Equity Method Investments in Affiliates

12 Months Ended

Dec. 31, 2021

Equity Method Investments and Joint Ventures [Abstract]

Equity Method Investments in AffiliatesIn the first and second quarters of 2021, the Company completed minority investments in Boston Common Asset Management LLC (“Boston Common”), a pioneer in global sustainable and impact investing, and OCP Asia Limited (“OCP Asia”), a leading alternative manager in private markets, providing customized secured lending solutions across the Asia-Pacific region, respectively. The majority of the consideration paid for both Boston Common and OCP Asia is deductible for U.S. tax purposes over a 15-year life. The Company’s purchase price allocation for each investment was measured using

discounted cash flow analyses that included assumptions of expected market performance, net client cash flows, and discount rates.

The financial results of certain Affiliates accounted for under the equity method are recognized in the Consolidated Financial Statements one quarter in arrears.

Equity method investments in Affiliates (net) consisted of the following:


	December 31,
	2020		2021
Goodwill	$	1,251.6	$	1,264.4
Definite-lived acquired client relationships (net)	479.5		470.1
Indefinite-lived acquired client relationships (net)	173.1		174.4
Undistributed earnings and tangible capital	170.6		225.5
Equity method investments in Affiliates (net)	$	2,074.8	$	2,134.4

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


	Equity Method Investments in Affiliates (Net)
	2020		2021
Balance, beginning of period	$	2,195.6	$	2,074.8
Investments in Affiliates	128.7		147.3
Earnings	288.6		417.5
Intangible amortization and impairments	(332.0)		(175.0)
Distributions of earnings	(236.8)		(337.5)
Return of capital	—		(4.4)
Foreign currency translation	5.1		12.5

Other	25.6		(0.8)
Balance, end of period	$	2,074.8	$	2,134.4

Definite-lived acquired client relationships at the Company’s Affiliates accounted for under the equity method are amortized over their expected period of economic benefit. The Company recorded amortization expense for these relationships of $142.4 million, $147.0 million, and $123.0 million for the years ended December 31, 2019, 2020, and 2021, respectively. Based on relationships existing as of December 31, 2021, the Company estimates the amortization expense attributable to its Affiliates will be approximately $80 million in 2022 and 2023, and approximately $50 million in each of 2024, 2025, and 2026.

In the first and fourth quarters of 2020, the Company recorded expenses of $140.0 million and $45.0 million, respectively, to reduce the carrying value of an Affiliate to fair value. The decline in the fair values was a result of declines in assets under management and reductions in projected growth, which decreased the forecasted revenues associated with the investment. The fair values of the investment were determined using probability-weighted discounted cash flow analyses, level 3 fair value measurements that included projected compounded growth in assets under management over the first five years of (2)% and (5)% for the first and fourth quarters of 2020, respectively, discount rates of 11% for asset-based fees, discount rates of 20% for performance-based fees, and market participant tax rates of 25%. Based on the discounted cash flow analyses, the Company concluded that the fair value of its investment had declined below its carrying value at each of the respective measurement dates and that the decline was other-than-temporary.

In the fourth quarter of 2021, the Company recorded a $52.0 million expense to reduce the carrying value of an Affiliate to fair value. The decline in the fair value was a result of a decline in assets under management and a reduction in projected growth, which decreased the forecasted revenue associated with the investment. The fair value of the investment was determined using a probability-weighted discounted cash flow analysis, a level 3 fair value measurement that included a projected compounded growth in assets under management over the first five years of 0.3%, discount rates of 11% and 20% for asset- and performance-based fees, respectively, and a market participant tax rate of 25%. Based on the discounted cash flow

analysis, the Company concluded that the fair value of its investment had declined below its carrying value and that the decline was other-than-temporary.

For the year ended December 31, 2021, the Company completed its annual assessment of its investments in Affiliates accounted for under the equity method and no other impairments were indicated. If financial markets become depressed for a prolonged period as a result of COVID-19 or other factors, or the financial performance of an Affiliate worsens as a result of net client cash outflows or performance, regardless of the performance of financial markets, the fair values of these assets could drop below their carrying values for periods considered other-than-temporary, resulting in future impairments.

The Company had liabilities for deferred and contingent payment obligations related to certain of its investments in Affiliates accounted for under the equity method. As of December 31, 2021, the Company was obligated to make deferred payments of up to $50.8 million, all of which is payable in 2022. As of December 31, 2021, the Company has recorded liabilities of $43.0 million related to the achievement of specified financial targets, which are expected to settle in 2022. Liabilities for deferred and contingent payments are included in Other liabilities.

The Company had 18 and 21 Affiliates accounted for under the equity method as of December 31, 2020 and 2021, respectively. The majority of these Affiliates are partnerships with structured interests that define how the Company will participate in Affiliate earnings, typically based upon a fixed percentage of revenue reduced by, in some cases, certain agreed-upon expenses. The partnership agreements do not define a fixed percentage for the Company’s ownership of the equity of the Affiliate. These percentages would be subject to a separate future negotiation if an Affiliate were to be sold or liquidated.

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


	For the Years Ended December 31,
	2019		2020		2021
Revenue(1)	$	2,760.9	$	2,659.7	$	3,228.1
Net income(1)	1,061.3		1,061.8		1,656.6


	December 31,
	2020		2021
Assets	$	2,958.9	$	3,607.7

Liabilities and Non-controlling interests	1,245.5		1,422.7

__________________________

(1)Revenue and net income include asset- and performance-based fees, the impact of consolidated sponsored investment products and investments in new Affiliates for the full-year, regardless of the date of the Company’s investment.

On January 14, 2022, the Company completed an additional investment in Systematica Investments (“Systematica”), an innovative technology-driven systematic manager. Following the close of the transaction, the investment continues to be accounted for under the equity method of accounting and Systematica partners continue to hold a majority of the equity of the business and direct its day-to-day operations.