A N N U A L
R E P O R T
2019
WISDOM. PERFORMANCE. BRIGHT FUTURE. TRUST.
G.research, LLC
One Corporate Center
Rye, NY 10580
Tel. (914) 921-5150
www.gabellisecurities.com
August 23, 2019
g.research
G.research, LLC
One Corporate Center
Rye, NY 10580-1422
Tel (914) 921-5150
www.gabellisecurities.com
June 19, 2019
g.research
G.research, LLC
One Corporate Center
Rye, NY 10580-1422
Tel (914) 921-5150
www.gabellisecurities.com
April 8, 2019
g. research
G.research, LLC
One Corporate Center
Rye, NY 10580-1422
Tel (914) 921-5150
www.gabellisecurities.com
June 27, 2019
g.research
G.research, LLC
One Corporate Center
Rye, NY 10580-1422
Tel (914) 921-5150
www.gabellisecurities.com
August 14, 2019
g.research
Collegium Pharmaceutical
(COLL - $11.80 – NASDAQ)
Allergan plc
(AGN - $120.64 – NYSE)
In Pursuit of the Next Big Thing
Biotech M&A Update
Bank M&A 2019
Back Together
…at Last
Source: Collegiumpharma.com, addictions.com
A Contrarian Opioid Play
Buy Recommendation
Kevin Kedra
(914) 921-7721
©G.research, LLC 2019
Source: stpaulsmarietta.org, Allergan corporate website
Splitting Up Allergan:
What’s it Worth?
Source: Company website, g. research.
Companies
BioMarin
bluebird bio
Clovis Oncology
Incyte
Ticker
BMRN -
-
BLUE
-
CLVS
-
INCY
Price
$
93.90
161.71
25.67
84.76
Exchange
- NASDAQ
"
-
"
-
"
-
+
+
+
+
+
+
+
+
+
+
1H Recap and 2H Preview
-Please Refer To Important Disclosures On The Last Page Of This Report-
-Please Refer To Important Disclosures On The Last Page Of This Report-
Kevin Kedra
(914) 921-7721
G.research, LLC 2019
Jing He
(914) 921-7798
G.research, LLC 2019
Steve Comery, CFA
(914) 921-5596
G.research, LLC 2019
Brett Harriss
(914) 921-8335
G.research, LLC 2019
-Please Refer To Important Disclosures On The Last Page Of This Report-
-Please Refer To Important Disclosures On The Last Page Of This Report-
-Please Refer To Important Disclosures On The Last Page Of This Report-
G.research, LLC
One Corporate Center
Rye, NY 10580
Tel. (914) 921-5150
www.gabellisecurities.com
February 5, 2019
g.research
Covetrus
(CVET - $38.00 – NASDAQ)
* Based on price of ‘when-issued’ CVETV
Source: Lady and the Tramp
Let the Pets Run Free
Initiating Coverage with Buy
Kevin Kedra
(914) 921-7721
©G.research, LLC 2019
-Please Refer To Important Disclosures On The Last Page Of This Report-
G.research, LLC
One Corporate Center
Rye, NY 10580-1422
Tel (914) 921-5150
www.gabellisecurities.com
January 16, 2019
g.research
Take-Two Interactive Software, Inc.
(TTWO – $106.49 – NASDAQ)
Source: Everyeye.it – Red Dead Redemption 2
A Royal Flush
Initiate with a BUY, 2019 PMV $136 per share
Alec M. Boccanfuso G.research, LLC 2019
(914) 921-8327
-Please Refer To Important Disclosures On The Last Page Of This Report-
G.research, LLC
One Corporate Center
Rye, NY 10580-1422
Tel (914) 921-5150
www.gabellisecurities.com
June 27, 2019
g.research
Schlumberger Limited
(SLB - $39.02 - NYSE)
Source: Company website
Favor the Leader
Simon Wong, CFA
(914) 921-5125
G.research, LLC 2019
-Please Refer To Important Disclosures On The Last Page Of This Report-
October 24, 2019
g.research
G.research, LLC
One Corporate Center
Rye, NY 10580
Tel. (914) 921-5150
www.gabellisecurities.com
Sony Corporation
(SNE - $58.58 - NYSE)
SONY
PICTURES
SONY
MUSIC
SONY
Electronics
SONY
Semiconductors
Creative Entertainment, Technology and Value
Initiate SNE with a Buy, 2020 PMV $92 per share
- 2019 -
Alec M. Boccanfuso Hendi Susanto
Video Games
(914) 921-8327
(914) 921-7735
Semiconductor & Electronics
John Tinker
Music & Pictures
(914) 921-8348
G.research, LLC 2019
-Please Refer To Important Disclosures On The Last Page Of This Report-
G.research, LLC
One Corporate Center
Rye, NY 10580-1422
Tel (914) 921-5150
www.gabellisecurities.com
May 7, 2019
g.research
G.research, LLC
One Corporate Center
Rye, NY 10580-1422
Tel (914) 921-8335
www.gabellisecurities.com
May 15, 2019
g.research
G.research, LLC
One Corporate Center
Rye, NY 10580-1422
Tel (914) 921-5150
www.gabellisecurities.com
May 29, 2019
g.research
G.research, LLC
One Corporate Center
Rye, NY 10580
Tel. (914) 921-5150
www.gabellisecurities.com
July 1, 2019
g.research
G.research, LLC
One Corporate Center
Rye, NY 10580-1422
Tel (914) 921-5150
www.gabellisecurities.com
April 15, 2019
g.research
Full Stream Ahead
To Infinity and Beyond
Fox Corporation
Live from New York its…Fox Corporation?
Reflections From EPG 2019
-Late Cycle EPG-
Ubisoft Entertainment SA
(UBI.PA - €68.84 – EN Paris)
(UBSFY - $15.56 - NASDAQ)
Oil Patch Update
Return of Offshore Gets Closer
Brett Harriss
(914) 921-8335
G.research, LLC 2019
Brett Harriss
(914) 921-8335
©G.research, LLC 2019
-Please Refer To Important Disclosures On The Last Page Of This Report-
-Please Refer To Important Disclosures On The Last Page Of This Report-
Justin Bergner, CFA
(914) 921-8326
G.research, LLC 2019
Source: Hedgeye.com
“Guidance Still Valid”
Tentative Towards M&A
Innovate, Digitize, Speed Up
Source: Forbes – Assassin’s Creed Odyssey
Bright Horizons
Initiate with a Buy, 2019 PMV €93 per share
Alec M. Boccanfuso
(914) 921-8327
G.research, LLC 2019
Companies
Forum Energy Technologies
Ticker
(FET
Oceaneering International
TechnipFMC
(OII
(FTI
Price
Exchange
$5.49 - NYSE)
16.82 - NYSE)
24.67 - NYSE)
-
-
-
Simon T. Wong, CFA
(914) 921-5125
©G.research, LLC 2019
-Please Refer To Important Disclosures On The Last Page Of This Report-
-Please Refer To Important Disclosures On The Last Page Of This Report-
-Please Refer To Important Disclosures On The Last Page Of This Report-
Dear Partners/Shareholders:
World leaders are focused on the unprecedented human and economic challenges of COVID-19. Global equity markets plunged
as spreading pandemic virus events unfolded during March to end the worst month for stocks since 2008 and the worst first
quarter since 1937.
(Y)our team is observing social distancing guidelines and remains fully operational and focused, with teammates on a rotating
schedule in the office. Over the years we have invested in technology and infrastructure that allow teammates to work remotely
in anticipation of the need to invest seamlessly from remote locations.
Looking back at 2019 -
We are privileged to share Associated Capital’s (“AC”) financial results for 2019. As always, we value your trust and support.
• COMMITMENT TO COMMUNITY - in November, our Board approved the continuation of the shareholder designated
charitable contribution program with a $0.20 per share designation for registered shareholders. This translates into
approximately $4.5 million in donations, which brings our total projected contributions to $20 million since our spin-off from
GAMCO in November 2015.
• MERGER ARBITRAGE strategy was up 8.6% gross (6.0% net) for the year. Since inception in February 1985, we have
compounded net annual returns of 7.4%. As a result, a $10 million investment by a tax free vehicle in this fund at its inception
would be worth approximately $120 million as of December 31, 2019.
• On March 16, 2020, the board of AC voted to distribute all of AC’s Morgan Group shares to AC shareholders.
• The successful public offering of Gabelli Value for Italy S.p.a. (VALU), an Italian company listed on the LSE’s Borsa Italian AIM
segment in April 2018 is nearing its two-year anniversary. This general sector SPAC, which raised €110 million, was created
to acquire an Italian small to mid-sized franchised business at a target capitalization of €400 million with the potential for
international development, especially into the United States. Given the Coronavirus situation in Italy which exists today, the
Board of Gabelli Value for Italy S.p.a. now must explore the various options.
• We added a third leg to our direct private equity and merchant banking with the launch of Gabelli Principal Strategies Group,
LLC – formed to pursue strategic operating initiatives.
• We continue to evaluate options for our investment in GAMCO Investors, Inc. At year end, we hold 2.9 million shares of
GAMCO with a cost basis significantly higher than market value.
• We took additional steps to physically separate (y)our company from GAMCO Investors. On May 31, Associated Capital
purchased a building in Greenwich and relocated our entire team to the new location by year end. Subsequently in March,
we acquired a building in London that will eventually house our expanding marketing and investment offerings.
• On October 31, 2019, we completed the merger of G.research with Morgan Group Holdings Corp. (MGHL:OTC). Leading up
to the merger and through year end, G.research rationalized staffing and its cost structure resulting in a business that is
operating at near break-even.
• We paid semi-annual dividends of $0.10 per share, paying out $4.6 million to shareholders.
• Book value ended the year at $39.93 per share versus $38.36 at December 31, 2018.
As previously discussed, we created a new subsidiary, Gabelli Private Equity Partners to explore the launch of a private equity
business, something our predecessor firm had success with in the 1980s. We will continue our outreach initiatives with business
owners, corporate management, and various financial sponsors.
In 2020, we will continue to explore new avenues, including L.P.’s in our investment line-up, to put our capital to work by pursuing
deals, new distribution channels and new products.
Along these lines, we echo again the Acquisition Criteria list from Warren Buffett’s Berkshire Hathaway 2018 Annual Report. We
cannot improve upon it:
Sincerely,
Mario J. Gabelli
Executive Chairman
BERKSHIRE HATHAWAY INC.
ACQUISITION CRITERIA
We are eager to hear from principals or their representatives about businesses that meet all of the following criteria:
— Demonstrated consistent earning power (future projections are of no interest to us, nor are “turnaround” situations),
— Businesses earning good returns on equity while employing little or no debt,
— Management in place (we can’t supply it),
— Simple businesses (if there’s lots of technology, we won’t understand it),
— An offering price (we don’t want to waste our time or that of the seller by talking, even preliminarily, about a transaction
when price is unknown).
Douglas R. Jamieson Chief Executive Officer and President
In 2019, AC made significant progress towards arriving at a solution for G.research, the institutional research
services business. First, by appointing a new management team; second, by significantly reducing head count
and rationalizing its cost structure; third, by merging the operation with Morgan Group Holdings on October
31; and, most recently, in March 2020, your Board of Directors authorized the distribution of Morgan Group
(MGHL) to our shareholders.
We ended 2019 with cash and investments of $346 million and $605 million, respectively, including 2.9 million
shares of GAMCO stock valued at $57 million. Our net equity was $897 million or $39.93 per share versus $866 million or $38.36
per share at year end 2018.
Our financial resources underpin our flexibility to pursue strategic objectives that may include acquisitions, seeding new investment
strategies, and co-investing. We consider our primary goal as using our liquid resources to opportunistically and strategically grow
book value and net income. If opportunities are not present with what we consider a margin of safety, however, we will consider
alternatives to return capital to our shareholders, including stock repurchases and dividends.
Investment Partnerships
The Gabelli & Partners’ team is extending our marketing reach with trips to Asia and Europe, resulting in searches, proposals and
new business for the UCITs, offshore funds and SMA’s. Gabelli & Partners currently has a relationship with more than 20 third
party marketing firms, principally private banks in continental Europe. Gabelli Value for Italy (VALU) is currently evaluating offers
for potential investments, as it approaches its two-year anniversary. Valuations of target companies in Italy remain at least 20%
lower than comparable assets in the US. Marc Gabelli and his team are active in reviewing a number of potential investments.
But it remains somewhat challenged given the country-wide shut-down in Italy.
Institutional Research Services
On October 31, 2019, we consummated the merger between G.research, LLC (“G.research”) and Morgan Group Holding Co.
(“Morgan Group”). As a result of the transaction, G.research became a wholly owned subsidiary of Morgan Group (MGHL:OTC).
Associated Capital holds 83.3% of the outstanding shares of Morgan Group.
G.research provides institutional research services and underwriting activities. G.research’s revenues are derived primarily from
revenue generating institutional research services, sales manager fees, underwriting fees and selling concessions. During the
fourth quarter, G.research marketed the 43rd Annual Auto Aftermarket Symposium on November 4th - 5th in Las Vegas which
was hosted by Gabelli Funds.
In May, we purchased a building in central Greenwich which houses Gabelli & Partners marketing and client service, finance and
accounting and our merger arbitrage team. We invite you to stop in.
A S S E TS U N D E R MANAG E M E NT
Assets under management (dollars in millions) increased 12.9% in 2019. We continue to see interest in products from new
investor groups, especially outside of the United States.
CO N D E N S E D CO N SO LI DATE D BAL AN CE S H E E T (in thousands)
ASSETS
Cash and cash equivalents (a)
Investments
Receivables
Other assets
Total assets
LIABILITIES AND EQUITY
Compensation payable
Securities sold, not yet purchased
Income taxes payable
Accrued expenses and other liabilities
Total liabilities
Redeemable noncontrolling interests (b)
Stockholders' equity
Total equity
Total liabilities and equity
Shares outstanding
Average
Year-end
December 31,
2019
2018
$345,588
605,040
38,101
22,177
$1,010,906
$20,246
16,419
3,676
22,745
63,086
50,385
897,435
897,435
$409,564
490,824
30,332
23,713
$954,433
$11,388
9,574
3,577
13,846
38,385
49,800
866,248
866,248
$1,010,906
$954,433
22,534
22,475
23,070
22,585
(a) Includes $13 million held by consolidated investment funds in 2019 and in 2018
(b) Represents third-party capital balances in consolidated investment funds
Q UARTE R LY FI NAN CIAL I N FO R MATI O N
Quarterly financial information for 2019 and 2018 is presented below.
(In thousands, except per share data)
2019
Revenues
Operating loss
Net income/(loss) attributable to Associated
Capital Group, Inc 's shareholders
Net income/(loss) attributable to Associated
Capital Group, Inc 's shareholders per share:
Basic
Diluted
Revenues
Operating loss
Net income/(loss) attributable to Associated
Capital Group, Inc 's shareholders
Net income/(loss) attributable to Associated
Capital Group, Inc 's shareholders per share:
Basic
Diluted
1st
2nd
3rd
4th
Total
$4,652
(7,876)
$4,821
(3,151)
$5,118
(3,009)
$16,674
(1,722)
$31,265
(15,758)
$23,147
$(932)
$5,951
$11,022
$39,188
$1.02
$1.02
$(0.04)
$(0.04)
$0.26
$0.26
$0.50
$0.50
$1.74
$1.74
1st
2nd
3rd
4th
Total
2018
$4,703
(4,250)
$4,796
(3,446)
$4,666
(3,499)
$8,614
(2,285)
$22,779
(13,480)
$(22,229)
$11,824
$(7,379)
$(40,315)
$(58,099)
$(0.95)
$(0.95)
$0.51
$0.51
$(0.32)
$(0.32)
$(1.76)
$(1.76)
$(2.52)
$(2.52)
“There are many advantages to investing in risk
arbitrage. Let’s focus on three: risk arbitrage returns
are not closely correlated with those of the stock
market; they are less volatile than returns on the
S&P 500; and longer term they are higher than those
returns afforded by traditional investing. While these
three factors provide for excellent results in the world
of arbitrage, the real beauty of risk arb investing is
that there is rarely a down year. Because risk arb
returns are consistently positive year in and year out,
they fulfill the concept of a compound return. We
proclaim this source of compounded earnings as the
eighth wonder of the world.
Compounding is the secret to wealth creation over a
period of decades.”
- Regina M. Pitaro
(Deals...Deals...and More Deals, 1999)
Regina M. Pitaro
Columbia University,
Graduate School of Business
M.B.A., Finance
Loyola University of Chicago
M.A., Anthropology
Fordham University
B.S., Anthropology
In 1999, we published one of the few books on merger arbitrage,
Deals…Deals…and More Deals. Our new publication,
Merger Masters: Tales of Arbitrage, profiles leading investors
who share our enthusiasm for merger arbitrage and have
utilized the investment discipline in various forms over the
last half-century. It also includes the perspective of iconic
CEOs who have used M&A to build value and, in the process,
tangled with the arbitrage community. Merger Masters is now
available on Amazon.com.
“Give a man a fish and you
feed him for a day.
Teach a man to arbitrage,
and you feed him forever.”
- Warren Buffett
ENGLISH
ITALIAN
CHINESE
JAPANESE
SPANISH
Coming soon
Deals...Deals...and More Deals - Now in four languages.
Originally published in 1999 by Gabelli University Press.
M E RG E R AR B ITR AG E
The alternative investment strategies focus on fundamental, active, event-driven special situations and merger arbitrage. It is led by the
merger arbitrage portfolios which returned an unleveraged +8.6%, (+6.0 % return net of fees and expenses) for all of 2019. This strategy
benefits from corporate merger and acquisitions activity that reached $3.9 trillion globally in 2019. The U.S. remained a bright spot for
deal making with volume totaling $1.8 trillion in 2019, an increase of 6% compared to 2018 and the strongest year since 2015. . Forty-three
announced deals greater than $10 billion (“mega deals”) accounted for 31% of deal activity, totaling $1.2 trillion. Deal making in Europe
totaled $751 billion, a decline of 25% from 2018, while Asia Pacific M&A totaled $770 billion, a 14% decline. The most active sectors for M&A
activity were Healthcare ($533 billion, an all-time record), Technology and Energy & Power.
The strategy is offered domestically through partnerships and separately managed accounts. Internationally, the strategy is offered through
corporations and EU regulated UCITS structures and the London Stock Exchange listed investment company, Gabelli Merger Plus Trust
(GMP-LN).
The merger arbitrage investment process begins with the announcement of an acquisition, when an acquirer makes an offer for all of the
target company’s stock. The target’s shares usually trade at a discount, or spread, to the final deal price because of the time value of money,
regulatory approval risks or any other risks that might prevent a transaction from
closing. Our typical investment process involves buying shares of the target at a
discount, earning the spread to the deal price when the deal closes, and reinvesting
the profits in new deals in a similar manner. By owning a diversified portfolio of
deals, we mitigate the adverse impact of deal specific risks.
Our investment process in M&A has a long track record of attractive, non-market
correlated returns. In early 2020 we have seen increased volatility on the back of
market uncertainty. While the global pandemic may slow new deal announcements
in the near term, it will also lead to opportunity and an improved spread environment.
We have managed through such markets in the past and are confident in our process
and ability to generate returns through M&A arbitrage investing.
Paolo Vicinelli
Portfolio Manager
Anthony Lombardi
Research
Willis Brucker
Portfolio Manager
ENGLISH
ITALIAN
CHINESE
JAPANESE
SPANISH
1 01 O F S PAC S —
S PECIAL PU R P OS E ACQ U I S ITI O N CO M PAN I E S
SPACs are essentially blind pools raised by a Sponsor to acquire a single unspecified target company
within a limited timeframe (typically two years). SPACs have a certain prominence as a means for
companies to go public.
There are three stages in the SPAC lifecycle:
1. Fundraising/IPO:
Investors purchase $10.00 units, normally, 1 common share plus one half warrant with a $11.50/
share strike price. The $10.00 per share in cash is placed in a trust account; the common and
warrant are separated. The sponsor of the SPAC receives a promote equaling 20% of the
equity which vests only on consummation of the acquisition deal. The Sponsor funds the
offering and the operating expenses (~3%) through purchasing Sponsor warrants.
2. Search
Sponsor has 18-24 months to secure an acquisition.
3. Merger / “Second IPO = NEWCO”
Sponsor negotiates terms of deal (typically short form merger) and conducts a roadshow for
“NEWCO”.
Investors have the option to redeem the initial IPO common shares for the amount stated
by the trust, or, to continue as shareholders of “Newco.” Generally, merger agreements
contain a maximum threshold of trust share redemptions. Underwriters attempt to match the
redeeming investors with new investors seeking to invest in Newco, often by sweetening the
consideration with a portion of the Sponsor promote.
Investors are enticed to purchase SPACs at IPO by the asymmetric risk/reward. If a SPAC fails to
consummate a transaction or an investor chooses to redeem, they simply receive their $10.00 back,
bearing only the opportunity cost of investing that $10.00 per share. In the meantime, the investor can
separate and sell the warrant embedded in the unit which has option value even before a transaction
is announced.
More broadly, the plusses and minuses of SPACs can be summed up as follows:
Investors
Sponsor
Target
Plus
Minus
Plus
Minus
Plus
Minus
Free look at
deal with
upside via
warrants
Opportunity
cost on capital
Reward via
promote
Potential
loss of initial
capital
Ability to go
public quickly,
monetize
and retain
interests
Second
IPO could
be poorly
received, leav-
ing orphaned
equity
Competition for SPAC targets generally comes from the “regular way” IPO market and sales to
strategic or financial sponsors. For a SPAC to successfully appeal to a target, they must solve some
issue such as the lack of clean historical financials to go public (e.g. formerly bankrupt entities), the
need for market sponsorship (e.g. for foreign entities), or a desire to immediately monetize some
equity while retaining a stake in the upside (e.g. family companies with divergent interests).
The most appealing second IPOs tend to be those that create a public entity in an industry with a
scarcity of publicly-traded assets and/or the ability to create a public traded entity at a demonstrable
discount to public comps. In this way SPACs are relative trading vehicles usually requiring not only
a robust equity market but a wide private-to-public multiple arbitrage that usually only exists late in
the equity market cycle.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2019
Or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ______
Commission file number 001-37387
Associated Capital Group, Inc.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
191 Mason, Greenwich, CT
(Address of principal executive offices)
47-3965991
(I.R.S. Employer Identification No.)
06830
(Zip Code)
Registrant’s telephone number, including area code (203) 629-9595
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Class A Common Stock,
par value $0.001 per share
Trading
Symbol
AC
Name of each exchange on
which registered
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act Yes No .
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act Yes No .
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days Yes No .
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405
of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit
and post such files). Yes No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or
an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging
growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer
Accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any
new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2) Yes No .
The aggregate market value of the class A common stock held by non-affiliates of the registrant as of June 28, 2019 (the last business day of the
registrant’s most recently completed second fiscal quarter) was $120,948,122.
As of February 28, 2020, 3,421,000 shares of class A common stock and 19, 002,918 shares of class B common stock were outstanding. GGCP, Inc.,
a private company controlled by the Company’s Executive Chairman, held 66,000 shares of class A common stock and indirectly held 18,423,741
shares of class B common stock. Other executive officers and directors of GGCP, Inc. held 46,946 and 462,580 shares of class A and class B
common stock, respectively.
DOCUMENTS INCORPORATED BY REFERENCE: Portions of the registrant’s definitive proxy statement relating to the 2020 Annual Meeting of
Shareholders are incorporated by reference in Items 10, 11, 12, 13 and 14 of Part III of this report.
2
Associated Capital Group, Inc.
Annual Report on Form 10-K for the Fiscal Year Ended December 31, 2019
Part I
Item 1
Item 1A
Item 1B
Item 2
Item 3
Item 4
Item 5
Item 6
Item 7
Item 7A
Item 8
Item 9
Item 9A
Item 9B
Item 10
Item 11
Item 12
Item 13
Item 14
Item 15
Item 16
Part II
Part III
Part IV
Business
Business Strategy
Competition
Intellectual Property
Regulation
Employees
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Market For The Registrant's Common Equity, Related Stockholder Matters And
Issuer Purchases Of Equity Securities
Selected Financial Data
Management's Discussion And Analysis Of Financial Condition And Results
Of Operations
Quantitative And Qualitative Disclosures About Market Risk
Financial Statements And Supplementary Data
Changes In And Disagreements With Accountants On Accounting And
Financial Disclosure
Controls And Procedures
Other Information
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership Of Certain Beneficial Owners And Management And
Related Stockholder Matters
Certain Relationships And Related Transactions, and Director Independence
Principal Accountant Fees And Services
Exhibits, Financial Statement Schedules
Form 10-K Summary
Signatures
Power of Attorney
Exhibit 21.1 - Subsidiaries of Associated Capital Group, Inc.
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Certifications Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2
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PART I
Forward-Looking Statements
Our disclosure and analysis in this report and in documents that are incorporated by reference contain some forward-
looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements give our current expectations
or forecasts of future events. You can identify these statements because they do not relate strictly to historical or
current facts. You should not place undue reliance on these statements. They use words such as “anticipate,”
“estimate,” “expect,” “project,” “intend,” “plan,” “believe,” and other words and terms of similar meaning. They
also appear in any discussion of future operating or financial performance. In particular, these include statements
relating to future actions, future performance of our products, expenses, the outcome of any legal proceedings, and
financial results.
Although we believe that we are basing our expectations and beliefs on reasonable assumptions within the bounds of
what we currently know about our business and operations, there can be no assurance that our actual results will not
differ materially from what we expect or believe. Some of the factors that could cause our actual results to differ from
our expectations or beliefs include, without limitation: the adverse effect from a decline in the securities markets; a
decline in the performance of our products; a general downturn in the economy; changes in government policy or
regulation; changes in our ability to attract or retain key employees; and unforeseen costs and other effects related
to legal proceedings or investigations of governmental and self-regulatory organizations. We also direct your
attention to any more specific discussions of risk contained in our other public filings or in documents incorporated
by reference here or in prior filings or reports.
We are providing these statements as permitted by the Private Litigation Reform Act of 1995. We do not undertake to
update publicly any forward-looking statements if we subsequently learn that we are unlikely to achieve our
expectations or if we receive any additional information relating to the subject matters of our forward-looking
statements.
ITEM 1: BUSINESS
Unless we have indicated otherwise, or the context otherwise requires, references in this report to “Associated Capital
Group, Inc.,” “AC Group,” “the Company,” “AC,” “we,” “us” and “our” or similar terms are to Associated Capital
Group, Inc., its predecessors and its subsidiaries.
Our offices are located at 191 Mason Street, Greenwich, CT 06830. Our website address is www.associated-capital-
group.com. Information on our website is not incorporated by reference herein and is not part of this report. We
provide a link on our website to the following filings as soon as reasonably practicable after they are electronically
filed with or furnished to the Securities and Exchange Commission (“Commission” or “SEC”): our annual report on
Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports filed
or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange
Act”). All such filings on our website are available free of charge. In addition, these reports and the other documents
we file with the SEC are available at www.sec.gov.
We are a Delaware corporation, incorporated in 2015, that provides alternative investment management services and
we derive investment income/(loss) from proprietary investment of cash and other assets awaiting deployment in our
operating business. In addition, our controlled subsidiary, G.research, LLC (“G.research”) provides institutional
research and underwriting services.
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Proprietary Capital
The proprietary capital is earmarked for our direct investment business that invests in new and existing businesses,
using a variety of techniques and structures. The direct investment business is developing along three core pillars;
Gabelli Private Equity Partners, LLC (“GPEP”), formed in August 2017 with $150 million of authorized capital as a
“fund-less” sponsor; the SPAC business (Gabelli special purpose acquisition vehicles), launched in April 2018 when
the Company sponsored a €110 million initial public offering of its first special purpose acquisition corporation, the
Gabelli Value for Italy S.p.a., an Italian company listed on the London Stock Exchange’s Borsa Italiana AIM segment
under the symbol “VALU”. VALU was created to acquire a small- to medium-sized Italian franchise business with
the potential for international expansion, particularly in the United States. Finally, Gabelli Principal Strategies Group,
LLC (“GPS”) was created to pursue strategic operating initiatives.
A portion of our proprietary capital is in the form of GAMCO Class A common stock. On November 30, 2015, AC
received 4,393,055 shares of GAMCO Class A common stock for $150 million as part of the spin-off transaction from
GAMCO. As of December 31, 2019, the Company held 2,935,401shares of GAMCO Class A common stock.
Alternative Investment Management
We conduct our investment management activities through our wholly-owned subsidiary Gabelli & Company
Investment Advisers, Inc. (“GCIA” f/k/a Gabelli Securities, Inc.). GCIA and its wholly-owned subsidiary, Gabelli &
Partners, LLC (“Gabelli & Partners”). GCIA is an investment adviser registered with the Securities and Exchange
Commission under the Investment Advisers Act of 1940, as amended (the “Advisers Act”). GCIA and Gabelli &
Partners together serve as general partners or investment managers to investment funds including limited partnerships
and offshore companies (collectively, “Investment Partnerships”), and separate accounts. We primarily manage assets
in equity event-driven value strategies and across a range of risk and event arbitrage portfolios. The business earns
management and incentive fees from its advisory activities. Management fees are largely based on a percentage of
assets under management (“AUM”). Incentive fees are based on the percentage of the investment returns of certain
client portfolios.
We manage assets on a discretionary basis and invest in a variety of U.S. and foreign securities. We primarily employ
absolute return strategies with the objective of generating positive returns. We serve a wide variety of investors
including private wealth management accounts, corporations, corporate pension and profit-sharing plans, foundations
and endowments, as well as serving as sub-advisor to certain third-party investment funds.
In event merger arbitrage, the goal is to earn absolute positive. We introduced our first alternative fund, Gabelli
Arbitrage (renamed Gabelli Associates), in February 1985. Our typical investment process involves buying shares of
the target at a discount, earning the spread to the deal price when the deal closes, and reinvesting the profits in new
deals in a similar manner. By owning a diversified portfolio of deals, we mitigate the adverse impact of deal-specific
risks.Since inception in February 1985, we have compounded net annual returns of 7.37%. As a result, a $10 million
investment by a tax free vehicle in this fund at its inception would be worth more than $120 million, as of December
31, 2019. In addition, the value of such an investment would have exhibited significantly less volatility than that of
broad equity indices.
An offshore version of the event merger arbitrage strategy was added in 1989. Building on our strengths in global
event-driven value investing, several new investment funds have been added to balance investors’ geographic, strategy
and sector needs. Today, we manage Investment Partnerships in multiple categories, including event merger arbitrage,
event-driven value and other strategies.
5
Assets Under Management
As of December 31, 2019, we managed approximately $1.7 billion in assets
The following table sets forth AC’s total AUM, including investment funds and separately managed accounts,
for the dates shown (in millions):
December 31,
2019
2018
$
Event Merger Arbitrage
Event-Driven Value (a)
Other (b)
Total (c)
(a) Excluding event merger arbitrage.
(b) Includes investment vehicles focused on private equity, merchant banking, non-investment-grade credit and
1,525
132
59
1,716
1,342
118
60
1,520
$
$
$
capital structure arbitrage.
(c) Includes $259 and $214 of proprietary capital, respectively.
G.research Merger with Morgan Group Holding Co.
On October 31, 2019, the Company closed a transaction whereby Morgan Group Holding Co. (“Morgan Group”), a
company under common control with us that trades in the over the counter market under the symbol “MGHL”,
acquired all of the Company’s interest in G.research for 50,000,000 shares of Morgan Group common stock. In
addition, immediately prior to the closing, 5.15 million Morgan Group shares were issued under a private placement
for $515,000. After giving effect to these transactions, the Company has an 83.3% ownership interest in Morgan
Group and consolidates the entity, which includes G.research. The Company continues to explore strategic options
for its ownership of Morgan Group, including the potential spin-off of its ownership to AC shareholders. The Company
can provide no assurances that any further transactions will result.
Institutional Research Services
G.research is a broker-dealer registered under the Exchange Act and is regulated by the Financial Industry Regulatory
Authority (“FINRA”). G.research’s revenues are derived primarily from institutional research services, underwriting
fees (primarily for affiliates of the Company) and selling concessions. Our research analysts are industry-focused,
following sectors based on our core competencies. Analysts publish their insights in the form of research reports and
daily notes. In addition, G.research markets conferences which bring together industry leaders and institutional
investors. The objective of institutional research services is to provide superior investment ideas to investment decision
makers.
Analysts are generally assigned to industry sectors. Our research focus includes Basic Materials – Specialty
Chemicals; Business Services; Financials – Community Banks; Healthcare – Animal Health, Biotech & Pharma;
Biotech; Industrials – Diversified Industrials, Transports & Metals; Industrials & Internet; Media – Entertainment;
and, Media.
G.research generates revenues via direct fees and commissions on securities transactions executed on an agency basis
on behalf of clients. Clients include institutional investors (e.g., hedge funds and asset managers) as well as affiliated
mutual funds and managed accounts. Institutional research services revenues totaled $8.9 million and $8.3 million for
the years ended December 31, 2019 and 2018, respectively.
A significant portion of G.research institutional research services are provided to GAMCO and its affiliates. For the
years ending December 31, 2019 and December 31, 2018, GAMCO Asset Management Inc. (“GAMCO Asset”) paid
$0.8 million and $1.0 million and Gabelli Funds, LLC paid $0.7 million and $1.0 million to G.research pursuant to a
research service agreements. These agreements were terminated on January 1, 2020 and compensation from Gabelli
Funds and GAMCO Asset and costs related to servicing these arrangements are expected to decrease.
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For the years ended December 31, 2019 and 2018, respectively, G.research earned $4.9 million and $3.8 million, or
approximately 76% and 62%, of its commission revenue from transactions executed on behalf of funds advised by
Gabelli Funds and clients advised by GAMCO Asset. Gabelli Funds and GAMCO Asset are wholly-owned
subsidiaries of GAMCO. We can provide no assurance that GAMCO and its affiliates will continue to use
G.research’s institutional research and brokerage services to the same extent in the future. G.research continues to
pursue expansion of third party and affiliated activities.
Use of Proprietary Resources
We have a substantial portfolio of cash and investments. We expect to use this proprietary investment portfolio to
provide seed capital for new products, expand our geographic presence, develop new markets and pursue strategic
acquisitions and alliances, as well as for shareholder compensation in the form of share repurchases and dividends.
Our proprietary portfolios are largely invested in products our affiliates or that are managed by GAMCO affiliates. In
addition, we expect to make private equity acquisitions including through the use of special purpose acquisition
vehicles (“SPACs”).
Business Strategy
Our business strategy targets global growth of the business through continued leveraging of our proven asset
management strengths including the long-term performance record of our alternative investment funds, diverse
product offerings and experienced investment, research and client relationship professionals. In order to achieve
performance and growth in AUM and profitability, we are pursuing a strategy which includes the following key
elements:
Continuing an Active Fundamental Investment Approach
Since 1985, our results demonstrate our core competence in event driven investing through market cycles.
Our “Private Market Value (PMV) with a Catalyst™” investing approach remains the principal management
philosophy guiding our investment operations. This method is based on investing principles articulated by
Graham & Dodd, and further refined by our Executive Chairman, Mario J. Gabelli.
Growing our Investment Partnerships Advisory Business
We intend to grow our Investment Partnerships advisory operations by gaining share with existing products
and introducing new products within our core competencies, such as event and merger arbitrage. In addition,
we intend to grow internationally.
Capitalizing on Acquisitions and Alliances - Direct Investments
We intend to leverage our research and investment capabilities by pursuing acquisitions and alliances that
will broaden our product offerings and add new sources of distribution. In addition, we may make direct
investments in operating businesses using a variety of techniques and structures. For example, in April 2018,
the Company completed a €110 million initial public offering of its first special purpose acquisition
corporation, the Gabelli Value for Italy S.p.a., an Italian company listed on the London Stock Exchange’s
Borsa Italiana AIM segment under the symbol “VALU”. VALU was created to acquire a small- to medium-
sized Italian franchise business with the potential for international expansion, particularly in the United
States.
Pursuing Partnerships and Joint Ventures
We plan to pursue partnerships and joint ventures with firms that fit with AC’s product quality and that can
provide Asian/European distribution capabilities that would complement our U.S. equity product expertise.
We expect to target opportunities for investors interested in non-market correlated returns.
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Competition
The alternative asset management industry is intensely competitive. We face competition in all aspects of our business
from other managers in the United States and around the globe. We compete with alternative investment management
firms, insurance companies, banks, brokerage firms and financial institutions that offer products that have similar
features and investment objectives. Many of these investment management firms are subsidiaries of large diversified
financial companies and may have access to greater resources than us. Many are larger in terms of AUM and revenues
and, accordingly, have larger investment and sales organizations and related budgets. Historically, we have competed
primarily on the basis of the long-term investment performance of our investment products. We have recently taken
steps to increase our distribution channels, brand awareness and marketing efforts.
The market for providing investment management services to institutional and private wealth management clients is
also highly competitive. Selection of investment advisors by U.S. institutional investors is often subject to a screening
process and to favorable recommendations by investment industry consultants. Many of these investors require their
investment advisors to have a successful and sustained performance record, often five years or longer, and focus on
one-year and three-year performance records. Currently, we believe that our investment performance record would be
attractive to potential new institutional and private wealth management clients. While we have significantly increased
our AUM from institutional investors since our entry into the institutional asset management business, no assurance
can be given that our efforts to obtain new business will be successful.
Intellectual Property
Service marks and brand name recognition are important to our business. We have rights to the service marks under
which our products are offered. We have rights to use the “Gabelli” name, and the “GAMCO” brand, pursuant to a
non-exclusive, royalty-free license agreement we have entered into with GAMCO (the “Service Mark and Name
License Agreement”). We can use these names with respect to our funds, collective investment vehicles, Investment
Partnerships and other investment products pursuant to the Service Mark and Name License Agreement. The Service
Mark and Name License Agreement has a perpetual term, subject to termination only in the event we are not in
compliance with its quality control provisions. Pursuant to an assignment agreement signed in 1999, Mario J. Gabelli
had assigned to GAMCO all of his rights, title and interests in and to the “Gabelli” name for use in connection with
investment management services and institutional research services. In addition, the funds managed by Mario J. Gabelli
outside GAMCO and AC have entered into a license agreement with GAMCO permitting them to continue limited use
of the “Gabelli” name under specified circumstances.
Commitment to Community
AC seeks to be a good corporate citizen in our community through the way we conduct our business activities as well
as by other measures such as serving our community, sponsoring local organizations and developing our teammates.
Since our spin-off in 2015, AC has supported over 160 qualified charities that address a broad range of local, national
and international concerns. The recipients were identified by our shareholders through AC’s Shareholder-Designated
Contribution Program. The 2019 program, approved by our Board in November 2019, allows each shareholder of
record at November 30, 2019 to designate a qualified charity to receive a $0.20 per share donation from AC. We expect
that the Company’s total contributions for the 2019 program will be approximately $4.5 million bringing cumulative
donations to approximately $20.0 million.
Regulation
Virtually all aspects of our businesses are subject to federal, state and foreign laws and regulations. These laws and
regulations are primarily intended to protect investment advisory clients and investors, the financial markets and the
customers of broker-dealers. Under such laws and regulations, agencies that regulate investment advisors and broker-
dealers have broad powers, including the power to limit, restrict or prohibit such an advisor or broker-dealer from
carrying on its business in the event that it fails to comply with such laws and regulations. In such an event, the possible
sanctions that may be imposed include civil and criminal liability, the suspension of individual employees, injunctions,
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limitations on engaging in certain lines of business for specified periods of time, revocation of the investment advisor
and other registrations, censures and fines.
Existing U.S. Regulation Overview
AC and certain of its U.S. subsidiaries are currently subject to extensive regulation, primarily at the federal level, by
the SEC, the Department of Labor, FINRA and other regulatory bodies. Certain of our U.S. subsidiaries are also subject
to anti-terrorist financing, privacy, and anti-money laundering regulations as well as economic sanctions laws and
regulations established by these agencies.
The Advisers Act
GCIA is registered with the SEC under the Advisers Act and is regulated by and subject to examination by the SEC.
The Advisers Act imposes numerous obligations on registered investment advisors including fiduciary duties,
disclosure obligations and record keeping, operational and marketing requirements. The SEC is authorized to institute
proceedings and impose sanctions for violations of the Advisers Act, ranging from censure to termination of an
investment advisor’s registration. The failure of GCIA to comply with the requirements of the SEC could have a
material adverse effect on us.
We derive a majority of our revenues from investment advisory services from investment management agreements.
Under the Advisers Act, our investment management agreements may not be assigned without the client’s consent.
Broker-Dealer and Trading and Investment Regulation
G.research is a registered as broker-dealer with the SEC and is subject to regulation by FINRA and various states’
regulatory authorities. In its capacity as a broker-dealer, G.research is required to maintain certain minimum net capital
amounts. These requirements also provide that equity capital may not be withdrawn, advances to affiliates may not be
made or cash dividends paid if certain minimum net capital requirements are not met. G.research’s net capital, as
defined, met or exceeded all minimum requirements as of December 31, 2019. As a registered broker-dealer,
G.research is also subject to periodic examination by FINRA, the SEC and the state regulatory authorities.
Our trading and investment activities for client accounts are regulated under the Exchange Act, as well as the rules of
various U.S. and non-U.S. securities exchanges and self-regulatory organizations. These laws and regulations govern
such items as trading on inside information, market manipulation, technical requirements (e.g., short sale limits, volume
limitations and reporting obligations), and market regulation policies in the United States and globally. Violation of
any of these laws and regulations could result in restrictions on our activities and damage our reputation.
Employee Retirement Income Security Act of 1974 (“ERISA”)
Subsidiaries of AC are subject to ERISA and to regulations promulgated thereunder, insofar as they are “fiduciaries”
under ERISA with respect to certain of their clients. ERISA and applicable provisions of the Internal Revenue Code
of 1986, as amended, impose certain duties on persons who are fiduciaries under ERISA and prohibit certain
transactions involving ERISA plan clients. Our failure to comply with these requirements could have a material adverse
effect on us.
Anti-Tax Evasion Legislation
Our global business may be impacted by the Foreign Account Tax Compliance Act (“FATCA”) which was enacted in
2010 and introduced expansive new investor onboarding, withholding and reporting rules aimed at ensuring U.S.
persons with financial assets outside of the United States pay appropriate taxes. In many instances, however, the precise
nature of what needs to be implemented will be governed by bilateral Intergovernmental Agreements (“IGAs”) between
the United States and the countries in which we do business or have accounts. While many of these IGAs have been
put into place, others have yet to be concluded.
9
The Organization for Economic Cooperation and Development (“OECD”) has developed the Common Reporting
Standard (“CRS”) to address the issue of offshore tax evasion on a global basis. Aimed at maximizing efficiency and
reducing cost for financial institutions, the CRS provides a common standard for due diligence, reporting and exchange
of information regarding financial accounts. Pursuant to the CRS, participating jurisdictions will obtain from reporting
financial institutions, and automatically exchange with partner jurisdictions on an annual basis, financial information
with respect to all reportable accounts identified by financial institutions on the basis of common due diligence and
reporting procedures. As a result, the Investment Partnerships will be required to report information on the investors
of the Partnerships to comply with the CRS due diligence and reporting requirements, as adopted by the countries in
which the Investment Partnerships are organized.
The FATCA and CRS rules will impact both U.S. and non-U.S. Investment Partnerships and separately managed
accounts and subject us to extensive additional administrative burdens. Our business could also be impacted to the
extent there are other changes to tax laws such as the recent tax reform legislation. Such changes could adversely affect
our financial results.
The Patriot Act
The USA Patriot Act of 2001 contains anti-money laundering and financial transparency laws and mandates the
implementation of various new regulations applicable to broker-dealers and other financial services companies,
including standards for verifying client identification at account opening, and obligations to monitor client transactions
and report suspicious activities. Anti-money laundering laws outside of the United States contain some similar
provisions. Our failure to comply with these requirements could have a material adverse effect on us.
Laws and Other Issues Relating to Taking Significant Equity Stakes in Companies
Investments by AC, its affiliates, and those made on behalf of their respective advisory clients and Investment
Partnerships often represent a significant equity ownership position in an issuer’s equity. This may be due to the fact
that AC is deemed to be a member of a “group” that includes GAMCO and, therefore, may be deemed to beneficially
own the securities owned by other members of the group under applicable securities regulations. As of December 31,
2019, by virtue of being a member of the group, AC was deemed to hold five percent or more beneficial ownership
with respect to 98 equity securities. This activity raises frequent regulatory, legal and disclosure issues regarding our
aggregate beneficial ownership level with respect to portfolio securities, including issues relating to issuers’
stockholder rights plans or “poison pills;” various federal and state regulatory limitations, including (i) state gaming
laws and regulations, (ii) federal communications laws and regulations; (iii) federal and state public utility laws and
regulations, as well as federal proxy rules governing stockholder communications; and (iv) federal laws and regulations
regarding the reporting of beneficial ownership positions. Our failure to comply with these requirements could have a
material adverse effect on us.
Potential Legislation Relating to Private Pools of Capital
We manage a variety of private pools of capital, including hedge funds. Congress, regulators, tax authorities and others
continue to explore increased regulation related to private pools of capital, including changes with respect to: investor
eligibility; trading activities, record-keeping and reporting; the scope of anti-fraud protections; safekeeping of client
assets; tax treatment; and a variety of other matters. AC may be materially and adversely affected by new legislation,
rule-making or changes in the interpretation or enforcement of existing rules and regulations imposed by various
regulators.
Existing European Regulation Overview
Alternative Investment Fund Managers Directive
Our European activities are impacted by the European Union’s (“EU”) Alternative Investment Fund Managers
Directive (“AIFMD”). AIFMD regulates managers of, and service providers to, a broad range of alternative investment
funds (“AIFs”) domiciled within and, potentially, outside the EU. AIFMD also regulates the marketing of all AIFs
inside the European Economic Area. AIFMD’s requirements restrict AIF marketing and impose additional compliance
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and disclosure obligations on AC regarding items such as remuneration, capital requirements, leverage, valuation,
stakes in EU companies, depositaries, domicile of custodians and liquidity management. These compliance and
disclosure obligations and the associated risk management and reporting requirements will subject us to additional
expenses.
Undertakings for Collective Investment in Transferable Securities
The EU has also adopted directives on the coordination of laws, regulations and administrative provisions relating to
undertakings for collective investment in transferable securities (“UCITS”) impacting depositary functions,
remuneration policies and sanctions. The latest initiative in this area, UCITS V, seeks to align the depositary regime,
remuneration rules and sanctioning powers of regulators under the UCITS Directive with the requirements of AIFMD.
Similarly, the European Securities and Markets Authority recently revised its guidelines for exchange-traded and other
UCITS funds. These guidelines introduced new collateral management requirements for UCITS funds concerning
collateral received in the context of derivatives using Efficient Portfolio Management (“EPM”) techniques (including
securities lending) and over-the-counter derivative transactions. These rules required us to make changes to our
collateral management arrangements applicable to the EPM of the UCITS funds for which GCIA acts as a sub-advisor.
Compliance with the UCITS directives will cause us to incur additional expenses associated with new risk management
and reporting requirements.
Markets in Financial Instruments Directive
The EU’s revised Markets in Financial Instruments Directive (“MiFID II”), which was fully implemented in 2018,
created specific new rules regarding the use of “soft dollars” to pay for research. A MiFID licensed investment firm
that provides portfolio management services or independent investment advisory services to clients may not pay for
third-party research with soft dollars generated through client trading activity. Research must be paid for either (i) by
the investment firm out of its own resources or (ii) through a separate research payment account for each client to pay
for the research. While currently neither GCIA nor G.research is directly subject to MiFID II: (a) GCIA may be
invoiced separately by any EU brokers from whom it purchases research in the future; (b) clients may begin to require
that GCIA “unbundle” research payments from commission trading; and (c) EU-based clients of G.research may also
demand that G. research separately invoice them for trading and research.
The Financial Conduct Authority (“FCA”) currently regulates Gabelli Securities International (UK) Limited (“GSIL
UK”), our MiFID licensed entity in the United Kingdom. Authorization by the FCA is required to conduct certain
financial services-related business in the United Kingdom under the Financial Services and Markets Act 2000. The
FCA’s rules adopted under that Act provide requirements dealing with a firm’s capital resources, senior management
arrangements, conduct of business, interaction with clients and systems and controls. The FCA supervises GSIL UK
through a combination of proactive engagement, event-driven and reactive supervision and thematic-based reviews in
order to monitor our compliance with regulatory requirements. Breaches of the FCA’s rules may result in a wide range
of disciplinary actions against GSIL and/or its employees.
Our EU-regulated entities are additionally subject to EU regulations on OTC derivatives which require (i) the central
clearing of standardized OTC derivatives, (ii) the application of risk-mitigation techniques to non-centrally cleared
OTC derivatives and (iii) the reporting of all derivative contracts.
Brexit Impact
Until January 31, 2020, the date the United Kingdom terminated its membership in the European Union, GSIL UK
was required to comply with MiFID II, which sets out detailed requirements governing the organization and conduct
of business of investment firms and regulated markets. MiFID II also includes pre- and post-trade transparency
requirements for equity markets and extensive transaction reporting requirements. In addition, relevant entities must
comply with revised obligations on capital resources for banks and certain investment firms set out in the Capital
Requirements Directive. This directive includes requirements not only on capital, but also governance and
remuneration as well. The obligations introduced through these directives have a direct effect on some of our European
operations.
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For the time being, under the transition agreement negotiated between the EU and the UK, GSIL UK will continue to
comply with MiFID II to the same extent that all FCA regulated firms are required to comply. The transition period
under the transition agreement expires on December 31, 2020. The Company cannot assure you the extent to which
the substance of MiFID II or other EU regulations will continue to apply to GSIL UK after the end of the transition
period.
Regulatory Matters Generally
The investment management industry is likely to continue to face a high level of regulatory scrutiny and to become
subject to additional rules designed to increase disclosure, tighten controls and reduce potential conflicts of interest. In
addition, the SEC has substantially increased its use of focused inquiries which request information from investment
advisors regarding particular practices or provisions of the securities laws. We participate in some of these inquiries in
the normal course of our business. Changes in laws, regulations and administrative practices by regulatory authorities,
and the associated compliance costs, have increased our cost structure and could in the future have a material adverse
impact. Although we have installed procedures and utilize the services of experienced administrators, accountants and
lawyers to assist us in adhering to regulatory guidelines and satisfying these requirements, and maintain insurance to
protect ourselves in the case of client losses, there can be no assurance that the precautions and procedures that we
have instituted and installed, or the insurance that we maintain to protect ourselves in case of client losses, will protect
us from all potential liabilities.
Employees
On March 1, 2020, we had a full-time staff of 39 teammates, of whom 18 served in the portfolio management, research
and trading areas, 14 served in the marketing and shareholder servicing areas and 7 served in the finance, legal,
operations and administrative areas. We also avail ourselves of services provided by GAMCO in accordance with a
transitional services agreement that was entered into with GAMCO as part of the Spin-off.
Status as a Smaller Reporting Company and an Emerging Growth Company
We are a “smaller reporting company” as defined by Rule 12b-2 of the Exchange Act and in Item 10(f)(1) of Regulation
S-K. As a result, we are eligible to take advantage of certain exemptions from various reporting requirements that are
applicable to other public companies that are not “smaller reporting companies.” We will, in general, remain a smaller
reporting company unless the market value of AC common stock that is held by non-affiliates exceeds $250 million as
of the last business day of our most recently completed second fiscal quarter.
In addition, we are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act (“JOBS
Act”). As a result, we are eligible to take advantage of certain exemptions from various reporting requirements that are
applicable to other public companies that are not “emerging growth companies.” These exemptions include not being
required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced
disclosure obligations regarding executive compensation in our periodic reports and proxy statements and exemptions
from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of
any golden parachute payments not previously approved.
We will, in general, remain as an emerging growth company for up to five full fiscal years following the Spin-off. We
would cease to be an emerging growth company and, therefore, become ineligible to rely on the above exemptions, if
(1) we have more than $1 billion in annual revenue in a fiscal year; (2) we issue more than $1 billion of non-convertible
debt during the preceding three-year period; or (3) the market value of AC common stock that is held by non-affiliates
exceeds $700 million as of the last business day of our most recently completed second fiscal quarter.
We may take advantage of some or all of the reduced regulatory and reporting requirements that will be available to
us as long as we qualify as a smaller reporting company or an emerging growth company, except that we have
irrevocably elected not to take advantage of the extension of time to comply with new or revised financial accounting
standards available under Section 107(b) of the JOBS Act.
12
ITEM 1A: RISK FACTORS
Smaller reporting companies are not required to provide the information required by this item.
ITEM 1B: UNRESOLVED STAFF COMMENTS
None.
ITEM 2: PROPERTIES
On May 31, 2019, AC acquired a building at 191 Mason Street, Greenwich, CT which serves as our headquarters. AC
paid rent to GAMCO pursuant to a sublease based on the percentage of square footage occupied by its employees
(including pro rata allocation of common space) at GAMCO’s offices at One Corporate Center, in Rye, NY prior to
the relocation to the new headquarters.
ITEM 3: LEGAL PROCEEDINGS
Currently, we are not subject to any legal proceedings that individually or in the aggregate involved a claim for damages
in excess of 10% of our consolidated assets. From time to time, we may be named in legal actions and proceedings.
These actions may seek substantial or indeterminate compensatory as well as punitive damages or injunctive relief.
We are also subject to governmental or regulatory examinations or investigations. Examinations or investigations can
result in adverse judgments, settlements, fines, injunctions, restitutions or other relief. For any such matters, the
consolidated financial statements include the necessary provisions for losses that we believe are probable and
estimable. Furthermore, we evaluate whether there exist losses which may be reasonably possible and, if material,
make the necessary disclosures.
ITEM 4: MINE SAFETY DISCLOSURES
Not applicable.
PART II
ITEM 5: MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market for our Stock, Dividends and Stock Repurchase Program
Our shares of Class A Stock are traded on the New York Stock Exchange under the symbol AC.
As of February 1, 2020, there were 121 and 21 holders of record of the Company’s Class A and Class B common stock,
respectively. These figures do not include approximately 2,184 beneficial holders of Class A shares held in “street”
name at various brokerage firms.
In December 2015, the Board of Directors established a stock repurchase program authorizing the Company to
repurchase up to 500,000 shares. On February 7, 2017, the Board of Directors reset the available number of shares to
be purchased under the stock repurchase program to 500,000 shares. On August 3, 2017 and May 8, 2018, the Board
of Directors authorized the repurchase of an additional 1 million and 500,000 shares, respectively. Our stock
repurchase program is not subject to an expiration date.
13
The following table provides information with respect to the shares of our Class A Stock we repurchased during the
quarter ended December 31, 2019:
Period
10/01/19 - 10/31/19
11/01/19 - 11/30/19
12/01/19 - 12/31/19
Totals
Total
Number of
Shares
Repurchased
7,110
4,365
9,499
20,974
Average
Price Paid Per
Share, net of
Commissions
$
36.39
36.01
37.50
36.80
$
Total Number of
Shares Repurchased as
Part of Publicly
Announced Plans
or Programs
7,110
4,365
9,499
20,974
Maximum
Number of Shares
That May Yet Be
Purchased Under
the Plans or Programs
1,108,220
1,103,855
1,094,356
In addition to our on-going stock repurchase program, in March and October 2018, the Company completed exchange
offers with respect to its Class A shares which resulted in the repurchase of 493,954 and 373,581 Class A shares in
exchange for 666,805 and 709,749 shares of GBL valued at approximately $17.7 million and $14.6 million,
respectively.
We have adopted the 2015 Stock Award and Incentive Plan (the “Equity Compensation Plan”). A maximum of 2.0
million shares of Class A Stock have been reserved for issuance as approved by the Company's stockholders at the
annual meeting of stockholders held on May 3, 2016. The Company withdrew the registration statement covering the
issuance of those shares as of December 29, 2017.
During 2018, the Company awarded 172,800 Phantom Restricted Stock Awards (“Phantom RSAs”) under the Equity
Compensation Plan. As of December 31, 2019, 119,650 awarded but unvested Phantom RSAs are outstanding. On
February 4, 2020, an additional 23,000 Phantom RSA’s were forfeited by teammates who transferred to Morgan Group
Holdings Co., resulting in 96,650 Phantom RSA’s remaining outstanding.
The number of shares remaining available for future issuance under equity compensation plans is 1,289,100.
ITEM 6: SELECTED FINANCIAL DATA
Smaller reporting companies are not required to provide the information required by this item.
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS (“MD&A”) OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Introduction
This MD&A is provided as a supplement to, and should be read in conjunction with, the Consolidated Financial
Statements and the notes thereto included in Item 8 to this report. Unless the context otherwise requires, all references
to “we,” “us,” “our,” “AC Group” or the “Company” refer collectively to Associated Capital Group, Inc. and its
subsidiaries through which our operations are actually conducted.
Factors Affecting Financial Condition and Results of Operations
The Company, through its subsidiaries, provides alternative investment management services and institutional research
services, as well as management of the Company’s proprietary investment portfolio.
In its alternative asset management operations, subsidiaries of the Company serve as general partner or investment
manager to investment funds including limited partnerships, offshore companies and separate accounts. The Company
primarily manages assets in equity event-driven value strategies, across a range of risk and event arbitrage portfolios,
earning management and incentive fees from its advisory activities. The institutional research operations offer domain
knowledge-driven research and a sales and execution platform for institutional investors, earning fees from its
institutional clients via trading commissions or direct payment.
14
Overview
Consolidated Statements of Income
Investment advisory and incentive fees, which are based on the amount and composition of AUM in our funds and
accounts, represent our largest source of revenues. Growth in revenues depends on good investment performance,
which influences the value of existing AUM as well as contributes to higher investment and lower redemption rates
and facilitates the ability to attract additional investors while maintaining current fee levels. Growth in AUM is also
dependent on being able to access various distribution channels, which is usually based on several factors, including
performance and service. In light of the dynamics created by COVID-19 and its impact on the global supply chain and
banks, oil, travel and leisure, we could experience higher volatility in short term returns of our funds.
Incentive fees generally consist of an incentive allocation on the absolute gain in a portfolio or a fee of 20% of the
economic profit, as defined in the agreements governing the investment vehicle or account. We recognize such revenue
only when the measurement period has been completed or at the time of an investor redemption.
Institutional research services revenues consist of brokerage commissions derived from securities transactions executed
on an agency basis or direct payments from institutional clients. Commission revenues vary directly with the perceived
value of the research provided, as well as account execution activity and new account generation.
Compensation includes variable and fixed compensation and related expenses paid to officers, portfolio managers,
sales, trading, research and all other professional staff. Variable compensation paid to sales personnel and portfolio
management and may represent up to 55% of revenues.
Management fee expense is incentive-based and entirely variable compensation in the amount of 10% of adjusted
aggregate pre-tax profits which is paid to the Executive Chairman or his designees for his services as Executive
Chairman pursuant to an employment agreement.
Other operating expenses include general and administrative operating costs and clearing charges and fees incurred by
our brokerage operations.
Other income and expense includes net gains and losses from investments (which include both realized and unrealized
gains and losses from securities and equity in earnings of investments in partnerships), interest and dividend income,
and interest expense. Net gains and losses from investments are derived from our proprietary investment portfolio
consisting of various public and private investments and from consolidated investment funds.
Net income/(loss) attributable to noncontrolling interests represents the share of net income attributable to third-party
limited partners of certain partnerships and offshore funds we consolidate. Please refer to Notes A and E in our
consolidated financial statements included elsewhere in this report.
Consolidated Statements of Financial Condition
We ended 2019 with approximately $938 million in cash and investments, net of securities sold, not yet purchased of
$16 million. This includes $349 million of cash and cash equivalents; $29 million of short-term U.S. Treasury
obligations; $255 million of securities, net of securities sold, not yet purchased, including shares of GAMCO and
VALU with market values of $57 million and $9 million, respectively; and $305 million invested in affiliated and
third-party funds and partnerships, including investments in affiliated closed end funds which have a value of $100
million and more limited liquidity. Our financial resources provide flexibility to pursue strategic objectives that may
include acquisitions, lift-outs, seeding new investment strategies, and co-investing, as well as shareholder
compensation in the form of share repurchases and dividends.
Total shareholders’ equity was $897 million or $39.93 per share as of December 31, 2019, compared to $866 million
or $38.36 per share as of the prior year-end. These shareholders’ equity per share calculations are a non-GAAP
measurement calculated by dividing the total equity by the number of common shares outstanding. The increase in
equity from the end of 2018 was largely attributable to investment income for the year.
15
Our primary goal is to use our liquid resources to opportunistically and strategically grow book value and net income.
While this goal is a priority, if opportunities are not present with what we consider a margin of safety, we will consider
alternatives to return capital to our shareholders, including stock repurchases and dividends.
Assets Under Management Highlights
We reported assets under management as follows (dollars in millions):
Year Ended December 31,
2019
2018
% Change
Event Merger Arbitrage
Event-Driven Value
Other
Total (a)
(a) Includes $259 million and $214 million of proprietary capital, respectively.
1,525
132
59
1,716
$
$
$
$
1,342
118
60
1,520
13.6
11.6
(1.7)
12.9
Changes in our AUM during 2019 were as follows (dollars in millions):
Year Ended December 31, 2019
Beginning
Inflows
Outflows
Investment
Return
Ending
Event Merger Arbitrage
Event-Driven Value
Other
Total AUM
$
$
1,342
118
60
1,520
$
368
8
-
376
$
(262)
(4)
(8)
(274)
77
10
7
94
1,525
132
59
1,716
$
$
$
$
$
$
The majority of our AUM has calendar year-end measurement periods, and our incentive fees are primarily recognized
in the fourth quarter.
Operating Results for the Year Ended December 31, 2019 as Compared to the Year Ended December 31,
2018
Revenues
Total revenues were $31.3 million for the year ended December 31, 2019, $8.5 million higher than total revenues of
$22.8 million for the year ended December 31, 2018. Total revenues by type were as follows (dollars in thousands):
Investment advisory and incentive fees
Institutional research services
Other revenues
Total revenues
22,148
8,947
170
31,265
Year Ended December 31,
2018
2019
$
$
Change
$
%
14,409
8,284
86
22,779
$
7,739
663
84
8,486
53.7
8.0
97.7
37.3
$
$
$
Investment advisory and incentive fees: We earn advisory fees based on our AUM. Investment advisory fees are
directly influenced by the amount of average AUM and the fee rates applicable to various accounts.
Advisory fees were $10.9 million for 2019 compared to $10.2 million for 2018, an increase of $0.7 million. This
increase is a result of the increase in average AUM over the period.
16
Incentive fees are directly related to the gains generated for our clients’ accounts. We earn a percentage, usually 20%,
of such gains. Incentive fees were $11.2 million in 2019, up $7.0 million from $4.2 million in 2018, due to higher
investment performance.
Institutional research services: Institutional research services revenues in 2019 were $8.9 million, a $0.6 million
increase from $8.3 million in 2018 primarily resulting from higher brokerage commissions derived from securities
transactions executed on an agency basis of $0.6 million and higher selling concessions and sales manager fees of $1.0
million offset by decreased revenue from research services agreements with affiliates of $0.9 million.
Other revenues: Other revenues were $0.2 million for 2019 compared to $0.1 million for 2018, an increase of $0.1
million.
Expenses
Compensation: Compensation, which includes variable compensation, salaries, bonuses and benefits, was $32.2
million for the year ended December 31, 2019, an increase of $5.6 million from $26.6 million for the year ended
December 31, 2018. Fixed compensation expense, which includes salaries, bonuses and benefits, decreased to $15.6
million in 2019 from $16.8 million in 2018. The remainder of compensation expense represents variable compensation
that fluctuates with management and incentive fee revenues as well as the investment results of certain proprietary
accounts. Variable payouts are also impacted by the mix of products upon which performance fees are earned and the
extent to which they may exceed their allocated costs. For 2019, these variable payouts (based on the investment
performance of the products with incentive fees) were $16.6 million, an increase of $7.5 million from $9.1 million in
2018.
Stock-based compensation was $1.4 million in 2019, an increase of $0.7 million from $0.7 million recorded in 2018.
The increase was primarily due to the expense attributable to Phantom RSAs awarded in 2018.
Management fees: Management fee expense is incentive-based and entirely variable compensation equal to 10% of the
aggregate adjusted pre-tax profits, which is paid to the Executive Chairman or his designees pursuant to his
employment agreement with AC. In 2019, AC recorded management fee expense of $5.7 million. No management
fee expense was recorded in 2018 due to pre-tax losses incurred.
Other operating expenses: Our other operating expenses were $9.1 million in 2019 compared to $9.7 million in 2018,
a decrease of $0.6 million due to lower overall costs.
Investment and other non-operating income/(expense), net
Net gain/(loss) from investments: Net gain/(loss) from investments is directly related to the performance of our
proprietary capital. For the year ended December 31, 2019, net gains from investments were $60.8 million compared
to a net loss of $65.2 million in the prior year primarily due to mark-to-market changes in the value of the GAMCO
stock and other investments.
Interest and dividend income: Interest and dividend income remained unchanged at $13.4 million for 2019 and 2018.
Interest expense: Interest expense decreased to $0.2 million in 2019 from $0.3 million in 2018.
Income Taxes
In 2019, we recorded an income tax expense of $12.1 million resulting in an effective tax rate (“ETR”) of 21.7%. In
2018, we recorded an income tax benefit of $11.5 million resulting in a negative ETR of -16.7% (i.e., a tax benefit on
positive income). The 2019 ETR is above the standard corporate tax rate of 21% primarily due state income taxes and
a valuation allowance on carryforward of charitable contributions. The 2018 ETR is below the standard rate of 21%
due to inability of the Company to deduct certain capital losses incurred during the year offset in part by tax benefits
from the dividends received deduction. In addition, the Company recorded a valuation allowance of $1.4 million and
17
$0.7 million against deferred tax assets attributable to charitable contribution carryovers as of December 31, 2019 and
2018, respectively.
Noncontrolling Interests
Net income attributable to noncontrolling interests was $3.6 million in 2019 compared to income of $0.7 million in
2018. The increase of $2.9 million was driven primarily by increased earnings at Gabelli Merge Plus+ Trust.
Net Income/(Loss)
Net income for the year ended December 31, 2019 was $39.2 million compared to net loss of $58.1 million for the
prior year. The change was driven primarily by mark-to-market increases on our investment portfolio.
Liquidity and Capital Resources
Our principal assets consist of cash and cash equivalents; short-term treasury securities; marketable securities,
primarily equities, including 2.9 million shares of GAMCO stock; and interests in affiliated and third-party funds and
partnerships. Although Investment Partnerships may be subject to restrictions as to the timing of distributions, the
underlying investments of such Investment Partnerships are generally liquid, and the valuations of these products
reflect that underlying liquidity.
Summary cash flow data is as follows (in thousands):
Year Ended December 31,
2019
2018
Cash flows provided by (used in):
Operating activities
Investing activities
Financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Increase in cash from consolidation
Cash and cash equivalents at end of year
$
$
(44,334)
(5,058)
(11,584)
(60,976)
409,564
-
348,588
76,980
4,736
34,689
116,405
293,112
47
409,564
$
$
We require relatively low levels of capital expenditures and have a highly variable cost structure where costs increase
and decrease based on the level of revenues we receive. Our revenues, in turn, are highly correlated to the level of
AUM and to its investment performance. We anticipate that our available liquid assets should be sufficient to meet our
cash requirements as we build out our operating business. At December 31, 2019, we had cash and cash equivalents of
$348.6 million and $588.6 million of investments net of securities sold, not yet purchased of $16.4 million. Of these
amounts, $13.1 million and $31.8 million, respectively, were held by consolidated investment funds and may not be
readily available for the Company to access.
Net cash used by operating activities was $44.3 million in 2019. The net income adjusted for noncash items, primarily
unrealized gains on securities, deferred income taxes and exchange offers, was $21.2 million along with a decrease in
net receivables/payables of $12.9 million. This was more than offset, however, by increases in investments in securities
and net contributions to investment partnerships of $78.4 million.
Net cash provided by operations was $77.0 million in 2018. The net loss adjusted for noncash items, primarily
unrealized losses on securities, deferred income taxes and exchange offers, was $9.0 million. This was more than offset,
however, by an increase in net receivables/payables of $8.7 million and reductions in investments in securities and net
withdrawals from investment partnerships of $77.3 million.
Net cash used in investing activities was $5.1 million in 2019 due to the purchase of a building for $6.5 million and
purchases of securities of $5.0 million partially offset by proceeds from sales of securities of $4.9 million, return of
18
capital on securities of $0.9 million and cash received in acquisition of Morgan Group $0.6 million. Net cash generated
from investing activities was $4.7 million in 2018. A short-term note due from GBL (“GBL Short-term Note”) with a
principal amount of $15 million was repaid during the year. Offsetting this principal repayment was net purchases of
securities in the amount of $10.4 million and $0.1 million from return of capital on securities.
Net cash used in financing activities was $11.6 million largely resulting from dividends paid of $4.5 million, share
repurchases of $4.1 million and redemptions to consolidated funds of $2.9 million. Net cash provided by financing
activities was $34.7 million for 2018, largely resulting from $50.0 million principal payments on the GAMCO Note
partially offset by $7.0 million of treasury stock purchases, dividend payments of $4.7 million, and net redemptions of
redeemable noncontrolling interests of $3.6 million
G.research is registered with the SEC as a broker-dealer and is regulated by FINRA. As such, G.research is subject to
minimum net capital requirements promulgated by the SEC. G.research computes its net capital under the alternative
method permitted by the SEC, which requires minimum net capital of $250,000. As of December 31, 2019 and 2018,
G.research had net capital, as defined, of approximately $4.6 million and $9.1 million, respectively, exceeding the
regulatory requirement by approximately $4.3 million and $8.8 million, respectively. Net capital requirements for
G.research may increase in accordance with SEC rules and regulations to the extent it engages in other business
activities.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
Critical Accounting Policies
In the ordinary course of business, we make a number of estimates and assumptions relating to the reporting of results
of operations and financial condition in the preparation of our consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America (“GAAP”). We base our estimates on
historical experience, when available, and on other various assumptions that are believed to be reasonable under the
circumstances. Actual results could differ significantly from those estimates under different assumptions and
conditions.
We believe that the following critical accounting policies require management to exercise significant judgment:
Major Revenue-Generating Services and Revenue Recognition
The Company’s revenues are derived primarily from investment advisory and incentive fees and institutional research
services.
Investment advisory and incentive fees are directly influenced by the level and mix of AUM as fees are derived from
a contractually-determined percentage of the balance of each account as well as a percentage of the investment
performance of certain accounts. Management fees from investment partnerships and offshore funds are computed
either monthly or quarterly, and amounts receivable are included in investment advisory fees receivable on the
consolidated statements of financial condition. These revenues vary depending upon the level of capital flows, financial
market conditions, investment performance and the fee rates applicable to each account.
Incentive allocations or fees are generally recognized at the end of an annual measurement period and amounts
receivable are included in investment advisory fees receivable on the consolidated statements of financial condition.
G.research, LLC provides institutional research services and earns brokerage commissions and sales manager fees
from securities transactions executed on an agency basis on behalf of institutional clients and mutual funds, private
wealth management clients and retail customers of affiliated companies. Commission revenue and related clearing
charges are recorded on a trade-date basis and are included in institutional research services and other operating
expenses, respectively, on the consolidated statements of income.
19
G.research has also been involved in syndicated underwriting activities that included public equity and debt offerings
managed by major investment banks. Underwriting fees include gains, losses, selling concessions and fees, net of
syndicate expenses, arising from securities offerings in which G.research acts as underwriter or agent and are accrued
as earned.
See Note C, Revenue, in the consolidated financial statements for additional information.
Investments in Securities
Investments in securities are a recorded at fair value in the statements of financial condition in accordance with U.S.
GAAP. Securities transactions and any related gains and losses are recorded on a trade date basis. Realized gains and
losses from securities transactions are recorded on the specific identified cost basis and are included in gain/(loss) from
investments, net on the consolidated statements of income.
Management determines the appropriate classification of securities at the time of purchase. Government debt with
maturities of greater than three months at the time of purchase are considered investments in debt securities.
Investments in debt securities are accounted for as trading, available for sale ("AFS"), or held-to-maturity securities.
The Company does not hold any investments in debt securities accounted for as AFS or held to maturity.
Securities sold, but not yet purchased are recorded on the trade date, and are stated at fair value and represent
obligations of AC to purchase the securities at prevailing market prices. Therefore, the future satisfaction of such
obligations may be for an amount greater or less than the amounts recorded on the consolidated statements of financial
condition. The ultimate gains or losses recognized are dependent upon the prices at which these securities are purchased
to settle the obligations under the sales commitments. Unrealized gains and losses and realized gains and losses from
covers of securities sold, not yet purchased transactions are included in net gain/(loss) from investments on the
consolidated statements of income.
Consolidation
The Company assesses all entities with which it is involved for consolidation on a case by case basis depending on the
specific facts and circumstances surrounding each entity. Pursuant to accounting guidance, the Company first evaluates
whether it holds a variable interest in an entity. The Company considers all economic interests, including proportionate
interests through related parties, to determine if such interests are to be considered a variable interest. Fees paid to the
Company that are customary and commensurate with the level of services provided from entities in which the Company
does not hold other economic interests in the entity are not considered as a variable interest.
For any entity where the Company has determined that it does hold a variable interest, the Company performs an
assessment to determine whether it qualifies as a variable interest entity (“VIE”).
The granting of substantive kick-out rights is a key consideration in determining whether a limited partnership or
similar entity is a VIE and whether or not that entity should be consolidated. The Company evaluates consolidation on
a case by case basis those VIEs in which substantive kick-out rights have been granted to the unaffiliated investors to
either dissolve the fund or remove the general partner.
Under the variable interest entity model, the Company consolidates those entities where it is determined that the
Company is the primary beneficiary of the entity. The Company is determined to be the primary beneficiary when it
has a controlling financial interest in the VIE, which is defined as possessing both (a) the power to direct the activities
of the VIE that most significantly impact the VIE’s economic performance and (b) the obligation to absorb losses of
the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE. If the Company
alone is not considered to have a controlling financial interest in the VIE but the Company and its related parties under
common control in the aggregate have a controlling financial interest in the VIE, the Company will be deemed to be
the primary beneficiary if it is the party that is most closely associated with the VIE. When the Company and its related
parties not under common control in the aggregate have a controlling financial interest in a VIE, the Company would
be deemed to be the primary beneficiary if substantially all the activities of the entity are performed on behalf of the
Company.
20
The Company determines whether it is the primary beneficiary of a VIE at the time it becomes initially involved with
the VIE and reconsiders that conclusion as required. Investments and redemptions (either by the Company, related
parties of the Company or third parties) or amendments to the governing documents of the respective entity may affect
an entity’s status as a VIE or the determination of the primary beneficiary.
Entities that do not qualify as VIEs are assessed for consolidation as voting interest entities (“VOEs”) under the voting
interest model. The Company evaluates whether the entity should be evaluated under the guidance for partnerships
and similar entities, or corporations, and consolidates those entities it controls through a majority voting interest or
other means. If the Company is the general partner or managing member it generally will not be required to consolidate
a VOE.
The Company records noncontrolling interests in consolidated Investment Partnerships for which the Company’s
ownership is less than 100%.
See Note E, Investment Partnerships and Variable Interest Entities in the consolidated financial statements for
additional information.
Investments in Partnerships and Affiliates
The Company is general partner or co-general partner of various affiliated entities. We also have investments in
unaffiliated partnerships, offshore funds and other entities (collectively, “investments in partnerships and affiliates”).
The Company accounts for its investments in partnerships and affiliates under the equity method. Substantially all of
the Company's equity method investees are entities that record their underlying investments at fair value and included
in investments in partnerships. Therefore, under the equity method of accounting, the Company's share of the investee's
underlying net income predominantly represents fair value adjustments in the investments held by the equity method
investees. The Company's share of the investee's underlying net income or loss is based upon the most currently
available information and is recorded as net gain/(loss) from investments on the consolidated statements of income.
Capital contributions are recorded as an increase in investments when paid, and withdrawals and distributions are
recorded as reductions of the investments when received. Depending on the terms of the investment, the Company may
be restricted as to the timing and amounts of withdrawals.
Income Taxes
For purposes of the preparation of the consolidated financial statements, the provision for income taxes is computed
using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected
future tax consequences of events that have been included in the consolidated financial statements. Under this method
deferred tax assets and liabilities are recorded for temporary differences between the tax basis of assets and liabilities
and the reported amounts on the consolidated financial statements using the statutory tax rates in effect for the year
when the reported amount of the asset or liability is expected to be recovered or settled, respectively. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that
includes the enactment date. A valuation allowance is recorded to reduce the carrying values of deferred tax assets to
the amount that is more likely than not to be realized. For each tax position taken or expected to be taken in a tax return,
the Company determines whether it is more likely than not that the position will be sustained upon examination based
on the technical merits of the position, including resolution of any related appeals or litigation. A tax position that
meets the more likely than not recognition threshold is measured to determine the amount of benefit to recognize. The
tax position is measured at the largest amount of benefit that is greater than 50% likely of being realized upon
settlement. The Company recognizes the accrual of interest on uncertain tax positions and penalties in the income tax
provision on the consolidated statements of income.
Recent Accounting Developments
See Footnote B, Significant Accounting Policies – Recent Accounting Developments, in the consolidated financial
statements.
21
Seasonality and Inflation
We do not believe that our operations are subject to significant seasonal fluctuations. We do not believe inflation will
significantly affect our compensation costs, as they are substantially variable in nature. The rate of inflation may affect
certain other expenses, however, such as information technology and occupancy costs. To the extent inflation results
in rising interest rates and has other effects upon the securities markets, it may adversely affect our financial position
and results of operations by reducing our AUM, revenues or otherwise.
ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Smaller reporting companies are not required to provide the information required by this item.
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ASSOCIATED CAPITAL GROUP, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
Consolidated Financial Statements:
Consolidated Statements of Income for the years ended December 31, 2019 and 2018
Consolidated Statements of Comprehensive Income for the years ended December 31, 2019 and 2018
Consolidated Statements of Financial Condition at December 31, 2019 and 2018
Consolidated Statements of Equity for the years ended December 31, 2019 and 2018
Consolidated Statements of Cash Flows for the years ended December 31, 2019 and 2018
Notes to Consolidated Financial Statements
Page
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25
26
27
28
30
32
All schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange
Commission that are not required under the related instructions or are inapplicable have been omitted.
22
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the stockholders and the Board of Directors of Associated Capital Group, Inc.
Greenwich, CT
Opinion on the Financial Statements
We have audited the accompanying consolidated statements of financial condition of Associated Capital Group, Inc.
and subsidiaries (the "Company") as of December 31, 2019 and 2018, the related consolidated statements of income,
comprehensive income, equity and cash flows, for each of the two years in the period ended December 31, 2019, and
the related notes (collectively referred to as the "consolidated financial statements"). In our opinion, the consolidated
financial statements present fairly, in all material respects, the financial position of the Company as of December 31,
2019 and 2018, and the results of its operations and its cash flows for each of the two years in the period ended
December 31, 2019, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an
opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with
the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with
respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of
the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform,
an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding
of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the
Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements,
whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also
included evaluating the accounting principles used and significant estimates made by management, as well as
evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis
for our opinion.
/S/ Deloitte & Touche, LLP
Stamford, Connecticut
March 16, 2020
We have served as the Company's auditor since 2015.
23
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ASSOCIATED CAPITAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
Revenues
Investment advisory and incentive fees
Institutional research services
Other revenues
Total revenues
Expenses
Compensation
Management fee
Other operating expenses
Total expenses
Operating loss
Other income/(expense)
Net gain/(loss) from investments
Interest and dividend income
Interest expense
Shareholder-designated contribution
Total other income/(expense), net
Income/(loss) before income taxes
Income tax provision/(benefit)
Net income/(loss)
Net income/(loss) attributable to noncontrolling interests
Net income/(loss) attributable to Associated Capital Group, Inc.'s shareholders
Year Ended December 31,
2019
2018
$
22,148
8,947
170
31,265
$
14,409
8,284
86
22,779
32,184
5,713
9,126
47,023
(15,758)
26,607
-
9,652
36,259
(13,480)
60,757
13,407
(217)
(3,281)
70,666
54,908
12,126
42,782
3,594
39,188
$
(65,203)
13,384
(262)
(3,300)
(55,381)
(68,861)
(11,478)
(57,383)
716
(58,099)
$
Net income/(loss) per share attributable to Associated Capital Group, Inc.'s
shareholders:
Basic
Diluted
$
$
1.74
1.74
$
$
(2.52)
(2.52)
Weighted average shares outstanding:
Basic
Diluted
Actual shares outstanding
See accompanying notes.
22,534
22,534
22,475
23,070
23,070
22,585
24
ASSOCIATED CAPITAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in thousands)
Year Ended December 31,
2019
2018
Net income/(loss)
Less: Comprehensive income/(loss) attributable to noncontrolling interests
$
42,782
3,594
$
(57,383)
716
Comprehensive income/(loss) attributable to Associated Capital Group, Inc.
$
39,188
$
(58,099)
See accompanying notes.
25
ASSOCIATED CAPITAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands, except per share data)
December 31, December 31,
2019
2018
$
$
348,588
300,357
159,311
145,372
24,150
9,582
4,369
2,004
3,519
13,654
1,010,906
409,564
229,960
142,135
118,729
24,629
4,394
1,309
9,422
3,519
10,772
954,433
$
$
$
14,889
3,676
20,246
16,419
483
7,373
63,086
$
5,511
3,577
11,388
9,574
515
7,820
38,385
50,385
49,800
6
6
19
1,003,450
(701)
(106,342)
896,432
1,003
897,435
1,010,906
$
19
1,008,319
(39,889)
(102,207)
866,248
-
866,248
954,433
$
ASSETS
Cash and cash equivalents (a)
Investments in securities (Including GBL stock with a value of $57.2 million and $50.9 million, respectively) (a)
Investments in affiliated registered investment companies
Investments in partnerships (a)
Receivable from brokers (a)
Investment advisory fees receivable
Receivable from affiliates
Deferred tax assets, net
Goodwill
Other assets (a)
Total assets
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY
Payable to brokers
Income taxes payable, net
Compensation payable
Securities sold, not yet purchased
Payable to affiliates
Accrued expenses and other liabilities (a)
Total liabilities
Redeemable noncontrolling interests (a)
Commitments and contingencies (Note L)
Equity:
Preferred stock, $.001 par value; 10,000,000 shares authorized; none issued and outstanding
Class A Common Stock, $0.001 par value; 100,000,000 shares authorized; 6,569,254 and 6,537,768 shares
issued, respectively; 3,452,381 and 3,530,752 shares outstanding, respectively
Class B Common Stock, $0.001 par value; 100,000,000 shares authorized; 19,196,792 shares issued;
19,022,918 and 19,054,404 shares outstanding, respectively
Additional paid-in capital
Retained earnings/(Accumulated Deficit)
Treasury stock, at cost (3,116,873 and 3,007,016 shares, respectively)
Total Associated Capital Group, Inc. equity
Noncontrolling interests
Total equity
Total liabilities and equity
(a) As of December 31, 2019, cash and cash equivalents, investments in securities, investment in partnerships, receivable
from broker, other assets, accrued expenses and other liabilities, and redeemable noncontrolling interests include amounts
related to consolidated variable interest entities (“ VIEs”). See Footnote E.
See accompanying notes.
26
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S
ASSOCIATED CAPITAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Year Ended December 31,
2019
2018
$
42,782
$
(57,383)
(10,173)
30
-
7,360
2,152
-
(21,883)
56
(2,078)
21
72
(12,825)
-
8,706
54,397
37
(61,923)
53,924
(28,071)
11,603
(3,060)
479
(5,188)
-
3,611
(32)
9,378
156
8,859
(470)
(87,116)
(44,334)
(8,577)
31,948
(443)
13,430
1,345
(97)
(757)
73
(7,770)
1,496
(1,397)
2,858
134,363
76,980
(4,989)
4,928
932
(6,518)
589
-
(5,058)
$
(12,350)
1,958
128
-
-
15,000
4,736
$
Operating activities
Net income/(loss)
Adjustments to reconcile net income/(loss) to net cash
provided by/(used in) operating activities:
Equity in net gains from partnerships
Depreciation and amortization
Stock based compensation expense
Deferred income taxes
Donated securities
Losses on exchange offers
Unrealized (gains)/losses on securities
Realized losses on sales of securities
(Increase)/decrease in assets:
Investments in securities
Investments in partnerships:
Contributions to partnerships
Distributions from partnerships
Receivable from affiliates
Receivable from brokers
Investment advisory fees receivable
Goodwill and intangible assets
Other assets
Increase/(decrease) in liabilities:
Payable to affiliates
Payable to brokers
Income taxes payable and deferred tax liabilities, net
Compensation payable
Accrued expenses and other liabilities
Total adjustments
Net cash provided by/(used in) operating activities
Investing activities
Purchases of securities
Proceeds from sales of securities
Return of capital on securities
Purchase of building
Cash received in acquisition of Morgan Group
Proceeds from note receivable
Net cash provided by/(used in) investing activities
29
ASSOCIATED CAPITAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(continued) (Dollars in thousands)
Year Ended December 31,
2019
2018
$
$
Financing activities
Redemptions of redeemable noncontrolling interests
Dividends paid
Purchase of treasury stock
Proceeds from payment of GAMCO Note
Proceeds from promissory note from Executive Chairman
Repayment of promissory note to Executive Chairman
Net cash provided by financing activities
Net increase/(decrease) in cash and cash equivalents
Cash, cash equivalents and restricted cash at beginning of period
Increase in cash from consolidation
Cash, cash equivalents and restricted cash at end of period
Supplemental disclosures of cash flow information:
Cash paid for interest
Cash paid/(received) for taxes
Reconciliation to cash, cash equivalents and restricted cash
Cash and cash equivalents
Restricted cash included in receivable from brokers
Cash, cash equivalents and restricted cash
(2,934)
(4,513)
(4,135)
-
2,124
(2,126)
(11,584)
(60,976)
409,764
-
348,788
(3,634)
(4,666)
(7,011)
50,000
-
-
34,689
116,405
293,312
47
409,764
$
$
$
$
197
4,700
$
$
261
(140)
348,588
200
348,788
$
409,564
200
409,764
$
Non-cash activity:
- On January 1, 2018, AC determined it had control over certain investment funds which resulted in their
consolidation and an increase of approximately $47 of cash and cash equivalents, $6,441 of net assets and an
increase of approximately $6,488 of redeemable noncontrolling interests.
- During 2018, AC completed two exchange offers with respect to its Class A shares. The Company exchanged
1,376,554 GBL Class A shares valued at $32,301 for 867,535 Class A shares.
- On October 31, 2019, the Company closed on a transaction whereby Morgan Group Holding Co.,
(Morgan Group) under common control of AC's majority shareholder, acquired all of the Company's interest in
G.research for 50,000,000 shares of Morgan Group common stock. In connection with the transaction the
Company received $589,000 in cash held by Morgan Group which has been classified in cash provided by
investing activities.
See accompanying notes.
30
A. Organization
Unless we have indicated otherwise, or the context otherwise requires, references in this report to “Associated Capital
Group, Inc.,” “AC Group,” “the Company,” “AC,” “we,” “us” and “our” or similar terms are to Associated Capital
Group, Inc., its predecessors and its subsidiaries.
We are a Delaware corporation that provides alternative investment management, institutional research and we derive
investment income/(loss) from proprietary investment of cash and other assets awaiting deployment in our operating
business.
Our institutional research and underwriting services are provided through G.research, LLC ("G.research"). G.research
is a broker-dealer registered under the Exchange Act of 1934, as amended (the “Exchange Act”). G.research acts as
an underwriter primarily for affiliates of the Company. G.research is regulated by the Financial Industry Regulatory
Authority (“FINRA”).
GCIA and its wholly-owned subsidiary, Gabelli & Partners, LLC (“Gabelli & Partners”), collectively serve as general
partners or investment managers to investment funds including limited partnerships and offshore companies
(collectively, “Investment Partnerships”), and separate accounts. We primarily manage assets in equity event-driven
value strategies, across a range of risk and event arbitrage portfolios. The business earns management and incentive
fees from its advisory activities. Management fees are largely based on a percentage of assets under management.
Incentive fees are based on the percentage of the investment returns of certain clients’ portfolios. GCIA is an
investment adviser registered with the Securities and Exchange Commission under the Investment Advisers Act of
1940, as amended (the “Advisers Act”).
We may make direct investments in operating business using a variety of techniques and structures. For example, in
April 2018, the Company sponsored a €110 million initial public offering of its first special purpose acquisition
corporation, the Gabelli Value of Italy S.p.a., an Italian company listed on the London Stock Exchange’s Borsa Italiana
AIM segment under the symbol “VALU”. VALU was created to acquire a small-to medium-sized Italian franchise
business with the potential for international expansion, particularly in the United States.
The Spin-off
On November 30, 2015, GAMCO Investors, Inc. (“GAMCO” or “GBL”) distributed all the outstanding shares of each
class of AC common stock on a pro rata one-for-one basis to the holders of each class of GAMCO’s common stock
(the “Spin-off”).
As part of the Spin-off, AC received 4,393,055 shares of GAMCO Class A common stock for $150 million. The
Company currently holds 2,935,401shares as of December 31, 2019.
In connection with the Spin-off, GAMCO issued a promissory note (the “GAMCO Note”) to AC Group in the original
principal amount of $250 million used to partially capitalize the Company. During the year ended December 31, 2018,
AC received principal repayments totaling $50 million on the GAMCO Note which fully satisfied the outstanding
principal balance. The GAMCO Note bore interest at 4% per annum and had an original maturity date of November
30, 2020.We conduct our investment management activities through Gabelli & Company Investment Advisers, Inc.
(“GCIA” f/k/a Gabelli Securities, Inc.).
On October 31, 2019, the Company closed on a transaction whereby Morgan Group Holding Co., (“Morgan Group”)
a company that trades in the over the counter market under the symbol “MGHL” and under common control of AC’s
majority shareholder, acquired all of the Company’s interest in G.research for 50,000,000 shares of Morgan Group
common stock. In addition, immediately prior to the closing,5.15 million Morgan Group shares were issued under a
private placement for $515,000. Subsequent to the transaction and private placement, the Company has an 83.3%
ownership interest in Morgan Group and consolidates the entity, which includes G.research. The transaction has been
accounted for pursuant to ASC 805-50, Transactions Between Entities Under Common Control. A common-control
transaction is similar to a business combination because there is no change in control over the entity by the parent.
Therefore, the accounting and reporting for a transaction between entities under common control is outside the scope
of the business combinations guidance in ASC 805-10, ASC 805-20, and ASC 805-30 and is addressed in ASC 805-
31
50. For transactions between entities under common control, there is no change in basis in the net assets received and
therefore they are recorded at their historical cost.
Morgan is a shell company with minimal assets and income and is consolidated after the transaction. The Company’s
consolidated statement of financial condition and statement of operations is not materially different with the
consolidation.
B. Significant Accounting Policies
Consolidated Financial Statements
All material intercompany transactions and balances have been eliminated. Subsidiaries are fully consolidated from
the date the Company obtains control and continue to be consolidated until the date that such control ceases. The
Company’s principal market is in the United States.
Use of Estimates
The preparation of the consolidated financial statements in conformity with accounting principles generally accepted
in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the
amounts reported on the consolidated financial statements and accompanying notes. Actual results could differ from
those estimates.
Cash and Cash Equivalents
Cash equivalents primarily consist of an affiliated money market mutual fund which is highly liquid. U.S. Treasury
Bills and Notes with maturities of three months or less at the time of purchase are also considered cash equivalents.
Investments in Securities
Securities owned are recorded at fair value in the statements of financial condition in accordance with U.S. GAAP.
Securities transactions and any related gains and losses are recorded on a trade date basis. Realized gains and losses
from securities transactions are recorded on the specific identified cost basis and are included in gain/(loss) from
investments, net on the consolidated statements of income.
Equity securities, effective January 1, 2018 with the adoption of Accounting Standards Update (“ASU”) 2016-01,
Recognition and Measurement of Financial Assets and Financial Liabilities, are stated at fair value with any
unrealized gains or losses reported in current period earnings in gain/(loss) from investments, net on the consolidated
statements of income.
Management determines the appropriate classification of securities at the time of purchase. Government debt with
maturities of greater than three months at the time of purchase are considered investments in debt securities.
Investments in debt securities are accounted for as trading, available for sale (“AFS”), or held-to-maturity
securities. The Company does not hold any investments in debt securities accounted for AFS or held to maturity.
Securities sold, but not yet purchased are recorded on the trade date, and are stated at fair value and represent
obligations of AC to purchase the securities at prevailing market prices. Therefore, the future satisfaction of such
obligations may be for an amount greater or less than the amounts recorded on the consolidated statements of financial
condition. The ultimate gains or losses recognized are dependent upon the prices at which these securities are purchased
to settle the obligations under the sales commitments. Unrealized gains and losses and realized gains and losses from
covers of securities sold, not yet purchased transactions are included in net gain/(loss) from investments on the
consolidated statements of income.
32
Fair Value of Financial Instruments
The Company’s assets and liabilities recorded at fair value have been categorized based upon a fair value hierarchy in
accordance with the Financial Accounting Standards Board’s (“FASB”) guidance on fair value measurement. The
levels of the fair value hierarchy and their applicability to the Company are described below:
• Level 1 inputs are unadjusted quoted prices in active markets for identical assets or liabilities at the
reporting date. Level 1 assets include cash equivalents, government obligations, open-end mutual
funds, closed-end funds and equities.
• Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable for the
asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets
and liabilities in active markets, quoted prices for identical or similar assets or liabilities that are not
active and inputs other than quoted prices that are observable for the asset or liability such as interest
rates and yield curves that are observable at commonly-quoted intervals. Assets included in this
category are over-the-counter derivatives that have valuation inputs that can generally be
corroborated by observable market data.
• Level 3 inputs are unobservable inputs for the asset or liability, and include situations where there
is little, if any, market activity for the asset or liability. Assets in this category generally include
equities that trade infrequently and direct private equity investments.
In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such
cases, the level in the fair value hierarchy in which the fair value measurement in its entirety falls has been determined
based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s
assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and
considers factors specific to the asset or liability.
The availability of observable inputs can vary from instrument to instrument and is affected by a wide variety of
factors, including, for example, the type of instrument, whether the instrument is new and not yet established in the
marketplace, and other characteristics particular to the instrument. To the extent that valuation is based on models or
inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment.
Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments
categorized as Level 3.
In the absence of a closing price, an average of the bid and ask price is used. Bid prices reflect the highest price that
market participants are willing to pay for an asset. Ask prices represent the lowest price that market participants are
willing to accept for an asset.
Cash equivalents—Cash equivalents primarily consist of an affiliated money market mutual fund which is invested
solely in U.S. Treasury securities and valued based on the net asset value of the fund. Other cash equivalents are
valued using unadjusted quoted market prices. Accordingly, cash equivalents are categorized in Level 1 of the fair
value hierarchy.
Investments in securities—Investments in securities and securities sold not yet purchased are generally valued based
on quoted prices from an exchange. To the extent these securities are actively traded, valuation adjustments are not
applied, and they are categorized in Level 1 of the fair value hierarchy. Securities categorized as Level 2 investments
are valued using other observable inputs. Nonpublic and infrequently traded investments are included in Level 3 of
the fair value hierarchy because significant inputs to measure fair value are unobservable.
Receivables from Affiliates and Payables to Affiliates
Receivables from affiliates consist primarily of sub-advisory fees due from Gabelli Funds, LLC. Payables to affiliates
primarily consist of expenses paid by affiliates on behalf of the Company pursuant to a transitional services agreement
with GAMCO entered into in connection with the Spin-off.
33
Receivables from and Payables to Brokers
Receivables from and payables to brokers consist of amounts related to purchases and sales of securities as well as
cash amounts held in anticipation of investment.
Consolidation
The Company assesses all entities with which it is involved for consolidation on a case by case basis depending on
the specific facts and circumstances surrounding each entity. Pursuant to applicable guidance, the Company first
evaluates whether it holds a variable interest in an entity. The Company considers all economic interests including
proportionate interests through related parties, to determine if such interests are considered a variable interest. Fees
paid to the Company that are customary and commensurate with the level of services provided from entities in which
the Company does not hold other more than insignificant economic interests in the entity are not considered as a
variable interest.
For any entity where the Company has determined that it holds a variable interest, the Company performs an
assessment to determine whether it qualifies as a variable interest entity (“VIE”). The granting of substantive kick-out
or participating rights is a key consideration in determining whether a limited partnership or similar entity is a VIE
and whether or not that entity should be consolidated. The Company evaluates for consolidation on a case by case
basis those VIEs in which substantive kick-out or participating rights have been granted to the unaffiliated investors
to either dissolve the fund or remove the general partner.
Under the variable interest entity model, the Company consolidates those entities where it is determined that the
Company is the primary beneficiary of the entity. The Company is determined to be the primary beneficiary when it
has a controlling financial interest in the VIE, which is defined as possessing both (i) the power to direct the activities
of the VIE that most significantly impact the VIE’s economic performance and (ii) the obligation to absorb losses of
the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE. When the
Company alone is not considered to have a controlling financial interest in the VIE but the Company and its related
parties under common control in the aggregate have a controlling financial interest in the VIE, the Company will be
deemed the primary beneficiary if it is the party that is most closely associated with the VIE. When the Company and
its related parties not under common control in the aggregate have a controlling financial interest in the VIE, the
Company would be deemed to be the primary beneficiary if substantially all the activities of the entity are performed
on behalf of the Company.
The Company determines whether it is the primary beneficiary of a VIE at the time it becomes initially involved with
the VIE and reconsiders that conclusion as required. Investments and redemptions (either by the Company, related
parties or third parties) or amendments to the governing documents of the respective entity may affect an entity’s
status as a VIE or the determination of the primary beneficiary.
Entities that do not qualify as VIEs are assessed for consolidation as voting interest entities ("VOEs") under the
voting interest model. The Company evaluates whether the entity should be evaluated under the guidance for
partnerships and similar entities, or corporations, and consolidates those entities it controls through a majority voting
interest or other means. If the Company is the general partner or managing member it generally will not be required
to consolidate a VOE.
The Company records noncontrolling interests in consolidated entities for which the Company’s ownership is less
than 100%. Refer to Noncontrolling Interests below for additional information.
Investments in Partnerships and Affiliates
The Company is general partner or co-general partner of various affiliated entities. We also have investments in
unaffiliated partnerships, offshore funds and other entities (collectively, “unaffiliated entities”). Given that we are not
a general partner or investment manager in any unaffiliated entity, we neither earn any management or incentive fees
nor have a controlling financial interest in such entity. We do not consolidate any unaffiliated entity.
34
The balance sheet caption investments in partnerships includes investments in both affiliated and unaffiliated entities.
The Company accounts for its investments in partnerships and affiliates under the equity method. Substantially all of
the Company’s equity method investees are entities that record their underlying investments at fair value and included
in investments in partnerships. Therefore, under the equity method of accounting, the Company’s share of the
investee’s underlying net income predominantly represents fair value adjustments in the investments held by the equity
method investees. The Company’s share of the investee’s underlying net income or loss is based upon the most
currently available information and is recorded as net gain/(loss) from investments on the consolidated statements of
income. Capital contributions are recorded as an increase in investments when paid, and withdrawals and distributions
are recorded as reductions of the investments when received. Depending on the terms of the investment, the Company
may be restricted as to the timing and amounts of withdrawals.
Derivative Financial Instruments
The Company recognizes all derivatives as either assets or liabilities measured at fair value and includes such
derivatives in either investment in securities or securities sold, not yet purchased on the consolidated statements of
financial condition. From time to time, the Company will enter into hedging transactions to manage its exposure to
foreign currencies or equity prices related to its proprietary investments. Except for a foreign exchange contract
entered into by the Company, these transactions are not designated as hedges for accounting purposes, and changes in
fair values of these derivatives are included in net gain/(loss) from investments on the consolidated statements of
income. See Note D, Investments in Securities, for additional information.
Major Revenue-Generating Services and Revenue Recognition
The Company’s revenues are derived primarily from investment advisory and incentive fees and institutional research
services.
Investment advisory and incentive fees are directly influenced by the level and mix of AUM as fees are derived from
a contractually-determined percentage of the balance of each account as well as a percentage of the investment
performance of certain accounts. Management fees from investment partnerships and offshore funds are computed
either monthly or quarterly, and amounts receivable are included in investment advisory fees receivable on the
consolidated statements of financial condition. These revenues vary depending upon the level of capital flows, financial
market conditions, investment performance and the fee rates applicable to each account.
Incentive allocations or fees are generally recognized at the end of an annual measurement period and amounts
receivable are included in investment advisory fees receivable on the consolidated statements of financial condition.
G.research, LLC provides institutional research services and earns brokerage commissions and sales manager fees
from securities transactions executed on an agency basis on behalf of institutional clients and mutual funds, private
wealth management clients and retail customers of affiliated companies. Commission revenue and related clearing
charges are recorded on a trade-date basis and are included in institutional research services and other operating
expenses, respectively, on the consolidated statements of income.
It has also been involved in syndicated underwriting activities that included public equity and debt offerings managed
by major investment banks. Underwriting fees include gains, losses, selling concessions and fees, net of syndicate
expenses, arising from securities offerings in which G.research acts as underwriter or agent and are accrued as earned.
See Note C, Revenue, for additional information.
Depreciation
Fixed assets are recorded at cost and depreciated using the straight-line method over their estimated useful lives of
four to thirty-nine years. As of December 31, 2019 and 2018, fixed assets with a net book value of $6.6 million and
$84,000, respectively, are included in other assets on the consolidated statements of financial condition.
35
Allocated Expenses
The Company is charged or incurs certain overhead expenses that are paid by, or paid on our behalf by, other affiliates
and are included in other operating expenses on the consolidated statements of income. These overhead expenses
primarily relate to centralized functions including finance and accounting, legal, compliance, treasury, tax, internal
audit, information technology, human resources and risk management. These overhead expenses are allocated to the
Company by other affiliates or allocated by the Company to other affiliates as the expenses are incurred, based upon
direct usage when identifiable, or by revenue, headcount, space or other allocation methodologies periodically
reviewed by the management of the Company and the affiliates.
In addition, GCIA and GAMCO serve as paymasters under compensation payment sharing agreements. The
compensation expense and related payroll taxes and benefits of certain dual employees that provide services to both
AC and affiliates that are paid for by GCIA or GAMCO are allocated between the companies based upon the relative
time each employee devotes to each affiliate. These allocated compensation expenses are included in compensation
on the consolidated statements of income.
All of the allocations and estimates in the financial statements are based on assumptions that management of AC
believes are reasonable. However, these allocations may not be indicative of the actual expenses we would have
incurred or may incur in the future.
Management Fee
Management fee expense in the amount of 10% of the aggregate pre-tax profits, before consideration of this fee and
before consideration of the income attributable to consolidated funds and partnerships, is paid to the Executive
Chairman or his designees in accordance with his employment agreement.
Stock-Based Compensation
During 2018, the Company’s Board of Directors approved the grant of Phantom Restricted Stock awards (“Phantom
RSAs”). The Phantom RSAs will be settled by a cash payment, net of applicable withholding tax, on the vesting dates.
In addition, an amount equivalent to the cumulative dividends declared on shares of the Company’s Class A common
stock during the vesting period will be paid to participants on vesting.
The Phantom RSAs are accounted for as a liability because cash settlement is required and compensation will be
recognized over the vesting period. In determining the compensation expense to be recognized each period, the
Company will remeasure the fair value of the liability at each reporting date taking into account the remaining vesting
period attributable to each award and the current market value of the Company’s Class A stock. In making these
determinations, the Company will consider the impact of Phantom RSAs that have been forfeited prior to vesting (e.g.,
due to an employee termination). The Company has elected to consider forfeitures as they occur.
The expense attributable to the Phantom RSAs is allocated solely to AC.
Goodwill
Goodwill is initially measured as the excess of the cost of an acquired business over the sum of the fair value assigned
to assets acquired less the liabilities assumed. Goodwill is tested for impairment at least annually on November 30th
and whenever certain triggering events are met. In assessing the recoverability of goodwill as of November 30, 2019
and 2018, we performed a qualitative assessment of whether it was more likely than not that an impairment had
occurred and concluded that a quantitative analysis was not required. As such, no impairment was recorded during
2019 or 2018.
Income Taxes
For purposes of the preparation of the consolidated financial statements, the provision for income taxes is computed
using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected
36
future tax consequences of events that have been included in the consolidated financial statements. Under this method,
deferred tax assets and liabilities are determined based on the differences between the financial statement and tax basis
of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse.
The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income tax expense/benefit in
the period that includes the enactment date of the change in tax rate.
The Company records net deferred tax assets to the extent the Company believes these assets will more likely than
not be realized. A valuation allowance would be recorded to reduce the carrying value of deferred tax assets to the
amount that is more likely than not to be realized. In making such a determination of whether a valuation allowance
is necessary, the Company considers all available positive and negative evidence, including future reversals of existing
taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent
operations. In the event the Company were to determine that the Company would be able to realize the Company’s
deferred income tax assets in the future in excess of their net recorded amount, the Company would make an
adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes.
For uncertain tax positions the Company first determines whether it is more likely than not that the tax positions will
be sustained based on the technical merits of the position. For those tax positions that meet the more-likely-than-not
recognition threshold, the Company recognizes the largest amount of tax benefit that is greater than 50% likely to be
realized upon ultimate settlement with the related tax authority. The Company recognizes the accrual of interest on
uncertain tax positions and penalties in income tax provision on the consolidated statements of income. Accrued
interest and penalties on uncertain tax positions are included within accrued expenses and other liabilities on the
consolidated statements of financial condition.
Noncontrolling Interests
Noncontrolling interests in investment partnerships that are redeemable at the option of the holder are classified as
redeemable noncontrolling interests in the mezzanine section of the consolidated statements of financial condition
between liabilities and equity. Noncontrolling interests in other entities that are not redeemable at the option of the
holder are classified as such as a separate component of shareholder’s equity.
For the years ended December 31, 2019 and 2018, net income/(loss) attributable to noncontrolling interests on the
consolidated statements of income represents the share of net income/(loss) attributable to third-party investors in
consolidated funds.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash
and cash equivalents and receivable from brokers. The Company maintains cash and cash equivalents primarily in the
Gabelli U.S. Treasury Money Market Fund, which invests fully in instruments issued by the U.S. government.
Receivables from brokers and financial institutions can exceed the federally insured limit. The concentration of credit
risk with respect to advisory fees and incentive fees/allocation, which are included in investment advisory fees
receivable and receivables from affiliates on the consolidated statements of financial condition, is generally limited
due to the short payment terms extended to clients by the Company. All investments in securities are held at third
party brokers or custodians.
Business Segment
The Company operates in one business segment. The Company’s chief operating decision maker reviews the
Company’s financial performance at an aggregate level.
Recent Accounting Developments
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which amends the guidance in GAAP for the
accounting for leases. ASU 2016-02 requires a lessee to recognize assets and liabilities arising from most operating
37
leases in the consolidated statement of financial position. The Company adopted this ASU effective January 1, 2019
with no material impact on its consolidated financial statements.
In June 2016, the FASB issued ASU 2016-13, Accounting for Financial Instruments - Credit Losses (Topic 326) (“ASU
2016-13”), which requires an organization to measure all expected credit losses for financial assets held at the reporting date
based on historical experience, current conditions, and reasonable and supportable forecasts. Currently, U.S. GAAP requires
an “incurred loss” methodology that delays recognition until it is probable a loss has been incurred. Under ASU 2016-13,
the allowance for credit losses must be deducted from the amortized cost of the financial asset to present the net amount
expected to be collected. The Statement of Income will reflect the measurement of credit losses for newly recognized
financial assets as well as the expected increases or decreases of expected credit losses that have taken place during the
period. In November 2019, the FASB issued ASU 2019-10, which deferred the effective date of this guidance for smaller
reporting companies for three years. This guidance is effective for the Company on January 1, 2023 and requires a modified
retrospective transition method, which will result in a cumulative-effect adjustment in retained earnings upon adoption.
Early adoption is permitted. The Company is currently assessing the potential impact of this new guidance on the
Company’s consolidated financial statements.
In January 2017, the FASB issued ASU 2017-04, Intangibles – Goodwill and Other, to simplify the process used to
test for impairment of goodwill. Under the new standard, an impairment loss must be recognized in an amount equal
to the excess of the carrying amount of a reporting unit over its fair value, limited to the total amount of goodwill
allocated to that reporting unit. As a smaller reporting company pursuant to ASU 2019-10, the ASU is effective for
the Company on January 1, 2023. This guidance will be effective for the Company on January 1, 2023 using a
prospective transition method and early adoption is permitted. The Company is currently evaluating the potential
effect of this new guidance on the Company’s consolidated financial statements.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework –
Changes to the Disclosure Requirements for Fair Value Measurement. This ASU adds certain disclosure requirements
and modifies or eliminates requirements under current GAAP. This ASU is effective for fiscal years beginning after
December 15, 2019 and early adoption is permitted. The Company has early adopted the eliminated and modified
disclosure requirements effective January 1, 2019.
C. Revenue
The Company’s revenue is accounted for as contracts with customers, and the timing of revenue recognition is based
on the Company’s analysis of the provisions of each respective contract. Depending upon the specific terms, revenue
may be recognized over time or at a point in time. Modifications to contracts may affect the timing of the satisfaction
of performance obligations, the determination of the transaction price, and the allocation of the price to performance
obligations, any of which may impact the timing of the recognition of the related revenue.
The Company’s major revenue sources are as follows:
Investment advisory and incentive fees. The Company and its subsidiaries act as general partner, investment manager
or sub-advisor to investment funds and/or separately managed accounts of institutional investors (e.g., corporate
pension plans). The fees that are paid to the Company are set forth in the offering documents for the investment fund
or the separately managed account agreement. Investment advisory and incentive fee revenue consists of:
a) Asset-based advisory fees – The Company receives a management fee, payable monthly in advance based
on value of the net assets of the client. It is generally set at a rate of 1%-1.5% per annum. Asset-based
management fee revenue is recognized only as the services are performed over the period.
b) Performance-based advisory fees – Certain client contracts call for additional fees and or allocations of
income tied to a certain percentage, generally 20%, of the investment performance of the account over a
measurement period, typically the calendar year. In addition, the contracts provide that performance-based
fees or allocations become fixed in the event of an investor redemption prior to the end of the measurement
period. In the event that an account suffers a loss in one period, it must be recovered before incentive fees
are earned by the Company; this is commonly referred to as a “high water mark” provision. While the
Company’s performance obligation is satisfied over time, the Company does not recognize performance-
38
based fees until the end of the measurement period or the time of the investor redemption when the
uncertainty surrounding the amount of the variable consideration is resolved.
c) Sub-advisory fees – Pursuant to agreements with other investment advisors, the Company receives a
percentage of advisory fees received by such advisors from certain of their investment fund clients. These
fees may be either asset- or performance-based. In addition, they may be subject to reduction by certain
expenses as set forth in the respective agreements. Sub-advisory fee revenue which is asset-based is
recognized ratably as the services are performed over the relevant contractual performance period. Sub-
advisory fee revenue which is performance-based is recognized only when it becomes fixed and not subject
to adjustment.
The Company reserves the right to waive or reduce asset-based and performance-based fees with respect to certain
investors in the investment funds which may include investments by employees and other related parties. Advisory
and incentive fees payable by investment funds are typically approved by third-party administrators and paid directly
from the accounts’ assets. Such fees attributable to separate accounts may be subject to review and approval by the
client and may be paid either from the accounts’ assets or directly by the client.
Our advisory fee revenues are influenced by both the amount of AUM and the investment performance of our products.
An overall decline in the prices of securities may cause our advisory fees to decline by either causing the value of our
AUM to decrease or causing our clients to withdraw funds in favor of investments they perceive to offer greater
opportunity or lower risk. Similarly, success in the investment management business is dependent on investment
performance as well as distribution and client servicing. Good performance can stimulate sales of our investment
products and tends to keep withdrawals and redemptions low, which generates higher asset-based management fees.
Conversely, poor performance, both in absolute terms and/or relative to peers and industry benchmarks, tends to result
in decreased sales, increased withdrawals and redemptions and in the loss of clients, with corresponding decreases in
revenues to us.
Institutional Research Services. The Company, through G.research, generates institutional research services revenues
via hard dollar payments or through commissions on securities transactions executed on an agency basis on behalf of
clients. Clients include institutional investors (e.g., hedge funds and asset managers) as well as affiliated mutual funds
and managed accounts. These revenues consist of:
a) Brokerage Commissions – Acting as agent, G.research buys and sells securities on behalf of its
customers. Commissions are charged on the execution of securities transactions made on behalf of
client accounts on an agency basis and are based on a rate schedule. G.research recognizes
commission revenue when the related securities transactions are executed on trade date. G.research
believes that the performance obligation is satisfied on trade date because that is when the
underlying financial instrument or purchaser is identified, the pricing is agreed upon and the risks
and rewards of ownership have been transferred to or from the customer. Commissions earned are
typically collected from the clearing brokers utilized by G.research on a daily or weekly basis.
b) Hard dollar payments – G.research provides research services to unrelated parties, for which direct
payment is received. G.research may, or may not have contracts for such services. Where a contract
for such services is in place, the contractual fee for the period is recognized ratably over the contract
period, which is considered the period over which G.research satisfies its performance obligation.
For payments where no research contract exists, revenue is not recognized until agreement is
reached with the client at which time the performance obligation is considered to have been met and
revenue is recognized.
c) Selling concessions – The Company participates as a member of the selling group of underwritten
equity offerings and receives compensation based on the difference between what its clients pay for
the securities sold to its institutional clients and what the issuer receives. The terms of the selling
concessions are set forth in contracts between the Company and the underwriter. Revenue is
recognized on the trade date (the date on which the Company purchases the securities from the
issuer) for the portion the Company is contracted to buy. The Company believes that the trade date
is the appropriate point in time to recognize revenue for securities underwriting transactions as there
39
are no significant actions the Company needs to take subsequent to this date, and the issuer obtains
the control and benefit of the capital markets offering at this point. Selling concessions earned are
typically collected from the clearing brokers utilized by the Company on a daily or weekly basis.
d) Sales manager fees – The Company participates as sales manager of at-the-market offerings of
certain affiliated closed-end funds and receives a tiered percentage of proceeds as stipulated in
agreements between the Company, the funds and the funds’ investment adviser. The Company
recognizes sales manager fees upon sale of the related closed-end funds. Sales manager fees earned
are fixed and typically collected from the clearing brokers utilized by G.research on a daily or
weekly basis.
Institutional research revenues are impacted by the perceived value of the research product provided to clients, the
volume of securities transactions and the acquisition or loss of new client relationships.
Other. Other revenues include (a) underwriting fees representing gains, losses, and fees, net of syndicate expenses,
arising from public equity and debt offerings in which G.research acts as underwriter or agent and are accrued as
earned, and (b) other miscellaneous revenues.
Total revenues by type were as follows for the years ended December 31, 2019 and 2018 (in thousands):
Revenues
Investment advisory and incentive fees
Asset-based advisory fees
Performance-based advisory fees
Sub-advisory fees
Year Ended December 31,
2019
2018
$
7,022
7,501
7,625
22,148
$
7,384
3,115
3,910
14,409
Institutional research services
Hard dollar payments
Commissions
Selling concessions
Sales manager fees
Other
Underwriting fees
Miscellaneous
1,975
5,904
335
733
8,947
96
74
170
2,835
5,349
84
16
8,284
19
67
86
Total
$
31,265
$
22,779
D. Investments in Securities
40
Investments in securities at December 31, 2019 and 2018 consisted of the following (in thousands):
Debt - Trading Securities:
Government obligations
Equity Securities:
Common stocks
Mutual funds
Other investments
Total investments in securities
2019
2018
Cost
Fair Value
Cost
Fair Value
$
28,428
$
29,037
$
11,694
$
11,707
271,627
1,207
7,847
309,109
262,053
2,196
7,071
300,357
244,557
761
5,285
262,297
213,151
1,161
3,941
229,960
Securities sold, not yet purchased at December 31, 2019 and 2018 consisted of the following (in thousands):
2019
2018
Proceeds
Fair Value
Proceeds
Fair Value
Equity securities:
Common stocks
Other investments
Total securities sold, not yet purchased
$
$
13,863
13
13,876
$
$
16,300
119
16,419
$
$
10,150
-
10,150
$
$
9,485
89
9,574
Investments in affiliated registered investment companies at December 31, 2019 and 2018 consisted of the following
(in thousands):
Equity securities:
Closed-end funds
Mutual funds
Total investments in affiliated
registered investment companies
2019
2018
Cost
Fair Value
Cost
Fair Value
$
75,646
48,348
$
99,834
59,477
$
73,950
49,714
$
85,090
57,045
$
123,994
$
159,311
$
123,664
$
142,135
The Company recognizes all equity derivatives as either assets or liabilities measured at fair value and includes them
in either investment in securities or securities sold, not yet purchased on the consolidated statements of financial
condition. From time to time, the Company and/or consolidated funds will enter into hedging transactions to manage
their exposure to foreign currencies and equity prices related to their proprietary investments. At December 31, 2019
and December 31, 2018 we held derivative contracts on 3.4 million and 1.0 million equity shares, respectively, that are
included in investments in securities or securities sold, not yet purchased on the consolidated statements of financial
condition as shown in the table below. We had two foreign exchange contracts outstanding at December 31, 2019 and
one at December 31, 2018. Except for the foreign exchange contracts entered into by the Company, these transactions
are not designated as hedges for accounting purposes, and changes in fair values of these derivatives are included in
net gain/(loss) from investments on the consolidated statements of income and included in investments in securities,
securities sold, not yet purchased, or receivable from or payable to brokers on the consolidated statements of financial
condition.
41
The following table identifies the fair values of all derivatives and foreign currency positions held by the Company
(in thousands):
Asset Derivatives
Liability Derivatives
Statement of
Financial Condition
Location
Fair Value
December 31,
2019
December 31,
2018
Statement of
Financial Condition
Location
Fair Value
December 31,
2019
December 31,
2018
Derivatives designated as hedging
instruments under FASB ASC 815-20
Foreign exchange contracts
Receivable from brokers
$
23
$
204
Payable to brokers
$
-
$
-
Derivatives not designated as hedging
instruments under FASB ASC 815-20
Equity contracts
Total
Investments in
securities
$
291
$
464
Securities sold,
not yet purchased
$
119
$
89
$
314
$
668
$
119
$
89
The following table identifies gains and losses of all derivatives and foreign currency positions held by the Company
(in thousands):
Type of Derivative
Income Statement Location
2019
2018
Year ended December 31,
Foreign exchange contracts
Equity contracts
Net gain/(loss) from investments
Net gain/(loss) from investments
$
128
(1,951)
$
204
4,774
Total
$
(1,823)
$
4,978
The Company is a party to enforceable master netting arrangements for swaps entered into with major U.S. financial
institutions as part of its investment strategy. They are typically not used as hedging instruments. These swaps, while
settled on a net basis with the counterparties, are shown gross in assets and liabilities on the consolidated statements
of financial condition. The swaps have a firm contract end date and are closed out and settled when each contract
expires.
Gross Amounts Not Offset in the
Statements of Financial Condition
Gross
Amounts of
Recognized
Assets
Gross Amounts
Offset in the
Statements of
Financial Condition
Net Amounts of
Assets Presented
in the Statements of
Financial Condition
Financial
Instruments
Cash Collateral
Received
Net Amount
Swaps:
December 31, 2019
December 31, 2018
$
$
291
416
$
-
$
-
(In thousands)
291
416
$
$
$
$
(119)
(89)
$
-
$
-
$
$
172
327
Gross
Amounts of
Recognized
Liabilities
Gross Amounts
Offset in the
Statements of
Financial Condition
Net Amounts of
Liabilities Presented
in the Statements of
Financial Condition
Financial
Instruments
Cash Collateral
Pledged
Net Amount
Gross Amounts Not Offset in the
Statements of Financial Condition
Swaps:
December 31, 2019
December 31, 2018
$
$
119
89
$
-
$
-
(In thousands)
119
89
$
$
$
$
(119)
(89)
$
-
$
-
$
-
$
-
42
E. Investment Partnerships and Variable Interest Entities
The Company is general partner or co-general partner of various affiliated entities in which the Company had
investments totaling $124.8 million and $100.1 million at December 31, 2019 and 2018, respectively, and whose
underlying assets consist primarily of marketable securities (“Affiliated Entities”). We also had investments in
unaffiliated partnerships, offshore funds and other entities of $20.5 million and $18.6 million at December 31, 2019
and 2018, respectively (“Unaffiliated Entities”). We evaluate each entity to determine its appropriate accounting
treatment and disclosure. Certain of the Affiliated Entities, and none of the Unaffiliated Entities, are consolidated.
The value of entities where consolidation is not deemed appropriate consist of equity method investments which are
included in investments in partnerships on consolidated statements of financial condition. This caption includes
investments in Affiliated Entities and Unaffiliated Entities which the Company accounts for under the equity method
of accounting. The Company reflects the equity in earnings of these Affiliated Entities and Unaffiliated Entities as net
gain/(loss) from investments on the consolidated statements of income.
The following table reflects the net impact of the consolidated entities on the consolidated statements of financial
condition in thousands):
43
Assets
Cash and cash equivalents
Investments in securities (including GBL stock)
Investments in affiliated investment companies
Investments in partnerships
Receivable from brokers
Investment advisory fees receivable
Other assets
Total assets
Liabilities and equity
Securities sold, not yet purchased
Accrued expenses and other liabilities
Redeemable noncontrolling interests
Total equity
Total liabilities and equity
Assets
Cash and cash equivalents
Investments in securities (including GBL stock)
Investments in affiliated investment companies
Investments in partnerships
Receivable from brokers
Investment advisory fees receivable
Other assets
Total assets
Liabilities and equity
Securities sold, not yet purchased
Accrued expenses and other liabilities
Redeemable noncontrolling interests
Total equity
Total liabilities and equity
Prior to
Consolidation
December 31, 2019
Consolidated
Entities
As Reported
$
$
$
$
$
$
$
$
$
$
$
$
Prior to
Consolidation
December 31, 2018
Consolidated
Entities
As Reported
$
$
$
13,167
117,684
(51,713)
(22,409)
16,391
(22)
29
73,127
11,794
10,949
50,384
-
73,127
13,490
98,196
(50,871)
(19,390)
16,631
(33)
471
58,494
4,943
3,751
49,800
-
58,494
348,588
300,357
159,311
145,372
24,150
9,582
23,546
1,010,906
16,419
46,667
50,385
897,435
1,010,906
409,564
229,960
142,135
118,729
24,629
4,394
25,022
954,433
9,574
28,811
49,800
866,248
954,433
$
$
$
$
$
$
$
$
$
335,421
182,673
211,024
167,781
7,759
9,604
23,517
937,779
4,625
35,718
1
897,435
937,779
396,074
131,764
193,006
138,119
7,998
4,427
24,551
895,939
4,631
25,060
-
866,248
895,939
44
The following table reflects the net impact of the consolidated entities on the consolidated statements of income (in
thousands):
Total revenues
Total expenses
Operating loss
Total other income/(expense), net
Income/(loss) before income taxes
Income tax benefit
Net income/(loss) before NCI
Net income attributable to noncontrolling interests
Net loss
Total revenues
Total expenses
Operating loss
Total other income, net
Income/(loss) before income taxes
Income tax benefit
Net income/(loss) before NCI
Net loss attributable to noncontrolling interests
Net income
Variable Interest Entities
Year Ended December 31, 2019
Consolidated
Entities
As Reported
$
Prior to
Consolidation
32,821
$
45,698
(12,877)
64,267
51,390
12,126
39,264
76
39,188
$
Prior to
Consolidation
22,855
$
34,413
(11,558)
(58,019)
(69,577)
(11,478)
(58,099)
-
(58,099)
$
$
(1,556)
1,325
(2,881)
6,399
3,518
-
3,518
3,518
$
-
(76)
1,846
(1,922)
2,638
716
-
716
716
$
-
31,265
47,023
(15,758)
70,666
54,908
12,126
42,782
3,594
39,188
22,779
36,259
(13,480)
(55,381)
(68,861)
(11,478)
(57,383)
716
(58,099)
$
$
Year Ended December 31, 2018
Consolidated
Entities
$
As Reported
$
With respect to each consolidated VIE, its assets may only be used to satisfy its obligations. The investors and creditors
of any consolidated VIE have no recourse to the Company’s general assets. In addition, the Company neither benefits
from such VIE’s assets nor bears the related risk beyond its beneficial interest in the VIE.
45
The following table presents the balances related to VIEs that are consolidated and included on the consolidated
statements of financial condition as well as the Company’s net interest in these VIEs (in thousands):
Cash and cash equivalents
Investments in securities
Receivable from broker
Investments in partnerships and affiliates
Accrued expenses and other liabilities
Redeemable noncontrolling interests
AC's net interests in consolidated VIEs
Equity Method Investments
December 31,
2019
$
December 31,
2018
$
2,224
18,454
2,601
8,363
(329)
(9,592)
21,721
2,560
7,253
553
-
(42)
(419)
9,905
$
$
The Company’s equity method investments include investments in partnerships and offshore funds. These equity
method investments are not consolidated but on an aggregate basis exceed 10% of the Company’s consolidated total
assets or income.
The summarized financial information of the Company’s equity method investments as of and for the years ended
December 31, 2019 and 2018 are as follows (in millions):
Total assets
Total liabilities
Total equity
December 31,
2019
December 31,
2018
$
1,607
246
1,361
$
1,549
260
1,289
For the year
2019
2018
Net income/(loss)
43
(12)
Capital may generally be redeemed from Affiliated Entities on a monthly basis upon adequate notice as determined
in the sole discretion of each entity’s investment manager. Capital invested in Unaffiliated Entities may generally be
redeemed at various intervals ranging from monthly to annually upon notice of 30 to 95 days. Certain Unaffiliated
Entities may require a minimum investment period before capital can be voluntarily redeemed (a “Lockup Period”).
No investment in an Unaffiliated Entity has an unexpired Lockup Period. The Company has no outstanding capital
commitments to any Affiliated or Unaffiliated Entity.
F. Fair Value
The following tables present information about the Company’s assets and liabilities by major category measured at
fair value on a recurring basis as of December 31, 2019 and 2018 and indicate the fair value hierarchy of the valuation
techniques utilized by the Company to determine such fair value.
46
The following tables present assets and liabilities measured at fair value on a recurring basis as of the dates
specified (in thousands):
Assets
Quoted Prices in Active
Markets for Identical
Assets (Level 1)
$
343,428
Cash equivalents
Investments in securities (including GBL stock):
Trading - Gov't obligations
Common stocks
Mutual funds
Other
Total investments in securities
Investments in affiliated registered investment companies:
Closed-end funds
Mutual funds
Total investments in affiliated
registered investment companies
Total investments held at fair value
Total assets at fair value
Liabilities
$
Common stocks
Other
Securities sold, not yet purchased
$
$
159,311
450,492
793,920
16,300
-
16,300
December 31, 2019
Significant Other
Observable
Inputs (Level 2)
$
-
Significant
Unobservable
Inputs (Level 3)
$
-
Total
$
343,428
29,037
257,520
2,196
2,428
291,181
99,834
59,477
-
4,444
-
509
4,953
-
-
-
89
-
4,134
4,223
-
-
29,037
262,053
2,196
7,071
300,357
99,834
59,477
-
4,953
4,953
$
-
4,223
4,223
$
159,311
459,668
803,096
$
$
-
119
119
$
$
-
-
$
-
$
$
16,300
119
16,419
December 31, 2018
Significant Other
Observable
Inputs (Level 2)
$
-
Significant
Unobservable
Inputs (Level 3)
$
-
Total
$
407,239
Assets
Quoted Prices in Active
Markets for Identical
Assets (Level 1)
$
407,239
Cash equivalents
Investments in securities (including GBL stock):
Gov't obligations
Common stocks
Mutual funds
Other
Total investments in securities
Investments in affiliated registered investment companies:
Closed-end funds
Mutual funds
Total investments in affiliated
registered investment companies
Total investments held at fair value
Total assets at fair value
Liabilities
$
Common stocks
Other
Securities sold, not yet purchased
$
$
11,707
205,978
1,161
19
218,865
85,090
57,045
-
7,161
-
464
7,625
-
-
-
12
-
3,458
3,470
-
-
11,707
213,151
1,161
3,941
229,960
85,090
57,045
142,135
361,000
768,239
9,485
-
9,485
-
7,625
7,625
$
-
3,470
3,470
$
142,135
372,095
779,334
$
-
$
89
89
$
-
$
-
$
-
$
$
9,485
89
9,574
47
The following table presents additional information about assets by major category measured at fair value on a
recurring basis and for which the Company has utilized Level 3 inputs to determine fair value:
Year ended December 31, 2019
Year ended December 31, 2018
Common
S tocks
Other
Total
Common
S tocks
Other
Total
(1)
$
$
$
$
$
618
-
14
-
-
12
$
-
3,470
-
687
3
3,458
-
673
3
Beginning balance
Consolidated funds
Total gains/(losses)
Purchases
Sales
Transfers
Ending balance
Changes in net unrealized
gain/(loss) included in Net
gain/(loss) from
investments related to
Level 3 assets still held as
of the reporting date
Total realized and unrealized gains and losses for level 3 assets are reported in net gain/(loss) from investments in the
consolidated statements of income.
1,787
984
(3,490)
4,773
(32)
(552)
3,470
1,169
984
(3,489)
4,773
(32)
53
3,458
-
-
(605)
12
-
-
4,134
63
4,223
$
$
$
$
$
$
(3,504)
(3,505)
$
$
$
$
63
89
$
$
665
673
(1)
(8)
-
During the years ended December 31, 2019 and 2018, the Company transferred investments with a value of
approximately $63,000 and $53,000, respectively, from Level 1 to Level 3 due to the unavailability of observable
inputs. For the year ended December 31, 2018, the Company transferred an investment with a value of approximately
$605,000 from Level 3 to Level 1 due to increased availability of market price quotations.
G. Income Taxes
The provision for income taxes for the years ended December 31, 2019 and 2018 consisted of the following (in
thousands):
Federal:
Current
Deferred
State and local:
Current
Deferred
Total
2019
2018
$
4,294
6,680
$
1,223
(11,631)
472
680
12,126
$
124
(1,194)
(11,478)
$
48
A reconciliation of the federal statutory rate to the effective tax rate for the years ended December 31, 2019 and 2018
is set forth below:
Statutory Federal income tax rate
State income tax, net of Federal benefit
Dividends received deduction
Donation of appreciated securities
Deferred tax asset valuation allowance
Nondeductible capital losses
Accelerated vesting of restricted stock awards
Noncontrolling interests
Other
Effective income tax rate
2019
21.0%
1.7
(0.5)
-
1.0
-
-
(1.7)
0.2
21.7%
2018
21.0%
1.3
0.4
-
(1.0)
(4.5)
-
-
(0.5)
16.7%
Significant components of our deferred tax assets and liabilities as of December 31, 2019 and 2018 are as follows (in
thousands):
Deferred tax assets:
Stock-based compensation expense
Investments in securities and partnerships
Deferred compensation
Shareholder-designated contribution carryover (a)
Other
Deferred tax liabilities:
Investments in securities and partnerships
Other liabilities
Net deferred tax assets/(liabilities)
2019
2018
$
470
-
499
1,446
-
2,415
$
139
5,100
2,392
1,898
90
9,619
(27)
(384)
(411)
2,004
$
-
(197)
(197)
9,422
$
(a) Net of valuation allowance of $1,385 and $719 for 2019 and 2018, respectively
A reconciliation of the beginning and ending amount of gross unrecognized tax benefits related to uncertain tax
positions is as follows (in thousands):
Balance at January 1, 2018
Reductions for tax positions of prior years
Balance at December 31, 2018
Reductions for tax positions of prior years
Balance at December 31, 2019
$
11
(5)
6
$
(6)
$
-
The Company records penalties and interest related to tax uncertainties in income taxes. As of December 31, 2018 the
Company had gross unrecognized tax benefits of $5,688 of which $4,494 if recognized, would impact the Company’s
effective tax rate. The Company has accrued liabilities of $3,071 as of December 31, 2018 for interest and penalties.
These amounts are included in accrued expenses and other liabilities on the consolidated statements of financial
condition.
49
The Company remains subject to income tax examination by the IRS for the years 2017 and 2018 and state
examinations for years after 2011.
H. Earnings per Share
Basic earnings per share is computed by dividing net income/(loss) attributable to our shareholders by the weighted
average number of shares outstanding during the period. Diluted earnings per share is computed by dividing net
income/(loss) attributable to our shareholders by the weighted average number of shares outstanding during the period.
The computations of basic and diluted net income/(loss) per share are as follows (in thousands, except per share data):
Basic:
Net income/(loss) attributable to Associated Capital Group, Inc.'s shareholders
Weighted average shares outstanding
Basic net income/(loss) attributable to Associated Capital Group, Inc.'s
shareholders per share
For the Years Ending December 31,
2019
2018
$
39,188
22,534
$
(58,099)
23,070
$
1.74
$
(2.52)
Diluted:
Net income/(loss) attributable to Associated Capital Group, Inc.'s shareholders
$
39,188
$
(58,099)
Weighted average share outstanding
Dilutive restricted stock awards
Total
Diluted net income/(loss) attributable to Associated Capital Group, Inc.'s
shareholders per share
22,534
-
22,534
23,070
-
23,070
$
1.74
$
(2.52)
I. Related Party Transactions
The following is a summary of certain related party transactions.
GGCP, Inc., a private company controlled by the Executive Chairman, indirectly owns a majority of our Class B stock,
representing approximately 95% of the combined voting power and 82% of the outstanding shares of our common
stock at December 31, 2019.
Loans with related parties
On April 23, 2019, the Company issued a promissory note for $2.1 million to our Executive Chairman. The
promissory note was re-paid with interest at 1% per annum on May 28, 2019.
AC received principal repayments on the GAMCO Note totaling $50 million in each of the years ended December 31,
2018 and 2017. The GAMCO Note was fully paid in 2018. Interest income of $0.8 million paid on the GAMCO Note
is included in interest and dividend income on the consolidated statements of income for the years ended December
31, 2018. See Note A, Organization.
On December 26, 2017, GAMCO issued a promissory note to the Company for $15 million. The note principal and
related interest of $40,000 were paid on February 28, 2018.
Investments in Securities
In August 2006, a son of the Executive Chairman was given responsibility for managing one proprietary investment
account. The balance in the proprietary investment account at December 31, 2019 and 2018 was $26.3 million and
50
$18.2 million, respectively, of which $1.0 million and $0.1 million, respectively, is owed to the portfolio manager
representing earnings that have been re-invested in the account.
At December 31, 2019 and 2018, the value of the Company’s investment in GAMCO common stock was $57.2
million and $50.9 million, respectively. The Company recorded dividend income of $0.3 million and $0.3 million in
2019 and 2018, respectively from GAMCO which is included in interest and dividend income on the consolidated
statements of income. For the year, GBL stock price increased 15.4% to $19.49 per share, resulting in a $7.6
million mark-to-market gain for the Company versus a mark-to-market loss of $38 million in 2018.
At December 31, 2019 and 2018, the Company invested $336.7 million and $398.3 million, respectively, in the Gabelli
U.S. Treasury Money Market Fund, which is recorded in cash and cash equivalents on the consolidated statements of
financial condition. For the years ending December 31, 2019 and 2018, the Company earned interest of $7.8 million
and $5.5 million from their investments in this fund, respectively.
Investments in affiliated equity mutual funds advised by Gabelli Funds and Teton Advisors, Inc., an investment
advisor under common control with the Company, totaled $159.3 million and $142.4 million at December 31, 2019
and 2018, respectively and are included in either investments in affiliated registered investment companies on the
consolidated statements of financial condition. Included in other income/(expense) are $38.7 million and $21.4 million
of gains from investments and dividends with respect to funds advised by Gabelli Funds and Teton Advisors, Inc. for
the years ending December 31, 2019 and 2018, respectively.
Investments in Partnerships
We had an aggregate investment in affiliated Investment Partnerships of approximately $124.8 million and $100.1
million at December 31, 2019 and 2018, respectively. Affiliates of the Company, including its consolidated
subsidiaries, receive management fees and incentive fees and allocations of up to 20% with respect to certain of these
investments.
Investment Advisory Services
Pursuant to a sub-advisory agreement with the Company, Gabelli Funds pays GCIA 90% of the net revenues it receives
related to investment advisory services provided to GAMCO International SICAV – GAMCO Merger Arbitrage, an
investment company incorporated under the laws of Luxembourg (the “SICAV”). For this purpose, net revenues are
defined as gross advisory fees less expenses related to payouts and expenses of the SICAV paid by Gabelli Funds.
GCIA received $4.1 million and $3.9 million during 2019 and 2018, respectively under this sub-advisory agreement.
These payments are included in investment advisory and incentive fees on the consolidated statements of income.
Institutional Research Services
In 2019 and 2018, G.research earned $4.9 million and $3.8 million, respectively, or 76% and 62%, respectively, of its
commission revenue from transactions executed on behalf of Gabelli Funds and GAMCO Asset. These commissions
are included in institutional research services on the consolidated statements of income.
Pursuant to research services agreements, GAMCO Asset paid $0.8 million and $1.0 million and Gabelli Funds paid
$0.7 million and $1.0 million to G.research for the years ended December 31, 2019 and 2018, respectively. On
October 11, 2019, the parties agreed to terminate the research services agreement effective January 1, 2020. As
required by the Company’s Code of Ethics, staff members are required to maintain their brokerage accounts at
G.research unless they receive authorization to maintain an outside account. G.research offers our staff and the staffs
of other affiliated entities the opportunity to engage in brokerage transactions at discounted commission rates.
Accordingly, many of our staff members, including the executive officers or entities controlled by them, have
brokerage accounts at G.research and have engaged in securities transactions at discounted rates.
Compensation
In accordance with an employment agreement, the Company pays the Executive Chairman, or his designated
assignees, a management fee equal to 10% of the Company’s pretax profits before consideration of this fee and before
consolidation of Investment Partnerships. In 2019, the Company recorded management fee expense of $5.7 million;
51
there was no management fee expense in 2018. These fees are recorded as management fee on the consolidated
statements of income.
Affiliated Receivables/Payables
At December 31, 2019 and 2018, the receivable from affiliates consists primarily of sub-advisory fees due from
Gabelli Funds.
At December 31, 2019 and 2018, the payable to affiliates primarily consisted of expenses paid by affiliates on behalf
of the Company.
GAMCO Sublease
In June 2016, AC entered into a sublease agreement with GBL which is subject to annual renewal. Pursuant to the
sublease, AC and its subsidiaries pay a monthly fixed lease amount based on the percentage of square footage occupied
by its employees (including pro rata allocation of common space) at GBL’s corporate offices. For the years ended
December 31, 2019 and 2018, the Company paid $501,327 and $463,286 respectively, under the sublease agreement.
These amounts are included in other operating expenses on the consolidated statements of income.
J. Equity
Voting Rights
The holders of Class A Common stock (“Class A Stock”) and Class B Common stock (“Class B Stock”) have identical
rights except that holders of Class A Stock are entitled to one vote per share, while holders of Class B Stock are
entitled to ten votes per share on all matters to be voted on by shareholders in general. Holders of each share class,
however, are not eligible to vote on matters relating exclusively to the other share class.
Stock Award and Incentive Plan
The Company maintains one stock award and incentive plan (the “Plan”) approved by the shareholders on May 3,
2016, which is designed to provide incentives to attract and retain individuals key to the success of AC through direct
or indirect ownership of our common stock. Benefits under the Plan may be granted in any one or a combination of
stock options, stock appreciation rights, restricted stock, restricted stock units, stock awards, dividend equivalents and
other stock or cash-based awards. A maximum of 2 million shares of Class A Stock have been reserved for issuance
under the Plan by the Compensation Committee of the Board of Directors (the “Compensation Committee”) which is
responsible for administering the Plan. Under the Plan, the Compensation Committee may grant RSAs and either
incentive or nonqualified stock options with a term not to exceed ten years from the grant date and at an exercise price
that it may determine. Through December 31, 2019, approximately 700,000 shares have been awarded under the Plan
leaving approximately 1.3 million shares for future grants.
On November 30, 2015, in connection with the Spin-off, the Company issued 554,100 AC RSA shares to GAMCO
employees (including GAMCO employees who became AC employees) who held 554,100 GAMCO RSA shares at
that date. The purpose of the issuance was to ensure that any employee who had GAMCO RSAs were granted an equal
number of AC RSAs so that the total value of the RSAs post-spin-off was equivalent to the total value pre-spin-off.
In accordance with GAAP, we have allocated the stock compensation costs of both the AC RSAs and the GAMCO
RSAs between GAMCO and AC based upon the allocation of each employee’s responsibilities between the
companies. During 2017, the vesting of all of the outstanding AC RSAs and all but 19,400 GAMCO RSAs was
accelerated, and they are no longer outstanding. Similarly, the vesting of the GAMCO RSAs outstanding as of
December 31, 2017 was accelerated in the first quarter of 2018.
There were no RSAs outstanding as of December 31, 2019 or 2018.
In August and December 2018, the Company’s Board of Directors approved the grant of 172,800 shares of Phantom
Restricted Stock awards (“Phantom RSAs”). Under the terms of the grants, which were effective August 8 and
December 31 of 2018, the Phantom RSAs vest 30% and 70% after three and five years, respectively. The Phantom
RSAs will be settled by a cash payment, net of applicable withholding tax, on the vesting dates. In addition, an amount
52
equivalent to the cumulative dividends declared on shares of the Company’s Class A common stock during the vesting
period will be paid to participants on vesting.
Pursuant to ASC 718, the Phantom RSAs are treated as a liability because cash settlement is required and
compensation will be recognized over the vesting period. In determining the compensation expense to be recognized
each period, the Company will re-measure the fair value of the liability at each reporting date taking into account the
remaining vesting period attributable to each award and the current market value of the Company’s Class A stock. In
making these determinations, the Company will consider the impact of Phantom RSAs that have been forfeited prior
to vesting (e.g., due to an employee termination). The Company has elected to consider forfeitures as they occur.
Based on the closing price of the Company’s Class A Common Stock on December 31, 2019 and 2018, the total
liability recorded by the Company in compensation payable as of December 31, 2019 and 2018, with respect to the
Phantom RSAs was $2.0 million and $0.6 million, respectively.
For the years ended December 31, 2019 and 2018, the Company recorded approximately $1.4 million and $0.7 million
in stock-based compensation expense, respectively. This expense is included in compensation expense in the
consolidated statements of income.
As of December 31, 2019, there were 119,650 Phantom RSAs outstanding. The unrecognized compensation expense
related to these was $3.9 million which is expected to be recognized over a weighted-average period of 2 years. As
of December 31, 2018, there were 170,300 Phantom RSAs outstanding and $5.4 million unrecognized compensation
expense.
Stock Repurchase Program
In 2019, the Company repurchased 0.1 million shares at an average price of $37.62 per share for a total investment of
$4.1 million. In 2018, the Company repurchased 0.2 million shares at an average price of $37.52 per share for a total
investment of $7.0 million.
Exchange Offers
In February 2018, AC completed an exchange offer with respect to its Class A shares. Tendering shareholders received
1.35 GAMCO Class A shares for each AC Class A share, together with cash in lieu of any fractional share. Upon
completion of the offer, shareholders tendered 493,954 Class A shares in exchange for 666,805 GAMCO Class A
shares with a value of $17.7 million.
In October 2018, the Company completed an exchange offer with respect to its Class A shares. Tendering shareholders
received 1.9 GAMCO Class A shares for each AC Class A share, together with cash in lieu of any fractional share.
Upon completion of the offer, shareholders tendered 373,581 shares in exchange for 709,749 GAMCO shares with a
value of approximately $14.6 million.
Dividends
During 2019, the Company declared dividends of $0.20 per share to class A and class B shareholders totaling $4.5
million, of which $2.3 million is payable on January 9, 2020 and is included in accrued expenses and other liabilities
on the consolidated statement of financial condition as of December 31, 2019.
During 2018, the Company declared dividends of $0.20 per share to class A and class B shareholders totaling $4.6
million, of which $2.3 million was paid on January 9, 2019 and is included in accrued expenses and other liabilities
on the consolidated statements of financial condition as of December 31, 2018.
K. Retirement Plan
The Company participates in an incentive savings plan (the “Savings Plan”) covering substantially all employees.
Company contributions to the Savings Plan are determined annually by management of the Company but may not
exceed the amount permitted as a deductible expense under the Internal Revenue Code of 1986, as amended. The
expense for contributions to the Savings Plan was approximately $29,000 and $11,000 in 2019 and 2018, respectively,
and is included in compensation on the consolidated statements of income.
53
L. Guarantees, Contingencies, and Commitments
From time to time, the Company may be named in legal actions and proceedings. These actions may seek substantial
or indeterminate compensatory as well as punitive damages or injunctive relief. We are also subject to governmental
or regulatory examinations or investigations. The examinations or investigations could result in adverse judgments,
settlements, fines, injunctions, restitutions or other relief. For any such matters, the condensed consolidated financial
statements include the necessary provisions for losses, if any, that the Company believes are probable and estimable.
Furthermore, the Company evaluates whether losses exist which may be reasonably possible and will, if material,
make the necessary disclosures. Management believes, however, that such amounts, both those that are probable and
those that are reasonably possible, are not material to the Company’s financial condition, results of operations or cash
flows at December 31, 2019.
G.research has agreed to indemnify clearing brokers for losses they may sustain from customer accounts introduced
by G.research that trade on margin. At each of December 31, 2019 and 2018, the total amount of customer balances
subject to indemnification (i.e., unsecured margin debits) was immaterial.
The Company has also entered into arrangements with various other third parties, many of which provide for
indemnification of the third parties against losses, costs, claims and liabilities arising from the performance of
obligations under the agreements. The Company has had no claims or payments pursuant to these or prior agreements
and believes the likelihood of a claim being made is remote, and, therefore, no accrual has been made on the
consolidated financial statements.
M. Net Capital Requirements
G.research is registered with the SEC as a broker-dealer and is regulated by FINRA. As such, G.research is subject to
the minimum net capital requirements promulgated by the SEC. G.research computes its net capital under the
alternative method permitted by the SEC, which results in required minimum net capital of $250,000. As of December
31, 2019, and 2018, G.research had net capital, as defined, of approximately $4.6 million and $9.1 million, respectively,
exceeding the regulatory requirement by approximately $4.3 million and $8.8 million, respectively. Net capital
requirements for G.research may increase in accordance with rules and regulations to the extent it engages in other
business activities.
N. Shareholder-Designated Contribution Plan
The Company has established a Shareholder Designated Charitable Contribution program. Under the program, from
time to time each shareholder is eligible to designate a charity to which the Company would make a donation at a rate
of twenty-five cents per share based upon the actual number of shares registered in the shareholder’s name. The
Company recorded an expense of $3.3 million and $3.3 million related to this program for the years ended December
31, 2019 and 2018, respectively, which is included in shareholder-designated contribution in the consolidated
statements of income. As of December 31, 2019 and 2018, the Company has reflected a liability in the amount of $2.0
million and $3.3 million in connection with this program which is included in accrued expenses and other liabilities
on the consolidated statement of financial condition, respectively.
O. Subsequent Events
A significant portion of G.research institutional research services have been provided to GAMCO and its affiliates.
These agreements were terminated on January 1, 2020 and compensation from Gabelli Funds and GAMCO Asset and
costs related to servicing these arrangements are expected to decrease.
As of December 31, 2019, 119,650 awarded but unvested Phantom RSAs are outstanding. On February 4, 2020, an
additional 23,000 Phantom RSA’s were forfeited by teammates who transferred to Morgan Group Holdings Co.,
resulting in 96,650 Phantom RSA’s remaining outstanding.
On March 14, 2020, the Associated Capital Group Board of Directors approved the spin-off of Morgan Group to
Associated Capital shareholders. Associated Capital will distribute to its shareholders on a pro rata basis the
50,000,000 shares of Morgan that Associated Capital owns.
54
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 9A.
CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our current management, including our CEO and CAO, has evaluated the effectiveness of our disclosure controls and
procedures as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange
Act”), as of December 31, 2019. Based on this evaluation of our disclosure controls and procedures management has
concluded that our disclosure controls and procedures were not effective as of December 31, 2019 because of a
material weakness in our internal control over financial reporting, as further described below.
Notwithstanding that our disclosure controls and procedures as of December 31, 2019 were not effective, and the
material weakness in our internal control over financial reporting as described below, management believes that the
consolidated financial statements and related financial information included in this Annual Report on Form 10-K fairly
present in all material respects our financial condition, results of operations and cash flows as of the dates presented,
and for the periods ended on such dates, in conformity with accounting principles generally accepted in the United
States of America (“U.S. GAAP”).
Management's Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting (as
defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act and based upon the criteria established in Internal
Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission (the “COSO framework”)). Our internal control over financial reporting is a process designed to provide
reasonable assurance regarding the reliability of our financial reporting and the preparation of our financial statements
for external purposes in accordance with GAAP.
An effective internal control system, no matter how well designed, has inherent limitations, including the possibility
of human error or overriding of controls, and therefore can provide only reasonable assurance with respect to reliable
financial reporting. Because of its inherent limitations, our internal control over financial reporting may not prevent
or detect all misstatements, including the possibility of human error, the circumvention or overriding of controls, or
fraud. Effective internal controls can provide only reasonable assurance with respect to the preparation and fair
presentation of financial statements.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such
that a reasonable possibility exists that a material misstatement of our annual or interim financial statements would
not be prevented or detected on a timely basis.
Under the supervision and with the participation of our management we have conducted an evaluation of the
effectiveness of our internal control over financial reporting based on the COSO framework. Based on evaluation
under these criteria, management determined, based upon the existence of the material weakness described below,
that we did not maintain effective internal control over financial reporting as of the Evaluation Date.
The material weakness in internal control over financial reporting was caused by the Company not having sufficient
personnel with technical accounting and reporting skills, which resulted in the lack of segregation of duties to separate
financial statement preparation from senior management review and misstatements related to nonroutine transactions
that were corrected before issuance. This material weakness resulted in an increased risk of a material misstatement
in the financial statements.
Changes in Internal Control Over Financial Reporting
Except for the identification of the material weakness described above, there were no changes during the quarter ended
December 31, 2019 in our internal control over financial reporting that have materially affected, or are reasonably
likely to materially affect, our internal control over financial reporting.
55
Remediation Plan and Status
In light of the material weakness in our internal controls over financial reporting, management has taken steps to
enhance and improve the design and operating effectiveness of our internal controls over financial reporting, including
the following implemented steps: (i) appointed additional qualified personnel to address inadequate segregation of
duties; (ii) assigned preparation and review responsibilities to additional personnel for the financial reporting process;
(iii) documented the completion and review of assigned responsibilities through checklists (iv) appointed a senior
accounting consulting professional to review work performed by current financial reporting personnel and commenced
a search to add additional finance staff to augment accounting personnel.
We are working to remediate the material weakness as quickly and efficiently as possible. However, the material
weakness will not be considered remediated until the remediated controls operate for a sufficient period of time and
management has concluded, through testing, that these controls are operating effectively.
ITEM 9B: OTHER INFORMATION
None.
PART III
ITEM 10: DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Information regarding the Directors and Executive Officers of AC and compliance with Section 16(a) of the Securities
Exchange Act of 1934 is incorporated herein by reference from the Company’s Proxy Statement for the 2020 Annual
Meeting of Stockholders (the “Proxy Statement”).
AC has adopted a Code of Business Conduct that applies to all of our officers, directors, full-time and part-time
employees and a Code of Conduct that sets forth additional requirements for our principal executive officer, principal
financial officer, principal accounting officer or controller, or persons performing similar functions (together, the
“Codes of Conduct”). The Codes of Conduct are posted on our website (www.associated-capital-group.com) and are
available in print free of charge to anyone who requests a copy. Interested parties may address a written request for a
printed copy of the Codes of Conduct to: Secretary, Associated Capital Group, Inc., 191 Mason Street, Greenwich,
Connecticut 06830. We intend to satisfy the disclosure requirement regarding any amendment to, or a waiver of, a
provision of the Codes of Conduct by posting such information on our website.
In addition to the certifications attached as Exhibits to this Form 10-K, following its 2020 Annual Meeting, AC will
also submit to the New York Stock Exchange (“NYSE”) a certification by our Chief Executive Officer that he is not
aware of any violations by AC of the NYSE corporate governance listing standards as of the date of the certification.
ITEM 11: EXECUTIVE COMPENSATION
Information required by Item 11 is included in our Proxy Statement and is incorporated herein by reference.
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
Information required by Item 12 is included in our Proxy Statement and is incorporated herein by reference.
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
Information required by Item 13 is included in our Proxy Statement and is incorporated herein by reference.
ITEM 14: PRINCIPAL ACCOUNTANT FEES AND SERVICES
Information required by Item 14 is included in our Proxy Statement and is incorporated herein by reference.
56
PART IV
ITEM 15: EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a) List of documents filed as part of this Report:
(1) Consolidated Financial Statements and Independent Registered Public Accounting Firm’s Reports included herein:
See Index on page 23.
(2) Financial Statement Schedules
Financial statement schedules are omitted as not required or not applicable or because the information is included in
the Financial Statements or notes thereto.
(3) List of Exhibits:
The agreements included or incorporated by reference as exhibits to this Annual Report on Form 10-K contain
representations and warranties by each of the parties to the applicable agreement. These representations and warranties
were made solely for the benefit of the other parties to the applicable agreement and (i) were not intended to be treated
as categorical statements of fact, but rather as a way of allocating the risk to one of the parties if those statements
prove to be inaccurate; (ii) may have been qualified in such agreement by disclosures that were made to the other party
in connection with the negotiation of the applicable agreement; (iii) may apply contract standards of “materiality” that
are different from “materiality” under the applicable securities laws; and (iv) were made only as of the date of the
applicable agreement or such other date or dates as may be specified in the agreement.
The Company acknowledges that, notwithstanding the inclusion of the foregoing cautionary statements, it is
responsible for considering whether additional specific disclosures of material information regarding material
contractual provisions are required to make the statements in this report not misleading.
Exhibit
Number
2.1
3.1
3.2
4.1
4.2
10.1
Description of Exhibit
Separation and Distribution Agreement, dated November 30, 2015, between GAMCO Investors,
Inc., a Delaware corporation (“GAMCO”), and Associated Capital Group, Inc., a Delaware
corporation (the “Company”). (Incorporated by reference to Exhibit 2.1 to the Company’s Form
8-K dated November 30, 2015 filed with the Securities and Exchange Commission on December
4, 2015).
Amended and Restated Certificate of Incorporation of the Company. (Incorporated by reference
to Exhibit 3.1 to the Company’s Form 8-K dated November 19, 2015 filed with the Securities and
Exchange Commission on November 25, 2015).
Amended and Restated Bylaws of the Company. (Incorporated by reference to Exhibit 3.2 to the
Company’s Report on Form 8-K dated November 19, 2015 filed with the Securities and Exchange
Commission on November 25, 2015).
Form of Common Stock Certificate. (Incorporated by reference to Exhibit 4.1 to Amendment No.
4 to the Company’s Registration Statement on Form 10 filed with the Securities and Exchange
Commission on October 21, 2015).
Description of The Registrant’s Securities Registered Pursuant to Section 12 of the Securities
Exchange Act of 1934.
Service Mark and Name License Agreement, dated November 30, 2015, by and between the
Company and GAMCO. (Incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K
dated November 30, 2015 filed with the Commission on December 4, 2015
57
Exhibit
Number
Description of Exhibit
10.2
10.3
10.4
10.5
10.6
10.7
10.8
21.1
24.1
31.1
31.2
32.1
32.2
100.INS
100.SCH
100.CAL
100.DEF
100.LAB
100.PRE
Transitional Administrative and Management Services Agreement, dated November 30, 2015, by
and between the Company and GAMCO. (Incorporated by reference to Exhibit 10.2 to the
Company’s Form 8-K dated November 30, 2015 filed with the Commission on December 4,
2015).
Employment Agreement between the Company and Mario J. Gabelli dated November 30, 2015
(Incorporated by reference to Exhibit 10.3 to the Company’s Form 8-K dated November 30, 2015
filed with the Commission on December 4, 2015).
Promissory Note in aggregate principal amount of $250,000,000, dated November 30, 2015,
issued by GAMCO in favor of the Company (Incorporated by reference to Exhibit 10.4 to the
Company’s Form 8-K dated November 30, 2015 filed with the Commission on December 4,
2015).
Tax Indemnity and Sharing Agreement, dated November 30, 2015, by and between the Company
and GAMCO. (Incorporated by reference to Exhibit 10.5 to the Company’s Form 8-K dated
November 30, 2015 filed with the Commission on December 4, 2015).
2015 Stock Award Incentive Plan (Incorporated by reference to Exhibit 10.11 to Amendment No.
4 to the Company’s Registration Statement on Form 10 filed with the Securities and Exchange
Commission on October 21, 2015).
Form of Indemnification Agreement by and between the Company and the Indemnitee defined
therein (Incorporated by reference to Exhibit 10.7 to Amendment No. 4 to the Company’s
Registration Statement on Form 10 filed with the Securities and Exchange Commission on
October 21, 2015).
Agreement and Plan of Merger, dated as of October 31, 2019, by and among Morgan Group
Holding Co., G.R. acquisition, LLC, G.research, LLC, Institutional Services Holdings, LLC and
Associated Capital Group, Inc. (Incorporated by reference to Exhibit 2.1 to the Current Report on
Form 8-K of Morgan Group Holding Co. filed with the Securities and Exchange Commission on
November 6, 2019).
Subsidiaries of the Company.
Powers of Attorney (included on page 63 of this Report).
Certification of CEO pursuant to Rule 13a-14(a).
Certification of CFO pursuant to Rule 13a-14(a).
Certification of CEO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
Certification of CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes- Oxley Act of 2002.
XBRL Instance Document
XBRL Taxonomy Extension Schema Document
XBRL Taxonomy Extension Calculation Linkbase Document
XBRL Taxonomy Extension Definition Linkbase Document
XBRL Taxonomy Extension Label Linkbase Document
XBRL Taxonomy Extension Presentation Linkbase Document
ITEM 16: FORM 10-K SUMMARY
None.
58
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Rye, State
of New York, on March 8, 2019.
ASSOCIATED CAPITAL GROUP, INC.
By: /s/ Kenneth D. Masiello
Name: Kenneth D. Masiello
Title: Chief Accounting Officer
Date: March 16, 2020
59
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints Kevin Handwerker and Kenneth D.
Masiello and each of them, their true and lawful attorney-in-fact and agent with full power of substitution and
resubstitution, for them in their name, place and stead, in any and all capacities, to sign any and all amendments to
this report and to file the same, with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, and hereby grants to such attorney-in-fact and agent full power and authority
to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes
as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent or his
substitute or substitutes may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following
persons in the capacities and on the dates indicated.
Signature
Title
Date
/s/ Douglas R. Jamieson
Douglas R. Jamieson
President and
March 16, 2020
Chief Executive Officer
(Principal Executive Officer)
/s/ Kenneth D. Masiello
Kenneth D. Masiello
Chief Accounting Officer
(Principal Financial Officer)
March 16, 2020
/s/ Mario J. Gabelli
Mario J. Gabelli
/s/ Marc Gabelli
Marc Gabelli
/s/ Daniel R. Lee
Daniel R. Lee
/s/ Bruce M. Lisman
Bruce M. Lisman
/s/ Frederic V. Salerno
Frederic V. Salerno
/s/ Salvatore F. Sodano
Salvatore F. Sodano
/s/ Elisa M. Wilson
Elisa M. Wilson
Executive Chairman of the
Board and Director
March 16, 2020
Director
March 16, 2020
Director
March 16, 2020
Director
March 16, 2020
Director
Director
March 16, 2020
March 16, 2020
Director
March 16, 2020
60
Exhibit 4.2
DESCRIPTION OF THE REGISTRANT’S SECURITIES REGISTERED PURSUANT TO SECTION 12
OF THE SECURITIES EXCHANGE ACT OF 1934
Unless otherwise stated or the context otherwise requires, references in this summary to “AC,” “we,” “our,”
or “us” refer to Associated Capital Group, Inc. and its direct and indirect subsidiaries, while references to
“Associated Capital Group, Inc.” refer only to the holding company on an unconsolidated basis.
Associated Capital Group, Inc. has Class A common stock registered under Section 12 of the Securities
Exchange Act of 1934, as amended (the “Exchange Act”). The authorized capital stock of Associated Capital Group,
Inc. consists of 210,000,000 shares of authorized capital stock, consisting of: (i) 100,000,000 shares of AC Class A
Common Stock; (ii) 100,000,000 shares of AC Class B Common Stock; and (iii) 10,000,000 shares of preferred
stock. The following Is a summary of the material terms of AC’s Class A Common Stock. This summary is qualified
in its entirety by reference to Associated Capital Group, Inc.’s Amended and Restated Certificate of Incorporation
(the “certificate of incorporation”) and Amended and Restated By-laws (the “bylaws”), which are incorporated
herein by reference as Exhibit 3.1 and Exhibit 3.2, respectively, to Associated Capital Group, Inc.’s Annual Report
on Form 10-K of which this Exhibit 4.2 is a part. We encourage you to read the certificate of incorporation, bylaws
and applicable provisions of the Delaware General Corporation Law (the “DGCL”) for additional information.
DESCRIPTION OF CLASS A COMMON STOCK
Voting Rights
The holders of AC Class A Common Stock and the AC Class B Common Stock have identical voting rights
except that:
• holders of AC Class A Common Stock are entitled to one vote per share while holders of AC Class B
Common Stock are entitled to ten votes per share on all matters to be voted on by stockholders; and
• holders of AC Class A Common Stock are not eligible to vote on matters relating exclusively to AC Class
B Common Stock and vice versa.
Holders of shares of AC Class A Common Stock and AC Class B Common Stock are not entitled to cumulate
their votes in the election of directors. Generally, all matters to be voted on by stockholders must be approved by a
majority (or, in the case of election of directors, by a plurality) of the votes that are entitled to be cast by the holders
of all shares of AC Class A Common Stock and AC Class B Common Stock present in person or represented by
proxy, voting together as a single class, subject to any voting rights granted to holders of any preferred stock. Except
as otherwise provided by law, and subject to any voting rights granted to holders of any outstanding preferred stock,
amendments to the certificate of incorporation generally must be approved by a majority of the combined voting
power of all AC Class A Common Stock and AC Class B Common Stock voting together as a single class.
Amendments to the certificate of incorporation that would alter or change the powers, preferences or special rights
of the AC Class A Common Stock or the AC Class B Common Stock so as to affect them adversely also must be
approved by a majority of the votes entitled to be cast by the holders of the shares affected by the amendment,
voting as a separate class.
Dividends
Holders of AC Class A Common Stock and AC Class B Common Stock will receive an equal amount per share
in any dividend declared by our Board, subject to any preferential rights of any outstanding preferred stock.
Dividends consisting of shares of AC Class A Common Stock and AC Class B Common Stock may be paid only as
follows:
•
shares of AC Class A Common Stock may be paid only to holders of AC Class A Common Stock and
shares of AC Class B Common Stock may be paid only to holders of AC Class B Common Stock; and
5334598-1
Exhibit 4.2
•
shares will be paid proportionally with respect to each outstanding share of AC Class A Common Stock
and AC Class B Common Stock.
Other Rights
On liquidation, dissolution or winding up of AC, after payment in full of the amounts required to be paid to
holders of preferred stock, if any, all holders of AC common stock, regardless of class, are entitled to share ratably
in any assets available for distribution to holders of shares of common stock. No shares of AC common stock are
subject to redemption or have preemptive rights to purchase additional shares of AC common stock.
In the event of any corporate merger, consolidation, purchase or acquisition of property or stock, or other
reorganization in which any consideration is to be received by the holders of AC Class A Stock or the holders of AC
Class B Common Stock as a class, the holders of AC Class A Common Stock and the holders of AC Class B
Common Stock will receive the same consideration on a per share basis; except that, if such consideration shall
consist in any part of voting securities (or of options or warrants to purchase, or of securities convertible into or
exchangeable for, voting securities), the holders of AC Class B Common Stock may receive, on a per share basis,
voting securities with up to ten times the number of votes per share as those voting securities to be received by the
holders of AC Class A Common Stock (or options or warrants to purchase, or securities convertible into or
exchangeable for, voting securities with up to ten times the number of votes per share as those voting securities
issuable upon exercise of the options or warrants, or into which the convertible or exchangeable securities may be
converted or exchanged, received by the holders of AC Class A Common Stock). Accordingly, except with respect
to voting rights, the holders of AC Class B Common Stock will not receive greater value than the holders of AC
Class A Common Stock in an extraordinary corporate transaction involving AC.
Listing
The Class A Common Stock is listed on the NYSE under the symbol “AC.”
Transfer Agent and Registrar
The transfer agent and registrar for the AC common stock is Computershare Trust Company, N.A.
5334598-1
Subsidiaries of Associated Capital Group, Inc.
The following table lists the direct and indirect subsidiaries of Associated Capital Group, Inc. (the “Company”), except
those entities which are consolidated. In accordance with Item 601 (21) of Regulation S-K, the omitted subsidiaries
considered in the aggregate as a single subsidiary would not constitute a “significant subsidiary” as defined under
Rule 1-02(w) of Regulation S-X.
Exhibit 21.1
Name
Gabelli & Company Investment Advisers, Inc.
(100%-owned by the Company)
Gabelli & Partners LLC
(100%-owned by Gabelli & Company Investment Advisers, Inc.)
Gabelli Arbitrage Holdings LLC
(100%-owned by the Company)
Gabelli Trading Holdings LLC
(100%-owned by the Company)
Institutional Services Holdings, LLC
(100%-owned by the Company)
Morgan Group Holding Co.
(83.3% -owned by the Company)
G.research, LLC
(100%-owned by Morgan Group Holding Co.)
Jurisdiction of Incorporation or
Organization
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Exhibit 31.1
I, Douglas R. Jamieson, certify that:
Certifications
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K of Associated Capital Group, Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state
a material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report,
fairly present in all material respects the financial condition, results of income and cash flows of the registrant
as of, and for, the periods presented in this report;
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control
over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and
have:
a)
b)
c)
d)
Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes
in accordance with generally accepted accounting principles;
Evaluated the effectiveness of the registrant’s disclosure controls and procedures as of the end of
the period covered by this report; and
Disclosed in this report any change in the registrant’s internal control over financial reporting that
occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in
the case of an annual report) that has materially affected, or is reasonably likely to materially affect,
the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board
of directors (or persons performing the equivalent functions):
a)
b)
All significant deficiencies and material weaknesses in the design or operation of internal control
over financial reporting which are reasonably likely to adversely affect the registrant’s ability to
record, process, summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant’s internal control over financial reporting.
By:
/s/ Douglas R. Jamieson
Name: Douglas R. Jamieson
Title: Chief Executive Officer
Date: March 16, 2020
Certifications
Exhibit 31.2
I, Kenneth D. Masiello, certify that:
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K of Associated Capital Group, Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state
a material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report,
fairly present in all material respects the financial condition, results of income and cash flows of the registrant
as of, and for, the periods presented in this report;
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control
over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and
have:
a)
b)
c)
d)
Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes
in accordance with generally accepted accounting principles;
Evaluated the effectiveness of the registrant’s disclosure controls and procedures as of the end of
the period covered by this report; and
Disclosed in this report any change in the registrant’s internal control over financial reporting that
occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in
the case of an annual report) that has materially affected, or is reasonably likely to materially affect,
the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board
of directors (or persons performing the equivalent functions):
a)
b)
All significant deficiencies and material weaknesses in the design or operation of internal control
over financial reporting which are reasonably likely to adversely affect the registrant’s ability to
record, process, summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant’s internal control over financial reporting.
By:
/s/ Kenneth D. Masiello
Name: Kenneth D. Masiello
Title: Chief Accounting Officer
Date: March 16, 2020
Certification of CEO Pursuant to
18 U.S.C. Section 1350,
as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
Exhibit 32.1
In connection with the Annual Report on Form 10-K of Associated Capital Group, Inc. (the “Company”) for the year
ended December 31, 2019 as filed with the Securities and Exchange Commission on the date hereof (the “Report”),
Douglas R. Jamieson, as Chief Executive Officer of the Company, hereby certifies, pursuant to 18 U.S.C. § 1350, as
adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act
of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition
and results of income of the Company.
/s/ Douglas R. Jamieson
By:
Name: Douglas R. Jamieson
Title: Chief Executive Officer
Date: March 16, 2020
This certification accompanies the Report pursuant to § 906 of the Sarbanes-Oxley Act of 2002 and shall not, except
to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of §18 of the
Securities Exchange Act of 1934, as amended.
Certification of CFO Pursuant to
18 U.S.C. Section 1350,
as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
Exhibit 32.2
In connection with the Annual Report on Form 10-K of Associated Capital Group, Inc. (the “Company”) for the year
ended December 31, 2019 as filed with the Securities and Exchange Commission on the date hereof (the “Report”),
Kenneth D. Masiello, as Chief Accounting Officer of the Company, hereby certifies, pursuant to 18 U.S.C. § 1350, as
adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge:
(1)
(2)
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act
of 1934; and
The information contained in the Report fairly presents, in all material respects, the financial condition
and results of income of the Company.
/s/ Kenneth D. Masiello
By:
Name: Kenneth D. Masiello
Title: Chief Accounting Officer
Date: March 16, 2020
This certification accompanies the Report pursuant to § 906 of the Sarbanes-Oxley Act of 2002 and shall not, except
to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of §18 of the
Securities Exchange Act of 1934, as amended.
ENGLISH
ITALIAN
CHINESE
JAPANESE
SPANISH
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Board of Directors
Marc Gabelli
Co-Chief Executive Officer
Gabelli Securities International Limited (UK)
Daniel R. Lee
Chief Executive Officer and Director
Full House Resorts, Inc.
Salvatore F. Sodano
Vice Chairman
Broadridge Financial Solutions, Inc.
Mario J. Gabelli, CFA
Executive Chairman
Associated Capital Group, Inc.
Officers
Mario J. Gabelli, CFA
Executive Chairman
Douglas R. Jamieson
Chief Executive Officer and President
Corporate and Shareholder Information
Investor Relations
For our 10-K and other shareholder information, as well as
information on our products and services, visit our website at
www.associated-capital-group.com or write to:
191 Mason Street
Greenwich, CT 06830
203-629-9595
email: investor@associated-capital-group.com
Transfer Agent
Computershare
250 Royall Street
Canton, MA 02021
(781) 575-2000
Trading Information
New York Stock Exchange
Class A Common Stock
Symbol - AC
Website
www.associated-capital-group.com
Douglas R. Jamieson
Chief Executive Officer and President
Bruce M. Lisman
Former Chairman
JP Morgan’s Global Equity Division
Frederic V. Salerno
Former Vice Chairman
Verizon Communications Inc.
Elisa M. Wilson
President
Gabelli Foundation, Inc.
Kevin Handwerker
Executive Vice President, General Counsel
and Secretary
Kenneth D. Masiello, CPA
Chief Accounting Officer
Agnes Mullady
Executive Vice President
Investment Services Information
Alternative Investments
Contact: Michael M. Gabelli
Managing Director and President
914-921-7787
email: alternatives@gabelli.com
Institutional Research
Contact: Vincent Amabile
President
914-921-5150
email: vamabile@gabelli.com
Annual Meeting
Our 2020 Annual Meeting of Shareholders
will be held at 9:00 a.m. on May 5, 2020.
“The more you give, the more you receive”
Our shareholders designated contributions to the following
501(c)(3) organizations
The Board of Directors of Associated Capital Group, Inc. established an inaugural Shareholder Designated Charitable Contribution program in
2016. The company continued this initiative into 2018. To date, AC has donated approximately $20 million on behalf of its shareholders.
Under the program, each registered shareholder could designate one charitable organization (two charitable organizations for holders with
8,000 shares or more) to which AC contributed on the shareholder’s behalf.
AC’s program tracks the shareholder program launched by GAMCO Investors, Inc. in April 2013 which was based, in part, on the program
established by Berkshire Hathaway in 1981. The Berkshire Hathaway program continued for over 20 years, until 2003. Warren Buffett’s letter to
shareholders at the inception of Berkshire’s program explained that charitable giving in this manner provides significant benefits to shareholders.
Each eligible shareholder is able to choose whether a contribution of corporate funds based on his/her ownership interest is to be made, and if
so, to specify the recipient of that contribution. The shareholder’s judgment – not the judgment of the company’s directors or management –
controls the contribution process.
♦ ♦ ♦
We are fortunate to live in the
wealthiest nation in the world and
to have the ability to share our
good
fortune. SINCE 2016, WE
WERE ABLE TO SUPPORT MANY
WORTHY ENDEAVORS, INCLUDING
THESE DESIGNATED BY OUR
SHAREHOLDERS. In addition, our
teammates have donated countless
hours of service
to scores of
charitable organizations.
Abilis ♦ Alzheimer’s Disease & Related Disorders Association ♦ Alzheimer’s Foundation of America ♦ America Needs You ♦ American Associates
of Ben-Gurion University of the Negev ♦ American Cancer Society ♦ American Heart Association ♦ American Macular Degeneration Foundation
♦ American National Red Cross ♦ American Refugee Committee ♦ Amigos Del Museo Del Barrio ♦ Archbishop Wood High School ♦ Arizona
State University Foundation ♦ Arthritis Foundation ♦ Atlantis Educational Foundation ♦ Aurora Ice Association ♦ Bay Area Discovery Museum ♦
Bedford Audubon Society ♦ Blythedale Children’s Hospital ♦ Bob Woodruff Family Foundation ♦ Boston College Trustees ♦ Boys and Girls Club
of Truckee Meadows ♦ Bristol Riverside Theater Co. ♦ Brunswick School ♦ Cathedral of St. John the Baptist ♦ Catholic Big Sisters & Big Brothers
♦ Catholic Charities of the Archdiocese of New York ♦ CCM of Westchester ♦ Center for All Abilities ♦ Central Scholarship Bureau ♦ Chaminade
High School ♦ Change for Kids ♦ Chicago Chesed Fund ♦ Christian Brothers Academy ♦ Church-in-the-Garden ♦ CityArts ♦ Citymeals-on-
Wheels ♦ Columbia University ♦ Columbus Citizens Foundation ♦ Cornell University ♦ Cow Hollow Preschool ♦ Cristo Rey Jesuit High School
♦ Direct Relief International ♦ Disabled American Veterans ♦ Disabled Veterans National Foundation ♦ Doctors Without Borders USA ♦ Don
♦ Downtown Community Television Center
Bosco Community Center of Port Chester
♦ Elevation Chapel ♦ Eva’s Village ♦
♦ Eastchester Volunteer Ambulance Corps.
Fidelity Investments Charitable Gift Fund
Fairfield University ♦ Feeding America ♦
University of New York at Binghamton
♦ Folds of Honor Foundation ♦ The State
Friends of Animals ♦ Futures in Education
♦ Fountain Valley School of Colorado ♦
Answer ♦ Greenwich Hospital ♦ Greenwich
♦ Gilchrist Hospice Care ♦ Give Me an
♦ Haley House ♦ Hank’s Yanks Baseball
International Film Festival ♦ Groton School
♦ Hetrick-Martin Institute ♦ Hindu
Foundation ♦ Heifer Project International
Program
Society of Nevada ♦ Homeless Prenatal
Honeywell Humanitarian
Surgery Fund ♦ Immaculate Conception
Relief Foundation ♦ Hospital for Special
Semper Fi Fund ♦ Inner-City Scholarship
Church - Bronx, NY ♦ Injured Marine
International Campaign for Tibet ♦ Iona
Fund ♦ Interfaith Nutrition Network ♦
America’s Founding Principles ♦ Jewish
College ♦ Jack Miller Center for Teaching
Greater Pittsburgh ♦ Joel Barlow High
Communal Fund ♦ Jewish Federation of
F. Kennedy Medical Center Foundation ♦
School, Regional School District #9 ♦ John
K9s for Warriors ♦ Kids in Crisis ♦ Lee
Junior League of Greenwich Connecticut ♦
Services of the Hudson Valley ♦ Leukemia
Memorial Health System Foundation ♦ Legal
Reserve ♦ Los Angeles Team Mentoring
and Lymphoma Society ♦ LongHouse
New York ♦ Manhattan College ♦ Marc
Make-A-Wish Foundation of Metro
♦
♦ Marin Country Day School ♦ Marine
Lustgarten Pancreatic Cancer Foundation
Corps Scholarship Foundation ♦ Masters
School ♦ McMaster University Ontario ♦
Meals on Wheels Association of America ♦ Memorial Sloan-Kettering Cancer Center ♦ Millbrook School ♦ Mount Sinai Medical Center ♦ National
Audubon Society ♦ National Brain Tumor Society ♦ Natural Resources Defense Council ♦ Nature Conservancy ♦ New Israel Fund ♦ New Jersey
Institute of Technology Foundation ♦ New York and Presbyterian Hospital ♦ New York City Relief ♦ Northeastern University ♦ Northern Nevada
HIV Outpatient Program Education and Services ♦ Northwell Health Foundation ♦ Operation Smile ♦ Pacific House ♦ Peck Slip School Parent
Teachers Association ♦ Pediatric Cancer Research Foundation ♦ Pennsylvania Troopers Helping Troopers Foundation ♦ Perlman Music Program ♦
Planned Parenthood Federation of America ♦ Planned Parenthood of Southern New England ♦ Planned Parenthood Shasta Diablo ♦ Prospects,
Opportunity and Enrichment ♦ Putnam-Indian Field School ♦ Rainforest Action Network ♦ Rainforest Alliance ♦ Randolph Foundation ♦ Rector
Wardens Vestry Men of St. Bartholomew’s Church ♦ Rochester Institute of Technology ♦ Saint Ignatius School ♦ Salvation Army National Corp. ♦
San Diego Opera Association ♦ San Miguel Academy of Newburgh ♦ SATO Project ♦ Save the Children Federation ♦ Science Buddies ♦ Seamen’s
Church Institute of New York and New Jersey ♦ Shriners Hospitals for Children ♦ Sierra Nevada Journeys ♦ South Bronx Educational Foundation
♦ Special Young Adults ♦ St. Joseph’s Indian School ♦ St. Jude Children’s Research Hospital ♦ St. Thomas’ Church Whitemarsh Bethlehem Park
& Camp Hill Road ♦ Step Up International ♦ Student U ♦ Susan G. Komen Breast Cancer Foundation ♦ The Arc of Palm Beach County ♦ The
Littlest Lamb ♦ The Miller Center Foundation ♦ The Roman Catholic Church of St. Robert Bellarmine Church ♦ The University of Pennsylvania ♦
The Windward School ♦ Top of Michigan Mountain Bike Association ♦ Troy University Foundation ♦ Tuesday’s Children ♦ Tuxedo Park School
♦ University of Texas Foundation ♦ University of Wisconsin Foundation ♦ Variety Child Learning Center ♦ Villanova University ♦ Volunteers of
America ♦ Westchester ARC Foundation ♦ Wilton Education Foundation ♦ Wilton Library Association ♦ Woman’s Club of Rye ♦ World Eye
Cancer Hope ♦ World Vision ♦ Yale-New Haven Hospital ♦ Young Men’s Christian Association of Stamford ♦ Zacharias Sexual Abuse Center
♦
191 Mason Street, Greenwich, CT 06830
www.associated-capital-group.com
203-629-9595 | info@associated-capital-group.com