code), and liable for
Federal, state and local taxes on the income derived from
Investors economic interest in Holdings. Holdings is a
limited liability company that is treated as a partnership for
tax purposes and as such is not subject to Federal or state
income taxes. Holdings is subject to the New York City
Unincorporated Business Tax (UBT).
Income taxes reflect not only the portion attributable to
our stockholders but also the portion of New York City UBT
attributable to non-controlling interests. A summary of the
provisions for income taxes is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
43,529.2
|
|
|
$
|
54,127.6
|
|
|
$
|
59,806.1
|
|
State and local
|
|
|
4,954.8
|
|
|
|
22,147.4
|
|
|
|
34,109.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
48,484.0
|
|
|
|
76,275.0
|
|
|
|
93,915.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
59,401.5
|
|
|
|
(17,380.9
|
)
|
|
|
(23,851.9
|
)
|
State and local
|
|
|
26,401.7
|
|
|
|
(4,139.0
|
)
|
|
|
(11,646.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
85,803.2
|
|
|
|
(21,519.9
|
)
|
|
|
(35,498.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
$
|
134,287.2
|
|
|
$
|
54,755.1
|
|
|
$
|
58,417.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxes are computed using the asset and liability method.
Deferred income taxes reflect the net tax effect of temporary
differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts
used for income tax purposes.
F-20
ARTIO GLOBAL
INVESTORS INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements Continued
Net deferred tax assets comprise the following:
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Deferred compensation Class B profits
interests(a)
|
|
$
|
|
|
|
$
|
88,316.5
|
|
Deferred compensation other
|
|
|
3,605.0
|
|
|
|
1,117.6
|
|
Depreciation and amortization
|
|
|
1,161.2
|
|
|
|
764.5
|
|
Provisions and other
|
|
|
2,417.0
|
|
|
|
2,503.7
|
|
Step-up of
tax basis(b)
|
|
|
39,133.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
46,316.3
|
|
|
|
92,702.3
|
|
Less: valuation allowance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset
|
|
$
|
46,316.3
|
|
|
$
|
92,702.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
As a result of the Principals exchange of their
Class B profits interests for New Class A Units, the
Principals ownership interests were reclassified to equity
and the related deferred tax asset was de-recognized. |
|
(b) |
|
Under the tax receivable agreement, 85% of the estimated future
tax benefit is payable to the Principals. |
The exchange by the Principals of a portion of their New
Class A Units for 2.4 million shares of Class A
common stock (see Note 5. Tax Receivable Agreement)
has allowed us to make an election to step up our tax basis in
accordance with Section 754 of the Code. The amortization
expense resulting from this
step-up is
deductible for tax purposes generally over a
15-year
period. Based on the exchange date, this election gave rise to a
$38.4 million deferred tax asset and a corresponding
$32.7 million liability to the Principals under the tax
receivable agreement. These amounts are adjusted periodically
for changes to effective tax rates. Based on our history of
taxable income, we assessed whether the deferred tax asset would
be realizable and determined that the benefit would more likely
than not be realized. Accordingly, no valuation allowance is
required.
F-21
ARTIO GLOBAL
INVESTORS INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements Continued
A reconciliation between the Federal statutory tax rate of 35%
and the effective tax rates are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In percentages)
|
|
|
Federal statutory rate
|
|
|
35
|
%
|
|
|
35
|
%
|
|
|
35
|
%
|
State and local, net of Federal benefit, and other
|
|
|
7
|
|
|
|
10
|
|
|
|
12
|
|
Anticipated amendment to prior year tax returns
|
|
|
3
|
|
|
|
|
|
|
|
|
|
Non-controlling interests
|
|
|
3
|
|
|
|
|
|
|
|
|
|
Permanent differences:
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation expenses fully vested Class B
profits interests
|
|
|
(49
|
)
|
|
|
|
|
|
|
|
|
Compensation expenses tax receivable agreement
|
|
|
(18
|
)
|
|
|
|
|
|
|
|
|
De-recognition of deferred tax asset
|
|
|
(38
|
)
|
|
|
|
|
|
|
|
|
Other
|
|
|
(1
|
)
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
(58
|
)%
|
|
|
47
|
%
|
|
|
47
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In connection with the filing of our 2008 tax returns, we
changed our methodology for apportioning receipts to state
jurisdictions. The impact of the change in methodology for 2008,
2007 and 2006 was recorded in 2009.
Other permanent differences consist of the non-deductible
portion of meals, entertainment, gifts and certain costs related
to the IPO.
Holdings is subject to New York City UBT, of which a substantial
portion is credited against Investors tax liability.
As of December 31, 2009, $3.3 million of unrecognized
tax benefits, if recognized, would affect the effective tax rate.
A reconciliation of the change in unrecognized tax benefits is
as follows:
|
|
|
|
|
|
|
(In thousands)
|
|
|
Balance, January 1, 2008
|
|
$
|
|
|
Additions (reductions) for tax provisions of prior years
|
|
|
|
|
Additions based on tax provisions related to current year
|
|
|
|
|
Reductions for settlements with taxing authorities
|
|
|
|
|
Lapse of statute of limitations
|
|
|
|
|
|
|
|
|
|
Balance, January 1, 2009
|
|
|
|
|
Additions (reductions) for tax provisions of prior years
|
|
|
|
|
Additions based on tax provisions related to current year
|
|
|
3,281.6
|
|
Reductions for settlements with taxing authorities
|
|
|
|
|
Lapse of statute of limitations
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2009
|
|
$
|
3,281.6
|
|
|
|
|
|
|
We believe that the total amount of unrecognized tax benefits
will not significantly increase or decrease over the next
12 months.
F-22
ARTIO GLOBAL
INVESTORS INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements Continued
Interest expense relating to unrecognized tax benefits is
included in Interest income, net of interest expense on
the Consolidated Statement of Operations. Penalties relating to
unrecognized tax benefits are included in General and
administrative on the Consolidated Statement of Operations.
In 2009, 2008 and 2007, there were no material charges relating
to interest and penalties.
Tax years 2006 to the present are open for examination by
Federal, state and local tax authorities. We are not currently
under examination by any significant tax jurisdiction.
|
|
Note 14.
|
Discontinued
Operations
|
In December 2007, the foreign exchange operations of a former
subsidiary were distributed to GAM. There was no gain or loss on
the distribution. Assets and liabilities of the former
subsidiary were distributed at their carrying amounts, with the
net asset of $100,000 reflected as a non-cash dividend. The
foreign exchange operations of the former subsidiary were
classified as discontinued operations for 2007.
Summary financial information relating to discontinued
operations follows. There were no discontinued operations in
2009 and 2008.
|
|
|
|
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Revenues
|
|
$
|
8,694.8
|
|
|
|
|
|
|
Income before income taxes
|
|
$
|
2,994.9
|
|
Income taxes
|
|
|
1,378.7
|
|
|
|
|
|
|
Income from discontinued operations, net of taxes
|
|
$
|
1,616.2
|
|
|
|
|
|
|
Net cash provided by discontinued operations
|
|
$
|
7,938.5
|
|
|
|
|
|
|
|
|
Note 15.
|
Earnings Per
Share (EPS)
|
Basic and diluted EPS from continuing operations were calculated
using the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Net income (loss) attributable to Artio Global Investors
|
|
$
|
(378,314.1
|
)
|
|
$
|
61,151.3
|
|
|
$
|
67,985.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares for basic EPS
|
|
|
42,620.4
|
|
|
|
42,000.0
|
|
|
|
42,000.0
|
|
Dilutive potential shares from exchange of New Class A
Units by the Principals(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive potential shares from grants of RSUs(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares for diluted EPS
|
|
|
42,620.4
|
|
|
|
42,000.0
|
|
|
|
42,000.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
The potential impact of both the exchange of New Class A
Units by the Principals, and cancelation of corresponding shares
of Class B common stock, for Class A common stock and
the RSU grants were anti-dilutive for 2009. |
F-23
ARTIO GLOBAL
INVESTORS INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements Continued
We lease office space under non-cancelable agreements that
expire in June 2014. Minimum annual rental payments under the
lease as of December 31, 2009, are as follows:
|
|
|
|
|
|
|
Years Ending
|
|
|
|
December 31,
|
|
|
|
(In thousands)
|
|
|
2010
|
|
$
|
3,738.7
|
|
2011
|
|
|
3,756.0
|
|
2012
|
|
|
3,761.8
|
|
2013
|
|
|
3,761.8
|
|
2014
|
|
|
1,880.9
|
|
|
|
|
|
|
|
|
$
|
16,899.2
|
|
|
|
|
|
|
In addition to the minimum annual rentals, the lease also
includes provisions for escalations. The lease provides for a
rent holiday and leasehold improvement incentives. These
concessions are recognized on a straight-line basis as
reductions in rent expense over the term of the lease.
Rent expense was $2.5 million in 2009, $3.3 million in
2008 and $2.6 million in 2007. In 2007, a portion of the
annual rental expense was charged to affiliates who occupied
portions of the space.
In December 2008, we decided not to use a portion of our office
space and activity related to the preparation of that space was
terminated. We recorded a liability related to this exit
activity at fair value in the period in which the liability was
incurred. In 2008, we also reclassified approximately
$0.5 million previously recorded for lease incentives
related to this space to Other liabilities on the
Consolidated Statement of Financial Position. The total
liability related to this space is included in Other
liabilities on the Consolidated Statement of Financial
Position and the amortization of the liability is included in
General and administrative expenses in the Consolidated
Statement of Operations.
|
|
|
|
|
|
|
(In thousands)
|
|
|
Balance, January 1, 2008
|
|
$
|
2,868.7
|
|
2009 rent payments
|
|
|
(889.2
|
)
|
Fair value adjustment
|
|
|
622.5
|
|
|
|
|
|
|
Balance, December 31, 2009
|
|
$
|
2,602.0
|
|
|
|
|
|
|
In 2009, we reassessed the fair value of the liability based on
current market conditions.
|
|
Note 17.
|
Commitments and
Contingencies
|
Although we have no obligation to do so, we have, at our
discretion, reimbursed client accounts for certain operational
losses incurred. Such amounts were not material in the years
ended December 31, 2009, 2008 and 2007.
There are no claims against us that are considered probable or
reasonably possible of having a material effect on our cash
flows, results of operations or financial position.
|
|
Note 18.
|
Segment
information
|
Continuing operations are classified as one segment: investment
advisory and management services. Management evaluates
performance and allocates resources for the management of each
type of investment vehicle on a combined basis. Fees from the
largest fund as a percentage of
F-24
ARTIO GLOBAL
INVESTORS INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements Continued
Investment management fees were 30% in 2009, 39% in 2008
and 47% in 2007. Clients are primarily based in the U.S.
|
|
Note 19.
|
Recently Issued
Accounting Pronouncements
|
Upon the IPO, we adopted the provisions of ASC 810.10.65,
Noncontrolling Interests in Consolidated Financial
Statements, for the Principals ownership in Holdings.
In June 2009, the Financial Accounting Standards Board (the
FASB) issued ASC 810.10, Amendments to FASB
Interpretation No. 46(R). ASC 810.10 gives
additional guidance on determining whether an entity is a
variable interest entity and requires ongoing assessments of
whether an enterprise is the primary beneficiary of a variable
interest entity. In February 2010, the FASB issued an Accounting
Standards Update which defers the effective date of
ASC 810.10 for companies, such as us, that have interests
in certain investment entities.
|
|
Note 20.
|
Selected
Quarterly Information (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
|
1st
Quarter
|
|
|
2nd
Quarter
|
|
|
3rd
Quarter(a)
|
|
|
4th
Quarter
|
|
|
|
(In thousands, except per share amounts)
|
|
|
Total revenues and other operating income
|
|
$
|
62,526.9
|
|
|
$
|
70,793.1
|
|
|
$
|
84,487.9
|
|
|
$
|
89,584.1
|
|
Operating income (loss) before income tax expense(a)
|
|
|
6,003.0
|
|
|
|
10,604.0
|
|
|
|
(298,303.7
|
)
|
|
|
53,169.0
|
|
Net income (loss) attributable to Artio Global Investors(a)
|
|
|
3,045.2
|
|
|
|
5,354.4
|
|
|
|
(412,423.1
|
)
|
|
|
25,709.4
|
|
Basic EPS, net income (loss) attributable to Artio Global
Investors(a)
|
|
$
|
0.07
|
|
|
$
|
0.13
|
|
|
$
|
(9.81
|
)
|
|
$
|
0.58
|
|
Diluted EPS, net income (loss) attributable to Artio Global
Investors(a)(b)(d)
|
|
$
|
0.07
|
|
|
$
|
0.13
|
|
|
$
|
(9.81
|
)
|
|
$
|
0.56
|
|
Dividends per basic share declared(e)
|
|
$
|
0.33
|
|
|
$
|
|
|
|
$
|
4.83
|
|
|
$
|
|
|
Common stock price per share(c):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
|
N/A
|
|
|
|
N/A
|
|
|
$
|
27.25
|
|
|
$
|
26.54
|
|
Low
|
|
|
N/A
|
|
|
|
N/A
|
|
|
$
|
25.50
|
|
|
$
|
22.66
|
|
Close
|
|
|
N/A
|
|
|
|
N/A
|
|
|
$
|
26.15
|
|
|
$
|
25.49
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
N/A Not applicable
|
|
|
(a) |
|
The third quarter of 2009 includes non-recurring compensation
charges of $313.8 million in connection with the IPO. |
|
(b) |
|
RSUs were granted in connection with the IPO in the third
quarter of 2009. The RSUs were anti-dilutive for both the third
and fourth quarters of 2009. |
|
(c) |
|
On September 29, 2009, we completed an IPO of
25.0 million shares of Class A common stock. |
|
(d) |
|
Fourth-quarter 2009 diluted EPS assumes the full exchange of the
Principals New Class A Units, and cancelation of
corresponding shares of Class B common stock, to shares of
Class A common stock and reflects the elimination of
non-controlling interests and resulting increase in the
effective tax rate. |
|
(e) |
|
Represents dividends declared prior to the IPO. |
F-25
ARTIO GLOBAL
INVESTORS INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements Continued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
1st
Quarter
|
|
|
2nd
Quarter
|
|
|
3rd
Quarter
|
|
|
4th
Quarter
|
|
|
|
(In thousands, except per share amounts)
|
|
|
Total revenues and other operating income
|
|
$
|
116,316.9
|
|
|
$
|
126,567.7
|
|
|
$
|
106,528.2
|
|
|
$
|
72,632.7
|
|
Operating income before income tax expense
|
|
|
22,590.3
|
|
|
|
39,626.3
|
|
|
|
27,054.5
|
|
|
|
23,453.9
|
|
Net income (loss) attributable to Artio Global Investors
|
|
|
11,410.4
|
|
|
|
20,211.6
|
|
|
|
16,280.2
|
|
|
|
13,249.1
|
|
Basic EPS, net income attributable to Artio Global Investors
|
|
$
|
0.27
|
|
|
$
|
0.48
|
|
|
$
|
0.39
|
|
|
$
|
0.32
|
|
Diluted EPS, net income attributable to Artio Global Investors
|
|
$
|
0.27
|
|
|
$
|
0.48
|
|
|
$
|
0.39
|
|
|
$
|
0.32
|
|
Dividends per basic share declared
|
|
$
|
1.45
|
|
|
$
|
0.50
|
|
|
$
|
|
|
|
$
|
0.84
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted EPS are computed independently for each of the
periods presented. Accordingly, the sum of the quarterly EPS
amounts may not agree to the total for the year.
F-26
ARTIO GLOBAL
INVESTORS INC. AND SUBSIDIARIES
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands, except for share amounts)
|
|
|
ASSETS
|
Cash and cash equivalents
|
|
$
|
74,771.2
|
|
|
$
|
60,841.7
|
|
Marketable securities, at fair value
|
|
|
8,253.3
|
|
|
|
7,910.5
|
|
Fees receivable and accrued fees, net of allowance for doubtful
accounts
|
|
|
55,064.5
|
|
|
|
56,911.1
|
|
Deferred taxes
|
|
|
46,828.7
|
|
|
|
46,316.3
|
|
Income taxes receivable
|
|
|
11,668.3
|
|
|
|
10,982.5
|
|
Property and equipment, net
|
|
|
7,289.5
|
|
|
|
7,634.9
|
|
Other assets
|
|
|
6,201.3
|
|
|
|
5,357.2
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
210,076.8
|
|
|
$
|
195,954.2
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY
|
Debt
|
|
$
|
60,000.0
|
|
|
$
|
60,000.0
|
|
Accrued compensation and benefits
|
|
|
10,895.8
|
|
|
|
31,478.0
|
|
Accounts payable and accrued expenses
|
|
|
7,145.7
|
|
|
|
9,092.7
|
|
Accrued income taxes payable
|
|
|
20,006.4
|
|
|
|
13,017.0
|
|
Due to GAM Holding Ltd.
|
|
|
40,100.0
|
|
|
|
40,100.0
|
|
Due under tax receivable agreement
|
|
|
33,655.1
|
|
|
|
33,655.1
|
|
Other liabilities
|
|
|
4,291.4
|
|
|
|
4,629.8
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
176,094.4
|
|
|
|
191,972.6
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 9)
|
|
|
|
|
|
|
|
|
Class A common stock (500,000,000 shares authorized,
2010 27,733,299 shares issued and outstanding;
2009 27,658,799 shares issued and outstanding)
|
|
|
27.7
|
|
|
|
27.6
|
|
Class B common stock (50,000,000 shares authorized,
2010 15,600,000 shares issued and outstanding;
2009 15,600,000 shares issued and outstanding)
|
|
|
15.6
|
|
|
|
15.6
|
|
Class C common stock (210,000,000 shares authorized,
2010 16,755,844 shares issued and outstanding;
2009 16,755,844 shares issued and outstanding)
|
|
|
167.6
|
|
|
|
167.6
|
|
Additional paid-in capital
|
|
|
590,498.6
|
|
|
|
586,956.2
|
|
Accumulated deficit
|
|
|
(564,213.5
|
)
|
|
|
(580,274.8
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
26,496.0
|
|
|
|
6,892.2
|
|
Non-controlling interests
|
|
|
7,486.4
|
|
|
|
(2,910.6
|
)
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
33,982.4
|
|
|
|
3,981.6
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
$
|
210,076.8
|
|
|
$
|
195,954.2
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to unaudited consolidated financial
statements.
F-27
ARTIO GLOBAL
INVESTORS INC. AND SUBSIDIARIES
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands, except per share information)
|
|
|
Revenues and other operating income:
|
|
|
|
|
|
|
|
|
Investment management fees
|
|
$
|
85,286.5
|
|
|
$
|
62,815.8
|
|
Net gains (losses) on securities held for deferred compensation
|
|
|
321.4
|
|
|
|
(273.3
|
)
|
Foreign currency gains (losses)
|
|
|
23.2
|
|
|
|
(15.6
|
)
|
|
|
|
|
|
|
|
|
|
Total revenues and other operating income
|
|
|
85,631.1
|
|
|
|
62,526.9
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
Employee compensation and benefits:
|
|
|
|
|
|
|
|
|
Salaries, incentive compensation and benefits
|
|
|
25,168.7
|
|
|
|
16,939.9
|
|
Allocation of Class B profits interests
|
|
|
|
|
|
|
10,215.2
|
|
Change in redemption value of Class B profits interests
|
|
|
|
|
|
|
18,126.0
|
|
|
|
|
|
|
|
|
|
|
Employee compensation and benefits
|
|
|
25,168.7
|
|
|
|
45,281.1
|
|
Shareholder servicing and marketing
|
|
|
4,548.3
|
|
|
|
3,069.4
|
|
General and administrative
|
|
|
10,285.3
|
|
|
|
8,173.4
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
40,002.3
|
|
|
|
56,523.9
|
|
|
|
|
|
|
|
|
|
|
Operating income before income tax expense
|
|
|
45,628.8
|
|
|
|
6,003.0
|
|
Non-operating income (loss):
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
1.1
|
|
|
|
116.9
|
|
Interest expense
|
|
|
(660.7
|
)
|
|
|
(0.1
|
)
|
Net gains (losses) on marketable securities
|
|
|
(1.0
|
)
|
|
|
(197.8
|
)
|
|
|
|
|
|
|
|
|
|
Total non-operating loss
|
|
|
(660.6
|
)
|
|
|
(81.0
|
)
|
|
|
|
|
|
|
|
|
|
Income before income tax expense
|
|
|
44,968.2
|
|
|
|
5,922.0
|
|
Income taxes
|
|
|
14,767.3
|
|
|
|
2,876.8
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
30,200.9
|
|
|
|
3,045.2
|
|
Net income attributable to non-controlling interests
|
|
|
11,333.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Artio Global Investors
|
|
$
|
18,867.9
|
|
|
$
|
3,045.2
|
|
|
|
|
|
|
|
|
|
|
Per share information:
|
|
|
|
|
|
|
|
|
Basic net income attributable to Artio Global Investors
|
|
$
|
0.42
|
|
|
$
|
0.07
|
|
|
|
|
|
|
|
|
|
|
Diluted net income attributable to Artio Global Investors
|
|
$
|
0.42
|
|
|
$
|
0.07
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares used to calculate per share information:
|
|
|
|
|
|
|
|
|
Basic
|
|
|
44,460.2
|
|
|
|
42,000.0
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
44,628.8
|
|
|
|
42,000.0
|
|
|
|
|
|
|
|
|
|
|
Dividends per basic share declared
|
|
$
|
0.06
|
|
|
$
|
0.33
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to unaudited consolidated financial
statements.
F-28
ARTIO GLOBAL
INVESTORS INC. AND SUBSIDIARIES
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
|
|
|
Class B
|
|
|
Class C
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
|
|
|
Common
|
|
|
Common
|
|
|
Additional
|
|
|
Retained
|
|
|
|
|
|
|
|
|
|
|
|
|
(par
|
|
|
Stock (par
|
|
|
Stock (par
|
|
|
Paid-in
|
|
|
Earnings
|
|
|
Stockholders
|
|
|
Non-Controlling
|
|
|
|
|
|
|
value $0.001)
|
|
|
value $0.001)
|
|
|
value $0.01)
|
|
|
Capital
|
|
|
(Deficit)
|
|
|
Equity
|
|
|
Interests
|
|
|
Total Equity
|
|
|
|
(In thousands, except per share information)
|
|
|
Balance as of January 1, 2009
|
|
$
|
|
|
|
$
|
|
|
|
$
|
420.0
|
|
|
$
|
17,930.0
|
|
|
$
|
14,895.1
|
|
|
$
|
33,245.1
|
|
|
$
|
|
|
|
$
|
33,245.1
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,045.2
|
|
|
|
3,045.2
|
|
|
|
|
|
|
|
3,045.2
|
|
Distribution to GAM Holding Ltd. of $0.33 per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14,000.0
|
)
|
|
|
(14,000.0
|
)
|
|
|
|
|
|
|
(14,000.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of March 31, 2009
|
|
$
|
|
|
|
$
|
|
|
|
$
|
420.0
|
|
|
$
|
17,930.0
|
|
|
$
|
3,940.3
|
|
|
$
|
22,290.3
|
|
|
$
|
|
|
|
$
|
22,290.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of January 1, 2010
|
|
$
|
27.6
|
|
|
$
|
15.6
|
|
|
$
|
167.6
|
|
|
$
|
586,956.2
|
|
|
$
|
(580,274.8
|
)
|
|
$
|
6,892.2
|
|
|
$
|
(2,910.6
|
)
|
|
$
|
3,981.6
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,867.9
|
|
|
|
18,867.9
|
|
|
|
11,333.0
|
|
|
|
30,200.9
|
|
Amortization of share-based payments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,418.4
|
|
|
|
|
|
|
|
3,418.4
|
|
|
|
|
|
|
|
3,418.4
|
|
Vesting of share-based payments
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeiture of share-based payments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13.1
|
)
|
|
|
|
|
|
|
(13.1
|
)
|
|
|
|
|
|
|
(13.1
|
)
|
Distribution to non-controlling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(936.0
|
)
|
|
|
(936.0
|
)
|
Dividends of $0.06 per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,669.4
|
)
|
|
|
(2,669.4
|
)
|
|
|
|
|
|
|
(2,669.4
|
)
|
RSU dividend equivalents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
137.2
|
|
|
|
(137.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of March 31, 2010
|
|
$
|
27.7
|
|
|
$
|
15.6
|
|
|
$
|
167.6
|
|
|
$
|
590,498.6
|
|
|
$
|
(564,213.5
|
)
|
|
$
|
26,496.0
|
|
|
$
|
7,486.4
|
|
|
$
|
33,982.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to unaudited consolidated financial
statements.
F-29
ARTIO GLOBAL
INVESTORS INC. AND SUBSIDIARIES
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
30,200.9
|
|
|
$
|
3,045.2
|
|
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
675.8
|
|
|
|
636.8
|
|
Deferred compensation and share-based compensation
|
|
|
3,405.3
|
|
|
|
18,632.0
|
|
Deferred income taxes
|
|
|
(512.4
|
)
|
|
|
(7,099.8
|
)
|
Interest accrued on marketable securities and accretion and
amortization of discount and premium
|
|
|
|
|
|
|
89.1
|
|
(Gains)/losses on marketable securities and securities held for
deferred compensation
|
|
|
(320.4
|
)
|
|
|
471.1
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
Fees receivable and accrued fees, net of allowance for doubtful
accounts
|
|
|
1,846.6
|
|
|
|
13,687.1
|
|
Due to/from GAM Holding Ltd.
|
|
|
|
|
|
|
(543.2
|
)
|
Income taxes receivable
|
|
|
(685.8
|
)
|
|
|
|
|
Other assets
|
|
|
(844.1
|
)
|
|
|
737.9
|
|
Accrued compensation and benefits
|
|
|
(20,582.2
|
)
|
|
|
(48,851.4
|
)
|
Accounts payable and accrued expenses
|
|
|
(1,970.2
|
)
|
|
|
(1,503.3
|
)
|
Accrued income taxes payable
|
|
|
6,989.4
|
|
|
|
2,464.3
|
|
Other liabilities
|
|
|
(338.4
|
)
|
|
|
(331.6
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
17,864.5
|
|
|
|
(18,565.8
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Purchase of marketable securities and securities held for
deferred compensation
|
|
|
(3,607.8
|
)
|
|
|
(2,528.9
|
)
|
Proceeds from sales or maturities of marketable securities and
securities held for deferred compensation
|
|
|
3,585.4
|
|
|
|
45,226.7
|
|
Purchase of fixed assets
|
|
|
(330.4
|
)
|
|
|
(477.4
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
(352.8
|
)
|
|
|
42,220.4
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Distributions paid to non-controlling interests
|
|
|
(936.0
|
)
|
|
|
|
|
Dividends paid
|
|
|
(2,669.4
|
)
|
|
|
(14,000.0
|
)
|
|
|
|
|
|
|
|
|
|
Net cash used by financing activities
|
|
|
(3,605.4
|
)
|
|
|
(14,000.0
|
)
|
|
|
|
|
|
|
|
|
|
Effect of exchange rates on cash
|
|
|
23.2
|
|
|
|
(15.6
|
)
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
13,929.5
|
|
|
|
9,639.0
|
|
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
Beginning of period
|
|
|
60,841.7
|
|
|
|
86,563.0
|
|
|
|
|
|
|
|
|
|
|
End of period
|
|
$
|
74,771.2
|
|
|
$
|
96,202.0
|
|
|
|
|
|
|
|
|
|
|
Cash paid during period for:
|
|
|
|
|
|
|
|
|
Income taxes, net of refunds
|
|
$
|
9,137.5
|
|
|
$
|
6,228.7
|
|
Interest expense
|
|
|
498.1
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to unaudited consolidated financial
statements.
F-30
ARTIO GLOBAL
INVESTORS INC. AND SUBSIDIARIES
March 31,
2010 and 2009 and year ended December 31,
2009
|
|
Note 1.
|
Background and
Basis of Presentation
|
Artio Global Investors Inc. (Investors or the
Company) and subsidiaries (collectively,
we, us or our) comprises
Investors and its three subsidiaries, Artio Global Holdings LLC
(Holdings), an intermediate holding company, Artio
Global Management LLC (Investment Adviser), a
registered investment adviser under the Investment Advisers Act
of 1940, and Artio Capital Management LLC. Holdings is
approximately 74% owned by Investors, 13% owned by Richard Pell,
our Chairman, Chief Executive Officer and Chief Investment
Officer (Pell), and 13% owned by Rudolph-Riad
Younes, our Head of International Equity (Younes,
together with Pell, the Principals). The
Principals interests are reflected in the consolidated
financial statements as non-controlling interests. Investment
Adviser and Artio Capital Management LLC are wholly owned
subsidiaries of Holdings.
Investment Adviser is our primary operating entity and provides
investment management services to institutional and mutual fund
clients. It manages and advises the Artio Global Funds, which
are U.S. registered investment companies; comingled
institutional investment vehicles; separate accounts; and
sub-advisory
accounts. While our assets under management (AuM)
are invested primarily outside of the U.S, our clients are
primarily U.S. based.
Our revenues are based primarily on the U.S. dollar value
of the investment assets we manage for clients. AuM may vary as
a result of the market performance of the investments and client
cash flows into or out of the investments. A majority of AuM are
invested in assets denominated in currencies other than the
U.S. dollar. As a result, the U.S. dollar value of
assets under management fluctuates with changes in foreign
currency exchange rates. Our revenues fluctuate with changes in
AuM.
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
Statements of Changes in Equity gives retroactive effect to a
10,500:1 stock split that was effected as of August 28,
2009.
Our interim consolidated financial statements are unaudited.
Interim results reflect all normal recurring adjustments that
are, in the opinion of management, necessary for a fair
presentation of the results. Revenues and other operating
income and Net income can vary significantly from
quarter to quarter due to the nature of our business activities.
The financial results of interim periods may not be indicative
of the financial results for the entire year.
As part of the preparation of the interim consolidated financial
statements, we performed an evaluation of subsequent events
occurring after the Consolidated Statement of Financial Position
date of March 31, 2010, through to the date the interim
consolidated financial statements were issued.
These statements should be read in conjunction with our
consolidated financial statements and related notes as of
December 31, 2009, and for the three years then ended, in
our 2009 Annual Report on
Form 10-K.
F-31
ARTIO GLOBAL
INVESTORS INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements Continued
|
|
Note 2.
|
Initial Public
Offering and Changes in the Principals Interests
|
Prior to September 29, 2009, Investors was a wholly owned
subsidiary of GAM Holding Ltd. (formerly known as Julius Baer
Holding Ltd.), a Swiss corporation (GAM). On
September 29, 2009, we completed an initial public offering
(IPO) of Investors Class A common stock.
Before the IPO, each Principal had a 15% Class B profits
interest in Investment Adviser, which was accounted for as
compensation. 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), resulting in the compensation liability being
reclassified as equity. 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. The Principals New Class A Units,
representing an approximate 26% interest in Holdings, are
accounted for by us as non-controlling interests.
|
|
Note 3.
|
Related Party
Activities
|
Prior to the IPO, we engaged in transactions with GAM and other
affiliates in the ordinary course of business. We also engage in
transactions with our mutual funds.
Affiliate
Transactions Mutual and Offshore Funds
We earn management fees from the Funds, which are considered
related parties, as Investment Adviser manages the operations
and makes investment decisions for these Funds. Investment
Adviser provides investment management services to the Funds
pursuant to investment management agreements with the Funds,
which are subject to review and approval by their boards of
directors or trustees. Investment Adviser also derives
investment management revenue from
sub-advising
certain offshore funds sponsored by affiliates of GAM. Revenues
related to these services are included in Investment
management fees in the Consolidated Statement of Operations
as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Funds investment management fees
|
|
$
|
48,900.2
|
|
|
$
|
35,662.3
|
|
Sub-advisory
investment management fees on GAM-sponsored funds
|
|
|
592.2
|
|
|
|
362.9
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
As of
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Funds investment management fees
|
|
$
|
17,831.1
|
|
|
$
|
17,189.6
|
|
Sub-advisory
investment management fees on GAM-sponsored funds
|
|
|
671.2
|
|
|
|
614.9
|
|
|
|
|
|
|
|
|
|
|
F-32
ARTIO GLOBAL
INVESTORS INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements Continued
Other Related
Party Transactions
Prior to the IPO, we had a licensing fee arrangement with GAM
for the use of the Julius Baer name in our products and
marketing strategies. These licensing fees were
$0.8 million for the three months ended March 31,
2009. This arrangement has been terminated.
Certain participants in the deferred compensation plan sponsored
by Investors, for employees whose annual discretionary bonus
award exceeds certain predefined amounts (the Funded
Plan), direct a portion of their deferred bonuses to their
choice of the Funds. Assets related to the Funded Plan are
included in Marketable securities on the Consolidated
Statement of Financial Position and realized and changes in
unrealized gains (losses) on investments in the Funds are
recorded in Net gains (losses) on securities held for
deferred compensation on the Consolidated Statement of
Operations (see Note 4. Marketable Securities, at Fair
Value).
Investors manages, at no cost to the plans, the assets of the
non-contributory qualified defined contribution retirement plan
sponsored by Investors, which covers most employees.
|
|
Note 4.
|
Marketable
Securities, at Fair Value
|
We carry our marketable securities portfolio at fair value using
a valuation hierarchy based on the transparency of the inputs to
the valuation techniques used to measure fair value.
Classification within the hierarchy is based upon the lowest
level of input that is significant to the fair value
measurement. The valuation hierarchy contains three levels:
(i) valuation inputs comprising unadjusted quoted market
prices for identical assets or liabilities in active markets
(Level 1); (ii) valuation inputs
comprising quoted prices for identical assets or liabilities in
markets that are not active, quoted market prices for similar
assets and liabilities in active markets, and other observable
inputs directly or indirectly related to the asset or liability
being measured (Level 2); and
(iii) valuation inputs that are unobservable and are
significant to the fair value measurement
(Level 3).
Marketable securities as of March 31, 2010, and
December 31, 2009, consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
|
Value
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
|
(In thousands)
|
|
|
As of March 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Artio Global Funds
|
|
$
|
8,236.3
|
|
|
$
|
8,421.2
|
|
|
$
|
|
|
|
$
|
(184.9
|
)
|
Other investments
|
|
|
17.0
|
|
|
|
10.0
|
|
|
|
7.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
8,253.3
|
|
|
$
|
8,431.2
|
|
|
$
|
7.0
|
|
|
$
|
(184.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Artio Global Funds
|
|
$
|
7,892.5
|
|
|
$
|
8,448.6
|
|
|
$
|
|
|
|
$
|
(556.1
|
)
|
Other investments
|
|
|
18.0
|
|
|
|
10.0
|
|
|
|
8.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
7,910.5
|
|
|
$
|
8,458.6
|
|
|
$
|
8.0
|
|
|
$
|
(556.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-33
ARTIO GLOBAL
INVESTORS INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements Continued
Our marketable securities as of March 31, 2010, and
December 31, 2009, are valued using prices as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 2
|
|
|
Level 3
|
|
|
|
|
|
|
Level 1
|
|
|
Other
|
|
|
Significant
|
|
|
|
|
|
|
Quoted
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
Total
|
|
|
Prices
|
|
|
Inputs
|
|
|
Inputs
|
|
|
|
(In thousands)
|
|
|
As of March 31, 2010
|
|
$
|
8,253.3
|
|
|
$
|
8,236.3
|
|
|
$
|
|
|
|
$
|
17.0
|
|
As of December 31, 2009
|
|
|
7,910.5
|
|
|
|
7,892.5
|
|
|
|
|
|
|
|
18.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The change in Level 3 securities is as follows:
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Beginning of period
|
|
$
|
18.0
|
|
|
$
|
14.6
|
|
Unrealized losses
|
|
|
(1.0
|
)
|
|
|
(2.5
|
)
|
|
|
|
|
|
|
|
|
|
End of period
|
|
$
|
17.0
|
|
|
$
|
12.1
|
|
|
|
|
|
|
|
|
|
|
Changes in unrealized gains (losses) and realized gains (losses)
are recorded in Net gains (losses) on marketable securities
and Net gains (losses) on securities held for deferred
compensation on our Consolidated Statement of Operations, as
follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
U.S. government and agency and other securities:
|
|
|
|
|
|
|
|
|
Change in unrealized losses
|
|
$
|
(1.0
|
)
|
|
$
|
(197.8
|
)
|
|
|
|
|
|
|
|
|
|
Net gains (losses) on marketable securities
|
|
$
|
(1.0
|
)
|
|
$
|
(197.8
|
)
|
|
|
|
|
|
|
|
|
|
Artio Global Funds:
|
|
|
|
|
|
|
|
|
Change in unrealized gains (losses)
|
|
$
|
371.2
|
|
|
$
|
(141.5
|
)
|
Realized losses
|
|
|
(49.8
|
)
|
|
|
(131.8
|
)
|
|
|
|
|
|
|
|
|
|
Net gains (losses) on securities held for deferred compensation
|
|
$
|
321.4
|
|
|
$
|
(273.3
|
)
|
|
|
|
|
|
|
|
|
|
Investments in the Funds fluctuate in value based on overall
market conditions, as well as factors specific to the Funds.
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. As of March 31, 2010, the interest
rate associated with the $60.0 million borrowing was set at
3.25%, and reset to 3.30% in April 2010. The amortization
schedule requires quarterly principal payments of 7.5% in both
years two and three, beginning on December 31, 2010, with a
final payment of 40% at maturity. There is no remaining capacity
under the term credit facility.
F-34
ARTIO GLOBAL
INVESTORS INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements Continued
The covenants in the credit facility agreement require
compliance with certain financial ratios. As of March 31,
2010, Holdings was in compliance with all debt covenants.
|
|
Note 6.
|
Share-Based
Payments
|
A summary of restricted stock unit (RSU) activity
for the three months ended March 31, 2010, follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average
|
|
|
|
|
|
|
Grant Date Fair
|
|
Number of
|
|
RSU Dividend
|
|
|
Value(a)
|
|
RSUs
|
|
Equivalents
|
|
Outstanding as of January 1, 2010
|
|
|
|
|
|
|
2,146,758
|
|
|
|
|
|
Grants:
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested RSUs granted to certain officers and employees
|
|
$
|
23.58
|
|
|
|
215,398
|
|
|
|
|
|
Dividend equivalents
|
|
|
|
|
|
|
|
|
|
|
5,704
|
|
Vested
|
|
|
26.25
|
|
|
|
(74,500
|
)
|
|
|
|
|
Forfeitures
|
|
|
26.25
|
|
|
|
(500
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding as of March 31, 2010
|
|
|
|
|
|
|
2,287,156
|
|
|
|
5,704
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Weighted-average grant date fair value for grants is based on
the closing price on the grant date. |
In February 2010, we made an aggregate grant of 215,398 RSUs to
certain officers and employees. The granted RSUs will vest pro
rata, on an annual basis over a three-year period from the date
of the grant.
Activity under the Artio Global Investors Inc. 2009 Stock
Incentive Plan was as follows:
|
|
|
|
|
|
|
Units
|
|
|
Available for grant at inception
|
|
|
9,700,000
|
|
RSUs outstanding as of March 31, 2010
|
|
|
(2,287,156
|
)
|
RSU dividend equivalents outstanding as of March 31, 2010
|
|
|
(5,704
|
)
|
RSUs vested as of March 31, 2010
|
|
|
(74,500
|
)
|
Fully-vested restricted stock granted to independent directors
|
|
|
(14,643
|
)
|
|
|
|
|
|
Available for grant as of March 31, 2010
|
|
|
7,317,997
|
|
|
|
|
|
|
F-35
ARTIO GLOBAL
INVESTORS INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements Continued
A summary of the provisions for income taxes is as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Current:
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
10,712.6
|
|
|
$
|
6,694.2
|
|
State and local
|
|
|
4,567.1
|
|
|
|
3,282.4
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
15,279.7
|
|
|
|
9,976.6
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(368.1
|
)
|
|
|
(4,970.2
|
)
|
State and local
|
|
|
(144.3
|
)
|
|
|
(2,129.6
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
(512.4
|
)
|
|
|
(7,099.8
|
)
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
$
|
14,767.3
|
|
|
$
|
2,876.8
|
|
|
|
|
|
|
|
|
|
|
Tax years 2006 to the present are open for examination by
federal, state and local tax authorities. We have been notified
of forthcoming examinations by New York State tax authorities
for the years 2006 through 2008 and by New York City tax
authorities for an examination of Investment Adviser for the
year 2006.
A reconciliation between the federal statutory tax rate of 35%
and the effective tax rates are as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Ended March 31,
|
|
|
2010
|
|
2009
|
|
|
(In percentages)
|
|
Federal statutory rate
|
|
|
35
|
%
|
|
|
35
|
%
|
State and local, net of federal benefit, and other
|
|
|
9
|
|
|
|
13
|
|
Non-controlling interests
|
|
|
(11
|
)
|
|
|
|
|
Permanent differences:
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
1
|
|
Total
|
|
|
33
|
%
|
|
|
49
|
%
|
Tax Receivable
Agreement
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 an exchange, Holdings expects to make an
election under Section 754 of the Internal Revenue Code of
1986, as amended, to increase the tax basis of its tangible and
intangible assets. 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
such Principals exchange. Amounts payable to the
Principals under the tax receivable agreement are payable
approximately 60 days after we file our income tax returns.
F-36
ARTIO GLOBAL
INVESTORS INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements Continued
Although the tax receivable agreement payments are calculated
based on annual tax savings, for the three months ended
March 31, 2010, the payments which would have been made
pursuant to the tax receivable agreement, if such period was
calculated by itself, were estimated to be $0.4 million.
|
|
Note 8.
|
Earnings Per
Share (EPS)
|
Basic and diluted EPS from continuing operations were calculated
using the following:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Net income attributable to Artio Global Investors
|
|
$
|
18,867.9
|
|
|
$
|
3,045.2
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares for basic EPS
|
|
|
44,460.2
|
|
|
|
42,000.0
|
|
Dilutive potential shares from grants of RSUs(a)
|
|
|
168.6
|
|
|
|
|
|
Dilutive potential shares from exchange of New Class A
Units by the Principals(b)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares for diluted EPS
|
|
|
44,628.8
|
|
|
|
42,000.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
The potential impact of approximately 1.7 million granted
RSUs was antidilutive for the three months ended March 31,
2010. |
|
(b) |
|
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 was
antidilutive for the three months ended March 31, 2010. |
On April 26, 2010, the Board of Directors declared a
dividend of $0.06 per share to be paid on May 26, 2010, to
holders of record of our Class A and Class C common
stock at the close of business on May 12, 2010. To provide
funding for the dividend payable to the holders of record of our
Class A and Class C common stock, a distribution by
Holdings of $0.06 per New Class A Unit will be paid to all
members of Holdings, including the Principals.
|
|
Note 9.
|
Commitments and
Contingencies
|
Although we have no obligation to do so, we have, at our
discretion, reimbursed client accounts for certain operational
losses incurred. Such amounts were not material for the three
months ended March 31, 2010 and 2009.
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.
Our cash balances are held primarily with a single
U.S.-based
large money center bank. Effective January 1, 2010, the
bank holding our cash balances ended its participation in the
U.S. Governments Transaction Account Guarantee
Program, which provided unlimited Federal deposit insurance on
our cash balances. Substantially all of our cash balance exceeds
the insurance provided by the Federal Deposit Insurance
Corporation.
|
|
Note 10.
|
Recently Issued
Accounting Pronouncements
|
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 us, that
have interests in certain investment entities. ASC 810.10
F-37
ARTIO GLOBAL
INVESTORS INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements Continued
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. The adoption of the additional disclosure
requirements did not impact our Notes to Consolidated Financial
Statements.
|
|
Note 11.
|
Subsequent
Event
|
On May 18, 2010, our Principals exchanged 6 million
New Class A Units for 6 million shares of our
Class A common stock.
F-38
3,700,000 Shares
Artio Global Investors
Inc.
Class A Common Stock
Goldman, Sachs &
Co.
|
|
BofA
Merrill Lynch |
J.P. Morgan |
PART II
INFORMATION NOT
REQUIRED IN PROSPECTUS
|
|
Item 13.
|
Other Expenses
of Issuance and Distribution.
|
The following table sets forth the estimated costs and expenses
to be incurred in connection with the issuance and distribution
of the securities of Artio Global Investors Inc. (the
Registrant) which are registered under this
Registration Statement on
Form S-1
(this Registration Statement), other than
underwriting discounts and commissions. All amounts are
estimates except the Securities and Exchange Commission
registration fee and the Financial Industry Regulatory
Authority, Inc. filing fee.
The following expenses will be borne solely by the Registrant.
|
|
|
|
|
|
|
Amount to be
|
|
|
|
Paid
|
|
|
Registration fee
|
|
$
|
6,108.98
|
|
Financial Industry Regulatory Authority, Inc. filing fee
|
|
$
|
9,068.00
|
|
Blue Sky fees and expenses
|
|
$
|
|
|
Printing and engraving expenses
|
|
$
|
82,000.00
|
|
Legal fees and expenses
|
|
$
|
600,000.00
|
|
Accounting fees and expenses
|
|
$
|
350,000.00
|
|
Transfer Agents fees
|
|
$
|
3,500.00
|
|
Miscellaneous
|
|
$
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,050,676.98
|
|
|
|
|
|
|
|
|
Item 14.
|
Indemnification
of Directors and Officers.
|
Section 145 of the General Corporation Law of the State of
Delaware (the DGCL) grants each corporation
organized thereunder the power to indemnify any person who is or
was a director, officer, employee or agent of a corporation or
enterprise, against expenses (including attorneys fees),
judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with any threatened,
pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of being or
having been in any such capacity, if he acted in good faith in a
manner reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal
action, or proceeding, had no reasonable cause to believe his
conduct was unlawful, except that with respect to an action
brought by or in the right of the corporation such
indemnification is limited to expenses (including attorneys
fees). Our amended and restated certificate of incorporation
provides that we must indemnify our directors and officers to
the fullest extent permitted by Delaware law. In addition, we
have entered into separate indemnification agreements with our
executive officers and directors, which require us to indemnify
them against liabilities to the fullest extent permitted by
Delaware law.
Section 102(b)(7) of the DGCL enables a corporation, in its
certificate of incorporation or an amendment thereto, to
eliminate or limit the personal liability of a director to the
corporation or its stockholders for monetary damages for
violations of the directors fiduciary duty, except
(i) for any breach of the directors duty of loyalty
to the corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) pursuant to
Section 174 of the DGCL (providing for liability of
directors for unlawful payment of dividends or unlawful stock
purchases or redemptions) or (iv) for any transaction from
which a director derived an improper personal benefit. Our
certificate of incorporation provides for such limitations on
liability for our directors.
II-1
The Registrant currently maintains liability insurance for its
directors and officers. In connection with this offering, the
Registrant will obtain additional liability insurance for its
directors and officers. Such insurance would be available to its
directors and officers in accordance with its terms.
Reference is made to the form of underwriting agreement to be
filed as Exhibit 1.1 hereto for provisions providing that
the underwriters are obligated under certain circumstances, to
indemnify our directors, officers and controlling persons
against certain liabilities under the Securities Act of 1933, as
amended.
|
|
Item 15.
|
Recent Sales
of Unregistered Securities.
|
Except as set forth below, in the three years preceding the
filing of this Registration Statement, the Registrant has not
issued any securities that were not registered under the
Securities Act. In connection with the IPO, on
September 29, 2009, the Registrant sold 9.0 million
shares of Class B common stock to each Principal at par
value. In addition, the Registrant issued 1.2 million
shares of Class A common stock to each Principal in
exchange for an equivalent number of New Class A Units and
the cancellation of an equivalent number of shares of
Class B common stock. These issuances were exempt from
registration pursuant to Section 4(2) of the Act.
Pursuant to the Exchange Requests (as defined in the Exchange
Agreement) delivered by the Principals on May 18, 2010, the
Company issued 3.0 million shares of Class A common
stock to Pell and 3.0 million shares of Class A common
stock to Younes in exchange for an equivalent number of New
Class A Units and the delivery and cancellation of an
equivalent number of shares of Class B common stock (the
Exchange). The Exchange was exempt from registration
pursuant to Section 4(2) of the Securities Act of 1933, as
amended (the Act).
|
|
Item 16.
|
Exhibits and
Financial Statement Schedules.
|
(a) Exhibits: Reference is made to
the Exhibit Index following the signature pages hereto,
which Exhibit Index is hereby incorporated into this Item.
(b) Consolidated Financial Statement
Schedules: All schedules are omitted because
the required information is inapplicable or the information is
presented in the consolidated financial statements and the
related notes.
The undersigned hereby undertakes:
(a) Insofar as indemnification for liabilities arising
under the Securities Act of 1933 may be permitted to
directors, officers and controlling persons of the registrant
pursuant to the provisions referenced in Item 14 of this
Registration Statement, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities
(other than the payment by the registrant of expenses incurred
or paid by a director, officer, or controlling person of the
registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered
hereunder, the registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of
whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final
adjudication of such issue.
II-2
(b) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of
prospectus filed as part of this Registration Statement in
reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities
Act shall be deemed to be part of this Registration Statement as
of the time it was declared effective.
(2) For the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that
contains a form of prospectus shall be deemed to be a new
Registration Statement relating to the securities offered
therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
II-3
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly
authorized, in the City of New York, State of New York, on
June 1, 2010.
Artio Global Investors Inc.
Name: Richard Pell
|
|
|
|
Title:
|
Principal Executive Officer
|
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Registration Statement has been signed by the
following persons in the capacities and on the dates indicated.
II-4
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
/s/ Richard
Pell
Richard
Pell
|
|
Principal Executive Officer and Director
|
|
June 1, 2010
|
|
|
|
|
|
/s/ *
Francis
Harte
|
|
Principal Financial and Accounting Officer
|
|
June 1, 2010
|
|
|
|
|
|
/s/ Glen
Wisher
Glen
Wisher
|
|
Director, President
|
|
June 1, 2010
|
|
|
|
|
|
/s/ *
Francis
Ledwidge
|
|
Director
|
|
June 1, 2010
|
|
|
|
|
|
/s/ *
Duane
Kullberg
|
|
Director
|
|
June 1, 2010
|
|
|
|
|
|
/s/ *
Elizabeth
Buse
|
|
Director
|
|
June 1, 2010
|
Name: Adam Spilka
II-5
EXHIBIT INDEX
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
1
|
|
|
Form of Underwriting Agreement
|
|
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)
|
|
5
|
|
|
Opinion of Davis Polk & Wardwell LLP
|
|
10
|
.1
|
|
Form of Amended and Restated Limited Liability Company Agreement
of Artio Global Holdings LLC (incorporated by reference to
Amendment No. 7 to the Companys Registration
Statement on
Form S-1
(File
No. 333-149178)
Exhibit 10.1)
|
|
10
|
.2
|
|
Form of Registration Rights Agreement (incorporated by reference
to Amendment No. 1 to the Companys Registration
Statement on
Form S-1
(File
No. 333-149178)
Exhibit 10.2)
|
|
10
|
.3
|
|
Form of Exchange Agreement (incorporated by reference to
Amendment No. 7 to the Companys Registration
Statement on
Form S-1
(File
No. 333-149178)
Exhibit 10.3)
|
|
10
|
.4
|
|
Form of Tax Receivable Agreement (incorporated by reference to
Amendment No. 6 to the Companys Registration
Statement on
Form S-1
(File
No. 333-149178)
Exhibit 10.4)
|
|
10
|
.5
|
|
Form of Transition Services Agreement among Julius Baer Group
Ltd., Bank Julius Baer & Co. Ltd. and Artio Global
Management LLC (incorporated by reference to Amendment
No. 7 to the Companys Registration Statement on
Form S-1
(File
No. 333-149178)
Exhibit 10.5)
|
|
10
|
.6
|
|
Julius Baer Holding Ltd. Shareholders Agreement (incorporated by
reference to Amendment No. 7 to the Companys
Registration Statement on
Form S-1
(File
No. 333-149178)
Exhibit 10.7)
|
|
10
|
.7
|
|
Form of Younes Shareholders Agreement (incorporated by reference
to Amendment No. 3 to the Companys Registration
Statement on
Form S-1
(File
No. 333-149178)
Exhibit 10.8)
|
|
10
|
.8
|
|
Form of Employment Agreement with Richard Pell (incorporated by
reference to Amendment No. 6 to the Companys
Registration Statement on
Form S-1
(File
No. 333-149178)
Exhibit 10.9)
|
|
10
|
.9
|
|
Form of Employment Agreement with Glen Wisher (incorporated by
reference to Amendment No. 6 to the Companys
Registration Statement on
Form S-1
(File
No. 333-149178)
Exhibit 10.10)
|
|
10
|
.10
|
|
Form of Employment Agreement with Francis Harte (incorporated by
reference to Amendment No. 6 to the Companys
Registration Statement on
Form S-1
(File
No. 333-149178)
Exhibit 10.11)
|
|
10
|
.11
|
|
Form of Employment Agreement with Tony Williams (incorporated by
reference to Amendment No. 6 to the Companys
Registration Statement on
Form S-1
(File
No. 333-149178)
Exhibit 10.12)
|
|
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)
|
II-6
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
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)
|
|
10
|
.22
|
|
Amendment No. 1 to the Exchange Agreement dated as of
September 29, 2009 by and among Artio Global Investors
Inc., Richard C. Pell, Rudolph-Riad Younes, the Richard Pell
Family Trust, and the Rudolph-Riad Younes Family Trust
(incorporated by reference to the Companys Current Report
on
Form 8-K
(File
No. 001-34457)
Exhibit 10.1)
|
|
10
|
.23
|
|
Form of Stock Repurchase Agreement and Unit Sale Agreement (to
be filed by amendment)
|
|
21
|
|
|
Subsidiaries of the Registrant (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
|
|
23
|
.2
|
|
Consent of Davis Polk & Wardwell LLP (included in
Exhibit 5)
|
|
24
|
.1
|
|
Power of Attorney (previously filed)
|
II-7