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Significant Accounting Policies (Notes) | 12 Months Ended
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Dec. 31, 2015
Accounting Policies [Abstract] |
Significant Accounting Policies | Significant Accounting Policies Basis of Presentation The accompanying Consolidated Financial Statements of the Company have been prepared pursuant to the rules and regulations of the U. S. Securities and Exchange Commission ("SEC") and in accordance with the instructions to Form 10-K. The Company believes that the disclosures contained herein are adequate to make the information presented not misleading. These Consolidated Financial Statements reflect, in the opinion of the Company, all material adjustments (which include only normal recurring adjustments) necessary to fairly present the Company’s financial position as of December 31, 2015 and 2014, and results of operations for the years ended December 31, 2015, 2014 and 2013. The preparation of the Consolidated Financial Statements requires management to make estimates and judgments that affect the reported amounts of assets and liabilities at the date of the financial statements as well as the reported amounts of revenue and expense during the reporting period. Estimates have been prepared on the basis of the most current and best available information, but actual results could differ materially from those estimates. Book value per share is computed by dividing total shareholders' equity by the number of shares issued and outstanding at the end of the measurement period. Reclassification Certain prior period amounts and disclosures may have been reclassified to conform to the current period's financial presentation. Principles of Consolidation The accompanying consolidated financial statements include the operations of the Company and its subsidiaries. All inter-company transactions and balances have been eliminated in consolidation. The Company holds certain investments in the Funds we advise and an exchange traded fund ("the ETF") we advise for general corporate investment purposes and to provide seed capital for newly formed strategies. The Funds are organized in a Trust which is an open-end investment company registered under the Investment Company Act of 1940, as amended (the"1940 Act"). The ETF is an individual series of ETF Series Solutions ("the Series Trust") which is an open-end investment company registered under the 1940 Act. As the Funds and the Series Trust are both regulated under the 1940 Act we have concluded they both qualify for the Investment Company deferral in ASC 810-10-65-2 (aa) and have evaluated the accounting for the Funds and the Series Trust under FASB Interpretation No. 46 (revised December 2003) Consolidation of Variable Interest Entities an interpretation of ARB No. 51 (“FIN46R”) as codified in ASC 810. We have performed our analysis at the trust level and have concluded the Funds and the Series Trust are voting rights entities ("VREs"). The Company owns less than 1% of the voting interest of both the Funds and the Series Trust as of December 31, 2015 and 2014, respectively, and therefore do not consolidate the entities. These investments are classified as trading securities and are measured at fair value. DHCM is the managing member of Diamond Hill General Partner, LLC (the “General Partner”), the general partner of Diamond Hill Investment Partners, L.P. (“DHIP”), Diamond Hill Global Fund, L.P. ("DHGF"), Diamond Hill High Yield, L.P. (“DHHY”) and Diamond Hill Valuation-Weighted 500, L.P. (“DHVW”), each a limited partnership whose underlying assets consist primarily of marketable securities, or collectively (the “LPs”). During 2015, the Company converted DHVW to the ETF by liquidating its investment in the partnership and purchasing into the ETF (refer to Note 3). DHCM is wholly owned by the Company and is consolidated by us. Further, DHCM through its control of the General Partner, has the power to direct each LP’s economic activities and the right to receive investment advisory and performance incentive fees that may be significant to the LPs. We have concluded each of the LPs meet the investment company criteria as outlined in FASB Accounting Standards Codification Topic 946, Financial Services - Investment Companies. As the LPs are investment companies, we have further concluded the LPs qualify for the Investment Company deferral in ASC 810-10-65-2 (aa) and have evaluated the accounting for the LPs under FIN46R. Under FIN 46R, the Company concluded DHIP was a variable interest entity ("VIE") as the group of equity holders lacked the ability to make decisions regarding DHIP’s activities that have a significant impact on the success of the LP. The Company considered our equity interest, equity interests from related parties, and management fees earned as the Company’s total variable interest in our evaluation of determining the primary beneficiary. The Company had no equity at risk in DHIP as of December 31, 2015 and 2014. The Company’s total variable interest absorbed or received through its fees is less than 50% of the VIE expected losses or residual returns and thus we do not consider the Company to be the primary beneficiary of the VIE. Under FIN46R, the Company concluded DHVW, DHGF and DHHY (the "Remaining LPs") were VIEs as DHCM has disproportionately less vote than economics because the Company receives over 95% of the variability of the Remaining LPs, yet the Limited Partners have full power to remove the Company as the General Partner due to the existence of substantive kick-out rights. In addition, substantially all of the Remaining LPs' activities are conducted on behalf of the General Partner which has disproportionately few voting rights. The Company is the primary beneficiary of the these VIEs as the variable interest absorbed or received through our equity investment is greater than 50% for each of the Remaining LPs. We have evaluated the materiality of consolidating the VIEs for which the Company is the primary beneficiary and deemed the impact immaterial to the consolidated financial statements. Therefore, these investments are accounted for under the equity method rather than being consolidated in the accompanying financial statements. DHCM’s investments in the LPs are reported as a component of the Company’s investment portfolio, valued at DHCM’s proportionate interest in the net asset value of the marketable securities held by the Partnerships. The Partnerships are not subject to lock-up periods and can be redeemed on demand. Gains and losses attributable to changes in the value of DHCM’s interests in the Partnerships are included in the Company’s reported investment income. The Company’s exposure to loss as a result of its involvement with the Partnerships is limited to the amount of its investments. DHCM is not obligated to provide, and has not provided, financial or other support to the Partnerships, other than its investments to date and its contractually provided investment advisory responsibilities. The Company has not provided liquidity arrangements, guarantees or other commitments to support the Partnerships’ operations, and the Partnerships’ creditors and interest holders have no recourse to the general credit of the Company. Certain board members, officers and employees of the Company invest in DHIP and are not subject to a management fee or an incentive fee. These individuals receive no remuneration as a result of their personal investment in DHIP. The capital of the General Partner is not subject to a management fee or an incentive fee. Segment Information Management has determined that the Company operates in one business segment, providing investment management and administration services to mutual funds, institutional accounts, and private investment funds. Therefore, no disclosures relating to operating segments are required in the annual financial statements. Cash and Cash Equivalents Cash and cash equivalents include demand deposits and third party money market mutual funds. Accounts Receivable Accounts receivable are recorded when they are due and are presented on the balance sheet net of any allowance for doubtful accounts. Accounts receivable are written off when they are determined to be uncollectible. Any allowance for doubtful accounts is estimated based on the Company’s historical losses, existing conditions in the industry, and the financial stability of those individuals or entities that owe the receivable. No allowance for doubtful accounts was deemed necessary at December 31, 2015 or 2014. Accounts Receivable from the Funds was $9.2 million and $7.9 million as of December 31, 2015 and 2014, respectively. Valuation of Investment Portfolio Investments held by the Company are classified as trading securities and are valued based upon Level 1 inputs and Level 2 inputs. Level 1 inputs are defined as fair values which use quoted prices in active markets for identical assets or liabilities. Level 2 inputs are defined as quoted prices in markets that are not considered to be active for identical assets or liabilities, quoted prices in active markets for similar assets or liabilities, and inputs other than quoted prices that are directly observable or that may be corroborated indirectly with observable market data. The following table summarizes the values of the Company’s investments based upon Level 1 and Level 2 inputs as of December 31, 2015 and 2014:
| As of December 31,
| 2015 |  | 2014
Level 1 Inputs | $ | 92,376,955 |  |  | $ | 62,595,546 |
Level 2 Inputs | $ | 11,284,109 |  |  | 14,652,589 |
Level 1 investments are all registered investment companies (mutual funds) and include as of December 31, 2015 and 2014, $51.2 million and $31.8 million, respectively, of third party money market mutual funds that the Company classifies as cash equivalents. Level 2 investments are all limited partnerships, which are based on net asset value. Equity securities in limited partnerships are valued based upon readily available market quotations obtained from an independent pricing service. Debt securities in limited partnerships are valued by an independent pricing service which uses pricing techniques which take into account factors such as trading activity, readily available market quotations, yield, quality, coupon rate, maturity, type of issue, trading characteristics, call features, credit rates and other observable inputs. The Company determines transfers between fair value hierarchy levels at the end of the reporting period. There were no transfers in or out of the levels during the years ended December 31, 2015 or 2014. The changes in fair values on the investments are recorded in the Consolidated Statements of Income as investment income (loss). Property and Equipment Property and equipment, consisting of leasehold improvements, computer equipment, furniture and fixtures, are carried at cost less accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated life of the assets. Deferred Compensation Liability Deferred compensation liability represents compensation that will be paid out upon satisfactory completion of time-based criteria specified in employee award agreements issued pursuant to the 2014 and 2011 Equity and Cash Incentive Plans. See Note 5. Revenue Recognition – General The Company earns substantially all of its revenue from investment advisory and fund administration services. Investment advisory and administration fees, generally calculated as a percentage of AUM, are recorded as revenue as services are performed. In addition to fixed fees based on a percentage of AUM, certain client accounts also provide periodic variable incentive fees. Investment advisory revenue from the Funds was $80.7 million, $65.1 million and $48.5 million for the years ended December 31, 2015, 2014 and 2013, respectively. Revenue Recognition – Variable Incentive Fees The Company manages certain client accounts that provide for variable incentive fees. These fees are calculated based on client investment results over rolling five-year periods. The Company records variable incentive fees at the end of the contract measurement period. No variable incentive fees were earned during the twelve months ended December 31, 2015, 2014, or 2013. The table below shows AUM subject to variable incentive fees and the amount of variable incentive fees that would have been recognized if the contracts were terminated as of December 31, 2015:
| As Of December 31,
| 2015
AUM subject to variable incentive fees | $ | 551,090,995 |
| For the Year Ended
| 2015
Contractual Period Ends: |
Quarter Ended June 30, 2017 | $ | 618,134 |
Quarter Ended December 31, 2018 | 430,041 |
Quarter Ended September 30, 2019 | 405,845 |
Total variable incentive fees that would have been recognized if contracts were terminated | $ | 1,454,020 |
The contractual end dates highlight the time remaining until the variable incentive fees are scheduled to be earned. The amount of variable incentive fees that would be recognized if the contracts were terminated as of December 31, 2015 will increase or decrease based on future client investment results through the contractual period end, and there is no assurance that the above amounts will ultimately be earned. Revenue Recognition – Mutual Fund Administration DHCM has an administrative and transfer agency services agreement with the Funds, under which DHCM performs certain services for each Fund. These services include mutual fund administration, fund accounting, transfer agency and other related functions. Effective January 1, 2015, for performing these services, each Fund pays DHCM a fee, which is calculated using an annual rate of 0.24% for Class A, C, and I shares and 0.10% for Class Y shares, times the average daily net assets of each respective series and share class. Effective July 1, 2015, the annual rate for Class I shares was reduced to 0.21%. Prior to January 1, 2015, the annual rate was 0.25% for Class A, C, and I shares and 0.10% for Class Y shares. The Funds have selected and contractually engaged certain vendors to fulfill various services to benefit the Funds’ shareholders or to satisfy regulatory requirements of the Funds. These services include, among others, required shareholder mailings, federal and state registrations, and legal and audit services. DHCM, in fulfilling a portion of its role under the administration agreement with the Funds, acts as agent to pay these obligations of the Funds. Each vendor is independently responsible for fulfillment of the services it has been engaged to provide and negotiates fees and terms with the management and board of trustees of the Funds. The fee that each Fund pays to DHCM is reviewed annually by the Funds’ board of trustees and specifically takes into account the contractual expenses that DHCM pays on behalf of the Funds. As a result, DHCM is not involved in the delivery or pricing of these services and bears no risk related to these services. Revenue has been recorded net of these Fund related expenses, in accordance with FASB ASC 605-45, Revenue Recognition – Principal Agent Considerations. In addition, DHCM finances the upfront commissions which are paid to brokers who sell Class C shares of the Funds. As financer, DHCM advances the commission amount to be paid to the selling broker at the time of sale. These advances are capitalized and amortized over 12 months to correspond with the repayments DHCM receives from the principal underwriter to recoup this commission advancement. Beacon Hill has underwriting and administrative service agreements with certain clients, including registered mutual funds. The fee arrangements vary from client to client based upon services provided and are recorded as revenue under mutual fund administration on the Consolidated Statements of Income. Part of Beacon Hill’s role as underwriter is to act as an agent on behalf of its mutual fund clients to receive 12b-1/service fees and commission revenue and facilitate the payment of those fees and commissions to third parties who provide services to the funds and their shareholders. The majority of 12b-1/service fees are paid to independent third parties and the remainder are retained by the Company as a reimbursement of expenses the Company has incurred. The amount of 12b-1/service fees and commissions are determined by each mutual fund client, and Beacon Hill bears no financial risk related to these services. As a result, 12b-1/service fees and commission revenue has been recorded net of the expense payments to third parties, in accordance with the appropriate accounting treatment for this agency relationship. Mutual fund administration gross and net revenue are summarized below:
| Year Ended December 31,
| 2015 |  | 2014 |  | 2013
Mutual fund administration: |  |  |  |  |
Administration revenue, gross | $ | 27,042,861 |  |  | $ | 22,968,369 |  |  | $ | 16,692,093 |
12b-1/service fees and commission revenue received from fund clients | 11,087,978 |  |  | 10,514,242 |  |  | 8,481,442 |
12b-1/service fees and commission expense payments to third parties | (9,617,568 | ) |  | (9,102,565 | ) |  | (7,404,361 | )
Fund related expense | (12,031,353 | ) |  | (9,753,359 | ) |  | (6,321,374 | )
Revenue, net of related expenses | 16,481,918 |  |  | 14,626,687 |  |  | 11,447,800 |
DHCM C-Share financing: |  |  |  |  |
Broker commission advance repayments | 991,430 |  |  | 878,105 |  |  | 365,380 |
Broker commission amortization | (962,919 | ) |  | (846,861 | ) |  | (347,853 | )
Financing activity, net | 28,511 |  |  | 31,244 |  |  | 17,527 |
Mutual fund administration revenue, net | $ | 16,510,429 |  |  | $ | 14,657,931 |  |  | $ | 11,465,327 |
Mutual fund administrative net revenue from the Funds was $14.3 million, $13.1 million and $9.7 million for the years ended December 31, 2015, 2014 and 2013, respectively. Contractual Expense Reimbursements BHIL has an agreement with an investment adviser that is part of the umbrella trust sponsored by BHFS to provide staff to support the wholesaling functions and sales support services to distribute shares of the registered investment companies managed by the investment adviser and distributed by BHIL. Under the agreement, the investment adviser is obligated to reimburse BHIL for all expenses incurred in association with these efforts. The amount of expense incurred and reimbursed for the years ended December 31, 2015, 2014, and 2013 was $2,291,910, $1,849,786, and $375,825, respectively. In addition, the third party investment adviser is obligated to reimburse BHIL for any contractual obligations entered into by BHIL as a result of this arrangement. BHIL is not involved in the delivery or pricing of these services and bears no risk related to these services. Revenue has been recorded net of these expenses in accordance with FASB ASC 605-45, Revenue Recognition - Principal Agent Considerations. This agreement concluded on December 1, 2015. Income Taxes The Company accounts for current and deferred income taxes through an asset and liability approach. Deferred tax assets are recognized for deductible temporary differences and deferred tax liabilities are recognized for taxable temporary differences. Deferred tax assets are reduced by a valuation allowance when it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. The Company is subject to examination by various federal, and applicable state and local jurisdictions for various tax periods. The Company’s income tax positions are based on research and interpretations of the income tax laws and rulings in each of the jurisdictions in which the Company does business. Due to the subjectivity of interpretations of laws and rulings in each jurisdiction, the differences and interplay in tax laws between those jurisdictions, as well as the inherent uncertainty in estimating the final resolution of complex tax audit matters, the Company’s estimates of income tax liabilities may differ from actual payments or assessments. The Company regularly assesses its position with regard to tax exposures and records liabilities for these uncertain tax positions and related interest and penalties, if any, according to the principles of FASB ASC 740, Income Taxes. As of December 31, 2015, the Company has not recorded any liability for uncertain tax positions. The Company records interest and penalties, if any, within income tax expense on the income statement. Earnings Per Share Basic earnings per share (“EPS”) excludes dilution and is computed by dividing net income by the weighted average number of Common Shares outstanding for the period, which includes participating securities. Diluted EPS reflects the potential dilution of EPS due to unvested restricted stock grants with forfeitable rights to dividends and restricted stock units. For the periods presented, the Company has unvested stock-based payment awards that contain both forfeitable and nonforfeitable rights to dividends. See Note 9. Recently Issued Accounting Standards In May 2014, the FASB issued Accounting Standards Update ("ASU") 2014-09, "Revenue from Contracts with Customers", which supersedes existing accounting standards for revenue recognition and creates a single framework. ASU 2014-09 requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. This standard also specifies the accounting for certain costs to obtain or fulfill a contract with a customer. This ASU will supersede much of the existing revenue recognition guidance in accounting principles generally accepted in the United States and is effective for fiscal years beginning after December 15, 2016, including interim periods within that reporting period and requires either a retrospective or a modified retrospective approach to adoption. The Company is currently assessing the impact of this standard on its consolidated financial statements and related disclosures, as well as the transition methods. Early application is permitted for the first interim period within annual reporting periods beginning after December 15, 2016. In May 2015, the FASB issued ASU No. 2015-07, "Fair Value Measurement (Topic 820): Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent)". This standard will eliminate the requirement to categorize investments in the fair value hierarchy if their fair value is measured at net asset value ("NAV") per share (or its equivalent) using the practical expedient in the FASB’s fair value measurement guidance. The amendment is effective retrospectively for fiscal years (and interim periods within those years) beginning after December 15, 2015 and is not expected to have a material impact on our consolidated financial statements and related disclosures. We will implement Accounting Standards Update No. 2015-02 - Consolidation (Topic 810): Amendments to the Consolidation Analysis on January 1, 2016, using the modified retrospective transition method. The adoption of this new guidance will require our analysis to be performed at the individual Fund level which may result in the consolidation of certain funds we advise because we own the majority of the voting interest of those funds. Thus, if deemed material, the underlying assets and liabilities of the consolidated funds will be included in our consolidated balance sheet, and we will recognize non-controlling interest for the portion of the consolidated funds that are owned by third-party investors. Additionally, if deemed material, the Company would record the amount of net income of the consolidated funds attributable to the Company and to the non-controlling interest on the face of the consolidated statements of income. We are evaluating the effect ASU 2015-02 will have on our consolidated financial statements and related disclosures.

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