Equity Method Investments in Affiliates

In 2016, the Company completed investments in Systematica Investments L.P. and Baring Private Equity Asia, both of which closed on January 4, 2016, Capula Investment Management, LLP, Mount Lucas Management LP and Capeview Capital LLP, all of which closed on July 1, 2016, Partner Fund Management, L.P., which closed on September 30, 2016, and Winton Group Ltd., which closed on October 4, 2016. The purchase price allocations were completed using financial models that included assumptions of expected market performance, net client cash flows and discount rates. The majority of the consideration paid is deductible for U.S. tax purposes over a 15-year life. The financial results of certain equity method Affiliates are recognized in the Consolidated Financial Statements one quarter in arrears.

The purchase price allocation for the 2016 investments was as follows:



	Total
Definite-lived acquired client relationships⁽¹⁾	$	560.8
Indefinite-lived acquired client relationships	36.9
Tangible assets	2.0
Deferred tax liability	(91.8		)
Goodwill	854.4
Consideration paid	$	1,362.3

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⁽¹⁾	The expected period of economic benefit utilized in the purchase price allocation for these definite-lived acquired client relationships was 15 years.

For these new investments, the Company recorded amortization expense on the definite-lived acquired client relationships of $17.0 million and $58.0 million for the years ended December 31, 2016 and 2017, respectively.

The following table presents the change in Equity method investments in Affiliates:



	2016			2017
Balance, January 1,	$	1,937.1		3,368.3
Equity method earnings	388.0			501.4
Equity method intangible amortization and impairments	(59.2		)	(199.2		)
Distributions of earnings from equity method investments	(346.4		)	(429.8		)
Investments	1,361.3			29.8
Foreign currency translation	8.0			62.3
Other⁽¹⁾	79.5			(28.1		)
Balance, December 31,	$	3,368.3		$	3,304.7

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⁽¹⁾	Primarily reflects deferred income taxes recorded on new investments.

The definite-lived acquired relationships at the Company’s equity method Affiliates are amortized over their expected period of economic benefit. The Company recognized amortization expense for these relationships of $34.3 million, $59.2 million and $106.1 million, respectively, for the years ended December 31, 2015, 2016 and 2017. Based on relationships existing as of December 31, 2017, the Company estimates the annual amortization expense attributable to its existing equity method Affiliates to be approximately $120 million in each of the next five years.

During 2017, the Company determined that the fair value of an equity method investment had declined below its carrying value. The decline in the fair value of this investment was the result of a cumulative decline in assets under management, coupled with the recent loss of a significant client, which has decreased the forecasted revenue of the firm. The fair value of the investment was determined using a discounted cash flow analysis, a level 3 fair value measurement, that projected future cash flows associated with the investment and discount rates that were developed with input from valuation experts. The significant assumptions used in the cash flow analysis include a projected growth rate of 10.0%, discount rates of 14.0% and 25.0% for asset and performance based fees, respectively, and a market participant tax rate of 25.0%. The Company considered the decline in fair value to be other-than-temporary and, accordingly, the Company recognized an impairment of $93.1 million. For the Company’s remaining equity and cost method investments, the Company completed its annual evaluation and no impairments were identified.

The following table presents summarized financial information for Affiliates accounted for under the equity method:



	For the Years Ended December 31,
	2015⁽²⁾		2016⁽²⁾		2017
Revenue⁽¹⁾	$	2,217.1	$	2,200.9	$	3,126.3
Net income⁽¹⁾	431.5		1,068.9		2,182.7



	December 31,
	2016		2017
Assets	$	1,915.3	$	3,324.9
Liabilities and Non-controlling interests	862.4		1,405.5

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⁽¹⁾	Revenue and the associated Net income include asset and performance based fees and the impact of consolidated investment products.


⁽²⁾	Revenue and Net income reflect investments in new Affiliates for the full-year, regardless of the date of the Company’s investment.

The Company’s share of undistributed earnings from equity method investments was $192.5 million as of December 31, 2017.

The Company has determined that one of its equity method Affiliates is significant under Rule 10-01(b)(1) of Regulation S-X. For the years ended December 31, 2016 and 2017, this equity method Affiliate recognized revenue of $944.1 million and $1,317.8 million, respectively, and net income of $529.0 million and $806.6 million, respectively.