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

Unless we state otherwise or the context otherwise requires, references in this Annual Report on Form 10-K to “BrightSphere” or “BSIG” refer to BrightSphere Investment Group Inc., references to the “Company” refer to BSIG, and references to “we,” “our” and “us” refer to BSIG and its consolidated subsidiaries and equity-accounted Affiliate, excluding discontinued operations. References to the holding company or “Center” excluding the Affiliates refer to BrightSphere Inc., or BSUS, a Delaware corporation and indirect, wholly owned subsidiary of BSIG. Unless we state otherwise or the context otherwise requires, references in this Annual Report on Form 10-K to “Affiliates” or an “Affiliate” refer to the asset management firms in which we have an ownership interest. References in this Annual Report on Form 10-K to “OM plc” refer to Old Mutual plc, our former parent. None of the information in this Annual Report on Form 10-K constitutes either an offer or a solicitation to buy or sell any of our Affiliates’ products or services, nor is any such information a recommendation for any of our Affiliates’ products or services.

The following discussion of our financial condition and results of operations should be read in conjunction with our Consolidated Financial Statements and related notes which appear in this Annual Report on Form 10-K in Item 8, Financial Statements and Supplementary Data.

This discussion contains forward-looking statements that involve risks and uncertainties. See “Special Note Regarding Forward-Looking Statements” for more information. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those discussed below and elsewhere in this Annual Report on Form 10-K, particularly under Item 1A, Risk Factors.

This Management’s Discussion and Analysis of Financial Condition and Results of Operations, or MD&A, is designed to provide a reader of our financial statements with a narrative from the perspective of our management on our financial condition, results of operations, liquidity and certain other factors that may affect our future results.

Our MD&A is presented in five sections:

•Overview provides a brief description of our Affiliates, a summary of The Economics of Our Business and an explanation of How We Measure Performance using a non-GAAP measure which we refer to as economic net income, or ENI. This section also provides a Summary Results of Operations and information regarding our Assets Under Management by Affiliate, strategy, client type and client location, and net flows by segment, client type and client location.

•U.S. GAAP Results of Operations for the years ended December 31, 2020, 2019 and 2018 includes an explanation of changes in our U.S. GAAP revenue, expense, and other items over the last three years as well as key U.S. GAAP operating metrics.

•Non-GAAP Supplemental Performance Measure—Economic Net Income and Segment Analysis includes an explanation of the key differences between U.S. GAAP net income and ENI, the key measure management uses to evaluate our performance. This section also provides a reconciliation between U.S. GAAP net income and ENI for the years ended December 31, 2020, 2019, and 2018, as well as a reconciliation of key ENI operating items including ENI revenue and ENI operating expenses. This section also provides key Non-GAAP operating metrics and a calculation of tax on economic net income. In addition, this section provides segment analysis for each of our business segments.

•Capital Resources and Liquidity discusses our key balance sheet data. This section discusses Cash Flows from the business; Working Capital and Long-Term Debt;Adjusted EBITDA; Future Capital Needs; and Commitments, Contingencies and Off-Balance Sheet Obligations. The discussion of Adjusted EBITDA includes an explanation of how we calculate Adjusted EBITDA and a reconciliation of U.S. GAAP net income attributable to controlling interests to Adjusted EBITDA.

•Critical Accounting Policies and Estimates provides a discussion of the key accounting policies and estimates that we believe are the most critical to an understanding of our results of operations and financial condition. These accounting policies and estimates require complex management judgment regarding matters that are highly uncertain at the time policies were applied and estimates were made.

Overview

We are a diversified, global asset management company headquartered in Boston, Massachusetts. We operate our business through three business segments:

•Quant & Solutions—comprised of versatile, often highly-tailored strategies that leverage data and technology in a computational, factor-based investment process across a range of asset classes and geographies, including Global, non-U.S., and emerging markets equities, as well as multi-asset and managed volatility products.

•Alternatives—comprised of illiquid and differentiated liquid investment strategies that include private equity, real estate and real assets, including forestry, as well as a growing suite of liquid alternative capabilities in areas such as long/short, market neutral and absolute return.

•Liquid Alpha—comprised of specialized investment strategies with a focus on alpha-generation across market cycles in long-only small-, mid-, and large-cap U.S. and non-U.S. equities, as well as fixed income.

Within our three segments, we have five affiliate firms to whom we refer in this Annual Report on Form 10-K as our Affiliates. Through our Affiliates, we offer a diverse range of actively-managed investment strategies and products to institutional investors around the globe. While our Affiliates maintain autonomy in the investment process and the day-to-day management of their businesses, our strategy is to work with them to accelerate the growth and profitability of their firms.

Under U.S. GAAP, our Affiliates may be consolidated into our operations or may be accounted for under the equity method of accounting. We may also be required to consolidate certain of our Affiliates’ sponsored investment entities, or Funds, due to the nature of our decision-making rights, our economic interests in these Funds or the rights of third party clients in those Funds.

Our Affiliates within each business segment and their principal strategies include:

Quant & Solutions

•Acadian Asset Management LLC (“Acadian”)(1)—a leading quantitatively-oriented manager of active global and international equity, and alternative strategies.

Alternatives

•Landmark Partners, LLC (“Landmark”)—a leading global secondary private equity, real estate and real asset investment firm.

•Campbell Global, LLC (“Campbell Global”)—a leading sustainable forestry and natural resource investment manager that seeks to deliver superior investment performance by focusing on unique acquisition opportunities, client objectives and disciplined management.

Liquid Alpha

•Thompson, Siegel & Walmsley LLC (“TSW”)(1)—a value-oriented investment manager focused on small- and mid-cap U.S. equity, international equity and fixed income strategies.

•Investment Counselors of Maryland, LLC (“ICM”)(2)—a value-driven domestic equity manager with product offerings focused on small- and mid-cap companies.

(1)Certain smaller Acadian strategies are included in Alternatives and certain TSW strategies are included in Quant & Solutions where the classification is more appropriate.

(2)Accounted for under the equity method of accounting.

Recent Developments

Divestiture of Barrow Hanley, Copper Rock and ICM

On July 24, 2020, we sold all of our equity interests in Copper Rock, a former Affiliate included in our Liquid Alpha segment, to Spouting Rock Asset Management LLC. The transaction resulted in a $7.2 million pre-tax gain which is reflected on our Consolidated Statement of Operations for the year ended December 31, 2020.

On November 17, 2020, we completed the sale of all of our equity interests in Barrow Hanley, a former Affiliate included in our Liquid Alpha segment, to Perpetual U.S. Holdings Company Inc. (“Perpetual”). The transaction resulted in a $231.2 million pre-tax gain which is reflected on our Consolidated Statement of Operations for the year ended December 31, 2020.

On February 6, 2021, we entered into a definitive agreement to sell all our interests in ICM, an Affiliate included in the Liquid Alpha segment. The transaction is expected to close during second quarter of 2021.

COVID-19 Impact

Beginning in the first quarter of 2020, the outbreak of COVID-19 had a significant impact on the global economy and the financial and securities markets, which will likely to continue for months to come. Because most of the revenue we earn is based on the market value of our assets under management, fluctuations in global markets impact our revenues and earnings. Our assets under management, excluding the impact of Barrow Hanley and Copper Rock divestitures, declined from $148.8 billion on December 31, 2019 to $119.8 billion on March 31, 2020, and have subsequently rebounded to $156.7 billion as of December 31, 2020.

The COVID-19 pandemic continues to impact the manner in which we operate. As of the date of this filing, the majority of our employees are working from home and our employees have significantly reduced business travel. Additionally, many third-party vendors on whom we rely for certain critical functions are also operating in remote environments. Given the continued uncertainty surrounding the COVID-19 pandemic, it is difficult to predict how long such remote working conditions and travel restrictions will last. We expect most operating costs to return to pre-COVID-19 levels when employees return to the office and resume business travel.

We believe we are operating well under these circumstances, benefiting from the flexible and highly mobile operating environment. However, market volatility, as well as changes in our operations and those of our key vendors, may result in increased client redemptions; inefficiencies, delays and decreased communication; and an increase in the number and significance of operational and trade errors. In addition, we do not know what, if any, longer-term impact the current operating circumstances (and/or the extension of them) will have on our business and results.The extent of the impact on our business operations, assets under management and financial results will depend on a number of factors and future developments, which are uncertain and cannot be predicted. See Item 1A, Risk Factors.

The Economics of Our Business

Our profitability is affected by a variety of factors including the level and composition of our average assets under

management, or AUM, fee rates charged on AUM and our expense structure. Our Affiliates earn management fees

based on assets under management. Approximately 70% of our management fees are calculated based on average

AUM (calculated on either a daily or monthly basis) with the remainder of our management fees calculated based on

period-end AUM or other measuring methods. Changes in the levels of our AUM are driven by our investment

performance and net client cash flows. Our Affiliates may also earn performance fees, or adjust management fees,

when certain accounts differ in relation to relevant benchmarks or exceed or fail to exceed required returns.

Approximately $17.5 billion, or 11% of our AUM in consolidated Affiliates, are in accounts with incentive fee or carried interest features in which we participate in the performance fee. The majority of these incentive fees are calculated based on value added over the relevant benchmarks on a rolling three-year basis. Carried interests are features of private equity funds, which are calculated based on long-term cumulative returns.

Our largest expense item is compensation and benefits paid to our and our Affiliates’ employees, which consists of

both fixed and variable components. Fixed compensation and benefits represents base salaries and wages, payroll

taxes and the costs of our employee benefit programs. Variable compensation, calculated as described below, may be awarded in cash, equity or profit interests.

The arrangements in place with our Affiliates result in the sharing of economics between BSUS and each Affiliate’s

key management personnel using a profit-sharing model, except for ICM, which uses a revenue share model as a

result of a legacy economic arrangement that has not been restructured. Profit sharing affects two elements within

our earnings: (i) the calculation of variable compensation and (ii) the level of each Affiliate’s equity or profit

interests distribution to its employees. Variable compensation is the portion of earnings that is contractually

allocated to Affiliate employees as a bonus pool, typically representing a fixed percentage of earnings before

variable compensation, which is measured as revenues less fixed compensation and benefits and other operating and

administrative expenses. Profits after variable compensation are shared between us and Affiliate key employee

equity holders according to our respective equity or profit interests ownership. The sharing of profits in this manner

ensures that the economic interests of Affiliate key employees and those of BSUS are aligned, both in terms of

generating strong annual earnings as well as investing those earnings back into the business in order to generate

growth over the long term. We view profit sharing as an attractive operating model, as it allows us to share in the

benefits of operating leverage as the business grows, and ensures all equity and profit interests holders are

incentivized to achieve that growth.

Equity or profit interests owned by Affiliate key employees are either awarded as part of their variable compensation

arrangements, or alternatively, may have originally resulted from BSUS acquiring less than 100% of the Affiliate.

Over time, Affiliate key employee-owned equity or profit interests are recycled from one generation of employee owners to the next, either by the next generation purchasing equity or profit interests directly from retiring

principals, or by Affiliate key employees forgoing cash bonuses in exchange for the equivalent value in Affiliate

equity or profit interests. The recycling of equity or profit interests is often facilitated by BSUS; see "—U.S. GAAP

Results of Operations—U.S. GAAP Expenses—Compensation and Benefits Expense" for a further discussion.

The diagram below provides an illustrative example of how the profit-sharing model would work initially and over time if the affiliate grew its revenue and profits. In this example, the employees’ variable compensation has been contractually set at 30% of earnings before variable compensation, and the earnings after variable compensation are split 60% to BSUS and 40% to the affiliate key employees. Revenue initially equals $200 and operating expenses equal $100. Therefore, earnings before variable compensation equal $100 and the contractual bonus pool (variable compensation) equals $30. The owners split the $70 profit after variable compensation, with BSUS receiving $42, or 60%, and the Affiliate key employees receiving $28, or 40%. Including both the contractual employee bonus pool and the key employees’ share of profit, the employees receive $58, or 58% of profit before variable compensation. Employee equity is valued at a fixed multiple of this $28 share of profits, so employees have transparency into both their earning potential in any year from the bonus pool and share of profits, as well as the current value of their equity and the long-term potential to realize value from its growth. In this structure, key employees who are managing their business have incentives to manage for profit, but also to manage the business prudently, in the interest of their clients, and invest for growth, since they will benefit over the long term as both employees and equity holders. In this way, each Affiliate is aligned with BSUS and the public shareholders to generate profits and growth over time.

Illustrative Structure: Profit-Sharing Economics

Figures in parenthesis indicate impact of model after five years if revenue and pre-bonus operating expenses grew 15% and 7% annually, respectively.

The alignment of interests is even clearer if we consider the impact of growth on the profit-sharing model. The numbers in parenthesis in the diagram represent the financial results of the illustrative business in five years, assuming revenue has grown at 15% annually and operating expenses have grown at 7% annually. With revenue of $400 and operating expenses of $140, profit before variable compensation has now increased to $260, representing an annual growth rate of 21%. The 30% contractual bonus pool of $78 has also grown 21% annually, as has BSUS’s 60% share of profits, which equals $109, and the affiliate’s 40% share of profits, which equals $73. From this example, it is clear that as profit in the affiliate’s business grows and the operating margin increases, both of the stakeholders—BSUS and the key employees—are benefiting in a proportionate way. This means that both parties are aligned to invest in the business by hiring new investment professionals, developing new products, or establishing new distribution channels. We believe this investment in turn benefits clients and should generate growth over time.

The alternative structure common in the industry is the revenue share model. In the revenue share model, the affiliate’s revenue is typically divided into two fixed percentages—the operating allocation and the owners’ allocation. All operating expenses of the business, including employee bonuses, must be covered by the operating allocation. The owners’ allocation can be owned entirely by the affiliate owner or ownership can be divided between the affiliate owner and the affiliate’s key employees. In either case, the affiliate owner effectively owns a fixed percentage of the affiliates’ revenue, which typically does not change as the business grows. While the initial economics of the profit share model and the revenue share model can be similar, over time the economic split and incentive structure can be quite different, leading to less alignment between the affiliate and the affiliate owner. The affiliate owner’s share of profits grows in line with revenue, while any operating leverage in the business is retained entirely by the affiliate’s employees. Likewise, new costs and investments to drive growth are borne entirely by the affiliate employees, while the revenue generated by these investments is shared with the affiliate owner. While the revenue share structure has been successfully implemented by a number of our peers who have a more autonomous strategy, for BSIG, which emphasizes collaborative engagement and joint investment with our Affiliates, the alignment of the profit-sharing model is mutually reinforcing with our overall growth strategy and operating philosophy.

How We Measure Performance

We manage our business based on three business segments, reflecting how our management assesses the performance of our business.

In measuring and monitoring the key components of our earnings, our management uses a non-GAAP financial measure, ENI, to evaluate the financial performance of, and to make operational decisions for, our business. We also use ENI to make resource allocation decisions, determine appropriate levels of investment or dividend payout, manage balance sheet leverage, determine Affiliate variable compensation and equity distributions, and incentivize management. It is an important measure in evaluating our financial performance because we believe it most accurately represents our operating performance and cash generation capability.

ENI differs from net income determined in accordance with U.S. GAAP as a result of both the reclassification of certain income statement items and the exclusion of certain non-cash or non-recurring income statement items. In particular, ENI excludes non-cash charges representing the changes in the value of Affiliate equity and profit interests held by Affiliate key employees, the impact of a one-time compensation arrangement entered into that includes advances against future compensation payments, the results of discontinued operations which are no longer part of our business, restructuring costs, capital transaction costs, seed capital and co-investment gains, losses and related financing costs, and that portion of consolidated Funds which are not attributable to our stockholders. ENI is also adjusted for amortization of acquisition-related contingent consideration and pre-acquisition retained equity with service components.

ENI revenue is primarily comprised of the fee revenues paid to us by our clients for our advisory services and earnings from our equity-accounted Affiliate. Revenue included within ENI differs from U.S. GAAP revenue in that it excludes amounts from consolidated Funds which are not attributable to our stockholders, it excludes reimbursement of certain costs we paid on behalf of our customers and it includes our share of earnings from our equity-accounted Affiliate.

ENI expenses are calculated to reflect all usual expenses from ongoing continuing operations attributable to our stockholders. Expenses included within ENI differ from U.S. GAAP expenses in that they exclude amounts from consolidated Funds which are not attributable to our stockholders, revaluations of Affiliate key employee owned equity and profit interests, amortization and impairment of acquired intangibles and other acquisition-related items, the impact of a one-time compensation arrangement entered into that includes advances against future compensation payments, costs we paid on behalf of our customers which were subsequently reimbursed and certain other non-cash expenses.

“Non-controlling interests” is a concept under U.S. GAAP that identifies net components of revenues and expenses that are not attributable to our stockholders. For example, the portion of the net income (loss) of any consolidated Funds that is attributable to the outside investors or clients of the consolidated Funds is included in “Non-controlling interests” in our Consolidated Financial Statements. Conversely, “controlling interests” is the portion of revenue or expense that is attributable to our stockholders.

For a more detailed discussion of the differences between U.S. GAAP net income and economic net income, see "—Non-GAAP Supplemental Performance Measure — Economic Net Income and Segment Analysis."

Summary Results of Operations

The following table summarizes our results of operations for the years ended December 31, 2020, 2019, and 2018:

Years ended December 31, Increase (Decrease)

U.S. GAAP Basis

Economic Net Income Basis(2)(3)

(Non-GAAP measure used by management)

Other Operational Information

Net client cash flows (in billions) (3.3) (32.7) (4.3) 29.4 (28.4)

(1)U.S. GAAP operating margin equals operating income from continuing operations divided by total revenue.

(2)Economic net income is a non-GAAP measure we use to evaluate the performance of our business. For a reconciliation to U.S. GAAP financial information and a further discussion of economic net income refer to “—Non-GAAP Supplemental Performance Measures—Economic Net Income and Segment Analysis.”

(3)Excludes costs relating to the impact of a one-time compensation arrangement entered into that includes advances against future compensation payments of $17.0 million and restructuring costs which include costs associated with the transfer of an insurance policy from our former Parent of $1.6 million, restructuring at the Center and Affiliates of $9.4 million, and the gain on sale of Affiliates of $241.3 million for the year ended December 31, 2020. Excludes restructuring costs which include costs associated with the redomicile to the U.S. of $1.6 million, costs associated with the transfer of an insurance policy from our former Parent of $0.9 million and restructuring costs at the Center and Affiliates of $6.7 million for the year ended December 31, 2019. Excludes restructuring charges associated with the 2018 CEO transition of $4.8 million for the year ended December 31, 2018.

(4)ENI revenue is the ENI measure which corresponds to U.S. GAAP revenue.

(5)Pre-tax economic net income is the ENI measure which corresponds to U.S. GAAP pre-tax income from continuing operations attributable to controlling interests.

(6)ENI operating margin is a non-GAAP efficiency measure, calculated based on ENI operating earnings divided by ENI revenue. ENI operating earnings is calculated as ENI revenue, less ENI operating expense, less ENI variable compensation. The ENI operating margin is most comparable to our U.S. GAAP operating margin (excluding the effect of consolidated Funds) of 24% for the year ended December 31, 2020, 30% for the year ended December 31, 2019 and 9% for the year ended December 31, 2018.

(7)Economic net income is the ENI measure which corresponds to U.S. GAAP net income from continuing operations attributable to controlling interests.

(8)Annualized revenue impact of net flows represents the difference between annualized management fees expected to be earned on new accounts and net assets contributed to existing accounts, less the annualized management fees lost on terminated accounts or net assets withdrawn from existing accounts, plus revenue impact from reinvested income and distributions, including equity-accounted Affiliate. The annualized management fees are calculated by multiplying the annual gross fee rate for the relevant account by the net assets gained in the account in the event of a positive flow, excluding any current or future market appreciation or depreciation, or the net assets lost in the account in the event of an outflow, excluding any current or future market appreciation or depreciation. In addition, reinvested income and distributions for each segment is multiplied by average fee rate for the respective segment to compute the revenue impact. For a further discussion of the uses and limitations of the annualized revenue impact of net flows, see “Assets Under Management” herein.

Assets Under Management

Our total assets under management as of December 31, 2020 were $156.7 billion. The following table presents our assets under management by Affiliate as of each of the dates indicated:

Barrow, Hanley, Mewhinney & Strauss — 51.7 72.0

Copper Rock Capital Partners — 3.9 4.0

Investment Counselors of Maryland(1) 3.2 2.4 1.8

(1)On February 6, 2021, we entered into a definitive agreement to sell all our interests in ICM. The transaction is expected to close during second quarter of 2021.

Our strategies include:

i.U.S. equity, which includes small cap through large cap securities and primarily value or blended investment styles;

ii.Global / non-U.S. equity, which includes global and international equities including emerging markets;

iii.Fixed income, which includes government bonds, corporate bonds and other fixed income investments in the United States; and

iv.Alternatives, which consist of illiquid and differentiated liquid investment strategies that include private equity, real estate and real assets, including forestry, as well as a growing suite of liquid alternative capabilities in areas such as long/short, market neutral and absolute return.

The following table presents our assets under management by strategy as of each of the dates indicated:

U.S. equity, small/smid cap value $ 4.4 $ 6.0 $ 5.1

U.S. equity, mid cap value 4.1 5.3 9.6

U.S. equity, large cap value 0.2 30.2 45.2

U.S. equity, core/blend 2.9 1.9 2.7

The following table shows assets under management by client type as of each of the dates indicated:

AUM % of total AUM % of total AUM % of total

The following table shows assets under management by client location as of each of the dates indicated:

AUM % of total AUM % of total AUM % of total

AUM flows and the annualized revenue impact of net flows

Reinvested income and distributions represent investment yield that is reinvested back into the portfolios as opposed to distributed as cash. Realizations include distributions related to the sale of alternative assets, which represent a return on investment.

In the following table, we present our asset flows and market appreciation (depreciation) by segment. We also present a key metric used to better understand our asset flows, the annualized revenue impact of net client cash flows. Annualized revenue impact of net flows represents annualized management fees expected to be earned on new accounts and net assets contributed to existing accounts (inflows), less the annualized management fees lost on terminated accounts or net assets withdrawn from existing accounts (outflows), plus revenue impact from reinvested income and distributions. Annualized management fee for client flow is calculated by multiplying the annual gross fee rate for the relevant account with the inflow or the outflow, including equity-accounted Affiliate. In addition, reinvested income and distributions for each segment is multiplied by average fee rate for the respective segment to compute the revenue impact.

The annualized revenue impact of net flows metric is designed to provide investors with a better indication of the potential financial impact of net client cash flows, however it has certain limitations. For instance, it does not include assumptions for the next twelve months' market appreciation or depreciation and investment performance associated with the assets gained or lost. Nor does it account for factors such as future client terminations or additional contributions or withdrawals over the next twelve months. Additionally, the basis points reported are fee rates based on the asset levels at the time of the transactions and do not consider the fact that client fee rates may change over the next twelve months.

The following table summarizes our asset flows and market appreciation (depreciation) by segment for each of the periods indicated:

($ in billions, unless otherwise noted) Years ended December 31,

Quant & Solutions

Reinvested income and distributions 2.8 2.9 2.6

Market appreciation (depreciation) 7.3 13.9 (15.8)

Alternatives

Gross outflows (0.4) (0.8) (2.3)

Market appreciation (depreciation) (0.4) 0.1 —

Realizations and Other(2) (1.1) (1.3) (2.1)

Liquid Alpha(3)

Sale of Affiliates (50.3) — —

Reinvested income and distributions 1.5 2.5 3.1

Market appreciation (depreciation) 0.1 18.1 (14.5)

Average AUM of consolidated Affiliates $ 58.3 $ 95.2 $ 113.9

Total

Sale of Affiliates (50.3) — —

Reinvested income and distributions 4.3 5.4 5.7

Market appreciation (depreciation) 7.0 32.1 (30.3)

Realizations and Other(2) (1.1) (1.3) (2.1)

Average AUM of consolidated Affiliates $ 177.4 $ 214.1 $ 232.8

Annualized basis points: inflows 36.4 35.6 47.8

Annualized basis points: outflows 40.0 27.4 35.0

Annualized revenue impact of net flows (in millions) $ (22.0) $ (69.1) $ 19.1

(1)Average AUM equals average AUM of consolidated Affiliates.

(2)Realizations include distributions related to the sale of alternative assets, and represent a return on investments. Other activity primarily relates to the decline in billable AUM as a legacy alternative fund transitioned from billing base on committed AUM to net asset value.

(3)The following table summarizes our asset flows and market appreciation (depreciation) for the Liquid Alpha segment excluding Barrow Hanley and Copper Rock for the periods indicated:

($ in billions) Years ended December 31,

Liquid Alpha

Market appreciation depreciation 1.0 2.0 (6.3)

Average AUM of consolidated Affiliates $ 18.3 $ 20.5 $ 23.2

(4)The following table summarizes our total asset flows and market appreciation (depreciation) excluding Barrow Hanley and Copper Rock:

($ in billions) Years ended December 31,

Total

Market appreciation depreciation 6.8 14.7 (24.2)

Realizations and other — — —

Average AUM of consolidated Affiliates $ 137.4 $ 139.4 $ 142.1

We also analyze our asset flows by client type and client location. Our client types include:

i.Sub-advisory, which includes assets managed for underlying mutual fund and variable insurance products which are sponsored by insurance companies and mutual fund platforms, where the end client is typically retail;

ii.Institutional, which includes assets managed for public / government pension funds, including U.S. state and local government funds and non-U.S. sovereign wealth, local government and national pension funds; also includes corporate and union-sponsored pension plans; and

iii.Retail / other, which includes assets managed for mutual funds sponsored by our Affiliates, defined contribution plans and accounts managed for high net worth clients.

The following table summarizes our asset flows by client type for each of the periods indicated:

($ in billions) Years ended December 31,

Sub-advisory

Sale of Affiliates (16.8) — —

Reinvested income and distributions(1) 0.8 1.6 1.9

Market appreciation (depreciation) — 11.2 (9.4)

Realizations and other(2) — — —

Institutional

Sale of Affiliates (30.5) — —

Reinvested income and distributions(1) 3.2 3.5 3.5

Market appreciation (depreciation) 6.7 19.4 (19.6)

Realizations and other(2) (1.1) (1.3) (2.1)

Retail / Other

Sale of Affiliates (3.0) — —

Gross outflows (2.1) (1.8) (1.8)

Reinvested income and distributions(1) 0.3 0.3 0.3

Market appreciation (depreciation) 0.3 1.5 (1.3)

Realizations and other(2) — — —

Total

Sale of Affiliates (50.3) — —

Reinvested income and distributions(1) 4.3 5.4 5.7

Market appreciation (depreciation) 7.0 32.1 (30.3)

Realizations and other(2) (1.1) (1.3) (2.1)

(1)Reinvested income and distributions is allocated based on consolidated total distribution rate multiplied by the beginning of period AUM of each client type.

It is a strategic objective to increase our percentage of assets under management sourced from non-U.S. clients. Our categorization by client location includes:

i.U.S.-based clients, where the contracting client is based in the United States, and

ii.Non-U.S.-based clients, where the contracting client is based outside the United States.

The following table summarizes asset flows by client location for each of the periods indicated:

($ in billions) Years ended December 31,

U.S.

Sale of Affiliates (39.9) — —

Reinvested income and distributions(1) 3.1 4.1 4.5

Market appreciation (depreciation) 6.4 24.6 (23.8)

Realizations and other(2) (1.0) (1.1) (1.8)

Non-U.S.

Sale of Affiliates (10.4) — —

Reinvested income and distributions(1) 1.2 1.3 1.2

Market appreciation (depreciation) 0.6 7.5 (6.5)

Realizations and other(2) (0.1) (0.2) (0.3)

Total

Sale of Affiliates (50.3) — —

Reinvested income and distributions(1) 4.3 5.4 5.7

Market appreciation (depreciation) 7.0 32.1 (30.3)

Realizations and other(2) (1.1) (1.3) (2.1)

(1)Reinvested income and distributions is allocated based on consolidated total distribution rate multiplied by the beginning of period AUM of each client location.

At December 31, 2020, our total assets under management were $156.7 billion, a decrease of $(47.7) billion or (23.3)%, compared to $204.4 billion at December 31, 2019. The assets under management at December 31, 2019 represented a decrease of $(1.9) billion or (0.9)% compared to $206.3 billion at December 31, 2018. The change in assets under management during the year ended December 31, 2020 reflects the sale of Barrow Hanley and Copper Rock of $(50.3) billion, net outflows of $(3.3) billion including reinvested income and distributions of $4.3 billion, and realizations and other of $(1.1) billion, partially offset by net market appreciation of $7.0 billion from continued market recovery. The change in assets under management during the year ended December 31, 2019 reflects net market appreciation of $32.1 billion, realizations and other of $(1.3) billion and net outflows of $(32.7) billion including reinvested income and distributions of $5.4 billion. The change in assets under management during the year ended December 31, 2018 reflects net market depreciation of $(30.3) billion, realizations and other of $(2.1) billion, and net flows of $(4.3) billion including reinvested income and distributions of $5.7 billion.

For the year ended December 31, 2020, our net outflows were $(3.3) billion compared to net outflows of $(32.7) billion for the year ended December 31, 2019 and net outflows of $(4.3) billion for the year ended December 31, 2018. The change in net outflows for the year ended December 31, 2020.December 31, 2019, and December 31, 2018 was primarily due to the $(22.8) billion reallocation of several Vanguard sub-advisory strategies for the year ended December 31, 2019 that did not occur in the year ended December 31, 2020 or December 31, 2018. Reinvested income and distributions of $4.3 billion, $5.4 billion, and $5.7 billion are reflected in the net flows for the years ended December 31, 2020, 2019 and 2018, respectively. For the year ended December 31, 2020, the annualized revenue impact of the net flows improved to $(22.0) million compared to $(69.1) million for the year ended December 31, 2019.

U.S. GAAP Results of Operations

For the Years Ended December 31, 2020, 2019 and 2018

Our U.S. GAAP results of operations were as follows for the years ended December 31, 2020, 2019 and 2018.

Years ended December 31, Increase (Decrease)

U.S. GAAP Consolidated Statements of Operations(1)

Impairment of goodwill 16.4 — — 16.4 —

Amortization of acquired intangibles 6.7 6.6 6.6 0.1 —

Consolidated Funds’ expense 0.3 0.4 0.9 (0.1) (0.5)

Gain on sale of Affiliates 241.3 — — 241.3 —

Revaluation of DTA deed — — 20.0 — (20.0)

Net consolidated Funds’ investment gain (loss) 29.9 20.9 (13.4) 9.0 34.3

Gain (loss) on disposal of discontinued operations, net of tax — — 0.1 — (0.1)

(1)Certain Funds have been consolidated due to our seed capital or co-investments in the Funds.

(2)U.S. GAAP operating margin equals operating income from continuing operations divided by total revenue.

The following table reconciles our net income attributable to controlling interests to our pre-tax income from continuing operations attributable to controlling interests:

Years ended December 31,

U.S. GAAP Consolidated Statements of Operations

Net income attributable to controlling interests $ 286.7 $ 223.9 $ 136.4

U.S. GAAP Revenues

Our U.S. GAAP revenues principally consist of:

i.management fees earned based on our overall weighted average fee rate charged to our clients and the level of assets under management;

ii.performance fees earned or management fee adjustments when our Affiliates’ investment performance over agreed time periods for certain clients has differed from pre-determined hurdles;

iii.other revenue, consisting primarily of consulting services as well as reimbursement of certain Fund expenses our Affiliates paid on behalf of our Funds; and

iv.revenue from consolidated Funds, a portion of which is attributable to the holders of non-controlling interests in consolidated Funds.

Management Fees

Our management fees are a function of the fee rates our Affiliates charge to their clients, which are typically expressed in basis points, and the levels of our assets under management.

Excluding assets managed by our equity-accounted Affiliate, average basis points earned on average assets under management were 39.2 bps for the year ended December 31, 2020, 37.7 bps for the year ended December 31, 2019 and 38.9 bps for the year ended December 31, 2018. The greatest driver of increases or decreases in this average fee rate is changes in the mix of our assets under management caused by net inflows or outflows in certain asset classes, net catch-up fees, or disproportionate market movements.

Our average basis points by Segment (including only consolidated Affiliates that are included in management fee revenue, unless indicated) over each of the periods indicated were:

($ in millions, except AUM data in billions) Years ended December 31,

Revenue Basis Pts Revenue Basis Pts Revenue Basis Pts

Average AUM excluding equity-accounted Affiliate $ 177.4 $ 214.1 $ 232.8

(1)Amounts shown are equivalent to ENI management fee revenue. (See “ENI Revenues.”)

Year ended December 31, 2020 compared to year ended December 31, 2019: Management fees decreased $(109.1) million, or (13.5)%, from $807.0 million for the year ended December 31, 2019 to $697.9 million for the year ended December 31, 2020. The decrease was primarily due to the disposition of Barrow Hanley and Copper Rock and lower overall level of average assets under management. Average assets under management excluding equity-accounted Affiliate decreased (17.1)%, from $214.1 billion for the year ended December 31, 2019 to $177.4 billion for the year ended December 31, 2020, mainly due to the sale of Barrow Hanley and Copper Rock and the equity market decline during the first quarter of 2020 driven by the COVID-19 pandemic.

Year ended December 31, 2019 compared to year ended December 31, 2018: Management fees decreased $(98.0) million, or (10.8)%, from $905.0 million for the year ended December 31, 2018 to $807.0 million for the year ended December 31, 2019. The decrease was primarily attributable to a decrease in both average assets under management excluding our equity-accounted Affiliate and our weighted average fee rate for the year ended December 31, 2019. The decrease in management fee revenue was also caused by net catch-up fees associated with alternative assets earned in 2018 that did not repeat in 2019. Net catch-up fees represent payment of certain Fund management fees back to the initial closing date for certain products with multiple closings, less placement fees paid to third parties related to these funds. Average assets under management excluding equity-accounted Affiliate decreased (8.0)%, from $232.8 billion for the year ended December 31, 2018 to $214.1 billion for the year ended December 31, 2019, mainly due to equity market decline at the end of 2018 and the impact of the $(22.8) billion reallocation of several Vanguard sub-advisory strategies in the fourth quarter of 2019.

Performance Fees

Approximately $17.5 billion, or 11.0% of our AUM in consolidated Affiliates at December 31, 2020, are in accounts with incentive fee or carried interest features in which we participate. Performance fees are typically shared with our Affiliate key employees through various contractual compensation and profit-sharing arrangements. Performance fees are variable and are contractually triggered based on investment performance results over agreed upon time periods.

Year ended December 31, 2020 compared to year ended December 31, 2019: Performance fees improved $7.9 million, from $(0.1) million for the year ended December 31, 2019 to $7.8 million for the year ended December 31, 2020. A performance fee penalty in 2019 was attributable to sub-advisory assets no longer with the Affiliates.

Year ended December 31, 2019 compared to year ended December 31, 2018: Performance fees decreased $(9.9) million, or (101.0)%, from $9.8 million for the year ended December 31, 2018 to $(0.1) million for the year ended December 31, 2019. Performance fees are variable and are contractually triggered based on investment performance results over agreed upon time periods.

The liquidation of an alternative product may result in the recognition of a performance fee. With respect to liquidations likely to occur in the near term, we do not expect to receive any net performance fees that would be material to our operating results. These projections are based on market conditions and investment performance as of December 31, 2020.

Other Revenue

Year ended December 31, 2020 compared to year ended December 31, 2019: Other revenue increased $1.3 million, or 21.7%, from $6.0 million for the year ended December 31, 2019 to $7.3 million for the year ended December 31, 2020. The increase was primarily attributable to an increase in consulting performed by an Affiliate for the year ended December 31, 2020.

Year ended December 31, 2019 compared to year ended December 31, 2018: Other revenue decreased $(3.6) million, or (37.5)%, from $9.6 million for the year ended December 31, 2018 to $6.0 million for the year ended December 31, 2019. The decrease was primarily attributable to the decrease in revenue recorded for certain Fund expenses paid by our Affiliates and subsequently reimbursed by the Fund for the year ended December 31, 2019.

U.S. GAAP Expenses

Our U.S. GAAP expenses principally consist of:

i.compensation paid to our investment professionals and other employees, including base salary, benefits, sales-based compensation, variable compensation, Affiliate distributions, revaluation of key employee owned Affiliate equity and profit interests, and the amortization of acquisition-related consideration and pre-acquisition employee equity;

ii.general and administrative expenses;

iii.impairment of goodwill;

iv.amortization of acquired intangible assets;

v.depreciation and amortization charges; and

vi.expenses of consolidated Funds, a portion of which is attributable to the holders of non-controlling interests in consolidated Funds.

Compensation and Benefits Expense

Our most significant category of expense is compensation and benefits awarded to our and our Affiliates’ employees. The following table presents the components of U.S. GAAP compensation expense for the years ended December 31, 2020, 2019 and 2018:

Years ended December 31,

Affiliate key employee distributions(4) 41.5 45.1 76.6

Non-cash Affiliate key employee equity revaluations(5)(6) (26.1) (65.9) 107.2

Total U.S. GAAP compensation and benefits expense $ 388.7 $ 416.2 $ 696.4

(1)Fixed compensation and benefits includes base salaries, payroll taxes and the cost of benefit programs provided. For the year ended December 31, 2020, $173.3 million of fixed compensation and benefits (of the $177.6 million above) is included within economic net income, which excludes Fund expenses initially paid by our Affiliates on the Fund’s behalf and subsequently reimbursed. For the year ended December 31, 2019, $189.7 million of fixed compensation and benefits (of the $194.1 million above) is included within economic net income, which excludes Fund expenses initially paid by our Affiliates on the Fund’s behalf and subsequently reimbursed. For the year ended December 31, 2018, $181.4 million of fixed compensation and benefits (of the $188.7 million above) is included within economic net income, which excludes Fund expenses initially paid by our Affiliates on the Fund’s behalf and subsequently reimbursed, as well as the compensation and benefits associated with the 2018 CEO transition.

(2)Sales-based compensation is paid to our and our Affiliates’ sales and distribution teams and represents compensation earned by our sales professionals, paid over a multi-year period, related to revenue earned on new sales. Its variability is based upon the structure of sales-based compensation due on inflows of assets under management and market-based movement in both current and prior periods.

(3)Variable compensation is contractually set and calculated individually at each Affiliate, plus Center bonuses and compensation paid by our Affiliates on behalf of their Funds that are subsequently reimbursed. Variable compensation is usually awarded based on a contractual percentage of each Affiliate’s ENI profits before variable compensation and may be paid in the form of cash or non-cash Affiliate equity or profit interests. In Affiliates with an agreed split of performance fees between Affiliate employees and BSUS, the Affiliates’ share of performance fees is allocated entirely to variable compensation. Center variable compensation includes cash and BSIG equity. Non-cash variable compensation awards typically vest over several years and are recognized as compensation expense over that service period. The variable compensation ratio at each Affiliate, calculated as variable compensation divided by ENI earnings before variable compensation, will typically be between 25% and 35%.

Years ended December 31,

Non-cash equity-based award amortization 15.3 19.5 21.0

(a)For the year ended December 31, 2020, $159.6 million of variable compensation expense (of the $180.7 million above) is included within economic net income, which excludes the variable compensation associated with restructuring at the Center and the Affiliates, variable compensation subsequently reimbursed by Funds, and a one-time compensation arrangement entered into that includes advances against future compensation payments. For the year ended December 31, 2019, $184.7 million of variable compensation expense (of the $199.4 million above) is included within economic net income, which excludes the variable compensation associated with restructuring at the Center and the Affiliates, as well as variable compensation subsequently reimbursed by Funds. For the year ended December 31, 2018, $230.7 million of variable compensation expense (of the $235.9 million above) is included within economic net income, which excludes the variable compensation associated with the 2018 CEO transition costs and variable compensation subsequently reimbursed by Funds.

(4)Affiliate key employee distributions represent the share of Affiliate profits after variable compensation that is attributable to Affiliate key employee equity and profit interests holders, according to their ownership interests. For the year ended December 31, 2019, Affiliate key employee distributions included within economic net income was $53.1 million, which included an adjustment of $8.0 million of variable compensation related to restructuring at an Affiliate that will be reimbursed through a reduction of Affiliate key employee distributions. The Affiliate key employee distribution ratio at each Affiliate is calculated as Affiliate key employee distributions divided by ENI operating earnings at that Affiliate. At certain Affiliates with tiered equity structures, BSUS and other classes of employee equity holders are entitled to an initial proportionate preference over profits after variable compensation, structured such that before a preference threshold is reached, there would be no required key employee distributions to the tiered equity holders, whereas for profits above the threshold the key employee distribution amount to the tiered equity holders would be calculated based on the tiered key employee ownership percentages. Based on current economic arrangements, employee distributions range from approximately 20% to 40% of marginal ENI operating earnings at each of our consolidated Affiliates.

(5)Non-cash Affiliate key employee equity revaluations represent changes in the value of Affiliate equity and profit interests held by Affiliate key employees. These ownership interests may, in certain circumstances, be repurchased by BSUS at a value based on a pre-determined fixed multiple of twelve-month earnings and as such a liability is carried on our balance sheet based on the expected cash to be paid. However, any equity or profit interests repurchased by BSUS can be used to fund a portion of future variable compensation awards, resulting in savings in cash variable compensation that offset the negative cash effect of repurchasing the equity. Our Affiliate equity and profit interest plans have been designed to ensure BSUS is not required to repurchase more equity than we can reasonably recycle through variable compensation awards in any given twelve month period.

(6)Included in non-cash Affiliate key employee equity revaluations are revaluations as a result of the Landmark transaction related to contingent consideration amounting to $95.3 million for the year ended December 31, 2018, along with the revaluations of Landmark employee equity owned pre-acquisition amounting to $(6.0) million for the year ended December 31, 2020, $13.3 million for the year ended December 31, 2019 and $37.9 million for the year ended December 31, 2018.

(7)Acquisition-related consideration and pre-acquisition employee equity represents the amortization of acquisition-related contingent consideration created as a result of the Landmark transaction amounting to $37.1 million in the year ended December 31, 2018, along with the amortization of employee equity owned pre-acquisition amounting to $6.2 million for the year ended December 31, 2020, $32.3 million for the year ended December 31, 2019 and $33.5 million for the year ended December 31, 2018. These items have been included in U.S. GAAP compensation expense as a result of ongoing service requirements for employee recipients.

Fluctuations in compensation and benefits expense for the periods presented are discussed below.

Year ended December 31, 2020 compared to year ended December 31, 2019: Compensation and benefits expense decreased $(27.5) million, or (6.6)%, from $416.2 million for the year ended December 31, 2019 to $388.7 million for the year ended December 31, 2020. Fixed compensation and benefits decreased $(16.5) million, or (8.5)%, from $194.1 million for the year ended December 31, 2019 to $177.6 million for the year ended December 31, 2020. This decrease reflects the cost savings from the restructuring at the Center and Affiliates, as well as the disposition of Barrow Hanley and Copper Rock in 2020. Variable compensation decreased $(18.7) million, or (9.4)%, from $199.4 million for the year ended December 31, 2019 to $180.7 million for the year ended December 31, 2020. The decrease was attributable to lower pre-variable compensation earnings in 2020, offset by the impact of a one-time compensation arrangement entered into that includes advances against future compensation payments. Sales-based compensation decreased $(2.4) million, or (21.4)%, from $11.2 million for the year ended December 31, 2019 to $8.8 million for the year ended December 31, 2020, as a result of the structure of sales-based compensation programs, driven by the timing of asset inflows triggering sales-based compensation in both current and prior periods. Affiliate key employee distributions decreased $(3.6) million, or (8.0)%, from $45.1 million for the year ended December 31, 2019 to $41.5 million for the year ended December 31, 2020 as a result of lower earnings before Affiliate key employee distributions at the consolidated Affiliates. Revaluations of Affiliate key employee equity changed $39.8 million in 2020, reflecting revaluations of key employee ownership interests at our consolidated Affiliates, as the value of Affiliate equity decreased $(65.9) million for the year ended December 31, 2019 and decreased $(26.1) million for the year ended December 31, 2020. Amortization of acquisition-related consideration and pre-acquisition equity decreased $(26.1) million, or (80.8)% from $32.3 million for the year ended December 31, 2019 to $6.2 million for the year ended December 31, 2020, as a result of employee equity vesting in the prior year.

Year ended December 31, 2019 compared to year ended December 31, 2018: Compensation and benefits expense decreased $(280.2) million, or (40.2)%, from $696.4 million for the year ended December 31, 2018 to $416.2 million for the year ended December 31, 2019. Fixed compensation and benefits increased $5.4 million, or 2.9%, from $188.7 million for the year ended December 31, 2018 to $194.1 million for the year ended December 31, 2019. This increase reflects the growth of the investment teams at our Affiliates and cost of living increases. Variable compensation decreased $(36.5) million, or (15.5)%, from $235.9 million for the year ended December 31, 2018 to $199.4 million for the year ended December 31, 2019 due to lower pre-variable compensation earnings in the current period. Sales-based compensation decreased $(6.2) million, or (35.6)%, from $17.4 million for the year ended December 31, 2018 to $11.2 million for the year ended December 31, 2019, as a result of the structure of sales-based compensation and the timing of asset inflows triggering sales-based compensation in both current and prior periods. Affiliate key employee distributions decreased $(31.5) million, or (41.1)%, from $76.6 million for the year ended December 31, 2018 to $45.1 million for the year ended December 31, 2019, as a result of lower earnings before Affiliate key employee distributions at the consolidated Affiliates and the levered structure of distributions at certain Affiliates. Revaluations of Affiliate key employee equity decreased $(173.1) million in 2019. Amortization of acquisition-related consideration and pre-acquisition equity decreased $(38.3) million, or (54.2)% from $70.6 million for the year ended December 31, 2018 to $32.3 million for the year ended December 31, 2019. The decrease in the revaluations of Affiliate equity was driven by lower earnings at the Affiliates in 2019, while the reduction in the amortization of acquisition-related consideration and pre-acquisition equity was primarily due to the Landmark contingent consideration arrangement that was fully accrued as of December 31, 2018.

General and Administrative Expense

Year ended December 31, 2020 compared to year ended December 31, 2019: General and administrative expense decreased $(22.8) million, or (17.7)%, from $128.8 million for the year ended December 31, 2019 to $106.0 million for the year ended December 31, 2020. The decrease was primarily due to cost saving initiatives at the Center and Affiliates and the disposition of Barrow Hanley and Copper Rock in 2020.

Year ended December 31, 2019 compared to year ended December 31, 2018: General and administrative expense increased $2.8 million, or 2.2%, from $126.0 million for the year ended December 31, 2018 to $128.8 million for the year ended December 31, 2019. The increase in general and administrative expenses primarily reflects new initiatives, additional system costs and continued investment in the business.

Impairment of Goodwill

Year ended December 31, 2020 compared to year ended December 31, 2019: No goodwill impairment charge was recorded in the year ended December 31, 2019. A goodwill impairment charge of $16.4 million was recorded for the year ended December 31, 2020 with respect to the Copper Rock reporting unit which was included within the Liquid Alpha segment prior to its disposition in July 2020. See “Recent Developments” herein. In the first quarter of 2020, we performed a quantitative impairment test of Copper Rock due to the decline in assets under management and the fair value of the Copper Rock reporting unit did not exceed its carrying value. Accordingly, we recognized a goodwill impairment charge of $16.4 million for the year ended December 31, 2020.

Year ended December 31, 2019 compared to year ended December 31, 2018: No goodwill impairment charge was recorded in either the year ended December 31, 2019 or December 31, 2018.

Amortization of Acquired Intangibles Expense

Year ended December 31, 2020 compared to year ended December 31, 2019: Amortization of acquired intangibles expense increased $0.1 million, or 1.5%, from $6.6 million for the year ended December 31, 2019 to $6.7 million for the year ended December 31, 2020. This expense primarily reflects the amortization of intangible assets acquired in the Landmark transaction.

Year ended December 31, 2019 compared to year ended December 31, 2018: Amortization of acquired intangibles expense was unchanged at $6.6 million for the year ended December 31, 2019 and $6.6 million for the year ended December 31, 2018. This expense primarily reflects the amortization of intangible assets acquired in the Landmark transaction.

Depreciation and Amortization Expense

Year ended December 31, 2020 compared to year ended December 31, 2019: Depreciation and amortization expense increased $3.8 million, or 22.1%, from $17.2 million for the year ended December 31, 2019 to $21.0 million for the year ended December 31, 2020. The increase was primarily related to additional software and technology investments in the business.

Year ended December 31, 2019 compared to year ended December 31, 2018: Depreciation and amortization expense increased $2.7 million, or 18.6%, from $14.5 million for the year ended December 31, 2018 to $17.2 million for the year ended December 31, 2019. The increase was primarily related to additional software and technology investments in the business.

U.S. GAAP Other Non-Operating Items of Income and Expense

Other non-operating items of income and expense consist of:

i.investment income;

ii.interest income;

iii.interest expense; and

iv.gain on sale of Affiliates

Investment Income

Year ended December 31, 2020 compared to year ended December 31, 2019: Investment income decreased $(11.9) million, or (70.8)%, from $16.8 million for the year ended December 31, 2019 to $4.9 million for the year ended December 31, 2020. The decrease is primarily due to the change in unrealized gains/losses on seed investments driven by the market decline in the first quarter of 2020, which was partially offset by the change in unrealized gains in the following quarters of 2020 as the market recovered.

Year ended December 31, 2019 compared to year ended December 31, 2018: Investment income decreased $(49.7) million, or (74.7)%, from $66.5 million for the year ended December 31, 2018 to $16.8 million for the year ended December 31, 2019, primarily due to a $65.7 million gain from the sale of our stake in Heitman that was included in 2018 results and not repeated in 2019. Excluding the gain from the sale of our stake in Heitman, investment income increased $16.0 million as a result of higher returns on co-investments and seed capital investments in 2019.

Interest Income

Year ended December 31, 2020 compared to year ended December 31, 2019: Interest income decreased $(1.6) million, or (72.7)%, from $2.2 million for the year ended December 31, 2019 to $0.6 million for the year ended December 31, 2020, principally due to a decrease in short-term investment returns in 2020.

Year ended December 31, 2019 compared to year ended December 31, 2018: Interest income decreased $(1.0) million, or (31.3)%, from $3.2 million for the year ended December 31, 2018 to $2.2 million for the year ended December 31, 2019, principally due to lower average cash balances and a decrease in short-term investment returns in 2019.

Interest Expense

Year ended December 31, 2020 compared to year ended December 31, 2019: Interest expense decreased $3.7 million, or (11.5)%, from $32.2 million for the year ended December 31, 2019 to $28.5 million for the year ended December 31, 2020, primarily reflecting a lower balance drawn on the non-recourse seed capital and revolving credit facilities during 2020. We paid down the balance on our non-recourse seed capital facility, and paid down the balance on our revolving credit facility in the year ended December 31, 2020.

Year ended December 31, 2019 compared to year ended December 31, 2018: Interest expense increased $7.3 million, or 29.3%, from $24.9 million for the year ended December 31, 2018 to $32.2 million for the year ended December 31, 2019, primarily reflecting the utilization of our revolving credit facility and non-recourse seed capital facility during 2019.

Gain on Sale of Affiliates

Year ended December 31, 2020 compared to year ended December 31, 2019: Gain on sale of Affiliate was $241.3 million for the year ended December 31, 2020, representing a gain of $7.2 million on the sale of our equity interests in Copper Rock, a gain of $231.2 million on the sale of our equity interests in Barrow Hanley and a gain of $2.9 million on a previously disposed Affiliate. No gain on sale of Affiliate was recorded in the year ended December 31, 2019.

Year ended December 31, 2019 compared to year ended December 31, 2018: No gain on sale of an Affiliate was recorded in either the year ended December 31, 2019 or December 31, 2018.

U.S. GAAP Income Tax Expense

Our effective tax rate has been impacted by changes in liabilities for uncertain tax positions, tax effects of stock-based compensation, sale of Affiliates, limitations on executive compensation, the mix of income earned in the United States versus lower-taxed foreign jurisdictions and benefits from intercompany financing arrangements which ended in 2019. Our effective tax rate could be impacted in the future by these items as well as further changes in tax laws and regulations in jurisdictions in which we operate. As of December 31, 2020, a significant portion of the Company’s liabilities for uncertain tax positions have been reduced due to the lapse of statutes of limitation.

The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) contains numerous income tax provisions including some that are effective retroactively. Our Consolidated Balance Sheet reflects the benefit of a provision that increased the business interest limitation under IRC Section 163(j) from 30% to 50% for tax years 2019 and 2020. This provision allowed us to utilize more of the deferred tax asset related to interest expense.

Year ended December 31, 2020 compared to year ended December 31, 2019: Income tax expense increased $94.1 million, from $18.0 million for the year ended December 31, 2019 to $112.1 million for the year ended December 31, 2020. The increase in income tax expense relates to the increase in income from continuing operations for the year ended December 31, 2020 driven by the gain on sale of Affiliates, in addition to the reductions to liabilities for uncertain tax positions due to the lapse of statues of limitation and adjustments to deferred tax assets in 2020 compared to 2019. Deferred tax assets have been adjusted primarily for changes in the Company's state tax rates and an increase in state tax obligations.

Year ended December 31, 2019 compared to year ended December 31, 2018: Income tax expense increased $13.0 million, from $5.0 million for the year ended December 31, 2018 to $18.0 million for the year ended December 31, 2019, primarily due to the increase in the income from continuing operations before taxes. This increase in income tax expense was partially reduced by the reduction to liabilities for uncertain tax positions due to the lapse of statutes of limitation and adjustments to deferred tax assets in 2019. In 2019, deferred tax assets increased in connection with the Redomestication and an increase in state tax obligations. The effective tax rate increased to7.1% for the year ended December 31, 2019 from 3.7% for the year ended December 31, 2018 primarily due to the increase in income from continuing operations before taxes and a smaller reduction in 2019 to liabilities for uncertain tax positions due to the lapse of statutes of limitations. These increases to the effective tax rate were partially reduced by the impact of the deferred tax adjustments described above.

In 2018, the Company agreed to terminate the DTA Deed with OM plc. The Company recorded a revaluation gain of $20.0 million in connection with the settlement of the DTA Deed for the year ended December 31, 2018. This is reflected in income from continuing operations before tax, and is comprised of a $12.6 million discount on the DTA Deed payable and a $7.4 million gain relating to the value of the tax insurance policies transferred to the Company by OM plc. This adjustment to the DTA Deed is not subject to U.K. tax, consequently having the effect of reducing our effective tax rate. In the first quarter of 2019, the final cash payment of $32.7 million was made to OM plc to settle the outstanding liability under the Deed.

U.S. GAAP Consolidated Funds

The net income or loss of all Consolidated Funds, excluding any income or loss attributable to seed capital or co-investments we make in the Funds, is included in non-controlling interests in our Consolidated Financial Statements and is not included in net income attributable to controlling interests or in management fees.

Year ended December 31, 2020 compared to year ended December 31, 2019: Consolidated Funds’ revenue decreased $(1.1) million, from $6.6 million for the year ended December 31, 2019 to $5.5 million for the year ended December 31, 2020. Consolidated Funds’ expense decreased $(0.1) million, from $0.4 million for the year ended December 31, 2019 to $0.3 million for the year ended December 31, 2020. The decrease in Consolidated Funds’ revenue and decrease in Consolidated Funds’ expense is due to changes in the population of Consolidated Funds during the year ended December 31, 2020, including the deconsolidation of Funds due to redemption of seed investments in Barrow Hanley Consolidated Funds following the sale of our equity interests in Barrow Hanley in November 2020. Consolidated Funds’ investment gain (loss) increased $9.0 million from $20.9 million for the year ended December 31, 2019 to $29.9 million for the year ended December 31, 2020.

Year ended December 31, 2019 compared to year ended December 31, 2018: Consolidated Funds’ revenue increased $2.8 million, from $3.8 million for the year ended December 31, 2018 to $6.6 million for the year ended December 31, 2019. Consolidated Funds’ expense decreased $(0.5) million, from $0.9 million for the year ended December 31, 2018 to $0.4 million for the year ended December 31, 2019. The increase in consolidated Funds’ revenue and decrease in Consolidated Funds’ expense is due to changes in the population of consolidated Funds during the year ended December 31, 2019. Consolidated Funds’ investment gain (loss) increased $34.3 million from $(13.4) million for the year ended December 31, 2018 to $20.9 million for the year ended December 31, 2019.

Key U.S. GAAP Operating Metrics

The following table shows our key U.S. GAAP operating metrics for the years ended December 31, 2020, 2019 and 2018. The second, third and fourth metrics below have each been adjusted to eliminate the effect of consolidated Funds to more accurately reflect the economics of our Company.

Years ended December 31,

U.S. GAAP operating margin(1) 25.0 % 30.5 % 9.0 %

U.S. GAAP operating expense / management fee revenue(3) 77.2 % 70.5 % 93.2 %

U.S. GAAP variable compensation ratio(3) 45.6 % 40.8 % 60.0 %

Numerator: Affiliate key employee distributions $ 41.5 $ 45.1 $ 76.6

U.S. GAAP Affiliate key employee distributions ratio(3) 19.2 % 15.6 % 48.6 %

(1)Excluding the effect of Funds consolidation in the applicable periods, the U.S. GAAP operating margin would be 24.4% for the year ended December 31, 2020, 30.0% for the year ended December 31, 2019 and 8.8% for the year ended December 31, 2018.

(2)Excludes consolidated Funds’ expense of $0.3 million for the year ended December 31, 2020, $0.4 million for the year ended December 31, 2019 and $0.9 million for the year ended December 31, 2018.

(3)Excludes the effect of Funds consolidation for the years ended December 31, 2020, 2019 and 2018.

(4)Excludes consolidated Funds’ revenue of $5.5 million for the year ended December 31, 2020, $6.6 million for the year ended December 31, 2019 and $3.8 million for the year ended December 31, 2018.

(5)The following table identifies the components of operating income before variable compensation and Affiliate key employee distributions, as well as operating income before Affiliate key employee distributions:

Years ended December 31,

Affiliate key employee distributions 41.5 45.1 76.6

Operating (income) loss of consolidated Funds (5.2) (6.2) (2.9)

Effects of Inflation

For the years ended December 31, 2020, 2019 and 2018, inflation did not have a material effect on our consolidated results of operations.

Non-GAAP Supplemental Performance Measure—Economic Net Income and Segment Analysis

As supplemental information, we provide a non-GAAP performance measure that we refer to as economic net income, or ENI, which represents our management’s view of the underlying economic earnings generated by us. We define economic net income as ENI revenue less (i) ENI operating expenses, (ii) variable compensation, (iii) key employee distributions, (iv) net interest and (v) taxes, each as further discussed in this section. ENI adjustments to U.S. GAAP include both reclassifications of U.S. GAAP revenue and expense items, as well as adjustments to U.S. GAAP results, primarily to exclude non-cash, non-economic expenses, or to reflect cash benefits not recognized under U.S. GAAP.

ENI is an important measure to investors because it is used by the Company to make resource allocation decisions, determine appropriate levels of investment or dividend payout, manage balance sheet leverage, determine Affiliate variable compensation and equity distributions, and incentivize management. It is also an important measure because it assists management in evaluating our operating performance and is presented in a way that most closely reflects the key elements of our profit share operating model with our Affiliates. For a further discussion of how we use ENI and why ENI is useful to investors, see “—Overview—How We Measure Performance.”

In the first quarter of 2020, we refined our definition of economic net income in light of a one-time compensation arrangement entered into that includes advances against future contractual compensation payments.

To calculate economic net income, we re-categorize certain line items on our Consolidated Statements of Operations to reflect the following:

•We exclude the effect of Funds consolidation by removing the portion of Fund revenues, expenses and investment return which were not attributable to our stockholders.

•We include within management fee revenue any fees paid to Affiliates by consolidated Funds, which are viewed as investment income under U.S. GAAP.

•We include our share of earnings from equity-accounted Affiliates within other income in ENI revenue, rather than investment income.

•We treat sales-based compensation as a general and administrative expense, rather than part of fixed compensation and benefits.

•We identify separately from operating expenses variable compensation and Affiliate key employee distributions, which represent Affiliate earnings shared with Affiliate key employees.

•We net the separate revenue and expenses under U.S. GAAP for certain Fund expenses initially paid by our Affiliates on the Funds’ behalf and subsequently reimbursed, to better reflect the economics of our business.

We also make the following adjustments to U.S. GAAP results to more closely reflect our economic results:

i.We exclude non-cash expenses representing changes in the value of Affiliate equity and profit interests held by Affiliate key employees. These ownership interests may in certain circumstances be repurchased by BSUS at a value based on a pre-determined fixed multiple of trailing earnings and as such this value is carried on our balance sheet as a liability. Non-cash movements in the value of this liability are treated as compensation expense under U.S. GAAP. However, any equity or profit interests repurchased by BSUS can be used to fund a portion of future variable compensation awards, resulting in savings in cash variable compensation that offset the negative cash effect of repurchasing the equity. Our Affiliate equity and profit interest plans have been designed to ensure BSUS is never required to repurchase more equity than we can reasonably recycle through variable compensation awards in any given twelve month period.

ii.We exclude non-cash amortization or impairment expenses related to acquired goodwill and other intangibles as these are non-cash charges that do not result in an outflow of tangible economic benefits from the business. We also exclude the amortization of acquisition-related contingent consideration, as well as the value of employee equity owned pre-acquisition, as occurred as a result of the Landmark transaction, where such items have been included in compensation expense as a result of ongoing service requirements for certain employees. Please note that the revaluations related to these acquisition-related items are included in (i) above.

iii.We exclude capital transaction costs, including the costs of raising debt or equity, gains or losses realized as a result of redeeming debt or equity and direct incremental costs associated with acquisitions of businesses or assets.

iv.We exclude seed capital and co-investment gains, losses and related financing costs. The net returns on these investments are considered and presented separately from ENI because ENI is primarily a measure of our earnings from managing client assets, which therefore differs from earnings generated by our investments in Affiliate products, which can be variable from period to period.

v.We include cash tax benefits associated with deductions allowed for acquired intangibles and goodwill that may not be recognized or have timing differences compared to U.S. GAAP.

vi.We exclude the results of discontinued operations attributable to controlling interests since they are not part of our ongoing business, restructuring costs incurred in continuing operations, and the impact of a one-time compensation arrangement entered into that includes advances against future contractual compensation payments.

vii.We exclude deferred tax resulting from changes in tax law and expiration of statutes, adjustments for uncertain tax positions, deferred tax attributable to intangible assets and other unusual items not related to current operating results to reflect ENI tax normalization.

We also adjust our income tax expense to reflect any tax impact of our ENI adjustments.

Reconciliation of U.S. GAAP Net Income to Economic Net Income for the Years Ended December 31, 2020, 2019 and 2018

The following table reconciles U.S. GAAP net income attributable to controlling interests to economic net income for the years ended December 31, 2020, 2019 and 2018:

Years ended December 31,

Adjustments to reflect the economic earnings of the Company:

iii. Capital transaction costs 0.8 2.9 1.6

iv. Seed/Co-investment (gains) losses and financings(1) (2.5) (16.2) 14.5

v. Tax benefit of goodwill and acquired intangibles deductions 9.2 9.3 5.7

vii. ENI tax normalization(3) 1.6 (49.8) (30.3)

Tax effect of above adjustments(4) 57.8 8.5 (33.1)

(1)The net return on seed/co-investment (gains) losses and financings for the years ended December 31, 2020, 2019 and 2018 are shown in the following table.

Years ended December 31,

Seed/Co-investment (gains) losses $ (8.2) $ (25.0) $ 6.4

Financing costs:

Blended interest rate* 5.9 % 6.1 % 6.3 %

Net seed/co-investment (gains) losses and financing $ (2.5) $ (16.2) $ (1.7)

* The blended rate is based first on the interest rate paid on our non-recourse seed capital facility up to the average amount drawn, and thereafter on the weighted average rate of the long-term debt.

(2)For the year ended December 31, 2020, includes $17.0 million costs relating to the impact of a one-time compensation arrangement entered into that includes advances against future compensation payments and restructuring costs which include $1.6 million costs associated with the transfer of an insurance policy from our former Parent, $9.4 million of restructuring costs at the Center and Affiliates, and the gain on sale of Affiliates of $241.3 million. For the year ended December 31, 2019, includes costs related to restructuring at the Center and the Affiliates of $6.7 million, as well as costs associated with the redomicile to the U.S. of $2.5 million. For the year ended December 31, 2018, includes the gain on sale of Heitman of $(65.7) million, a gain related to the Company’s agreement to terminate its deferred tax asset deed with OM plc of $(20.0) million, CEO transition costs of $4.8 million, comprised of $0.1 million of fixed compensation and benefits, $4.4 million of variable compensation and $0.4 million of other CEO transition costs and restructuring costs associated with its redomicile to the U.S. of $1.6 million.

(3)Includes an adjustments of $8.7 million and $40.8 million to remove the tax benefit resulting from the reduction in liabilities for uncertain tax positions recorded during the years ended December 31, 2020 and 2019, respectively. Includes an adjustment of $44.0 million in the year ended December 31, 2018 to remove the tax benefit resulting from the reduction in liabilities for uncertain tax positions recorded during the year, partially offset by non-taxable gains resulting from the agreement to terminate the Deferred Tax Asset Deed at a discount.

(4)Reflects the sum of line items (i), (ii), (iii), (iv) and the restructuring portion of line item (vi) taxed at the 27.3% U.S. statutory rate (including state tax). The restructuring portion of line item (vi) amounted to $(213.2) million for the year ended December 31, 2020, $9.2 million for the year ended December 31, 2019 and $(79.3) million for the year ended December 31, 2018.

The following table reconciles U.S. GAAP net income per share to economic net income per share for the years ended December 31, 2020, 2019 and 2018:

Years ended December 31,

U.S. GAAP net income per share $ 3.49 $ 2.45 $ 1.26

Adjustments to reflect the economic earnings of the Company:

iv. Seed/Co-investment (gains) losses and financings (0.03) (0.18) 0.14

v. Tax benefit of goodwill and acquired intangibles deductions 0.11 0.10 0.05

Tax effect of above adjustments 0.70 0.09 (0.31)

Economic net income per share $ 1.75 $ 1.76 $ 1.86

Limitations of Economic Net Income

Economic net income is the key measure our management uses to evaluate the financial performance of, and make operational decisions for, our business. Economic net income is not audited, and is not a substitute for net income or other performance measures that are derived in accordance with U.S. GAAP. Furthermore, our calculation of economic net income may differ from similarly titled measures provided by other companies.

Because the calculation of economic net income excludes certain ongoing expenses, including amortization expense and certain compensation costs, it has certain material limitations and should not be viewed in isolation or as a substitute for U.S. GAAP measures of earnings.

ENI Revenues

The following table reconciles U.S. GAAP Revenue to ENI Revenue for the years ended December 31, 2020, 2019 and 2018:

Years ended December 31,

Include earnings from equity-accounted Affiliate 2.9 2.8 2.7

Exclude Fund expenses reimbursed by customers (4.6) (4.4) (8.0)

The following table identifies the components of ENI revenue:

Years ended December 31,

Other income, including equity-accounted Affiliate(3) 5.6 4.4 4.3

(1)ENI management fees correspond to U.S. GAAP management fees.

(2)ENI performance fees correspond to U.S. GAAP performance fees.

(3)ENI other income is comprised primarily of other revenue under U.S. GAAP, plus our earnings from equity-accounted Affiliate of $2.9 million for the year ended December 31, 2020, $2.8 million for the year ended December 31, 2019 and $2.7 million for the year ended December 31, 2018. Other income also excludes certain Fund expenses initially paid by our Affiliates on the Funds’ behalf that are subsequently reimbursed. Refer to “—Non-GAAP Supplemental Performance Measure—Economic Net Income and Segment Analysis” for a full discussion regarding the items excluded from the calculation of economic net income.

Years ended December 31,

U.S. GAAP other revenue $ 7.3 $ 6.0 $ 9.6

Earnings from equity-accounted Affiliate 2.9 2.8 2.7

Exclude Fund expenses reimbursed by customers (4.6) (4.4) (8.0)

ENI other income $ 5.6 $ 4.4 $ 4.3

ENI Operating Expenses

The largest difference between U.S. GAAP operating expense and ENI operating expense relates to compensation. As shown in the following reconciliation, the Company excludes the impact of key employee equity revaluations. We also exclude the amortization of contingent purchase price and pre-acquisition equity owned by employees, both with a service requirement, associated with the Landmark acquisition. Variable compensation and Affiliate key employee distributions are also segregated out of U.S. GAAP operating expense in order to align with the manner in which these items are contractually calculated at the Affiliate level.

The following table reconciles U.S. GAAP operating expense to ENI operating expense for the years ended December 31, 2020, 2019 and 2018:

Years ended December 31,

Less: items excluded from economic net income

Capital transaction costs (0.2) (2.7) (1.6)

Fund expenses reimbursed by customers (4.6) (4.4) (8.0)

Funds’ operating expenses (0.3) (0.4) (0.9)

Less: items segregated out of U.S. GAAP operating expense

Affiliate key employee distributions(3) (41.5) (53.1) (76.6)

(1)For the year ended December 31, 2020, includes $17.0 million costs relating to the impact of a one-time compensation arrangement entered into that includes advances against future compensation payments and restructuring costs which include $1.6 million costs associated with the transfer of an insurance policy from our former Parent and $9.4 million of restructuring costs at the Center and Affiliates. For the year ended December 31, 2019, includes restructuring costs at the Center and the Affiliates of $6.7 million and costs associated with the redomicile to the U.S. of $2.5 million. For the year ended December 31, 2018, includes $1.6 million of costs associated with the redomicile to the U.S. and 2018 CEO transition costs of $4.8 million.

(2)For the year ended December 31, 2020, excludes variable compensation related to restructuring at the Center and the Affiliates of $20.8 million that is included within Restructuring costs, and Fund expenses reimbursed by customers of $0.3 million. For the year ended December 31, 2019, excludes variable compensation related to restructuring at the Center and the Affiliates of $6.7 million that is included within Restructuring costs, as well as $8.0 million variable compensation related to restructuring at an Affiliate that will be reimbursed through a reduction of Affiliate key employee distributions. For the year ended December 31, 2018, excludes variable compensation amounts related to CEO transition of $4.4 million that is included within Restructuring costs, and Fund expenses reimbursed by customers of $0.8 million.

(3)For the year ended December 31, 2019, includes an adjustment of $8.0 million, representing the amount of variable compensation related to restructuring at an Affiliate that will be reimbursed through a reduction in Affiliate key employee distributions.

The following table identifies the components of ENI operating expense:

Years ended December 31,

(1)Fixed compensation and benefits include base salaries, payroll taxes and the cost of benefit programs provided. The following table reconciles U.S. GAAP compensation expense to ENI fixed compensation and benefits expense for the years ended December 31, 2020, 2019 and 2018:

Years ended December 31,

Total U.S. GAAP compensation and benefits expense $ 388.7 $ 416.2 $ 696.4

Affiliate key employee distributions (41.5) (53.1) (76.6)

Fund expenses reimbursed by customers (4.6) (4.4) (8.0)

(a)For the year ended December 31, 2020, includes $17.0 million costs relating to the impact of a one-time compensation arrangement entered into that includes advances against future compensation payments and $3.8 million of restructuring costs at the Center and Affiliates. For the year ended December 31, 2019, includes $6.7 million of variable compensation associated with restructuring at the Center and the Affiliates. For the year ended December 31, 2018, includes $4.5 million of compensation associated with the 2018 CEO transition, which includes $0.1 million of fixed compensation and benefits and $4.4 million of variable compensation.

(2)The following table reconciles U.S. GAAP general and administrative expense to ENI general and administrative expense:

Years ended December 31,

U.S. GAAP general and administrative expense $ 106.0 $ 128.8 $ 126.0

Capital transaction costs (0.2) (2.7) (1.6)

Restructuring costs(a) (7.3) (2.5) (2.0)

Additional ENI adjustments (0.1) — —

ENI general and administrative expense $ 107.2 $ 134.8 $ 139.8

(a)Reflects $5.6 million related to restructuring at the Center and $1.6 million of costs associated with the transfer of an insurance policy from our former Parent for the year ended December 31, 2020. Reflects $2.5 million related to our redomicile to the U.S. in the year ended December 31, 2019. Reflects $1.6 million related to our redomicile to the U.S. and $0.4 million of CEO transition costs in the year ended December 31, 2018.

Key Non-GAAP Operating Metrics

The following table shows our key non-GAAP operating metrics for the years ended December 31, 2020, 2019 and 2018. We present these metrics because they are the measures our management uses to evaluate the profitability of our business and are useful to investors because they represent the key drivers and measures of economic performance within our business model. Please see the footnotes below for an explanation of each ratio, its usefulness in measuring the economics and operating performance of our business, and a reference to the most closely related U.S. GAAP measure:

Years ended December 31,

Denominator: ENI management fee revenue(3) $ 697.9 $ 807.0 $ 905.0

ENI operating expense ratio(4) 43.2 % 42.3 % 37.1 %

ENI variable compensation ratio(6) 38.9 % 39.3 % 39.5 %

Numerator: Affiliate key employee distributions $ 41.5 $ 53.1 $ 76.6

ENI Affiliate key employee distributions ratio(7) 16.6 % 18.6 % 21.7 %

(1)ENI operating earnings represents ENI earnings before Affiliate key employee distributions and is calculated as ENI revenue, less ENI operating expense, less ENI variable compensation. It differs from economic net income because it does not include the effects of Affiliate key employee distributions, net interest expense or income tax expense.

The following table reconciles U.S. GAAP operating income (loss) to ENI operating earnings:

Years ended December 31,

Include earnings from equity-accounted Affiliate 2.9 2.8 2.7

Exclude the impact of:

Capital transaction costs 0.2 2.7 1.6

Affiliate key employee distributions 41.5 53.1 76.6

Funds’ operating income (5.2) (6.2) (2.9)

Less: ENI Affiliate key employee distributions (41.5) (53.1) (76.6)

ENI earnings after Affiliate key employee distributions $ 208.7 $ 231.8 $ 276.1

(a)For the year ended December 31, 2020, includes $17.0 million related to the impact of a one-time compensation arrangement entered into that includes advances against future compensation payments, restructuring costs of $1.6 million associated with the transfer of an insurance policy from our former Parent and $9.4 million of restructuring costs at the Center and Affiliates. For the year ended December 31, 2019, includes $6.7 million of restructuring costs at the Center and the Affiliates and $2.5 million of costs incurred in connection with the redomicile to the U.S. For the year ended December 31, 2018. includes $4.8 million related to 2018 CEO transition costs and $1.6 million of costs incurred in connection with the redomicile to the U.S.

(2)The ENI operating margin, which is calculated before Affiliate key employee distributions, is used by management and is useful to investors to evaluate the overall operating margin of the business without regard to our various ownership levels at each of the Affiliates. The ENI operating margin is most comparable to our U.S. GAAP operating margin (excluding the effect of consolidated Funds) of 24.4% for the year ended December 31, 2020, 30.0% for the year ended December 31, 2019 and 8.8% for the year ended December 31, 2018.

The ENI operating margin is important because it gives investors an understanding of the profitability of the total business relative to revenue, irrespective of the ownership position which BSIG has in each of its Affiliates. Management and investors use this ratio when comparing our profitability relative to our peer group and evaluating our ability to manage the cost structure and profitability of our business under different operating environments.

(3)ENI Management fee revenue corresponds to U.S. GAAP management fee revenue.

(4)The ENI operating expense ratio is used by management and is useful to investors to evaluate the level of operating expense as measured against our recurring management fee revenue. We have provided this ratio since many operating expenses, including fixed compensation and benefits and general and administrative expense, are generally linked to the overall size of the business. We track this ratio as a key measure of scale economies at BSIG because in our profit sharing economic model, scale benefits both the Affiliate employees and BSIG stockholders. The ENI operating expense ratio is most comparable to the U.S. GAAP operating expense / management fee revenue ratio.

(5)ENI earnings before variable compensation is calculated as ENI revenue, less ENI operating expense.

(6)The ENI variable compensation ratio is used by management and is useful to investors to evaluate consolidated variable compensation as measured against our ENI earnings before variable compensation. Variable compensation is contractually set and calculated individually at each Affiliate, plus Center bonuses. Variable compensation is usually awarded based on a contractual percentage of each Affiliate’s ENI earnings before variable compensation and may be paid in the form of cash or non-cash Affiliate equity or profit interests. Center variable compensation includes cash and BSIG equity. Non-cash variable compensation awards typically vest over several years and are recognized as compensation expense over that service period. The variable compensation ratio at each Affiliate, calculated as variable compensation divided by ENI earnings before variable compensation, will typically be between 25% and 35%. The ENI variable compensation ratio is most comparable to the U.S. GAAP variable compensation ratio.

(7)The ENI Affiliate key employee distribution ratio is used by management and is useful to investors to evaluate Affiliate key employee distributions as measured against our ENI operating earnings. Affiliate key employee distributions represent the share of Affiliate profits after variable compensation that is attributable to Affiliate key employee equity and profit interests holders, according to their ownership interests. The Affiliate key employee distribution ratio at each Affiliate is calculated as Affiliate key employee distributions divided by ENI operating earnings at that Affiliate. At certain Affiliates with tiered equity structures, BSUS and other classes of employee equity holders are entitled to an initial proportionate preference over profits after variable compensation, structured such that before a preference threshold is reached, there would be no required key employee distributions to the tiered equity holders, whereas for profits above the threshold the key employee distribution amount to the tiered equity holders would be calculated based on the tiered key employee ownership percentages. Based on current economic arrangements, employee distributions range from approximately 20% to 40% of marginal ENI operating earnings at each of our consolidated Affiliates. The ENI Affiliate key employee distributions ratio is most comparable to the U.S. GAAP Affiliate key employee distributions ratio.

Tax on Economic Net Income

The following table reconciles the United States statutory tax to tax on economic net income:

Years ended December 31,

Intercompany interest expense deductible for U.S. tax purposes — (35.5) (75.4)

Taxes at the U.S. federal and state statutory rates(2) (51.1) (47.9) (51.1)

Other reconciling tax adjustments 7.6 (2.1) (11.6)

Tax on economic net income (43.5) (50.0) (62.7)

Add back intercompany interest expense previously excluded — 35.5 75.4

Economic net income effective tax rate(3) 23.2 % 23.7 % 23.9 %

(1)Includes interest income and third party ENI interest expense, as shown in the following table:

Years ended December 31,

U.S. GAAP interest income $ 0.6 $ 2.2 $ 3.2

U.S. GAAP interest expense (28.5) (32.2) (24.9)

U.S. GAAP net interest expense (27.9) (30.0) (21.7)

Other ENI interest expense exclusions(a) 6.3 9.0 8.1

ENI net interest income (expense) (21.6) (21.0) (13.6)

ENI earnings after Affiliate key employee distributions(b) 208.7 231.8 276.1

(a)Other ENI interest expense exclusions represent cost of financing on seed capital and co-investments and amortization of debt issuance costs. Other ENI interest expense includes $5.7 million related to the cost of seed and co-investment financing and $0.6 million related to the amortization of debt issuance costs for the year ended December 31, 2020.

(b)ENI earnings after Affiliate key employee distributions is calculated as ENI operating income (ENI revenue, less ENI operating expense, less ENI variable compensation), less Affiliate key employee distributions. Refer to “—Key Non-GAAP Operating Metrics” for a reconciliation from U.S. GAAP operating income to ENI earnings after Affiliate key employee distributions.

(2)Taxed at U.S. Federal and State statutory rate of 27.3%.

(3)The economic net income effective tax rate is calculated by dividing the tax on economic net income by pre-tax economic net income.

Segment Analysis

We conduct our operations through three business segments:

•Quant & Solutions—comprised of versatile, often highly-tailored strategies that leverage data and technology in a computational, factor based investment process across a range of asset classes and geographies, including Global, non-U.S., and emerging markets equities, as well as multi-asset and managed volatility products.

We have a corporate head office that is included in “Other”. The corporate head office supports the segments by providing infrastructure and administrative support in the areas of accounting/finance, operations, information technology, strategy and relationship management, legal, compliance and human resources. The corporate head office expenses are not allocated to the Company’s three reportable segments but the CODM does consider the cost structure of the corporate head office when evaluating the financial performance of the segments.

The primary measure used by the CODM in measuring performance and allocating resources to the segments is Economic Net Income ("ENI"). We define economic net income for the segments as ENI revenue less (i) ENI operating expenses, (ii) variable compensation and (iii) key employee distributions. The ENI adjustments to U.S. GAAP include both reclassifications of U.S. GAAP revenue and expense items, as well as adjustments to U.S. GAAP results, primarily to exclude non-cash, non-economic expenses, or to reflect cash benefits not recognized under U.S. GAAP.

ENI revenue includes management fees, performance fees and other revenue under U.S. GAAP, adjusted to include management fees paid to Affiliates by consolidated Funds and the Company’s share of earnings from equity-accounted Affiliates. ENI revenue is also adjusted to exclude the separate revenues recorded under U.S. GAAP for certain Fund expenses reimbursed to our Affiliates.

ENI operating expenses include compensation and benefits, general and administrative expense, and depreciation and amortization under U.S. GAAP, adjusted to exclude non-cash expenses representing changes in the value of Affiliate equity and profit interests held by Affiliate key employees, non-cash amortization of acquisition-related contingent consideration, as well as the value of employee equity owned pre-acquisition that occurred as a result of the Landmark transaction, goodwill impairment and amortization of acquired intangible assets, capital transaction costs, restructuring costs, the impact of a one-time compensation arrangement entered into that includes advances against future compensation payments, and the separate expenses recorded under U.S. GAAP for certain Fund expenses reimbursed to our Affiliates. Additionally, variable compensation and Affiliate key employee distributions are segregated from ENI operating expenses.

ENI segment results are also adjusted to exclude the portion of consolidated Fund revenues, expenses and investment return recorded under U.S. GAAP.

Refer to the reconciliations of U.S. GAAP revenue to ENI revenue, U.S. GAAP Operating expense to ENI Operating expense, variable compensation and Affiliate key employee distributions disclosed previously within this section.

Segment ENI Revenue

The following tables identify the components of segment ENI revenue for the years ended December 31, 2020, 2019 and 2018:

Years ended December 31,

Year ended December 31,

Quant & Solutions Alternatives Liquid Alpha Other Total

Other income, including equity-accounted subsidiary — 1.3 2.6 0.4 4.3

Quant & Solutions Segment ENI Revenue

Year ended December 31, 2020 compared to year ended December 31, 2019: Quant & Solutions ENI revenue decreased $(25.8) million, or (6.8)%, from $380.6 million for the year ended December 31, 2019 to $354.8 million for the year ended December 31, 2020. The decrease was attributable to (6.5)% lower management fees driven by lower average AUM primarily resulting from the equity market decline in the first quarter of 2020.

Year ended December 31, 2019 compared to year ended December 31, 2018: Quant & Solutions ENI revenue decreased $(8.4) million, or (2.2)%, from $389.0 million for the year ended December 31, 2018 to $380.6 million for the year ended December 31, 2019. The decrease was attributable to (1.7)% lower management fees, driven by lower average AUM resulting from the fourth quarter 2018 non-U.S. equity market depreciation and (15.5)% lower performance fees driven by underperformance in value-tilted global and non-U.S. strategies in the year ended December 31, 2019.

Alternatives Segment ENI Revenue

Year ended December 31, 2020 compared to year ended December 31, 2019: Alternatives ENI revenue increased $6.3 million, or 3.8%, from $166.5 million for the year ended December 31, 2019 to $172.8 million for the year ended December 31, 2020. The increase was attributable to 3.4% higher management fees resulting from inflows and change in net catch-up fees.

Year ended December 31, 2019 compared to year ended December 31, 2018: Alternatives ENI revenue decreased $(51.6) million, or (23.7)%, from $218.1 million for the year ended December 31, 2018 to $166.5 million for the year ended December 31, 2019. The decrease was attributable to (20.8)% lower management fees mainly resulting from placement agent fees paid in 2019, and (96.5)% lower performance fees during the year ended December 31, 2019 due to the real assets strategy as the valuation for certain properties increased in the year ended December 31, 2018, but stayed generally flat in the year ended December 31, 2019.

Liquid Alpha Segment ENI Revenue

Year ended December 31, 2020 compared to year ended December 31, 2019: Liquid Alpha ENI revenue decreased $(80.5) million, or (30.5)%, from $263.8 million for the year ended December 31, 2019 to $183.3 million for the year ended December 31, 2020. The decrease was attributable to (33.4)% lower management fees driven by lower average AUM resulting from the disposition of Copper Rock and Barrow Hanley, equity market decline in the first quarter of 2020, and net outflows over the last twelve months. The change in performance fees was primarily due to fulcrum fees recorded in the year ended December 31, 2019 that did not repeat in the year ended December 31, 2020.

Year ended December 31, 2019 compared to year ended December 31, 2018: Liquid Alpha ENI revenue decreased $(47.8) million, or (15.3)%, from $311.6 million for the year ended December 31, 2018 to $263.8 million for the year ended December 31, 2019. The decrease was attributable to (15.1)% lower management fees driven by fourth quarter 2018 equity market decline and net outflows in 2019. Performance fees were relatively flat for the year ended December 31, 2019 compared to the year ended December 31, 2018.

Segment ENI Expense

The following tables identify the components of segment ENI expense for the years ended December 31, 2020, 2019 and 2018:

Years ended December 31,

Year ended December 31,

Quant & Solutions Alternatives Liquid Alpha Other Total

Affiliate key employee distributions 9.5 34.1 33.0 — 76.6

Quant & Solutions Segment ENI Expense

Year ended December 31, 2020 compared to year ended December 31, 2019: Quant & Solutions ENI operating expense decreased $(11.6) million, or (7.2)%, from $160.6 million for the year ended December 31, 2019 to $149.0 million for the year ended December 31, 2020. The decrease was driven by (7.2)% lower ENI fixed compensation and benefits expense resulting from headcount reduction and (13.8)% lower ENI general and administrative expense such as travel reflecting the impact of COVID-19 and cost-saving initiatives. Quant & Solutions ENI variable compensation expense, which is based on contractual arrangements, decreased (3.7)% as a result of lower earnings before variable compensation. Affiliate key employee distributions attributable to Quant & Solutions decreased (32.8)%, primarily due to lower Quant & Solutions ENI earnings after variable compensation.

Year ended December 31, 2019 compared to year ended December 31, 2018: Quant & Solutions ENI operating expense increased $14.3 million, or 9.8%, from $146.3 million for the year ended December 31, 2018 to $160.6 million for the year ended December 31, 2019. The increase was driven by 9.1% higher ENI fixed compensation and benefits expense resulting from new hires for initiatives and annual cost of living increases, and 8.4% higher ENI general and administrative expense resulting from new initiatives and additional system costs. Quant & Solutions ENI variable compensation expense, which is based on contractual arrangements, decreased (12.3)%, as a result of lower pre-variable compensation earnings. Affiliate key employee distributions attributable to Quant & Solutions decreased (32.6)%, largely driven by levered distribution structures.

Alternatives Segment ENI Expense

Year ended December 31, 2020 compared to year ended December 31, 2019: Alternatives ENI operating expense decreased $(2.3) million, or (3.4)%, from $66.9 million for the year ended December 31, 2019 to $64.6 million for the year ended December 31, 2020. The decrease was driven by (20.0)% lower ENI general and administrative expenses such as travel reflecting the impact of the COVID-19 pandemic. Alternatives ENI variable compensation expense, which is based on contractual arrangements, increased 6.8% as a result of higher earnings before variable compensation. Affiliate key employee distributions attributable to Alternatives increased 9.1%, primarily driven by higher Alternatives ENI earnings after variable compensation.

Year ended December 31, 2019 compared to year ended December 31, 2018: Alternatives ENI operating expense increased $5.1 million, or 8.3%, from $61.8 million for the year ended December 31, 2018 to $66.9 million for the year ended December 31, 2019. The increase was driven by 16.5% higher ENI fixed compensation and benefits expense resulting from new hires and annual cost of living increases. Alternatives ENI variable compensation expense, which is based on contractual arrangements, decreased (37.7)%, as a result of lower earnings before variable compensation. Affiliate key employee distributions attributable to Alternatives decreased (32.6)%, largely driven by lower profit after variable compensation.

Liquid Alpha Segment ENI Expense

Year ended December 31, 2020 compared to year ended December 31, 2019: Liquid Alpha ENI operating expense decreased $(15.3) million, or (19.4)%, from $78.8 million for the year ended December 31, 2019 to $63.5 million for the year ended December 31, 2020. The decrease was driven by (14.3)% lower ENI fixed compensation and benefits expense and (28.7)% lower ENI general and administrative expense driven by the Barrow Hanley and Copper Rock dispositions. Liquid Alpha ENI variable compensation expense, which is based on contractual arrangements, decreased (29.5)%, as a result of lower pre-variable compensation earnings. Affiliate key employee distributions attributable to Liquid Alpha decreased (48.9)%, primarily driven by dispositions and lower Liquid Alpha ENI earnings after variable compensation.

Year ended December 31, 2019 compared to year ended December 31, 2018: Liquid Alpha ENI operating expense decreased $(5.7) million, or (6.7)%, from $84.5 million for the year ended December 31, 2018 to $78.8 million for the year ended December 31, 2019. The decrease was driven by (1.8)% lower ENI fixed compensation and benefits expense resulting from headcount reduction and (14.4)% lower ENI general and administrative expense mainly resulting from lower commissions and other general expenses. Liquid Alpha ENI variable compensation expense, which is based on contractual arrangements, decreased (15.6)%, as a result of lower pre-variable compensation earnings. Affiliate key employee distributions attributable to Liquid Alpha decreased (28.2)%, largely driven by lower profit after variable compensation.

Other ENI Expense

Year ended December 31, 2020 compared to year ended December 31, 2019: Other ENI operating expense decreased $(11.0) million or (31.1)%, from $35.4 million for the year ended December 31, 2019 to $24.4 million for the year ended December 31, 2020. The decrease was driven by (30.8)% lower ENI fixed compensation and benefits expense resulting from a reduction in headcount and (32.0)% lower ENI general and administrative expense resulting from cost-saving initiatives. Other ENI variable compensation expense decreased (64.0)% due to a reduction in headcount.

Year ended December 31, 2019 compared to year ended December 31, 2018: Other ENI operating expense decreased $(7.7) million, or (17.9)%, from $43.1 million for the year ended December 31, 2018 to $35.4 million for the year ended December 31, 2019. The decrease was driven by (19.2)% lower fixed compensation and benefit expense resulting from a reduction in headcount, and (17.4)% lower general and administrative expense resulting from cost-saving initiatives. Other ENI variable compensation expense decreased (14.5)% which was driven by a reduction in headcount.

Capital Resources and Liquidity

Cash Flows

The following table summarizes certain key financial data relating to cash flows. All amounts presented exclude consolidated Funds:

Years ended December 31,

Cash provided by (used in)(1)(2)

(1)Excludes consolidated Funds.

(2)Cash flow data shown only includes cash flows from continuing operations.

Our most significant uses of cash include repayment of third-party borrowings, third-party interest payments, repurchases of shares, payments made to OM plc under the Deferred Tax Asset Deed, seed capital investments, dividends and compensation and general and administrative expenses.

Comparison for the Years Ended December 31, 2020, 2019 and 2018

Net cash (used in) provided by operating activities of continuing operations excluding consolidated Funds increased $272.4 million, or 255.5%, from $(106.6) million used in the year ended December 31, 2019 to $165.8 million provided by the year ended December 31, 2020. The increase was primarily driven by a decrease in operating liabilities as a result of the Landmark earnout that was settled in the year ended December 31, 2019.

Net cash provided by operating activities of continuing operations excluding consolidated Funds decreased $(358.9) million, from $252.3 million for the year ended December 31, 2018 to $(106.6) million for the year ended December 31, 2019. The decrease was primarily driven by a decrease in operating liabilities as a result of the Landmark earnout that was settled in the year ended December 31, 2019.

Net cash provided by investing activities was $358.6 million, $17.7 million and $57.6 million for the years ended December 31, 2020, 2019 and 2018, respectively. Net cash (used in) received from the (purchase) and sale of investments was $90.6 million, $46.6 million and $(25.7) million for the years ended December 31, 2020, 2019 and 2018, respectively. Fluctuations are principally due to the timing of investments or redemptions of seed capital as well as acquisitions or disposals of real estate and forestry assets in which we are co-investing. Net cash used in the purchase of fixed assets was $(27.2) million, $(33.9) million and $(21.7) million for the years ended December 31, 2020, 2019 and 2018, respectively. Proceeds received from the sale of investments in Affiliates was $295.2 million, $5.0 million and $105.0 million for the years ended December 31, 2020, 2019 and 2018, respectively.

Net cash used in financing activities, excluding consolidated Funds, consists of share repurchases, payments made to OM plc, third-party borrowings and dividends paid. Cash used in financing activities was $(232.2) million, $(140.4) million and $(155.6) million for the years ended December 31, 2020, 2019 and 2018, respectively. We paid down $(175.0) million against third party borrowings in 2020, we drew net $175.0 million against third party borrowings in 2019 and we paid down $(33.5) million against third party borrowings in 2018. In 2020 we made payments of $(0.3) million against amounts previously owed to OM plc for the co-investment arrangement, funded $(46.0) million for share repurchases and paid out $(10.9) million in dividends. In 2019 we made payments of $(37.8) million against amounts previously owed to OM plc for the DTA deed and co-investment arrangement, funded $(239.8) million for share repurchases, and paid out $(36.0) million in dividends. In 2018 we paid $(3.9) million against amounts previously owed to OM plc, funded $(71.2) million for share repurchases and paid out $(42.5) million in dividends.

Working Capital and Long-Term Debt

The following table summarizes certain key financial data relating to our capital resources and liquid net assets. All amounts presented exclude the non-controlling interest portion of consolidated Funds:

Years ended December 31,

Balance Sheet Data(1)

Current assets

Current liabilities

Accounts payable and accrued expenses 33.5 41.5 54.3

Long-term notes payable and other debt $ 394.3 $ 568.8 $ 393.3

(1)Excludes the non-controlling interest portion of consolidated Funds.

(2)Excluded from other short-term liabilities for each of the years presented is an income tax reserve relating to net operating losses that does not represent a current obligation of the Company. Puts related to Affiliate equity and profits interests are also excluded on a short-term basis because they are funded through recycling.

Working capital is defined as current assets less current liabilities, excluding the non-controlling interest portion of consolidated Funds. Our net working capital has been positive over the past several years and was $410.4 million at December 31, 2020. Our most significant current liabilities have been accounts payable and accrued compensation expense. Accrued compensation expense has primarily consisted of variable compensation accruals made throughout the year based on contractual arrangements. Our cash management practices generally require that working capital be maintained at each Affiliate at a sufficient level to meet short-term operational needs. Periodic distributions of Affiliate earnings to BSUS and Affiliate key employee equity holders are made according to respective Affiliate distribution policies, with BSUS having the ability to access any surplus cash at each Affiliate as necessary during interim periods.

Borrowings and Long-Term Debt

The following table summarizes our financing arrangements as of the dates indicated:

Amounts outstanding at

($ in millions) December 31, 2020 December 31, 2019 Interest rate Maturity

Third party borrowings:

AAMI US Equity

AAMI · 10-K · period ended 2020-12-31

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

AAMI US Equity☆

AAMI · 10-K · period ended 2020-12-31

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

AAMI US Equity