Diamond Hill Investment Group, Inc.2020 Annual Report Notice of 2021 Annual Meeting And Proxy Statement DIAMOND HILL INVESTMENT GROUP, INC.
ANNUAL LETTER TO SHAREHOLDERS
March 12, 2021
Dear Fellow Shareholders:
At Diamond Hill, our primary purpose is to improve our clients’ lives through better financial outcomes. That commitment is
evident in our vision—to be an exceptional, active investment boutique that our clients trust to deliver excellent long-term
investment outcomes from a team aligned with their success.
Our industry has faced significant headwinds over the past decade—in part because investors are rightly demanding greater
value for fees paid. Superior investment results, while a critical part of our success, are no longer enough. Clients are
demanding more transparency, greater accountability and more targeted communication—a client experience that addresses
their specific needs from a long-term partner they can trust. We believe the best way to build that trust and deliver on our
purpose and vision is through our aligned boutique model (explained below), by fostering an investment culture where clients
come first, and by ensuring every associate is committed to upholding our values of curiosity, ownership, trust and respect.
An Aligned Boutique Model Fosters Our Client-Centric Culture
Client alignment has been intentionally and thoughtfully embedded into how we operate from the day we were founded and
forms the cornerstone of our aligned boutique model. In addition to ensuring alignment with our clients, our model also
clarifies the principles on which all our investment teams and employees are focused. We believe these principles are
foundational to who we are and how we serve clients, lead to excellent long-term investment results across multiple
capabilities and promote enduring client relationships.
• We believe we can add the most value with an active, fundamentally driven process.
• We emphasize an ownership mindset. Our investment professionals approach each investment as long-term
owners. Further, our portfolio managers invest heavily alongside our clients. Every employee owns shares in our
company from their first day and has the opportunity to build further ownership in our company and invest in our
strategies along with our clients, promoting an ownership mentality throughout the firm.
• We are long-term oriented. We believe in the rigor of our research and the power of time-horizon arbitrage. As
bottom-up, benchmark-agnostic investors, we expect to outperform over the long term. We are comfortable with
shorter periods where our portfolios’ performance may meaningfully differ from peers or our clients’ benchmarks.
• We invest with a valuation discipline, which goes beyond investing according to common industry definitions of
growth versus value. Instead, we believe in taking an ownership stake in an investment at a discount to what we
believe it is worth and waiting patiently for value to be realized.
• We are committed to capacity discipline. We believe prudent capacity management puts our clients’ interests first.
Our capacity discipline is a differentiating feature of our firm. Our focus on long-term performance rather than asset growth
incentivizes our portfolio managers to prioritize existing clients and close strategies before they reach a size that could limit
their ability to deliver value-added returns.
Our Shared Values
We believe we have the right business model and shared investment principles to add value for clients. As important is
having a common sense of purpose and direction for all associates. Our culture allows us to attract and retain associates who
share our commitment to client alignment, are motivated by investment excellence and are committed to delivering superior
outcomes. In short, our culture emphasizes four key values: curiosity, ownership, trust and respect.
Associates who are curious focus on continuous self-improvement and have a passion for learning. They are open-minded,
seek differing perspectives and go beyond surface-level assumptions. Associates who think and act like business owners
naturally embrace a long-term mindset. They lead by example and accept accountability for ensuring excellent client
outcomes. Associates who embrace trust act with integrity, are authentic and honest in interactions with others, and put client
interests ahead of all others. Associates who are motivated by giving and receiving respect communicate and provide
feedback candidly, transparently and with positive intent. They are humble in their assumptions and listen to better
understand others. They embrace, value and celebrate diversity, inclusion and differences in all forms.
Taking Action on Diversity, Equity, and Inclusion (DEI)
Once we embrace a long-term, valuation-disciplined, client-centric mindset, our success as investors depends on a culture
where associates can think differently and feel empowered to challenge conventional wisdom. We believe this creates an
environment where intellectually curious professionals—those who are committed to the differentiated thinking necessary to
deliver excellent client outcomes—want to come and stay. At the same time, we recognize that our firm and the asset
management industry overall have work to do to ensure we create more diverse, equitable and inclusive workplaces. We are
committed to providing our clients with better results that come from a diverse talent pool, promoting a more inclusive
workplace for our associates and promoting positive change in our industry and community.
As part of our efforts, in June 2020, we explicitly pledged to be more proactive in advancing DEI. To ensure our pledge
resulted in action, we organized our efforts under four pillars.
1. Philanthropy and Community. We pledged to invest $1 million over the next five years in organizations that
support anti-racism and DEI efforts.
2. Vendor Relationships and Policies. We committed to conducting a full review of our vendor relationships with the
aim of increasing diversity. We also committed to continually reviewing our policies and procedures to ensure we
are supporting diversity and inclusion at our firm.
3. Workforce Diversity. We are working on providing internship and employment opportunities to historically
4.
underrepresented groups and ensuring a diverse talent pipeline is considered for every open role.
Inclusive Culture. We know an inclusive culture is imperative to support diversity in an organization. We aim to
foster inclusion at Diamond Hill and communicate openly with associates on our DEI progress and efforts. We
established a DEI Resource Group that aids in strategizing, planning and executing on our initiatives.
We are proud to have more than 30% of our workforce involved in our DEI efforts, with representation from all teams at the
firm. We believe with commitment and focus, our efforts will yield material improvements for our clients, our associates, our
shareholders and our community.
Enabling Great Investment Results and Client-Centric Growth
As we plan for meeting current and future client needs, we have undertaken several initiatives. We have begun taking steps to
close our Large Cap strategy to most new investors, and we are fostering growth in existing capabilities that are hitting key
milestones important to clients. We are also focused on the expansion of a more concentrated suite of strategies that meet
client objectives, capitalize on our investment team’s research capabilities, build on our success of managing high-conviction
portfolios and align with our investment principles.
Managing capacity is core to who we are as a firm and the alignment we seek with clients. As such, we recently announced
the closing of our Large Cap strategy to most new investors to ensure asset size does not become an impediment to
performance. Capacity management is often viewed as a growth inhibitor in our industry. We view it as part of our promise
to clients to always act in their best interests. Further, as an aligned boutique, our growth is not dependent on building
excessive AUM in any one strategy, which is why we remain focused on fostering multiple capabilities that leverage our
competitive strengths.
Among our existing strategies, we have several reaching five-year milestones in 2021 that have shown the ability to exceed
client expectations since inception. These include Core Bond and Short Duration Securitized Bond under the management of
portfolio managers Mark Jackson, CFA, and Henry Song, CFA. These portfolios distinguish themselves in the marketplace
with a focus on securitized assets, which gives them a differentiated risk/return profile relative to peers. Our International
strategy also turns five years old this year, at a time when investor interest in non-U.S. markets is increasing following a long
period of U.S. outperformance. In addition to our U.S. equity strategies, we believe these three strategies have tremendous
potential in asset classes where investors value active management.
As clients look to their active managers to generate meaningful alpha, they are increasingly demanding high conviction, more
concentrated portfolios. Our shared investment principles have always led us to build portfolios that are more highly
concentrated than most of our peers. We plan to leverage that expertise by focusing on expanding a suite of more highly
concentrated, high-alpha strategies to deliver excellent outcomes and fulfill client needs. Our Large Cap Concentrated
strategy is approaching its 10-year anniversary this year, and we plan to launch it as a new fund in our Diamond Hill Funds
lineup. Our Large Cap Concentrated strategy typically has 20 holdings with market capitalizations of greater than $15 billion,
differentiating it from our Large Cap portfolio, which can hold 40-60 positions with market capitalizations of $5 billion or
greater. We have also been running a more highly concentrated portfolio in our All Cap Select strategy. Further, we are
planning to offer a Micro Cap strategy that will leverage our experience evaluating companies down the market-cap
spectrum.
Our aligned boutique model provides a focus on investment excellence while enabling growth when beneficial to clients. It
also fosters an environment for our investment professionals that supports innovative thinking and new ideas. Finally, we
believe this model will allow us to keep pace with an industry that is under constant evolution amid pressure to deliver
demonstrable value to clients.
Management Update
To execute on our aligned boutique business model, it is critically important to have the right infrastructure and dedicated
leadership in place to give our portfolio managers the freedom to focus on generating excellent results. Our management
team, which is accountable for our vision, includes me as CEO, our Chief People Officer Anna Corona, General Counsel and
Corporate Secretary Carlotta King, Chief Financial Officer Tom Line, Chief Client Officer Jo Ann Quinif and our dedicated
Chief Investment Officer (CIO) Matthew Stadelman, CFA, who has absorbed responsibilities previously held by Austin
Hawley. Together, we serve as Diamond Hill’s primary decision-making body, responsible for overall business strategy and
corporate capital allocation.
We created the Chief Client Officer role in 2020 to ensure we remain focused on delivering a great client experience overall.
Jo Ann was a natural fit for the role given her leadership and responsibilities as our managing director of business
development and marketing. We also created the Chief People Officer role to emphasize the importance of attracting,
retaining and developing talented associates with a passion for client alignment while cultivating our core values. We were
fortunate to identify Anna for this role, who came to us from Morningstar Australasia with broad experience in talent
development, succession planning, coaching and benefits. We were also delighted to add Carlotta to the firm in 2020 as
general counsel—she brings extensive financial industry and legal expertise to this vital role, where she will focus on the
relationship between our corporate board of directors and the management team as part of her responsibilities.
The dedicated CIO role marks an important transition for Diamond Hill, giving Austin greater focus on portfolio management
responsibilities. As someone who is steeped in Diamond Hill’s investment philosophy, process, culture and values, Matthew
was the ideal candidate for this role. He will act as an external voice of the investment team with clients, advocate for our
investment team internally, and play a key role in hiring and feedback. He will closely collaborate with portfolio managers
but will not have any portfolio decision-making responsibilities, allowing portfolio managers the continued freedom and
autonomy to execute their philosophy. The trading team will also report to Matthew, enabling Chris Welch to further focus
on portfolio management responsibilities. We are deeply appreciative of Austin and Chris for their dedication and leadership
and are pleased to give them the freedom to focus on generating returns for clients.
We appointed Micah Martin, CFA, as our Director of Research to provide dedicated leadership to our U.S. research team.
This structure enables more mentoring and professional development opportunities for our research team. With our portfolio
managers freed from operational responsibilities, there are also more opportunities for collaboration within our deep
investment team. We are confident the changes made to our management infrastructure have positioned Diamond Hill to
thrive for the long term.
Financial Results
Diamond Hill is starting 2021 in a much stronger position than 2020. Assets under management finished the year at $26.4
billion compared with $23.4 billion at the start of the year. Importantly, the $3.0 billion in growth came from both net client
inflows of $1.5 billion and market appreciation of a similar amount. We saw positive client flows in our Large Cap and Mid
Cap strategies as well as in each of our four fixed income strategies. These positive flows were partially offset by outflows in
our Long-Short, Small Cap and Small-Mid Cap strategies. Revenue declined 7% to $126.4 million in 2020. While we grew
assets 13% during the year, our average assets under management were approximately the same as 2019 due to the severe
market downturn in the first half of the year in response to the pandemic. Our average advisory fee rate declined from 0.59%
to 0.54% due to the shift in asset mix to lower fee strategies.
We generated net operating income of $45.5 million in 2020, a decrease of 5% from 2019, and our operating margin
increased from 35% in 2019 to 36% in 2020. We focus on net operating income as adjusted, after tax, which excludes the
gains and losses on deferred compensation plan investments that flow through operating income. Net operating income, as
adjusted, after tax, was $35.1 million in 2020 compared with $40.2 million in 2019. This equates to $10.91 per share in 2020
compared with $11.71 per share in 2019. Our operating profit margin, as adjusted, was 38% in 2020 compared with 39% in
2019.
As stewards of our business, our goal is to grow the long-term intrinsic value of our firm. Over the last five years, important
fundamental indicators of Diamond Hill's intrinsic value per share have increased. Assets under management increased more
than 50%, and tangible book value per share almost doubled, from $30.84 in 2015 to $58.09 in 2020. Net operating income,
as adjusted, after tax, per share has remained relatively flat at $10.91 in 2020 compared to $11.17 in 2015. Shareholders have
derived significant value from the company's cash flows and tangible net assets, receiving special dividends in each of the
past five years cumulatively totaling $42.00 per share. While we expect the share price to converge with the value of the
business over time, when the share price deviates significantly from intrinsic value over shorter periods, it does not change
our long-term focus. When our share price is trading significantly below our estimate of intrinsic value, we may take the
opportunity to buy back shares.
In February 2021, we announced that we entered into a definitive agreement to enable Brandywine Global Investment
Management to acquire the business of Diamond Hill’s high yield-focused mutual funds—the High Yield and Corporate
Credit Funds. The transaction is expected to close in the third quarter of 2021, subject to customary closing conditions,
including fund shareholder approval. In connection with the transaction, two portfolio managers and a research associate will
join Brandywine Global’s credit team. At closing, Diamond Hill will receive an initial cash payment of up to $9.0 million,
and may receive additional payments totaling up to $13.0 million based on the net revenue of the acquired funds on the one-
year anniversary of the closing date.
Capital Allocation
Our approach to capital allocation is designed to grow the intrinsic value of the business by investing in new and existing
strategies and ensuring we have sufficient cash to run the business in any market environment. When we believe we have
more capital than is necessary to achieve those aims, we will continue to return capital to shareholders.
Beginning in the fourth quarter of 2018, we implemented a share repurchase plan. Since that time, we have repurchased
approximately 480,000 shares totaling $65 million, which represents 13.6% of our shares outstanding when the plan started.
We have $35 million remaining in our current share repurchase plan, and we intend to continue to repurchase our shares
when they trade at a meaningful discount to our estimate of the firm’s intrinsic value.
After considering strategic uses of capital for seeding our strategies and share repurchases, we then evaluate any excess
capital when considering dividends to be paid to our shareholders. Our $12.00 per share dividend in 2020 marked the 13th
consecutive year that we paid a special dividend.
Given our history of consistently generating excess cash flow, in October we announced plans to institute a regular quarterly
dividend of $1.00 per share starting in the first quarter of 2021. In addition, each year we will consider paying an additional
special dividend.
Conclusion
When I joined Diamond Hill in September 2019, the last thing I expected was to be navigating our business through the first
(and hopefully only) global pandemic of our lifetimes. The loss we have seen across the world is devastating. The long-term
consequences of the pandemic are far-reaching and may never be fully understood. My heart goes out to all those who have
lost loved ones and friends.
These events have helped me realize how proud I am to be part of the Diamond Hill team. Our associates handled the
extreme disruption and loss of the last year with compassion and professionalism and, despite personal challenges, always put
our clients’ interests first. I have also been impressed by our team’s ability to remain focused on the long term—ensuring we
are making sound investment decisions and have the right infrastructure in place to keep meeting client needs far into the
future.
Diamond Hill is emerging from the challenges of the last year with fresh perspectives. Some things have not changed—most
importantly our commitment to excellent outcomes that help improve clients’ lives. In other ways, we are proud to have
changed, and we are emerging as a more nimble, focused and innovative business, ready to evolve as the industry and our
clients require. I am excited and energized about the future we face, and look forward to working with our fantastic team of
associates to deliver for our clients. I am grateful for the partnership of our associates, clients and shareholders that enables us
to deliver on our vision.
Sincerely,
Heather Brilliant
Chief Executive Officer
ANNEX - RECONCILIATION OF NON-GAAP MEASURES
As supplemental information, we are providing performance measures that are based on methodologies other than U.S.
generally accepted accounting principles (“non-GAAP”). We believe the non-GAAP measures below are useful measures of
our core business activities, are important metrics in estimating the value of an asset management business and may enable
more appropriate comparison to our peers. These non-GAAP measures should not be a substitute for financial measures
calculated in accordance with U.S. generally accepted accounting principles (“GAAP”) and may be calculated differently by
other companies. The following schedule reconciles GAAP measures to non-GAAP measures for the years ended December
31, 2020, 2019, 2018, 2017, 2016, and 2015 respectively.
(in thousands, except percentages and per share
data)
Total revenue
2020
$ 126,388
2019
$ 136,624
2018
$ 145,628
2017
$ 145,202
2016
$ 136,103
2015
$ 124,426
Year Ended December 31,
Net operating income, GAAP basis
$ 45,538
$ 47,935
$ 71,256
$ 67,001
$ 63,069
$ 58,720
Non-GAAP adjustments:
Gains (losses) on deferred
compensation plan investments,
net(1)
Net operating income, as adjusted,
non-GAAP basis(2)
Non-GAAP adjustments:
Tax provision on net operating
income, as adjusted, non-GAAP
basis(3)
Net operating income, as adjusted,
after tax, non-GAAP basis(4)
Net operating income, as adjusted after
tax per diluted share, non-GAAP
basis(5)
Diluted weighted average shares
outstanding, GAAP basis
2,219
5,977
(2,122)
2,382
1,837
(234)
47,757
53,912
69,134
69,383
64,906
58,486
(12,668)
(13,680)
(19,542)
(25,704)
(23,626)
(21,090)
$ 35,089
$ 40,232
$ 49,592
$ 43,679
$ 41,280
$ 37,396
$ 10.91
$ 11.71
$ 14.11
$ 12.65
$ 12.09
$ 11.13
3,215
3,437
3,515
3,452
3,413
3,360
Operating profit margin, GAAP basis
Operating profit margin, as adjusted,
non-GAAP basis(6)
36 %
38 %
35 %
39 %
49 %
47 %
46 %
48 %
46 %
48 %
47 %
47 %
(1) Gains (losses) on deferred compensation plan investments, net: The gain (loss) on deferred compensation plan
investments, which increases (decreases) deferred compensation expense included in operating income, is removed from
operating income in the calculation because it is offset by an equal amount in investment income (loss) below net operating
income on the income statement, and thus has no impact on net income attributable to us.
(2) Net operating income, as adjusted: This non-GAAP measure represents our net operating income adjusted to exclude the
impact on compensation expense of gains and losses on investments in the deferred compensation plan.
(3) Tax provision on net operating income, as adjusted: This non-GAAP measure represents the tax provision excluding the
impact of investment related activity and the sale of subsidiary and is calculated by applying the unconsolidated effective tax
rate to net operating income, as adjusted.
(4) Net operating income, as adjusted, after tax: This non-GAAP measure deducts from the net operating income, as adjusted,
the tax provision on net operating income, as adjusted.
(5) Net operating income, as adjusted after tax per diluted share: This non-GAAP measure was calculated by dividing the net
operating income, as adjusted after tax, by diluted weighted average shares outstanding.
(6) Operating profit margin, as adjusted: This non-GAAP measure was calculated by dividing the net operating income, as
adjusted, by total revenue.
Diamond Hill Investment Group, Inc.
325 John H. McConnell Boulevard, Suite 200
Columbus, Ohio 43215
March 12, 2021
Dear Shareholders:
We cordially invite you to attend the 2021 Annual Meeting of Shareholders of Diamond Hill Investment Group, Inc., to be
held at Diamond Hill Investment Group, Inc., 325 John H. McConnell Boulevard, Suite 200, Columbus, Ohio 43215, on
Monday, April 26, 2021 at 9:00 a.m. Eastern Daylight Saving Time.
The attached Notice of Annual Meeting and Proxy Statement describe the formal business to be transacted at the meeting.
The business portion of the Annual Meeting will continue as previously scheduled. However, due to the coronavirus
(COVID-19) pandemic, Diamond Hill has decided to hold its customary management presentation and question and answer
session virtually on Tuesday, May 4, 2021 at 2:00 p.m. Eastern Daylight Saving Time. On behalf of the Board of Directors,
we urge you to sign, date, and return the enclosed proxy card as soon as possible, even if you currently plan to attend
the Annual Meeting. Returning the enclosed proxy card will not prevent you from voting in person, but will ensure that your
vote is counted if you are unable to attend the Annual Meeting. Your vote is important, regardless of the number of shares
you own.
Sincerely,
Heather E. Brilliant
Chief Executive Officer
Diamond Hill Investment Group, Inc.
325 John H. McConnell Boulevard, Suite 200, Columbus, Ohio 43215
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON APRIL 26, 2021
Notice is hereby given that the 2021 Annual Meeting of Shareholders (the “Annual Meeting”) of Diamond Hill Investment
Group, Inc. (the “Company”), will be held at Diamond Hill Investment Group, Inc., 325 John H. McConnell Boulevard, Suite
200, Columbus, Ohio 43215, on Monday, April 26, 2021 at 9:00 a.m. Eastern Daylight Saving Time, to consider and act
upon the following matters:
1)
2)
3)
4)
5)
the election of six directors to serve on the Company’s Board of Directors until the Company’s 2022 Annual
Meeting of Shareholders and until their successors have been duly elected and qualified;
the ratification of the appointment of KPMG LLP as the Company’s independent registered public accounting firm
for the fiscal year ending December 31, 2021;
a non-binding, advisory resolution to approve the compensation of the Company’s named executive officers;
the approval and adoption of the Diamond Hill Investment Group, Inc. Employee Stock Purchase Plan; and
such other business as may properly come before the Annual Meeting or any adjournment thereof.
Action may be taken on the foregoing proposals at the Annual Meeting or at any adjournment of the Annual Meeting. The
Board of Directors has fixed the close of business on March 1, 2021, as the record date for determining the shareholders
entitled to vote at the Annual Meeting and any adjournments thereof. Please complete, sign, and date the enclosed proxy
card, which is solicited by the Company’s Board of Directors, and mail it promptly in the enclosed envelope. Alternatively,
you may vote by phone or electronically over the Internet in accordance with the instructions on the enclosed proxy card.
Returning the enclosed proxy card, or voting electronically through the Internet or by telephone, does not affect your right to
vote in person at the Annual Meeting. If you attend the Annual Meeting you may revoke your proxy and vote in person if
your shares are registered in your name.
COVID-19 Protocols
In light of the continuing risk posed by the coronavirus ("COVID-19") pandemic, we strongly encourage shareholders to
return the enclosed proxy card or vote by phone or electronically prior to the Annual Meeting rather than attending in person.
Due to the social distancing mandates of local and state authorities related to COVID-19, we are limiting attendance at the
meeting. We ask that you register in advance if you plan to attend the Annual Meeting by contacting Carlotta D. King,
Secretary, at (614) 255-3333 no later than Wednesday, April 21, 2021 at 5:00 p.m. Eastern Daylight Saving Time to allow us
to plan appropriately for the attendees. At the Annual Meeting, you will be asked to present the enclosed proxy card (or, if
you hold your shares in “street name”, a signed proxy from your broker or other nominee giving you the right to vote your
shares at the Annual Meeting) and a form of identification.
Additional protocols will also be in place at the Annual Meeting to protect the safety and well-being of our directors,
employees and guests. These protocols include requiring all attendees to wear face masks that cover both nose and mouth, a
temperature check, and answering certain health related questions upon arrival. All people attending the meeting in person
must bring their own and wear their face masks, and we reserve the right to refuse entrance to anyone who refuses to comply
with our safety protocols.
Social distancing requirements will also be enforced. In the event that, prior to the meeting, any orders or limitations are
imposed by applicable authorities that would limit or otherwise affect meeting attendance or the safety protocols, the
Company will comply with any such limitations or orders. We urge you to check whether any such orders or limitations have
been imposed prior to attending the Annual Meeting in person.
PROMPTLY RETURNING YOUR PROXY CARD WILL SAVE THE COMPANY THE EXPENSE OF MAKING
FURTHER REQUESTS FOR PROXIES IN ORDER TO OBTAIN A QUORUM. WHETHER OR NOT YOU PLAN
TO ATTEND THE ANNUAL MEETING, PLEASE COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED
PROXY CARD IN THE ENCLOSED POSTAGE-PAID ENVELOPE. ALTERNATIVELY, REFER TO THE
INSTRUCTIONS ON THE PROXY CARD TO TRANSMIT YOUR VOTING INSTRUCTIONS VIA THE
INTERNET OR BY TELEPHONE.
By order of the Board of Directors,
Carlotta D. King, Secretary
Columbus, Ohio
March 12, 2021
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE
ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON APRIL 26, 2021:
The Proxy Statement and the Company’s 2020 Annual Report on Form 10-K are available without charge at the
following location:
https://www.diamond-hill.com/proxy
Diamond Hill Investment Group, Inc.
325 John H. McConnell Boulevard, Suite 200
Columbus, Ohio 43215
PROXY STATEMENT
FOR THE ANNUAL MEETING OF SHAREHOLDERS OF
DIAMOND HILL INVESTMENT GROUP, INC.
TO BE HELD ON APRIL 26, 2021
This Proxy Statement is being furnished to the shareholders of Diamond Hill Investment Group, Inc., an Ohio corporation
(the “Company”, “we”, “us”, or “our”), in connection with the solicitation of proxies by our Board of Directors (the “Board”)
for use at our 2021 Annual Meeting of Shareholders (the “Annual Meeting”) to be held at the offices of Diamond Hill
Investment Group, Inc., 325 John H. McConnell Boulevard, Suite 200, Columbus, Ohio 43215, at 9:00 a.m., Eastern
Daylight Saving Time, on April 26, 2021, and any adjournment thereof. A copy of the Notice of Annual Meeting
accompanies this Proxy Statement. This Proxy Statement and the enclosed proxy are first being mailed to shareholders on or
about March 12, 2021. Only our shareholders of record at the close of business on March 1, 2021, the record date for the
Annual Meeting, are entitled to notice of, and to vote at, the Annual Meeting.
The purposes of this Annual Meeting are:
1)
to elect six directors to serve on our Board until our 2022 Annual Meeting of Shareholders and until their
successors have been duly elected and qualified;
2)
3)
4)
5)
to consider and vote upon a proposal to ratify the appointment of KPMG LLP as our independent registered
public accounting firm for the fiscal year ending December 31, 2021;
to consider and vote upon a non-binding, advisory resolution to approve the compensation of our named
executive officers;
to approve and adopt the Diamond Hill Investment Group, Inc. Employee Stock Purchase Plan; and
to transact such other business that may properly come before the Annual Meeting or any adjournment
thereof.
Those common shares represented by: (i) properly signed proxy cards received by us prior to the Annual Meeting, or (ii)
properly authenticated voting instructions recorded electronically over the Internet or by telephone prior to 7:00 p.m., Eastern
Daylight Saving Time on April 25, 2021 and, in each case, that are not revoked, will be voted at the Annual Meeting as
directed by the shareholders. If a shareholder submits a valid proxy and does not specify how the common shares
should be voted, they will be voted as recommended by the Board. The proxy holders will use their best judgment
regarding any other matters that may properly come before the Annual Meeting.
TABLE OF CONTENTS
Section
QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING AND VOTING
PROCEDURAL MATTERS
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
DELINQUENT SECTION 16(A) REPORTS
PROPOSAL 1 — ELECTION OF DIRECTORS
DIRECTOR INDEPENDENCE
THE NOMINEES
THE BOARD OF DIRECTORS AND COMMITTEES
COMPENSATION OF DIRECTORS
CORPORATE GOVERNANCE
EXECUTIVE OFFICERS AND COMPENSATION INFORMATION
COMPENSATION DISCUSSION AND ANALYSIS
STOCK OWNERSHIP GUIDELINES
SUMMARY COMPENSATION TABLE
PAY RATIO DISCLOSURE
GRANT OF PLAN BASED AWARDS FOR 2019
OUTSTANDING EQUITY AWARDS AT DECEMBER 31, 2019
OPTION EXERCISES AND STOCK VESTED FOR 2019
PENSION PLANS AND NON-QUALIFIED DEFERRED COMPENSATION
EMPLOYMENT AGREEMENTS
COMPENSATION COMMITTEE REPORT
PROPOSAL 2 — RATIFICATION OF THE APPOINTMENT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
AUDIT COMMITTEE REPORT
PROPOSAL 3 - ADVISORY VOTE ON THE COMPENSATION OF THE COMPANY’S
NAMED EXECUTIVE OFFICERS
PROPOSAL 4 - APPROVAL AND ADOPTION OF THE DIAMOND HILL INVESTMENT
GROUP, INC. EMPLOYEE STOCK PURCHASE PLAN
ADDITIONAL INFORMATION
SHAREHOLDER COMMUNICATIONS WITH THE BOARD OF DIRECTORS
SHAREHOLDER PROPOSALS FOR 2020 ANNUAL MEETING
SHAREHOLDERS SHARING THE SAME ADDRESS
OTHER BUSINESS
APPENDIX A - EMPLOYEE STOCK PURCHASE PLAN
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A-1
Q:
A:
QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING AND VOTING
When and where will the Annual Meeting take place?
The Annual Meeting will be held at Diamond Hill Investment Group, Inc., 325 John H. McConnell Boulevard, Suite 200,
Columbus, Ohio 43215, on Monday, April 26, 2021, at 9:00 a.m., Eastern Daylight Saving Time.
Q: How do I attend the Annual Meeting?
A: We currently intend to hold the business portion of the Annual Meeting in person as scheduled. However, due to the
COVID-19 pandemic, we have decided to hold our customary management presentation and question and answer session
virtually on Tuesday, May 4, 2021 at 2:00 p.m. Eastern Daylight Saving Time.
With respect to the Annual Meeting, in light of the continuing risk posed by the COVID-19 pandemic, we strongly
encourage shareholders to return the enclosed proxy card or vote by phone or electronically prior to the Annual Meeting
rather than attending in person. We also plan to limit the in-person attendance to shareholders as of the close of business
on March 1, 2021, due to the social distancing mandates of local and state authorities related to COVID-19 and the overall
safety of attendees. If you plan to attend the Annual Meeting in person, we ask that you register in advance by contacting
Carlotta D. King, Secretary, at (614) 255-3333 no later than Wednesday, April 21, 2021 at 5:00 p.m. Eastern Daylight
Saving Time.
Additional protocols will also be in place at the Annual Meeting to protect the safety and well-being of our directors,
employees and guests. These protocols include requiring all attendees to wear face masks that cover both nose and mouth,
a temperature check, and answering certain health related questions upon arrival. All people attending the meeting in
person must bring their own and wear their face masks, and we reserve the right to refuse entrance to anyone who refuses
to comply with our safety protocols.
Social distancing requirements will also be enforced. In the event that, prior to the meeting, any orders or limitations are
imposed by applicable authorities that would limit or otherwise affect meeting attendance or the safety protocols, the
Company will comply with any such limitations or orders. We urge you to check whether any such orders or limitations
have been imposed prior to attending the Annual Meeting in person.
What may I vote on at the Annual Meeting?
At the Annual Meeting, you will be asked to consider and vote upon:
•
•
the election of six directors to serve on the Board until our 2022 Annual Meeting of Shareholders;
the ratification of the appointment of KPMG LLP as our independent registered public accounting firm for the
fiscal year ending December 31, 2021;
a non-binding, advisory resolution to approve the compensation of our named executive officers;
the approval and adoption of the Diamond Hill Investment Group, Inc. Employee Stock Purchase Plan; and
such other business as may properly come before the Annual Meeting or any adjournment thereof.
•
•
•
What do I need to do now?
After carefully reading this Proxy Statement, indicate on the enclosed proxy card how you want your shares to be voted
and sign and mail the proxy card promptly in the enclosed envelope. Alternatively, you may vote by phone or over the
Internet in accordance with the instructions on your proxy card. The deadline for transmitting voting instructions over the
Internet or telephonically is 7:00 p.m. Eastern Daylight Saving Time on Sunday, April 25, 2021. If you vote by phone or
over the Internet, you do not need to return a proxy card. You should be aware that if you vote over the Internet or by
phone, you may incur costs associated with electronic access, such as usage charges from Internet service providers and
telephone companies.
What does it mean if I get more than one proxy card?
If your shares are registered in more than one account, you will receive more than one proxy card. If you intend to vote by
mail, please sign, date, and return all proxy cards to ensure that all your shares are voted. If you are a record holder and
intend to vote by telephone or over the Internet, you must do so for each individual proxy card you receive.
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What is the difference between holding shares as a shareholder of record and as a beneficial owner?
1
A:
Many shareholders are beneficial owners of our shares, meaning they hold their shares in “street name” through a broker,
bank, or other nominee. As summarized below, there are some distinctions between shares held of record and shares
owned beneficially.
Shareholder of Record. For shares registered directly in your name with our transfer agent, you are considered the
shareholder of record and we are sending this Proxy Statement and related materials directly to you. As a shareholder of
record, you have the right to vote in person at the Annual Meeting or you may grant your proxy directly to the Board’s
designees by completing, signing, and returning the enclosed proxy card, or voting over the Internet or by phone.
Beneficial Owner. For shares held in “street name”, you are considered the beneficial owner and this Proxy Statement and
related materials are being forwarded to you by your broker, bank, or other nominee, who is the shareholder of record. As
the beneficial owner, you have the right to direct your broker or other nominee on how to vote your shares. Your broker or
nominee will provide you with information on the procedures you must follow to instruct them how to vote your shares or
how to revoke previously given voting instructions.
If my shares are held in “street name” by my broker, will my broker vote my shares for me?
Your broker will vote your shares in the manner you instruct, and you should follow the voting instructions your broker
has provided to you. However, if you do not provide voting instructions to your broker, it may vote your shares in its
discretion on certain “routine” matters. The ratification of the appointment of KPMG LLP as our independent registered
public accounting firm for the 2021 fiscal year is considered a routine matter, and if you do not submit voting instructions,
your broker may choose, in its discretion, to vote or not vote your shares on the ratification. None of the other matters to
be voted on at the Annual Meeting are routine, and your broker may not vote your shares on those matters without your
instructions.
May I revoke my proxy or change my vote after I have mailed a proxy card or voted electronically over the
Internet or by telephone?
Yes. You can change your vote at any time before your proxy is voted at the Annual Meeting. If you are the record holder
of the shares, you can do this in any one of three ways:
•
•
•
Send a written statement to Carlotta D. King, the Company's Secretary, at Diamond Hill Investment Group, Inc., 325
John H. McConnell Boulevard, Suite 200, Columbus, Ohio 43215, stating that you would like to revoke your proxy,
which must be received prior to the Annual Meeting;
Send a newly signed and later-dated proxy card, which must be received prior to the Annual Meeting, or submit later-
dated electronic voting instructions over the Internet or by telephone no later than 7:00 p.m., Eastern Daylight Saving
Time on April 25, 2021; or
Attend the Annual Meeting and either revoke your proxy in person prior to the start of voting at the Annual Meeting
or vote in person at the Annual Meeting. Attending the Annual Meeting will not, by itself, revoke your proxy or a
prior Internet or telephone vote.
If you are a beneficial owner, you may change your vote by submitting new voting instructions to your broker or nominee.
You should review the instructions provided by your broker or nominee to determine the procedures you must follow.
Can I vote my shares in person at the Annual Meeting?
You may vote shares for which you are the record holder in person at the Annual Meeting. If you choose to attend, please
bring the enclosed proxy card and a form of identification, even if you have registered to attend the Annual Meeting. If
you are a beneficial owner and you wish to attend the Annual Meeting and vote in person, you will need a signed proxy
from your broker or other nominee giving you the right to vote your shares at the Annual Meeting and a form of
identification, even if you have registered to attend the Annual Meeting. To obtain directions to attend the Annual
Meeting and vote in person, please call Carlotta D. King, Secretary, at (614) 255-3333 or visit the Company’s website,
https://www.diamond-hill.com/contact/. In light of the continuing risk posed by the COVID-19 pandemic, we strongly
encourage shareholders to return the enclosed proxy card or vote by phone or electronically prior to the Annual Meeting
rather than attending in person.
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How will my shares be voted if I submit a proxy without voting instructions?
2
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If you submit a proxy and do not indicate how you want your shares voted, your proxy will be voted on the proposals as
recommended by the Board. The Board’s recommendations are set forth in this Proxy Statement.
Who can answer my questions about how I can submit or revoke my proxy or vote by phone or via the Internet?
If you are a record holder and have more questions about how to submit your proxy, please call Carlotta D. King, the
Company's Secretary, at (614) 255-3333. If you are a beneficial owner, you should contact your broker or other nominee
to determine the procedures you must follow.
Record Date
PROCEDURAL MATTERS
Only our shareholders of record at the close of business on March 1, 2021, the record date, will be entitled to vote at the Annual
Meeting. As of the record date, there were 3,160,019 of our common shares outstanding and entitled to be voted at the Annual
Meeting.
Proxy
Your shares will be voted at the Annual Meeting as you direct on your signed proxy card or in your telephonic or Internet voting
instructions. If you submit a proxy card without voting instructions, it will be voted as recommended by the Board. The Board's
recommendations are set forth in this Proxy Statement. The duly appointed proxy holders will vote in their discretion on any other
matters that may properly come before the Annual Meeting.
Voting
A shareholder may cast one vote for each outstanding share held by the shareholder on each separate matter of business properly
brought before the Annual Meeting. If you hold shares in street name, we encourage you to instruct your broker or other nominee
as to how to vote your shares.
Director elections. Votes that shareholders cast "FOR" a director-nominee must exceed the votes that shareholders cast
"AGAINST" a director-nominee for the individual to be elected. Please also see the discussion of our "Majority Voting" provisions
within Proposal 1.
Ratification of selection of KPMG. The affirmative vote of the holders of a majority of the shares cast on the proposal is required
to ratify the selection of KPMG LLP ("KPMG") as the Company’s independent registered public accounting firm for fiscal year
2021.
Advisory approval of named executive officer compensation. The affirmative vote of the holders of a majority of the shares cast on
the proposal is required for non-binding shareholder advisory approval of the compensation of the Company’s named executive
officers.
Approval and adoption of the Diamond Hill Investment Group, Inc. Employee Stock Purchase Plan. The affirmative vote of the
holders of a majority of the shares cast on the proposal is required to approve and adopt the Employee Stock Purchase Plan.
Effect of broker non-votes and abstentions. Under the applicable regulations of the Securities and Exchange Commission (the
“SEC”) and the rules of the exchanges and other self-regulatory organizations of which the brokers are members, brokers who hold
common shares in street name for beneficial owners may sign and submit proxies and may vote our common shares on certain
“routine” matters. The ratification of KPMG is considered routine. Under applicable stock exchange rules, brokers are not
permitted to vote without instruction in the election of directors. In addition, SEC regulations prohibit brokers from voting without
customer instruction on the approval of named executive officer compensation. Proxies that are signed and submitted by brokers
that have not been voted on certain matters are referred to as “broker non-votes.”
Neither broker non-votes nor abstentions will have any effect on the election of directors, the ratification of the appointment of
KPMG, the advisory approval of named executive officer compensation, or the approval and adoption of the Diamond Hill
Investment Group, Inc. Employee Stock Purchase Plan.
3
Quorum
Business can be conducted at the Annual Meeting only if a quorum, consisting of the holders of at least a majority of our
outstanding shares entitled to vote, is present, either in person or by proxy. Abstentions and broker non-votes will be counted
toward establishing a quorum. If a quorum is not present at the time the Annual Meeting is convened, a majority of the shares
represented in person or by proxy may adjourn the Annual Meeting to a later date and time, without notice other than announcement
at the Annual Meeting. At any such adjournment of the Annual Meeting at which a quorum is present, any business may be
transacted which might have been transacted at the Annual Meeting as originally called.
Solicitation; Expenses
We will pay all expenses of the Board’s solicitation of the proxies for the Annual Meeting, including the cost of preparing,
assembling. and mailing the Notice, proxy card, and Proxy Statement, postage for return envelopes, the handling and expenses for
tabulation of proxies received, and charges of brokerage houses and other institutions, nominees, or fiduciaries for forwarding such
documents to beneficial owners. We will not pay any electronic access charges associated with Internet or telephonic voting
incurred by a shareholder. We may solicit proxies in person or by telephone, facsimile, or e-mail. Our officers, directors and
employees may also assist with solicitation, but will receive no additional compensation for doing so.
No person is authorized to give any information or to make any representation not contained in this Proxy Statement, and you
should not rely on any such information or representation. This Proxy Statement does not constitute the solicitation of a proxy in
any jurisdiction from any person to whom it is unlawful to make such proxy solicitation in such jurisdiction. The delivery of this
Proxy Statement does not, under any circumstances, imply that there has not been any change in the information set forth herein
since the date of this Proxy Statement.
Requests for Proxy Statement and Annual Report on Form 10-K; Internet Availability
Our Annual Report on Form 10-K for the year ended December 31, 2020 (the "Form 10-K"), including audited consolidated
financial statements, accompanies this Proxy Statement but is not a part of the proxy solicitation material. We are delivering a
single copy of this Proxy Statement and the Form 10-K to multiple shareholders sharing an address unless we have received
instructions from one or more of these shareholders to the contrary. However, each shareholder will continue to receive a separate
proxy card. We will promptly deliver a separate copy of the Proxy Statement and/or Form 10-K, at no charge, upon receipt of a
written or oral request by a record shareholder at a shared address to which a single copy of the documents was delivered. Written
or oral requests for a separate copy of the documents, or to provide instructions for delivery of documents in the future, may be
directed to Carlotta D. King, Secretary, at Diamond Hill Investment Group, Inc., 325 John H. McConnell Boulevard, Suite 200,
Columbus, Ohio 43215 or by phone at (614) 255-3333. Additionally, this Proxy Statement and our Form 10-K are available on the
internet free of charge at: https://www.diamond-hill.com/proxy.
4
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth beneficial ownership of our common shares as of the record date, March 1, 2021, by: (a) all
persons known by us to beneficially own 5% or more of the Company’s outstanding shares, (b) each director of the
Company, (c) the Company's named executive officers, and (d) all of the Company's executive officers, directors, and
director nominees as a group. Although not required, we have also voluntarily disclosed all common shares beneficially
owned by all other employees of the Company, excluding its executive officers. Unless otherwise indicated, the named
persons exercise sole voting and dispositive power over the shares listed. None of the named persons hold any outstanding
options to acquire our common shares, and none of the named persons have pledged any common shares of the Company as
security.
Name of Beneficial Owner
Heather E. Brilliant
Richard S. Cooley
Randolph J. Fortener
James F. Laird
Thomas E. Line
Paula R. Meyer
Bradley C. Shoup
Nicole R. St. Pierre
Directors, nominees, and executive officers as a group (8 persons)
All other employees of the Company (125 persons)
5% Beneficial Owners
BlackRock, Inc.(4)
Wells Fargo & Company(5)
Amount and Nature
of Beneficial
Ownership
Percent of
Class(1)
(2)
(2)
29,161
5,279
8,600
34,000
19,695
2,379
7,200
2,379
*
*
*
1.1 %
*
*
*
*
108,693
411,791
(3)
3.4 %
13.0 %
246,279
163,055
7.8 %
5.2 %
_______________
(1) Beneficial ownership of less than 1% is represented by an asterisk (*). The percent of class is based upon the number of
common shares beneficially owned by the named person divided by 3,160,019, which was the total number of shares that
were issued and outstanding as of March 1, 2021.
(2) Includes 473 and 1,294 shares for Ms. Brilliant, and Mr. Line, respectively, that are held in the Diamond Hill Investment
Group 401(k) Plan and Trust (the "401(k) Plan"), over which the Trustee of the 401(k) Plan possesses the voting power.
(3) Includes all other employees of the Company not listed above as of March 1, 2021. Each employee has sole voting
power over the shares of such employee reflected in the table, except for the 73,333 shares that are held in the 401(k)
Plan, over which the Trustee of the 401(k) Plan possesses voting power. Certain shares are subject to restrictions on the
power to dispose of the shares. The employees do not constitute a Group as defined by Rule 13d-1 of the Exchange Act.
(4) Based on information contained in Schedule 13G/A filed with the SEC on January 29, 2021, by BlackRock, Inc. to report
beneficial ownership by its subsidiaries (BlackRock Advisors, LLC, BlackRock Investment Management (UK) Limited,
BlackRock Asset Management Canada Limited, BlackRock (Netherlands) B.V., BlackRock Fund Advisors, BlackRock
Asset Management Ireland Limited, BlackRock Institutional Trust Company, N.A., BlackRock Financial Management,
Inc., BlackRock Life Limited, BlackRock Fund Managers Ltd, BlackRock Asset Management Schweiz AG, and
BlackRock Investment Management, LLC) of shares as of December 31, 2020. This Schedule 13G/A reported that
BlackRock, Inc., through its subsidiaries, had sole voting power over 241,314 shares and sole dispositive power over
246,279 shares. The address for BlackRock, Inc. is 55 East 52nd Street, New York, NY 10055.
(5) Based on information contained in Schedule 13G/A filed with the SEC on February 11, 2021, by Wells Fargo &
Company to report beneficial ownership by its subsidiaries (Wells Fargo Clearing Services, LLC, Wells Fargo Advisors
Financial Network, LLC, Wells Fargo Funds Management, LLC, Wells Capital Management Incorporated, and Wells
Fargo Bank, National Association) of shares as of December 31, 2020. This Schedule 13G/A reported that Wells Fargo
& Company, through its subsidiaries, had sole voting power and dispositive power over 4,856 shares, shared voting
power over 7,317 shares, and shared dispositive power over 158,199 shares. The address for Wells is 420 Montgomery
Street, San Francisco, CA 94163.
5
DELINQUENT SECTION 16(A) REPORTS
We believe that all filing requirements to comply with Section 16(a) of the Securities Exchange Act of 1934, as amended,
were met during the fiscal year ended December 31, 2020 and through the date of this Proxy Statement.
PROPOSAL 1 — ELECTION OF DIRECTORS
The Board guides the strategic direction of the Company and oversees its management. All of our directors are elected
annually.
On February 24, 2021, director Bradley C. Shoup notified the Company that he intended to retire from the Board upon
expiration of his current term at the Annual Meeting. As a result, he will not be nominated for re-election at the Annual
Meeting.
Pursuant to the recommendation of the Nominating and Governance Committee, the Board has nominated the six nominees
listed below for election, all of whom are current directors, to hold office until the 2022 Annual Meeting of Shareholders and
until their respective successors are elected and qualified. If any nominee becomes unable or unwilling to serve between the
date of this Proxy Statement and the Annual Meeting, proxies will be voted FOR the election of a replacement recommended
by the Nominating and Governance Committee and approved by the Board.
Majority Voting
In an uncontested election, a nominee will not be elected unless he or she receives more “FOR” votes than “AGAINST”
votes. In addition, pursuant to the Board's Corporate Governance Guidelines, any director who fails to obtain the required
vote in an uncontested election will be expected to promptly submit his or her resignation to the Board. The Board will then
decide, after considering the Nominating and Governance Committee's recommendation, whether to accept or decline the
resignation, or decline the resignation with conditions. The Board will make any such decision within 90 days following the
date of the Annual Meeting of Shareholders at which such uncontested election occurred. Plurality voting will apply to any
contested elections.
Director Independence
The Board has determined that each of Richard S. Cooley, Randy J. Fortener, James F. Laird, Paula R. Meyer, Bradley C.
Shoup, and Nicole R. St. Pierre qualifies as independent under the rules and independence standards of The NASDAQ Stock
Market (“NASDAQ”), as well as applicable SEC requirements. The Board has determined that Heather E. Brilliant is not
independent. There are no family relationships among our directors and executive officers.
The Nominees
The Board has determined that all of our director nominees are qualified to serve as directors of the Company. In addition to
the specific business experience listed below, each of our director nominees has the tangible and intangible skills and
attributes that we believe are required to be an effective director of the Company, including experience at senior levels in
areas of expertise helpful to the Company, a willingness and commitment to assume the responsibilities required of a director,
and the character and integrity we expect of our directors. The specific qualifications of each individual nominee are set forth
under such nominee's name below.
Heather E. Brilliant, CFA, age 44, was appointed as a director, President and Chief Executive Officer ("CEO") of the
Company effective September 3, 2019. Ms. Brilliant previously served as Chief Executive Officer, Americas with First State
Investments from 2017 until joining the Company. Prior to that role, she spent almost 14 years with Morningstar where she
served as Global Head of Equity & Credit Research before advancing to Chief Executive Officer, Morningstar Australasia.
Earlier in her career, she held several roles analyzing both credit and equity at firms including Driehaus Capital Management,
Coghill Capital Management, and Bank of America.
Ms. Brilliant received her Bachelor's degree from Northwestern University and an MBA from the University of Chicago.
Ms. Brilliant also holds the Chartered Financial Analyst designation and is past chair and served as a member of the CFA
Institute Board of Governors from 2013-2020.
6
Ms. Brilliant's qualifications to serve on the Board include her prior experience as CEO of a division of an investment firm as
well as her in depth knowledge of the investment management industry through her more than 20 years of experience as an
investment professional and industry executive.
Richard S. Cooley, age 52, was appointed a director in October 2020, and currently serves on the Audit Committee, the
Nominating and Governance Committee, and the Compensation Committee, and has been determined by the Board to be an
audit committee financial expert as defined by the SEC. During the past five years, Mr. Cooley has primarily and
intermittently served as a teaching assistant at the University of Chicago. From 2007 to 2013, Mr. Cooley served as
Morningstar, Inc.’s Chief Financial Officer, and was responsible for the firm’s investor relations, financial reporting,
corporate finance, tax, corporate communications, and U.S. national sales teams. Prior to becoming Chief Financial Officer
("CFO"), from 2003 to 2007 Mr. Cooley was CEO of Morningstar’s operations in Australia and New Zealand. Mr. Cooley
also established Morningstar’s government affairs function.
Mr. Cooley holds Bachelor of the Arts and Master of the Arts degrees from Illinois State University, and a Master of the Arts
degree from the University of Chicago. Mr. Cooley currently is a PhD candidate in the Department of Political Science at the
University of Chicago.
Mr. Cooley's qualifications to serve on the Board include his substantial experience in accounting and financial matters due to
serving as CFO of a global, publicly-traded financial services firm, his experience as CEO of a division of a large financial
services firm, as well as his experience serving as a board member for numerous for-profit companies.
Randolph J. Fortener, age 67, has been a director of the Company since 2013, is the Chair of the Audit Committee,
currently serves on the Nominating and Governance Committee and the Compensation Committee, and has been determined
by the Board to be an audit committee financial expert as defined by the SEC. Since 2014, Mr. Fortener has been the CEO of
Cozzins Road Capital, a private investment firm. As its CEO, Mr. Fortener directs all investment and acquisition activity for
Cozzins Road Capital. Previously, Mr. Fortener worked at the Crane Group, a private holding and management company,
based in Columbus, Ohio, from 1990 to 2014 and served as the president of Crane Investment Company from 2007 to 2014.
Prior to joining the Crane Group, Mr. Fortener was a partner at Deloitte & Touche LLP, a big four accounting firm, providing
services to investment banking firms. Mr. Fortener also specialized in estate and tax planning for privately held businesses
while with Deloitte. Mr. Fortener has over 40 years of business experience, with an emphasis on corporate acquisitions and
investments.
Mr. Fortener received a Bachelor of Science in accounting from The University of Findlay and his MBA in finance from the
University of Dayton and is a Certified Public Accountant (inactive).
Mr. Fortener’s qualifications to serve on the Board include his substantial experience in accounting and financial matters,
including his significant experience as a certified public accountant and his experience on other corporate boards.
James F. Laird, CPA, age 64, has been a director of the Company since 2011 and Chair of the Board since 2019. Mr. Laird
also serves on the Compensation Committee, Audit Committee and Nominating and Governance Committee, and has been
determined by the Board to be an audit committee financial expert, as defined by the SEC. Mr. Laird is currently retired, and
served as CFO and Treasurer of the Company from 2001 until his retirement from the Company on December 31, 2014 and
served as Secretary of the Company from 2001 to 2017. He also served as President of Diamond Hill Funds from 2001 to
2014. Mr. Laird has over 30 years of experience in the investment management industry.
Mr. Laird received his Bachelor of Science in Accounting from The Ohio State University, is a Certified Public Accountant,
and previously held the Series 7, 24, 26, 27 and 63 securities licenses with the Financial Industry Regulatory Authority.
Mr. Laird’s qualifications to serve on the Board include his 13 years of experience as CFO of the Company, his in-depth
knowledge and involvement in our operations and his more than 30 years of experience in the financial, operational,
administrative, and distribution aspects of the investment management industry.
Paula R. Meyer, age 66, was appointed as a director of the Company on February 20, 2019, is the Chair of the Nominating
and Governance Committee, and currently serves on the Audit Committee and the Compensation Committee. Ms. Meyer is
currently a non-executive director. She has worked in variety of roles within the investment management industry most
recently serving as President of RiverSource Funds, the proprietary fund complex of Ameriprise Financial, Inc. from 1998 to
2006. She currently serves as a director for Mutual of Omaha and First Command Financial Services. She also served as a
7
director of the Federal Home Loan Bank of Des Moines from 2007 to 2016 and on the Investment Company Institute's Board
of Governors from 2000 to 2006.
Ms. Meyer received her Bachelor of Arts from Luther College, an MBA from the University of Pennsylvania, Wharton
School of Business, and is a National Association of Corporate Directors Board Leadership Fellow. She has also been
awarded the Certificate in Cybersecurity Oversight from the Software Engineering Institute in association with Carnegie
Mellon University (2020).
Ms. Meyer's qualifications to serve on the Board include her over 25 years of leadership experience in the financial services
and mutual fund industries as well as her significant governance experience as a board member on numerous for-profit and
non-profit companies.
Nicole R. St. Pierre, age 48, was appointed as a director of the Company on February 20, 2019, is the Chair of the
Compensation Committee, and currently serves on the Audit Committee and Nominating and Governance Committee. Ms.
St. Pierre is currently a non-executive director. She has served in a variety of roles within the Asset Management group at
J.P. Morgan from 1994 to 2018, most recently as Managing Director; Head of Client Services and Business Platform &
Americas Regional Lead.
Ms. St. Pierre received her Bachelor of Science in Marketing from Rutgers University and an MBA from Fordham
University. She has also been awarded the Certificate in Cybersecurity Oversight from the Software Engineering Institute in
association with Carnegie Mellon University (2020).
Ms. St. Pierre's qualifications to serve on the Board include her over 20 years of experience in the investment management
industry.
THE BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THE ELECTION OF HEATHER E.
BRILLIANT, RICHARD S. COOLEY, RANDY J. FORTENER, JAMES F. LAIRD, PAULA R. MEYER, AND
NICOLE R. ST. PIERRE AS DIRECTORS OF THE COMPANY.
8
THE BOARD OF DIRECTORS AND COMMITTEES
The Board held a total of four regularly scheduled meetings and one special meeting during the year ended December 31,
2020, and each director attended at least 75% of all Board and applicable committee meetings. Consistent with our Corporate
Governance Guidelines, the directors met in executive session at each regularly scheduled Board meeting in 2020. Our
Corporate Governance Guidelines provide that all directors are expected to attend each annual meeting of shareholders.
Although we do not have a formal policy requiring directors’ attendance at Annual Meetings of Shareholders, our Corporate
Governance Guidelines provide that all directors are expected to attend each annual meeting of shareholders. However, due
to applicable health orders issued in connection with the COVID-19 pandemic and to mitigate risks to the health and well-
being of our employees, shareholders, communities and other stakeholders, the Company limited attendance at the 2020
Annual Meeting of Shareholders to a small contingent of the Company’s officers to carry out the routine legal requirements
of the meeting and a proxy to cast ballots in accordance with submitted proxy votes. Therefore, our then current directors
other than our Chair, Mr. Laird, did not attend the 2020 Annual Meeting of Shareholders.
Corporate Governance
The Board has three standing committees: the Audit Committee, the Compensation Committee, and the Nominating and
Governance Committee. The Board has adopted a written charter for each Committee. Current copies of each committee
charter and our Corporate Governance Guidelines are available on our website, ir.diamond-hill.com, under the heading
“Corporate Governance”.
The Board has adopted a Code of Business Conduct and Ethics for principal executive and senior financial officers of the
Company. This Code is intended to deter wrongdoing and promote honest and ethical conduct, full, timely, and accurate
reporting, compliance with laws, and accountability for adherence to the code, including internal reporting of code violations.
We also have a Code of Business Conduct and Ethics that is applicable to all of our employees and directors. It is our policy
to require all employees to participate annually in continuing education and training relating to the Code of Business Conduct
and Ethics.
Personal Trading and Hedging Policy
We have established a policy prohibiting our employees and directors from purchasing or selling shares of the Company
while in possession of material nonpublic information, or otherwise using such information for their personal benefit or in
any manner that would violate applicable laws and regulations. The policy also prohibits all employees and directors from
purchasing or selling any derivative arrangement related to securities of the Company or engaging in any speculative, short
selling, or hedging activities related to securities of the Company that may have a similar economic effect.
Audit Committee
Mr. Cooley, Mr. Fortener (Chair), Mr. Laird, Ms. Meyer, and Ms. St. Pierre serve on the Audit Committee, which met four
times during 2020. The Board has determined that each of these committee members meets the independence and financial
literacy rules and standards of the SEC and NASDAQ. The Board also has concluded that each of Mr. Cooley, Mr. Fortener,
and Mr. Laird also meet the criteria to be an audit committee financial expert as defined by the SEC. Following the Annual
Meeting of Shareholders, it is expected that Mr. Cooley will succeed Mr. Fortener as Chair of the Audit Committee.
The primary purpose of the Audit Committee is to assist the Board in fulfilling its oversight responsibilities with respect to
the retention of our independent registered public accounting firm, including appointing and overseeing the terms of its
engagement and its performance, qualifications and independence, and the integrity of our financial statements, other
financial information provided to shareholders, and our internal control structure. The Audit Committee also reviews all
related person transactions for potential conflicts of interest on an ongoing basis, and all such transactions must be approved
by the Audit Committee. Additional information on the approval of related person transactions is available under the heading
“Certain Relationships and Related Person Transactions” below. The report of the Audit Committee appears below the
heading “AUDIT COMMITTEE REPORT.”
9
Compensation Committee
Mr. Cooley, Mr. Fortener, Mr. Laird, Ms. Meyer, and Ms. St. Pierre (Chair) serve on the Compensation Committee, which
met three times during 2020. The Board has determined that each of these committee members meets the independence
criteria of the SEC and NASDAQ.
The primary purpose of the Compensation Committee is to: (i) review and approve the Company’s executive compensation
policies, (ii) evaluate the performance of our executive officers in light of corporate goals and objectives approved by the
Compensation Committee, (iii) approve the annual salaries, bonuses, stock grants, and other benefits, direct and indirect, of
our executive officers, (iv) make recommendations to the full Board with respect to incentive compensation plans and equity-
based plans, and (v) determine director and committee member/chair compensation for non-employee directors. The
Compensation Committee has delegated to management the ability to make stock grants to non-executive employees within
specific parameters to align the interests of our shareholders and our employees and to promote employee retention and long-
term employee ownership. A description of the Company’s processes and procedures for the consideration and determination
of executive officer compensation are discussed under the heading “Compensation Discussion and Analysis” below.
Nominating and Governance Committee
Mr. Cooley, Mr. Fortener, Mr. Laird, Ms. Meyer (Chair), and Ms. St. Pierre serve on the Nominating and Governance
Committee, which met three times during 2020. The Board has determined that each of these committee members meets the
independence criteria of NASDAQ.
The primary purpose of the Nominating and Governance Committee is to maintain and cultivate the effectiveness of the
Board and oversee the Company’s governance policies. Among the Nominating and Governance Committee's
responsibilities are Board and committee composition, director qualifications, director orientation and education, and Board
evaluations. The Nominating and Governance Committee: (i) identifies, evaluates, and nominates Board candidates, (ii)
reviews compliance with director stock ownership guidelines, and (iii) oversees procedures regarding shareholder
nominations and other shareholder communications to the Board. The Nominating and Governance Committee is also
responsible for monitoring compliance with and recommending any changes to the Company’s Corporate Governance
Guidelines. Additional information regarding the committee’s activities can be found under the heading “Corporate
Governance.”
Board Committee Membership
The following table summarizes the membership of the Board and each of its committees, and the number of times each met
during 2020.
Director
Heather E. Brilliant
Richard S. Cooley
Randolph J. Fortener
James F. Laird
Paula R. Meyer
Bradley C. Shoup
Nicole R. St. Pierre
Number of Meetings in 2020
Compensation of Directors
Audit
Compensation
Nominating and
Governance
—
Member
Chair
Member
Member
Member
Member
4
—
Member
Member
Member
Member
Member
Chair
3
—
Member
Member
Member
Chair
Member
Member
3
The Compensation Committee is responsible for periodically reviewing and recommending to the Board the compensation of
our non-employee directors. At the discretion of the Board, directors are eligible to receive stock-based awards under the
Diamond Hill Investment Group, Inc. 2014 Equity and Cash Incentive Plan (the “2014 Plan”). Historically, directors received
long-term cliff vested restricted stock awards as the sole form of compensation for the entirety of their service as directors.
Restricted stock awards were granted upon appointment to the Board and at the discretion of the Board upon recommendation
10
by the Compensation Committee and were subject to such terms and conditions as may be established by the Compensation
Committee consistent with terms of the 2014 Plan.
In 2020, the Compensation Committee considered changes to director compensation that are more consistent with current
industry practices while continuing to align the interests of our directors with the long-term interests of our shareholders. The
Compensation Committee engaged McLagan Data & Analysis (“McLagan”), an independent compensation consultant, to
evaluate the Company’s director compensation program. After reviewing the McLagan evaluation and considering other
factors and information, the Compensation Committee concluded that the compensation structure for non-employee directors
required revision. Specifically, the Compensation Committee determined that the use of long-term cliff vested restricted
stock awards as the sole form of compensation for the entirety of directors’ service needed to be reconsidered. As a result, in
2020, the Compensation Committee recommended that, beginning January 1, 2021, our compensation structure for directors
be comprised of an annual cash award and annual stock award with a one-year vesting period, and annual chair fees, where
applicable.
The Board approved the Compensation Committee’s recommendation and compensation arrangements for directors with
partial-year service, as well as the appropriate transition of compensation for existing directors from the current to new
structure. The Board may, on occasion, pay our directors additional cash fees in extraordinary circumstances although it did
not do so in 2020.
In October 2020, Mr. Cooley was appointed to the Board. Given his part-year service in 2020 and the pending change in our
director compensation structure, the Compensation Committee and the Board approved a cash payment to Mr. Cooley in the
amount of $38,750 for the fourth quarter of 2020.
The following table sets forth information regarding the compensation earned by, or paid to, non-employee directors who
served on our Board during the fiscal year ended December 31, 2020.
Name
Heather E. Brilliant
Richard S. Cooley
Randolph J. Fortener
James F. Laird
Paula R. Meyer
Bradley C. Shoup
Nicole R. St. Pierre
2020 Director Compensation(1)
Fees Earned or
Paid in Cash
Stock Awards
All Other
Compensation
$
$
$
$
$
$
$
—
38,750
—
—
—
—
—
$
$
$
$
$
$
$
—
—
—
—
—
—
—
$
$
$
$
$
$
$
—
—
—
—
—
—
—
$
$
$
$
$
$
$
Total
—
38,750
—
—
—
—
—
_______________
(1) The above table omits certain columns where no compensation was awarded or earned.
Outstanding Stock Grants to Directors
The below table shows the amount of unvested restricted stock awards outstanding to directors as of December 31, 2020 and
the service period covered by the grant. All of these awards vest in full at the conclusion of the applicable service period.
Name
Richard S. Cooley(1)(2)
Shares
Granted
Approximate
Service Period
Service Period
Covered
Grant-Date
Fair Value
—
—
—
—
Grant
Date
—
Vesting
Date
—
Randolph J. Fortener
3,600
Five Years
5/2/18 – 4/30/23
$694,800
5/2/18
4/30/23
James F. Laird
Paula R. Meyer(2)
Bradley C. Shoup
Nicole R. St. Pierre(2)
8,000
Ten Years
4/30/15 – 4/30/25
$1,125,760 2/27/15
4/30/25
8,000
Ten Years
2/20/19 – 4/30/29
$1,245,600 2/20/19
4/30/29
3,600
Five Years
5/1/17 – 4/30/22
$725,760
5/1/17
4/30/22
8,000
Ten Years
2/20/19 – 4/30/29
$1,245,600 2/20/19
4/30/29
11
_______________
(1) As discussed above, Mr. Cooley will be entitled to compensation consistent with other non-employee directors beginning
(2)
in 2021.
In connection with approved changes to the director compensation structure beginning in 2021, 1,600 shares granted to
each of Ms. Meyer and Ms. St. Pierre were accelerated and vested on January 1, 2021 with the remainder forfeited. In
addition, on January 1, 2021, each of Mr. Cooley, Ms. Meyer, and Ms. St. Pierre received a grant of shares of which the
fair value on the grant date was $115,000, and which will vest on January 1, 2022.
Ownership and Retention Guidelines
Our Corporate Governance Guidelines prohibit shares granted to our directors as compensation from being sold while the
director remains on the Board, except for sales of shares in an amount necessary to pay taxes due upon vesting. Therefore,
we expect each non-employee director to hold all of the shares granted to the director as compensation for his or her entire
term of service on the Board.
12
CORPORATE GOVERNANCE
The Nominating and Governance Committee has general oversight responsibility for assessment and recruitment of new
director candidates, as well as evaluation of director and Board performance and oversight of our governance matters. The
Nominating and Governance Committee has adopted Corporate Governance Guidelines and reviews them annually. The
most current version of the Guidelines is available on our website, ir.diamond-hill.com, under “Corporate Governance”.
Board Leadership and Composition
We believe that separating the roles of Chair of the Board and CEO provides for a strong governance and oversight structure.
The Chair of the Board approves Board agendas and schedules, chairs all executive sessions of the directors, acts as the
liaison between the directors and management, is available to the Secretary to discuss and, as necessary, respond to
shareholder communications to the Board, and calls meetings of the directors.
Currently, five of our six director nominees qualify as independent under NASDAQ standards, with Ms. Brilliant, our CEO,
being our only non-independent director. In addition, the Audit Committee, the Compensation Committee, and the
Nominating and Governance Committee are all comprised entirely of independent directors. Overall, we believe that our
Board structure is designed to foster critical oversight, good governance practices, and the interests of the Company and its
shareholders.
Among other things, the Corporate Governance Guidelines address term limits of each non-employee director. Although we
have a 10-year service limit for non-employee directors, the Guidelines authorize the Board to make exceptions to this
limitation and permit directors to serve for an additional year. The Corporate Governance Guidelines also permit the Chair to
serve longer than 10 years if he or she has not served in that role for five consecutive years. The Board has not made any
exceptions to the term limits for non-employee directors during the last five years.
Board’s Role in Risk Oversight
The Board’s role in our risk oversight process includes receiving regular reports from members of senior management on
areas of material risk to the Company, including client investment results, and operational, financial, legal, regulatory
information security, and strategic risks. The Audit Committee is responsible for overseeing risks relating to our accounting
matters, financial reporting and legal and regulatory compliance. To satisfy these oversight responsibilities, the Audit
Committee meets regularly with management and the Company’s independent registered public accounting firm. The
Compensation Committee is responsible for overseeing risks relating to employment policies and our compensation and
benefits programs. To satisfy these oversight responsibilities, the Compensation Committee meets regularly with
management to understand the implications of compensation decisions, particularly the risks that our compensation policies
pose to our finances and our relationship with our employees.
Director Orientation and Continuing Education and Development
When a new non-employee director joins the Board, the Company provides a formal orientation program to provide the new
director with an understanding of our operations and financial condition. In addition, each director is expected to maintain the
necessary level of expertise to perform his or her responsibilities as a director. To assist the directors in maintaining such
level of expertise, we may, from time to time, offer continuing education programs in addition to briefings during Board
meetings relating to the competitive and industry environment in which the Company operates and the Company’s goals and
strategies.
Director Qualifications and the Nominations Process
The Nominating and Governance Committee believes that the nominees presented in this Proxy Statement currently
constitute, and will continue to constitute, a Board with an appropriate level and diversity of experience, education, skills, and
independence. The Nominating and Governance Committee routinely considers the composition of the Board and whether
changes should be made or additional directors should be added.
The Nominating and Governance Committee supervises the nomination process for directors. In selecting nominees, the
Nominating and Governance Committee considers, as applicable, independence, judgment, skills, diversity, character,
community involvement, financial expertise, business experience, experience with similarly-sized companies and with
13
publicly-traded companies, experience and skills relative to other Board members, ability to meet long-term interests of the
Company and its shareholders and any additional criteria deemed appropriate by the Nominating and Governance Committee.
In the event of a vacancy, including upon an increase in the number of directors, the Nominating and Governance Committee
will identify, interview, examine, and make recommendations to the Board regarding appropriate candidates to fill such
vacancy. When identifying potential director nominees we consider diversity among the various factors relevant to any
particular nominee and the overall needs of the Board.
The Nominating and Governance Committee identifies potential candidates for the Board through principally suggestions
from our directors and senior management and also through recommendations by shareholders. The Nominating and
Governance Committee may also seek candidates through informal discussions with third parties. We have not historically
retained search firms to help identify director candidates.
Generally, the Nominating and Governance Committee will identify potential candidates who at a minimum:
•
•
•
•
demonstrate strong character and integrity;
have sufficient time to carry out their duties;
have experience at senior levels in areas of expertise helpful to the Company and consistent with the objective
of having a diverse and well-rounded Board; and
have the willingness and commitment to assume the responsibilities required of a director of the Company.
In addition, candidates expected to serve on the various Board committees must meet applicable independence and financial
literacy qualifications required by NASDAQ, the SEC, and other applicable laws and regulations. The evaluation process of
potential candidates also includes personal interviews and discussions with appropriate references. Once the Nominating and
Governance Committee has selected a candidate, it recommends the candidate to the full Board for election if a vacancy
occurs or is created by an increase in the size of the Board during the course of the year, or for nomination if the director is to
be first elected by our shareholders. All of our directors serve for one-year terms and must stand for reelection annually.
All director candidates recommended by shareholders are evaluated using the same criteria as individuals nominated by the
Board, the Nominating and Governance Committee, management and other sources. Shareholder recommendations for Board
candidates should be directed in writing to the Company at 325 John H. McConnell Boulevard, Suite 200, Columbus, Ohio
43215, Attention: Secretary, and include the candidate’s name, home and business contact information, detailed biographical
data and qualifications, information regarding any relationships between the candidate and the Company within the last three
years, and evidence of the recommending person’s ownership of our common shares.
Certain Relationships and Related Person Transactions
The Board recognizes that related person transactions present a heightened risk of conflicts of interest. There has been no
transaction since the beginning of fiscal 2020 and there is no currently proposed transaction in which the Company was or is
to be a participant that would be required to be disclosed pursuant to Item 404(a) of Regulation S-K. The Company has no
policies or procedures for the review, approval or ratification of any transaction required to be reported under Item 404(a) of
Regulation S-K, because, in the last 10 years, the Company has only been a party to one transaction that was required to be
considered under Item 404(a). The Audit Committee will review any potential related person transactions as they arise and
are reported to the Board or the Audit Committee, regardless of whether the transactions are reportable pursuant to Item
404(a) of Regulation S-K. For any related person transaction to be consummated or to continue, the Audit Committee must
approve or ratify the transaction.
Compensation Committee Interlocks and Insider Participation
The members of the Compensation Committee during 2020 were Mr. Cooley, Mr. Fortener, Mr. Laird, Ms. Meyer, Mr.
Shoup, and Ms. St. Pierre. No director who served on the Compensation Committee during 2020 currently is, or during 2020
was, an officer, employee, or former officer of the Company. However, Mr. Laird served as the Company’s CFO until his
retirement in 2014. No member of the Compensation Committee has or had any relationship during 2020 requiring
disclosure by us under Item 404(a) of Regulation S-K. During 2020, none of our executive officers served as a member of
the board of directors or compensation committee of any other company that has an executive officer serving as a member of
our Board or Compensation Committee.
14
Executive Officers and Compensation Information
During 2020, Heather E. Brilliant, and Thomas E. Line were the Company’s executive officers. Ms. Brilliant's business
experience and qualifications are described above under the heading "Proposal 1 - Election of Directors, The Nominees", and
Mr. Line's business experience and qualifications are described below. Each executive officer devotes his or her full time and
effort to the affairs of the Company.
Thomas E. Line, age 53, has served as the CFO and Treasurer of the Company since 2015 and is currently the President of
the Diamond Hill Funds. Previously, Mr. Line served as an Independent Trustee and Chair for Diamond Hill Funds from
2005 to 2014. From 2012 to 2014, Mr. Line was Chief Operating Officer for Lancaster Pollard & Company. Mr. Line was
Managing Director and Chief Financial Officer for Red Capital Group from 2005 to 2012 and was Vice President and
Treasurer from 2004 to 2005. From 1989 to 2004, Mr. Line held various positions in the financial services industry,
including seven years in various roles at KPMG. Mr. Line has over 25 years of experience in the investment management
industry.
Mr. Line has a Bachelor of Science in Accounting from Wake Forest University and is a Certified Public Accountant
(inactive).
Compensation Discussion and Analysis
In our Compensation Discussion and Analysis, we:
•
•
Describe our compensation program objectives and how compensation for our named executive officers is
determined; and
Explain the tables and disclosures that follow.
This Compensation Discussion and Analysis presents compensation information for the following individuals (each, a
"named executive officer"):
•
•
Heather E. Brilliant, who served as our CEO and President in 2020; and
Thomas E. Line, who served as our CFO and Treasurer in 2020.
Background
In the investment management industry, human capital is our most important resource. Attracting and retaining talent is a
sustainable competitive advantage that allows us to deliver on our purpose and vision. We have been able to attract and retain
high-quality employees due to:
•
•
•
•
Our client-centric culture emphasized through our alignment of interest that ensures we only succeed when our
clients succeed;
◦
◦
◦
Significant employee ownership in all our investment strategies;
Portfolio Manager incentives that align with long-term investment results; and
Capacity discipline that protects our ability to add value;
Shared Investment principles creating a cohesive suite of investment capabilities;
Our strong corporate values – curiosity, ownership, trust and respect – that guide our corporate culture and support
an inclusive workplace; and
The nationally-competitive compensation and benefits we offer to our employees.
Competitive compensation is fundamental to sustain a business dependent on talented employees, and has a significant
impact on profitability. Achieving profitability while retaining high-quality talent requires balancing the economics between
our operating profit margin and compensating employees for their contributions.
At our 2020 Annual Meeting, our shareholders voted upon, and by 92% of the votes cast on the matter approved, an advisory
resolution to approve the compensation of our named executive officers. The Compensation Committee of the Board (the
“Compensation Committee”) believes that the results of the advisory vote on executive compensation support our previous
compensation practices and the Compensation Committee's overall judgment related to our executive compensation practices.
The Compensation Committee considered that endorsement in establishing the compensation of our named executive officers
for 2020.
15
Compensation Program Objectives
Since our founding, aligning our interests directly with the clients we serve has been imperative. Inherent in this alignment is
a passion for excellence enabling us to exceed client expectations. To achieve this vision, it is important that our
compensation philosophy attract, retain, and motivate employees who embody our values, act like owners and advocate for
client outcomes.
We maintain a long-term approach to managing our business and we aim to invest in our employees throughout their careers.
We believe employees should be paid competitively for their contributions and have confidence that we are investing in them
for the long term.
Our employees are paid a competitive base salary, provided with various benefits, and participate in an annual performance
incentive program. We are committed to ensuring our shareholders’ and employees’ interests align by giving each permanent
employee a new hire equity grant to inspire an ownership mentality from their first day of employment. In line with our long-
term performance horizon, these awards cliff vest after five years of employment to promote long-term employee ownership
and employee retention. Employees have further opportunities to grow their ownership stake through the new Employee
Stock Purchase Plan, if approved, the option to receive the 401(k) match in company stock and, for certain roles, eligibility to
receive additional shares of restricted stock through a long-term incentive program.
Performance-Focused Incentives
Our primary business objective is to meet our fiduciary duty to clients. We seek to fulfill our fiduciary duty to shareholders
by managing the firm and its assets to increase shareholder value over time. Specifically, our focus is on long-term, five-year
investment returns, with goals defined as rolling five-year periods in which client returns are sufficiently above relevant
passive benchmarks, rank in the top quartile of similar investment strategies, and exceed a sufficient absolute return for the
risk associated with the asset class. As it relates to our investment professionals, investment performance is the primary
quantitative measurement that directly aligns their annual cash incentive compensation with client and firm outcomes. The
compensation program for employees who are not a part of our investment team predominately considers individual, team,
and company performance as the main drivers of incentive compensation determinations.
Long-Term Incentives – Restricted Stock Grants with Three-Year Graded Vesting
In 2020, management approved changes to our long-term incentive (“LTI”) program to permit annual LTI grants with graded
vesting. Beginning in 2021, grants made under this revised LTI program will have a three-year vesting schedule with one-
third vesting each year. This program replaces any future (non-new hire-related) five-year cliff vested grants and will make
up part of the compensation for certain roles, in addition to the annual performance incentive. This program is designed to
incentivize employees who have a significant impact on client outcomes and business results.
Compensation Setting Process
Role of the Compensation Committee. The purpose of the Compensation Committee is to oversee and approve the
compensation programs of the Company’s executive officers and directors, including executive compensation, compensation
deferral plans, stock incentive and option plans, performance incentive award programs, fringe benefit plans, other employee
plans and executive employment contracts. The Compensation Committee is specifically required to fulfill certain duties and
responsibilities including, but not limited to:
•
•
•
Review and approve the corporate goals and objectives relevant to the compensation of the CEO, to evaluate the
CEO’s performance in light of these goals and objectives, and, based on this evaluation, approve the CEO’s
compensation (including any LTI or other compensation under any incentive-based or equity-based compensation
plan);
Review management’s recommendations and approve the compensation of other non-CEO executive officer
compensation;
Review and recommend to the Board the compensation for directors, including committee and committee chair fees
and other compensation as appropriate;
• With respect to employee retirement plans and employee benefit plans (i.e., medical, life insurance, etc.), evaluate
on a periodic basis the competitiveness of the benefit plans and adopt necessary amendments to the extent permitted
by law and subject to the terms of the benefit plans;
16
•
•
•
Review management’s recommendations and make recommendations to the Board with respect to incentive-based
compensation and equity-based compensation plans and programs that are subject to Board approval, and that may
be applicable to all or any portion of the employees of the Company and/or its subsidiaries;
Evaluate whether the Company’s compensation policies, plans and practices are reasonably designed in coordination
with the Company’s risk oversight policies to not create incentives for unnecessary or excessive risk taking; and
Oversee management’s engagement and communications with shareholders and proxy advisory firms on executive
compensation matters, including with respect to shareholder votes on executive compensation.
The Compensation Committee considers the sum of all pay elements when reviewing annual compensation recommendations
for the named executive officers. Although the framework for compensation decision-making is tied to the Company’s
overall financial performance and the creation of long-term shareholder value, the Compensation Committee retains the
discretion to approve individual executive compensation based on other performance factors, such as demonstrated
management and leadership capabilities and the achievement of certain investment results for client accounts and other
strategic operating results.
Role of Management. The Company’s CEO evaluates the CFO as part of our annual review process and makes
recommendations to the Compensation Committee regarding all elements of CFO compensation paid. The CEO's proposed
changes to the CFO's compensation are based on the CFO's performance, the compensation of individuals with comparable
responsibilities in competing or similar organizations, and the business results of the Company. At the Compensation
Committee’s request, management attends Compensation Committee meetings to provide general employee compensation
and other information to the Compensation Committee, including information regarding the design, implementation and
administration of our compensation plans. The Compensation Committee also meets in executive sessions without the
presence of any executive officer whose compensation the Compensation Committee is scheduled to discuss.
Use of Compensation Consultants and Surveys in Determining Executive Compensation. The Compensation Committee’s
charter gives it the authority to retain an independent outside executive compensation consulting firm to assist in evaluating
policies and practices regarding executive compensation and provide objective advice regarding the competitive landscape.
Each year the Committee obtains an asset management industry pay analysis prepared by McLagan, a compensation
specialist focusing on the asset management industry. The companies in the McLagan analysis include approximately 160
public and private asset management companies. This analysis provides the Compensation Committee with a general
overview of compensation trends in the asset management industry. The Compensation Committee does not define a specific
peer group, but rather takes a broad view of the analysis across our industry, including the types and amounts of
compensation paid generally by the companies surveyed. The Compensation Committee does not set any compensation
elements or levels based on targeting a certain percentile from the survey, but rather sets compensation that it believes to be
both competitive and based on the executive’s value to the Company. The survey is just one of many factors that the
Compensation Committee considers when determining executive compensation. Management and the Compensation
Committee believe this broad view of the analysis is appropriate because we compete with both public and private asset
management firms, regardless of their size and scope of operations.
Elements of Compensation
Base Salary. Base salaries for our named executive officers are designed to compensate knowledge and experience and are
intended to provide a fixed level of cash compensation that is appropriate given the executive’s role in the organization.
Generally, base salaries are determined by: (i) scope of responsibility and complexity of position, (ii) performance history,
(iii) tenure of service, (iv) internal equity within the Company’s salary structure, and (v) relative salaries of persons holding
similar positions at other companies within the investment management industry. Consistent with our desire to have the
majority of total compensation paid to named executive officers at risk in the form of incentive compensation, a significant
majority of total compensation of our named executive officers was paid in the form of either cash bonuses and/or equity
grants.
Annual Cash Bonus. The Compensation Committee awarded a discretionary cash bonus to Ms. Brilliant to compensate her
for her leadership and overall contributions to the Company in fiscal year 2020. The Compensation Committee believes such
bonus provided the Compensation Committee with the flexibility to consider all aspects of Ms. Brilliant’s performance and
her contributions to the Company as CEO and President. In determining the amount of Ms. Brilliant’s cash bonus, the
Compensation Committee considered the Company’s overall operating results for 2020, the Company’s achievements despite
the COVID-19 pandemic, and the target compensation levels detailed in Ms. Brilliant's employment agreement.
The Compensation Committee also awarded a discretionary cash bonus to Mr. Line to compensate him for his performance
and overall contributions to the Company in fiscal year 2020. The Compensation Committee believes that a discretionary
17
cash bonus provided the Compensation Committee with the flexibility to consider all aspects of Mr. Line's performance and
contributions to the Company which, for a CFO and Treasurer, may not be as directly tied to our operating income. In
determining the amount of Mr. Line's cash bonus, the Compensation Committee considered the Company’s overall operating
results for 2020, contributions by Mr. Line that were not reflected in our operating results, and broad market compensation
data.
Discretionary Stock Bonus to Ms. Brilliant. In line with Ms. Brilliant’s employment agreement, the Compensation Committee
awarded a discretionary vested stock bonus of $1,000,000 to Ms. Brilliant, to compensate her for her strong performance and
overall contributions to the Company in fiscal year 2020. This discretionary stock bonus vested immediately upon grant and
is not subject to any service-based or time-based conditions. Similar to the cash bonus awarded to Ms. Brilliant, the
Compensation Committee believes a discretionary stock bonus provides the Compensation Committee with the flexibility to
consider all aspects of Ms. Brilliant’s performance and contributions to the Company as CEO and President. In determining
the amount of Ms. Brilliant’s stock bonus, the Compensation Committee considered the Company’s overall operating results
for 2020, the desire to further align her interests with the Company and its shareholders, and the target compensation levels
detailed in Ms. Brilliant's employment agreement.
Long-Term Incentive Compensation. As part of Ms. Brilliant’s 2020 compensation, the Compensation Committee granted an
LTI award of $300,000 to Ms. Brilliant pursuant to the Company’s 2014 Plan in recognition of her contributions to and future
impact on the Company. This restricted stock award will be granted on March 31, 2021 and is subject to a scheduled vesting
of one-third per year on each April 1st from 2022 through 2024, and thus, it is not included in the summary compensation
table below. The Compensation Committee believes this compensation structure strongly aligns the long-term interests of
Ms. Brilliant with those of the Company and its shareholders.
As part of Mr. Line’s 2020 compensation, the Compensation Committee granted an LTI award of $250,000 to Mr. Line
pursuant to the Company’s 2014 Plan in recognition of his contributions to and future impact on the Company. This restricted
stock award will be granted on March 31, 2021 and is subject to a scheduled vesting of one-third per year on each April 1st
from 2022 through 2024, and thus, it is not included in the summary compensation table below. The Compensation
Committee believes this compensation structure strongly aligns the long-term interests of Mr. Line with those of the
Company and its shareholders.
Retirement Plan Benefits. We provide retirement benefits to our named executive officers through our 401(k) Plan. Each
named executive officer is entitled to participate in the 401(k) Plan on the same terms and conditions as all other employees.
The 401(k) Plan does not involve any guaranteed minimum or above-market returns, as plan returns depend on actual
investment results.
Deferred Compensation Plans. We have two Deferred Compensation Plans: the Diamond Hill Fixed Term Deferred
Compensation Plan and the Diamond Hill Variable Term Deferred Compensation Plan (each individually, a "Deferred
Compensation Plan", and together, the “Deferred Compensation Plans”). Each named executive officer is eligible to
participate in one of the Deferred Compensation Plans, along with other employees of the Company. The terms and
conditions of the Deferred Compensation Plans are described in more detail under the heading “Pension Plans and Non-
Qualified Deferred Compensation” below.
Other Benefits and Perquisites. We do not provide supplemental retirement plan benefits to our named executive officers.
As a general rule, we do not provide any perquisites or other personal benefits to our named executive officers that are not
offered on an equal basis to all other employees. Our named executive officers are entitled to participate in benefit programs
that entitle them to the same medical, dental, and short-term and long-term disability insurance coverage that are available to
all employees.
Post-Employment Payments. Only Ms. Brilliant has an employment agreement which provides for payments upon
termination of employment. More information on Ms. Brilliant's employment agreement and termination payments
thereunder is set forth under the heading "Employment Agreements and Change in Control Benefits."
Section 162(m) of the Internal Revenue Code
Prior to December 22, 2017, when the Tax Cuts and Jobs Act of 2017 (“TCJA”) was signed into law, Section 162(m) of the
Internal Revenue Code generally disallowed a tax deduction to publicly held companies for compensation paid to certain
“covered employees” in excess of $1 million per covered employee in any year, except to the extent that the compensation in
excess of the limit qualified as performance-based.
18
Under the TCJA, the performance-based exception has been repealed and the $1 million deduction limit now applies to: (1)
anyone serving as the chief executive officer or the chief financial officer at any time during the taxable year; (2) the top three
other highest compensated executive officers serving at the end of the taxable year; and (3) any individual who had been a
covered employee for any taxable year of the Company that started after December 31, 2016. However, the new rules do not
apply to remuneration provided pursuant to a written binding contract in effect on November 2, 2017 that is not modified in
any material respect after that date.
The Board of Directors has not adopted a formal policy regarding tax deductibility of compensation paid to our executive
officers. While the Board and the Compensation Committee consider the potential tax deductibility of executive
compensation under Section 162(m) of the Internal Revenue Code in establishing compensation for named executive officers,
the Board and the Committee require the flexibility to consider additional factors in making compensation decisions in order
to best fulfill the objectives of the Company's compensation program. Accordingly, the Compensation Committee may
authorize compensation that might not be deductible, and may modify compensation that was initially intended to be exempt
from Section 162(m), if it determines that such compensation decisions are in the best interests of the Company and its
shareholders.
Risks Related to Compensation Policies and Practices
As part of its oversight of our compensation program, the Compensation Committee considers how our current compensation
programs, including the incentives created by compensation awards, affect the Company’s risk profile. In addition, the
Compensation Committee reviews our compensation policies, and particularly the incentives that they create, to determine
whether they encourage an appropriate level of risk-taking and do not present a significant risk to the Company. The
Compensation Committee also considered the following risk mitigating factors:
•
•
•
•
•
•
Our current compensation programs reward portfolio managers and research analysts on trailing five-year
investment performance in client accounts;
Our portfolio managers have meaningful ownership in the strategies they manage;
A significant portion of incentive compensation is in the form of long-term equity-based awards;
The Compensation Committee's discretionary authority to adjust annual incentive awards for named executive
officers;
The Company's internal controls over financial reporting and other financial, operational and compliance policies
and practices; and
The consistency of base salaries with executives’ responsibilities so that they are not motivated to take excessive
risks to achieve a reasonable level of financial security.
Based on this review, the Compensation Committee has concluded that our compensation policies and procedures are
reasonably designed to not have a material adverse effect on the Company.
Compensation Recoupment and Restitution Policy
Upon the recommendation of the Compensation Committee, the Board has adopted a compensation recoupment and
restitution policy that applies to all incentive compensation received by all employees, including our named executive
officers. Under the policy, we may recover all or a portion of incentive compensation (or pay out additional incentive
compensation) related to awards made after the adoption of the policy, in three general situations:
•
•
•
If, due to error or malfeasance, the previously determined incentive pool, or an individual award, is either too large
(or too small), then any overpayment made to an employee may, in the sole discretion of the Compensation
Committee and the Board, be returned to the Company or an additional payment may be made to an employee;
If an employee engages in fraud or misconduct that contributes to the need for a financial restatement, or violates
any law or regulation or any policy or procedure of the Company, then we may, in the sole discretion of the
Compensation Committee and the Board, recoup all or a portion of the employee’s incentive compensation; and
If the Compensation Committee determines that the Company's previously issued financial statements are restated as
a result of error, omission, fraud or non-compliance with financial reporting requirements, then we may recoup, in
the sole discretion of the Compensation Committee and the Board, all or a portion of the employee’s incentive
compensation.
The policy is intended to provide enhanced safeguards against certain types of employee misconduct and provide enhanced
protection to, and alignment with, shareholders. These provisions are in addition to any policies or recovery rights that are
19
provided under applicable laws, including the Sarbanes-Oxley Act of 2002 and the Dodd-Frank Wall Street Reform and
Consumer Protection Act of 2010, each as amended.
20
Stock Ownership Guidelines
The Board adopted stock ownership guidelines for our named executive officers to further align their interests with those of
our shareholders. The below table provides the target ownership level reflected in the guidelines and actual shares owned as
of December 31, 2020. Each named executive officer currently holds shares well in excess of the amounts required under the
guidelines.
Name
Heather E. Brilliant
Thomas E. Line
Title
CEO and President
Chief Financial Officer
Target
Ownership
Level
5x Salary
3x Salary
Target
Number of
Shares(a)
Number of
Shares
Owned (b)
Ownership
Guideline Met
13,399
5,024
25,480
19,695
Yes
Yes
_______________
(a) Based on a per share price of $149.27, which was the closing price of our common shares on December 31, 2020, and
the respective base salaries of our named executive officers as of that date.
Includes any unvested restricted stock and any shares held in the 401(k) Plan.
(b)
Summary Compensation Table
The following table sets forth the total compensation paid to or earned by our named executive officers for services rendered
in the years indicated. Additional information on the elements of compensation included in the table below is available
under the “Compensation Discussion and Analysis” section.
Name
and Principal
Position
Heather E. Brilliant
Chief Executive Officer
and President
Thomas E. Line
Chief Financial Officer
and Treasurer
Year
2020
2019
2018
2020
2019
2018
Salary
Bonus(1)
Stock Awards
$ 400,000 $ 600,000 $
$ 133,333 $ 230,000 $
— $
$
— $
1,000,000
3,380,000
—
(2)
(3)
Total
All Other
Compensation(6)
$
$
$
46,174 $ 2,046,174
1,020,656 $ 4,763,989
—
— $
$ 250,000 $ 450,000 $
$ 250,000 $ 250,000 $
$ 250,000 $ 225,000 $
—
1,545,600
—
(4)
$
$
$
43,500 $ 743,500
43,100 $ 2,088,700
41,225 $ 516,225
___________________________________
(1) The amount reported represents a discretionary cash bonus award. These awards were not based upon any pre-
established performance goals.
(2) The amount reported includes the grant date fair value of Ms. Brilliant's discretionary stock bonus award of $1,000,000
which immediately vested upon grant and without any resale restriction. This grant was not based upon any pre-
established performance goals. While Ms. Brilliant's 2020 compensation included an LTI award of restricted stock,
because the LTI will not be granted until March 31, 2021, it is not reflected in this summary compensation table.
(3) The amount reported includes the grant date fair value of Ms. Brilliant's discretionary stock bonus award of $380,000,
which immediately vested upon grant. The amount reported also includes the grant date fair value of $3,000,000 for Ms.
Brilliant's initial equity award of 21,719 restricted shares, which were awarded to her in 2019 pursuant to her
employment agreement. Subject to Ms. Brilliant's continued employment, these restricted shares will cliff vest on
October 1, 2024. Neither of these grants were based upon any pre-established performance goals.
(4) The amount reported includes the grant date fair value of Mr. Line's discretionary stock bonus award of $300,000, which
immediately vested upon grant. The amount reported also includes the grant date fair value of $1,245,600 for Mr. Line's
discretionary grant of 8,000 restricted shares, which were awarded to him in 2019. Subject to Mr. Line's continued
employment, these restricted shares will cliff vest on January 1, 2024. This grant was not based upon any pre-
established performance goals. While Mr. Line's 2020 compensation included an LTI award of restricted stock, because
the LTI will not be granted until March 31, 2021, it is not reflected in this summary compensation table.
(5) The following types of compensation are included in the “All Other Compensation” column:
21
Contributions to
401k Plan(a)
Contributions to Health
Savings Account(a)
Supplemental
Payment(b)
Name
Heather E. Brilliant
Thomas E. Line
Year
2020
2019
2018
2020
2019
2018
$
$
$
$
$
$
40,174 $
18,769 $
—
$
37,500 $
37,500 $
35,625 $
6,000
Total
$
46,174
1,867 $ 1,000,000 $ 1,020,656
—
$
— $
—
6,000
5,600
5,600
$
$
$
43,500
43,100
41,225
(a) The Company contributions to the 401(k) Plan and employee Health Savings Accounts are offered to all employees
of the Company and its affiliates.
(b) Represents an initial cash payment made pursuant to her employment agreement and in conjunction with the
commencement of her employment with the Company.
Pay Ratio Disclosure
The below table shows the ratio of the median annual total compensation of all Company employees (excluding the CEO) to
the annual total compensation of the Company's CEO. In determining the median employee, a listing was prepared of all
current employees as of December 31, 2020. To determine the median employee, we included 2020 base salary and incentive
compensation (annualized for those employees that were not employed for the full year of 2020). Once the median employee
was identified, for purposes of comparison to the CEO, we then calculated the compensation for that employee in the same
manner as the Total Compensation shown for our CEO in the Summary Compensation Table.
Median Employee total annual compensation
Heather E. Brilliant, CEO, total annual compensation
$
$
299,100
2,046,174 (1)
Ratio of CEO to Median Employee Compensation
(1) The compensation shown for the CEO includes the total annual compensation for Ms. Brilliant for 2020 as shown in the
6.8 : 1
Summary Compensation Table.
Voluntary Supplemental Pay Ratio Disclosure - GAAP Accounting
The compensation numbers presented in the below table use the actual compensation expense recorded by the Company on
its financial statements contained in Form 10-K ("GAAP Accounting"). Under GAAP Accounting, in the below table long-
term restricted stock awards are amortized over the vesting period of the award, as opposed to the above table, which includes
the entire grant date value in the year the award is granted. The below table shows the same median employee as the above
table.
Median Employee total annual compensation (1)
Heather E. Brilliant, CEO, total annual compensation (1)
$
$
341,570
2,646,174
Ratio of CEO to Median Employee Compensation
(1) The compensation shown above includes $42,470 and $600,000, respectively in GAAP Accounting compensation
7.7 : 1
expense related to long-term restricted stock awards.
Grants of Plan-Based Awards for 2020
The following table sets forth information regarding the awards granted to each of the named executive officers during the
year ended December 31, 2020 under the 2014 Plan.
22
Grant
Date
Compensation
Committee
Action Date (1)
03/02/2020
02/26/2020
03/02/2020
02/26/2020
Estimated Possible Payouts
Under Equity Incentive
Plan Awards
Grant
Date Fair
Value of
Stock and
Options
Threshold #
Target # Maximum #
Awards $
—
—
2,645
2,088
—
—
380,000
300,000
Name
Heather E. Brilliant (2)
Thomas E. Line (2)
____________________
(1) The Compensation Committee Action Date represents the date on which the Committee authorized the award.
(2) The Compensation Committee granted the above awards to Ms. Brilliant and Mr. Line pursuant to the 2014 Plan. This
award is intended to represent a portion of their total compensation. The grants were fully vested upon issuance.
Outstanding Equity Awards at December 31, 2020
The following table summarizes all outstanding equity awards held by our named executive officers as of December 31,
2020.
Name
Heather E. Brilliant
Thomas E. Line
_______________
Stock Awards
Equity Incentive Plan
Awards:
Number of Unearned Shares
That have Not Vested (1)
Equity Incentive Plan Awards:
Market or Payout Value of
Unearned Shares That Have
Not Vested(2)
21,719
8,000
$
$
3,241,995
1,194,160
(1) These shares represent a grant of restricted shares to Ms. Brilliant and Mr. Line pursuant to the 2014 Plan. Subject to
their continued employment with the Company, these restricted shares will vest on October 1, 2024 for Ms. Brilliant and
January 1, 2024 for Mr. Line.
(2) The amount in this column represents the value of the awards shown, calculated as the product of the number of
restricted shares underlying the award multiplied by $149.27, the closing market price of our common shares as of
December 31, 2020.
23
Option Exercises and Stock Vested for 2020
No options have been granted to the named executive officers pursuant to the 2014 Plan. The following table sets forth
information with respect to stock awards held by our named executive officers that vested in 2020.
Name
Heather E. Brilliant
Thomas E. Line
Stock Awards
Number of Shares
Acquired on Vesting
2,645
2,088
Value Realized
on Vesting
$
$
380,000
300,000
Pension Plans and Non-Qualified Deferred Compensation
We do not maintain any pension plans for named executive officers or other employees. We offer to our named executive
officers and all other employees the opportunity to participate in one of the two Deferred Compensation Plans.
Deferrals of Incentive Compensation.
Pursuant to the Deferred Compensation Plans, participants may elect to defer up to 50% of the stock portion of their annual
incentive compensation and up to 100% of the cash portion of their annual incentive compensation for a plan year (the
calendar year). Generally, the participant must submit a deferral election by December 31 of the year before the services are
to be performed. After the applicable deadline, a deferral election is irrevocable for that plan year except under
circumstances set forth in the Deferred Compensation Plan.
None of the named executive officers contributed to the Deferred Compensation Plans, and none had a balance under such
plans as of December 31, 2020.
Employment Agreements and Change in Control Benefits
We currently have an employment agreement with Ms. Brilliant. A description of the agreement is set forth below. We are
not a party to an employment agreement with any other employee and are not obligated to provide change in control benefits
to any employee other than Ms. Brilliant.
In July 2019, we entered into an employment agreement with Ms. Brilliant. The agreement has a current expiration date of
December 31, 2024. The agreement provides for an annual salary of $400,000, which may be increased (but not reduced) by
the Board annually, plus a target annual cash and equity bonus of $600,000 and $1,150,000, respectively. Ms. Brilliant also
received an initial cash award of $1,000,000, and an initial restricted stock award of $3,000,000 (21,719 shares) that vests on
October 1, 2024, provided Ms. Brilliant remains employed with the Company on that date. Ms. Brilliant’s employment
agreement also entitles her to receive health insurance and six weeks paid vacation annually and to participate in other benefit
programs offered to employees. The agreement also restricts Ms. Brilliant from competing with the Company during the
term of the agreement and for one year following termination of her employment and provides that she will at all times
maintain the confidentiality of Company information.
If we terminate Ms. Brilliant’s employment without "Cause" (as defined in Ms. Brilliant’s employment agreement), she
would be entitled to the following payments, which are quantified to reflect the amounts she would have received had her
employment been terminated at December 31, 2020:
1. Her accrued but unpaid base salary and vacation and unreimbursed business expenses as of the date of termination
($0 at December 31, 2020);
2. Payments, if any, under other benefit plans and programs in effect at the time ($0 at December 31, 2020; we have no
benefit plans that would result in payments upon termination);
3. A single lump sum payment equal to her base salary in effect at the date of termination ($400,000 at December 31,
2020);
4. A single lump sum payment equal to the sum of the annual target value of cash and equity incentive awards
($1,750,000 at December 31, 2020); and
5. Her accrued but unpaid annual cash bonus from the year prior to the date of termination ($600,000 at December 31,
2020).
24
Ms. Brilliant may terminate her employment for “Good Reason” (as defined in Ms. Brilliant’s employment agreement),
which generally includes reduction of her annual base salary, relocation of the Company's principal place of business to a
location more than 50 miles from its current location, assignment to her of duties inconsistent with her position and authority,
a requirement that she no longer report directly to the Board, or a breach by the Company of her employment agreement. If
she terminates her employment for Good Reason, Ms. Brilliant is entitled to all of the payments to which she would be
entitled in the event she is terminated without Cause.
If Ms. Brilliant’s employment terminates due to her death or disability, if the employment agreement terminates in
accordance with its terms or if we terminate Ms. Brilliant for “Cause” (as defined in Ms. Brilliant’s employment agreement),
she will be entitled to receive the payments set forth in numbers 1 and 2 above. In the event of her death or disability, she will
also receive the payments described in numbers 1, 2, and 5 above. Under the employment agreement, “Cause” generally
includes material violations of our employment policies, conviction of crime involving moral turpitude, violations of
securities or investment adviser laws, causing us to violate a law which may result in penalties exceeding $250,000,
materially breaching the employment agreement, or fraud, willful misconduct, or gross negligence in carrying out her duties.
In the event that a “Change in Control” (as defined in Ms. Brilliant’s employment agreement), occurs and, within six months
prior or 24 months following such Change in Control Ms. Brilliant's employment is terminated by the Company or its
successor for any reason other than death, disability or for Cause, or Ms. Brilliant terminates her employment for Good
Reason, she will be entitled to the following payments from us or our successor, in addition to the applicable payments set
forth in numbers 1 through 5 above:
•
•
A single lump sum payment equal to the year-to-date pro-rata value of her target cash and equity incentive awards
($1,750,000 at December 31, 2020); and
Full vesting of her initial restricted stock award of 21,719 shares, to the extent not previously vested in a Change in
Control transaction ($3,241,995 at December 31, 2020).
Compensation Committee Report
The Board’s Compensation Committee has submitted the following report for inclusion in this Proxy Statement:
We have reviewed and discussed the Compensation Discussion and Analysis contained in this Proxy Statement as required
by Item 402(b) of Regulation S-K with management. Based on that review and discussion, we recommended to the Board
that the Compensation Discussion and Analysis be included in this Proxy Statement and the Company’s Annual Report on
Form 10-K for the year ended December 31, 2020.
Submitted by the Compensation Committee of the Board of Directors:
Richard S. Cooley
James F. Laird
Randolph J. Fortener
Paula R. Meyer
Bradley C. Shoup
Nicole R. St. Pierre, Chair
25
PROPOSAL 2 — RATIFICATION OF THE APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
The Audit Committee is directly responsible for the appointment, compensation, retention, and oversight of the independent
registered public accounting firm retained to audit the Company’s consolidated financial statements. To carry out this
responsibility, the Committee engages in an evaluation of the independent registered public accounting firm's qualifications,
performance, and independence. The Committee also periodically considers whether the independent registered public
accounting firm should be rotated and the advisability and potential impact of selecting a different independent registered
public accounting firm.
The Audit Committee has reappointed KPMG to serve as our independent registered public accounting firm for fiscal year
2021. KPMG was first appointed to serve as our independent registered public accounting firm on October 24, 2012, and
served as our independent registered public accounting firm for fiscal 2020.
The Audit Committee and the Board of Directors believe that the continued retention of KPMG as our independent registered
public accounting firm is in the best interests of the Company and our shareholders, and we are asking our shareholders to
ratify the selection of KPMG as our independent registered public accounting firm for fiscal year 2021.
Representatives of KPMG are expected to be present at the Annual Meeting and will have the opportunity to make a
statement, if they so desire, and respond to appropriate questions from shareholders.
THE BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THE RATIFICATION OF THE
APPOINTMENT OF KPMG AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR
FISCAL YEAR 2021.
If Proposal 2 is not approved, the Audit Committee will reconsider the appointment of KPMG as our independent registered
public accounting firm for fiscal year 2021, and may or may not make any changes to such appointment.
Disclosure of Fees Charged by the Independent Registered Public Accounting Firm
The following table summarizes the fees billed by KPMG for services rendered to the Company and its subsidiaries during
2020 and 2019.
Audit Fees(1)
Audit-Related Fees
Tax Fees (2)
All Other Fees
Total Fees
Year Ended
Year Ended
12/31/2020
12/31/2019
$
235,000 $
237,450
—
51,360
—
286,360 $
—
57,966
—
295,416
$
____________________
(1) Audit Fees include professional services rendered for the audit of annual financial statements, reviews of quarterly
financial statements, issuance of consents, and assistance with review of other documents filed with the SEC.
(2) Tax Fees include professional services rendered for tax preparation and compliance.
Pre-approval by Audit Committee
The Audit Committee has adopted policies and procedures which set forth the manner in which the committee will review
and approve all audit and non-audit services to be provided by the independent registered public accounting firm (the
“Services”) to ensure that the provision of the Services does not impair the firm’s independence. The pre-approval policies
and procedures are as follows:
•
The Audit Committee has established a pre-approval fee cap of $25,000, under which any Services in excess of the
$25,000 fee cap must be submitted to the Audit Committee for review and pre-approval, and any Services less than
the $25,000 fee cap must be approved by the Chief Financial Officer and then reported to the Audit Committee at its
next regularly scheduled meeting.
26
•
Pre-approval actions taken during Audit Committee meetings are recorded in the minutes of the meetings.
27
Audit Committee Report
During 2020, the Audit Committee was comprised of six independent directors operating under a written charter adopted by
the Board, the most current version of which is available on our website, ir.diamond-hill.com, under “Corporate
Governance”. Annually, the Audit Committee engages the Company’s independent registered public accounting firm.
KPMG served as the Company’s independent registered public accounting firm for the fiscal year ended December 31, 2020.
Management is responsible for preparation of the Company’s financial statements and for designing and maintaining the
Company’s systems of internal controls and financial reporting processes. The Company’s independent registered public
accounting firm is responsible for performing an audit of the Company’s consolidated financial statements in accordance with
standards of the Public Company Accounting Oversight Board (“PCAOB”) and issuing reports on the Company’s financial
statements and the effectiveness of the Company’s internal controls over financial reporting. The Audit Committee’s
responsibility is to provide independent, objective oversight of these processes.
Pursuant to this responsibility, the Audit Committee met and held discussions with management and KPMG regarding the
audited consolidated financial statements of the Company for the fiscal year ended December 31, 2020. The Audit
Committee reviewed the audit plan and scope with KPMG and discussed with KPMG the applicable requirements of the
PCAOB and the SEC. The Audit Committee also met with KPMG without management present to discuss the results of their
audit work, their evaluation of the Company’s system of internal controls and the quality of the Company’s financial
reporting.
The Committee also discussed with KPMG its independence from management and the Company, and received its written
disclosures and the letter from KPMG required by applicable requirements of the PCAOB regarding the independent
accountant’s communications with the audit committee concerning independence.
Management has represented to the Audit Committee that the Company’s consolidated financial statements for the year
ended December 31, 2020, were prepared in accordance with United States generally accepted accounting principles. Based
on the Audit Committee’s discussions with management and KPMG and its review of KPMG’s report to the Audit
Committee, the Audit Committee recommended to the Board of Directors (and the Board has approved) that the audited
consolidated financial statements be included in the Company’s Annual Report on Form 10-K for the year ended
December 31, 2020, filed with the SEC.
Submitted by the Audit Committee of the Board of Directors:
Richard S. Cooley
Randolph J. Fortener, Chair
James F. Laird
Paula R. Meyer
Bradley C. Shoup
Nicole R. St. Pierre
28
PROPOSAL 3 - ADVISORY VOTE ON THE COMPENSATION OF THE COMPANY’S NAMED EXECUTIVE
OFFICERS
As described in the section entitled, “EXECUTIVE OFFICERS AND COMPENSATION INFORMATION,” we believe that
executive compensation should be linked with the Company’s performance and significantly aligned with the interests of the
Company’s shareholders. In addition, our executive compensation program is designed to allow us to retain, and recognize
the contributions of, employees who play a significant role in our current and future success. We urge you to read the
Compensation Discussion and Analysis, the Summary Compensation Table and the other related tables and disclosure for a
detailed description of the fiscal year 2020 compensation of our named executive officers.
The vote on this resolution is not intended to address any specific element of compensation; rather, the advisory vote relates
to the overall compensation of our named executive officers. This vote is advisory and therefore not binding on the
Company. However, the Board and the Compensation Committee will review the voting results and will take into account the
outcome of the vote when determining future compensation for the Company’s named executive officers.
Accordingly, we ask our shareholders to vote on the following resolution:
“RESOLVED, that the Company’s shareholders approve, on an advisory basis, the compensation of the named
executive officers, as disclosed in the Company’s Proxy Statement for the 2021 Annual Meeting of Shareholders
pursuant to Item 402 of Regulation S-K, including the Compensation Discussion and Analysis, the Summary
Compensation Table and the other related tables and disclosure.”
THE BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THE ADVISORY APPROVAL OF
THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS AS DISCLOSED IN THIS PROXY
STATEMENT PURSUANT TO ITEM 402 OF REGULATION S-K.
29
PROPOSAL 4 - APPROVAL AND ADOPTION OF THE DIAMOND HILL INVESTMENT GROUP, INC.
EMPLOYEE STOCK PURCHASE PLAN
Summary of the Employee Stock Purchase Plan
The following is a summary of the material terms of the Employee Stock Purchase Plan, which summary is qualified in its
entirety by reference to the Employee Stock Purchase Plan, the complete text of which is attached to this proxy statement as
Appendix A. We urge you to read the Employee Stock Purchase Plan.
Purpose. The purpose of the Employee Stock Purchase Plan is to foster and promote the Company’s long-term financial
success and to increase shareholder value by: (a) providing participants with an opportunity to acquire an ownership interest
in the Company, and (b) enabling the Company to attract and retain the services of outstanding individuals upon whose
judgment, interest and dedication are important to the Company’s success.
Administration. The Compensation Committee of the Board will administer the Employee Stock Purchase Plan and will have
full power and authority to:
•
•
•
interpret the Employee Stock Purchase Plan and make all administrative decisions thereunder;
establish, amend and rescind any rules and regulations relating to the Employee Stock Purchase Plan;
establish the time, duration and terms of each offering period under the Employee Stock Purchase Plan, including
the number of Company shares that will be available for purchase during such offering period; and
• make any other determinations and maintain such records and accounts that it deems necessary or desirable for the
administration of the Employee Stock Purchase Plan.
To the extent permitted by law, the Compensation Committee may delegate any ministerial duties associated with the
Employee Stock Purchase Plan. However, the Compensation Committee may not delegate any of its duties regarding the
establishment of the timing and terms of any offering period for the purchase of Company shares under the Employee Stock
Purchase Plan.
Eligibility. Generally, all persons who are regular full-time or part-time employees of the Company or its affiliates are
eligible to participate in and purchase Company shares under the Employee Stock Purchase Plan. The only exceptions to this
general eligibility rule are: (1) employees who are scheduled to work less than five (5) months in the calendar year; and (2)
employees who own 5% or more of the shares of the Company.
Terms of Stock Purchase. All eligible employees may purchase up to the maximum number of Company shares permitted
during an applicable offering period. However, notwithstanding any such limit, no eligible employee may purchase more
than $25,000 of Company shares annually at the discounted price from the open market permitted under the Employee Stock
Purchase Plan.
Stock Purchase Discount. The Internal Revenue Code of 1986, as amended (the "Code") permits companies to allow
employees to purchase shares of company stock at a discount through plans established under Section 423 of the Code. The
Employee Stock Purchase Plan will allow employees to purchase Company shares and receive the maximum discount of 15%
permitted under the Code.
Restricted Stock. All stock purchased under the Employee Stock Purchase Plan will be held at the Company's transfer agent
and subject to a twelve-month resale restriction, which will limit transferability of the stock until the expiration of that period.
A new twelve-month resale restriction applies to each purchase of shares of Company stock under the Employee Stock
Purchase Plan.
U.S. Federal Tax Elections. Eligible Employees can elect to purchase shares of Company stock using an after-tax deduction
from their annual incentive compensation award or their regular monthly pay.
Adjustments. In the event of any share dividend, share split, recapitalization, merger, reorganization, consolidation,
combination, spin-off, distribution of assets to shareholders, exchange of shares or any other change affecting the shares, the
Compensation Committee will appropriately adjust: (1) the number of shares of Company stock that eligible employees have
the right to purchase ("Purchase Rights"); (2) the aggregate number of shares of stock available or subject to outstanding
Purchase Rights (as well as any share-based limits imposed under the Employee Stock Purchase Plan); (3) the purchase price,
number of shares, and other limitations applicable to outstanding or subsequently issued Purchase Rights; and (4) any other
factors, limits or terms affecting any outstanding or subsequently issued Purchase Rights.
30
Effect of Termination of Employment or Service. An employee whose employment with the Company or its affiliates for any
reason terminates, including without limitation, due to termination for cause, death, disability, or retirement, will be deemed
to have withdrawn from the Employee Stock Purchase Plan. Any cash amounts credited to the employee's plan account will
be refunded to the employee (or to the employee's beneficiary, in the event of the employee’s death).
Change in Control. In the event of a change in control (as such term is defined in the Employee Stock Purchase Plan), all
shares of Company stock held in each participant’s plan account will be made available to the participant under procedures
developed by the transfer agent and the Compensation Committee.
Effective Date and Term. The Employee Stock Purchase Plan will become effective upon its approval by the shareholders
and, unless earlier terminated, will continue until all the available shares of Company stock under the plan have been sold.
Amendment or Termination. The Board or Compensation Committee may terminate, suspend or amend the Employee Stock
Purchase Plan at any time without shareholder approval except to the extent that shareholder approval is required to satisfy
applicable requirements imposed by: (1) Rule 16b-3 under the Exchange Act, or any successor rule or regulation; (2)
applicable requirements of Section 423 of the Code; or (3) any securities exchange, market, or other quotation system on or
through on which the Company’s securities are listed or traded. Also, no amendment to the Employee Stock Purchase Plan
may: (1) cause the Plan to fail to meet requirements imposed by Rule 16b-3, or (2) without the consent of the affected
participant adversely affect any Purchase Right issued before the amendment, modification or termination.
New Plan Benefits. The benefits and number of Company shares to be received by the participants under the Employee Stock
Purchase Plan are not determinable because, under the terms of the Employee Stock Purchase Plan, participation in the plan
is voluntary and purchases are based upon elections made by the participants. Future purchase prices are not determinable
because they are based upon fair market value of Company shares in future periods. Each participant is limited to the
$25,000 annual purchase restriction as well as the participant purchase restrictions for any applicable offering period, as
described above.
THE BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THE APPROVAL AND ADOPTION
OF THE EMPLOYEE STOCK PURCHASE PLAN.
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ADDITIONAL INFORMATION
SHAREHOLDER COMMUNICATIONS WITH THE BOARD OF DIRECTORS
Given the Company’s relatively small size, our limited number of record shareholders, and the Board’s consistent practice of
being open to receiving direct communications from shareholders, the Board believes that it is not necessary to implement,
and we do not have, a formal process for shareholders to send communications to the Board. Our practice is to forward any
communication addressed to the full Board to the Chairman; to a group of directors, to a member of the group; or to an
individual director, to that person.
SHAREHOLDER PROPOSALS FOR 2022 ANNUAL MEETING
Shareholders are entitled to submit proposals on matters appropriate for shareholder action consistent with SEC rules and our
Code of Regulations (the "Regulations"). Should a shareholder wish to have a proposal appear in the proxy statement for
next year’s annual meeting, under applicable SEC rules, the proposal must be received by the Company’s Secretary on or
before November 12, 2021, and must otherwise comply with the requirements of Rule 14a-8 of the Exchange Act. The
Company will not be required to include in its proxy statement a shareholder proposal that is received after that date or that
otherwise fails to meet the requirements for shareholder proposals established by applicable SEC rules.
Our Regulations govern the submission of director nominations and other business proposals that a shareholder wishes to
have considered at an annual meeting of shareholders, but which are not included in our proxy statement for that meeting.
Under our Regulations, director nominations or other business proposals to be addressed at our next annual meeting may be
made by a shareholder entitled to vote who has delivered a notice to the Secretary of the Company not later than the close of
business on January 27, 2022 and not earlier than December 28, 2021. To be eligible for consideration at an annual meeting
of shareholders, a shareholder's proposal and notice thereof must otherwise comply with the procedures and requirements of
our Regulations.
These advance notice provisions in our Regulations are in addition to, and separate from, the requirements that a shareholder
must meet in order to have a proposal included in the proxy statement under the rules of the SEC. A proxy granted by a
shareholder will give discretionary authority to the proxies to vote on any matters introduced pursuant to the above advance
notice provisions in our Regulations, subject to applicable SEC rules. A copy of our Regulations may be obtained from the
Carlotta D. King, Secretary, at Diamond Hill Investment Group, Inc., 325 John H. McConnell Boulevard, Suite 200,
Columbus, Ohio 43215 or by phone at (614) 255-3333.
SHAREHOLDERS SHARING THE SAME ADDRESS
The SEC has implemented rules regarding the delivery of proxy materials (i.e., annual reports, proxy statements, proxy
statements combined with a prospectus or any information statements provided to shareholders) to households. This method
of delivery, often referred to as “householding,” generally permits the Company to send a single annual report and a single
proxy statement to any household at which two or more different shareholders reside if the Company believes such
shareholders are members of the same family, unless the shareholder(s) have opted out of the householding process. Each
shareholder would continue to receive a separate notice of any meeting of shareholders and proxy card. The householding
procedure reduces the volume of duplicate information you receive and reduces expenses. The Company has instituted
householding. If (i) you wish to receive separate annual reports or proxy statements, either this year or in the future, or (ii)
members of your household receive multiple copies of the annual report and proxy statement and you wish to request
householding, you may contact the Company’s transfer agent, Equiniti Trust Company at P.O. Box 64874, St. Paul,
Minnesota 55164-0874, or by phone at (800) 401-1957, or write to Ms. Carlotta D. King, Secretary, at 325 John H.
McConnell Boulevard, Suite 200, Columbus, Ohio 43215, or by phone at (614) 255-3333.
In addition, many brokerage firms and other holders of record have instituted householding. If your family has one or more
“street name” accounts under which our shares are beneficially owned, you may have received householding information
from your broker, financial institution or other nominee in the past. Please contact the holder of record directly if you have
questions, require additional copies of this Proxy Statement or Annual Report on Form 10-K or wish to revoke your decision
to household and thereby receive multiple copies. You should also contact the holder of record if you wish to institute
householding. These options are available to you at any time.
32
OTHER BUSINESS
The Board knows of no other business to be acted upon at the Annual Meeting. However, if any other business properly
comes before the Annual Meeting, it is the intention of the persons named in the enclosed proxy card to vote on such matters
in accordance with their best judgment.
We appreciate your prompt completion, execution, and delivery of your proxy card or your submission of voting instructions
electronically over the Internet or by telephone. Whether or not you expect to attend the Annual Meeting, please complete
and sign the proxy card and return it in the enclosed envelope, or vote your proxy electronically via the Internet or
telephonically.
By Order of the Board of Directors
Carlotta D. King
Secretary
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APPENDIX A - EMPLOYEE STOCK PURCHASE PLAN
DIAMOND HILL INVESTMENT GROUP, INC.
EMPLOYEE STOCK PURCHASE PLAN
ARTICLE 1
PURPOSE
This Plan is intended to foster and promote the Company’s long-term financial success and to increase shareholder
value by (a) providing Participants with an opportunity to acquire an ownership interest in the Company, and (b) enabling the
Company to attract and retain the services of outstanding individuals upon whose judgment, interest and dedication are
important to the Company’s success.
ARTICLE 2
DEFINITIONS
When used in this Plan, the following terms will have the meanings given to them in this Article unless another
meaning is expressly provided elsewhere in this document or clearly required by the context. When applying these
definitions, the form of any term or word will include any of its other forms.
2.1. Act. The Securities Exchange Act of 1934, as amended.
2.2. Adoption Date. October 27, 2020, the date that the Plan was originally adopted by the Board.
2.3. Beneficiary. The person who has the right to receive (or exercise) any Plan benefits (or rights) that are
unpaid (or unexercised) if the Participant dies.
2.4. Board. The Company’s Board of Directors.
2.5. Change of Control. Unless otherwise provided in any employment agreement between a Participant and the
Company or any affiliate or in any other agreement between a Participant and the Company or any affiliate, the occurrence of
any of the following:
(a) Any transaction or series of transactions, whereby any person (as that term is used in Section 13 and
14(d)(2) of the Act), is or becomes the beneficial owner (as that term is used in Section 13(d) of the Act), directly or
indirectly, of securities of the Company representing fifty percent (50%) or more of the combined voting power of the
Company’s then outstanding securities; provided, that for purposes of this paragraph, the term “person” will exclude (i) a
trustee or other fiduciary holding securities under an employee benefit plan of the Company or an affiliate, (ii) a corporation
owned directly or indirectly by the stockholders of the Company in substantially the same proportions as their ownership in
the Company, and (iii) any venture capital firm or other investor in securities of the Company that first purchases any such
securities within the thirty (30) day period following the effective date of the Plan;
(b) Any merger, consolidation, other corporate reorganization or liquidation of the Company in which the
Company is not the continuing or surviving corporation or entity or pursuant to which shares of Stock would be converted
into cash, securities, or other property, other than (i) a merger or consolidation with a wholly-owned Subsidiary, (ii) a
reincorporation of the Company in a different jurisdiction, or (iii) any other transaction in which there is no substantial
change in the stockholders of the Company;
(c) Any merger or consolidation of the Company with or into another entity or any other corporate
reorganization, if more than fifty percent (50%) of the combined voting power of the continuing or surviving entity’s
securities outstanding immediately after such merger, consolidation, or other reorganization is owned by persons who were
not stockholders of the Company immediately prior to such merger, consolidation, or other reorganization;
(d) The sale, transfer, or other disposition of all or substantially all of the assets of the Company in one
transaction or a series of transactions; or
(e) A change or series of related or unrelated changes in the composition of the Board, during any twenty-four
(24) month period beginning on the first anniversary of the Effective Date, as a result of which fewer than fifty percent (50%)
of the incumbent directors are directors who either (i) had been directors of the Company on the later of such first anniversary
of the Effective Date or the date twenty-four (24) months prior to the date of the event that may constitute a Change of
1
Control (the “Original Directors”) or (ii) were elected, or nominated for election, to the Board with the affirmative votes of a
least a majority of the aggregate of the Original Directors who were still in office at the time of the election or nomination
and the directors whose election or nomination was previously so approved.
Notwithstanding the foregoing, the following transactions will not constitute a “Change of Control:” (i) any
transaction the sole purpose of which is to change the state of incorporation of the Company or to create a holding company
that will be owned in substantially the same proportions by te persons who held the Company’s securities immediately before
such transaction; or (ii) with respect to any Purchase Right that is subject to Section 409A of the Code and for which no
exception applies, any transaction or event described above that does not also constitute a “change in control event” within
the meaning of Section 409A of the Code.
2.6. Code. The Internal Revenue Code of 1986, as in effect on the Effective Date or as amended or superseded
after the Effective Date, and any regulations and applicable rulings issued under the Code.
2.7. Committee. The committee to which the Board delegates responsibility for administering the Plan. Such
committee may include individuals who are not members of the Board.
2.8. Company. Diamond Hill Investment Group, Inc., an Ohio corporation, and any successor to it.
2.9. Designated Subsidiary. Any Subsidiary that has been designated by the Committee as a Subsidiary whose
Employees shall be eligible to participate in the Plan.
2.10. Effective Date. January 1, 2021, the date the Board designated on the Adoption Date as the date on which
the Plan would first go into effect.
2.11. Eligible Employee. As of any Entry Date, any Employee who complies with Article 3 and other Plan
provisions; provided, as of such Entry Date, the Employee (a) is not an Employee whose customary employment is for not
more than five (5) months in any calendar year; or (b) does not own Stock possessing 5% or more of the total combined
voting power or value of all classes of Stock of the Company or any Subsidiary.
2.12. Employee. Any person who, on an applicable Entry Date, is a common law employee of any Employer. A
worker who is classified as other than a common law employee but who is subsequently reclassified as a common law
employee of an Employer for any reason and on any basis will be treated as a common law employee from the first Entry
Date that begins after the date of that determination and will not retroactively be reclassified as an Employee for any purpose
of this Plan.
2.13. Employer. The Company and each Designated Subsidiary employing an Eligible Employee.
2.14. Entry Date. The first day of each Offering Period and the date that Purchase Rights are granted under the
Plan for the ensuing Offering Period.
2.15. Fair Market Value. The value of one (1) share of Stock on any relevant date, determined under the
following rules:
trading day, otherwise on the next trading day;
(a) If the Stock is traded on an exchange, the reported “closing price” on the relevant date, if it is a
(b) If the Stock is traded over-the-counter with no reported closing price, the mean between the lowest
bid and the highest asked prices on that quotation system on the relevant date if it is a trading day, otherwise on the next
trading day; or
faith.
(c) If neither of the preceding apply, the fair market value as determined by the Committee in good
2.16. Offering Period. The period during which payroll deductions will be accumulated in Plan Accounts to fund
the purchase of shares of Stock. Each Offering Period will commence on such date as may be determined from time to time
by the Committee. Each Offering Period will consist of one (1) calendar quarter, unless a different period is established by
the Committee and announced to Eligible Employees before the beginning of the Offering Period.
2
2.17. Participant. Any Eligible Employee who complies with the conditions described in Article 3 for the current
Offering Period.
2.18. Plan. The Diamond Hill Investment Group, Inc. Employee Stock Purchase Plan, as the same may be
amended from time to time. This Plan is intended to comply with Code Sections 421 and 423.
2.19. Plan Account. The individual account established by the Committee for each Participant to which all
amounts described in Section 3.1(a)(i) are credited until applied as described in Article 6.
2.20. Purchase Date. The last day of each Offering Period and the date on which shares of Stock are purchased in
exchange for the Purchase Price (or the first trading day preceding the last day of the Offering Period, if such last day is not a
trading day).
2.21. Purchase Price. The price established by the Committee for each Offering Period that each Participant must
pay to purchase shares of Stock under this Plan but which may never be less than 85 percent of the Fair Market Value of a
share of Stock on each Purchase Date.
2.22. Purchase Right. The right to purchase shares of Stock subject to the terms of the Plan.
2.23. Stock. A common share, without par value, issued by the Company.
2.24. Stock Account. The account established for each Participant to which the Company transfers shares of Stock
acquired under the Plan.
2.25. Subsidiary. Any corporation, limited liability company, partnership or other form of unincorporated entity of
which the Company owns, directly or indirectly, 50% or more of the total combined voting power of all classes of stock, if
the entity is a corporation; or of the capital or profits interest, if the entity is a limited liability company, a partnership or
another form of unincorporated entity.
2.26. Termination. Cessation of the employee-employer relationship between a Participant and each Employer for
any reason. Also, a Participant will be treated as having Terminated on the date his or her employer is no longer an
Employer.
3.1. Enrollment.
ARTICLE 3
PARTICIPATION
he or she complies with each of the following conditions:
(a) Each Eligible Employee may become a Participant for any Offering Period beginning after the date
(i) Elects to participate by authorizing the Employer to withhold a portion of his or her base
salary and/or incentive compensation. This authorization will be made under rules developed by the Committee within the
following limits: each authorization (A) must be stated in whole dollars, (B) may not authorize or result in authorization of a
deduction (I) less than $250.00 or such other amount specified by the Committee (which may never be less than $10.00 per
pay period) or (II) more than the amount specified by the Committee (which may never exceed the limitation specified in
Section 5.1 for each calendar year), (C) must be signed by the enrolling Eligible Employee and (D) must be delivered to the
Committee within the period specified by the Committee.
(ii) Complies with any other rules established by the Committee.
(b) By enrolling in the Plan, each Participant will be deemed to have (i) agreed to the terms of the Plan
and (ii) authorized the Employer to withhold from his or her base salary and/or incentive compensation (A) the amounts
authorized in accordance with Section 3.1(a)(i) and (B) any taxes and other amounts due in connection with any transaction
contemplated by the Plan.
3.2. Duration of Election to Participate.
Subject to the terms of the Plan:
3
(a) Participants’ withholding authorizations will be implemented beginning with the first payroll period
with a paycheck date in the Offering Period for which it is received by the Committee and will remain in effect until revoked
or changed under the rules described in Section 3.2(b).
(b) A Participant who elects to participate in the Plan for any Offering Period by complying with the
rules described in Section 3.1 may not change or revoke that election for that Offering Period. In addition, the Participant’s
election will remain in effect for each subsequent Offering Period until changed or revoked by the Participant by complying
with the rules described in Section 3.1 as if the changed or revoked election were a new election. Any change to or
revocation of an earlier election will be effective as of the first day of the first Offering Period beginning after the revised
election is delivered to the Committee and will remain in effect until revoked or changed under the rules described in this
Section 3.2.
3.3. No Interest Paid. No interest will be paid with respect to any amount credited to or held in any Plan
Account.
ARTICLE 4
ADMINISTRATION
4.1. Committee Duties.
(a) The Committee is responsible for administering the Plan and has all powers appropriate and
necessary to that purpose. Consistent with the Plan’s objectives, the Committee may adopt, amend and rescind rules and
regulations relating to the Plan, to the extent appropriate to protect the Company’s interests and has complete discretion to
make all other decisions necessary or advisable for the administration and interpretation of the Plan. Any action by the
Committee will be final, binding and conclusive for all purposes and upon all persons. The Committee is granted all powers
appropriate and necessary to administer the Plan.
Plan, the Committee:
(b) Without limiting the generality of the provisions of Section 4.1(a), consistent with the terms of the
(i) May exercise all discretion granted to the Committee under the Plan;
(ii) Will determine whether to have an Offering Period, and, if so, the date on which such
Offering Period is to commence and establish the number of shares of Stock that may be acquired during such Offering
Period if the number available during any Offering Period is less than all remaining available shares determined under
Section 5.2;
appropriate and necessary to implement the purposes of the Plan;
(iii) May develop and impose other terms and conditions the Committee believes are
with amounts described in Section 3.1(a)(i) and (B) debited with all amounts applied to purchase shares of Stock;
(iv) Will establish and maintain a Plan Account for each Participant which will be (A) credited
Stock until released as provided in Article 7;
(v) Will establish a Stock Account for each Participant which will be credited with shares of
(vi) Will administer procedures through which Eligible Employees may enroll in the Plan;
(vii) Will disseminate information about the Plan to Eligible Employees; and
(viii) Will apply all Plan rules and procedures.
4.2. Delegation of Ministerial Duties. In its sole discretion, the Committee may delegate any ministerial duties
associated with the Plan to any person (including employees) that the Committee deems appropriate other than those duties
described in Section 4.1(b)(i), (ii) and (iii).
4.3. General Limit on Committee. Consistent with applicable law and Plan terms, the Plan will be administered
in a manner that extends equal rights and privileges to all Participants.
4
ARTICLE 5
OFFERING
5.1. Right to Purchase. Subject to Sections 5.2 and 5.3 and Article 6, the number of shares of Stock that may be
purchased during each Offering Period will be established by the Committee before the beginning of each Offering Period.
Notwithstanding any provision contained herein, no Participant may be granted a Purchase Right which permits the
Participant to purchase Stock under this Plan or any other stock purchase plan maintained by the Company or any Subsidiary
to accrue at a rate which exceeds $25,000 of Fair Market Value of Stock (determined at the time that such Purchase Right is
granted) for each calendar year in which such Purchase Right is outstanding at any time. This limitation shall be construed in
accordance with the provisions of § 423(b)(8) of the Code.
5.2. Number of Shares of Stock. Subject to Section 5.3, the aggregate number of shares of Stock that may be
purchased under the Plan is 100,000.
5.3. Adjustment in Capitalization. If, after the Effective Date, there is a Stock dividend or Stock split,
recapitalization (including payment of an extraordinary dividend), merger, consolidation, combination, spin-off, distribution
of assets to shareholders, exchange of shares, or other similar corporate change affecting Stock, the Committee will
appropriately adjust (a) the number of Purchase Rights that may or will be issued, (b) the aggregate number of shares of
Stock available under Section 5.2 or subject to outstanding Purchase Rights (as well as any share-based limits imposed under
this Plan), (c) the respective Purchase Price, number of shares and other limitations applicable to outstanding or subsequently
issued Purchase Rights and (d) any other factors, limits or terms affecting any outstanding or subsequently issued Purchase
Rights.
5.4. Source of Stock. Shares of Stock to be purchased under the Plan may, in the Board’s discretion, be
authorized but unissued shares not reserved for any other purpose or treasury shares previously outstanding and reacquired by
the Company.
ARTICLE 6
PURCHASE OF SHARES
6.1. Purchase.
(a) Throughout each Offering Period, the Employer will withhold from each Participant’s base salary
and/or incentive compensation the amount the Participant has authorized in accordance with Section 3.1(a)(i). These
amounts will be held in the Participant’s Plan Account until the Purchase Date.
(b) As of each Purchase Date and subject to the Plan’s terms and limits, the value of each Participant’s
Plan Account will be divided by the Purchase Price established for that Offering Period and each Participant will be deemed
to have purchased the number of whole shares of Stock produced by dividing the value of the Participant’s Plan Account as
of the Purchase Date by the Purchase Price. Simultaneously, the Participant’s Plan Account will be charged for the amount
of the purchase. Any remaining amounts in the Participant’s Plan Account that are insufficient to purchase a whole share of
Stock will remain in the Participant’s Plan Account and will be available to purchase whole shares of Stock during future
Offering Periods. In the event that an amount remains in a Participant’s Plan Account because such Participant has purchased
shares of Stock up to the maximum amount permitted under Section 5.1, such remaining amount will be refunded to the
Participant within ten (10) business days following the last day of the applicable Offering Period.
6.2. Remaining Available Shares.
(a) If application of the procedures described in Section 6.1 would result in the purchase of a number of
shares of Stock larger than the number of shares of Stock offered during that Offering Period, the Committee will allocate
available shares of Stock among Participants and any cash remaining in Participants’ Plan Accounts will be credited to the
next Offering Period and, subject to the terms of the Plan, applied along with additional amounts credited to that Offering
Period to purchase shares of Stock during that Offering Period and at the Purchase Price established for that Offering Period.
(b) If application of the procedures described in Section 6.1 would result in the purchase of a number of
shares of Stock less than the number of shares of Stock made available for purchase for any Offering Period, the excess
shares of Stock will be available for purchase during any subsequent Offering Period.
5
6.3. Delivery of Shares; Participants’ Stock Accounts.
(a) At or as promptly as practicable after the end of each Offering Period, the Company will deliver, or
cause to be delivered, the shares of Stock purchased by a Participant during that Offering Period to the transfer agent for the
Company’s Stock for deposit into that Participant’s Stock Account for the Plan.
to the Participant.
(b) Cash dividends on any shares of Stock credited to a Participant’s Stock Account will be paid in cash
(c) Each Participant’s Stock Account will be credited with any shares of Stock distributed as a dividend
or distribution in respect of shares of Stock credited to that Participant’s Stock Account or in connection with a split of Stock
credited to that Participant’s Stock Account.
(d) As soon as reasonably practicable after receipt, the transfer agent will sell any noncash dividends
(other than securities of the Company) received with respect to any Stock held in a Participant’s Stock Account and pay the
proceeds of that sale to the Participant in the manner described in Section 6.3(b).
Account on any matter as to which the approval of the Company’s shareholders is sought.
(e) Each Participant will be entitled to vote the number of shares of Stock credited to his or her Stock
ARTICLE 7
TERMINATION/RELEASE FROM STOCK ACCOUNTS
7.1. Effect of Termination on Election to Participate.
A Participant who Terminates will be deemed to have withdrawn from the Plan. Any cash amounts credited to his
or her Plan Account for the Offering Period during which the Termination occurs will be refunded to the Participant (or to the
Participant’s Beneficiary, in the event of the Participant’s death) within 30 days following his or her Termination. No shares
of Stock will be purchased for that Participant in any Offering Period that ends after such Participant’s Termination.
7.2. Release from Stock Accounts.
(a) Subject to Article 8, during the period ending on the date that is twelve (12) full calendar months
after the date on which the Stock was purchased and credited to a Participant’s Stock Account, the Participant may not
transfer the Stock held in his or her Stock Account. At the end of the period described in the immediately preceding
sentence, the shares of Stock held in a Participant’s Stock Account will be released from the Stock Account and treated in the
manner elected by the Participant in accordance with the rules prescribed by the Committee and the transfer agent.
(b) In the event of a Participant’s death, the provisions of Section 7.2(a) regarding the treatment of
Stock released from the Participant’s Stock Account shall immediately apply to the Participant’s Beneficiary (i.e., the
limitation on transferability shall cease to apply upon the Participant’s death).
ARTICLE 8
EFFECT OF CHANGE IN CONTROL
If the Company undergoes a Change in Control, all shares of Stock held in each Participant’s Stock Account will be
made available to the Participant under procedures developed by the transfer agent and the Committee.
ARTICLE 9
AMENDMENT, MODIFICATION AND TERMINATION OF PLAN
9.1. Amendment, Modification, Termination of Plan. The Plan will automatically terminate after all available
shares of Stock have been sold. Also, the Board may terminate, suspend or amend the Plan at any time without shareholder
approval except to the extent that shareholder approval is required to satisfy applicable requirements imposed by (a) Rule
16b-3 under the Act, or any successor rule or regulation, (b) applicable requirements of Section 423 of the Code or (c) any
securities exchange, market or other quotation system on or through on which the Company’s securities are listed or traded.
Also, no Plan amendment may (d) cause the Plan to fail to meet requirements imposed by Rule 16b-3 or (e) without the
consent of the affected Participant adversely affect any Purchase Right issued before the amendment, modification or
termination.
6
9.2. Effect of Plan Termination.
(a) If the Plan is terminated effective on a day other than the last day of any Offering Period, the
Offering Period during which the Plan is terminated also will end on the same day. Any cash balances held in Plan Accounts
when the Plan is terminated will be refunded to the Participant for whom the Plan Account was established, and no shares of
Stock will be sold through the Plan for that Offering Period. All shares of Stock held in Stock Accounts will be released
following the procedures described in Section 7.2.
(b) If the Plan is terminated as of the last day of any Offering Period, the Committee will apply the
terms of the Plan through the end of that Offering Period. However, no further shares of Stock will be offered under the Plan
for any subsequent Offering Period and all shares of Stock then held in Stock Accounts will be released following the
procedures described in Section 7.2.
ARTICLE 10
MISCELLANEOUS
10.1. Restriction on Transfers. Except as provided in Section 10.2, no right or benefit under the Plan may be
transferred, assigned, alienated, pledged or otherwise disposed of in any way by a Participant. All rights and benefits under
the Plan may be exercised during a Participant’s lifetime only by the Participant.
10.2. Beneficiary. Each Participant may designate a Beneficiary or Beneficiaries pursuant to procedures
established by the Committee. If a Participant dies and has failed to so designate a Beneficiary (or the designated Beneficiary
has pre-deceased the Participant), the deceased Participant’s Beneficiary will be his or her estate.
10.3. No Guarantee of Employment. Nothing in the Plan may be construed as:
any time; or
(a) Interfering with or limiting the right of any Employer to terminate any Participant’s employment at
(b) Conferring on any Participant or Employee any right to continue as an Employee.
Further, no Participant will be entitled by reason of participation in the Plan to any compensation, in connection with
termination of employment, for loss of any right or benefit or prospective right or benefit which the Participant might
otherwise have enjoyed by way of damages for breach of contract.
10.4. No Promise of Future Awards. The right to purchase shares of Stock under the Plan is being made available
on a voluntary and discretionary basis and the Purchase Right with respect to each individual Offering Period is being offered
on a one-time basis and does not constitute a commitment to make any Purchase Right available in the future. The right to
purchase shares of Stock hereunder will not be considered salary or other compensation for purposes of any severance pay or
similar allowance, except as otherwise required by applicable law.
10.5. Tax Requirements and Notification. Each Participant is solely responsible for satisfying any applicable local,
state, federal and foreign tax requirements associated with any taxable amount received from or associated with his or her
participation in the Plan. Each Employer will withhold required taxes in the same manner and for the same taxing
jurisdiction as the Employer withholds taxes from Participants’ other compensation.
10.6. Indemnification. Each individual who is or was a member of the Committee or of the Board will be
indemnified and held harmless by the Company against and from any loss, cost, liability or expense (including, without
limitation, attorneys’ fees) that may be imposed upon or reasonably incurred by him or her in connection with or resulting
from any claim, action, suit or proceeding to which he or she may be made a party or in which he or she may be involved by
reason of any action taken or failure to take action under the Plan as a Committee or Board member and against and from any
and all amounts paid, with the Company’s approval, by him or her in settlement of any matter related to or arising from the
Plan as a Committee or Board member or paid by him or her in satisfaction of any judgment in any action, suit or proceeding
relating to or arising from the Plan against him or her as a Committee or Board member, but only if he or she gives the
Company an opportunity, at the Company’s own expense, to handle and defend the matter before he or she undertakes to
handle and defend it in his or her own behalf. The right of indemnification described in this Section 10.6 is not exclusive and
is independent of any other rights of indemnification to which the individual may be entitled under the Company’s
organizational documents, by contract, as a matter of law or otherwise.
7
10.7. No Limitation on Compensation. Nothing in the Plan is to be construed to limit the right of the Company to
establish other plans or to pay compensation to its employees or directors, or those of its Subsidiaries, in cash or property, in
a manner not expressly authorized under the Plan.
10.8. Requirements of Law. The availability of Purchase Rights and the issuance of shares of Stock will be subject
to all applicable laws, rules and regulations and to all required approvals of any governmental agencies or national securities
exchange, market or other quotation system. Also, no shares of Stock will be sold under the Plan unless the Company is
satisfied that the issuance of those shares of Stock will comply with applicable federal and state securities laws. Certificates
for shares of Stock delivered under the Plan may be subject to any stock transfer orders and other restrictions that the
Committee believes to be advisable under the rules, regulations and other requirements of the Securities and Exchange
Commission, any stock exchange or other recognized market or quotation system upon which the Stock is then listed or
traded, or any other applicable federal or state securities law. The Committee may cause a legend or legends to be placed on
any certificates issued under the Plan to make appropriate reference to restrictions within the scope of this Section 10.8.
10.9. Uncertificated Shares of Stock. To the extent that the Plan provides for the issuance of certificates to reflect
the delivery of Stock, the delivery of Stock may be effected on a noncertificated basis, to the extent not prohibited by
applicable law or the applicable rules of any securities exchange upon which shares of Stock are traded.
10.10 Expenses. Except as otherwise provided in this Section 10.10 and the Plan, costs and expenses incurred in
the administration of the Plan and maintenance of Plan Accounts will be paid by the Company. Under no circumstance will
the Company pay any brokerage fees and commissions arising in connection with the sale of shares of Stock acquired under
the Plan by any Participant.
10.11. Governing Law. The Plan and all related elections, authorizations or agreements will be construed in
accordance with and governed by the laws (other than laws governing conflicts of laws) of the United States and of the State
of Ohio.
10.12. No Impact on Benefits. The right to purchase shares of Stock under this Plan is an incentive designed to
promote the objectives described in Article 1 and is not to be treated as compensation for purposes of calculating a
Participant’s rights under any employee benefit plan.
10.13. Data Privacy. Information about the Participant and the Participant’s participation in the Plan may be
collected, recorded and held, used and disclosed for any purpose related to the administration of the Plan. The Participant
understands that such processing of this information may need to be carried out by the Company and its Subsidiaries and by
third-party administrators whether such persons are located within the Participant’s country or elsewhere, including the
United States of America. The Participant consents to the processing of information relating to the Participant and the
Participant’s participation in the Plan in any one or more of the ways referred to above.
10.14. Effective Date. The Plan was effective as of the Effective Date, subject to the approval thereof by the
shareholders of the Company at the 2021 Annual Meeting of Shareholders.
8
United States
Securities and Exchange Commission
Washington, D.C. 20549
Form 10-K
(Mark One)
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2020
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 000-24498
DIAMOND HILL INVESTMENT GROUP, INC.
(Exact name of registrant as specified in its charter)
Ohio
(State of
incorporation)
65-0190407
(I.R.S. Employer
Identification No.)
325 John H. McConnell Blvd, Suite 200, Columbus, Ohio 43215
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: (614) 255-3333
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common shares, no par value
Trading Symbol
DHIL
Name of each exchange on which registered
The NASDAQ Stock Market
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 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 has filed a report on and attestation to its management’s assessment of
the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C.
7262(b)) by the registered public accounting firm that prepared or issued its audit report.☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☒
The aggregate market value of the registrant’s common shares (the only common equity of the registrant) held by non-affiliates
on the NASDAQ Global Select Market was $353,257,260, based on the closing price of $113.67 on June 30, 2020. For these
purposes only, calculation of holdings by non-affiliates is based upon the assumption, that the registrant’s executive officers
and directors are affiliates.
The number of shares outstanding of the issuer’s common stock, as of February 25, 2021, is 3,160,419 shares.
Documents Incorporated by Reference
Portions of the registrant’s definitive Proxy Statement for the 2021 Annual Meeting of Shareholders to be filed pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended, are incorporated by reference into Part III of this
Annual Report on Form 10-K.
Diamond Hill Investment Group, Inc.
Form 10-K
For the Fiscal Year Ended December 31, 2020
Index
Required Information
Part I
Item 1. Business
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Mine Safety Disclosures
Part II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Item 6. Selected Financial Data
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures
Item 9A. Controls and Procedures
Item 9B. Other Information
Part III
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14. Principal Accounting Fees and Services
Part IV
Item 15. Exhibits, Financial Statement Schedules
Item 16. Form 10-K Summary
Signatures
Page
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14
14
15
16
16
18
18
34
35
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54
55
56
56
56
56
56
56
57
57
58
59
2
Item 1.
Business
PART I
Forward-Looking Statements
Throughout this Annual Report on Form 10-K and the documents incorporated herein by reference, Diamond Hill Investment
Group, Inc. (“Diamond Hill”) may make forward-looking statements within the meaning of Section 27A of the Securities Act
of 1933, as amended (the “1933 Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange
Act”). Such statements are provided under the “safe harbor” protection of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements include, but are not limited to, statements regarding anticipated operating results, prospects and
levels of assets under management, technological developments, economic trends (including interest rates and market
volatility), expected transactions and similar matters. The words “believe,” “expect,” “anticipate,” “target,” “project,”
“estimate,” “would,” “will,” “continue,” “should,” “hope,” “seek,” “plan,” “intend,” and variations of such words and similar
expressions identify such forward-looking statements, which speak only as of the date made. While we believe that the
assumptions underlying our forward-looking statements are reasonable, investors are cautioned that any of the assumptions
could prove to be inaccurate and, accordingly, our actual results and experiences could differ materially from the anticipated
results or other expectations expressed in our forward-looking statements.
Factors that could cause such actual results or experiences to differ from results discussed in the forward-looking statements
include, but are not limited to: (i) any reduction in our assets under management (“AUM”); (ii) withdrawal, renegotiation, or
termination of investment advisory agreements; (iii) damage to our reputation; (iv) failure to comply with investment guidelines
or other contractual requirements; (v) challenges from the competition we face in our business; (vi) adverse regulatory and legal
developments; (vii) unfavorable changes in tax laws or limitations; (viii) interruptions in or failure to provide critical
technological service by us or third parties; (ix) adverse civil litigation and government investigations or proceedings; (x) risk
of loss on our investments; (xi) lack of sufficient capital on satisfactory terms; (xii) losses or costs not covered by insurance;
(xiii) impairment of goodwill or intangible assets; (xiv) a decline in the performance of our products; (xv) changes in interest
rates; (xvi) changes in national and local economic and political conditions; (xvii) the continuing economic uncertainty in
various parts of the world; (xviii) the effects of the COVID-19 pandemic and the actions taken in connection therewith; (xix)
political uncertainty caused by, among other things, political parties, economic nationalist sentiments, tensions surrounding the
current socioeconomic landscape, and other risks identified from time-to-time in other public documents on file with the U. S.
Securities and Exchange Commission (“SEC”), including those discussed below in Item 1A.
We do not undertake or plan to update or revise any such forward-looking statements to reflect actual results, changes in plans,
assumptions, estimates or projections, or other circumstances occurring after the date of this Annual Report on Form 10-K,
even if such results, changes, or circumstances make it clear that any forward-looking information will not be realized. If there
are any future public statements or disclosures by us which modify or impact any of the forward-looking statements contained
in or accompanying this Annual Report on Form 10-K, such statements or disclosures will be deemed to modify or supersede
such statements in this Annual Report on Form 10-K. Throughout this Annual Report on Form 10-K, when we use the terms
the “Company,” “management,” “we,” “us,” and “our,” we mean Diamond Hill and its subsidiaries.
Overview
Diamond Hill, an Ohio corporation organized in April 1990, derives its consolidated revenue and net income from investment
advisory and fund administration services provided by its wholly owned subsidiary, Diamond Hill Capital Management, Inc.,
an Ohio corporation (“DHCM”). DHCM is a registered investment adviser under the Investment Advisers Act of 1940, as
amended (the “Advisers Act”). DHCM sponsors, distributes, and provides investment advisory and related services to clients
through the Diamond Hill Funds (each a “Fund”, and collectively, the “Funds”), sub-advised mutual funds, and separately
managed accounts.
DHCM is a client-centric organization committed to a set of shared investment principles and core values intended to enable
excellent investment outcomes for clients. By committing to valuation disciplined active portfolio management, fundamental
bottom-up research, and a long-term business owner mindset, DHCM has created a suite of investment strategies designed for
long-term strategic allocations from institutionally-oriented investors. DHCM’s core values of curiosity, ownership, trust, and
respect create an environment where investment professionals can focus on results and all teammates focus on the overall client
experience. The combination of these investment principles and core values create an aligned boutique model ensuring
associates succeed when clients succeed. This alignment with clients is emphasized through: (i) personal investment by
Diamond Hill employees in the strategies managed, (ii) a fee philosophy focused on a fair sharing of the economics among
clients, employees, and shareholders, (iii) a strict adherence to capacity discipline ensuring the ability to add value for existing
clients, and (iv) compensation driven by the value created.
3
Our primary objective is to fulfill our fiduciary duty to our clients. Our secondary objective is to grow our intrinsic value to
achieve an adequate long-term return for our shareholders.
Investment Advisory Activities
Investment Advisory Fees
Our principal source of revenue is investment advisory fee income earned from managing client accounts under investment
advisory and sub-advisory agreements. The fees earned depend on the type of investment strategy, account size, and servicing
requirements. Revenues depend on the total value and composition of AUM. Accordingly, net cash flows from clients, market
fluctuations in client portfolios, and the composition of AUM impact our revenues and results of operations. We also have
certain agreements that allow us to earn performance-based fees if investment returns exceed targeted amounts during a
measurement period.
Assets Under Management
The following tables show AUM by product and investment objective, as well as net client cash flows, for each of the past five
years ended December 31, 2020:
(in millions)
Proprietary funds
Sub-advised funds
Separately managed accounts
Total AUM
(in millions)
Small Cap
Small-Mid Cap
Mid Cap
Large Cap
Large Cap Concentrated
All Cap Select
Long-Short
Global/International
Total Equity
Short Duration Securitized Bond
Core Fixed Income
Long Duration Treasury
Corporate Credit
High Yield
Total Fixed Income
Total Equity and Fixed Income
(Less: Investments in affiliated funds)(a)
Total AUM
Assets Under Management
As of December 31,
2020
2019
2018
2017
2016
$
17,615 $
16,148 $
13,440 $
15,974 $
13,618
3,185
5,611
2,029
5,222
1,358
4,310
1,518
4,825
1,445
4,318
$
26,411 $
23,399 $
19,108 $
22,317 $
19,381
Assets Under Management
by Investment Strategy
As of December 31,
2020
2019
2018
2017
2016
$
556 $
795 $
1,048 $
1,525 $
2,810
992
15,075
27
446
2,056
33
21,995
1,132
541
62
2,020
724
4,479
26,474
3,243
569
12,316
28
528
3,605
35
21,119
809
300
52
1,147
135
2,443
23,562
2,770
143
9,611
26
432
3,767
18
17,815
579
55
52
757
54
3,528
130
10,864
3
444
4,980
6
313
44
—
668
31
1,497
19,312
1,056
22,536
(63)
26,411 $
(163)
23,399 $
(204)
19,108 $
(219)
22,317 $
$
1,843
3,329
59
8,494
3
402
4,613
2
197
40
—
549
32
818
19,563
(182)
19,381
21,480
18,745
(a) Certain of the Funds own shares of the Diamond Hill Short Duration Securitized Bond Fund. The Company reduces its total AUM by
these investments held in this affiliated fund.
4
(in millions)
AUM at beginning of the year
Net cash inflows (outflows)
proprietary funds
sub-advised funds
separately managed accounts
Net market appreciation/(depreciation) and income
Increase (decrease) during the year
AUM at end of the year
Capacity
Change in Assets Under Management
For the Year Ended December 31,
2020
2019
2018
2017
2016
$
23,399 $
19,108 $
22,317 $
19,381 $
16,841
879
713
(63)
1,529
1,483
3,012
(499)
(978)
216
(394)
(677)
4,968
4,291
(25)
(99)
(1,102)
(2,107)
(3,209)
843
(164)
(254)
425
2,511
2,936
548
639
(1,023)
164
2,376
2,540
$
26,411 $
23,399 $
19,108 $
22,317 $
19,381
Our ability to retain and grow our AUM has been, and will be, primarily driven by delivering attractive long-term investment
results, which requires strict adherence to capacity discipline. In the event that we determine that the size of a strategy could
begin to hinder our ability to add value for our clients based on the strategy’s investment return goals, we will close that
strategy to new clients. Our commitment to capacity discipline inherently impacts our ability to grow our AUM. Investment
results will always be prioritized over asset accumulation. As of December 31, 2020, our Small-Mid Cap strategy remains
closed to new investors. We anticipate closing our Large Cap strategy to most new investors by the end of the first quarter of
2021.
Total capacity is estimated to be $30 – 40 billion for our existing domestic equity strategies, at least $15 billion for our
International and Global strategies, and at least $40 billion for our existing fixed income strategies. Total firm capacity is not
the sum of the individual strategy capacities as it is affected by overlap of investment opportunity across strategies. Firm level
capacity increases with the development of new products or strategies.
Growth Strategy
As a deliberately capacity constrained organization, growth is intentional and centers first and foremost on delivering an
investment and client experience that enables investors to have better outcomes over the long term. Our core values and aligned
boutique model encourage development of strategies and vehicles that are designed to meet clients’ objectives and embody our
shared investment principles.
There is ample opportunity for growth within more recently developed strategies. In 2021, the International, Core Bond, and
Short Duration Securitized Bond strategies will reach their five-year track records. All three strategies have shown the ability to
exceed their investment objectives and serve important strategic roles in client portfolios.
There are three natural extensions of our current strategies that we will expand on in early 2021. We will extend our Large Cap
Concentrated strategy to be available as a new fund in our Diamond Hill Funds lineup. We will launch a limited partnership
focused on micro-cap companies allowing us to leverage our experience evaluating small publicly traded business. We are also
working on the expansion of our fixed income separate account offerings with additional securitized bond strategies. We
continue to develop and identify new long-term oriented investment offerings that meet client objectives and align with our
investment principles.
We provide investment advisory services primarily to institutions and through intermediaries who utilize institutional decision-
making processes. We look to attract like-minded, long-term focused clients across all our offerings. We have dedicated
resources to developing distribution technology and content led marketing efforts. These initiatives supplement and make more
efficient the business development and relationship management efforts. We believe the combination of all these efforts will
lead to a deeper understanding of our investment strategies and ultimately longer holding periods for investors.
5
Distribution Channels
Our investment advisory services are distributed through multiple channels. Below is a summary of AUM by distribution
channel for each of the five years ended December 31, 2020:
(in millions)
Proprietary funds:
Registered investment adviser
Independent broker-dealer
Wirehouse
Bank Trust
Defined contribution
Other
Total proprietary funds
Sub-advised funds
Separately managed accounts:
Institutional consultant
Financial intermediary
Direct
Total separately managed accounts
Total AUM
Fund Administration Activities
AUM by Distribution Channel
As of December 31,
2020
2019
2018
2017
2016
$
4,315 $
3,603 $
3,243 $
4,010 $
4,274
3,529
2,546
2,716
235
17,615
3,185
2,504
2,371
736
5,611
3,563
3,026
2,907
2,723
326
16,148
2,029
2,397
1,777
1,048
5,222
2,900
2,319
2,672
1,904
402
13,440
1,358
2,122
1,506
682
4,310
3,581
2,660
3,456
1,840
427
15,974
1,518
2,357
1,691
777
4,825
3,508
2,922
2,011
3,175
1,535
467
13,618
1,445
2,074
1,358
886
4,318
$
26,411 $ 23,399 $ 19,108 $ 22,317 $
19,381
We provide fund administration services to the Funds. Fund administration services are broadly defined in our administration
agreements with the Funds as portfolio and regulatory compliance, treasury and financial oversight, oversight of back-office
service providers, such as the custodian, fund accountant, and transfer agent, and general business management and governance
of the mutual fund complex.
Competition
Competition in the investment management industry is intense, and competitors include investment management firms, broker-
dealers, banks, and insurance companies, some of whom offer various investment alternatives, including passive index
strategies. Many competitors are better known, offer a broader range of investment products, and have more dedicated
resources for business development and marketing.
Regulation
Our firm and business are subject to various federal, state, and non-U.S. laws and regulations. As a matter of public policy,
regulatory bodies are charged with safeguarding the integrity of the securities and other financial markets and with protecting
the interests of participants in those markets, including investment advisory clients and shareholders of investment funds. If an
adviser fails to comply with these laws and regulations, agencies that regulate investment advisers have broad administrative
powers, including the power to limit, restrict, or prohibit an investment adviser from carrying on its business. Possible
sanctions that regulatory bodies may impose, include civil and criminal liability, the suspension of individual employees,
limitations on engaging in certain lines of business for specified periods of time, revocation of investment adviser, broker-
dealer, and other registrations, censures, and fines.
6
DHCM is registered with the SEC under the Advisers Act and operates in a highly regulated environment. The Advisers Act
imposes numerous obligations on registered investment advisers, including fiduciary duties, recordkeeping requirements,
operational requirements, and disclosure obligations. All Funds are registered with the SEC under the Investment Company
Act of 1940, as amended (the “1940 Act”), and are required to make notice filings with all states where the Funds are offered
for sale. Virtually all aspects of our investment advisory and fund administration business are subject to various federal and
state laws and regulations.
DHCM is a “fiduciary” under the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), with respect to
benefit plan clients, and therefore, is subject to ERISA regulations. ERISA and applicable provisions of the Internal Revenue
Code of 1986, as amended, impose certain duties on persons who are fiduciaries, prohibit certain transactions involving ERISA
plan clients, and provide monetary penalties for violations of these prohibitions. The U.S. Department of Labor, which
administers ERISA, has been increasingly active in proposing and adopting regulations affecting the asset management
industry.
Our trading activities for client accounts are regulated by the SEC under the Exchange Act, which includes regulations
governing trading on inside information, market manipulation, and a broad number of trading and market regulation
requirements in the United States (e.g., volume limitations and reporting obligations).
The preceding descriptions of the regulatory and statutory provisions applicable to us are not exhaustive or complete and are
qualified in their entirety by reference to their respective statutory or regulatory provisions. Failure to comply with these
requirements could have a material adverse effect on our business.
Contractual Relationships with the Funds
We are highly dependent on our contractual relationships with the Funds. If any of our advisory or administration agreements
with the Funds were terminated or not renewed, or were amended or modified to reduce fees, we would be materially and
adversely affected. We generated approximately 75%, 77%, and 79% of our 2020, 2019, and 2018 revenues, respectively, from
our advisory and administrative contracts with the Funds. We believe that we have a strong relationship with the Funds and
their board of trustees, and we have no reason to believe that these advisory or administration contracts will not be renewed in
the future. However, there is no assurance that the Funds will choose to continue their relationships with us. Please see
Item 1A for risk factors regarding this relationship.
Human Capital
Our people are our greatest asset, and each role within our firm contributes to our mission to deliver outstanding client
outcomes. As our greatest asset, we diligently care for and invest in our employees. We are a small firm with an important
purpose, and we rely on each other and our positive culture to create the environment which allows us to deliver on our vision.
Workforce Data
Attracting, developing, and retaining talented employees is an integral aspect of our human capital strategy and critical to our
success. We depend on highly skilled personnel, both investment professionals and business professionals, many of whom
have specialized expertise and extensive experience in the investment management industry. As of December 31, 2020, we
employed 126 full-time equivalent employees. As of December 31, 2019, the number of full-time equivalent employees was
129.
Our average employee tenure is approximately 6 years, and more than 20% of our employees have been employed by us for
more than ten years. Our employee turnover rate continues to be well below industry average. We believe these realities reflect
employees’ genuine commitment to our clients, our business, and each other, as well as our firm’s value proposition.
Competitive Pay and Benefits
Since our founding, aligning our interests directly with the clients we serve has been imperative. Inherent in this alignment is a
passion for excellence enabling us to exceed client expectations. To achieve this level of excellence, it is important that
consistent with our compensation philosophy, we attract, retain, and motivate associates who embody our values, act like
owners, and advocate for client outcomes. We align our employees’ compensation with our overall performance, as well as
team and individual results.
We know there are many places exceptional talent can choose to work, which is why we aim to take exceptional care of our
employees throughout their career. We believe that their well-being and financial security will enable them to do their best
work and advocate for client outcomes. Some of our most competitive package components are:
7
•
•
•
•
Competitive annual compensation comprised of a base salary, discretionary cash incentive compensation and, for
certain roles, a long-term equity incentive;
An equity grant in the first year of joining our firm to instill an ownership mindset;
A market-leading 401k match program; and
Employees are also eligible for health, dental and vision insurance, health savings accounts, telemedicine, flexible time
off, paid and unpaid leave, life and disability insurance, paid parental leave, fertility benefits, a wellness program with
subsidized gym membership, professional development opportunities including reimbursement for job-related
professional designations such as the CFA program, and paid parking.
Our Culture
The way our employees embody our core values creates an exceptional corporate culture that differentiates our business from
other firms.
Our culture revolves around the fact that Diamond Hill is a fiduciary first and foremost. Our primary focus is serving our clients
and this mindset permeates our organization. We intentionally staff our team to ensure a high level of service to our clients, and
we believe our client-centric approach is difficult for competitors to replicate. Our long-term, value-disciplined investment
philosophy and process are foundational to who we are as an organization and have been consistently implemented since the
firm’s inception. All members of the investment team believe in, and adhere to, the same philosophy. As a result, our
investment professionals focus their efforts solely on finding attractive investment opportunities for clients.
Our employees also invest in our strategies alongside our clients. Our portfolio managers have significant personal investments
in the strategies they manage. In addition, DHCM’s Code of Ethics states that all Diamond Hill employees are prohibited from
investing in individual securities or competing firms’ funds in segments of the market in which Diamond Hill has an investment
strategy. This limitation ensures we continue to focus on finding the best opportunities for client portfolios while avoiding the
conflicts of interest inherent in managing personal accounts.
To further ensure our portfolio managers consistently remain focused on achieving the best long-term outcomes possible for our
clients, we link the majority of portfolio managers’ annual incentive compensation to trailing five-year investment results of the
strategies they manage. We believe that we are one of few firms to focus only on long-term performance, with no separate
consideration for one- or three-year returns in evaluating portfolio managers. This approach ensures that our portfolio
managers are motivated to make sound long-term investment decisions, rather than on achieving a particular short-term return
goal.
Diversity, Equity, and Inclusion
We view diversity, equity, and inclusion (“DEI”) as essential parts of our business and operating model to ensure sustainability.
Diversity, equity, and inclusion are embedded in our policies, practices, strategic initiatives, and are linked to our firm’s core
values.
We believe our goal of being an exceptional active investment boutique that our clients trust to deliver excellent long-term
investment outcomes is better served by the engagement and encouragement of varied perspectives in decision making as is
inherent in a diverse team.
With that vision in mind, in 2020, we committed to several DEI initiatives and measures to ensure our efforts are sustained and
positive changes occur within our firm, in the industry, and within our community. More specifically, in 2020:
•
Along with 750+ other Columbus, Ohio-based business leaders, we signed a letter supporting a Columbus City
Council resolution declaring racism a public health issue;
• We created an employee-led, DEI advisory group to help guide and prioritize our DEI efforts and ensure our ideas
become actions;
•
Approximately 30% of employees from across the firm have volunteered to be part of our DEI efforts;
• We partnered with third parties to increase the number of diverse candidates applying for our open positions and to
ensure that we consider a diverse pool of candidates for our full-time and part-time openings and within our intern
program;
8
• We partnered with organizations that assist people of color and women to achieve inclusion in the financial services
industry and support financial and investment literacy;
• We are working to ensure that we are conducting business with vendors who embrace our commitment to DEI;
• We created a DEI resource group to raise awareness about a variety of topics and foster understanding; and
•
At the community level, we pledged $1 million over the next five years to organizations that support anti-racism and
DEI efforts.
We believe we should all be held to a higher standard and we pledge our commitment to do so. As of December 31, 2020,
females represent 42% of our Board of Directors, 66% of our management team, and 30% of our employees. As of
December 31, 2020, minorities represent approximately 14% of our workforce.
Health and Well-Being
Conducting business in the COVID-19 era has heightened the importance of protecting employee health and well-being and has
inspired new ways of engaging with a physically distanced workforce. We more acutely recognize the importance of being
supportive, open, and flexible in order to retain our great people.
We recognize that individual circumstances are unique and evolving, and that flexible working is a part of our future. We are
committed to offering flexibility to our employees to ensure their well-being, safety, and productivity. We support managers
and employees by providing training and mental health support including confidential counseling services, and are continuously
exploring new ways of collaborating.
Employee Development / Training
We offer both formal and informal training programs to foster and retain talent. The challenges of 2020 reinforced our belief
that continuous learning is vital, far beyond our typical functional scope. Despite the majority of our employees being based in
Columbus, Ohio and accustomed to working in the office with access to desktops and desk phones, the COVID-19 pandemic
required our business to adapt quickly and seamlessly to new technologies, new hardware and software, and to learn various
collaboration tools. In 2020, we also offered LinkedIn Learning licenses to supplement internal and external training.
SEC Filings
We maintain an Internet website at www.diamond-hill.com. Our Annual Reports on Form 10-K, Quarterly Reports on Form
10-Q, Current Reports on Form 8-K, and amendments to those reports that we file or furnish from time-to-time pursuant to
Section 13(a) or 15(d) of the Exchange Act, are made available free of charge, on or through our website, as soon as reasonably
practicable after such material is electronically filed with, or furnished to, the SEC. These filings are also available on the
SEC’s website at http://www.sec.gov free of charge.
ITEM 1A. Risk Factors
Our future results of operations, financial condition, liquidity, and capital resources, as well as the market price of our
common stock, are subject to various risks, including those risks mentioned below and those risks that are discussed from
time-to-time in our other periodic filings with the SEC. Investors should carefully consider these risks, along with the other
information contained in this Annual Report on Form 10-K, before making an investment decision regarding our common
shares. There may be additional risks of which we are currently unaware, or which we currently consider immaterial. The
occurrence of any of these risks could have a material adverse effect on our financial condition, results of operations,
liquidity, capital resources and the value of our common stock. Please see “Forward Looking Statements” within Part I, Item
1, of this Annual Report on Form 10-K.
9
Business Risks
Poor investment results or adverse reviews of our products could affect our ability to attract new clients or reduce our AUM,
potentially negatively impacting revenue and net income.
If we fail to deliver acceptable investment results for our clients, both in the short and long term, we could experience
diminished investor interest and a decreased level of AUM.
Investment strategies are assessed and rated by independent third parties, including rating agencies, industry analysts, and
publications. Investors can be influenced by such ratings. If a strategy receives an adverse report, it could negatively influence
our AUM and our revenue.
Our success depends on our key personnel, and our financial performance could be negatively affected by the loss of their
services.
Our success depends on highly skilled personnel, including portfolio managers, research analysts, and management, many of
whom have specialized expertise and extensive experience in the investment management industry. Financial services
professionals are in high demand, and we face significant competition for qualified employees. Other than our Chief Executive
Officer, our employees do not have employment contracts and generally can terminate their employment at any time. We may
not be able to retain or replace key personnel. In order to retain or replace our key personnel, we may be required to increase
compensation, which would decrease net income. The loss of key personnel could damage our reputation and make it more
difficult to retain and attract new employees and clients. A loss of client assets resulting from the departure of key personnel
may materially decrease our revenues and net income.
Our investment results and/or the growth in our AUM may be constrained if appropriate investment opportunities are not
available or if we close certain of our investment strategies to new investors.
Our ability to deliver strong investment results depends in large part on our ability to identify appropriate investment
opportunities in which to invest client assets. If we are unable to identify sufficient investment opportunities for existing and
new client assets on a timely basis, our investment results could be adversely affected. The risk that appropriate investment
opportunities may be unavailable is influenced by a number of factors, including general market conditions, and is likely to
increase if our AUM increases rapidly. In addition, if we determine that sufficient investment opportunities are not available
for an investment strategy, or we believe that it is necessary in order to continue to produce attractive returns from an
investment strategy, we will consider closing the investment strategy to new investors. As of December 31, 2020, we have one
investment strategy closed to new investors. If we misjudge the point at which it would be optimal to close an investment
strategy, the investment results of the strategy could be negatively impacted.
We are subject to substantial competition in all aspects of our business.
Our investment products compete against investment products and services from:
•
Asset management firms;
• Mutual fund companies;
•
•
•
•
•
Commercial banks and thrift institutions;
Insurance companies;
Exchange traded funds;
Private funds, including hedge funds and private equity funds; and
Brokerage and investment banking firms.
Many of our competitors have substantially greater resources and may operate in more markets or offer a broader range of
products, including passively managed or “index” products. Some of these institutions operate in a different regulatory
environment, which may give them certain competitive advantages in the investment products and portfolio structures that
they offer. We compete with other providers of investment services primarily based upon our philosophy, performance, and
client service. Some institutions have a broader array of products and distribution channels, which makes it more difficult for
us to compete. If current or potential customers decide to use one of our competitors, we could face a significant decline in
market share, AUM, revenues, and net income. If we are required to lower our fees to remain competitive, our net income
could be significantly reduced because some of our expenses are fixed, especially over shorter periods of time, and our
expenses may not decrease in proportion to the decrease in revenues. Additionally, over the past several years, investors have
10
generally shown a preference for passive investment products, such as index and exchange traded funds, over actively
managed strategies. If this trend continues, our AUM may be negatively impacted.
Market and competitive pressures in recent years have created a trend towards lower management fees in the asset
management industry and there can be no assurance that we will be able to maintain our current fee structure. As a result, a
shift in our AUM from higher to lower fee generating clients and strategies could result in a decrease in profitability even if
our AUM increases or remains unchanged.
The loss of access to, or increased fees required by, third-party distribution sources to market our portfolios and access our
client base could adversely affect our results of operations.
Our ability to attract additional AUM is dependent on our relationship with third-party financial intermediaries. We
compensate some of these intermediaries for access to investors and for various marketing services provided. These distribution
sources and client bases may not continue to be accessible to us for reasonable terms, or at all. If such access is restricted or
eliminated, it could have an adverse effect on our results of operations. Fees paid to financial intermediaries for investor access
and marketing services have generally increased in recent years. If such fee increases continue, refusal to pay them could
restrict our access to those client bases while paying them could adversely affect our profitability.
A significant portion of our revenues are based on advisory and administrative agreements with the Funds that are subject to
termination without cause and on short notice.
We are highly dependent on our contractual relationships with the Funds. If our advisory or administration agreements with the
Funds were terminated or not renewed, or were amended or modified to reduce fees, we would be materially and adversely
affected. Generally, these agreements are terminable by either party upon 60 days’ prior written notice without penalty. The
agreements are subject to annual approval by either: (i) the board of trustees of the Funds, or (ii) a vote of the majority of the
outstanding voting securities of each Fund. These agreements automatically terminate in the event of their assignment by either
us or the Funds. We generated approximately 75%, 77%, and 79% of our 2020, 2019, and 2018 revenues, respectively, from
our advisory and administrative contracts with the Funds, including 26%, 17%, and 11% from the advisory contracts with the
Diamond Hill Large Cap Fund, the Diamond Hill Long-Short Fund, and the Diamond Hill Small-Mid Cap Fund, respectively,
during 2020. The loss of any of the Diamond Hill Large Cap Fund, the Diamond Hill Long-Short Fund, or the Diamond Hill
Small-Mid Cap Fund contracts would have a material adverse effect on us. We believe that we have a strong relationship with
the Funds and their boards of trustees, and we have no reason to believe that these advisory or administration contracts will not
be renewed in the future. However, there can be no assurance that the Funds will choose to continue their relationships with us.
The COVID-19 pandemic and other possible similar pandemics or outbreaks could have a material adverse effect on our
business, financial position, results of operations, and cash flows.
COVID-19 has resulted in temporary, and sometimes prolonged, closures of many corporate offices, retail stores,
manufacturing facilities, and factories around the world. In addition, as COVID-19 continues to spread across the globe, supply
chains worldwide have been interrupted, slowed, or rendered inoperable, and an increasing number of individuals have and may
continue to become ill, quarantined, or otherwise unable to work and/or travel due to health reasons or governmental
restrictions. Governmental mandates to control the outbreak may require additional forced shutdowns and limit the re-opening
of various business facilities for extended or indefinite periods. COVID-19, and the various governmental, industry, and
consumer actions related to the containment thereof, are having, and could continue to have, negative effects on our business
and risk exposure. These effects include, without limitation, potential significant financial market volatility, decreases in the
demand for our investment products, changes in consumer behavior and preferences, limitations on our employees’ ability to
work and travel, potential financial and operational difficulties of vendors and suppliers, significant changes in economic or
political conditions, and financial market declines or recessions that could generally negatively affect the level of our AUM and
consequently our revenue, investment income (loss), and net income.
The global effect of the COVID-19 pandemic continues to evolve, and it is uncertain what the effect of various legislative and
other responses that have been taken, and that may be taken in the future in the United States and other countries, will have on
the economy, financial markets, international trade, our industries, our businesses, and the businesses of our clients and
vendors. Many countries, including the United States, have reacted to both the initial outbreak and subsequent outbreaks by
instituting quarantines and restrictions on travel to and from actual and potentially affected areas, and the outbreak could have a
continued adverse effect on economic and market conditions. The future effect of the COVID-19 pandemic on global markets is
difficult to predict, and it is uncertain the extent to which the COVID-19 pandemic may negatively affect our operating results
or disrupt the duration of any potential business. The emergence of new variants of the virus and delay or difficulties in
administering vaccines could continue to cause uncertainty. Any potential effect on our business and results of operations will
depend to a large extent on future developments and new information that may emerge regarding the duration and severity of
11
the COVID-19 pandemic and the actions taken by authorities and other entities to contain the spread of the virus, all of which
are beyond our control.
In addition, the COVID-19 pandemic has significantly affected the way we operate. While we have in place business continuity
plans that address the impact of the COVID-19 pandemic on our personnel, facilities, and technologies that enable our
personnel to work effectively from home, no assurance can be given that the steps we have taken will continue to be effective or
appropriate. Although our employees have been able to continue conducting business while working remotely for an extended
period of time, operational challenges may arise in the future, which may reduce our organizational efficiency or effectiveness,
and increase operational, compliance, and cybersecurity risks. In addition, because most of our employees have not previously
worked remotely for such an extended period of time, we are unsure of the impact that the remote work environment and lack
of in-person meetings with colleagues, clients, and business partners will have on the growth of our business and the results of
our operations. Many of our key service providers also have transitioned to working remotely for an extended period of time.
If we or they were to experience material disruptions in the ability of our or their employees to work remotely (e.g., from illness
due to the COVID-19 pandemic or disruption in internet-based communication systems and networks), our ability to operate
our business could be materially adversely disrupted. Any such disruptions could have a material adverse impact on our results
of operations, cash flows, financial condition, and/or reputation.
Moreover, our future success and profitability substantially depend on the management skills of our executive officers and
directors, many of whom have held officer and director positions with us for many years. The unanticipated loss or
unavailability of key employees due to COVID-19 or any similar pandemic could harm our ability to operate our business or
execute our business strategy. We may not be successful in finding and integrating suitable successors in the event of key
employee loss or unavailability.
Even after the COVID-19 pandemic subsides, local and foreign economies will likely require time to recover, the length of
which is unknown and during which the United States or other countries may experience a recession. Our business could be
materially and adversely affected by any such recession.
To the extent the effects of COVID-19 adversely impact our business, financial condition, liquidity, capital resources, or results
of operations, it may also have the effect of heightening many of the other risks described in this section.
Operational Risks
Unauthorized disclosure of sensitive or confidential client or customer information, whether through a breach of our computer
or other systems or otherwise, could severely harm our business.
As part of our business, we collect, process, and transmit sensitive and confidential information about our clients and
employees, as well as proprietary information about our business. We have policies and procedures pursuant to which we take
numerous security measures to prevent cyberattacks of various kinds as well as fraudulent and inadvertent activity by persons
who have been granted access to such confidential information. Nevertheless, our systems, like all technology systems, remain
vulnerable to unauthorized access, which can result in theft or corruption of information. In addition, we share information
with third parties upon whom we rely for various functions. The systems of such third parties also are vulnerable to cyber
threats. Attacks can come from unrelated third parties through the internet, from access to hardware removed from our
premises or those of third parties or from employees acting intentionally or inadvertently.
Cybersecurity incidents can involve, among other things: (i) deliberate attacks designed to corrupt our information systems and
make them unusable by us to operate our business; (ii) theft of information used by the perpetrators for financial and other gain;
or (iii) inadvertent releases of information by employees or third parties with whom we do business.
Cyberattacks that corrupt our information systems and make them unusable could impair our ability to trade securities in our
clients’ accounts. Corruption of the systems of our third-party vendors could impact us to the same extent as corruption of our
own systems. If information about our employees is intentionally stolen or inadvertently made public, that information could
be used to commit identity theft, obtain credit in an employee’s name, or steal from an employee. If information about our
business is obtained by unauthorized persons, whether through intentional attacks or inadvertent releases of information, it
could be used to harm our competitive position.
Whether information is corrupted, stolen, or inadvertently disclosed, and regardless of the type and nature of the information
(e.g., proprietary information about our business or personal information about clients or employees), the results could be
multiple and materially harmful to us, including the following:
•
Our reputation could be harmed, resulting in the loss of clients, vendors, and employees or making payments or
concessions to such persons to maintain our relationships with them;
12
•
•
•
Our inability to operate our business fully, even if temporarily, and thus, fulfill contracts with clients or vendors, could
result in terminations of contracts and loss of revenue;
Harm suffered by clients or vendors whose contracts have been breached, or by clients, vendors, or employees whose
information is compromised, could result in costly litigation against us;
Our need to focus attention on remediation of a cyber problem could take our attention away from the operation of our
business, resulting in lost revenue;
• We could incur costs to repair systems made inoperable by a cyberattack and to make changes to our systems to reduce
future cyber threats. Those changes could include, among other things, obtaining additional technologies as well as
employing additional personnel and training employees; and
•
The interruption of our business or theft of proprietary information could harm our ability to compete.
All of the above potential impacts of a cybersecurity incident could have a material adverse effect on our business, financial
condition, and results of operations.
We may not be able to adapt to technological change.
The financial services industry is continually undergoing rapid technological change with frequent introductions of new
technology-driven products and services. The effective use of technology increases efficiency and enables financial institutions
to better serve customers while reducing costs. Our future success depends, in part, upon our ability to address customer needs
by using technology to provide products and services that will satisfy customer demands, as well as to create additional
efficiencies in our operations. We may not be able to implement effectively new technology-driven products and services or be
successful in marketing these products and services to our customers. Failure to successfully keep pace with technological
changes affecting the financial services industry could negatively affect our growth, revenue, and profit.
Operational risks may disrupt our business, result in losses, or limit our growth.
We are dependent on the capacity and reliability of the communications, information and technology systems supporting our
operations, whether developed, owned, or operated internally by us or by third parties. Operational risks, such as trading or
operational errors, interruption of our financial, accounting, trading, compliance and other data processing systems, the loss of
data contained in such systems, or compromised systems due to cyberattack, could result in a disruption of our business,
liability to clients, regulatory intervention, or reputational damage, and thus, adversely affect our business.
Negative public opinion can result from our actual or alleged conduct in any number of activities, including trading practices,
corporate governance and acquisitions, social media and other marketing activities and from actions taken by governmental
regulators and community organizations in response to any of the foregoing. Negative public opinion could adversely affect our
ability to attract and maintain clients, could expose us to potential litigation or regulatory action, and could have a material
adverse effect on our stock price or result in heightened volatility.
Trading in our common shares is limited, which may adversely affect the time and the price at which you can sell your shares.
Although our common shares are listed on the NASDAQ Global Select Market, the shares are held by a relatively small number
of shareholders, and trading in our common shares is relatively inactive. The spread between the bid and the asked prices is
often wide. As a result, shareholders may not be able to sell their shares on short notice, and the sale of a large number of
shares at one time could temporarily depress the market price. In addition, certain shareholders, including certain of our
directors and officers, own a significant number of shares. The sale of a large number of shares by any such individual could
temporarily depress the market price of our shares.
Industry, Market, and Economic Risks
Our AUM, which impacts revenue, is subject to significant fluctuations.
The majority of our revenue is calculated as a percentage of AUM or is related to the general performance of the equity
securities markets. A decline in securities prices or in the sale of investment products, or an increase in fund redemptions,
generally will reduce revenue and net income. Financial market declines will generally negatively impact the level of our
AUM, and consequently, our revenue and net income. A recession or other economic or political events, whether in the United
States or globally, could also adversely impact our revenue, if such events led to a decreased demand for products, a higher
redemption rate, or a decline in securities prices.
13
Our investment approach may underperform other investment approaches during certain market conditions.
Our investment strategies are best suited for investors with long-term investment time horizons. Our investment strategies
may not perform well during certain periods of time. Additionally, we could have common positions and industry
concentrations across our strategies at the same time. As such, factors leading to underperformance may impact multiple
strategies simultaneously.
Our investment income and asset levels may be negatively impacted by fluctuations in our investment portfolio.
We currently have a substantial portion of our assets invested in investments that we sponsor. All of these investments are
subject to market risk and our non-operating investment income could be adversely affected by adverse market performance.
Fluctuations in investment income are expected to occur in the future.
Regulatory Risks
Changes in tax laws and unanticipated tax obligations could have an adverse impact on our financial condition, results of
operations, and cash flow.
We are subject to federal, state, and local income taxes in the United States. Tax authorities may disagree with certain positions
we have taken or implement changes in tax policy, which may result in the assessment of additional taxes. We regularly assess
the appropriateness of our tax positions and reporting. We cannot provide assurances, however, that we will accurately predict
the outcomes of audits, and the actual outcomes of these audits could be unfavorable.
Our business is subject to substantial governmental regulation, which can change frequently and may increase costs of
compliance, reduce revenue, result in fines, penalties, and lawsuits for noncompliance, and adversely affect our results of
operations and financial condition.
Our business is subject to a variety of federal securities laws, including the Advisers Act, the 1940 Act, the 1933 Act, the
Exchange Act, the Sarbanes-Oxley Act of 2002, the U.S. PATRIOT Act of 2001, and the Dodd-Frank Wall Street Reform and
Consumer Protection Act of 2010. In addition, we are subject to significant regulation and oversight by the SEC. Changes in
legal, regulatory, accounting, tax, and compliance requirements could have a significant effect on our operations and results,
including, but not limited to, increased expenses and reduced investor interest in certain Funds and other investment products
we offer. We continually monitor legislative, tax, regulatory, accounting, and compliance developments that could impact our
business. We and our directors, officers, and employees could be subject to lawsuits or regulatory proceedings for violations of
such laws and regulations, which could result in the payment of fines or penalties and cause reputational harm to us which
could negatively affect our financial condition and results of operations, as well as divert management’s attention from our
operations.
General Risk Factors
Our insurance policies may not cover all losses and costs to which we may be exposed.
We carry insurance in amounts and under terms that we believe are appropriate. Our insurance may not cover all liabilities and
losses to which we may be exposed. Certain insurance coverage may not be available or may be prohibitively expensive in
future periods. As our insurance policies come up for renewal, we may need to assume higher deductibles or pay higher
premiums, which could have an adverse impact on our results of operations and financial condition.
ITEM 1B. Unresolved Staff Comments
None.
ITEM 2.
Properties
We lease office space and conduct our general operations at one location, the address of which is 325 John H. McConnell
Boulevard, Suite 200, Columbus, Ohio 43215.
We do not own any real estate or interests in real estate.
ITEM 3.
Legal Proceedings
There are currently no matters pending that we believe could have a material adverse effect on our consolidated financial
statements.
14
ITEM 4.
Mine Safety Disclosures
Not applicable.
15
PART II
ITEM 5.
Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity
Securities
The following performance graph compares the total shareholder return of an investment in our common shares to that of the
Russell Microcap® Index, and to a peer group index of publicly-traded asset management firms for the five-year period ended
on December 31, 2020. The graph assumes that the value of the investment in our common shares and each index was $100 on
December 31, 2015. Total return includes reinvestment of all dividends. The Russell Microcap® Index makes up less than 3%
of the U.S. equity market and is a market-value-weighted index of the smallest 1,000 securities in the small-cap Russell 2000®
Index plus the next 1,000 smallest securities. Peer Group returns are weighted by the market capitalization of each firm at the
beginning of the measurement period. The historical information set forth below is not necessarily indicative of future
performance. We do not make or endorse any predictions as to future stock performance.
12/31/2015
12/31/2016
12/31/2017
12/31/2018
12/31/2019
12/31/2020
Cumulative
5 Year Total
Return
Diamond Hill Investment Group, Inc.
Russell Microcap® Index
Peer Group*
$100
$100
$100
$114
$120
$90
$116
$136
$114
$89
$118
$72
$89
$145
$81
$102
$175
$97
2 %
75 %
(3) %
* The Peer Group is based upon all publicly-traded asset managers with market cap of less than $5 billion excluding: (i) firms
whose primary business is hedge fund or private equity, and (ii) firms with multiple lines of business. The following companies
are included in the Peer Group: Alliance Bernstein Holding L.P., Affiliated Managers Group, Inc., Artisan Partners Asset
Management Inc., Cohen & Steers, Inc., Federated Investors, Inc., GAMCO Investors, Inc., Hennessy Advisors, Inc., Manning
& Napier, Inc., Pzena Investment Management, Inc., Teton Advisors, Inc., U.S. Global Investors, Inc., Virtus Investment
Partners, Inc., Waddell & Reed Financial, Inc., Wisdomtree Investments, Inc., and Westwood Holdings Group, Inc.
16
Total Return PerformanceDiamond Hill Investment Group, Inc.Russell Microcap® IndexPeer Group12/31/1512/31/1612/31/1712/31/1812/31/1912/31/20$60$80$100$120$140$160$180$200 Our common shares trade on the NASDAQ Global Select Market under the ticker symbol DHIL. The following table sets forth
the high and low daily close prices during each quarter of 2020 and 2019:
Quarter ended:
March 31
June 30
September 30
December 31
High
Price
2020
Low
Price
Dividend
Per Share
High
Price
2019
Low
Price
Dividend
Per Share
$
$
$
$
144.40 $
81.70 $
— $
158.74 $
133.52 $
122.13 $
86.00 $
— $
148.30 $
137.73 $
128.08 $
111.80 $
— $
142.80 $
127.18 $
—
—
—
160.00 $
128.01 $
12.00 $
149.60 $
132.70 $
9.00
Due to the relatively low trading volume of our shares, bid/ask spreads can be wide at times, and therefore, quoted prices may
not be indicative of the price a shareholder may receive in an actual transaction. During the years ended December 31, 2020
and 2019, approximately 4,331,369 and 4,384,590, of our common shares were traded, respectively. The dividends indicated
above were special dividends.
On October 27, 2020, our board of directors approved a special cash dividend of $12.00 per share paid on December 4, 2020, to
shareholders of record as of November 25, 2020. This dividend reduced shareholders' equity by approximately $38.0 million.
On October 27, 2020, our board of directors also approved the initiation of a regular quarterly dividend beginning the first of
quarter 2021. Subject to approval each quarter by our board of directors and compliance with applicable law, we expect to pay a
regular quarterly dividend of $1.00 per share. Going forward, at the end of each year, our board of directors will decide whether
to pay an additional special dividend. Although we currently expect to pay the aforementioned dividends, depending on the
circumstances and the board of directors’ judgment, we may not pay such dividends as described.
The approximate number of record holders of our common shares at February 25, 2021 was 82, although we believe that the
number of beneficial owners of our common shares is substantially greater.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
The following table sets forth information regarding our current common share repurchase program (the “2020 Repurchase
Program”) and shares withheld for tax payments due upon vesting of employee restricted stock units and restricted stock awards
that vested during the fourth quarter of fiscal year 2020:
Period
October 1, 2020 through
October 31, 2020
November 1, 2020 through
November 30, 2020
December 1, 2020 through
December 31, 2020
Total
(a)
(b)
Total Number of
Shares Purchased
for Employee Tax
Withholdings(a)
Total Number
of Shares
Purchased
as part of Publicly
Announced
Program(b)
Average Price
Paid Per Share
Purchased Under
the Program
Purchase Price of
Shares
Purchased
Under the Program
Aggregate Purchase
Price Yet To Be
Purchased Under
the Program
2,954
—
—
2,954
—
—
—
—
—
—
—
— $
35,375,676
— $
35,375,676
— $
35,375,676
— $
35,375,676
We regularly withhold shares for tax payments due upon the vesting of employee Restricted Stock. During the quarter
ended December 31, 2020, we purchased 2,954 shares for employee tax withholdings at an average price paid per share
of $126.32.
On February 27, 2020, our board of directors approved the 2020 Repurchase Program, authorizing management to
repurchase up to $50.0 million of our common shares in the open market and in private transactions in accordance with
applicable securities laws. The 2020 Repurchase Program will expire in February 2022, or upon the earlier completion
of all authorized purchases under such program.
17
ITEM 6.
Selected Financial Data
Not applicable.
ITEM 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
In this Item 7, we discuss and analyze our consolidated results of operations for the past three fiscal years and other factors that
may affect our future financial performance. This discussion should be read in conjunction with our Consolidated Financial
Statements, Notes to Consolidated Financial Statements, and Selected Financial Data contained in this Annual Report on Form
10-K.
Business Environment
The performances of the U.S. and international equity markets, as well as the U.S. fixed income market, have a direct impact on
our operations and financial position.
Equity Markets
The year 2020 was challenging due to the global spread of COVID-19 and related pandemic. Economic activity ground to a halt
as countries hardest hit by the pandemic faced closing businesses, spending declines, and record unemployment levels. Despite
unprecedented economic and market disruption, global equities posted positive returns in excess of 16% in 2020 (as measured
by the MSCI All Country World Index) and U.S. stocks returned in excess of 18% (as measured by the S&P 500® Index), a
remarkable advance given the economic backdrop. Technology stocks were clear winners in 2020 as the work from home era
took hold. Online retailers also did well, benefiting from a shift to online shopping in the wake of the pandemic. Energy stocks
struggled as oil demand and prices fell on weak economic and transportation activity. In the second half of the year, central
bank liquidity, fiscal stimulus, and optimism of rapid-to-market COVID-19 vaccines provided stocks a welcome tailwind.
Fixed Income Markets
Throughout 2020, Federal Reserve and U.S. Treasury intervention played a key role in the fixed income markets. In the first
quarter of 2020, the Federal Reserve cut rates in response to signs of a slowing economy exacerbated by an oil production glut
as OPEC and Russia failed to come to terms on production cuts. Starting in mid-March, as it became clear the coronavirus
pandemic would result in wide scale business shutdowns, central banks globally moved quickly and decidedly to provide
liquidity and support while governments directed stimulus support to citizens and businesses facing economic uncertainty.
Corporate bond purchasing programs initiated by the U.S. government were barely utilized but served as the impetus for a
historic pace of debt issuance in both investment grade and high yield corporate credit markets. The Bloomberg Barclays U.S.
Aggregate Bond Index returned 7.5%, second only to 2019 for its best performance since 2002, while the Bloomberg Barclays
Investment Grade Corporate Index returned 9.9%, its second-best year since 2009. The ICE BofA U.S. High Yield Index
returned 7.1%, rebounding from the worst first quarter’s performance (down 12.7%) since 2008.
Industry Update
Ongoing trends in the investment management industry, including the shift toward private market investments, downward fee
pressure, industry consolidation, rising demand for ESG, and expanding conversations around DEI continued in 2020 and do
not show any signs of abating.
Investor dollars continue moving toward private markets and less liquid vehicles as investors seek higher returns and lower
correlation, contributing to a decline in the number of publicly traded companies. At the same time, investors continue to seek
lower cost alternatives to acquire their beta exposure, often utilizing passive exchange-traded funds (“ETFs”), which in turn
drives performance of some of the largest publicly traded companies held by broad indexes, making it a difficult environment
for active managers to outperform.
The COVID-19 pandemic saw a reduction in travel, which resulted in increased use of technology-based communications.
Investors also responded to the pandemic and other social justice events in 2020 by requesting greater clarity on ESG strategies
as well as greater transparency on diversity initiatives and commitments.
Consolidation continued, especially in the consulting and wealth management arenas. In fact, over the past five years, we have
seen a large number of decision makers leave the market. Some have left the industry all together, some required a liquidity
event as a transition of ownership was needed, while others pursued growth and scale via mergers and acquisitions. We
18
continue to see moves away from individual decision-making structures in favor of decision-making teams or outsourcing
investment decisions to professional buyer groups such as home offices or outsourced chief investment officers, and we expect
net new flows to be driven heavily by these groups going forward.
When you consider these trends in combination with the impact of the COVID-19 pandemic and the asset management
industry’s own life cycle, you get a glimpse into the “new normal” in which asset managers operate. We believe Diamond Hill
is well positioned to navigate these changing tides and adapt to the evolving industry landscape. We continue to believe we can
deliver market-beating returns over a full market cycle through active management. Our commitment to managing our
portfolios with a strict capacity discipline helps protect our ability to deliver excellent investment outcomes for clients. Our
long-standing relationships with professional buyer groups enable us to reach investors who share our long-term perspective.
Helping clients achieve their desired investment outcomes is our priority, and we believe our commitment to capacity
discipline, alignment of interests with our clients and strong investment results will result in a successful and sustainable future.
Investment Results
It is important to note the past decade has seen a lengthy period of dominance for growth over value stocks, with the
performance differential becoming particularly wide over the past three years. In the 10 years ended December 31, 2020, the
Russell 3000 Growth Index annualized 16.9% versus 10.4% for the Russell 3000 Value Index. In 2020, the growth index
returned 38.3% to the value index’s 2.9% — a performance gap that eclipses any single calendar year since the inception of the
Russell 3000 Growth and Value indices in 1995. Because of our valuation-discipline, many clients choose to measure
performance against value indices.
The following is a summary of the investment returns for each of our equity strategies as of December 31, 2020, relative to their
respective core and value indices, as applicable.
19
Equity Composites
Diamond Hill Small Cap
Russell 2000 Index
Russell 2000 Value Index
Diamond Hill Small-Mid Cap
Russell 2500 Index
Russell 2500 Value Index
Diamond Hill Mid Cap
Russell Midcap Index
Russell Midcap Value Index
Diamond Hill Large Cap
Russell 1000 Index
Russell 1000 Value Index
Diamond Hill Large Cap Concentrated
Russell 1000 Index
Russell 1000 Value Index
Diamond Hill All Cap Select
Russell 3000 Index
Russell 3000 Value Index
Diamond Hill Long-Short
Russell 1000 Index
60% Russell 1000 Index / 40% BofA ML US T-Bill
0-3 Month Index
Diamond Hill Global
Morningstar Global Markets Index
Diamond Hill International
Morningstar Global Markets ex US Index
________________________
-
-
Composite returns are net of fees.
Index returns do not reflect any fees.
Inception
12/31/2000
1 Year
(0.03) %
As of December 31, 2020
3 Year
Since
Inception
1.3 % 5.80 % 7.22 % 9.83 %
10 Year
5 Year
19.96 % 10.25 % 13.26 %
9.65 %
3.72 %
4.63 %
11.2 %
8.66 %
8.74 %
8.54 %
12/31/2005
1.55 % 4.43 % 7.99 % 9.88 % 8.59 %
9.55 %
19.99 % 11.33 % 13.64 % 11.97 %
12/31/2013
4.88 %
9.43 %
4.34 %
(1.47) % 3.77 % 8.00 %
9.33 %
NA
7.47 %
6.98 %
17.1 % 11.61 % 13.40 %
9.73 %
5.37 %
4.96 %
NA
NA
10.96 %
8.22 %
6/30/2001
9.49 % 9.56 % 12.70 % 12.31 % 9.43 %
8.36 %
20.96 % 14.82 % 15.60 % 14.01 %
12/31/2011
2.8 %
9.74 %
6.07 %
10.03 % 10.06 % 13.50 %
10.5 %
7.07 %
NA 13.49 %
20.96 % 14.82 % 15.60 %
9.74 %
6.07 %
2.8 %
NA 15.49 %
NA 11.69 %
6/30/2000
14.83 % 9.95 % 12.06 % 12.15 % 10.36 %
20.89 % 14.49 % 15.43 % 13.79 %
7.17 %
7.36 %
2.87 %
0.5 % 5.31 % 6.81 % 7.72 % 7.24 %
9.74 % 10.36 %
5.89 %
20.96 % 14.82 % 15.60 % 14.01 %
7.08 %
13.3 %
9.92 %
9.81 %
1.93 % 4.44 % 10.68 %
8.7 %
NA
5.14 %
7.35 %
16.07 %
6.94 % 6.38 %
9.73 % 12.11 %
NA
NA
NA
8.80 %
12.32 %
11.17 %
5.07 %
NA
NA
10.25 %
6/30/2000
12/31/2013
12/31/2016
20
The following is a summary of the investment returns for each of our fixed income strategies as of December 31, 2020, relative
to their respective passive benchmarks.
As of December 31, 2020
Fixed Income Composites
Diamond Hill Short Duration Securitized Bond
Bloomberg Barclays US 1-3 Yr. Gov./Credit Index
Diamond Hill Core Bond
Bloomberg Barclays US Aggregate Index
Diamond Hill Corporate Credit
Inception
7/31/2016
1 Year
3.29 % 3.89 %
3 Year
2.98 %
3.33 %
8.13 % 6.01 %
5 Year
10 Year
NA
NA
NA
NA
NA
NA
Since
Inception
3.83 %
2.12 %
4.43 %
7.51 %
3.66 %
9.95 % 7.92 % 8.83 % 6.96 % 7.38 %
5.34 %
NA
NA
7/31/2016
9/30/2002
BofA ML US Corporate & High Yield Index
Diamond Hill High Yield
12/31/2014
9.34 %
7.07 %
6.91 %
13.84 % 10.08 % 11.11 %
5.83 %
NA
6.36 %
9.36 %
6.17 %
5.89 %
8.43 %
NA
6.14 %
BofA ML US High Yield Index
________________________
-
-
Composite returns are net of fees.
Index returns do not reflect any fees.
Key Financial Performance Indicators
There are a variety of key performance indicators that we monitor to evaluate our business results. The following table presents
the results of certain key performance indicators over the past three fiscal years:
Ending AUM (in millions)
Average AUM (in millions)
Net cash inflows (outflows) (in millions)
Total revenue (in thousands)
Net operating income
Net operating income, as adjusted(a)
Average advisory fee rate
Operating profit margin
Operating profit margin, as adjusted(a)
For the Years Ended December 31,
$
2020
26,411
21,907
1,529
126,388
45,538
47,757
0.54 %
36 %
38 %
$
$
2019
23,399
21,653
(677)
2018
19,108
21,950
(1,102)
136,624
47,935
53,912
0.59 %
35 %
39 %
145,628
71,256
69,134
0.62 %
49 %
47 %
(a) Net operating income, as adjusted, and operating profit margin, as adjusted, are non-GAAP (as defined below) performance measures. See
Use of Supplemental Data as Non-GAAP Performance Measure section within this Annual Report on Form 10-K.
Assets Under Management
Our revenue is derived primarily from investment advisory and administration fees. Investment advisory and administration
fees paid to us are generally based on the value of the investment portfolios we manage and fluctuate with changes in the total
value of our AUM. We recognize revenue when we satisfy the performance obligations under the terms of a contract with a
client.
Our revenues are highly dependent on both the value and composition of AUM. The following is a summary of our AUM by
product and investment objective, and a roll-forward of the change in AUM, for the years ended December 31, 2020, 2019, and
2018:
21
(in millions)
Proprietary funds
Sub-advised funds
Separately managed accounts
Total AUM
(in millions)
Small Cap
Small-Mid Cap
Mid Cap
Large Cap
Large Cap Concentrated
All Cap Select
Long-Short
Global/International
Total Equity
Short Duration Securitized Bond
Core Fixed Income
Long Duration Treasury
Corporate Credit
High Yield
Total Fixed Income
Total Equity and Fixed Income
(Less: Investments in affiliated funds) (a)
Total AUM
Assets Under Management
As of December 31,
2020
2019
2018
$
17,615 $
16,148 $
13,440
3,185
5,611
2,029
5,222
1,358
4,310
$
26,411 $
23,399 $
19,108
Assets Under Management
by Investment Strategy
As of December 31,
2020
2019
2018
$
556 $
795 $
2,810
992
15,075
27
446
2,056
33
21,995
1,132
541
62
2,020
724
4,479
26,474
3,243
569
12,316
28
528
3,605
35
21,119
809
300
52
1,147
135
2,443
23,562
(63)
(163)
1,048
2,770
143
9,611
26
432
3,767
18
17,815
579
55
52
757
54
1,497
19,312
(204)
$
26,411 $
23,399 $
19,108
(a) Certain of the Funds own shares of the Diamond Hill Short Duration Securitized Bond Fund. The Company reduces its total AUM by
these investments held in this affiliated fund.
(in millions)
AUM at beginning of the year
Net cash inflows (outflows)
proprietary funds
sub-advised funds
separately managed accounts
Net market appreciation (depreciation) and income
Increase (decrease) during the year
AUM at end of the year
Average AUM during the year
Change in Assets Under Management
For the Year Ended December 31,
2020
2019
2018
$
23,399 $
19,108 $
22,317
879
713
(63)
1,529
1,483
3,012
(499)
216
(394)
(677)
4,968
4,291
(978)
(25)
(99)
(1,102)
(2,107)
(3,209)
26,411 $
23,399 $
19,108
21,907 $
21,653 $
21,950
$
$
22
(in millions)
Net cash inflows (outflows)
Equity
Fixed Income
Net Cash Inflows (Outflows) Further Breakdown
For the Year Ended December 31,
2020
2019
2018
$
$
(284) $
(1,515) $
(1,554)
1,813
838
452
1,529 $
(677) $
(1,102)
Equity flows were mixed in 2020. Our Large Cap and Mid Cap strategies had combined net inflows of $1.6 billion. However,
these net inflows were more than offset by the net outflows in our Long-Short, Small Cap and Small-Mid Cap strategies, which
collectively had outflows of $1.8 billion.
Our fixed income strategies continued to see strong growth in 2020 as each of the strategies has met long-term performance
objectives compared to peers and benchmarks. Our focused marketing and branding efforts over the past couple years, along
with strong performance, led to combined net inflows of $1.8 billion, with each of the strategies attracting at least $200 million
in net inflows.
Model Delivery Programs
We provide strategy-specific model portfolios to sponsors of model delivery programs. We do not have discretionary
investment authority over individual client accounts in model delivery programs. Therefore, these assets are not included in our
AUM. We provide updated model portfolios to the program sponsors on a periodic basis. We are paid for our services by the
program sponsor at a pre-determined rate based on assets in the program. Model delivery program assets were $1.1 billion,
$0.9 billion, and $0.5 billion as of December 31, 2020, 2019, and 2018, respectively.
Consolidated Results of Operations
The following is a discussion of our consolidated results of operations.
(6)%
(33)%
(22)%
16%
19%
NM
NM
(in thousands, except per share amounts and
percentages)
Total revenue
Net operating income
Net operating income, as adjusted (a)
Net income attributable to common
shareholders
Earnings per share attributable to
common shareholders (diluted)
2020
2019
% Change
2019
2018
% Change
$ 126,388
$ 136,624
45,538
47,935
(7)%
(5)%
$ 136,624
$ 145,628
47,935
71,256
47,757
53,912
(11)%
53,912
69,134
38,661
54,959
(30)%
54,959
47,376
$ 12.03
$ 15.99
(25)%
$ 15.99
$ 13.48
Operating profit margin
Operating profit margin, as adjusted (a)
36 %
38 %
35 %
39 %
NM
NM
35 %
39 %
49 %
47 %
(a) Net operating income, as adjusted, and operating profit margin, as adjusted, are non-GAAP (as defined below) performance measures.
See Use of Supplemental Data as Non-GAAP Performance Measure section within this Annual Report on Form 10-K.
Summary Discussion of Consolidated Results of Operations - Year Ended December 31, 2020, compared with
Year Ended December 31, 2019
Revenue for the year ended December 31, 2020, decreased $10.2 million compared to the year ended December 31, 2019,
primarily due to a decrease in the average advisory fee rate from 0.59% to 0.54% year-over-year, which was partially offset by
a 1% increase in average AUM. The decrease in average advisory fee rate was driven by an increase in the mix of assets held in
lower fee rate strategies.
Operating profit margin was 36% for the year ended December 31, 2020, and 35% for the year ended December 31, 2019.
Operating profit margin, as adjusted, was 38% for the year ended December 31, 2020, and 39% for the year ended December
31, 2019. Operating profit margin, as adjusted, excludes deferred compensation expense (benefit) from operating income
because it is offset by an equal amount in investment income below net operating income on the income statement and thus has
no effect on net income attributable to the Company. We believe this non-GAAP measure helps the reader to understand our
core operating results and increases comparability period-to-period. See the "Use of Supplemental Data as Non-GAAP
Performance Measures" section below in Part II. Item 7 of this Annual Report on Form 10-K.
23
We expect that our operating margin will fluctuate from period to period based on various factors, including revenues,
investment results, employee performance, staffing levels, gains and losses on investments held in deferred compensation plans,
the ongoing impact of COVID-19, and development of investment strategies, products, and channels. We compensate portfolio
managers based on long-term performance, so when revenue and long-term performance are misaligned, operating margins can
fluctuate materially.
We recognized $6.6 million in investment income for the year ended December 31, 2020, compared with investment income of
$30.5 million for the year ended December 31, 2019. The decrease in market appreciation year over year was due to a lower
average investment balance throughout the year and lower returns on the investments.
Income tax expense decreased $4.7 million for the year ended December 31, 2020, compared to the year ended December 31,
2019. The decrease in income tax expense was primarily due to a decrease in DHCM's income before taxes, which was partially
offset by an increase in our effective tax rate from 23.8% to 26.8% year-over-year. The increase in our effective tax rate in
2020 was primarily due to excess tax deficits on the vesting of restricted stock awards of $0.6 million in 2020 and the $1.0
million benefit attributable to redeemable noncontrolling interests in 2019.
We generated net income attributable to common shareholders of $38.7 million ($12.03 per diluted share) for the year ended
December 31, 2020, compared with net income attributable to common shareholders of $55.0 million ($15.99 per diluted share)
for the year ended December 31, 2019, primarily due to decreased revenues and a decrease in investment income.
See the “Use of Supplemental Data as Non-GAAP Performance Measures” section below in Part II, Item 7, of this Annual
Report on Form 10-K.
Summary Discussion of Consolidated Results of Operations - Year Ended December 31, 2019, compared with Year
Ended December 31, 2018
Revenue for the year ended December 31, 2019, decreased $9.0 million compared to the year ended December 31, 2018,
primarily due to a decrease in the average advisory fee rate from 0.62% to 0.59% year-over-year and a 1% decrease in average
AUM. The decrease in average advisory fee rate was driven by an increase in the mix of assets held in lower fee rate strategies.
Operating profit margin was 35% for the year ended December 31, 2019, down from 49% for the year ended December 31,
2018. Operating profit margin, as adjusted, was 39% for the year ended December 31, 2019, down from 47% for the year ended
December 31, 2018. Operating profit margin, as adjusted, excludes deferred compensation expense (benefit) from operating
income because it is offset by an equal amount in investment income below net operating income on the income statement and
thus has no effect on net income attributable to the Company. We believe this non-GAAP measure helps the reader to
understand our core operating results and increases comparability period to period. See the "Use of Supplemental Data as Non-
GAAP Performance Measures" section below in Part II. Item 7, of this Annual Report on Form 10-K.
We expect that our operating margin will fluctuate from period to period based on various factors, including revenues,
investment results, employee performance, staffing levels, gains and losses on investments held in deferred compensation plans,
and development of investment strategies, products, or channels. We compensate portfolio managers based on long-term
performance, so when revenue and long-term performance are misaligned, operating margins can fluctuate materially.
We recognized $30.5 million in investment income for the year ended December 31, 2019, due primarily to market appreciation
from our investments, compared with investment losses of $6.3 million for the year ended December 31, 2018, largely due to
market depreciation on our investments.
Income tax expense was consistent from the year ended December 31, 2019, compared to the year ended December 31, 2018.
The impact of the increase of pre-tax income was fully offset by the reduction in the effective rate from 28.7% to 23.8% year-
over-year. The decrease in the effective tax rate was primarily due to uncertain state tax positions of approximately $3.0 million
recorded in 2018.
We generated net income attributable to common shareholders of $55.0 million ($15.99 per diluted share) for the year ended
December 31, 2019, compared with net income attributable to common shareholders of $47.4 million ($13.48 per diluted share)
for the year ended December 31, 2018. The increase was due to an increase in investment income, which was partially offset
by the decrease in net operating income.
See the "Use of Supplemental Data as Non-GAAP Performance Measures" section below in Part II. Item 7, of this Annual
Report on Form 10-K.
24
Revenue
(in thousands, except percentages)
2020
2019
% Change
2019
2018
% Change
Investment advisory
$ 119,125 $ 128,009
Mutual fund administration, net
Total
7,263
8,615
126,388
136,624
(7)%
(16)%
(7)%
$ 128,009 $ 135,318
8,615
136,624
10,310
145,628
(5)%
(16)%
(6)%
Revenue for the Year Ended December 31, 2020 compared with Year Ended December 31, 2019
Investment Advisory Fees. Investment advisory fees decreased by $8.9 million, or 7%, from the year ended December 31,
2019, to the year ended December 31, 2020. Investment advisory fees are calculated as a percentage of the market value of
client accounts at contractual fee rates, which vary by investment product. The decrease in investment advisory fees was driven
by a reduction in the average advisory fee rate from 0.59% in 2019 to 0.54% in 2020, which was partially offset by an increase
of 1% in average AUM year over year. The decrease in average advisory fee rate was driven by an increase in the mix of assets
held in lower fee rate strategies during the year ended December 31, 2020, compared to the year ended December 31, 2019.
For the year ended December 31, 2020, the average advisory fee rates for equity and fixed income strategies were 0.57% and
0.40%, respectively. For the year ended December 31, 2019, the average advisory fee rates for equity and fixed income
strategies were 0.61% and 0.41%, respectively.
Mutual Fund Administration Fees. Mutual fund administration fees decreased $1.4 million, or 16%, from the year ended
December 31, 2019, to the year ended December 31, 2020. Mutual fund administration fees include administration fees
received from the Funds, which are calculated as a percentage of the Funds' average AUM. The decrease was primarily due to
an increase in sub-transfer agent and servicing fees paid by us on behalf of the Funds. In addition, there was a 1% decrease in
the Funds' average AUM from the year ended December 31, 2019, to the year ended December 31, 2020.
Revenue for the Year Ended December 31, 2019 compared with Year Ended December 31, 2018
Investment Advisory Fees. Investment advisory fees decreased by $7.3 million, or 5%, from the year ended December 31,
2018, to the year ended December 31, 2019. Investment advisory fees are calculated as a percentage of the market value of
client accounts at contractual fee rates, which vary by investment product. The decrease in investment advisory fees was driven
by a reduction in the average advisory fee rate from 0.62% in 2018 to 0.59% in 2019 and a decrease of 1% in average AUM
year over year. The decrease in average advisory fee rate was driven by an increase in the mix of assets held in lower fee rate
strategies during the year ended December 31, 2019, compared to the year ended December 31, 2018. For the year ended
December 31, 2019, the average advisory fee rates for equity and fixed income strategies were 0.61% and 0.41%, respectively.
For the year ended December 31, 2018, the average advisory fee rates for equity and fixed income strategies were 0.63% and
0.48%, respectively.
Mutual Fund Administration Fees. Mutual fund administration fees decreased $1.7 million, or 16%, from the year ended
December 31, 2018 to the year ended December 31, 2019. Mutual fund administration fees are calculated as a percentage of
average Funds’ AUM. The decrease was due to reductions in the administration fee rates received from the Funds, a 4%
decrease in average Funds’ AUM in 2019 and an increase in administrative expenses paid on behalf of the Funds. The table
below summarizes the decreases in the administration fee rates during the periods indicated:
1/1/18 - 2/27/2018
2/28/2018 - 12/31/2019
Class A & C
0.23%
0.21%
Class I
0.18%
0.17%
Class Y
0.08%
0.05%
25
Expenses
(in thousands, except percentages)
Compensation and related costs,
excluding deferred compensation
expense
Deferred compensation expense
(benefit)
General and administrative
Sales and marketing
Mutual fund administration
Total
2020
2019
% Change
2019
2018
% Change
$
58,292 $
60,264
(3)%
$
60,264 $
55,975
8%
2,219
11,003
6,000
3,336
80,850
5,977
13,278
5,867
3,303
NM
(17)%
2%
1%
88,689
(9)%
5,977
13,278
5,867
3,303
88,689
(2,121)
11,649
5,243
3,626
74,372
NM
14%
12%
(9)%
19%
Expenses for the Year Ended December 31, 2020 compared with Year Ended December 31, 2019
Compensation and Related Costs, Excluding Deferred Compensation Expense. Employee compensation and benefits
decreased by $2.0 million from the year ended December 31, 2019, to the year ended December 31, 2020. This decrease is
primarily due to decreases in severance expense of $1.6 million and in restricted stock expense of $1.0 million. These
decreases were partially offset by increases in salary and related benefits of $0.2 million and in incentive compensation of $0.4
million. On average, we had 126 full-time equivalent employees for 2020, compared to 128 for 2019. Incentive compensation
expense can fluctuate significantly period over period as we evaluate investment performance, individual performance,
Company performance and other factors.
Deferred Compensation Expense (Benefit). Deferred compensation expense was $2.2 million for the year ended December
31, 2020, compared to deferred compensation expense of $6.0 million for the year ended December 31, 2019, mostly due to a
decrease in market appreciation on our deferred compensation investments period over period. The gain on deferred
compensation plan investments increases deferred compensation expense and is included in operating income. Deferred
compensation expense is offset by an equal amount in investment income below net operating income on the consolidated
statements of income statement, and thus has no impact on net income attributable to us.
General and Administrative. General and administrative expenses decreased by $2.3 million, or 17%, from the year ended
December 31, 2019, to the year ended December 31, 2020. This decrease was primarily due a non-recurring $1.1 million
refund received in 2020 related to our Ohio commercial activity tax, which is a gross receipts tax, and therefore, is not included
in income taxes, as well as decreases in corporate recruiting fees of $0.8 million, and in travel and related expenses period over
period.
Sales and Marketing. Sales and marketing expenses increased by $0.1 million, or 2%, from the year ended December 31,
2019, to the year ended December 31, 2020. The increase was primarily due to an increase in spending related to our customer
relationship management system and related external data costs of $0.9 million. This increase was largely offset by a reduction
in sales and marketing travel and related expense of $0.8 million.
Mutual Fund Administration. Mutual fund administration expenses increased by 1% from the year ended December 31,
2019, to the year ended December 31, 2020. Mutual fund administration expense consists of both variable and fixed expenses.
The variable expenses are based on Fund AUM levels and the number of shareholder accounts.
Expenses for the Year Ended December 31, 2019 compared with Year Ended December 31, 2018
Compensation and Related Costs, Excluding Deferred Compensation Expense. Employee compensation and benefits
increased by $4.3 million from the year ended December 31, 2018, to the year ended December 31, 2019. This increase is due
to increases in salary and related benefits of $3.0 million and incentive compensation of $1.3 million. On average, we had 128
full-time equivalent employees for 2019, compared to 120 for 2018. Incentive compensation expense can fluctuate significantly
period over period as we evaluate investment performance, individual performance, Company performance and other factors.
Deferred Compensation Expense (Benefit). Deferred compensation expense was $6.0 million for the year ended December
31, 2019, primarily due to market appreciation on our deferred compensation investments compared to deferred compensation
(benefit) of $(2.1) million for the year ended December 31, 2018, from market depreciation on our deferred compensation
investments. The gain (loss) on deferred compensation plan investments increases (decreases) deferred compensation expense
(benefit) and is included in operating income. Deferred compensation expense is offset by an equal amount in investment
26
income below net operating income on the consolidated statements of income statement, and thus, has no impact on net income
attributable to us.
General and Administrative. General and administrative expenses increased by $1.6 million, or 14%, from the year ended
December 31, 2018, to the year ended December 31, 2019. This increase is primarily due to increases in corporate recruiting
fees of $1.0 million, market research and data expense of $0.3 million, and software expense of $0.3 million.
Sales and Marketing. Sales and marketing expenses increased by $0.6 million, or 12%, from the year ended December 31,
2018, to the year ended December 31, 2019. The increase was due to our branding and public relations initiatives and additional
sales data costs. For each of the years ended December 31, 2019, and 2018, approximately 56% and 65%, respectively, of sales
and marketing expense is related to revenue sharing payments made to third-party financial intermediaries.
Mutual Fund Administration. Mutual fund administration expenses decreased by $0.3 million, or 9%, from the year ended
December 31, 2018, to the year ended December 31, 2019. Mutual fund administration expenses consist of both variable and
fixed expenses. The variable expenses are based on Fund AUM and the number of shareholder accounts. The decrease was
primarily due to a reduction in outsourced administrative services for the Funds, which were brought in-house during 2018, as
well as a 4% decrease in average Funds’ AUM from the year ended December 31, 2018, to the year ended December 31, 2019.
Liquidity and Capital Resources
Sources of Liquidity
Our current financial condition is highly liquid, with a significant amount of our assets comprised of cash and cash equivalents,
investments, accounts receivable, and other current assets. Our main source of liquidity is cash flows from operating activities,
which are generated from investment advisory and mutual fund administration fees. Cash and cash equivalents, investments
held directly by DHCM, accounts receivable, and other current assets represented $205.1 million and $211.1 million of total
assets as of December 31, 2020, and 2019, respectively. We believe these sources of liquidity as well as our continuing cash
flows from operating activities will be sufficient to meet our current and future operating needs for the next 12 months.
Throughout 2020, the COVID-19 pandemic created uncertainty and volatility in the financial markets, and could continue to do
so in 2021, which may impact our ability to access capital and liquidity and the terms under which we can do so. We will
continue to assess our liquidity needs as the impact of the COVID-19 pandemic on the economy, the financial markets, and our
operations continues to evolve.
Uses of Liquidity
In line with our primary objective to fulfill our fiduciary duty to clients and secondary objective to achieve an adequate long-
term return for shareholders, we anticipate our main uses of cash will be for operating expenses and seed capital to fund new
and existing investment strategies.
Our board of directors and management regularly review various factors to determine whether we have capital in excess of that
required for the business and the appropriate use of any excess capital. The factors considered include our investment
opportunities, capital needed for investment strategies, and share repurchase opportunities.
In September 2018, our board of directors approved the 2018 Repurchase Program authorizing the purchase of up to $50.0
million of our common shares. Under the 2018 Repurchase Program, we repurchased 28,361 of our common shares during the
first two months of 2020 for a total of $4.0 million, which exhausted the $50.0 million authorized.
On February 27, 2020, the board of directors approved the 2020 Repurchase Program authorizing management to repurchase up
to and additional $50 million of our common shares. Under the 2020 Repurchase Program, we repurchased 129,389 of our
common shares during the year ended December 31, 2020, for a total of $14.6 million. As of December 31, 2020, $35.4
million remains available for repurchases under the 2020 Repurchase Program. The authority to repurchase shares may be
exercised from time to time as market conditions warrant, is subject to regulatory constraints, and will expire two years from
the date of board approval, or upon the earlier repurchase in full of the authorized amount of shares. The timing, amount, and
other terms and conditions of any repurchases will be determined by management in its discretion based on a variety of factors,
including the market price of such shares, corporate considerations, general market and economic conditions, legal
requirements, and the expected and continued impact of COVID-19.
The following table summarizes the quarterly repurchase transactions made under the 2020 Repurchase Program since its
inception:
27
Period
Quarter Ended March 31, 2020
Quarter Ended June 30, 2020
Quarter Ended September 30, 2020
Quarter Ended December 31, 2020
Total
Total Number
of Shares
Purchased
Average Price
Paid Per Share
Purchased
Purchase Price of
Shares
Purchased
48,576 $
106.22 $
5,159,919
27,078
53,735 $
—
103.48
123.99
—
2,801,897
6,662,508
—
129,389 $
113.03 $
14,624,324
Fiscal 2020 was the 13th consecutive year that we paid a special dividend. We paid out special dividends of $12.00, $9.00, and
$8.00 during the years ended December 31, 2020, 2019, and 2018, respectively. The 2020, 2019, and 2018 special dividends
reduced shareholders’ equity by $38.0 million, $30.3 million, and $28.1 million, respectively.
On October 27, 2020, our board of directors approved a special cash dividend of $12.00 per share paid on December 4, 2020, to
shareholders of record as of November 25, 2020. This dividend reduced shareholders' equity by approximately $38.0 million.
On October 27, 2020, our board of directors also approved the initiation of a regular quarterly dividend beginning the first of
quarter 2021. Subject to approval each quarter by our board of directors and compliance with applicable law, we expect to pay a
regular quarterly dividend of $1.00 per share. Going forward, at the end of each year, our board of directors will decide whether
to pay an additional special dividend. Although we currently expect to pay the aforementioned dividends, depending on the
circumstances and the board of directors’ judgment, we may not pay such dividends as described.
Working Capital
As of December 31, 2020, we had working capital of approximately $168.9 million, compared to $176.7 million as of
December 31, 2019. Working capital includes cash, accounts receivable, investments, direct investments in the Diamond Hill
International Fund and the Diamond Hill Global Fund (together the "Consolidated Funds”), and other current assets of DHCM,
net of accounts payable and accrued expenses, accrued incentive compensation, deferred compensation and other current
liabilities of DHCM.
We had no debt and we believe our available working capital is sufficient to cover current expenses and presently anticipated
capital expenditures.
Below is a summary of investments as of December 31, 2020 and 2019:
As of December 31,
2020
2019
Corporate Investments:
Diamond Hill Core Bond Fund
Diamond Hill Research Opportunities Fund(a)
Diamond Hill Long-Short Fund(a)
Diamond Hill High Yield Fund
Diamond Hill Global Fund
Diamond Hill International Fund
Total Corporate Investments
Deferred Compensation Plan Investments in the Funds
Total investments held by DHCM
Redeemable noncontrolling interest in Consolidated Funds
$
47,204,636 $
—
16,945,863
—
11,269,719
10,156,320
85,576,538
33,241,952
118,818,490
9,582,646
Total investments
$
128,401,136 $
(a) In October 2020, the Diamond Hill Research Opportunities Fund merged into the Diamond Hill Long-Short Fund.
43,691,925
16,223,519
—
14,984,548
11,073,515
8,039,570
94,013,077
30,342,204
124,355,281
15,081,897
139,437,178
28
Cash Flow Analysis
Cash Flows from Operating Activities
Our cash flows from operating activities are calculated by adjusting net income to reflect other significant operating sources and
uses of cash, certain significant non-cash items, such as share-based compensation, and timing differences in the cash
settlement of operating assets and liabilities. We expect that cash flows provided by operating activities will continue to serve
as our primary source of working capital in the near future.
For the year ended December 31, 2020, net cash provided by operating activities totaled $59.8 million. Cash provided by
operating activities was primarily driven by net income of $38.2 million, the add back of share-based compensation of $7.7
million, depreciation of $1.0 million, net redemptions of securities held in the underlying investment portfolios of the
Consolidated Funds of $3.2 million, and the cash impact of timing differences in the settlement of assets and liabilities of $12.7
million. These cash inflows were partially offset by net gains on investments of $3.0 million. Absent the operating cash flows
of the Consolidated Funds, cash flows from operations would have been approximately $57.3 million.
For the year ended December 31, 2019, net cash provided by operating activities totaled $57.0 million. Cash provided by
operating activities was primarily driven by net income of $59.8 million, the add back of share-based compensation of $9.1
million, depreciation of $1.2 million, net redemptions of securities held in the underlying investment portfolios of the
Consolidated Funds of $6.3 million, and the cash impact of timing differences in the settlement of assets and liabilities of $1.7
million. These cash inflows were partially offset by net gains on investments of $21.1 million. Absent the operating cash flows
of the Consolidated Funds, cash flow from operations would have been approximately $53.5 million.
For the year ended December 31, 2018, net cash provided by operating activities totaled $28.1 million. The changes in net cash
provided by operating activities were primarily driven by net income of $46.3 million, the add back of share-based
compensation of $8.9 million and depreciation of $1.2 million, net losses on investments of $14.3 million, and the cash impact
of timing differences in the settlement of assets and liabilities of $9.6 million. These cash inflows were partially offset by the
net purchases of trading securities held in the underlying investment portfolio of the Consolidated Funds of $52.2 million.
Absent the operating cash flows of the Consolidated Funds, cash flow from operations would have been approximately $79.9
million.
Cash Flows from Investing Activities
Our cash flows from investing activities consist primarily of capital expenditures and purchases and redemptions in our
investment portfolio.
Cash flows provided by investing activities totaled $8.4 million for the year ended December 31, 2020. The cash provided was
primarily due to proceeds from the redemption of investments totaling $25.7 million. These proceeds were partially offset by
corporate investment purchases of $14.9 million and property and equipment purchases (primarily capitalized software) of $2.5
million.
Cash flows provided by investing activities totaled $10.9 million for the year ended December 31, 2019. The cash provided
was primarily due to proceeds from the redemption of investments totaling $48.6 million. These proceeds were partially offset
by corporate investment purchases of $14.4 million and property and equipment purchases of $0.7 million. The remaining
change in reported cash flows from investing activities was attributable to $22.7 million in net cash that was removed from our
balance sheet due to the de-consolidation of our investment in an exchange traded fund during the period.
Cash flows used in investing activities totaled $4.3 million for the year ended December 31, 2018. The cash used was primarily
due to corporate investment purchases of $6.3 million and property and equipment purchases of $0.8 million. These cash
outflows were partially offset by proceeds from the redemptions of investments of $2.9 million.
Cash Flows from Financing Activities
Our cash flows from financing activities consist primarily of the payment of special dividends, the repurchase of our common
shares, shares withheld related to employee tax withholding and distributions to, or contributions from, redeemable non-
controlling interest holders.
For the year ended December 31, 2020, net cash used in financing activities totaled $62.9 million, consisting of the payment of
special dividends of $38.0 million, the repurchase of our common shares of $18.6 million, $1.9 million of shares withheld
related to employee tax withholding, and net redemptions from redeemable non-controlling interest holders of $4.3 million.
29
For the year ended December 31, 2019, net cash used in financing activities totaled $59.1 million, consisting of the payment of
special dividends of $30.3 million, the repurchase of our common shares of $38.7 million, and $1.4 million of shares withheld
related to employee tax withholding. These financing outflows were partially offset by net subscriptions received from
redeemable non-controlling interest holders of $11.3 million.
For the year ended December 31, 2018, net cash used in financing activities totaled $16.0 million, consisting of the payment of
special dividends of $28.1 million, the repurchase of our common shares of $7.2 million, and $1.9 million of shares withheld
related to employee tax withholding. These financing outflows were partially offset by net subscriptions received from
redeemable non-controlling interest holders of $21.2 million.
Supplemental Consolidated Cash Flow Statement
The following table summarizes the condensed cash flows for the years ended December 31, 2020, 2019, and 2018 that are
attributable to Diamond Hill and to the Consolidated Funds, and the related eliminations required in preparing the consolidated
financial statements.
Year Ended December 31, 2020
Cash flow
attributable to
Diamond Hill
Investment
Group, Inc.
Cash flow
attributable to
Consolidated
Funds
Eliminations
As reported on
the
Consolidated
Statement of
Cash Flows
$
38,660,545 $
403,985 $
(899,392) $
38,165,138
992,836
7,739,320
—
—
—
—
992,836
7,739,320
(3,500,848)
(403,985)
899,392
(3,005,441)
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation
Share-based compensation
Net (gains)/losses on investments
Net change in securities held by Consolidated
Funds
Other changes in assets and liabilities
Net cash provided by operating activities
Net cash provided by investing activities
13,394,030
57,285,883
6,587,218
—
3,179,362
(692,760)
2,486,602
—
—
—
3,179,362
12,701,270
59,772,485
8,411,700
—
1,824,482
Net cash used in financing activities
(58,571,152)
(2,486,602)
(1,824,482)
(62,882,236)
Net change during the period
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
5,301,949
93,176,253
98,478,202 $
$
—
—
— $
—
5,301,949
—
— $
93,176,253
98,478,202
30
Year Ended December 31, 2019
Cash flow
attributable to
Diamond Hill
Investment
Group, Inc.
Cash flow
attributable to
Consolidated
Funds
Eliminations
As reported on
the
Consolidated
Statement of
Cash Flows
$ 54,959,024 $
12,108,850 $
(7,313,555) $
59,754,319
1,164,207
9,081,421
—
—
—
—
1,164,207
9,081,421
(16,263,168)
(12,108,850)
7,313,555
(21,058,463)
Cash flows from Operating Activities:
Net Income
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation
Share-based compensation
Net (gains)/losses on investments
Net change in securities held by Consolidated
Funds
Other changes in assets and liabilities
4,518,254
(2,780,140)
Net cash provided by operating activities
53,459,738
3,506,505
—
6,286,645
Net cash provided by (used in) investing activities
25,702,461
(22,723,853)
7,876,466
Net cash provided by (used in) financing activities
(70,416,005)
19,217,348
(7,876,466)
(59,075,123)
Net change during the period
Cash and cash equivalents at beginning of year
8,746,194
84,430,059
—
—
—
—
8,746,194
84,430,059
Cash and cash equivalents at end of year
$ 93,176,253 $
— $
— $
93,176,253
—
—
—
6,286,645
1,738,114
56,966,243
10,855,074
Year Ended December 31, 2018
Cash flow
attributable to
Diamond Hill
Investment
Group, Inc.
Cash flow
attributable to
Consolidated
Funds
Eliminations
As reported on
the
Consolidated
Statement of
Cash Flows
$ 47,375,829 $
(2,677,977) $
1,616,536 $
46,314,388
1,159,380
8,896,610
13,235,941
—
—
2,677,977
—
—
(1,616,536)
1,159,380
8,896,610
14,297,382
Cash flows from Operating Activities:
Net Income
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation
Share-based compensation
Net (gains)/losses on investments
Net change in securities held by Consolidated
Funds
Other changes in assets and liabilities
9,202,427
429,372
Net cash provided by (used in) operating activities
79,870,187
(51,739,596)
—
(52,168,968)
—
—
—
(52,168,968)
9,631,799
28,130,591
Net cash provided by (used in) investing activities
(34,792,725)
—
30,531,828
(4,260,897)
Net cash provided by (used in) financing activities
(37,249,511)
51,739,596
(30,531,828)
(16,041,743)
Net change during the period
Cash and cash equivalents at beginning of year
7,827,951
76,602,108
—
—
—
—
7,827,951
76,602,108
Cash and cash equivalents at end of year
$ 84,430,059 $
— $
— $
84,430,059
31
Selected Quarterly Information
Our unaudited quarterly results of operations for the years ended December 31, 2020 and 2019 are summarized below:
(in thousands, except per share and AUM data)
Assets under management
(in millions)
At or For the Quarter Ended
2020
2019
12/31
09/30
06/30
03/31
12/31
09/30
06/30
03/31
$ 26,411 $ 22,283 $ 20,645 $ 17,496 $ 23,399 $ 22,203 $ 21,612 $ 20,880
Total revenue
35,037
31,176
28,249
31,926
35,908
34,592
33,545
32,579
Compensation and related costs,
excluding deferred compensation
expense
Deferred compensation expense
(benefit)
16,613
13,704
12,558
15,417
16,651
15,715
14,342
13,557
4,588
1,961
3,826
(8,156) 1,925
357
1,283
2,412
Other expenses
5,761
5,541
4,838
4,199
5,368
5,763
5,840
5,476
Total operating expenses
26,962
21,206
21,222
11,460
23,944
21,835
21,465
21,445
Net operating income
8,075
9,970
7,027
20,466
11,964
12,757
12,080
11,134
Investment income (loss), net
12,367
5,053
11,563
(22,398) 6,880
2,822
6,520
14,285
Income (loss) before taxes
20,442
15,023
18,590
(1,932) 18,844
15,579
18,600
25,419
Income tax expense
(4,529) (3,882) (4,952)
(595) (4,321) (4,062) (4,442) (5,863)
Net income (loss)
Net income attributable to common
shareholders
15,913
11,141
13,638
(2,527) 14,523
11,517
14,158
19,556
14,364
10,566
12,201
1,530
13,414
11,417
13,195
16,933
Diluted EPS
$ 4.54 $ 3.30 $ 3.79 $ 0.47 $ 3.99 $ 3.35 $ 3.79 $ 4.84
Diluted weighted shares outstanding
3,164
3,201
3,221
3,273
3,364
3,412
3,478
3,497
Contractual Obligations
The following table presents a summary of our future obligations under the terms of lease commitments, contractual purchase
obligations, and deferred compensation obligations as of December 31, 2020. Other purchase obligations include contractual
amounts that will be due for the purchase of services to be used in our operations, such as mutual fund sub-administration, sales
data costs, and investment related research software. These obligations may be cancellable at earlier times than those indicated
and, under certain circumstances, may involve termination fees. Because these obligations are primarily of a normal recurring
nature, we expect to fund them from future cash flows from operations. Deferred compensation obligations include
compensation that will be paid out in future years and which will be funded by the related deferred compensation investments
currently held on our consolidated balance sheets (see Note 7 to the consolidated financial statements). The information
presented does not include operating expenses or capital expenditures that will be committed in the normal course of operations
in 2021 and future years:
Total
2021
2022
2023
2024
2025
Thereafter
Payments Due by Period
Operating lease obligations
$
2,652 $
624 $
624 $
624 $
624 $
156 $
Purchase obligations
9,345
Deferred compensation obligations
33,242
4,273
3,079
2,521
2,787
1,344
3,238
595
3,470
612
4,108
—
—
16,560
Total
$ 45,239 $
7,976 $
5,932 $ 5,206 $
4,689 $ 4,876 $ 16,560
32
Use of Supplemental Data as Non-GAAP Performance Measures
As supplemental information, we are providing performance measures that are based on methodologies other than U.S.
generally accepted accounting principles (“non-GAAP”). We believe the non-GAAP measures below are useful measures of
our core business activities, are important metrics in estimating the value of an asset management business and may enable
more appropriate comparison to our peers. These non-GAAP measures should not be a substitute for financial measures
calculated in accordance with U.S. generally accepted accounting principles (“GAAP”) and may be calculated differently by
other companies. The following schedule reconciles GAAP measures to non-GAAP measures for the years ended December
31, 2020, 2019, and 2018, respectively.
(in thousands, except percentages and per share data)
Total revenue
Net operating income, GAAP basis
Non-GAAP adjustments:
Year Ended December 31,
2020
2019
2018
$ 126,388
$ 136,624
$ 145,628
$ 45,538
$ 47,935
$ 71,256
Gains (losses) on deferred compensation plan investments, net(1)
Net operating income, as adjusted, non-GAAP basis(2)
2,219
5,977
(2,122)
47,757
53,912
69,134
Non-GAAP adjustments:
Tax provision on net operating income, as adjusted, non-GAAP basis(3)
Net operating income, as adjusted, after tax, non-GAAP basis(4)
(12,668)
(13,680)
(19,542)
$ 35,089
$ 40,232
$ 49,592
Net operating income, as adjusted after tax per diluted share, non-GAAP basis(5)
Diluted weighted average shares outstanding, GAAP basis
$ 10.91
$ 11.71
$ 14.11
3,215
3,437
3,515
Operating profit margin, GAAP basis
Operating profit margin, as adjusted, non-GAAP basis(6)
36 %
38 %
35 %
39 %
49 %
47 %
(1) Gains (losses) on deferred compensation plan investments, net: The gain (loss) on deferred compensation plan investments,
which increases (decreases) deferred compensation expense included in operating income, is removed from operating income in
the calculation because it is offset by an equal amount in investment income (loss) below net operating income on the income
statement, and thus has no impact on net income attributable to us.
(2) Net operating income, as adjusted: This non-GAAP measure represents our net operating income adjusted to exclude the
impact on compensation expense of gains and losses on investments in the deferred compensation plan.
(3) Tax provision on net operating income, as adjusted: This non-GAAP measure represents the tax provision excluding the
impact of investment related activity and is calculated by applying the unconsolidated effective tax rate to net operating income,
as adjusted.
(4) Net operating income, as adjusted, after tax: This non-GAAP measure deducts from the net operating income, as adjusted,
the tax provision on net operating income, as adjusted.
(5) Net operating income, as adjusted after tax per diluted share: This non-GAAP measure was calculated by dividing the net
operating income, as adjusted after tax, by diluted weighted average shares outstanding.
(6) Operating profit margin, as adjusted: This non-GAAP measure was calculated by dividing the net operating income, as
adjusted, by total revenue.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements. We do not have any obligation under a guarantee contract, or a retained or
contingent interest in assets or similar arrangement that serves as credit, liquidity or market risk support for such assets, or any
other obligation, contingent or otherwise, under a contract that would be accounted for as a derivative instrument or arising out
of a variable interest.
33
Critical Accounting Policies and Estimates
Consolidation. We consolidate all subsidiaries and certain investments in which we have a controlling interest. We are
generally deemed to have a controlling interest when we own the majority of the voting interest of a voting rights entity
(“VRE”) or are deemed to be the primary beneficiary of a variable interest entity (“VIE”). A VIE is an entity that lacks
sufficient equity to finance its activities, or any entity whose equity holders do not have defined power to direct the activities of
the entity normally associated with an equity investment. Our analysis to determine whether an entity is a VIE or a VRE
involves judgment and considers several factors, including an entity’s legal organization, equity structure, the rights of the
investment holders, our ownership interest in the entity, and our contractual involvement with the entity. We continually
review and reconsider our VIE or VRE conclusions upon the occurrence of certain events, such as changes to our ownership
interest, or amendments to contract documents.
Provisions for Income Taxes. The objectives of accounting for income taxes are to recognize the amount of taxes payable or
refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been
recognized in an entity’s financial statements or tax returns. Judgment is required in assessing the future tax consequences of
events that have been recognized in our financial statements or tax returns.
Revenue Recognition on Performance-Based Advisory Contracts. We have certain investment advisory contracts in which a
portion of the fees are based on investment performance achieved in the respective client portfolio in excess of a specified
hurdle rate. These fees are calculated based on client investment results over rolling five-year periods. We record
performance-based fees at the end of the contract measurement period because the performance-based fees earned are
constrained based on movements in the financial markets.
Revenue Recognition when Acting as an Agent vs. Principal. The Funds have selected and contractually engaged certain
vendors to fulfill various services to benefit the Funds’ shareholders or to satisfy regulatory requirements of the Funds. These
services include, among others, required fund shareholder mailings, registration services, and legal and audit services. DHCM,
in fulfilling a portion of its role under the administration agreement with the Funds, acts as agent to pay these obligations of the
Funds. Each vendor is independently responsible for fulfillment of the services it has been engaged to provide and negotiates
fees and terms with the management and board of trustees of the Funds. The fee that the Funds pay to DHCM is reviewed
annually by the Funds’ board of trustees and specifically considers the contractual expenses that DHCM pays on behalf of the
Funds. As a result, DHCM is not involved in the delivery or pricing of these services and bears no risk related to these services.
Revenue has been recorded net of these Fund expenses, as appropriate for this agency relationship.
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk
Our revenues and net income are based primarily on the value of our AUM. Accordingly, declines in financial market values
directly and negatively impact our investment advisory revenues and net income.
We invest in the Funds, which are market risk sensitive financial instruments. These investments have inherent market risk in
the form of price risk; that is, the potential future loss of value that would result from a decline in their fair value. Market prices
fluctuate, and the amount realized upon subsequent sale may differ significantly from the reported market value.
During the first quarter of 2020, the impact of the COVID-19 pandemic spread rapidly on a global basis and caused increasing
disruption to populations, economic activity, and the global financial markets. While markets recovered sharply in the second,
third, and fourth quarters of 2020, the impact and ongoing uncertainty related to the COVID-19 pandemic continued through
the end of 2020.
The table below summarizes our market risks as of December 31, 2020, and shows the effects of a hypothetical 10% increase
and decrease in investments.
Equity investments
Fixed Income investments
Total
Fair Value as of
December 31, 2020
Fair Value
Assuming a
Hypothetical
10% Increase
Fair Value
Assuming a
Hypothetical
10% Decrease
$
75,115,159 $
82,626,675 $
67,603,643
53,285,977
58,614,575
47,957,379
$
128,401,136 $
141,241,250 $
115,561,022
34
ITEM 8.
Financial Statements and Supplementary Data
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors
Diamond Hill Investment Group, Inc.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Diamond Hill Investment Group, Inc. and subsidiaries (the
“Company”) as of December 31, 2020 and 2019, the related consolidated statements of income, shareholders’ equity and
redeemable noncontrolling interest, and cash flows for each of the years in the three-year period ended December 31, 2020, and
the related notes (collectively, 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, 2020 and 2019, and the results
of its operations and its cash flows for each of the years in the three‑year period ended December 31, 2020, in conformity with
U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in
Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission, and our report dated February 25, 2021 expressed an unqualified opinion on the effectiveness of the Company’s
internal control over financial reporting.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the
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 consolidated financial statements are free of material misstatement,
whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the
consolidated 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 consolidated 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 consolidated financial statements. We believe that our audits provide a
reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial
statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or
disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or
complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated
financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate
opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Evaluation of the assets under management data used in the calculation of sub-advisory and separately managed
account investment advisory fee revenue
As discussed in Note 2 to the consolidated financial statements, the Company recognizes revenue for its sub-advisory
and separately managed account investment advisory agreements based on a percentage of its assets under
management (AUM). The Company recognized $31.0 million in investment advisory fees related to sub-advised funds
and separately managed accounts during the year ended December 31, 2020. AUM is an input to the calculation of
investment advisory fee revenue. Specifically, as it pertains to these accounts, the inputs to the AUM calculation and
the calculated AUM value are transmitted through multiple information technology (IT) systems used in the
calculation of investment advisory fee revenue.
35
We identified the evaluation of the AUM data used in the calculation of sub-advisory and separately managed account
investment advisory fee revenue as a critical audit matter. There is a high degree of auditor judgment required to
perform procedures to address the Company’s use of multiple IT systems to maintain the AUM data. Such procedures
require specialized skills to test the AUM data as it is processed through multiple IT systems.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design
and tested the operating effectiveness of certain internal controls related to the critical audit matter. This included
controls related to the inputs to the AUM calculation, as well as controls over the reconciliation of AUM between IT
systems. We involved IT professionals with specialized skills and knowledge, who assisted in the testing of application
and related general IT controls relevant to the IT systems used to maintain AUM data. We compared AUM used in the
calculation of investment advisory fees to the source IT systems for a selection of accounts.
/s/ KPMG LLP
We have served as the Company’s auditor since 2012.
Columbus, Ohio
February 25, 2021
36
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors
Diamond Hill Investment Group, Inc.:
Opinion on Internal Control Over Financial Reporting
We have audited Diamond Hill Investment Group, Inc.’s and subsidiaries’ (the “Company”) internal control over financial
reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by
the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all
material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in
Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(“PCAOB”), the consolidated balance sheets of the Company as of December 31, 2020 and 2019, the related consolidated
statements of income, shareholders’ equity and redeemable noncontrolling interest, and cash flows for each of the years in the
three-year period ended December 31, 2020, and the related notes (collectively, the consolidated financial statements), and our
report dated February 25, 2021 expressed an unqualified opinion on those consolidated financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s
Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s
internal control over financial reporting based on our audit. We are a public accounting firm registered with the 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 audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all
material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control
over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we
considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed 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. A company’s internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Columbus, Ohio
February 25, 2021
/s/ KPMG LLP
37
Diamond Hill Investment Group, Inc.
Consolidated Balance Sheets
ASSETS
Cash and cash equivalents
Investments
Accounts receivable
Prepaid expenses
Income taxes receivable
Property and equipment, net of depreciation
Deferred taxes
Total assets
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities
Accounts payable and accrued expenses
Accrued incentive compensation
Deferred compensation
Total liabilities
Redeemable noncontrolling interest
Permanent Shareholders’ Equity
Common stock, no par value
7,000,000 shares authorized; 3,168,823 issued and outstanding at December 31, 2020
(inclusive of 183,718 unvested shares); 3,294,672 issued and outstanding at
December 31, 2019 (inclusive of 227,844 unvested shares)
Preferred stock, undesignated, 1,000,000 shares authorized and unissued
Deferred equity compensation
Retained Earnings
Total permanent shareholders’ equity
Total liabilities and shareholders’ equity
Book value per share
December 31,
2020
2019
$ 98,478,202 $ 93,176,253
128,401,136
139,437,178
17,805,864
17,223,362
2,977,759
256,538
6,740,396
8,437,446
2,857,468
3,849,099
5,733,737
10,386,853
$ 263,097,341 $ 272,663,950
$
8,002,303 $
28,400,000
8,671,731
26,615,510
33,241,952
30,342,204
69,644,255
65,629,445
9,372,333
14,178,824
80,810,946
95,853,477
—
—
(14,748,118)
(20,331,890)
118,017,925
117,334,094
184,080,753
192,855,681
$ 263,097,341 $ 272,663,950
$
58.09 $
58.54
The accompanying notes are an integral part of these consolidated financial statements.
38
Diamond Hill Investment Group, Inc.
Consolidated Statements of Income
REVENUES:
Investment advisory
Mutual fund administration, net
Total revenue
OPERATING EXPENSES:
Compensation and related costs, excluding deferred compensation
expense
Deferred compensation expense (benefit)
General and administrative
Sales and marketing
Mutual fund administration
Total operating expenses
NET OPERATING INCOME
Investment income (loss), net
INCOME BEFORE TAXES
Income tax expense
NET INCOME
Year Ended December 31,
2020
2019
2018
$ 119,125,230 $ 128,009,409 $ 135,317,805
7,262,488
8,614,971
10,309,943
126,387,718
136,624,380
145,627,748
58,291,670
60,264,117
55,975,361
2,218,898
5,976,938
(2,121,691)
11,002,572
13,277,843
11,648,925
5,999,846
3,336,575
80,849,561
45,538,157
5,867,297
3,302,767
88,688,962
47,935,418
5,242,848
3,625,898
74,371,341
71,256,407
6,584,849
30,507,375
(6,272,678)
52,123,006
78,442,793
64,983,729
(13,957,868)
(18,688,474)
(18,669,341)
38,165,138
59,754,319
46,314,388
Net loss (income) attributable to redeemable noncontrolling interest
495,407
(4,795,295)
1,061,441
NET INCOME ATTRIBUTABLE TO COMMON SHAREHOLDERS $ 38,660,545 $ 54,959,024 $ 47,375,829
Earnings per share attributable to common shareholders
Basic
Diluted
Weighted average shares outstanding
Basic
Diluted
$
$
12.03 $
12.03 $
15.99 $
15.99 $
13.49
13.48
3,214,564
3,214,564
3,436,574
3,436,641
3,512,470
3,514,528
The accompanying notes are an integral part of these consolidated financial statements.
39
Diamond Hill Investment Group, Inc.
Consolidated Statements of Shareholders’ Equity and Redeemable Noncontrolling Interest
Shares
Outstanding
Common
Stock
Deferred Equity
Compensation
Retained
Earnings
Total
Redeemable
Noncontrolling
Interest
Balance at January 1, 2018
3,470,428 $ 118,209,111 $ (19,134,963) $ 73,369,672 $ 172,443,820 $ 20,076,806
Issuance of restricted stock grants
73,025
13,654,592
(13,654,592)
Amortization of restricted stock grants
—
—
6,664,875
Common stock issued as incentive
compensation
Issuance of common stock related to
401k plan match
Shares withheld related to employee tax
withholding
Repurchases of common stock
20,153
4,109,197
11,967
2,231,735
(9,918)
(1,925,700)
(45,470)
(7,229,249)
—
—
—
—
Forfeiture of restricted stock grants
(20,900)
(4,116,626)
4,116,626
Cash dividend paid of $8.00 per share
Net income
Net subscriptions of consolidated funds
New consolidations of Company
sponsored investments
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
6,664,875
4,109,197
2,231,735
(1,925,700)
(7,229,249)
—
(28,094,564)
(28,094,564)
—
—
—
—
—
—
—
—
47,375,829
47,375,829
(1,061,441)
—
—
—
27,219,682
—
16,444,640
Balance at December 31, 2018
3,499,285 $ 124,933,060 $ (22,008,054) $ 92,650,937 $ 195,575,943 $ 62,679,687
Issuance of restricted stock grants
53,969
7,471,799
(7,471,799)
Amortization of restricted stock grants
—
—
6,584,485
Common stock issued as incentive
compensation
Issuance of common stock related to
401k plan match
Shares withheld related to employee tax
withholding
24,048
3,655,296
17,651
2,496,936
(9,928)
(1,390,482)
—
—
—
Forfeiture of restricted stock grants
(14,200)
(2,563,478)
2,563,478
Repurchases of common stock
(276,153)
(38,749,654)
Cash dividend paid of $9.00 per share
Net income
Net subscriptions of consolidated funds
Net deconsolidations of Company
sponsored investments
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
6,584,485
3,655,296
2,496,936
(1,390,482)
—
(38,749,654)
(30,275,867)
(30,275,867)
—
—
—
—
—
—
—
—
54,959,024
54,959,024
4,795,295
—
—
—
8,095,940
—
(61,392,098)
Balance at December 31, 2019
3,294,672 $ 95,853,477 $ (20,331,890) $ 117,334,094 $ 192,855,681 $ 14,178,824
Issuance of restricted stock grants
22,099
2,548,440
(2,548,440)
Amortization of restricted stock grants
—
—
5,227,574
Common stock issued as incentive
compensation
Issuance of common stock related to
401k plan match
Shares withheld related to employee tax
withholding
23,640
3,396,359
20,976
2,511,746
(19,189)
(1,947,456)
—
—
—
Forfeiture of restricted stock grants
(15,625)
(2,904,638)
2,904,638
Repurchases of common stock
(157,750)
(18,646,982)
Cash dividend paid of $12.00 per share
Net income
Net redemptions of consolidated funds
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
5,227,574
3,396,359
2,511,746
(1,947,456)
—
(18,646,982)
(37,976,714)
(37,976,714)
—
—
—
—
—
—
—
—
38,660,545
38,660,545
(495,407)
—
—
(4,311,084)
Balance at December 31, 2020
3,168,823 $ 80,810,946 $ (14,748,118) $ 118,017,925 $ 184,080,753 $ 9,372,333
The accompanying notes are an integral part of these consolidated financial statements.
40
Diamond Hill Investment Group, Inc.
Consolidated Statements of Cash Flows
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation
Share-based compensation
Increase in accounts receivable
Change in current income taxes
Change in deferred income taxes
Net (gain) loss on investments
Net change in securities held by Consolidated Funds
Increase in accrued incentive compensation
Increase in deferred compensation
Other changes in assets and liabilities
Net cash provided by operating activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment
Purchase of Company sponsored investments
Year Ended December 31,
2020
2019
2018
$ 38,165,138 $ 59,754,319 $ 46,314,388
992,836
7,739,320
1,164,207
9,081,421
1,159,380
8,896,610
(582,502)
(5,021,516)
(1,014,839)
3,592,561
(6,617,780)
6,883,643
1,949,407
1,079,247
(5,622,396)
(3,005,441) (21,058,463) 14,297,382
6,286,645
(52,168,968)
3,179,362
5,180,849
2,899,748
3,516,639
7,954,330
(338,793)
827,194
5,366,864
1,907,084
2,111,443
59,772,485
56,966,243
28,130,591
(2,450,421)
(707,790)
(781,951)
(14,852,892) (14,351,062)
(6,332,090)
Proceeds from sale of Company sponsored investments
25,715,013
48,637,779
2,853,144
Net cash on deconsolidation of Company sponsored investments
—
(22,723,853)
—
Net cash provided by (used in) investing activities
8,411,700
10,855,074
(4,260,897)
CASH FLOWS FROM FINANCING ACTIVITIES:
Value of shares withheld related to employee tax withholding
(1,947,456)
(1,390,482)
(1,925,700)
Payment of dividends
Net subscriptions (redemptions) received from redeemable noncontrolling
interest holders
Repurchase of common stock
Net cash used in financing activities
CASH AND CASH EQUIVALENTS
Net change during the year
At beginning of year
At end of year
Supplemental cash flow information:
Income taxes paid
Supplemental disclosure of non-cash transactions:
Common stock issued as incentive compensation
Charitable donation of corporate investments
Net (redemptions) subscriptions of ETF Shares for marketable securities
(37,976,714) (30,275,867) (28,094,564)
(4,311,084) 11,340,880
21,207,770
(18,646,982) (38,749,654)
(7,229,249)
(62,882,236) (59,075,123) (16,041,743)
5,301,949
93,176,253
8,746,194
84,430,059
7,827,951
76,602,108
$ 98,478,202 $ 93,176,253 $ 84,430,059
$ 8,415,900 $ 24,227,006 $ 17,408,094
3,396,359
3,655,296
4,109,197
1,989,803
—
(3,244,940)
6,282,621
—
—
The accompanying notes are an integral part of these consolidated financial statements.
41
Diamond Hill Investment Group, Inc.
Notes to Consolidated Financial Statements
Note 1 Business and Organization
Diamond Hill Investment Group, Inc. (the “Company”), an Ohio corporation, derives its consolidated revenues and net income
from investment advisory and fund administration services.
Diamond Hill Capital Management, Inc. ("DHCM"), an Ohio corporation, is a wholly owned subsidiary of the Company and a
registered investment adviser. DHCM is the investment adviser to the Diamond Hill Funds (the "Funds"), a series of open-end
mutual funds. DHCM is also administrator for the Funds. The Company also provides investment advisory services to
separately managed accounts and provides sub-advisory services to other mutual funds.
Note 2 Significant Accounting Policies
Basis of Presentation
The accompanying Consolidated Financial Statements of the Company have been prepared pursuant to the rules and regulations
of the SEC and in accordance with the instructions to Form 10-K. The Company believes that the disclosures contained herein
are adequate to make the information presented not misleading.
These Consolidated Financial Statements reflect, in the opinion of the Company, all material adjustments (which include only
normal recurring adjustments) necessary to fairly present the Company’s financial position as of December 31, 2020 and 2019,
and results of operations for the years ended December 31, 2020, 2019 and 2018.
For further information regarding the risks to our business, refer to the consolidated financial statements and notes thereto
included in “Part I – Item 1A. – Risk Factors” of this Annual Report on Form 10-K.
Use of Estimates
The preparation of the Consolidated Financial Statements requires management to make estimates and judgments that affect the
reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements
as well as the reported amounts of revenue and expense during the reporting period. Estimates have been prepared based on the
most current and best available information, but actual results could differ materially from those estimates.
Reclassification
Certain prior period amounts and disclosures may have been reclassified to conform to the current period’s financial
presentation.
Book Value Per Share
Book value per share is computed by dividing total shareholders’ equity by the number of shares issued and outstanding at the
end of the measurement period.
Principles of Consolidation
The accompanying consolidated financial statements include the operations of the Company and its controlled subsidiaries. All
inter-company transactions and balances have been eliminated in consolidation.
The Company holds certain investments in the Funds, and previously held an investment in an exchange traded fund (the
“ETF”), for general corporate investment purposes, to provide seed capital for newly formed strategies or to add capital to
existing strategies. The Funds are organized in a series fund structure in which there are multiple mutual funds within one
Trust. The Trust is an open-end investment company registered under the 1940 Act. The ETF was an individual series of ETF
Series Solutions, which was also an open-end investment company registered under the 1940 Act. The ETF liquidated and its
assets were distributed to its shareholders on April 5, 2019. Each of the individual mutual funds represents (and the ETF
represented) a separate share class of a legal entity organized under the Trust.
42
The Company performs its consolidation analysis at the individual mutual fund and ETF level and has concluded the mutual
funds are, and the ETF was, VREs because the structure of the investment product is such that the shareholders are deemed to
have the power through voting rights to direct the activities that most significantly impact the entity's economic performance.
To the extent material, these investment products are consolidated if Company ownership, directly or indirectly, represents a
majority interest (greater than 50%). The Company records redeemable noncontrolling interests in consolidated investments for
which the Company's ownership is less than 100%. The Company has consolidated the Diamond Hill International Fund and
the Diamond Hill Global Fund (together, the "Consolidated Funds") as of December 31, 2020. The Company deconsolidated
the ETF, the Diamond Hill Core Bond Fund and the Diamond Hill High Yield Fund during the year ended December 31, 2019
as the Company's ownership declined to less than 50%.
Redeemable Noncontrolling Interest
Redeemable noncontrolling interest represents third-party interests in the Consolidated Funds. This interest is redeemable at the
option of the investors and therefore is not treated as permanent equity. Redeemable noncontrolling interest is recorded at
redemption value, which approximates the fair value each reporting period.
Segment Information
Management has determined that the Company operates in one business segment, which is providing investment management
and administration services to mutual funds and separately managed accounts. Therefore, the Company does not present
disclosures relating to operating segments in annual or interim financial statements.
Cash and Cash Equivalents
Cash and cash equivalents include demand deposits and money market mutual funds held by DHCM.
Accounts Receivable
The Company records accounts receivable when they are due and presents them on the balance sheet net of any allowance for
doubtful accounts. Accounts receivable are written off when they are determined to be uncollectible. Any allowance for
doubtful accounts is estimated based on the Company’s historical losses, existing conditions in the industry, and the financial
stability of the individual or entity that owes the receivable. No allowance for doubtful accounts was deemed necessary at either
December 31, 2020 or 2019. Accounts receivable from the Funds were $10.5 million and $10.7 million as of December 31,
2020 and 2019, respectively.
Investments
The Company’s management determines the appropriate classification of its investments at the time of purchase and re-
evaluates its determination at each reporting period.
Investments in the Funds that DHCM advises where the Company has neither control nor the ability to exercise significant
influence, as well as securities held in the Consolidated Funds, are measured at fair value based on quoted market prices.
Unrealized gains and losses are recorded as investment income (loss) in the Company's consolidated statements of income.
Investments classified as equity method investments represent investments in which the Company owns between 20-50% of the
outstanding voting interests in the entity or when it is determined that the Company is able to exercise significant influence but
not control over the investments. When using the equity method, the Company recognizes its respective share of the investee’s
net income or loss for the period which is recorded as investment income in the Company’s consolidated statements of income.
Property and Equipment
Property and equipment, consisting of leasehold improvements, computer equipment, capitalized software, furniture, and
fixtures, are carried at cost less accumulated depreciation. Accumulated depreciation was $7.4 million and $6.4 million as of
December 31, 2020 and 2019, respectively. Depreciation is calculated using the straight-line method over the estimated lives of
the assets.
43
Revenue Recognition – General
The Company recognizes revenue when it satisfies performance obligations under the terms of a contract with a client. The
Company earns substantially all of its revenue from investment advisory and fund administration contracts. Investment advisory
and administration fees, generally calculated as a percentage of AUM, are recorded as revenue as services are performed. In
addition to fixed fees based on a percentage of AUM, certain client accounts also provide periodic performance-based fees.
Revenue earned for the years ended December 31, 2020, 2019 and 2018 under contracts with clients include:
Proprietary funds
Sub-advised funds and separately managed
accounts
Proprietary funds
Sub-advised funds and separately managed
accounts
Proprietary funds
Sub-advised funds and separately managed
accounts
Investment advisory
Year Ended December 31, 2020
Mutual fund
administration, net
Total revenue
88,103,499 $
7,262,488 $
95,365,987
31,021,731
—
119,125,230 $
7,262,488 $
31,021,731
126,387,718
Investment advisory
Year Ended December 31, 2019
Mutual fund
administration, net
Total revenue
97,327,310 $
8,614,971 $
105,942,281
30,682,099
—
128,009,409 $
8,614,971 $
30,682,099
136,624,380
Investment advisory
Year Ended December 31, 2018
Mutual fund
administration, net
Total revenue
105,228,977 $
10,309,943 $
115,538,920
30,088,828
—
135,317,805 $
10,309,943 $
30,088,828
145,627,748
$
$
$
$
$
$
Revenue Recognition – Investment Advisory Fees
The Company’s investment advisory contracts have a single performance obligation (the investment advisory services provided
to the client) as the promised services are not separately identifiable from other promises in the contracts, and therefore, are not
distinct. All performance obligations to provide advisory services are satisfied over time, and the Company recognizes revenue
as time passes.
The fees the Company receives for its services under its investment advisory contracts are based on our AUM, which changes
based on the value of securities held under each advisory contract. These fees are thereby constrained and represent variable
consideration, and they are excluded from revenue until the AUM on which the Company’s client is billed is no longer subject
to market fluctuations.
The Company also provides services to model delivery programs in which the Company provides its strategy model portfolio to
the sponsor of the model delivery. The Company is paid a portion of the model delivery fee for its services by the program
sponsor at a pre-determined rate based on assets in the program. Model delivery program revenues were $2.7 million, $2.0
million and $1.5 million for the years ended December 31, 2020, 2019 and 2018, respectively. Model delivery program revenue
is included in investment advisory fees in the consolidated statements of income.
44
Revenue Recognition – Performance-Based Fees
The Company manages certain client accounts that provide for performance-based fees. These fees are calculated based on
client investment results over rolling five-year periods. The Company records performance-based fees at the end of the contract
measurement period because the performance-based fees earned are constrained based on movements in the financial markets.
During the years ended December 31, 2020, 2019, and 2018, the Company recorded $0.5 million, $1.3 million, and $1.4
million, respectively, in performance-based fees. The table below shows AUM subject to performance-based fees and the
amount of performance-based fees that would be recognized based upon investment results as of December 31, 2020:
Contractual Period Ending:
Quarter Ending September 30, 2021
Quarter Ending December 31, 2021
Total
As of December 31, 2020
AUM subject to
performance-based fees
Unearned performance-
based fees
$
$
339,721,553 $
60,887,198
400,608,751 $
9,228,080
—
9,228,080
The contractual end dates highlight the time remaining until the performance-based fees are scheduled to be earned. The
amount of performance-based fees that would be recognized based upon investments results as of December 31, 2020, will
increase or decrease based on future client investment results through the contractual period end. The Company cannot assure
that it will earn the unearned amounts set forth above.
Revenue Recognition – Mutual Fund Administration
DHCM has an administrative and transfer agency services agreement with the Funds under which DHCM performs certain
services for each Fund. These services include performance obligations such as mutual fund administration, fund accounting,
transfer agency, and other related functions. These services are performed concurrently under DHCM's agreement with the
Funds, all performance obligations to provide these administrative services are satisfied over time, and the Company recognizes
the related revenue as time progresses. Each Fund pays DHCM a fee for performing these services, which is calculated using an
annual rate times the average daily net assets of each respective Fund share class. These fees are thereby constrained and
represent variable consideration, and they are excluded from revenue until the AUM on which DHCM bills the Funds is no
longer subject to market fluctuations.
The Funds have selected and contractually engaged certain vendors to fulfill various services to benefit the Funds’ shareholders
or to satisfy regulatory requirements of the Funds. These services include, among others, required shareholder mailings, federal,
and state registrations, and legal and audit services. DHCM, in fulfilling a portion of its role under the administration agreement
with the Funds, acts as agent and pays for these services on behalf of the Funds. Each vendor is independently responsible for
fulfillment of the services it has been engaged to provide and negotiates its fees and terms directly with the management and
board of trustees of the Funds. Each year, the Funds' board of trustees reviews the fee that each Fund pays to DHCM, and
specifically considers the contractual expenses that DHCM pays on behalf of the Funds. As a result, DHCM is not involved in
the delivery or pricing of these services, and bears no risk related to these services. Revenue has been recorded net of these
Fund-related expenses. In addition, DHCM advances the upfront commissions that are paid to brokers who sell Class C shares
of the Funds. These advances are capitalized and amortized over 12 months to correspond with the repayments DHCM receives
from the principal underwriter to recoup this commission advancement.
Mutual fund administration gross and net revenue are summarized below:
Mutual fund administration:
Administration revenue, gross
Fund related expense
Revenue, net of related expenses
DHCM C-Share financing:
Broker commission advance repayments
Broker commission amortization
Financing activity, net
Year Ended December 31,
2020
2019
2018
$ 22,296,535 $ 22,569,946 $ 24,463,538
(15,048,850)
(13,989,139)
(14,183,370)
7,247,685
8,580,807
10,280,168
245,594
240,459
332,680
(230,791)
(206,295)
(302,905)
14,803
34,164
29,775
Mutual fund administration revenue, net
$
7,262,488 $
8,614,971 $ 10,309,943
45
Income Taxes
The Company accounts for current and deferred income taxes through an asset and liability approach. Deferred tax assets are
recognized for deductible temporary differences and deferred tax liabilities are recognized for taxable temporary differences.
Deferred tax assets are reduced by a valuation allowance when it is more likely than not that some portion or all of the deferred
tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on
the date of enactment.
The Company is subject to examination by federal and applicable state and local jurisdictions for various tax periods. The
Company’s income tax positions are based on research and interpretations of the income tax laws and rulings in each of the
jurisdictions in which it does business. Due to the subjectivity of interpretations of laws and rulings in each jurisdiction, the
differences and interplay in tax laws among those jurisdictions, and the inherent uncertainty in estimating the final resolution of
complex tax audit matters, the Company’s estimates of income tax liabilities may differ from actual payments or assessments.
The Company regularly assesses its positions with regard to tax exposures and records liabilities for these uncertain tax
positions and related interest and penalties, if any, according to the principles of FASB ASC 740, Income Taxes. The Company
records interest and penalties within income tax expense on the income statement. See Note 9.
Earnings Per Share
Basic earnings per share (“EPS”) excludes dilution and is computed by dividing net income by the weighted average number of
common shares outstanding for the period, which includes unvested restricted shares. Diluted EPS reflects the dilutive effect of
outstanding and unvested restricted stock units, if any. See Note 10.
Recently Adopted Accounting Guidance
In August 2018, FASB issued Accounting Standards Update ("ASU") No. 2018-13, “Fair Value Measurements.” This update
makes certain revisions to existing disclosure requirements for fair value measurement. ASU No. 2018-13 does not change fair
value measurements already required or permitted by existing standards. ASU No. 2018-13 is effective for financial statements
issued for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. The Company adopted
this guidance on January 1, 2020, without any impact on the Company’s consolidated financial statements.
In August 2018, FASB issued ASU No. 2018-15 “Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40):
Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract.”
This update required implementation costs incurred in cloud computing arrangements to be deferred and recognized over the
term of the hosting arrangement. A hosting arrangement is an agreement that allows customers to access and use software on
an as-needed basis without having possession of the software. Beginning on January 1, 2020, the Company was required to
defer such qualifying implementation costs. As of December 31, 2020, the Company capitalized an immaterial amount of
implementation costs incurred in a cloud computing arrangement. The Company adopted this guidance on January 1, 2020
using the prospective method of adoption. Accordingly, the adoption of this guidance did not have a material impact on the
Company’s consolidated financial statements.
Note 3 Investments
The following table summarizes the carrying value of the Company's investments as of December 31, 2020 and 2019:
Fair value investments:
Securities held in Consolidated Funds(a)
Company-sponsored investments
Company-sponsored equity method investments
Total Investments
As of December 31,
2020
2019
$
33,233,307 $
95,167,829
—
36,248,360
42,039,044
61,149,774
$
128,401,136 $
139,437,178
(a) Of the securities held in the Consolidated Funds as of December 31, 2020, the Company directly held $23.6 million and non-controlling
shareholders held $9.6 million. Of the securities held in the Consolidated Funds as of December 31, 2019, the Company directly held $21.1
million and non-controlling shareholders held $15.1 million.
46
As of December 31, 2020, securities held by the Company in the Consolidated Funds consisted of the Diamond Hill Global
Fund and the Diamond Hill International Fund as our ownership percentage in these investments was greater than 50%.
As of December 31, 2019, securities held in the Consolidated Funds consisted of the Diamond Hill Global Fund and the
Diamond Hill International Fund as our ownership percentage in these investments was greater than 50%. During the year
ended December 31, 2019, the Company began consolidating the Diamond Hill International Fund as ownership increased
above 50% and de-consolidated the ETF, the Diamond Hill Core Bond Fund and the Diamond Hill High Yield Fund as our
ownership in each declined to less than 50%.
The components of net investment income (loss) are as follows:
Realized gains (losses)
Unrealized gains (losses)
Dividend income
Interest income
Other investment income (loss)
Investment income (loss), net
Company-Sponsored Equity Method Investments
For the Year Ended December 31,
2020
2019
2018
$
(1,488,059) $
9,056,152 $
5,348,243
2,824,542
—
(99,877)
15,086,747
5,350,146
987,240
27,090
2,143,695
(16,067,048)
2,814,026
4,857,261
(20,612)
$
6,584,849 $
30,507,375 $
(6,272,678)
As of December 31, 2020, the Company had no equity method investments. During 2020, there were periods of time when the
Company’s ownership in the Diamond Hill Research Opportunities Fund1 and the Diamond Hill Core Bond Fund was between
20% and 50%, respectively, and thus, a portion of these Funds’ income is included in the table below for the year ended
December 31, 2020.
As of December 31, 2019, the Company’s equity method investments consisted of the Diamond Hill Research Opportunities
Fund and the Diamond Hill Core Bond Fund, and the Company’s ownership percentage in each of these investments was 23%
and 36%, respectively. During 2019, there were periods of time where the Company’s ownership in the Diamond Hill High
Yield Fund was between 20% and 50%, respectively, and thus, a portion of that Fund’s income is included in the table below
for the year ended December 31, 2019. During 2019, there were periods of time where the Company’s ownership in the
Diamond Hill Core Bond Fund was greater than 50%, and thus, a portion of that Fund’s income is excluded from the table
below for the year ended December 31, 2019.
For the year ended December 31, 2018, the Company’s equity method investments consisted of the Diamond Hill Research
Opportunities Fund, and the Company’s ownership percentage in this investment was 28% as of December 31, 2018, and thus,
that Fund’s income is included in the table below.
The Company’s equity method investments consist of cash, marketable equity securities, and fixed income securities. The
following table includes the condensed summary financial information from the Company’s equity method investments as of
December 31, 2020 and 2019, and for the years ended December 31, 2020, 2019, and 2018:
1 In October 2020, the Diamond Hill Research Opportunities Fund merged into the Diamond Hill Long-Short Fund.
47
Total assets
Total liabilities
Net assets
DHCM’s portion of net assets
As of December 31,
2020
2019
— $
237,073,628
—
—
— $
38,453,935
198,619,693
61,149,774
$
$
For the Year Ended December 31,
2020
2019
2018
Investment income
Expenses
Net realized gains (losses)
Net change in unrealized appreciation (depreciation)
Net income (loss)
$
4,246,021 $
5,346,588 $
1,114,278
(1,577,639)
2,289,667
3,843,771
1,551,291
6,390,727
14,805,837
24,991,861
DHCM’s portion of net income (loss)
$
1,807,279 $
8,301,571 $
1,154,007
978,322
1,918,661
(10,229,319)
(8,134,973)
(2,400,467)
Note 4 Fair Value Measurements
The Company determines the fair value of our cash equivalents and certain investments using the following broad levels listed
below:
Level 1 - Unadjusted quoted prices for identical instruments in active markets.
Level 2 - Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets
that are not active, and model-driven valuations in which all significant inputs are observable.
Level 3 - Valuations derived from techniques in which significant inputs are unobservable. We do not value any investments
using Level 3 inputs.
These levels are not necessarily an indication of the risk or liquidity associated with investments.
The following table summarizes investments that are recognized in our consolidated balance sheet using fair value
measurements (excludes investments classified as equity method investments) determined based upon the differing levels as of
December 31, 2020 and 2019:
December 31, 2020
Cash equivalents
Fair value investments
Securities held in Consolidated Funds(a)
Company-sponsored investments
December 31, 2019
Cash equivalents
Fair value investments
Securities held in Consolidated Funds(a)
Company-sponsored investments
Level 1
Level 2
Level 3
Total
$ 94,698,816 $
— $
— $ 94,698,816
17,641,668
15,591,639
95,167,829
—
—
—
33,233,307
95,167,829
90,144,943
—
—
90,144,943
19,238,197
17,010,163
$ 42,039,044 $
— $
—
36,248,360
— $ 42,039,044
(a) Of the securities held in the Consolidated Funds as of December 31, 2020, the Company directly held $23.6 million and non-controlling
shareholders held $9.6 million. Of the securities held in the Consolidated Funds as of December 31, 2019, the Company directly held $21.1
million and non-controlling shareholders held $15.1 million.
The Company determines transfers between fair value hierarchy levels at the end of the reporting period. There were no
transfers in or out of the levels during any of the years ended December 31, 2020, 2019, and 2018.
48
Changes to fair values of the investments are recorded in the Company’s consolidated statements of income as investment
income (loss), net.
Note 5 Line of Credit
The Company has a committed Line of Credit Agreement (the "Credit Agreement") with a commercial bank that matures on
December 24, 2021, which permits the Company to borrow up to $25.0 million. Borrowings under the Credit Agreement bear
interest at a rate equal to LIBOR plus 1.00%. The Company pays a commitment fee on the unused portion of the facility,
accruing at a rate per annum of 0.10%.
The Company did not borrow under the Credit Agreement as of and for the period ended December 31, 2020.
The proceeds of the Credit Agreement may be used by the Company and its subsidiaries for ongoing working capital needs, to
seed new and existing investment strategies, and for other general corporate purposes. The Credit Agreement contains
customary representations, warranties, and covenants.
Note 6 Capital Stock
Common Shares
The Company has only one class of securities outstanding, common shares, no par value per share.
Authorization of Preferred Shares
The Company’s Amended and Restated Articles of Incorporation authorize the issuance of 1,000,000 “blank check” preferred
shares with such designations, rights, and preferences as may be determined from time to time by the Company’s board of
directors. The Company’s board of directors is authorized, without shareholder approval, to issue preferred shares with
dividend, liquidation, conversion, voting, or other rights, which could adversely affect the voting or other rights of the holders
of the common shares. There were no preferred shares issued or outstanding as of December 31, 2020 or 2019.
Note 7 Compensation Plans
Equity Incentive Plan
The Company’s equity and incentive plan (the “Plan”) is intended to facilitate the Company’s ability to attract and retain staff,
provide additional incentive to employees and directors, and promote the success of the Company’s business. The Plan
authorizes the issuance of 600,000 common shares of the Company in various forms of equity awards. The Plan also authorizes
cash incentive awards. As of December 31, 2020, there were 222,657 common shares available for awards under the Plan. The
Plan provides that the Company’s board of directors, or a committee appointed by the Board, may grant awards and otherwise
administer the Plan.
Share-Based Payment Transactions
The Company has issued restricted stock awards under the Plan. Restricted stock awards issued under the Plan, which vest over
time, are recorded as deferred compensation in the equity section of the balance sheet on the grant date and then recognized as
compensation expense based on the grant date price over the vesting period of the respective grant. Restricted stock grants
issued under the Plan are recorded as compensation expense based on the grant date price. The following table represents a
roll-forward of outstanding restricted stock and related activity during the year ended December 31, 2020:
49
Outstanding Restricted Stock as of December 31, 2019
Grants issued
Grants vested
Grants forfeited
Outstanding Restricted Stock as of December 31, 2020
Weighted-
Average
Grant Date Price
per Share
Shares
227,844 $
22,099
(50,600)
(15,625)
183,718 $
175.49
115.32
160.79
185.90
173.80
The weighted-average grant date price per share of Restricted Stock issued during the years ended December 31, 2019 and 2018
was $146.59 and $195.00, respectively. The total fair value of Restricted Stock vested, as of their respective vesting dates,
during the years ended December 31, 2020, 2019, and 2018 was $5.2 million, $3.3 million, and $5.8 million, respectively.
Total deferred equity compensation related to unvested Restricted Stock grants was $14.7 million as of December 31, 2020.
Compensation expense related to restricted stock is calculated based upon the fair market value of the common shares on the
applicable grant date. The Company’s policy is to adjust compensation expense for forfeitures as they occur. The recognition of
compensation expense related to deferred compensation over the remaining vesting periods is as follows:
2021
2022
2023
2024
2025
Thereafter
Total
$
5,332,145 $
4,375,573 $
2,406,727 $
1,308,272 $
535,508 $
789,893 $
14,748,118
Stock Grant Transactions
The following table represents shares issued as part of the Company’s incentive compensation program during the years ended
December 31, 2020, 2019, and 2018:
December 31, 2020
December 31, 2019
December 31, 2018
401(k) Plan
Shares Issued
Grant Date Value
23,640 $
24,048
20,153 $
3,396,359
3,655,296
4,109,197
The Company sponsors a 401(k) plan in which all employees are eligible to participate. Employees may contribute a portion of
their compensation subject to certain limits based on federal tax laws. Effective April 1, 2018, the Company increased its
matching contributions of common shares of the Company with a value equal to 250 percent of the first six percent of an
employee’s compensation contributed to the plan. Prior to April 1, 2018, the Company made matching contributions of
common shares of the Company with a value equal to 200 percent of the first six percent of an employee’s compensation
contribution to the plan. Employees become fully vested in the matching contributions after six plan years of employment. The
following table summarizes the Company’s expenses attributable to the 401(k) plan during the years ended December 31, 2020,
2019 and 2018:
Shares Issued
Company
Contribution
20,976 $
17,651
11,967 $
2,511,746
2,496,936
2,231,735
December 31, 2020
December 31, 2019
December 31, 2018
Deferred Compensation Plans
The Company offers two deferred compensation plans: the Diamond Hill Fixed Term Deferred Compensation Plan and the
Diamond Hill Variable Term Deferred Compensation Plan (together, the “Deferred Comp Plans”). Under the Deferred Comp
Plans, participants may elect to voluntarily defer, for a minimum of five years, certain incentive compensation, which the
Company then contributes into the Deferred Comp Plans. Each participant is responsible for designating investment options for
assets they contribute, and the distribution paid to each participant reflects any gains or losses on the assets realized in
connection with the Plans. Assets held in the Deferred Comp Plans are included in the Company’s investment portfolio, and the
associated obligation to participants is included in deferred compensation liability. The gain (loss) on investments in the
Deferred Comp Plans are recorded as deferred compensation expense (benefit) and are included in operating income. Deferred
compensation expense is offset by an equal amount in investment income below net operating income on the consolidated
50
statements of income statement, and thus has no impact on net income attributable to the Company. Deferred compensation
liability was $33.2 million and $30.3 million as of December 31, 2020 and 2019, respectively.
Note 8 Operating Leases
The Company currently leases office space of approximately 37,829 square feet at one location.
As of December 31, 2020 and December 31, 2019, the carrying value of the right-of-use asset, which is included in property
and equipment, net of depreciation on the consolidated balance sheets, was approximately $2.1 million and $2.5 million,
respectively. As of December 31, 2020 and December 31, 2019, the carrying value of the lease liability, which is included in
accounts payable and accrued expenses on the consolidated balance sheets, was approximately $2.5 million and $3.1 million,
respectively.
The following table summarizes the total lease and the related operating expenses for the years ended December 31, 2020, 2019
and 2018:
For the year ended December 31,
2020
2019
2018
$
947,398
$
971,203
$
970,143
Lease expense and the related operating expenses are recorded in general and administrative expenses on the consolidated
statements of income.
The approximate future minimum lease payments under the operating lease are as follows:
Future Minimum Lease Payments by Year
Total
2021
2022
2023
2024
2025
Thereafter
$
2,652,760
$
624,179
$
624,179
$
624,179
$
624,179
$
156,044
$
—
In addition to the above lease payments, the Company is also responsible for normal operating expenses of the property. These
annual operating expenses were approximately $0.4 million in each of 2020, 2019, and 2018.
51
Note 9 Income Taxes
The provision for income taxes consists of:
Current federal income tax provision
Current state and local income tax provision
Deferred income tax expense (benefit)
Provision for income taxes
As of December 31,
2020
2019
2018
$
9,633,927 $ 13,952,230 $ 15,731,258
2,374,534
1,949,407
3,656,997
1,079,247
8,560,479
(5,622,396)
$ 13,957,868 $ 18,688,474 $ 18,669,341
A reconciliation of income tax expense at the statutory federal rate to the Company’s income tax expense is as follows:
Income tax computed at statutory rate
Expense (benefit) attributable to redeemable noncontrolling interests(a)
State and local income taxes, net of federal benefit
Internal revenue code section 162 limitations
Change in uncertain state and local tax positions, net of federal benefit
Revaluation adjustment of net deferred tax assets(b)
Excess tax deficit (benefit) on vesting of restricted stock
Income tax benefit from dividends paid on restricted stock
Interest and penalties
Other
Income tax expense
2020
2019
2018
$ 10,945,831 $ 16,472,987 $ 13,646,583
104,035
(1,007,012)
222,624
1,875,882
2,835,215
2,993,730
632,705
625,009
400,060
—
—
(47,197)
2,982,337
—
(917,288)
612,930
(70,878)
(667,697)
(455,283)
(431,192)
(340,200)
1,460
240,308
101,010
210,532
786,711
(437,519)
$ 13,957,868 $ 18,688,474 $ 18,669,341
(a) The provision for income taxes includes expense (benefit) attributable to the fact that the Company’s operations include the Consolidated
Funds, which are not subject to federal income taxes. Accordingly, a portion of the Company’s earnings are not subject to corporate tax
levels.
(b) The provision for income taxes for 2018 includes the remeasurement of our net deferred tax assets of $0.9 million due to additional state
and local tax that the Company expects to pay in future tax periods.
Deferred income taxes and benefits arise from temporary differences between taxable income for financial statement and
income tax return purposes. Net deferred tax assets consisted of the following as of December 31, 2020 and 2019:
Stock-based compensation
Accrued compensation
Unrealized gains
Property and equipment
Other assets and liabilities
Net deferred tax assets
2020
2019
$
3,500,026 $
4,571,430
9,026,113
(3,145,177)
8,496,929
(2,150,699)
(963,610)
(553,265)
20,094
22,458
$
8,437,446 $ 10,386,853
The net temporary differences incurred to date will reverse in future periods as the Company generates taxable earnings. The
Company believes it is more likely than not that the results of future operations will generate sufficient taxable income to
realize the net deferred tax assets recorded. The Company records a valuation allowance when it is more likely than not that
some portion or all of the deferred tax assets will not be realized. As of December 31, 2020, no valuation allowance was
deemed necessary.
FASB ASC 740, Income Taxes, prescribes a recognition threshold and measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected to be taken in a tax return and also provides guidance on
derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The Company
recognizes tax benefits related to positions taken, or expected to be taken, on its tax returns, only if the positions are "more-
likely-than-not" sustainable. Once this threshold has been met, the Company’s measurement of its expected tax benefits is
recognized in its financial statements.
52
The Company and its subsidiaries file income tax returns with the Internal Revenue Service and the taxing authorities of
various states. Generally, the Company is subject to federal, state, and local examinations by tax authorities for the tax years
ended December 31, 2016 through 2020. During 2020, the Company closed an examination by the California Franchise Tax
Board for the Company’s 2015 and 2016 tax years. During 2019, the Company closed an examination with the New York State
Department of Finance and Taxation for tax years 2014 through 2016. During 2018, the Company reassessed its New York
City filing positions and filed a Voluntary Disclosure Agreement with the New York City Department of Finance.
The amount of uncertain tax positions as of December 31, 2020, 2019, and 2018, respectively, which would impact the
Company’s effective tax rate if recognized and a reconciliation of the beginning and ending amounts of uncertain tax positions
is as follows:
Uncertain tax positions, beginning of the year
Gross addition for tax positions of the current year
Gross additions for tax positions of prior years
Reductions of tax positions of prior years for:
Lapses of applicable statutes of limitations
Settlements during the period
Changes in judgment/excess reserve
Uncertain tax positions, end of year
2020
2019
2018
$
— $
2,982,337 $
—
—
—
—
—
—
—
—
(2,935,140)
(47,197)
—
—
2,982,337
—
—
—
$
— $
— $
2,982,337
In addition to the above uncertain tax positions, the Company recognized $0.1 million and $0.8 million of interest and penalties
in the years ended December 31, 2019 and 2018, respectively. No interest and penalties for uncertain tax positions were
recognized in the year ended December 31, 2020.
Note 10 Earnings Per Share
The Company’s common shares outstanding consist of all shares issued and outstanding, including unvested restricted shares.
Basic and diluted EPS are calculated under the two-class method. Restricted stock units are considered dilutive. The following
table sets forth the computation for basic and diluted EPS and reconciliation between basic and diluted shares outstanding:
Net Income
Year Ended December 31,
2020
2019
2018
$ 38,165,138 $ 59,754,319 $ 46,314,388
Less: Net loss (income) attributable to redeemable noncontrolling interest
495,407
(4,795,295)
1,061,441
Net income attributable to common shareholders
$ 38,660,545 $ 54,959,024 $ 47,375,829
Weighted average number of outstanding shares
Dilutive impact of restricted stock units
Weighted average number of outstanding shares - Diluted
Earnings per share attributable to common shareholders
Basic
Diluted
3,214,564
—
3,436,574
67
3,512,470
2,058
3,214,564
3,436,641
3,514,528
$
$
12.03 $
12.03 $
15.99 $
15.99 $
13.49
13.48
Note 11 Commitments and Contingencies
The Company indemnifies its directors, officers and certain employees for certain liabilities that may arise from performance of
their duties to the Company. From time to time, the Company is involved in legal matters relating to claims arising in the
ordinary course of business. There are currently no such matters pending that the Company believes could have a material
adverse effect on its consolidated financial statements.
Additionally, in the normal course of business, the Company enters into agreements that contain a variety of representations and
warranties and that provide general indemnification obligations. Certain agreements do not contain any limits on the
Company’s liability and could involve future claims that may be made against the Company that have not yet occurred.
53
Therefore, it is not possible to estimate the Company’s potential liability under these indemnities. Further, the Company
maintains insurance policies that may provide coverage against certain of these liabilities.
Note 12 Subsequent Events
Asset Purchase Agreement
DHCM entered into an asset purchase agreement dated February 2, 2021 (the “Agreement”) with Brandywine Global
Investment Management, LLC (“Brandywine Global”), a specialist investment manager of Franklin Resources, Inc., pursuant to
which Brandywine Global will acquire the businesses of Diamond Hill’s two high yield-focused mutual funds - the Corporate
Credit Fund and the High Yield Fund (the “Acquired Funds”).
In connection with the transaction, two of the Company’s portfolio managers and a research analyst will join Brandywine
Global’s fixed income team.
Pursuant to the Agreement, DHCM will receive an initial cash payment at closing of up to $9.0 million based upon the closing
date net revenue of the Acquired Funds, and may receive two additional payments of up to $13.0 million in the aggregate based
on the net revenue of the Acquired Funds on the one-year anniversary of the closing date. There can be no assurance that all or
any of these additional payment amounts will be received by DHCM.
The Agreement contains customary representations, warranties and covenants and is subject to customary closing conditions,
including a minimum net revenue requirement as of the closing date and approval by the shareholders of the Acquired Funds.
The sale is expected to close in the second quarter of 2021, subject to approval of each of the Acquired Fund’s shareholders.
Dividends
On February 25, 2021, the Company’s board of directors approved a quarterly cash dividend of $1.00 per share, payable
on March 19, 2021, to shareholders of record as of March 11, 2021.
ITEM 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosures
None.
ITEM 9A. Controls and Procedures
Management, including the Chief Executive Officer and the Chief Financial Officer, has conducted an evaluation of the
effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) of the Exchange
Act) as of the end of the period covered by this Annual Report on Form 10-K (the “Evaluation Date”). Based on such
evaluation, the Chief Executive Officer and the Chief Financial Officer have concluded that, as of the Evaluation Date, the
Company’s disclosure controls and procedures are effective to ensure that the information required to be disclosed by the
Company in the reports that it files or submits under the Exchange Act, is recorded, processed, summarized and reported within
the time periods specified in the SEC’s rules and forms, and to ensure that the information required to be disclosed by the
Company in the reports it files or submits under the Exchange Act is accumulated and communicated to the Company’s
management, including the Chief Executive Officer and Chief Financial Officer, or persons performing similar functions, as
appropriate to allow timely decisions regarding required disclosure.
There have been no changes in the Company’s internal control over financial reporting during the year ended December 31,
2020 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial
reporting.
Management’s Annual Report on Internal Control Over Financial Reporting
The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting,
as defined in Rule 13a-15(f) and 15d-15(f) of the Exchange Act. The Company’s internal control over financial reporting is a
process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of its
consolidated financial statements for external purposes in accordance with accounting principles generally accepted in the
United States of America.
54
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Under the supervision and with the participation of the Chief Executive Officer and the Chief Financial Officer, management
assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2020 based on criteria
established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). Based on this assessment, management concluded that the Company’s internal control over
financial reporting was effective as of December 31, 2020.
The Company’s independent registered public accounting firm, KPMG LLP, has audited the Company’s 2020 and 2019
consolidated financial statements included in this Annual Report on Form 10-K and the Company’s internal control over
financial reporting as of December 31, 2020, and has issued its Report of Independent Registered Public Accounting Firm on
Consolidated Financial Statements, which is included in this Annual Report on Form 10-K.
ITEM 9B. Other Information
None.
55
PART III
ITEM 10.
Directors, Executive Officers and Corporate Governance
Information required by this Item 10 is incorporated herein by reference from the Company’s definitive proxy statement for its
2021 annual meeting of shareholders, which will be filed with the SEC no later than 120 days after December 31, 2020,
pursuant to Regulation 14A of the Exchange Act (the “2021 Proxy Statement”), under the captions: “Delinquent Section 16(a)
Reports”, “Proposal 1 - Election of Directors”, “Proposal 1 - Election of Directors - The Board of Directors and Committees”,
“Proposal 1 - Election of Directors - Corporate Governance”, and “Proposal 1 - Election of Directors - Executive Officers and
Compensation Information”.
ITEM 11.
Executive Compensation
Information required by this Item 11 is incorporated herein by reference from the 2021 Proxy Statement under the captions:
“Proposal 1 – Election of Directors—The Board of Directors and Committees”, “Proposal 1 – Election of Directors – Corporate
Governance”, “Proposal 1 – Election of Directors – Executive Officers and Compensation Information”, and “Proposal 1 –
Election of Directors – Executive Officers and Compensation Information - Compensation Committee Report”.
ITEM 12.
Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters
The following table sets forth certain information concerning our equity compensation plans at December 31, 2020:
Equity Compensation Plan Information
(a)
(b)
(c)
Plan category
Equity compensation plans approved by security holders
Number of securities to
be issued upon the
exercise of outstanding
options, warrants and
rights
Weighted-average
exercise price of
outstanding options,
warrants and rights
Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding
securities reflected in
column (a)
— $
—
222,657 1
1
This amount relates to common shares that may be issued under our 2014 Equity and Cash Incentive Plan.
The other information required by this Item 12 is incorporated herein by reference from the 2021 Proxy Statement under the
captions: “Security Ownership of Certain Beneficial Owners and Management” and “Proposal 1 – Election of Directors –
Executive Officers and Compensation Information.”
ITEM 13.
Certain Relationships and Related Transactions, and Director Independence
Information required by this Item 13 is incorporated herein by reference from the 2021 Proxy Statement under the caption:
“Proposal 1 – Election of Directors – Director Independence” and “Proposal 1 – Election of Directors – Corporate
Governance”.
ITEM 14.
Principal Accounting Fees and Services
Information required by this Item 14 is incorporated herein by reference from the 2021 Proxy Statement under the caption:
“Proposal 2 – Ratification of the Appointment of Independent Registered Public Accounting Firm”.
56
ITEM 15.
Exhibits, Financial Statement Schedules
PART IV
(a) (1) Financial Statements: See “Part II. Item 8, Financial Statements and Supplementary Data”.
(2) Financial Statement Schedules: All financial statement schedules for which provision is made in the applicable
accounting regulations of the SEC are omitted because they are not required or the required information is included
in the accompanying financial statements or notes thereto.
(3) Exhibits:
3.1
3.2
3.3
4.1
10.1
10.2
10.3*
10.4*
10.5*
10.6*
10.7*
10.8*
10.9*
10.10*
10.11*
10.12*
Amended and Restated Articles of Incorporation of the Company. (Incorporated by reference from Exhibit 3(i)
to the Current Report on Form 8-K filed with the SEC on May 7, 2002; File No. 000-24498.)
Certificate of Amendment by Shareholders to the Articles of Incorporation of the Company (Incorporated by
reference from Form 8-K Current Report for the event on April 28, 2017; File No. 000-24498.)
Amended and Restated Code of Regulations of the Company (Incorporated by reference from Form 8-K
Current Report, Exhibit 3.2, filed with the SEC on April 28, 2017; File No. 000-24498.)
Description of the company’s Capital Stock (Incorporated by reference from Exhibit 4.1 to the Annual Report
on Form 10-K filed on February 27, 2020; file No. 000-24498)
Amended and Restated Investment Management Agreement between Diamond Hill Capital Management, Inc.
and the Diamond Hill Funds dated November 17, 2011, as amended November 21, 2013. (Incorporated by
reference from Exhibit 28(d)(xi) to Form N-1A filed by Diamond Hill Funds as a 485BPOS on October 10,
2017; File Nos. 333-22075 and 811-08061)
Amended and Restated Administrative and Transfer Agency Services Agreement dated as of May 31, 2002, as
amended January 1, 2016, between Diamond Hill Capital Management, Inc. and the Diamond Hill Funds.
(Incorporated by reference from Exhibit 28(h)(vii) to Form N-1A filed by Diamond Hill Funds as a 485BPOS
on October 10, 2017; File Nos. 333-22075 and 811-08061)
2014 Equity and Cash Incentive Plan. (Incorporated by reference from Exhibit 10.1 to the Registration
Statement on Form S-8 filed with the SEC on June 27, 2014; File No 333-197064.)
2014 Equity and Cash Incentive Plan As of Agreement. (Incorporated by reference from Exhibit 10.4 to the
Annual Report on Form 10-K filed with the SEC on February 21, 2019; File No. 000-24498.)
Diamond Hill Investment Group, Inc. Compensation Recoupment and Restitution Policy. (Incorporated by
reference from Exhibit 10.1 to the Quarterly Report on Form 10-Q filed with the SEC on April 27, 2020; File
No. 000-24498.)
Diamond Hill Investment Group, Inc. Compensation Recoupment and Restitution Policy Acknowledgment and
Agreement. (Incorporated by reference from Exhibit 99.1 to the Current Report on Form 8-K filed with the
SEC on February 20, 2013; File No. 000-24498.)
Diamond Hill Fixed Term Deferred Compensation Plan. (Incorporated by reference from Exhibit 10.1 to the
Current Report on Form 8-K filed with the SEC on April 30, 2013; File No. 000-24498.)
Diamond Hill Variable Term Deferred Compensation Plan. (Incorporated by reference from Exhibit 10.2 to the
Current Report on Form 8-K filed with the SEC on April 30, 2013; File No. 000-24498.)
First Amendment to the Diamond Hill Fixed Term Deferred Compensation Plan. (Incorporated by reference
from Exhibit 10.1 to the Current Report on Form 8-K filed with the SEC on May 28, 2013; File No.
000-24498.)
First Amendment to the Diamond Hill Variable Term Deferred Compensation Plan. (Incorporated by reference
from Exhibit 10.2 to the Current Report on Form 8-K filed with the SEC on May 28, 2013; File No.
000-24498.)
Employment Agreement between Heather E. Brilliant and Diamond Hill Capital Management, Inc., dated July
5, 2019 (Incorporated by reference from Exhibit 10.1 to the Current Report on Form 8-K, filed with the SEC
on July 10, 2019; File No. 000-24498).
Diamond Hill Investment Group, Inc. Employee Stock Purchase Plan (Incorporated by reference from Exhibit
10.3 to the Quarterly Report on Form 10-Q filed with the SEC on October 27, 2020; File No. 000-24498.)
57
14.1
21.1
23.1
31.1
31.2
32.1
Amended Code of Business Conduct and Ethics. (Incorporated by reference from Exhibit 14.1 to the Annual
Report on Form 10-K filed with the SEC on February 27, 2020; File No. 000-24498.)
Subsidiaries of the Company. (Filed herewith)
Consent of Independent Registered Public Accounting Firm, KPMG LLP. (Filed herewith)
Certification of Chief Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a). (Filed herewith)
Certification of Chief Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a). (Filed herewith)
Section 1350 Certifications. (Furnished herewith)
101.ins
XBRL Instance Document.
101.sch
XBRL Taxonomy Extension Schema Document.
101.cal
XBRL Taxonomy Extension Calculation Linkbase Document.
101.def
XBRL Taxonomy Extension Definition Linkbase Document.
101.lab
XBRL Taxonomy Extension Label Linkbase Document.
101.pre
XBRL Taxonomy Extension Presentation Linkbase Document.
* Denotes management contract or compensatory plan or arrangement.
(b) Exhibits: Reference is made to Item 15(a)(3) above.
(c) Financial Statement Schedules: None required.
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, as amended, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized:
DIAMOND HILL INVESTMENT GROUP, INC.
By:
/s/ Heather E. Brilliant
Heather E. Brilliant, Chief Executive Officer
February 25, 2021
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
/s/ Heather E. Brilliant
Heather E. Brilliant
/s/ Thomas E. Line
Thomas E. Line
/s/ Jeffrey J. Cook
Jeffrey J. Cook
Richard S. Cooley*
Richard S. Cooley
Randolph J. Fortener*
Randolph J. Fortener
James F. Laird*
James F. Laird
Paula R. Meyer*
Paula R. Meyer
Bradley C. Shoup*
Bradley C. Shoup
Nicole R. St. Pierre*
Nicole R. St. Pierre
Title
Date
Chief Executive Officer and
February 25, 2021
President
Chief Financial Officer and
February 25, 2021
Treasurer
Controller
Director
Director
Director
Director
Director
Director
February 25, 2021
February 25, 2021
February 25, 2021
February 25, 2021
February 25, 2021
February 25, 2021
February 25, 2021
* By
/s/ Thomas E. Line
Thomas E. Line
Executed by Thomas E. Line
on behalf of those indicated pursuant to Powers of Attorney
59
INVESTOR
INFORMATION
INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS
KPMG LLP
Columbus, OH
FORM 10-K AND OTHER FINANCIAL REPORTS
The Company’s Annual Report on Form 10-K, as
filed with the U.S. Securities and Exchange Commission,
which includes the complete financial statements of the
company, has been included with the proxy materials mailed
to each shareholder.
Additional copies are available without charge by contacting
the Company at:
325 John H. McConnell Blvd., Suite 200
Columbus, OH 43215
614.255.333
info@diamond-hill.com
LEGAL COUNSEL
Vorys, Sater, Seymour and Pease LLP
Columbus, OH
CORPORATE HEADQUARTERS
Diamond Hill Investment Group, Inc.
325 John H. McConnell Blvd., Suite 200
Columbus, OH 43215
614.255.3333
info@diamond-hill.com
www.diamond-hill.com
STOCK LISTING
Diamond Hill Investment Group, Inc. is listed
on the NASDAQ Global Select Market
Ticker Symbol: DHIL
SHAREHOLDER INFORMATION
The Transfer Agent for Diamond Hill is
Equiniti Trust Company. Shareholders who
wish to transfer their stock or change the name
in which the shares are registered should
contact:
Equiniti Trust Company
PO Box 64874
St. Paul, MN 55164-0874
800.401.1957
www.diamond-hill.com