UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
☒
Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the Fiscal Year Ended December 31, 2021
or
☐
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from to
Commission file number 001-33761
PZENA INVESTMENT MANAGEMENT, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware
20-8999751
(State or Other Jurisdiction of Incorporation or Organization)
(I.R.S. Employer Identification No.)
320 Park Avenue
New York, New York 10022
(Address of Principal Executive Offices)
Registrant’s telephone number, including area code: (212) 355-1600
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Trading Symbol(s)
Name of Each Exchange on Which Registered
Class A Common Stock, par value $.01 per share
PZN
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T 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
☐
Accelerated filer
☒
Non-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 common equity held by non-affiliates of the registrant as of June 30, 2021, the last business day of its most recently completed second fiscal quarter, was
approximately $191.7 million based on the closing sale price of $11.01 per share of Class A common stock of the registrant on such date on the New York Stock Exchange. For purposes of this
calculation only, it is assumed that the affiliates of the registrant include only directors and executive officers of the registrant.
As of March 7, 2022, there were 17,238,355 outstanding shares of the registrant’s Class A common stock, par value $0.01 per share.
As of March 7, 2022, there were 56,603,740 outstanding shares of the registrant’s Class B common stock, par value $0.000001 per share.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant’s definitive proxy statement relating to its 2022 annual meeting of shareholders (the “2022 Proxy Statement”) are incorporated by reference into Part III of this
Annual Report on Form 10-K where indicated. The 2022 Proxy Statement will be filed with the U.S. Securities and Exchange Commission within 120 days after the end of the fiscal year to
which this report relates.
Auditor Firm Id:
238
Auditor Name:
PricewaterhouseCoopers LLP
Auditor Location:
New York, New York, USA
i
TABLE OF CONTENTS
Page
Cautionary Statement Regarding Forward-Looking Statements..........................................................
ii
PART I.................................................................................................................................................
1
Item 1.
Business................................................................................................................................................
1
Item 1A. Risk Factors..........................................................................................................................................
13
Item 1B. Unresolved Staff Comments.................................................................................................................
26
Item 2.
Properties..............................................................................................................................................
26
Item 3.
Legal Proceedings ................................................................................................................................
26
Item 4.
Mine Safety Disclosure ........................................................................................................................
26
PART II ...............................................................................................................................................
27
Item 5.
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities...................................................................................................................................
27
Item 6.
Selected Financial Data ........................................................................................................................
28
Item 7.
Management's Discussion and Analysis of Financial Condition and Results of Operations...............
30
Item 7A. Quantitative and Qualitative Disclosures About Market Risk .............................................................
44
Item 8.
Financial Statements and Supplementary Data ....................................................................................
45
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ..............
45
Item 9A. Controls and Procedures.......................................................................................................................
46
Item 9B. Other Information.................................................................................................................................
46
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections .................................................
46
PART III..............................................................................................................................................
47
Item 10.
Directors, Executive Officers and Corporate Governance...................................................................
47
Item 11.
Executive Compensation......................................................................................................................
47
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters..................................................................................................................................................
47
Item 13.
Certain Relationships and Related Transactions, and Director Independence.....................................
47
Item 14.
Principal Accountant Fees and Services...............................................................................................
47
PART IV..............................................................................................................................................
48
Item 15.
Exhibits and Financial Statement Schedules........................................................................................
48
Item 16.
Form of 10-K Summary .......................................................................................................................
51
SIGNATURES......................................................................................................................................................
52
ii
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K, or Annual Report, contains forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 27E of the Securities and
Exchange Act of 1934, as amended (the "Exchange Act"). Forward-looking statements provide our current views,
expectations, or forecasts, of future events and performance and include statements about our expectations, beliefs,
plans, objectives, intentions, assumptions and other statements that are not historical facts. Words or phrases such as
“anticipate,” “believe,” “continue,” “ongoing,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,”
“project” or similar words or phrases, or the negatives of those words or phrases, may identify forward-looking
statements, but the absence of these words does not necessarily mean that a statement is not forward-looking.
Forward-looking statements are subject to known and unknown risks and uncertainties, including but not limited
to those noted below and described in Part I, Item 1A — "Risk Factors" of this Annual Report, and are based on
assumptions and estimates. If one or more of these risks or uncertainties materialize, or if one or more of our
assumptions or estimates prove incorrect, our actual results could differ materially from those expected or implied by
the forward-looking statements. Accordingly, you should not unduly rely on any forward-looking statements. The
forward-looking statements in this Annual Report, speak only as of the date of this Annual Report. There may be
additional risks, uncertainties and factors that we do not currently view as material or that are not known. We undertake
no obligation to publicly revise any forward-looking statements to reflect circumstances or events after the date of this
Annual Report, or to reflect the occurrence of unanticipated events. You should, however, review the factors and risks
we describe in the reports we will file from time to time with the Securities and Exchange Commission, (the “SEC”),
after the date of this Annual Report.
Forward-looking statements include, but are not limited to, statements about:
our ability to respond to global economic, market, business and geopolitical conditions, including changes in
such conditions resulting from the ongoing COVID-19 pandemic and government responses thereto;
our anticipated future results of operations and operating cash flows;
our successful formulation and execution of business strategies and investment policies;
our financing plans and the availability of short- or long-term borrowing, or equity financing;
our competitive position and the effects of competition on our business;
our ability to identify and capture potential growth opportunities available to us;
the effective recruitment and retention of our executives and employees;
our expected levels of compensation for our employees;
expectations relating to dividend payments and our ability to make such payments;
our potential operating performance, achievements, efficiency and cost reduction efforts;
our expected tax rate;
changes in interest rates;
our expectations with respect to the economy, capital markets, the market for asset management services and
other industry trends;
the potential impact of disruptions as a result of natural disasters, pandemics, or other international health
emergencies, including the ongoing COVID-19 pandemic as well as the conditions in the sectors in which
we invest; and
iii
the impact of future legislation and regulation, and changes in existing legislation and regulation, on our
business.
Preliminary Notes
In this Annual Report, “we,” “our,” “us,” and “the Company” refer to Pzena Investment Management, Inc. and
its consolidated subsidiaries.
All rights in the Russell 1000® Value Index, Russell Mid Cap® Value Index, Russell 2000® Value Index vest in
the relevant London Stock Exchange Group plc (“LSE Group”) company which owns the relevant Index. “Russell®”
is a trade mark of the relevant LSE Group company and is used by any other LSE Group company under license.
Information with respect to MSCI, Inc. (“MSCI”) requires a license from MSCI. The MSCI information provided
in this Annual Report may only be used for your internal use, may not be reproduced or re-disseminated in any form
and may not be used as a basis for or a component of any financial instruments or products or indices. None of the
MSCI information is intended to constitute investment advice or a recommendation to make (or refrain from making)
any kind of investment decision and may not be relied on as such. Historical data and analysis should not be taken as
an indication or guarantee of any future performance analysis, forecast or prediction. The MSCI information is
provided on an “as is” basis and the user of this information assumes the entire risk of any use made of this information.
MSCI, each of its affiliates and each other person involved in or related to compiling, computing or creating any MSCI
information (collectively, the “MSCI Parties”) expressly disclaims all warranties (including, without limitation, any
warranties of originality, accuracy, completeness, timeliness, non-infringement, merchantability and fitness for a
particular purpose) with respect to this information. Without limiting any of the foregoing, in no event shall any MSCI
Party have any liability for any direct, indirect, special, incidental, punitive, consequential (including, without
limitation, lost profits) or any other damages. (www.msci.com)
The S&P 500 Index is licensed from Standard & Poor's Financial Services LLC, which is the source of the
performance statistics of this index.
1
PART I
ITEM 1. BUSINESS
Overview
Pzena Investment Management, Inc. was formed in 2007 and is the sole managing member of Pzena Investment
Management, LLC, which is our operating company. Founded in 1995, Pzena Investment Management, LLC is a
value-oriented investment management company. We believe that we have established a positive, team-oriented
culture that enables us to attract and retain highly qualified people. Since our inception, we have built a diverse, global
client base of respected and sophisticated institutional investors, select third-party distributed mutual funds for which
we act as sub-investment adviser, and funds for which we act as investment adviser.
Equity interests in Pzena Investment Management, LLC are comprised of Class A, Class B, and Class B-1
membership units. Class A and Class B membership units each have an identical economic interest in the operating
company. Class B-1 membership units, first issued on December 31, 2019, are entitled to receive distributions for the
duration of the holder’s employment with the operating company, and will participate in additional value to the extent
there has been appreciation subsequent to the issuance of the Class B-1 membership unit. As a holding company, we
hold all of the Class A membership units and recognize income generated from our economic interest in our operating
company's net income. The Class B membership units of the operating company are held by employees and certain
outside members. The Class B-1 membership units of the operating company are held by employees. For each Class
A membership unit held, we have issued one corresponding share of Class A common stock, par value $0.01 per share,
which entitles the holder to one vote per share. For each Class B membership unit, we have issued one corresponding
share of Class B common stock, par value $0.000001 per share, which entitles the holder to five votes per share
without dividend rights, as described below in the graphic illustration. Class B-1 membership units have not been
issued corresponding shares and do not have voting rights. The percentages presented below are subject to continued
changes including, but not limited to, the price of Class A common stock, issuances of awards, exercise of options
and exchanges of Class B-1 membership units for Class A common stock. Based on the closing price of the Company’s
Class A common stock as of December 31, 2021, we owned approximately 23.5% of the economic interest in the
December 31, 2021 value of our operating company and our Class A shareholders held approximately 5.9% of our
outstanding voting interests. As of December 31, 2021, we owned 21.6% of the right to the future income and
distributions of the operating company.
Pzena Investment Management, Inc. also serves as the general partner of Pzena Investment Management, LP, a
partnership formed with the objective of aggregating employee ownership in one entity. Certain of the owners of
shares of Class B common stock, Class B membership units, and Class B-1 membership units have contributed such
interests to Pzena Investment Management, LP in exchange for membership interests therein. Pzena Investment
Management, LP may only vote such shares of Class B common stock and Class B membership units in accordance
with its limited partnership agreement, which provides for a preliminary vote of the limited partners thereof to direct
such voting. Class B-1 membership units of Pzena Investment Management, LP do not have voting rights.
2
The graphic below illustrates our holding company structure and ownership as of December 31, 2021. We present
ownership in terms of (i) economic interest which represents the value in Pzena Investment Management, LLC based
on the closing price of Class A common stock as of December 31, 2021 and (ii) rights to future income and
distributions.
(1)
As of December 31, 2021, the Class B and Class B-1 members of Pzena Investment Management, LLC, (collectively, the “Principals”)
consisted of:
Richard S. Pzena, John P. Goetz, and William L. Lipsey, our founders, and their estate planning vehicles, who collectively held, through
direct and indirect interests, approximately 48.5% of the economic interests in the December 31, 2021 value of Pzena Investment
Management, LLC and 44.8% of the future income and distributions.
50 of our other employee members and their estate planning vehicles, who collectively held, through direct and indirect interests,
approximately 8.9% of the economic interests in the December 31, 2021 value of Pzena Investment Management, LLC and 15.9% of
the future income and distributions.
Certain other members of our operating company, including one of our directors and his related entities, and former employees, who
collectively held, through direct and indirect interests, approximately 19.1% of the economic interests in the value of Pzena Investment
Management, LLC and 17.7% of the future income and distributions.
(2)
Each share of Class A common stock is entitled to one vote per share.
(3)
Each share of Class B common stock is entitled to five votes per share for so long as the number of shares of Class B common stock outstanding
represents at least 20% of all shares of common stock outstanding. Holders of Class B common stock have the right to receive the par value
of the Class B common stock held by them upon our liquidation, dissolution or winding up, but do not share in dividends.
(4)
As of December 31, 2021, we held 17,324,413 Class A units of Pzena Investment Management, LLC, which represented approximately 23.5%
of the economic interest in the December 31, 2021 value of Pzena Investment Management, LLC and the right to receive 21.6% of the future
income and distributions.
(5)
As of December 31, 2021, the principals collectively held 55,227,855 Class B units of Pzena Investment Management, LLC, which
represented 74.9% of the economic interest in the December 31, 2021 value of the Pzena Investment Management, LLC and the right to
receive 69.3% of the future income and distributions.
3
(6)
As of December 31, 2021, the principals collectively held 7,232,705 Class B-1 units of Pzena Investment Management, LLC, which
represented the right to receive 9.1% of the future income and distributions. Based on the closing market price of the Company’s Class A
common stock at December 31, 2021, the aggregate intrinsic value of these units represented 1.6% of the economic interest in the
December 31, 2021 value of the Pzena Investment Management, LLC.
(7)
Pursuant to the operating agreement of our operating company, each vested Class B unit is exchangeable for a share of the Company's Class
A common stock, subject to certain timing and volume restrictions. When a vested Class B unit is exchanged for a share of Class A common
stock, or is forfeited, a corresponding share of the Company's Class B common stock will automatically be redeemed and cancelled. When a
share of Class A common stock or Class B unit is repurchased and retired, a corresponding membership unit or share of Class B common
stock is redeemed and cancelled, respectively. Conversely, to the extent that we issue shares of Class A common stock, or additional Class
B units pursuant to our equity incentive plans, the corresponding Class A membership units or shares of Class B common stock will be issued,
respectively. Class B-1 units, upon the end of the holder’s employment, are exchanged for shares of Class A common stock in an amount
based upon the appreciation in price of the Class A common stock from the date of grant to the date of exchange.
We utilize a classic value approach to investing and seek to make investments in good businesses at low prices,
which requires:
willingness to invest in companies before their stock prices reflect signs of business improvement, and
significant patience, based upon our understanding of the business’ fundamentals, and our long-term
investment horizon.
Our approach and process aim to achieve attractive returns over the long term. We manage assets in value-
oriented investment strategies reflecting varying degrees of portfolio concentrations across a wide range of market
capitalizations in both U.S. and non-U.S. capital markets.
Our assets under management, (“AUM”), was $52.5 billion at December 31, 2021, and we managed money on
behalf of institutions, acted as sub-investment adviser to a variety of SEC-registered mutual funds and non-U.S. funds
as well as investment adviser to Pzena SEC-registered mutual funds, certain private placement funds, and non-U.S.
funds.
Our operating company is led by a committee, consisting, as of December 31, 2021, of our Chief Executive
Officer (CEO), Mr. Richard S. Pzena; each of our Presidents, Messrs. John P. Goetz and William L. Lipsey; our
Executive Vice President, Ms. Caroline Cai; and our Chief Operating Officer (COO), Mr. Evan Fire (the “Executive
Committee”).
Our Competitive Strengths
We believe that the following are our competitive strengths:
Focus on Investment Excellence. We recognize that we must achieve investment excellence in order to
attain long-term business success. All of our business decisions, including the design of our investment
process and our willingness to limit AUM in our investment strategies, are focused on producing attractive
long-term investment results. We believe that our long-term investment performance, together with our
willingness to close our strategies to new investors in order to optimize the prospects for future performance,
has contributed to our positive reputation among our clients and the institutional consultants who advise
them.
Consistency of Investment Process. Since our inception, we have utilized a classic value investment
approach and a systematic, disciplined investment process to construct portfolios for our investment
strategies in U.S. and non-U.S. markets across all market capitalizations. The consistency of our process has
allowed us to leverage the same investment team to launch new strategies. We believe that our consistent
investment process has resulted in our strong brand recognition in the investment community.
Diverse and High Quality Client Base. We believe that we have developed a favorable reputation in the
institutional investment community. This is evidenced by our strong relationships with institutional
investors, investment consultants, and mutual fund providers, as well as the diversity and sophistication of
our investors. For more information concerning our client base, see “Our Client Relationships and
Distribution Approach” below.
4
Experienced Investment Professionals and a Team-Oriented Approach. We believe that our greatest asset
is the experience of the individuals on our team. For more information on our investment team, see “Our
Investment Team” below.
Employee Retention. We have focused on building an environment that we believe is attractive to talented
investment professionals. Important among our practices are our team-oriented approach to investment
decisions, rotation of coverage areas among individuals, and our culture of employee ownership.
Culture of Ownership. We believe the key contributors to our success should have significant ownership of
our business. Since our inception, we have communicated to all our employees that they have the opportunity
to become members of our operating company. As of December 31, 2021, we had 55 employee members
positioned within all of our functional areas. We believe this ownership model results in a shared sense of
purpose with our clients and their advisers. We intend to continue fostering a culture of ownership through
our equity incentive plans, which are designed to align our team’s interests with those of our stockholders
and clients. We believe this culture of ownership contributes to our team orientation and connection with
clients.
Our Business Strategy
The key to our success is continued long-term investment performance. In conjunction with this, we believe the
following strategies will enable us to grow our business over time:
Unwavering Focus on Classic Value Investing. We view our unwavering focus on long-term classic value
investment excellence to be the key driver of our business success.
Capitalize on Growth Opportunities Created By Our Global Strategies. Among both institutional and retail
investors industry-wide, over the past few years, there have been increasing levels of investments in portfolios
including non-U.S. equities. As of December 31, 2021, the total AUM in our Global Value strategies,
International Value strategies, Emerging Markets Value strategies, European Value strategies, and other
Global & non-U.S. strategies was $34.2 billion, or 65.1% of our overall AUM. Our global capability provides
opportunity for implementation of our strategies around the world.
Work with Our Strong Consultant Relationships. We believe that we have built strong relationships with
the leading investment consulting firms who advise potential institutional clients. Historically, new accounts
sourced through consultant-led searches have been a large driver of our inflows and are expected to be a
major component of our future inflows. We estimate that approximately % of all retirement plan assets are
advised by investment consultants, with a relatively small number of these consultants representing a
significant majority of these relationships. As a result of a consistent servicing effort over our history, we
have built strong relationships with consulting firms that we believe are the most important. New accounts
sourced through consultant-led searches have been a large driver of our historical growth and are expected
to be a major component of our future growth. As of December 31, 2021, our largest consultant relationship
represented approximately 11.6% of our AUM.
Expand Our Non-U.S. Client Base. In recent years, we have increased our efforts to develop our non-U.S.
client base. Through our strong relationships with global consultants, we have been able to accelerate the
development of our relationships with their non-U.S. branches. Over time, we aim to achieve growth of this
client base through these relationships and by directly calling on the world’s largest institutional investors.
We have also sought to expand our non-U.S. base through our relationships with non-U.S. funds and other
investment fund advisers. Effective January 1, 2022, we expanded our physical presence with the launch of
an office in Dublin, in addition to our headquarters in the United States, our business development and client
service office in London, and our representative office in Melbourne. We opened an office in Dublin to
accommodate the market reality in a post-Brexit world. Our presence in Dublin will serve to expand our
access to clients and investors in Europe. To date, our efforts have resulted in client relationships in eighteen
non-U.S. countries, including Australia, the United Kingdom, Luxembourg, Canada, Ireland, Japan, and
South Africa. As of December 31, 2021, we managed $20.5 billion on behalf of non-U.S. clients.
Provide Access To Our Strategies Through a Range of Investment Vehicles and Distribution Channels.
Our clients access our investment strategies through a range of investment vehicles and distribution channels,
including separately managed accounts, mutual funds that we sub-advise, and certain private placement
vehicles and non-U.S. funds. We also offer five SEC-registered Pzena mutual funds for which we act as
5
investment adviser. For more information concerning access to our strategies and our distribution approach,
see “Our Client Relationships and Distribution Approach” below.
Employ Global Team to Serve Clients and Prospects. Our business development and client service
professionals are critical to our business, as noted below under "Business Development and Client Service
Teams," and are generally focused geographically covering both our institutional and intermediary
distribution efforts. In addition to our headquarters in the United States and representative office in
Melbourne, we have four dedicated professionals located in our London office, with the launch of our Dublin
office in January 2022, two of those professionals moved from the London to the Dublin office.
Corporate Environmental and Social Responsibility. As a global investment management organization, we
are committed to adopting and implementing responsible investment principles in a manner that is consistent
with our fiduciary responsibilities to our clients. Throughout the firm’s history, we have recognized the
importance of considering environmental, social and governance (ESG) issues as part of a robust investment
process. Assessing the potential impact of ESG issues on a company is therefore critical to our investment
process. In addition, we believe our communication with the management of companies we invest in and the
voting of proxies for those companies should be managed with the same care as all other elements of the
investment process. Through our engagement with management, and our proxy voting, we seek to exert a
constructive, long-term oriented influence on the trajectory of the company.
Our commitment to incorporating ESG into our investment approach drives us to continually enhance our
approach to ESG. For example, in the beginning of 2018, we became a signatory to the Principles for
Responsible Investment (PRI), which is a leading global responsible investment network of investment
managers, service providers and asset owners. In 2020, we became Sustainability Accounting Standards
Board (SASB) Alliance members, reflecting our focus on the financial materiality of ESG issues. In light of
the increasing financial materiality of climate change, we recently published our approach to addressing
climate risks and opportunities in line with the Taskforce on Climate-Related Financial Disclosures (TCFD).
Our Investment Team
We have built an investment team that is well-suited to implement our classic value investment strategy. The
members of our investment team have a diverse set of backgrounds, including former corporate management, private
equity, management consulting, accounting, and Wall Street professionals. Their diverse business backgrounds are
instrumental in enabling us to make investments in companies where we would be comfortable owning the entire
business for a three- to five-year period. We look beyond temporary earnings shortfalls that result in stock price
declines, which may lead others to forego investment opportunities, if we believe the long-term fundamentals of a
company remain attractive.
As of December 31, 2021, we had a 27-member investment team. Each member serves as a research analyst, and
certain members of the team also have portfolio management responsibilities. There are generally three portfolio
managers for each investment strategy. These managers have joint decision-making responsibility, and each has “veto
authority” over all decisions regarding the relevant portfolio. Research analysts have sector and company-level
research responsibilities which span all of our investment strategies, including those with a non-U.S. focus. In order
to facilitate the professional development of our team, and to keep a fresh perspective on the companies in our
investment portfolios, our research analysts generally rotate industry coverage every three to four years.
We follow a collaborative, consensus-oriented approach to making investment decisions, such that all members
of our investment team, irrespective of their seniority, can play a significant role in this decision-making process. We
hold weekly research review meetings attended by all portfolio managers and relevant research analysts, and that are
open to other employees, at which we openly discuss and debate our findings regarding the normalized earnings power
of potential portfolio companies. In addition, we hold daily morning meetings, attended by our portfolio managers,
research analysts, portfolio implementation, and client service personnel, in order to review developments in our
holdings and set a trading strategy for the day. These meetings are critical for sharing relevant developments and
analysis of the companies in our portfolios. We believe that our collaborative culture is attractive to our investment
professionals.
6
Our Investment Strategies
As of December 31, 2021, our approximately $52.5 billion in AUM was invested in a variety of value-oriented
investment strategies, representing differing degrees of concentration, and capitalization segments of U.S. and non-
U.S. markets. See "Item 7 — Management's Discussion and Analysis of Financial Condition & Results of Operations
— Operating Results — Assets Under Management and Flows" for additional details about our strategies.
The following table identifies our current U.S. and non-U.S. investment strategies, and the allocation of our AUM
among them, as of December 31, 2021 and 2020:
Strategy
As of December 31,
2021
2020
U.S. Value Strategies
(in billions)
Large Cap Value
$
11.8 $
9.2
Mid Cap Value
3.0
2.6
Small Cap Value
2.6
2.2
Value
0.7
0.6
Other U.S. Strategies
0.2
0.2
Global and Non-U.S. Strategies
Global Value
15.9
11.8
International Value
7.7
6.9
Emerging Markets Value
7.1
6.5
European Value
3.0
2.9
Other Global and Non-U.S. Strategies
0.5
0.4
Total
$
52.5 $
43.3
We follow the same investment process for each of these strategies. Our investment strategies are distinguished
by the market capitalization ranges from which we select securities for their portfolios, which we refer to as each
strategy’s investment universe, as well as the regions in which we invest. In addition, the number of holdings typically
found in the portfolios of each of our investment strategies may vary depending on the degree of concentration in the
portfolio, with our Focused Value strategies generally reflecting fewer holdings than our Value strategies.
Our largest investment strategies as of December 31, 2021 are further described below. This strategy detail is
representative of our Value and Focused Value strategies, and variations thereof.
U.S. Strategies
Large Cap Value. These strategies reflect a portfolio composed of approximately 30 to 80 stocks drawn generally
from a universe of 500 of the largest U.S. listed companies, based on market capitalization.
Mid Cap Value. These strategies reflect a portfolio composed of approximately 30 to 80 stocks drawn generally
from a universe of U.S. listed companies ranked from the 201st to 1,200th largest, based on market capitalization.
Small Cap Value. These strategies reflect a portfolio composed of approximately 40 to 50 stocks drawn generally
from a universe of U.S. listed companies ranked from the 1,001st to 3,000th largest, based on market capitalization.
Focused Value. This strategy reflects a portfolio composed of a portfolio of approximately 30 to 40 stocks drawn
generally from a universe of 1,000 of the largest U.S. listed companies, based on market capitalization.
Global and Non-U.S. Strategies
Global Value. These strategies reflect a portfolio composed of approximately 40 to 95 stocks drawn generally
from a universe of 2,000 of the largest companies across the world, based on market capitalization.
International Value. These strategies reflect a portfolio composed of approximately 30 to 80 stocks drawn
generally from a universe of 1,500 of the largest companies across the world, excluding the United States, based on
market capitalization.
7
Emerging Markets Value. These strategies reflect a portfolio composed of approximately 30 to 80 stocks drawn
generally from a universe of 1,500 of the largest emerging market companies, based on market capitalization.
European Value. These strategies reflect a portfolio composed of approximately 40 to 50 stocks drawn generally
from a universe of 750 of the largest European companies, based on market capitalization.
We believe that our ability to retain and grow assets has been, and will continue to be, driven primarily by
delivering attractive long-term investment results to our clients. We have therefore prioritized, and will continue to
prioritize, investment performance over asset accumulation. Where we have deemed it necessary, we have, at times,
closed certain products to new investors in order to preserve capacity to effectively implement our concentrated
investment strategies for the benefit of existing clients. Currently, all of our investment strategies are open to new
investors.
Our Strategy Development Approach
Historically, a component of our growth has been the development of new strategies. Prior to incubating a new
strategy, we perform in-depth research on the potential market for the product, as well as its overall compatibility with
our investment expertise. This process involves analysis by our client team, as well as by our investment professionals.
We will only launch a new product if we believe that it can add value to a client’s investment portfolio. Prior to
marketing a new strategy, we generally incubate the product for a period of one to five years, so that we can test and
refine our investment strategy and process before actively marketing the product to our clients.
Our Investment Performance
Since we are long-term fundamental investors, we believe that our investment strategies yield the most benefits
and are best evaluated, over a long-term timeframe. For more information on our performance, see “Item 7 —
Management’s Discussion and Analysis of Financial Condition and Results of Operations — Operating Results —
Assets Under Management and Flows.”
Our Client Relationships and Distribution Approach
We believe that strong relationships with our clients are critical to our ability to succeed and to grow our AUM.
In building these relationships, we have focused our efforts where we can efficiently access and service large pools of
sophisticated clients with our team of dedicated business development and client service professionals.
We distribute our products primarily through the efforts of our business development and client service team,
who communicate directly with our clients and with the consultants who serve them, as well as through the marketing
programs of our sub-investment advisory partners and intermediary distribution partners. Since our objective is to
attract long-term investors with an investment horizon in excess of three years, our business development and client
service efforts focus on educating our investors and intermediary distribution partners regarding our disciplined classic
value investment process and philosophy.
Our business development and client service team is responsible for:
identifying, developing relationships with, and marketing to prospective clients;
providing ongoing service to existing accounts;
responding to requests for investment management proposals;
developing and maintaining relationships with independent consultants;
developing and maintaining relationships with intermediary partners to grow retail distribution capabilities;
addressing all ongoing client needs, including periodic updates and reporting requirements; and
developing direct relationships with clients sourced through consultant-led searches.
8
Our business development and client service team is actively engaged with our research team to ensure our clients
receive content-based information. We introduce members of our research and portfolio management team into client
portfolio reviews to ensure that our clients are exposed to the full breadth of our investment resources. We also
provide quarterly reports to our clients in order to share our investment perspectives. We additionally meet and hold
conference calls regularly with clients to share perspectives on the portfolio and the current investment environment.
Distribution Channels
We manage assets in three principal distribution channels. A summary of selected financial data attributable to
our operations for each distribution channel is included in “Item 7 — Management’s Discussion and Analysis of
Financial Condition and Results of Operations.” The following table provides information regarding the composition
of our total assets under management by distribution channel:
As of December 31,
Assets Under Management
2021
2020
(in billions)
Separately Managed Accounts
$
19.4 $
17.3
Sub-Advised Accounts
30.5
23.3
Pzena Funds
2.6
2.7
Total
$
52.5 $
43.3
Separately Managed Accounts
Since our inception, we have directly offered institutional investment products to public and corporate pension
funds, endowments, foundations, high net worth individuals and their investment vehicles. We continue to develop
direct relationships with the largest institutional investors and consultants around the world.
Sub-Advised Accounts
We have established relationships with mutual fund and fund providers globally, that offer us opportunities to
efficiently access market segments through sub-investment advisory roles. The funds that we sub-advise are either
multi-manager funds, in which we manage only a portion of the fund's portfolio, or funds for which we are the sole
sub-adviser.
Pzena Funds
U.S. investors that do not meet our minimum account size for a separate account, or who otherwise prefer to
invest through a mutual fund, can invest in certain of our strategies through our Pzena mutual funds. We act as the
investment adviser to five mutual funds that offer no-load, open-end share classes designed to meet the needs of a
range of investor types.
In addition, we offer investors outside of the U.S. the ability to invest in our strategies through Pzena Value Funds
plc and its respective sub-funds, a family of Irish-based undertakings for collective investment in transferable
securities (UCITS) funds for which we serve as investment manager and promoter. Pzena Value Funds plc began
operations in 2005 and offers shares to non-U.S. investors. We currently offer a sub-fund corresponding to our
Emerging Markets Focused Value, Global Value, Global Focused Value, Large Cap Value, and Emerging Markets
Select Value strategies.
In the U.S., we offer access to many of our U.S., global and non-U.S. strategies through private placement vehicles
and collective investment trusts.
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Advisory Fees
We earn advisory fees on our separately managed and sub-advised accounts, as well as our Pzena funds.
On our separately managed accounts, we are paid fees according to a schedule which varies by investment
strategy. The substantial majority of these accounts pay us management fees pursuant to a schedule in which the rate
we earn on the AUM declines as the amount of AUM increases.
With respect to our sub-advised accounts, as of December 31, 2021, we sub-advised fifteen SEC-registered
mutual funds that each have an initial two-year term and are thereafter subject to annual renewal by each fund’s board
of directors pursuant to the Investment Company Act of 1940, as amended (the “Investment Company Act”). Fourteen
of these fifteen sub-investment advisory agreements are beyond their initial two-year terms as of December 31, 2021.
In addition, we sub-advise twenty-one non-U.S. funds. Under these agreements, we are generally paid a management
fee according to a schedule, pursuant to which the rate we earn on the AUM declines as the amount of AUM increases.
Certain of these funds pay us fixed-rate management fees. Due to the substantially larger account size of certain of
these accounts, the average advisory fees we earn on them, as a percentage of AUM, are lower than the advisory fees
we earn on our separately managed accounts.
Advisory fees we earn on separately managed accounts and Pzena funds are generally based on the value of AUM
at a specific date on a quarterly basis. Certain of our separately managed accounts, sub-advised accounts, and Pzena
funds are calculated based on the average of the monthly or daily market value of the account. Advisory fees are also
generally adjusted for any cash flows into or out of a portfolio, where the cash flow represents greater than 10% of
the value of the portfolio. While a specific group of accounts may use the same fee rate, the calculation methodology
may differ, as described above.
Certain of our clients pay us performance fees according to the performance of their accounts relative to certain
agreed-upon benchmarks, which results in a lower base fee, but allows for us to earn higher fees if the relevant
investment strategy outperforms the agreed-upon benchmark. Some performance-based fee arrangements include
high-water mark provisions, which generally provide that if a client account underperforms relative to its performance
target, it must gain back such underperformance before we can collect future performance-based fees. Fulcrum fee
arrangements related to one client relationship require a reduction in the base fee or allow for an increase in the base
fee if the relevant investment strategy underperforms or outperforms, respectively, the agreed-upon benchmark.
Competition
We compete in all aspects of our business with a large number of investment management firms, commercial
banks, broker-dealers, insurance companies, and other financial institutions.
In order to grow our business, we must be able to compete effectively to maintain existing AUM and attract
additional AUM. Historically, we have competed for AUM principally on the basis of:
the performance of our investment strategies;
our clients’ perceptions of our drive, focus, and alignment of our interests with theirs;
the quality of the service we provide to our clients and the duration of our relationships with them;
our brand recognition and reputation within the investing community;
the range of strategies and investment vehicles we offer; and
the level of advisory fees we charge for our investment management services.
Our ability to continue to compete effectively will also depend upon our ability to attract highly qualified
investment professionals and retain our existing employees.
10
Human Capital
At Pzena, we believe that one of our greatest assets is the experience of the individuals on our team. We have
focused on building an environment that we believe is attractive to talented investment professionals. We build strong
teams with diverse cultural, professional, and academic backgrounds. Important among our practices are our team-
oriented approach to investment decisions, opportunities for mentorship, and other programs to help employees grow.
Furthermore, every employee at Pzena is eligible for ownership. We believe this ownership model results in a shared
sense of purpose with our clients and their advisers. We intend to continue fostering a culture of ownership through
our equity incentive plans, which are designed to align our team’s interests with those of our stockholders and clients.
We believe this culture of ownership contributes to our team orientation and connection with clients.
At December 31, 2021, we had 140 full-time employees, up from 121 at the end of 2020. This includes 27
investment professionals, compared to 25 in 2020 and 20 business development and client service professionals,
compared to 17 in 2020.
As of December 31, 2021, we had 55 employees who we recognize as partner members of our operating company
and who are financially exposed to the performance of our operating company. Through their ownership interests in
our operating company, our employees directly and indirectly owned approximately 57.4% of the economic interests
in the December 31, 2021 value of Pzena Investment Management, LLC and 60.7% of the future income and
distributions of Pzena Investment Management, LLC. Of this amount, our founders, Messrs. Pzena, Goetz and Lipsey
owned approximately 48.5% of the economic interests and 44.8% of the future income and distributions of our
operating company.
Cybersecurity
We maintain our information technology infrastructure with a focus on business efficiency, continuity, security
and controls. The information technology environment is designed to oversee and maintain all aspects of information
security risk to ensure the confidentiality, integrity, and availability of information assets. We regularly perform
evaluations of our security program and continue to invest in our capabilities to keep clients, employees, and critical
assets safe. The Chief Information Officer is ultimately responsible for our cybersecurity program which includes the
implementation of controls aligned with industry guidelines and applicable statutes and regulations to identify threats,
detect attacks and protect these information assets. We have implemented security monitoring capabilities designed
to alert us to suspicious activity and developed an incident response program that includes periodic testing and is
designed to restore business operations as quickly and as orderly as possible in the event of a breach. In addition,
employees participate in ongoing mandatory trainings and receive communications regarding the cybersecurity
environment to increase awareness throughout the firm.
Regulatory Environment and Compliance
Our business is subject to extensive regulation in the United States at both the federal and state level, as well as
by self-regulatory organizations. Under 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 in the event that it fails to comply with such laws and regulations. Possible sanctions that may be imposed
include the suspension of individual employees, limitations on engaging in certain lines of business for specified
periods of time, revocation of investment adviser and other registrations, censures and fines. Our business is also
subject to foreign regulation, as discussed below.
11
SEC Regulation
Our operating company, Pzena Investment Management, LLC, is registered as an investment adviser with the
SEC. As a registered investment adviser, it is subject to the requirements of the Investment Advisers Act of 1940, as
amended, (the “Investment Advisers Act”), and the SEC’s regulations thereunder, as well as to examination by the
SEC’s staff. The Investment Advisers Act imposes substantive regulation on virtually all aspects of Pzena Investment
Management, LLC's business and its relationships with its clients. As an investment adviser, Pzena Investment
Management, LLC owes fiduciary duties to its clients, which relate to conflicts of interest, client recommendations
and other fundamental matters. Applicable requirements relate to, among other things, engaging in transactions with
clients, maintaining an effective compliance program, performance fees, solicitation arrangements, advertising,
recordkeeping, reporting, and disclosure requirements.
Certain U.S. funds for which Pzena Investment Management, LLC acts as the sub-investment adviser and five of
the U.S. funds for which Pzena Investment Management, LLC acts as investment adviser, are registered with the SEC
under the Investment Company Act. The Investment Company Act imposes additional obligations, including detailed
operational requirements for both the funds and their advisers. Moreover, the Investment Company Act requires that
an investment adviser’s contract with a registered fund may be terminated by the fund on not more than 60 days’
notice, and is subject to annual renewal by the fund’s board after an initial two-year term.
Both the Investment Advisers Act and the Investment Company Act regulate the “assignment” of advisory
contracts by the investment adviser. The SEC is authorized to institute proceedings and impose sanctions for
violations of the Investment Advisers Act and the Investment Company Act, ranging from fines and censures to
termination of an investment adviser’s registration.
Pzena Financial Services, LLC, our SEC registered broker-dealer subsidiary, is subject to the SEC's Uniform Net
Capital Rule, which requires that at least a minimum part of a registered broker-dealer's assets be kept in relatively
liquid form. At December 31, 2021, Pzena Financial Services, LLC had net capital of $420,396, which was $408,311
in excess of its net capital requirement of $12,085.
ERISA-Related Regulation
With respect to our benefit plan clients, Pzena Investment Management, LLC is a “fiduciary” under the
Employment Retirement Act of 1974, (“ERISA”), and is therefore subject to ERISA, and to regulations promulgated
thereunder. ERISA and applicable provisions of the Internal Revenue Code impose certain duties on persons who are
fiduciaries under ERISA, prohibit certain transactions involving ERISA plan clients, and provide monetary penalties
for violations of these prohibitions.
Foreign Regulation
Pzena Investment Management, LLC maintains a representative office in Melbourne, Australia, and maintains an
exemption from the Australian Financial Services license requirement under the Corporations Act 2001 of the
Commonwealth of Australia.
Pzena Investment Management, Ltd, our United Kingdom subsidiary, is an appointed representative of Mirabella
Advisers LLP which is authorized and regulated by the Financial Conduct Authority ("FCA") in the United Kingdom.
Pzena Investment Management, LLC has a Category I Financial Service Provider License and is regulated in
South Africa by the Financial Sector Conduct Authority.
Pzena Investment Management Europe Limited, our subsidiary in Ireland, is authorized and regulated by the
Central Bank of Ireland as a UCITS management company (pursuant to the European Communities (Undertakings for
Collective Investment in Transferable Securities) Regulations, 2011, as amended) (No. C457984). Pzena Investment
Management Europe Limited is registered in Ireland with the Companies Registration Office (No. 699811), with its
registered office at Riverside One, Sir John Rogerson’s Quay, Dublin, 2, Ireland.
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Pzena Investment Management, LLC currently avails itself of the international adviser exemption in Ontario,
Canada. In addition, Pzena Investment Management, LLC is registered as an exempt market dealer in Ontario,
Canada. As an exempt adviser, Pzena Investment Management, LLC is only permitted to provide advice in Ontario
to certain institutional and high net worth individual clients. As an exempt market dealer, Pzena Investment
Management, LLC is permitted to act as a market intermediary for only certain types of trades, and is permitted to
market, sell and distribute prospectus-exempt securities to accredited investors. An exempt adviser and market dealer
must, upon the request of the Ontario Securities Commission, (“OSC”), produce all books, papers, documents, records
and correspondence relating to its activities in Ontario, and inform the OSC if it becomes the subject of an investigation
or disciplinary action by any financial services or securities regulatory authority or self-regulatory authority. In the
Netherlands, Pzena Investment Management, LLC avails itself of the Section 10 Exemption, which allows U.S.
investment managers to provide investment services to certain eligible Dutch clients. This exemption subjects Pzena
Investment Management, LLC to certain conduct of business requirements under the Dutch regulations.
We operate in various other foreign jurisdictions without registration in reliance upon applicable exemptions
under the laws of those jurisdictions.
Available Information
We make available free of charge through our website, www.pzena.com, our annual reports on Form 10-K, our
quarterly reports on Form 10-Q and our current reports on Form 8-K, as well as amendments to those reports, and
other filings required under the Securities Act or the Exchange Act as soon as reasonably practicable after they are
electronically filed with the SEC. To retrieve these reports, and any amendments thereto, visit the Investor Relations
section of our website. The SEC maintains a website at www.sec.gov. All of the materials we filed with the SEC
may be accessed free of charge on the SEC's website through its EDGAR page.
Our Corporate Governance Guidelines, Code of Business Conduct and Ethics, Code of Ethics for Senior Financial
Officers, and Board of Directors committee charters (including the charters of the Audit Committee, Compensation
Committee, and Nominating and Corporate Governance Committee) are also available free of charge through our
website under "Investor Relations — Corporate Governance."
The information on the Company's website is not part of, or incorporated by reference into, this Annual Report,
or any other report we file with, or furnish to the SEC.
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ITEM 1A. RISK FACTORS
We face a variety of significant and diverse risks, many of which are inherent in our business. Described below
are the risks we currently believe could materially and adversely affect our business, financial condition, results of
operations or cash flow.
Risks Related to Our Business
Our primary source of revenue is derived from management fees, which are directly tied to our assets under
management. Fluctuations in AUM therefore will directly impact our revenue.
Substantially all of our revenue is derived from management fees paid by our clients, based on a percentage of
the market value of our AUM. Any decline and/or significant impairment in AUM would greatly affect our revenue,
and could occur due to a variety of factors, including:
•
Poor performance of our strategies: Poor performance of our investment strategies may result in decreased
market value of AUM. In addition, underperformance could impact our ability to maintain our existing client
base and develop new relationships, both of which could negatively impact AUM and revenue.
•
Poor market environment: We expect our business may generate lower revenue in a depressed equities
market or general economic downturn as a result of depreciation of our AUM. Any decline in the market
value of securities held in client portfolios due to such adverse conditions would reduce AUM and lead to a
decrease in revenue. Investor sentiment in a poor equities market environment could also decrease inflows
and increase outflows from our investment strategies in favor of investments perceived as more attractive.
•
Global market, economic, geo-political and other conditions: As a company that invests in both U.S. and
non-U.S. markets, and with a global client base, our business is subject to changing conditions in the global
financial markets, and may also be affected by domestic and international political, social and economic
conditions, any of which could negatively impact our investment performance, growth strategy and AUM.
See "Our global and non-U.S. strategies consist primarily of investments in the securities of issuers located
outside of the United States, which may involve foreign currency exchange, political, social and economic
uncertainties and risks" below.
•
Termination of significant relationships: Our clients can generally terminate our advisory agreements or
reduce assets under management upon short notice and for any reason. Investors in the pooled funds that we
manage may also redeem their investments in the funds at any time without prior notice. As of December 31,
2021, five client relationships represented 47% and 25% of our AUM and revenue, respectively, including
one client relationship which represents approximately 20% and 8% of our AUM and revenue respectively.
The termination of any of these relationships and outflow of money from our pooled funds could significantly
reduce our revenue, and we may not be able to establish relationships with other clients in order to replace
the lost revenue. There can also be no assurance that our agreements with respect to these relationships will
remain in place going forward.
•
Defined benefit plans are declining: Defined benefit plans are declining as corporate plan sponsors are
decreasing their liabilities and shifting employee enrollment to defined contribution plans. Given the
reduction in funding and shift to defined contribution plans there is no guarantee that we will be successful
in increasing our penetration of the defined contribution market, which could limit our ability to grow our
AUM.
•
Intermediary dependence: New accounts sourced through consultant-led searches have been a large driver
of our inflows in the past, and are expected to be a major component of our inflows going forward. We have
also established relationships with certain mutual fund providers who have offered us opportunities to access
certain market segments through sub-investment advisory roles. Such consultants and mutual fund providers
routinely review and evaluate our organization and the services we offer, and poor evaluations may result in
client outflows and impact our ability to attract new assets through such intermediaries. See "Item 1 — Our
14
Business Strategy — Work with Our Strong Consultant Relationships" and "Item 1 — Our Client
Relationships and Distribution Approach — Distribution Channels."
•
Passive strategies, such as index and exchange-traded funds have grown substantially in relation to active
strategies: During the past decade investors have exhibited a desire for passive investment products given
their relative performance and lower fee structure compared to active strategies managed by investment
managers such as ourselves. If this market preference continues, existing and prospective clients may choose
to invest in passive investment products, our AUM may be negatively impacted.
We may face capacity constraints in certain of our strategies which may prevent us from accepting new investors
in those strategies.
Our ability to retain and grow assets as a firm has been, and will be, driven primarily by delivering attractive
investment results to our clients. As a consequence, we have prioritized, and will continue to prioritize, investment
performance over asset accumulation. Where we deemed it necessary, we have, in the past, closed certain strategies
to new investors in order to preserve capacity to effectively implement our concentrated investment strategies for the
benefit of existing clients. We may in the future close certain of our strategies to new investors or to new inflows from
existing investors. Any such closures may limit our future AUM growth and hence our revenue growth.
Market and competitive pressures to lower our advisory fees could lead to a decline in our profit and earnings.
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 going
forward. As a result, a shift in the composition of our AUM from higher to lower fee-generating client relationships
would result in a decrease in revenue, even if our aggregate level of AUM remains unchanged or increases.
The investment management business is intensely competitive.
Competition in the investment management business is based on a variety of factors, including investment
performance; investor perception of an investment manager’s drive, focus and alignment of interests; quality of service
provided to clients and duration of client relationships; business reputation; and level of fees charged for services. We
compete in all aspects of our business with a large number of investment management firms, commercial banks,
broker-dealers, insurance companies and other financial institutions. Our competitive risks are heightened by the fact
that some of our competitors may implement investment styles that are viewed more favorably than ours or they may
invest in alternative asset classes which the markets may perceive as more attractive than the public equity markets.
If we are unable to compete effectively, our revenue could be reduced, and our business could be materially affected.
We may not be successful in expanding into new investment strategies, markets and businesses.
We actively consider the opportunistic expansion of our businesses, but we may not be successful in any such
attempted expansion. Attempts to expand our businesses involve a number of risks, including entry into markets in
which we may have limited or no experience, increasing the demands on our operational systems, the broadening of
our geographic footprint, increasing the risks associated with conducting operations in non-U.S. jurisdictions and the
diversion of management’s attention from our core businesses.
We also may not be successful in identifying new investment strategies or geographic markets that increase our
profitability. Because we have not yet identified all of these potential new investment strategies, geographic markets
or businesses, we cannot identify all the risks we may face and the potential adverse consequences. We also do not
know how long it may take for us to expand, if we do so at all.
15
Loss of key employees, and difficulties in attracting qualified investment professionals, could have a material
adverse effect on our business.
The success of our business largely depends on the participation of Richard S. Pzena and the other members of
our Executive Committee. Their professional reputations, expertise in investing, and relationships with our clients and
within the investing community in the U.S. and abroad are an important factor in our business strategy and attracting
and retaining clients. There is no guarantee that they will not resign, join our competitors or form a competing
company. The terms of the current operating agreement of our operating company restrict each of these individuals
from competing with us or soliciting our clients or employees during the term of their employment with us and, in
certain circumstances, for a certain period thereafter. The penalty for breach of these restrictive covenants may be the
forfeiture of a number of Class B or Class B-1 units held by the individual, and his or her permitted transferees, as of
the earlier of the date of his breach or the termination of his or her employment. Although we may seek specific
performance of these restrictive covenants, there can be no assurance that we would be successful in obtaining this
relief. After this post-employment restrictive period, we may not be able to prohibit them from competing with us or
soliciting our clients or employees. Furthermore, we do not carry any "key man" insurance that would provide us with
proceeds in the event of the death or disability of any of the above mentioned employees.
In addition to the participants mentioned above, our success also depends on our ability to retain the senior
members of our investment team and to recruit additional qualified investment professionals. We may not be
successful in our efforts to retain and recruit such individuals as the market for investment professionals is extremely
competitive. Our portfolio managers possess substantial experience and expertise in classic value investing and
maintain significant relationships with our clients. The loss of any of our senior investment professionals could limit
our ability to successfully execute our investment approach and to sustain the performance of our investment
strategies, which, in turn, could have a material adverse effect on our reputation, client relationships and our revenue
and earnings.
Future growth of our business may place significant demands on our resources and employees and may increase
our expenses, risks and regulatory oversight.
Future growth of our business may place significant demands on our infrastructure, our investment team and other
employees, which may increase our expenses. In addition, we are required to continuously develop our infrastructure
in response to the increasing sophistication of the investment management market, as well as compliance with legal
and regulatory developments. We may face significant challenges in: maintaining and developing adequate financial
and operational controls; implementing new or updated information and financial systems, and procedures and
training; and managing and appropriately sizing our work force, and other components of our business on a timely
and cost-effective basis. There can be no assurance that we will be able to manage the growth of our business
effectively, or that we will be able to continue to grow, and any failure to do so could adversely affect our ability to
generate revenue and control expenses.
The potential inability of our systems to accommodate an increasing volume of transactions could also constrain
our ability to expand our businesses and potentially raise regulatory issues. In recent years, we have substantially
upgraded and expanded the capabilities of our data processing systems and other operating technology, and we expect
that we may need to continue to upgrade and expand these capabilities in the future to avoid disruption of, or
constraints on, our operations, however there is no guarantee that our expansions will be sufficient to accommodate
our needs nor that we can continue to upgrade and expand these capabilities successfully. Additionally, there may be
additional costs and/or cybersecurity risk associated with remote working in response to the ongoing COVID-19
pandemic. To the extent remote working continues after the pandemic, our systems may require additional expansions
to accommodate a flexible work environment.
A change of control could result in termination of our investment advisory or sub-investment advisory agreements.
Pursuant to the Investment Company Act, each of the investment advisory or sub-investment advisory agreements
for the SEC-registered mutual funds that we advise will automatically terminate upon their deemed “assignment,” and
a fund’s board and shareholders must approve a new agreement in order for us to continue to act as its investment
adviser or sub-investment adviser. In addition, pursuant to the Investment Advisers Act, each of our investment
advisory agreements for the separate accounts we manage contains a provision that states that the agreement may not
be “assigned” without the consent of the client. An "assignment," pursuant to both the Investment Company Act and
the Investment Advisers Act, could be deemed to occur upon a sale or transfer of a controlling block of our voting
securities. Such an assignment may be deemed to occur in the event that the holders of the Class B units of our
operating company exchange enough of their Class B units for shares of our Class A common stock such that they no
16
longer own a controlling interest in us. If such a deemed assignment occurs, there can be no assurance that we will be
able to obtain the necessary consents from clients whose assets are managed pursuant to separate accounts, or the
necessary approvals from the boards and shareholders of the SEC-registered funds that we sub-advise. Such
assignment, actual or constructive, could adversely affect our ability to continue managing client accounts, resulting
in the loss of AUM and a corresponding loss of revenue.
Extensive regulation of our business has been and will be expensive and time consuming, and exposes us to the
potential for significant penalties, including fines or limitations on our ability to conduct our business.
We are subject to extensive regulation of our investment management business and operations. As a registered
investment adviser, the SEC oversees our activities pursuant to its regulatory authority under the Investment Advisers
Act. In addition, we must comply with certain requirements under the Investment Company Act with respect to the
SEC-registered funds for which we act as investment adviser or sub-investment adviser. As a Category I License
holder in South Africa, the Financial Sector Conduct Authority has regulatory oversight over our practices and
activities in South Africa. Pzena Financial Services, LLC, our SEC registered broker dealer subsidiary is regulated
by the Financial Industry Regulatory Authority ("FINRA"). Pzena Investment Management Europe Limited, our Irish
subsidiary, is regulated by the Central Bank of Ireland as UCITS. Each of the regulatory bodies with jurisdiction over
us has the authority to regulate various aspects of financial services, including the authority to grant, and, in specific
circumstances to cancel, permissions to carry on particular businesses. Our failure to comply with applicable laws or
regulations could result in fines, censure, suspensions of personnel or other sanctions, including revocation of our
registration as an investment adviser. Even if a sanction imposed against us is small in monetary amount, the adverse
publicity arising from the imposition of such sanctions by regulators could harm our reputation, result in withdrawal
by our clients and/or impede our ability to retain clients and develop new client relationships. As we continue to
expand internationally, we may also be under the regulatory scope of local regulatory authorities and non-compliance
with any of these authorities may result in fines, sanctions and inability to operate in that local market.
The SEC and its staff continue to engage in various initiatives and reviews that seek to improve and modernize
the regulatory structure governing the asset management industry, and registered investment companies in particular.
Any new rules, guidance or regulatory initiatives resulting from these efforts could expose us to additional compliance
and reporting costs and may require us to change how we operate our business or manage funds, and there can be no
assurance that we can sufficiently adapt to comply with such rules, guidance or regulatory initiatives.
The European Union ("E.U.") has implemented the Markets in Financial Instruments Directive (“MiFID”) rules
into national legislation. MiFID II, which took effect on January 3, 2018, builds upon many initiatives introduced
through MiFID which primarily focused on equity trading activity to migrate onto open and transparent markets.
MiFID II has been implemented through a number of more detailed directives, regulations and standards made by the
European Commission and by the European Securities Markets Authority and, compliance with MiFID II may
increase costs and affect the manner in which our businesses obtain investment research services.
The United Kingdom ("U.K.") exited the E.U. effective January 31, 2020, subject to a transition period which
ended December 31, 2020, (referred to as Brexit) and while we have launched our Irish office to continue our European
business post-Brexit, we cannot guarantee that any of our Brexit contingency plans will succeed, in whole or in part.
Additionally, our operating expenses may increase as we implement our Brexit contingency plans to continue our
business in the U.K. and E.U. in the short and/or long term.
A growing focus on privacy regulations across jurisdictions, including, the European Union’s General Data
Protection Regulation (“GDPR”), South Africa’s Protection of Personal Information Act (“POPIA”) and in the U.S.,
federal and state laws, regulations, and guidance impacting consumer privacy, such as the California Consumer
Privacy Act and the California Privacy Rights Act of 2020 (the “California Privacy Laws”), are increasing costs of
operations and regulatory risks. The obligations and costs of complying with privacy laws and regulations including
GDPR, POPIA and California Privacy Laws may impact our financial results. Noncompliance with our legal
obligations relating to privacy and data protection across various jurisdictions could result in penalties, legal
proceedings by governmental entities or affected individuals, and significant legal, reputational and financial exposure
17
We also face the risk of significant intervention by regulatory authorities, including extended investigation and
surveillance activity, adoption of costly or restrictive new regulations, and judicial or administrative proceedings that
may result in substantial penalties. The requirements imposed by our regulators are designed to ensure the integrity of
the financial markets and to protect customers and other third parties who deal with us, and are not designed to protect
our stockholders. Any regulatory and legislative actions and reforms affecting the investment advisory industry may
negatively impact earnings by increasing our costs of operations.
Specific regulatory changes also may have a direct impact on the revenue of our business. In addition to regulatory
scrutiny and potential fines and sanctions, regulators continue to examine different aspects of the asset management
industry. For example, the use of “soft dollars,” where a portion of commissions paid to broker-dealers in connection
with the execution of trades also pays for research and other services provided to advisors, has been reexamined by
different regulatory bodies and may in the future be limited or modified. Although a substantial portion of the research
relied on by our business in the investment decision-making process is generated internally by our investment analysts,
external research, including external research paid for with soft dollars, is important to the process. This external
research generally is used for information gathering or verification purposes, and includes broker-provided research,
as well as third-party provided databases and research services. If the use of soft dollars were to be limited, we would
have to bear additional costs.
We face risks, and corresponding potential costs and expenses, associated with conducting operations and growing
our business in numerous countries.
We offer investment management services in different regulatory jurisdictions around the world, and intend to
continue to expand our operations internationally. In order to remain competitive, we must be proactive and prepared
to deploy necessary resources when and where growth opportunities present themselves. If we lack the necessary
resources and/or personnel, we may be unable to take full advantage of strategic opportunities when they appear and
our strategic decisions may not be efficiently implemented. Meeting local requirements and complying with local
industry standards may also place additional demands on sales and compliance personnel and resources that we may
not be able to meet. Finding and hiring additional, well-qualified personnel and crafting and adopting policies,
procedures and controls to address local or regional requirements remain a challenge as we expand our operations
internationally. Moreover, regulators could also change their policies or laws in a manner that might restrict or
otherwise impede our ability to offer our investment products in their respective markets. Any of these requirements,
activities, or needs could increase the costs and expenses we incur in a specific jurisdiction without any corresponding
increase in revenue and income from operating in such jurisdiction.
Changes in tax laws or exposure to additional income tax liabilities could have a material impact on our financial
condition, results of operations and liquidity.
We are subject to income as well as non-income-based taxes, in both the U.S. and non-U.S. jurisdictions.
Additional guidance or changes to tax law may be issued that may have a direct effect on our financial condition,
results of operations and liquidity. We are also subject to potential tax audits in various jurisdictions and in such
event, tax authorities may disagree with certain positions we have taken and assess penalties or additional taxes. We
regularly assess the likely outcomes of these potential audits in order to determine the appropriateness of our tax
provision; however, there can be no assurance that we will accurately predict the outcomes of these potential audits.
The actual outcomes of these potential audits could have a material impact on our net income or financial condition
and any changes in tax laws or tax rulings could materially impact our effective tax rate and earnings.
We are exposed to legal risks which could materially adversely affect our business, financial condition or results
of operations or cause significant reputational harm to us. Additionally, litigation may result in higher insurance
premiums and increased insurance coverage risks which could increase our costs and reduce our profitability.
We depend to a large extent on our relationships with our clients and our reputation for integrity and high-caliber
professional services to attract and retain clients. As a result, dissatisfaction with our services could be more damaging
to our business than to other types of businesses. If our clients suffer significant losses, or are otherwise dissatisfied
with our services, such as for breach of trading guidelines and/or perceived conflicts of interest, we could be subject
to the risk of legal liabilities or actions alleging negligent misconduct, breach of fiduciary duty, or breach of contract.
These risks are often difficult to assess or quantify and their existence and magnitude often remain unknown for
substantial periods of time.
18
While we strive to conduct our business in accordance with the highest ethical standards, we are always open to
the risk of litigation by parties in addition to our clients, for instance by our shareholders, employees and regulators.
We may incur significant legal expenses in defending against litigation. Substantial legal liability or significant
regulatory action against us could materially adversely affect our business, financial condition or results of operations,
or cause significant reputational harm to us.
Potential regulatory and governmental inquiries, civil litigation or employment-related claims could involve
substantial financial penalties. 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 co-
insurance liabilities, or pay higher premiums, which could increase our expenses and could have a material adverse
effect on our results of operations.
Inadequate business continuity plans, including those of our significant third-party vendors, could lead to material
financial loss, reputational harm and inability to continue business.
We rely heavily on our financial, accounting, trading, compliance and other data processing systems. Any failure
or interruption of these systems, whether caused by natural disaster, power or telecommunications failure, act of
terrorism or war or otherwise, could result in a disruption of our business, liability to clients, regulatory intervention
or reputational damage, and thus materially adversely affect our business. The back-up systems that we have in place
and other protective measures that we have taken may not be adequate in the event of a failure or interruption.
We depend on our headquarters in New York City for the continued operation of our business. A disaster or a
disruption in the infrastructure that supports our business, or directly affecting our headquarters, may have a material
adverse impact on our ability to continue to operate our business without interruption.
We have a detailed business continuity plan in place that is tested on a quarterly basis. We strive to understand
the protective measures of our third-party vendors, however there can be no assurance that these measures will be
sufficient to mitigate the harm that may result from such a disaster or disruption.
Any significant security breach of our software applications, technology or other systems critical to our operations,
may disrupt our business or cause us to lose sensitive and confidential information which in turn may cause
reputational and financial harm.
We are dependent on the effectiveness of our, and our third-party vendors', information and cyber security
infrastructure, policies, procedures and capabilities to protect our computer and telecommunications systems and the
data that resides in or is transmitted through them. As part of our normal operations, we maintain and transmit
confidential information about our clients as well as proprietary information relating to our business operations. We
maintain a system of internal controls designed to provide reasonable assurance that fraudulent activity, including
misappropriation of assets, fraudulent financial reporting, and unauthorized access to sensitive or confidential data is
either prevented or detected in a timely manner. We are continuously working to install new, and upgrade existing,
information technology systems and provide employee awareness training around phishing, malware, and other cyber
risks to ensure that we are protected, to the greatest extent possible, against cyber risks and security breaches.
We also strive to understand the protective measures of our third-party vendors and ensure that we have
complementary user controls in place to mitigate risk, however our information technology systems may still be
vulnerable to unauthorized access or may be corrupted by cyber-attacks, computer viruses or other malicious software
code, or authorized persons could inadvertently or intentionally release confidential or proprietary information. This
may be especially true to the extent remote work continues after the pandemic and our employees, as well as those of
our third-party vendors’, may begin or continue to work remotely. Although we take precautions to password protect
and/or encrypt our electronic hardware, if such hardware is stolen, misplaced or left unattended, it may become
vulnerable to hacking or other unauthorized use, creating a possible security risk and resulting in potentially costly
consequences to us. A breach of our technology systems could result in the loss of valuable information, liability for
stolen assets or information, remediation costs to repair damage caused by the breach, additional security costs to
mitigate against future incidents and legal costs resulting from the incident. Malicious actors may also attempt to
compromise or induce our employees, third-party vendors or other users of our systems to disclose sensitive
information or provide access to our data, and these types of risks may be difficult to detect or prevent. Moreover, loss
of confidential customer information could harm our reputation, result in the termination of contracts by our existing
customers and subject us to liability under laws that protect confidential data, resulting in loss of revenue.
19
Operational risk, such as trade errors or system limitations or failures, may create significant financial impact to
us, hamper future growth and cause potential reputational harm.
We face potential operational risk from our management of client assets and daily business. Risks include errors
that may occur during the execution, confirmation or settlement phase of transactions and such errors may cause
material financial loss, which in turn may cause material financial and reputational harm to us. We also face the
potential of inaccurate recording of transactions in our internal systems, caused by human error, system limitations or
system malfunctions. Such errors may involve client and public reporting, execution, confirmation and settlement of
trades, and billing. The potential for operational risk could have significant regulatory, financial or reputational impact.
There can be no assurance that all risks and errors can be prevented.
Risks Related to Our Investment Strategy Process and Performance Risk
Our classic value investment style subjects us to the risk that the companies in which we invest may not achieve the
level of earnings recovery that we initially expect, or at all.
We generally invest in companies after they have experienced, or are expected by the market to soon experience,
a shortfall in their historic earnings, due to an adverse business development, management error, accounting scandal
or other disruption, and before there is clear evidence of earnings recovery or business momentum. While investors
are generally less willing to invest when companies lack earnings visibility, our classic value investment approach
seeks to capture the return that can be obtained by investing in a company before the market has confidence in its
ability to achieve earnings recovery. However, our investment approach entails the risk that the companies included
in our portfolios are not able to execute as we had expected when we originally invested in them, thereby reducing the
performance of our strategies. Since our positions in these investments are often substantial, even partial sales of a
substantial position into the market may cause the market price of our investment to decline and there is the risk that
we may be unable to find willing purchasers for our investments when we decide to sell them.
Since we apply the same investment process across all of our investment strategies, utilizing one analyst team,
and given the overlapping universes of many of our investment strategies, we could have common positions and
industry or sector concentrations across many of our investment strategies at the same time. As such, factors leading
one of our investment strategies to underperform may lead other strategies to underperform simultaneously.
Our global and non-U.S. strategies may consist of investments in the securities of issuers located outside of the
United States, which may involve foreign currency exchange, political, social and economic uncertainties and risks.
Our global and non-U.S. strategies, which together represented $34.2 billion and $28.5 billion of our AUM as of
December 31, 2021 and 2020, respectively, are primarily invested in securities of companies located outside the
United States. As of December 31, 2021, approximately 47% of our assets under management were invested in
securities denominated in currencies other than the U.S. dollar. Investments in non-U.S. issuers may be affected by
political, social and economic uncertainty affecting a country or region in which we are invested. Many emerging
financial markets are not as developed, or as efficient, as the U.S. financial market, and, as a result, liquidity may be
reduced and price volatility may increase. The legal and regulatory environments, including financial accounting
standards and practices, may also be different, and there may be less publicly available information in respect of such
companies. These risks could adversely impact the performance of our strategies that are invested in securities of non-
U.S. issuers. In addition, fluctuations in foreign currency exchange rates may affect investment return and AUM since
we do not engage in currency hedging for these portfolios. Due to these factors, our AUM may fluctuate from one
reporting period to another, causing volatility in earnings.
Our investment approach may underperform other investment approaches during certain market conditions.
Our products are best suited for investors with long-term investment horizons. In accordance with our classic
value investment approach, we typically hold securities for an average of three to five years. Our strategies may not
perform well during points in the economic cycle when value-oriented stocks are relatively less attractive. For
instance, during the late stages of an economic cycle, investors may purchase relatively expensive stocks in order to
obtain access to above average growth. Value-oriented strategies may also experience weakness during periods when
the markets are focused on one investment thesis or sector.
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Even when securities prices are rising generally, portfolio performance can be affected by our investment
approach. The classic value approach has outperformed the market in some economic and market environments and
underperformed it in others. In particular, a prolonged period in which the growth-style of investing outperforms the
value-style may cause our investment strategy to go out of favor with clients, consultants and sub-advised
relationships. Our investment strategy may be less favored during certain time periods for other reasons as well,
including due to perceived riskiness or volatility of our approach. Poor performance relative to peers, coupled with
changes in personnel, extensive periods in particular market environments, or other difficulties may result in a decline
in our AUM.
A portion of our investment advisory revenue is also derived from performance fees. We generally earn
performance fees under certain client agreements according to the performance relative to an agreed-upon benchmark.
This fee structure results in a lower base fee but allows for us to earn higher fees if the investment strategy outperforms
the benchmark. Some performance-based fee arrangements include high-water mark provisions, which generally
provide that if a client account underperforms relative to its performance target, it must gain back such
underperformance before we can collect future performance-based fees. Therefore, if we fail to achieve the
performance target for a particular period, we may not earn a performance fee for that period and for accounts with a
high-water mark provision, our ability to earn future performance fees may be impaired. During fiscal years 2021 and
2020, we earned $0.1 million and $1.1 million, respectively, in performance fees. An increase in performance-based
fee arrangements with clients could create greater fluctuations in our revenue and earnings.
In addition, certain accounts related to one retail client relationship have fulcrum fee arrangements. These fee
arrangements require a reduction in the base fee or allow for an increase in the base fee if the relevant investment
strategy underperforms or outperforms, respectively, the agreed-upon benchmark over the contract's measurement
period, which extends to three years. During the fiscal years 2021 and 2020, we recognized a net reduction in base
fees in the amounts of $3.8 million and $4.0 million, respectively, related to fulcrum fee arrangements. To the extent
the three-year performance records of these accounts fluctuate relative to their relevant benchmarks, the amount of
base fees recognized may vary.
Our investment process requires us to conduct extensive fundamental research on any company before investing,
which may result in missed investment opportunities and reduce the performance of our investment strategies.
We take a considerable amount of time to complete the in-depth research projects that our investment process
requires before adding any security to our portfolio. Our process requires that we take this time to understand the
company and the business well enough to make an informed decision as to whether we are willing to own a significant
position in a company that does not yet have clear earnings visibility. However, the time we take to make this judgment
may cause us to miss the opportunity to invest in a company that has a sharp and rapid earnings recovery. Any such
missed investment opportunities could adversely impact the performance of our investment strategies.
Our investment strategies subject us to the risks that the companies in which we invest may be exposed to
catastrophic events, including natural disasters, pandemics (e.g., COVID-19) and other international health
emergencies, weather-related events, terrorist attacks and other disruptions.
We invest in companies globally that may encounter disruptions involving power, communications,
transportation, travel or other utilities or essential services on which they depend to conduct business. This could
include disruptions as the result of natural disasters, pandemics, other international health emergencies, or weather-
related or similar events (such as fires, hurricanes, earthquakes, floods, landslides and other natural conditions
including the effects of climate change), political instability, labor strikes or turmoil, or terrorist attacks. In particular
since 2020, the ongoing COVID-19 pandemic has caused disruption in financial markets across the world as
governments enact quarantines, restrictions on travel and other measures the adversely affected supply chains and
general economic activity. While the financial markets and our assets under management have generally recovered,
the effects of the ongoing COVID-19 pandemic on the companies in which we invest continues to be uncertain and
depend on future developments that remain unpredictable. Successive waves or mutations or variants of the virus may
lead to an acceleration of the spread or worsening of the severity of thereof. The effectiveness of measures to combat
the virus, including the development, production and distribution of vaccines and therapeutics the public acceptance
thereof remains uncertain. In recent years, various parts of the world have sustained significant damage from natural
disasters such as hurricanes, wildfires and/or landslides. Although we continue to assess the potential impact of current
events on the companies in which we invest, there can be no assurance that these events may not adversely affect our
investment and may lead one or more of our investment strategies to underperform. Such disruptions may affect our
investment process by limiting our ability to complete our fundamental research in a timely manner.
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Risks Related to Our Structure
We are dependent upon distributions from Pzena Investment Management, LLC to make distributions to our Class
A stockholders, and to pay taxes and other expenses.
We are a holding company and have no material assets other than our ownership of membership units of our
operating company. We have no independent means of generating revenue and cash flow. Our operating company is
treated as a partnership for U.S. federal income tax purposes and, as such, is not itself subject to U.S. federal income
tax. Instead, its taxable income is allocated to its members, including us, pro-rata according to the number of
membership units each member owns. Accordingly, we incur income taxes on our proportionate share of any taxable
income of our operating company. We also incur expenses related to our operations. We intend to have our operating
company distribute cash to its members in an amount at least equal to that necessary to cover their tax liabilities, if
any, with respect to the earnings of our operating company. To the extent we need funds to pay our tax or other
liabilities or to fund our operations, and our operating company is restricted from making distributions to us under
applicable laws or regulations, or contractual restrictions, or does not have sufficient earnings to make these
distributions, we may have to borrow funds to meet these obligations and run our business and, thus, our liquidity and
financial condition could be materially adversely affected. There can be no assurance that funds will be available to
borrow under such circumstances on terms acceptable to us, or at all.
We are required to pay most of the tax benefit of any amortization deductions we may claim as a result of the tax
basis step up we receive in connection with the sales of membership units and any exchanges of Class B units and
this tax treatment could be challenged by tax authorities.
As part of the reorganization we implemented with our initial public offering ("IPO"), we purchased membership
units of our operating company from three of its members (the "Selling Members"). In addition, holders of Class B
units may, at least once each year, exchange their Class B units of our operating company for shares of our Class A
common stock. These purchases and subsequent exchanges have resulted, and are expected to continue to result, in
increases in our share of the tax basis in the tangible and intangible assets of our operating company that otherwise
would not have been available. These increases in tax basis have reduced, and are expected to continue to reduce, the
amount of tax that we would otherwise be required to pay in the future, although the Internal Revenue Service ("IRS")
might challenge all or part of this tax basis increase, and a court might sustain such a challenge.
Pursuant to a tax receivable agreement dated October 30, 2007, among us, the Selling Members, and all holders
of Class B units after our IPO, we are required to pay the Selling Members, and certain holders of Class B units who
elect to exchange their Class B units for shares of our Class A common stock, 85% of the amount of the cash savings,
if any, in U.S. federal, state and local income tax that we realize as a result of the increases in amortizable tax basis
due to the sale to us of their membership units. The actual increase in tax bases, as well as the amount and timing of
any payments under this agreement, may vary depending upon a number of factors, including the timing of exchanges,
the price of our Class A common stock at the time of the exchange, the extent to which such exchanges are taxable,
the amount and timing of our income, and the tax rates and related laws then applicable. Payments under the tax
receivable agreement are expected to give rise to certain additional tax benefits attributable to further increases in
basis. Any such benefits are covered by the tax receivable agreement and may increase the amounts due thereunder.
We expect that, as a result of the size and increases in our share of the tax basis in the tangible and intangible assets
of our operating company attributable to our interest therein, the payments that we may make to these members likely
may be substantial.
If we exercise our right to terminate the tax receivable agreement early, we may be obligated to make an early
termination payment to the selling and converting shareholders, based upon the net present value of all payments that
would be required to be paid by us. If certain change of control events were to occur, we would also be obligated to
make an early termination payment.
Were the IRS to successfully challenge the tax bases increases described above, we would not be reimbursed for
any payments made under the tax receivable agreement. As a result, in certain circumstances, we could be required to
make payments under the tax receivable agreement in excess of our cash tax savings.
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Risks Related to Our Class A Common Stock
The market price and trading volume of our Class A common stock may be volatile, which could result in rapid
and substantial losses for our stockholders.
The market price of our Class A common stock has been, and may continue to be, highly volatile and subject to
wide fluctuations. In addition, the trading volume of our Class A common stock may fluctuate and cause significant
price variations to occur. Such variations may occur for a variety of reasons, which may be unrelated to the value of
our business, including volatility resulting from broader macroeconomic and geopolitical conditions, as well as the
impacts of market manipulation or irrational price activity resulting from a high volume of short-term trading. If the
market price of our Class A common stock declines significantly, you may be unable to resell your shares of our Class
A common stock at or above your purchase price, if at all. We cannot assure you that the market price of our Class A
common stock may not fluctuate or decline significantly in the future.
The market price of our Class A common stock could decline due to the large number of shares of our Class A
common stock eligible for future sale upon the exchange of Class B units of our operating company or future
issuance of shares of Class A common stock.
Pursuant to the operating agreement of our operating company, on at least one date designated by us each year,
certain holders of Class B units generally may exchange up to 15% of certain of their Class B units for an equivalent
number of shares of our Class A common stock, subject to certain restrictions and conditions set forth in the operating
agreement. Pursuant to the operating agreement of our operating company, no later than the second exchange date
after holders of our Class B-1 units cease to be employed by us, such Class B-1 holders are required to exchange all
of their Class B-1 units for a number of shares of our Class A common stock that will be determined based on the
market value of our Class A common stock at the time of the grant of the Class B-1 units and at the time of the
exchange. Also, since 2011, the non-employee members of our operating company may exchange all of their vested
Class B units, in accordance with the timing restrictions set forth in the operating agreement.
Pursuant to the resale and registration rights agreement, dated October 30, 2007, among the holders of Class B
units and us, these holders may resell the shares of Class A common stock issued to them upon the exchange of their
Class B units as discussed above.
During 2021, we established June 10, 2021 and December 22, 2021 as exchange dates. Certain employee members
elected to exchange an aggregate of 790,414 of their Class B units for an equivalent number of shares of our Class A
common stock, which are freely tradable. As of December 31, 2021, there remained 55,227,855 shares of our Class
A common stock that have previously been registered in various registration statements filed with the SEC, which
may be issued upon the exchange of currently outstanding Class B units as discussed above. An additional 5,044,761
shares of Class A common stock are registered relating to Class B units that have not been issued. There are also
shares of our Class A common stock registered in various registration statements filed with the SEC, which may be
issued upon the exchange of 7,232,705 currently outstanding Class B-1 units as discussed above. The number of such
shares of our Class A common stock issuable upon exchange of currently outstanding Class B-1 units will depend on
the market value of our Class A common stock at issuance of the relevant Class B-1 units and at the time of any such
future exchange.
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Anti-takeover provisions in our amended and restated certificate of incorporation and bylaws could discourage a
change of control that our stockholders may favor, which could also adversely affect the market price of our Class
A common stock.
Provisions in our amended and restated certificate of incorporation and bylaws may make it more difficult and
expensive for a third party to acquire control of us, even if a change of control would be beneficial to our stockholders.
For example, our amended and restated certificate of incorporation authorizes our Board of Directors to issue up to
200,000,000 shares of our preferred stock and to designate the rights, preferences, privileges and restrictions of
unissued series of our preferred stock, each without any vote or action by our stockholders. We could issue a series of
preferred stock to impede the consummation of a merger, tender offer or other takeover attempt. The anti-takeover
provisions in our amended and restated certificate of incorporation and bylaws may impede takeover attempts, or other
transactions, that may be in the best interests of our stockholders and, in particular, our Class A stockholders. In
addition, the market price of our Class A common stock could be adversely affected to the extent that provisions of
our amended and restated certificate of incorporation and bylaws discourage potential takeover attempts, or other
transactions, that our stockholders may favor.
The disparity in the voting rights among the classes of our common stock may have a potential adverse effect on
the price of our Class A common stock and may give rise to conflicts of interest.
As of December 31, 2021, our Class B stockholders collectively hold approximately 94.1% of the combined
voting power of our common stock. These stockholders consist of our founders, 50 of our other employees (directly
or through their interests in Pzena Investment Management, LP), the estate planning vehicles of our founders and
certain of our other employees, certain other members of our operating company, including one of our directors and
his related entities, and former employees (directly or through their interests in Pzena Investment Management, LP).
Holders of shares of our Class B common stock have entered into a Class B Stockholders’ Agreement with respect to
all shares of Class B common stock then held by them and any additional shares of Class B common stock they may
acquire in the future. Pursuant to this agreement, they may vote these shares of Class B common stock together on all
matters submitted to a vote of our common stockholders. To the extent that we cause our operating company to issue
additional Class B units, which may be granted, subject to vesting, to our employees pursuant to the PIM LLC 2006
Equity Incentive Plan, these employees will be entitled to receive an equivalent number of shares of our Class B
common stock, subject to the condition that they agree to enter into this Class B Stockholders’ Agreement. Each share
of our Class B common stock entitles its holder to five votes per share for so long as the Class B stockholders
collectively hold 20% of the total number of shares of our common stock outstanding. When a Class B unit is
exchanged for a share of our Class A common stock, an unvested Class B unit is forfeited due to the employee holder’s
failure to satisfy the conditions of the award agreement pursuant to which it was granted, or any Class B unit is
forfeited as a result of a breach of any restrictive covenants contained in our operating company’s amended and
restated operating agreement, a corresponding share of our Class B common stock will automatically be redeemed by
us.
For so long as our Class B stockholders hold at least 20% of the total number of shares of our common stock
outstanding, they will be able to elect all of the members of our Board of Directors and thereby control our
management and affairs, including determinations with respect to acquisitions, dispositions, borrowings, issuances of
securities, and the declaration and payment of dividends. In addition, they will be able to determine the outcome of
all matters requiring approval of stockholders, and will be able to cause or prevent a change of control of our Company
or a change in the composition of our Board of Directors, and could preclude any unsolicited acquisition of our
Company. Our Class B stockholders have the ability to prevent the consummation of mergers, takeovers or other
transactions that may be in the best interests of our Class A stockholders. In particular, this concentration of voting
power could deprive Class A stockholders of an opportunity to receive a premium for their shares of Class A common
stock as part of a sale of our company, and could ultimately affect the market price of our Class A common stock.
Each share of our Class A common stock entitles its holder to one vote on all matters to be voted on by
stockholders. This difference in voting rights could adversely affect the value of our Class A common stock to the
extent that investors view, or any potential future purchaser of our company views, the superior voting rights of the
Class B common stock to have more value.
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Our ability to pay dividends is subject to the discretion of our Board of Directors and may be limited by our holding
company structure and applicable provisions of Delaware law.
We currently intend to pay cash dividends on a quarterly basis and our Board of Directors has targeted a cash
dividend payout ratio of approximately 60% to 70% of annual as adjusted earnings per share, subject to growth
initiatives and other funding needs. However, our Board of Directors may, in its discretion, modify the level of
dividends, or discontinue the payment of dividends entirely. Furthermore, we are a holding company, and depend
upon the ability of Pzena Investment Management, LLC, our operating company, to generate earnings and cash flows
and distribute them to us so that we may pay our obligations and expenses and pay dividends to our stockholders. We
expect to cause Pzena Investment Management, LLC to make distributions to its members, including us. However,
the ability of Pzena Investment Management, LLC to make such distributions is subject to its operating results, cash
requirements and financial condition, and applicable Delaware laws (which may limit the amount of funds available
for distribution to its members), as well as any contractual restrictions. If, as a consequence of these various limitations
and restrictions, we do not receive distributions from our operating company, we may not be able to make, or may
have to reduce or eliminate, the payment of dividends on our Class A common stock. Because of these various
limitations and restrictions, we have, in the past, had to suspend our quarterly dividend payment. See “Item 5 —
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities —
Our Dividend Policy.”
The dual class structure of our common stock may adversely affect the trading market for our Class A common
stock.
S&P Dow Jones and FTSE Russell have announced changes to their eligibility criteria for inclusion of shares of
public companies on certain indices, namely, to exclude companies with multiple classes of shares of common stock
from being added to such indices. In addition, several shareholder advisory firms have announced their opposition to
the use of multiple class structures. As a result, the dual class structure of our common stock may prevent the inclusion
of our Class A common stock in such indices and may cause shareholder advisory firms to publish negative
commentary about our corporate governance practices. Any such exclusion from indices could result in a less active
trading market for our Class A common stock. Any actions or publications by shareholder advisory firms critical of
our corporate governance practices or capital structure could also adversely affect the value of our Class A common
stock.
General Risks
Insurance coverage may not protect us from all of the liabilities that could arise from the risks inherent in our
business.
We maintain insurance coverage focused on reducing potential losses related to our operations. We purchase
insurance in amounts, and against risks, that we consider appropriate. There can be no assurance, however, that a
claim or claims will be completely covered by insurance or, if covered at all, will not exceed the limits of our existing
insurance coverage. If a loss occurs that is partially or completely uninsured, we may be exposed to substantial
liability. Insurance costs are impacted by market conditions and our risk profile, and may increase significantly over
relatively short periods. Renewals of insurance policies may result in additional costs through higher premiums or the
assumption of higher deductibles or co-insurance liability. In addition, insurance and other safeguards might only
partially reimburse us for our losses in the event our business continuity plan fails and our operations are significantly
disrupted.
25
Our ability to conduct our business may be materially adversely impacted by catastrophic events, including natural
disasters, pandemics (including COVID-19) and other international health emergencies, weather-related events,
terrorist attacks, and other disruptions.
We may encounter disruptions involving power, communications, transportation, travel or other utilities or
essential services depended on by us or by third parties with whom we conduct business. This could include disruptions
as the result of natural disasters, pandemics, other international health emergencies, or weather-related or similar
events (such as fires, hurricanes, earthquakes, floods, landslides and other natural conditions including the effects of
climate change), political instability, labor strikes or turmoil, or terrorist attacks. In 2020, we, along with the rest of
the world had to adapt our business in response to the ongoing COVID-19 pandemic. In recent years, several parts of
the U.S. also sustained significant damage from natural disasters such as hurricanes, wildfires and/or landslides.
Additionally, Australia sustained significant damage from wildfires in recent years. Similar potential disruptions may
occur in any of the locations in which we or our clients do business. We continue to assess the potential impact on our
investments and clients of such events, and what impact, if any, these events could have on our businesses, financial
condition, results of operations and prospects. While we have in place business continuity plans that address potential
impacts of the ongoing COVID-19 pandemic to our personnel and our facilities, and technologies that enable our
personnel to work remotely, there is no guarantee that or plans will continue to be effective or appropriate. While our
employees have to date been able to work remotely, 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 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
the companies we invest in will have on the growth of our business and the results of our operations.
The individuals, counterparties or issuers on whom we rely to perform services for us may be unable or unwilling
to honor their contractual obligations to us.
We rely on various third parties and other vendors to fulfill their obligations to us, whether specified by contract,
course of dealing or otherwise. Disruptions in the financial markets and other economic challenges may cause our
counterparties and other vendors to experience significant cash flow problems or even render them insolvent, which
may expose us to credit, operational or other risk.
Increases in our expenses could lead to a decline in our profit margin and increase the volatility of our earnings.
Our expenses are subject to increase based on a variety of factors such as higher operating expenses resulting
from business expansion, product development and increased marketing efforts; higher compensation expense due to
increased competition for talent, headcount and seniority level; macroeconomic trends such as rising inflation and the
increase in interest rates in response thereto; and related expenses to meet business and regulatory needs. Some or all
of these expenses may remain at higher levels for the foreseeable future, leading to higher costs for our business.
Fluctuations in expenses could impact our profit margins and contribute to earnings volatility.
Certain changes in accounting and/or financial reporting standards issued by the Financial Accounting Standards
Board (“FASB”), the SEC or other standard-setting bodies could have a material impact on our reported financial
position or results of our operations.
We are subject to the application of accounting principles generally accepted in the United States of America
(“U.S. GAAP”), which are periodically revised and/or expanded. As such, we are required to adopt new or revised
accounting and/or financial reporting standards issued by recognized accounting standard setters or regulators, such
as the FASB and the SEC. Changes associated with the adoption of revised financial reporting standards could have
a material impact on our reported financial position or results of our operations.
26
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
As of the date of this Annual Report, our corporate headquarters and principal offices are located at 320 Park
Avenue, 8th Floor, New York, New York 10022. We occupy approximately 45,050 square feet of space under a non-
cancellable operating lease, the term of which expires on December 31, 2025. In January 2022, we have entered into
a lease amendment which extends the term until October 31, 2036 and provides for a total of approximately 74,000
square feet of space. We plan to sublet a portion of the space; however, our obligations on the lease are not subject to
finding suitable sublessee(s).
ITEM 3. LEGAL PROCEEDINGS
In the normal course of business, we may be subject to various legal and administrative proceedings.
Currently, there are no material legal proceedings pending against us that we believe may have a material effect
on our business, cash flow or results of operations.
ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable.
27
PART II.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
Our Class A common stock is listed for trading on the New York Stock Exchange (the “NYSE”) under the symbol
“PZN.” As of March 8, 2022, there were approximately 39 record holders of our Class A common stock and 26 record
holders of our Class B common stock. These numbers do not include shareholders who hold their shares through one
or more intermediaries, such as banks, brokers or depositories.
Our Dividend Policy
Our Board of Directors has targeted a cash dividend payout ratio of approximately 60% to 70% of our as adjusted
diluted net income, subject to growth initiatives and other funding needs. However, our Board of Directors may, in its
discretion, modify the level of dividends, or discontinue the payment of dividends entirely.
We use annual non-GAAP as adjusted earnings measures, discussed in further detail in “Item 7 — Management’s
Discussion and Analysis of Financial Condition and Results of Operation — Net Income” in Part II of this Annual
Report, to assess the strength of the underlying operations of the business. Included in our annual results are certain
tax related and non-recurring adjustments that we feel add a measure of non-operational complexity to our results as
reported under GAAP and obscure the underlying performance of the business. Management therefore does not
consider these adjustments when evaluating operating results or financial information in any given period, and instead
uses as adjusted measures of earnings, which exclude these items, to analyze our operations between periods, and over
time, and to evaluate the financial condition and results of operations. Investors should consider the as adjusted
measures in addition to, and not as a substitute for, financial measures prepared in accordance with GAAP. The
adjusted measures that we present are not determined in accordance with GAAP. We have made adjustments that we
have determined are appropriate, but such adjustments may differ from the adjustments made by other companies
using similarly titled measures. Accordingly, such measures may not be comparable to the similarly titled measures
presented by other companies.
As a holding company, we have no material assets other than our ownership of membership interests in our
operating company. As a result, we depend upon distributions from our operating company to pay any dividends that
our Board of Directors may declare to be paid to our Class A common stockholders, if any. When and if our Board
of Directors declares any such dividends, we then cause our operating company to make distributions to us in an
amount sufficient to cover the dividends declared. We may not pay dividends to our Class A common stockholders
in amounts that have been paid to them in the past, or at all, if, among other things, we do not have the cash necessary
to pay our intended dividends, or any of our financing facilities or other agreements restrict us from doing so. To the
extent we do not have cash on hand sufficient to pay dividends in the future, we may decide not to pay dividends.
Our ability to pay dividends is subject to Board of Director discretion and may be limited by our holding company
structure and applicable provisions of Delaware law. See “Item 1A — Risk Factors — Risks Related to Our Class A
Common Stock — Our ability to pay dividends is subject to the discretion of our Board of Directors and may be
limited by our holding company structure and applicable provisions of Delaware law.”
28
Issuer Purchases of Equity Securities
On April 24, 2012, our Board of Directors authorized us to repurchase an aggregate of $10.0 million of our
outstanding Class A common stock in the open market and Class B units of the operating company in private
transactions in accordance with applicable securities laws. On February 5, 2014, the Board of Directors authorized
us to repurchase an additional $20.0 million of our outstanding Class A common stock and Class B units of the
operating company. On April 19, 2018, the Company announced that its Board of Directors approved an additional
increase of $30.0 million in the aggregate amount authorized under the program. On July 20, 2021, the Company
announced that its Board of Directors approved an increase of $40.0 million in the aggregate amount authorized under
the program. The timing, number, and value of common shares and units repurchased are subject to our discretion.
Our share repurchase program is not subject to an expiration date and may be suspended, discontinued, or modified
at any time, or for any reason. Shares repurchased under the repurchase program during the fourth quarter of 2021
are as follows:
Period
(a) Total Number
of
Shares of Class A
Common
Stock Purchased
(b) Average
Price Paid per
Share of Class A
Common
Stock
(c) Total Number
of Shares
Purchased as Part
of
Publicly
Announced Plans
or Programs
(d) Approximate
Dollar Value of
Shares that May Yet
Be Purchased Under
the Plans or
Programs(1)
(in millions)
October 1, 2021 through October 31, 2021
76,964
$
10.63
76,964
$
43.6
November 1, 2021 through November 30, 2021
83,495
11.10
83,495
42.6
December 1, 2021 through December 31, 2021
98,292
9.60
98,292
41.3
Total
258,751
$
10.39
258,751
$
41.3
(1)
The dollar amount in the column entitled "Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs,"
reflects the remainder of the program and also reflects the repurchase of 42,811 of the operating company's Class B units during November
and December 2021 for an average price of $8.61 per unit. Class B units are repurchased at fair value determined by reference to our Class
A common stock on the date of the transaction since Class B units are exchangeable for shares of our Class A common stock on a one-for-
one basis and adjusted for the impact of award terms on the value of the award.
Securities Authorized for Issuance under Equity Compensation Plans
See Part III, Item 12 – Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters in this annual report for disclosure relating to our equity compensation plans. The information
required to be reported in such item will be included in the Company’s 2022 Proxy Statement and is incorporated by
reference herein.
ITEM 6. SELECTED FINANCIAL DATA
The following tables set forth selected historical consolidated financial data of Pzena Investment Management,
Inc. The selected consolidated statements of operations data for the years ended December 31, 2021 and 2020 and the
selected consolidated statements of financial condition data as of December 31, 2021 and 2020, have been derived
from Pzena Investment Management, Inc.’s audited consolidated financial statements included in this Annual Report.
The selected consolidated statement of operations data for the years ended December 31, 2019, 2018 and 2017,
and the selected consolidated statements of financial condition as of December 31, 2019, 2018 and 2017, have been
derived from Pzena Investment Management, Inc.’s audited consolidated financial statements not included in this
report.
29
You should read the following selected historical consolidated financial data together with “Item 7 —
Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the historical
consolidated financial statements and the related notes included in this Annual Report.
For the Years Ended December 31,
2021
2020
2019
2018
2017
(in thousands, except share and per share amounts)
Statements of Operations Data:
REVENUE
Management Fees
$
199,242 $
137,541 $
149,691 $
150,700
$
138,136
Performance Fees
92
1,078
1,055
2,879
3,159
Total Revenue
199,334
138,619
150,746
153,579
141,295
EXPENSES
Cash Compensation and Benefits
61,248
55,283
58,016
51,600
48,722
Other Non-Cash Compensation
15,824
13,204
30,093
9,819
10,182
Total Compensation and Benefits Expense
77,072
68,487
88,109
61,419
58,904
General and Administrative Expenses
16,403
14,859
16,973
13,405
13,337
TOTAL OPERATING EXPENSES
93,475
83,346
105,082
74,824
72,241
Operating Income
105,859
55,273
45,664
78,755
69,054
Other Income/ (Expense)
8,416
552
5,607
(2,658)
25,608
INCOME BEFORE INCOME TAXES
114,275
55,825
51,271
76,097
94,662
Income Tax Provision
7,798
4,287
5,795
7,778
34,512
Consolidated Net Income
106,477
51,538
45,476
68,319
60,150
Less: Net Income Attributable to Non-Controlling
Interests
87,798
42,664
37,014
54,525
53,242
NET INCOME Attributable to Pzena
Investment Management, Inc.
$
18,679 $
8,874 $
8,462 $
13,794
$
6,908
Per Share Data1:
Net Income for Basic Earnings per Share
$
18,679 $
8,874 $
8,462 $
13,794
$
6,908
Basic Earnings per Share
$
1.07 $
0.52 $
0.47 $
0.78
$
0.40
Basic Weighted Average Shares Outstanding
17,414,694
17,208,174
17,945,686
17,678,874
17,338,348
Net Income for Diluted Earnings per Share
$
83,661 $
40,766 $
34,046 $
55,347
$
40,064
Diluted Earnings per Share2
$
1.00 $
0.52 $
0.46 $
0.77
$
0.40
Diluted Weighted Average Shares Outstanding
84,007,638
79,143,710
74,199,308
71,934,144
70,934,362
Cash Dividends Declared Per Share
$
0.34 $
0.55 $
0.58 $
0.51
$
0.37
(1)
Pursuant to our equity incentive plans, the Company issues shares of Class A common stock, the operating company issues Class B units that
have non-forfeitable dividend rights, and the operating company issues Class B-1 units that are entitled to receive distributions during the
holders’ employment. Under the “two-class method,” these shares and units are considered participating securities and are required to be
included in the computation of basic and diluted earnings per share.
(2)
During the year ended December 31, 2017, the calculation of diluted earnings per share resulted in an increase in earnings per share. Therefore,
diluted earnings per share is assumed to be equal to basic earnings per share.
As of December 31,
2021
2020
2019
2018
2017
(in thousands)
Statements of Financial Condition Data:
Cash and Cash Equivalents
$
81,133
$
65,534
$
52,480
$
38,099
$
63,414
TOTAL ASSETS
264,300
188,687
199,452
170,976
169,047
TOTAL LIABILITIES
86,246
79,732
91,242
71,968
69,758
Non-Controlling Interests
135,466
77,849
76,766
66,006
66,985
EQUITY
42,588
31,106
31,444
33,002
32,304
30
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
We are an investment management firm that utilizes a classic value investment approach across all of our
investment strategies. We currently manage assets in a variety of value-oriented investment strategies across a wide
range of market capitalizations in both U.S. and non-U.S. capital markets. At December 31, 2021, our AUM was
approximately $52.5 billion. We manage separate accounts on behalf of institutions, act as sub-investment adviser
for a variety of SEC-registered mutual funds and non-U.S. funds, and act as investment adviser for the Pzena mutual
funds, certain private placement funds and non-U.S. funds.
We function as the sole managing member of our operating company, Pzena Investment Management, LLC (the
“operating company”). As a result, we: (i) consolidate the financial results of our operating company with our own,
and reflect the membership interest in it that we do not own as a non-controlling interest in our consolidated financial
statements; and (ii) recognize income generated from our interest in our operating company’s net income. The
percentages presented below are subject to continued changes, including but not limited to, the price of Class A
common stock, issuance of awards, and exercise of options. Based on the closing price of the Company’s Class A
common stock as of December 31, 2021, the holders of our Class A common stock (through the Company), the holders
of Class B units of our operating company, and Class B-1 units of the operating company held approximately 23.5%,
74.9%, and 1.6%, respectively, of the economic interests in the December 31, 2021 value of our operating company.
As of December 31, 2021, the holders of our Class A common stock and the holders of Class B and Class B-1 units
of our operating company held approximately 21.6%, 69.3%, and 9.1%, respectively, of the future income and
distributions. For the year ended December 31, 2021, the weighted-average non-controlling interest of our operating
company was 78.2%.
The Company also serves as the general partner of Pzena Investment Management, LP, a partnership formed with
the objective of aggregating employee ownership in one entity.
Our founders and certain of our employees have interests in Pzena Investment Management, LP and certain estate
planning vehicles through which they indirectly own Class B and B-1 units of our operating company. Based on the
closing price of the Company’s Class A common stock as of December 31, 2021, through direct and indirect interests,
our three founders; 50 other employee members; and certain other members of our operating company, including one
of our directors, his related entities, and certain former employees, collectively held 48.5%, 8.9%, and 19.1% of the
economic interests in the December 31, 2021 value of our operating company, respectively. As of December 31, 2021,
through direct and indirect interests, our three founders; 50 other employee members; and certain former employees,
collectively held 44.8%, 15.9%, and 17.7% of the future income and distributions of our operating company,
respectively.
Net Income
GAAP diluted net income and GAAP diluted earnings per share were $83.7 million and $1.00, respectively, for
the year ended December 31, 2021, and $40.8 million and $0.52, respectively, for the year ended December 31, 2020.
In evaluating the results of operations, management also reviews non-GAAP as adjusted measures of earnings,
which are adjusted to exclude accounting items that add a measure of non-operational complexity which obscures the
underlying performance of the business. For the twelve months ended December 31, 2021 and 2020, no adjustments
were made to GAAP earnings. We believe that these adjustments, and the as adjusted measures derived from them,
provide information to better analyze our operations between periods, and over time. Investors should consider these
as adjusted measures in addition to, and not as a substitute for, financial measures prepared in accordance with GAAP.
31
Net income for diluted earnings per share generally assumes all operating company membership units are
converted into Company stock at the beginning of the reporting period, and the resulting change to our net income
associated with our increased interest in the operating company is taxed at our historical effective tax rate, exclusive
of the adjustments related to changes in the valuation allowance recorded against the deferred tax asset and other
discrete and permanently non-deductible items. Our resulting effective tax rate was 25.0% for the year ended
December 31, 2021 and 24.8% for the year ended December 31, 2020. See “Operating Results — Income Tax
Expense” below.
Revenue
We generate revenue primarily from management fees and performance fees, which we collectively refer to as
our advisory fees, by managing assets on behalf of our separately managed and sub-advised accounts, as well as our
Pzena funds. Our advisory fee income is primarily based on our AUM, as discussed below, and is recognized over
the period in which investment management services are provided. In accordance with Revenue Recognition Topic
of the Financial Accounting Standards Board Accounting Standards Codification (“FASB ASC”), income from
performance fees is recorded at the conclusion of the contractual performance period, when it is probable that
significant reversal of the performance fee will not occur. Advisory fee income is presented net of fund expense cap
reimbursements.
Our advisory fees are primarily driven by the level of our AUM. Our AUM increases or decreases with the net
inflows or outflows of funds into our various investment strategies and with the investment performance thereof. In
order to increase our AUM and expand our business, we must develop and market investment strategies that suit the
investment needs of our target clients, and provide attractive returns over the long-term. The value and composition
of our AUM, and our ability to continue to attract clients will depend on a variety of factors as described in “Item 1
— Risk Factors — Risks Related to Our Business — Our primary source of revenue is derived from management
fees, which are directly tied to our assets under management. Fluctuations in AUM therefore will directly impact our
revenue."
For our separately managed accounts, we are paid management fees according to a schedule, which varies by
investment strategy. The substantial majority of these accounts pay us management fees pursuant to a schedule in
which the rate we earn on the AUM declines as the amount of AUM increases.
Pursuant to our sub-investment advisory agreements, we are generally paid a management fee according to a
schedule in which the rate we earn on the AUM declines as the amount of AUM increases. Certain of these funds pay
us fixed-rate management fees. Due to the substantially larger account size of certain of these sub-advised accounts,
the average advisory fees we earn on them, as a percentage of AUM, are lower than the advisory fees we earn on our
separately managed accounts.
Advisory fees we earn on separately managed accounts and Pzena funds are generally based on the value of AUM
at a specific date on a quarterly basis. Certain of our separately managed accounts, sub-advised accounts, and Pzena
funds are calculated based on the average of the monthly or daily market value. Advisory fees are also generally
adjusted for any cash flows into or out of a portfolio, where the cash flow represents greater than 10% of the value of
the portfolio. While a specific group of accounts may use the same fee rate, the calculation methodology may differ
as described above.
Certain of our clients pay us performance fees according to the performance of their accounts relative to certain
agreed-upon benchmarks, which results in a lower base fee, but allows for us to earn higher fees if the relevant
investment strategy outperforms the agreed-upon benchmark. Some performance-based fee arrangements include
high-water mark provisions, which generally provide that if a client account underperforms relative to its performance
target, it must gain back such underperformance before we can collect future performance-based fees. Fulcrum fee
arrangements related to one client relationship require a reduction in the base fee or allow for an increase in the base
fee if the relevant investment strategy underperforms or outperforms, respectively, the agreed-upon benchmark.
32
Our advisory fees may fluctuate based on a number of factors, including the following:
changes in AUM due to appreciation or depreciation of our investment portfolios, and the levels of the
contribution and withdrawal of assets by new and existing clients;
distribution of AUM among our investment strategies, which have differing fee schedules;
distribution of AUM between separately managed accounts and sub-advised accounts, for which we generally
earn lower overall advisory fees;
the level of our performance with respect to accounts on which we are paid performance fees or have fulcrum
fee arrangements; and
changes in the amount of expense cap reimbursements paid.
Expenses
Our expenses consist primarily of Compensation and Benefits Expense, as well as General and Administrative
Expense. Our largest expense is Compensation and Benefits, which includes the salaries, bonuses, equity-based
compensation, and related benefits and payroll costs attributable to our employee members and employees.
Compensation and benefits packages are benchmarked against relevant industry and geographic peer groups in order
to attract and retain qualified personnel. General and Administrative Expense includes lease expenses, professional
and outside services fees, depreciation, costs associated with operating and maintaining our research, trading and
portfolio accounting systems, and other expenses. Our occupancy-related costs and professional services expenses, in
particular, generally increase or decrease in relative proportion to the overall size and scale of our business operations.
We incur additional expenses associated with being a public company for, among other things, director and officer
insurance, director fees, SEC reporting and compliance (including Sarbanes-Oxley compliance), professional fees,
transfer agent fees, and other similar expenses.
Our expenses may fluctuate due to a number of factors, including the following:
variations in the level of total compensation expense due to, among other things, bonuses, awards of equity
to our employees and employee members of our operating company, changes in our employee count and
mix, and competitive factors; and
general and administrative expenses, such as professional service fees, rent, and data-related costs, incurred,
as necessary, to run our business.
Other Income/ (Expense)
Other income/ (expense) is derived primarily from investment income or loss arising from our consolidated
subsidiaries and interest income generated on our cash balances. Other income/ (expense) is also affected by changes
in our estimates of the liability due to our selling and converting shareholders associated with payments owed to them
under the tax receivable agreement which was executed in connection with our reorganization and IPO on October
30, 2007. As discussed further below under “Tax Receivable Agreement,” this liability represents 85% of the amount
of cash savings, if any, in U.S. federal, state, and local income tax that we realize as a result of the amortization of the
increases in tax basis generated from our acquisitions of our operating company’s units from our selling and converting
shareholders. We expect the interest and investment components of other income/ (expense), in the aggregate, to
fluctuate based on market conditions and the performance of our consolidated subsidiaries and other investments.
Non-Controlling Interests
We are the sole managing member of our operating company and control its business and affairs and, therefore,
consolidate its financial results with ours. In light of our employees' and outside investors' direct and indirect interests
in our operating company (as noted in "Item 1 — Business — Overview"), we have reflected their membership
interests as a non-controlling interest in our consolidated financial statements. Based on the closing price of the
33
Company’s Class A common stock as of as of December 31, 2021, the holders of our Class A common stock of the
Company and the holders of Class B units and Class B-1 Units of our operating company held approximately 23.5%
and 74.9%, and 1.6%, respectively, of the economic interests in the December 31, 2021 value of the operating
company. As of December 31, 2021, the holders of our Class A common stock and the holders of Class B units and
B-1 units of our operating company held approximately 21.6%, 69.3%, and 9.1%, respectively, of the future income
and distributions of our operating company. In addition, our operating company consolidates the results of operations
of the private investment partnerships and Pzena-branded mutual funds over which we exercise a controlling influence.
Non-controlling interests recorded in our consolidated financial statements include the non-controlling interests of the
outside investors in these consolidated subsidiaries.
Operating Results
Assets Under Management and Flows
As of December 31, 2021, our approximately $52.5 billion of AUM was invested in a variety of value-oriented
investment strategies, representing distinct capitalization segments of U.S. and non-U.S. equity markets. The
performance of our largest investment strategies as of December 31, 2021 is further described below. We follow the
same investment process for each of these strategies. Our investment strategies are distinguished by the market
capitalization ranges from which we select securities for their portfolios, which we refer to as each strategy’s
investment universe, as well as the regions in which we invest and the degree to which we concentrate on a limited
number of holdings. While our investment process includes ongoing review of companies in the investment universes
described below, our actual investments may include companies outside of the relevant market capitalization range at
the time of our investment. In addition, the number of holdings typically found in the portfolios of each of our
investment strategies may vary, as described below.
The following tables describe the allocation of our AUM among our investment strategies and the domicile of
our accounts, as of December 31, 2021 and 2020:
AUM at December 31,
Strategy
2021
2020
(in billions)
U.S. Value Strategies
Large Cap Value
$
11.8 $
9.2
Mid Cap Value
3.0
2.6
Small Cap Value
2.6
2.2
Value
0.7
0.6
Other U.S. Strategies
0.2
0.2
Total U.S. Value Strategies
18.3
14.8
Global and Non-U.S. Value Strategies
Global Value
15.9
11.8
International Value
7.7
6.9
Emerging Markets Value
7.1
6.5
European Value
3.0
2.9
Other Global and Non-U.S. Strategies
0.5
0.4
Total Global and Non-U.S. Value Strategies
34.2
28.5
Total
$
52.5 $
43.3
AUM at December 31,
Account Domicile
2021
2020
(in billions)
U.S.
$
32.0 $
26.5
Non-U.S.
20.5
16.8
Total
$
52.5 $
43.3
34
The following table indicates the annualized returns, gross and net (which represents annualized returns prior to,
and after, payment of advisory fees, respectively), of our largest investment strategies from their inception to
December 31, 2021, and in the five-year, three-year, and one-year periods ended December 31, 2021, relative to the
performance of the market index which is often used by our clients to compare the performance of the relevant
investment strategy.
Period Ended December 31, 20211
Investment Strategy (Inception Date)
Since
Inception
5 Years
3 Years
1 Year
Large Cap Value (July 2012)
Annualized Gross Returns
13.2%
10.4%
17.2%
29.5%
Annualized Net Returns
13.1%
10.3%
17.1%
29.4%
Russell 1000® Value Index
12.7%
11.2%
17.6%
25.2%
International Value (November 2008)
Annualized Gross Returns
9.7%
8.4%
12.2%
12.9%
Annualized Net Returns
9.4%
8.1%
11.8%
12.6%
MSCI EAFE® Index – Net/U.S.$2
7.9%
9.5%
13.5%
11.3%
Emerging Markets Focused Value (January 2008)
Annualized Gross Returns
4.3%
9.9%
10.3%
7.5%
Annualized Net Returns
3.5%
9.1%
9.5%
6.7%
MSCI® Emerging Markets Index – Net/U.S.$2
2.3%
9.9%
10.9%
-2.5%
Large Cap Focused Value (October 2000)
Annualized Gross Returns
8.0%
10.0%
17.5%
30.2%
Annualized Net Returns
7.6%
9.6%
17.1%
29.8%
Russell 1000® Value Index
7.7%
11.2%
17.6%
25.2%
Global Value (January 2010)
Annualized Gross Returns
9.3%
10.4%
15.7%
20.6%
Annualized Net Returns
8.9%
10.0%
15.3%
20.1%
MSCI® World Index – Net/U.S.$2
11.0%
15.0%
21.7%
21.8%
European Focused Value (August 2008)
Annualized Gross Returns
5.6%
7.4%
11.3%
17.2%
Annualized Net Returns
5.2%
7.0%
10.9%
16.8%
MSCI® Europe Index – Net/U.S.$2
4.2%
10.1%
14.9%
16.3%
Global Focused Value (January 2004)
Annualized Gross Returns
6.6%
9.9%
15.5%
20.2%
Annualized Net Returns
5.9%
9.4%
15.0%
19.7%
MSCI® All Country World Index – Net/U.S.$2
8.4%
14.4%
20.4%
18.5%
Mid Cap Value (April 2014)
Annualized Gross Returns
9.7%
9.4%
19.9%
29.8%
Annualized Net Returns
9.5%
9.2%
19.7%
29.6%
Russell Mid Cap® Value Index
10.2%
11.2%
19.6%
28.3%
Focused Value (January 1996)
Annualized Gross Returns
10.6%
8.6%
17.3%
27.2%
Annualized Net Returns
9.9%
8.0%
16.5%
26.5%
Russell 1000® Value Index
9.4%
11.2%
17.6%
25.2%
Small Cap Focused Value (January 1996)
Annualized Gross Returns
13.5%
8.8%
18.8%
30.5%
Annualized Net Returns
12.3%
7.8%
17.7%
29.4%
Russell 2000® Value Index
10.0%
9.1%
18.0%
28.3%
International Focused Value (January 2004)
Annualized Gross Returns
6.8%
8.9%
12.3%
13.2%
Annualized Net Returns
6.0%
8.3%
11.7%
12.6%
MSCI® All Country World ex-U.S. Index – Net/U.S.$2
6.5%
9.6%
13.2%
7.8%
Mid Cap Focused Value (September 1998)
Annualized Gross Returns
12.9%
11.2%
22.9%
32.9%
Annualized Net Returns
12.1%
10.5%
22.1%
32.0%
Russell Mid Cap® Value Index
10.7%
11.2%
19.6%
28.3%
1
The historical returns of these investment strategies are not necessarily indicative of their future performance, or the future performance of
any of our other current or future investment strategies.
2
Net of applicable withholding taxes and presented in U.S.$.
35
Large Cap Value. This strategy reflects a portfolio composed of approximately 50 to 80 stocks drawn generally
from a universe of 500 of the largest U.S. listed companies, based on market capitalization. This strategy was launched
in July 2012. At December 31, 2021, the Large Cap Value strategy generated a one-year annualized gross return of
29.5%, outperforming its benchmark. The top contributing sectors included the consumer discretionary, industrials,
and financial services sectors.
International Value. This strategy reflects a portfolio composed of approximately 60 to 80 stocks drawn generally
from a universe of 1,500 of the largest companies across the world excluding the United States, based on market
capitalization. This strategy was launched in November 2008. At December 31, 2021, the International Value strategy
generated a one-year annualized gross return of 12.9%, outperforming its benchmark. The top contributing sectors
included the industrials sector, partially offset by the underperformance of the energy sector.
Emerging Markets Focused Value. This strategy reflects a portfolio composed of approximately 40 to 80 stocks
drawn generally from a universe of 1,500 of the largest emerging market companies, based on market capitalization.
This strategy was launched in January 2008. At December 31, 2021, the Emerging Markets Focused Value strategy
generated a one-year annualized gross return of 7.5%, outperforming its benchmark. The top contributing sectors
included the financial services, consumer discretionary, and industrials sectors.
Large Cap Focused Value. This strategy reflects a portfolio composed of approximately 30 to 40 stocks drawn
generally from a universe of 500 of the largest U.S. listed companies, based on market capitalization. This strategy
was launched in October 2000. At December 31, 2021, the Large Cap Focused Value strategy generated a one-year
annualized gross return of 30.2%, outperforming its benchmark. The top contributing sectors included the industrials,
consumer discretionary, and financial services sectors.
Global Value. This strategy reflects a portfolio composed of approximately 60 to 95 stocks drawn generally from
a universe of 2,000 of the largest companies across the world, based on market capitalization. This strategy was
launched in January 2010. At December 31, 2021, the Global Value strategy generated a one-year annualized gross
return of 20.6%, underperforming its benchmark. The top detracting sectors included the consumer discretionary and
information technology sectors, partially offset by the outperformance of the financial services sector.
European Focused Value. This strategy reflects a portfolio composed of approximately 40 to 50 stocks drawn
generally from a universe of 750 of the largest European companies, based on market capitalization. This strategy
was launched in August 2008. At December 31, 2021, the European Focused Value strategy generated a one-year
annualized gross return of 17.2%, outperforming its benchmark. The top contributing sectors included the consumer
staples, industrials, and consumer discretionary sectors, partially offset by the underperformance of the energy sector.
Global Focused Value. This strategy reflects a portfolio composed of approximately 40 to 60 stocks drawn
generally from a universe of 2,000 of the largest companies across the world, based on market capitalization. This
strategy was launched in January 2004. At December 31, 2021, the Global Focused Value strategy generated a one-
year annualized gross return of 20.2%, outperforming its benchmark. The top contributing sectors included the
financial services and industrials sectors, partially offset by the underperformance of the materials sector.
Mid Cap Value. This strategy reflects a portfolio composed of approximately 50 to 80 stocks drawn generally
from a universe of U.S. listed companies ranked from the 201st to 1,200th largest, based on market capitalization.
This strategy was launched in April 2014. At December 31, 2021, the Mid Cap Value strategy generated a one-year
annualized gross return of 29.8%, outperforming its benchmark. The top contributing sectors included the consumer
discretionary sector.
Focused Value. This strategy reflects a portfolio composed of a portfolio of approximately 30 to 40 stocks drawn
generally from a universe of 1,000 of the largest U.S. listed companies, based on market capitalization. This strategy
was launched in January 1996. At December 31, 2021, the Focused Value strategy generated a one-year annualized
gross return of 27.2%, outperforming its benchmark. The top contributing sectors included the industrials and
consumer discretionary sectors, partially offset by the underperformance of the energy sector.
36
Small Cap Focused Value. This strategy reflects a portfolio composed of approximately 40 to 50 stocks drawn
generally from a universe of U.S. listed companies ranked from the 1,001st to 3,000th largest, based on market
capitalization. This strategy was launched in January 1996. At December 31, 2021, the Small Cap Focused Value
strategy generated a one-year annualized gross return of 30.5%, outperforming its benchmark. The top contributing
sectors included the health care and materials sectors, partially offset by the underperformance of the consumer
discretionary and energy sectors.
International Focused Value. This strategy reflects a portfolio composed of approximately 30 to 50 stocks drawn
generally from a universe of 1,500 of the largest companies across the world excluding the United States, based on
market capitalization. This strategy was launched in January 2004. At December 31, 2021, the International Focused
Value strategy generated a one-year annualized gross return of 13.2%, outperforming its benchmark. The top
contributing sectors included the consumer discretionary, industrials, and communication services sectors, partially
offset by the underperformance of the energy sector.
Mid Cap Focused Value. This strategy reflects a portfolio composed of approximately 30 to 40 stocks drawn
generally from a universe of U.S. listed companies ranked from the 201st to 1,200th largest, based on market
capitalization. This strategy was launched in September 1998. At December 31, 2021, the Mid Cap Focused Value
strategy generated a one-year annualized gross return of 32.9%, outperforming its benchmark. The top contributing
sectors included the consumer discretionary, materials, and industrials sectors, partially offset by the
underperformance of the energy sector.
Our earnings and cash flows are heavily dependent upon prevailing financial market conditions. Significant
increases or decreases in the various securities markets, particularly the equities markets, can have a material impact
on our results of operations, financial condition, and cash flows.
37
The change in AUM in our separately managed accounts, sub-advised accounts and Pzena funds for the years
ended December 31, 2021 and 2020 is described below. Inflows are composed of the investment of new or additional
assets by new or existing clients. Outflows consist of redemptions of assets by existing clients.
For the Years Ended
December 31,
Assets Under Management
2021
2020
(in billions)
Separately Managed Accounts
Assets
Beginning of Period
$
17.3
$
16.4
Inflows
2.0
1.8
Outflows
(2.9)
(1.7)
Net Flows
(0.9)
0.1
Market Appreciation/(Depreciation)
3.6
0.3
Foreign Exchange1
(0.6)
0.5
End of Period
$
19.4
$
17.3
Sub-Advised Accounts
Assets
Beginning of Period
$
23.3
$
22.4
Inflows
7.1
5.0
Outflows
(5.0)
(4.6)
Net Flows
2.1
0.4
Market Appreciation/(Depreciation)
5.6
0.2
Foreign Exchange1
(0.5)
0.3
End of Period
$
30.5
$
23.3
Pzena Funds
Assets
Beginning of Period Assets
$
2.7
$
2.4
Inflows
0.6
0.5
Outflows
(1.0)
(0.5)
Net Flows
(0.4)
-
Market Appreciation/(Depreciation)
0.4
0.2
Foreign Exchange1
(0.1)
0.1
End of Period
$
2.6
$
2.7
Total
Assets
Beginning of Period
$
43.3
$
41.2
Inflows
9.7
7.3
Outflows
(8.9)
(6.8)
Net Flows
0.8
0.5
Market Appreciation/(Depreciation)
9.6
0.7
Foreign Exchange1
(1.2)
0.9
End of Period
$
52.5
$
43.3
1
Foreign exchange reflects the impact of translating non-U.S. dollar denominated AUM into U.S. dollars for reporting purposes.
During the year ended December 31, 2021, our AUM increased $9.2 billion, or 21.2%, from $43.3 billion at
December 31, 2020. This increase is due to market appreciation and net inflows, partially offset by foreign exchange
movements during the year ended December 31, 2021.
At December 31, 2021, we managed $19.4 billion in separately managed accounts, $30.5 billion in sub-advised
accounts, and $2.6 billion in Pzena funds, for a total of $52.5 billion in assets. For the year ended December 31, 2021,
we experienced $9.6 billion in market appreciation and total gross inflows of $9.7 billion, which were partially offset
by total gross outflows of $8.9 billion and a decrease associated with foreign exchange movements of $1.2 billion.
Assets in separately managed accounts increased by $2.1 billion, or 12.1%, from $17.3 billion at December 31, 2020,
due to $3.6 billion in market appreciation and $2.0 billion in gross inflows, partially offset by $2.9 billion in gross
38
outflows and a decrease associated with foreign exchange movements of $0.6 billion. Assets in sub-advised accounts
increased by $7.2 billion, or 30.9%, from $23.3 billion at December 31, 2020, due to $5.6 billion in market
appreciation and $7.1 billion in gross inflows, partially offset by $5.0 billion in gross outflows and a decrease
associated with foreign exchange movements of $0.5 billion. Assets in Pzena funds decreased by $0.1 billion, or
3.7%, from $2.7 billion at December 31, 2020 due to $0.4 billion in market appreciation and $0.6 billion in gross
inflows, offset by $1.0 billion in gross outflows and a decrease of $0.1 billion associated with foreign exchange
movements.
At December 31, 2020, we managed $17.3 billion in separately managed accounts, $23.3 billion in sub-advised
accounts, and $2.7 billion in Pzena funds, for a total of $43.3 billion in assets. For the year ended December 31, 2020,
we experienced $0.7 billion in market appreciation and total gross inflows of $7.3 billion, which were partially offset
by total gross outflows of $6.8 billion. Assets in separately managed accounts increased by $0.9 billion, or 5.5%,
from $16.4 billion at December 31, 2019, due to an increase associated with foreign exchange movements of $0.5
billion, $0.3 billion in market appreciation and $1.8 billion in gross inflows, partially offset by $ 1.7 billion in gross
outflows. Assets in sub-advised accounts increased by $0.9 billion, or 4.0%, from $22.4 billion at December 31, 2019,
due to an increase associated with foreign exchange movements of $0.3 billion, $0.2 billion in market appreciation
and $5.0 billion in gross inflows, partially offset by $4.6 billion in gross outflows. Assets in Pzena funds increased
by $0.3 billion, or 12.5%, from $2.4 billion at December 31, 2019 as a result of $0.2 billion in market appreciation
and an increase of $0.1 billion associated with foreign exchange movements.
Revenue
Our revenue from advisory fees earned on our separately managed accounts, sub-advised accounts and Pzena
funds for the two years ended December 31, 2021 is described below:
For the Years Ended
December 31,
Revenue
2021
2020
(in thousands)
Separately Managed Accounts
$
102,841 $
74,725
Sub-Advised Accounts
77,214
48,714
Pzena Funds
19,279
15,180
Total
$
199,334 $
138,619
Year Ended December 31, 2021 versus December 31, 2020
Our total revenue increased $60.7 million, or 43.8%, to $199.3 million for the year ended December 31, 2021
from $138.6 million for the year ended December 31, 2020. This change was primarily driven by the increase in
AUM levels in 2021 compared to 2020. Average AUM increased 43.7% to $50.0 billion for the year ended
December 31, 2021 from $34.8 billion for the year ended December 31, 2020. We also recognized $0.1 million and
$1.1 million in performance fees during the years ended December 31, 2021, and 2020, respectively. For the years
ended December 31, 2021 and 2020, we recognized a net reduction of base fees in the amount of $3.8 million and
$4.0 million, respectively, related to fulcrum fee arrangements.
Our weighted average fee rates were 0.398% and 0.398% for the years ended December 31, 2021 and 2020,
respectively. Average assets in separately managed accounts increased 35.7% to $19.0 billion for the year ended
December 31, 2021, from $14.0 billion for the year ended December 31, 2020, and had weighted average fees of
0.539% and 0.534% for the years ended December 31, 2021 and 2020, respectively. Average assets in sub-advised
accounts increased 50.8% to $28.2 billion for the year ended December 31, 2021, from $18.7 billion for the year ended
December 31, 2020, and had weighted average fees of 0.274% and 0.261% for the years ended December 31, 2021
and 2020, respectively. The increase in weighted average fee rates for assets in sub-advised accounts is driven by a
shift in assets to certain strategies that typically carry higher fee rates. Average assets in Pzena funds increased 33.3%
to $2.8 billion for the year ended December 31, 2021, from $2.1 billion for the year ended December 31, 2020, and
had weighted average fees of 0.694% and 0.709% for the years ended December 31, 2021 and 2020, respectively. The
decrease in weighted average fee rates for Pzena funds is driven by a decrease in performance fees recognized during
the fiscal year 2021 compared to 2020.
39
Expenses
Our operating expense is driven primarily by our compensation costs. The table below describes the components
of our operating expense for the years ended December 31, 2021 and 2020.
For the Years Ended
December 31,
2021
2020
(in thousands)
Cash Compensation and Other Benefits
$
61,248 $
55,283
Other Non-Cash Compensation
15,824
13,204
Total Compensation and Benefits Expense
77,072
68,487
General and Administrative Expense
16,403
14,859
Total Operating Expenses
$
93,475 $
83,346
Year Ended December 31, 2021 versus December 31, 2020
Total operating expenses increased by $10.1 million, or 12.2%, to $93.5 million for the year ended December 31,
2021, from $83.3 million for the year ended December 31, 2020.
Compensation and benefits expense increased by $8.6 million, or 12.5%, to $77.1 million for the year ended
December 31, 2021, from $68.5 million for the year ended December 31, 2020. The increase is driven by an increase
in compensation and in the market performance of strategies tied to the Company’s deferred compensation obligation.
General and administrative expense increased by $1.5 million, or 10.4%, to $16.4 million for the year ended
December 31, 2021, from $14.9 million for the year ended December 31, 2020. The increase in general and
administrative expenses primarily reflects an increase in professional fees and data and systems expense.
Other Income
Year Ended December 31, 2021 versus December 31, 2020
Other income of $8.4 million for the year ended December 31, 2021 consisted primarily $4.4 million in net
realized and unrealized gains from investments, $2.2 million in equity in the earnings of affiliates, $1.2 million in
interest and dividend income, and $0.6 million of income associated with an adjustment to the liability to selling and
converting shareholders. Other income of $0.6 million for the year ended December 31, 2020 consisted primarily of
$0.6 million in net realized and unrealized gains from investments and $0.8 million in interest and dividend income
partially offset by $0.9 million in equity in the losses of affiliates.
Income Tax Expense
For the years ended December 31, 2021 and 2020, components of income tax expense are as follows:
For the Years Ended
December 31,
2021
2020
(in thousands)
Unincorporated and Other Business Tax Expenses
$
1,584 $
858
Corporate Income Tax Expense
6,214
3,429
Total Income Tax Expense
$
7,798 $
4,287
40
Income before corporate income taxes used to calculate our income before income taxes for the years ended
December 31, 2021 and 2020 are as follows:
For the Years Ended December 31,
2021
2020
(in thousands)
Income Before Income Taxes
$
114,275
$
55,825
Unincorporated and Other Business Taxes
(1,584)
(858)
Net Income Attributable to Non-Controlling Interests of the Operating Company
(86,781)
(42,421)
Non-Controlling Interests of Consolidated Subsidiaries
(1,017)
(243)
Income Before Corporate Income Taxes
$
24,893
$
12,303
Our GAAP effective tax rate was 25.0%, and 28.2% for the years ended December 31, 2021 and 2020,
respectively, and was determined as follows:
For the Years Ended December 31,
2021
2020
Tax
% of GAAP
Pre-tax
Income
Tax
% of GAAP
Pre-tax
Income
(in
thousands)
(in
thousands)
Federal Corporate Tax
$
5,228
21.0% $
2,539
21.0%
State and Local Taxes, Net of Federal Benefit
1,021
4.1%
462
3.8%
Impact of Permanent Differences
-
0.0%
-
0.0%
Prior Period and Other Adjustments
(35)
-0.1%
428
3.4%
GAAP Effective Taxes
$
6,214
25.0% $
3,429
28.2%
Year Ended December 31, 2021 versus December 31, 2020
Income tax expense was $7.8 million for the year ended December 31, 2021, compared to $4.3 million for the
year ended December 31, 2020.
Net Income Attributable to Non-Controlling Interests
Year Ended December 31, 2021 versus December 31, 2020
Net income attributable to non-controlling interests was $87.8 million for the year ended December 31, 2021, and
consisted of $86.8 million associated with our employees' and outside investors' approximately 78.2% weighted-
average interest in the income of the operating company, and approximately $1.0 million associated with our
consolidated subsidiaries' interest in the gains of our consolidated subsidiaries. Net income attributable to non-
controlling interests was $42.7 million for the year ended December 31, 2020, and consisted of $42.4 million
associated with our employees’ and outside investors’ approximately 77.7% weighted-average interest in the income
of the operating company, and approximately $0.2 million associated with our consolidated subsidiaries’ interest in
the losses of our consolidated subsidiaries. The increase in net income attributable to non-controlling interests
primarily reflects the increase in net income of the operating company for the year ended December 31, 2021, and an
increase in our employees’ and outside investors’ weighted average interest in the income of the operating company.
We expect the interests in our operating company in subsequent periods to depend on changes in our shareholder’s
equity and the size and composition of Class B and Class B-1 units awarded by our compensation plans.
Liquidity and Capital Resources
Historically, the working capital needs of our business have primarily been met through the cash generated by
our operations. Distributions to members of our operating company are our largest use of cash. Other activities
include purchases and sales of investments to fund our deferred compensation program, capital expenditures, and
strategic growth initiatives such as providing the seed investments in our mutual funds.
41
We expect to fund the liquidity needs of our business in the next twelve months, and over the long-term, primarily
through cash generated from operations. As an investment management company, our business is materially affected
by conditions in the global financial markets and economic conditions throughout the world. Our liquidity is highly
dependent on the revenue and income from our operations, which is directly related to our levels of AUM. For the
year ended December 31, 2021, our average AUM and revenues increased by 43.7% and 43.8%, respectively,
compared to our average AUM and revenues for the year ended December 31, 2020. At December 31, 2021, our cash
was $81.1 million, inclusive of $5.9 million in cash held by our consolidated subsidiaries. We also had $7.3 million
in an open-ended mutual fund that can be sold to meet future cash flow needs and approximately $17.9 million in
investments set aside to satisfy our obligations under our deferred compensation programs. Advisory fees receivable
was $41.1 million.
In determining the sufficiency of liquidity and capital resources to fund our business, we regularly monitor our
liquidity position, including, among other things, cash, working capital, investments, long-term liabilities, lease
commitments, debt obligations, and operating company distributions. Compensation is our largest expense. To the
extent we deem necessary and appropriate to run our business, recognizing the need to retain our key personnel, we
have the ability to change the absolute levels of our compensation packages, as well as change the mix of their cash
and non-cash components. Historically, we have not tied our level of compensation directly to revenue, as many Wall
Street firms do. Correspondingly, there is not a linear relationship between our compensation and the revenues we
generate. This generally has the effect of increasing operating margins in periods of increased revenues, but can
reduce operating margins when revenue declines.
We continuously evaluate our staffing requirements and compensation levels with reference to our own liquidity
position and external peer benchmarking data. The result of this review directly influences management’s
recommendations to our Board of Directors with respect to such staffing and compensation levels.
We anticipate that tax allocations and dividend equivalent payments to the members of our operating company,
which consists of certain of our employees, unaffiliated persons, former employees, and us, will continue to be a
material financing activity. Cash distributions to operating company members for partnership tax allocations would
increase should the taxable income of the operating company increase. Dividend equivalent payments will depend on
our dividend policy and the discretion of our Board of Directors, as discussed below.
We believe that our lack of long-term debt, and ability to vary cash compensation levels, have provided us with
an appropriate degree of flexibility in providing for our liquidity needs.
Dividend Policy
As we are a holding company and have no material assets other than our ownership of membership interests in
our operating company, we depend upon distributions from our operating company to pay any dividends that our
Board of Directors may declare to be paid to our Class A common stockholders. When, and if, our Board of Directors
declares any such dividends, we then cause our operating company to make distributions to us in an amount sufficient
to cover the dividends declared. Our dividend policy has certain risks and limitations, particularly with respect to
liquidity. We may not pay dividends to our Class A common shareholders in amounts that have been paid to them in
the past, or at all, if, among other things, we do not have the cash necessary to pay our intended dividends. To the
extent we do not have cash on hand sufficient to pay dividends in the future, we may decide not to pay dividends. By
paying cash dividends rather than investing that cash in our future growth, we risk slowing the pace of our growth, or
not having a sufficient amount of cash to fund our operations or unanticipated capital expenditures, should the need
arise.
On an annual basis, our Board of Directors has targeted a cash dividend payout ratio of approximately 60% to
70% of our as adjusted diluted net income, subject to growth initiatives and other funding needs. However, our Board
of Directors may, in its discretion, modify the level of dividends, or discontinue the payment of dividends entirely.
Our ability to pay dividends is subject to the Board of Directors’ discretion and may be limited by our holding
company structure and applicable provisions of Delaware law. See “Item 1A — Risk Factors — Risks Relating to
Our Class A Common Stock — Our ability to pay dividends is subject to the discretion of our Board of Directors and
may be limited by our holding company structure and applicable provisions of Delaware law.”
42
Tax Receivable Agreement
Our purchase of membership units of our operating company concurrent with our IPO, and the subsequent and
future exchanges by holders of Class B units of our operating company for shares of our Class A common stock
(pursuant to the exchange rights provided for in the operating company’s operating agreement), has resulted in, and
is expected to continue to result in, increases in our share of the tax basis of the tangible and intangible assets of our
operating company, which will increase the tax depreciation and amortization deductions that otherwise would not
have been available to us. These increases in tax bases and tax depreciation and amortization deductions have reduced,
and are expected to continue to reduce, the amount of cash taxes that we would otherwise be required to pay in the
future. We have entered into a tax receivable agreement with the current members of our operating company, the one
member of our operating company immediately prior to our IPO who sold all of its membership units to us in
connection with our IPO, and any future holders of Class B units, that requires us to pay them 85% of the amount of
cash savings, if any, in U.S. federal, state and local income tax that we actually realize (or are deemed to realize in the
case of an early termination payment by us, or a change in control, as described in the tax receivable agreement) as a
result of the increases in tax bases described above and certain other tax benefits related to entering into the tax
receivable agreement, including tax benefits attributable to payments under the tax receivable agreement.
Cash Flows
Year Ended December 31, 2021 versus December 31, 2020
Cash, cash equivalents and restricted cash increased $15.6 million to $82.2 million in 2021 compared to $66.6
million in 2020. Net cash provided by operating activities decreased $25.5 million in 2021 to $76.8 million from
$51.3 million in 2020. The increase primarily reflects an increase in net income partially offset by equity in the
earnings of affiliates, net realized and unrealized gains from investments, as well as changes in operating assets and
liabilities and working capital.
Net cash used in investing activities was $2.8 million in 2021 compared to net cash provided of $24.1 million in
2020. The $26.9 million decrease in cash provided by investing activities was primarily due to a $27.0 million
decrease in net sales of investments and a $0.5 million increase in purchases of property and equipment partially offset
by a $0.5 million increase in net consolidation (deconsolidation) of sponsored investment funds.
Net cash used in financing activities decreased $3.8 million in 2021 to $58.5 million from $62.3 million in 2020.
This decrease is primarily due to a $3.8 million decrease in dividends paid and a $2.8 million increase in net
contributions from non-controlling interests partially offset by a $2.0 million decrease in cash provided by sales of
shares under the equity incentive plan and a $0.8 million decrease in the repurchase and retirement of shares of Class
A common stock and Class B units during 2021.
Contractual Obligations
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are
not required to provide the information under this item.
Off-Balance Sheet Arrangements
We did not have any off-balance sheet arrangements as of December 31, 2021.
Critical Accounting Policies and Estimates
The preparation of our consolidated financial statements in accordance with accounting principles generally
accepted in the United States of America ("U.S. GAAP"), requires management to make estimates and judgments that
affect our reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets
and liabilities. We base our estimates on historical experience and on various other assumptions that are believed to
be reasonable under current circumstances, the results of which form the basis for making judgments about the
carrying value of assets and liabilities that are not readily available from other sources. We evaluate our estimates on
an ongoing basis. Actual results may differ from these estimates under different assumptions or conditions.
43
Accounting policies are an integral part of our financial statements. A thorough understanding of these accounting
policies is essential when reviewing our reported results of operations and our financial condition. Management
believes that the critical accounting policies discussed below involve additional management judgment due to the
sensitivity of the methods and assumptions used.
Consolidation
Our policy is to consolidate all majority-owned subsidiaries in which we have a controlling financial interest and
variable-interest entities of which we are deemed to be the primary beneficiary. We assess our consolidation practices
regularly, as circumstances dictate. All significant inter-company transactions and balances have been eliminated.
Income Taxes
We are a “C” corporation under the Internal Revenue Code, and thus liable for federal, state and local taxes on
the income derived from our economic interest in our operating company. The operating company is a limited liability
company that has elected to be treated as a partnership for tax purposes. Our operating company has not made a
provision for federal or state income taxes because it is the responsibility of each of the operating company’s members
(including us) to separately report their proportionate share of the operating company’s taxable income or loss.
Similarly, the income of our consolidated investment partnerships is not subject to income taxes, as such income is
allocated to each partnership’s individual partners. The operating company has made a provision for New York City
Unincorporated Business Tax (UBT) and its consolidated subsidiary Pzena Investment Management, LTD has made
a provision for U.K. income taxes.
We recognize deferred tax assets and liabilities for the future tax consequences attributable to differences between
the carrying amounts of existing assets and liabilities and their respective tax bases, net operating loss carryforwards
and tax credits. A valuation allowance is recorded on our deferred tax assets when it is more-likely-than-not that all
or a portion of such assets will not be realized. When evaluating the realizability of our deferred tax assets, all
evidence, both positive and negative, is evaluated, which requires management to make significant judgments and
assumptions. Items considered when evaluating the need for a valuation allowance include our forecast of future
taxable income, future reversals of existing temporary differences, tax planning strategies and other relevant
considerations.
We believe that the accounting estimate related to the valuation allowance is a critical accounting estimate because
the underlying assumptions can change from period to period. For example, tax law changes, or variances in future
projected operating performance, could result in a change in the valuation allowance. Each quarter, we re-evaluate
our estimate related to the valuation allowance, including our assumptions about future taxable income. If we are not
able to realize all or part of our net deferred tax assets in the future, a valuation allowance would be recorded against
our deferred tax asset and charged to income tax expense in the period such determination was made.
Management judgment is required in determining our provision for income taxes, evaluating our tax positions
and establishing deferred tax assets and liabilities. The calculation of our tax liabilities involves dealing with
uncertainties in the application of complex tax regulations. If the ultimate resolution of uncertainties is different from
currently estimated, it could affect income tax expense and the effective tax rate.
44
Non-Cash Compensation
The Company uses a fair value method in recording the expense associated with the granting of Class B units,
Class B-1 units, Delayed Exchange Class B units, phantom Delayed Exchange Class B units, options to purchase
Class A common stock and Class B units, options to purchase Delayed Exchange Class B units, and shares of Class
A common stock under the 2006 and 2007 Equity Incentive Plans; phantom Delayed Exchange Class B units under
the Bonus Plan; and phantom shares of Class A common stock under the Director Plan. The fair value of awarded
restricted shares of Class A common stock under the 2007 Equity Incentive Plan and phantom shares of Class A
common stock under the Director Plan is determined based on the closing market price of our Class A common stock
on the date of grant. The fair value of awarded Class B and Class B-1 units under the 2006 and 2007 Equity Incentive
Plans are determined by reference to the market price of our Class A common stock on the date of grant, since Class
B and Class B-1 units are exchangeable for shares of our Class A common stock, adjusted for the impact of award
terms on the value of the award. Certain of the restricted shares of Class A common stock are not entitled to dividends
or dividend equivalents while unvested. The fair value of these awards is determined based on the closing market price
of our Class A common stock on the date of grant, net of the present value of the dividends using the applicable risk-
free interest rate. The Delayed Exchange Class B Units have a seven years exchange limitation and are not entitled to
any benefits under the tax receivable agreement. The fair value of these awards is determined based on the closing
market price of our Class A common stock on the date of grant, net of the effects of these terms. The Class B-1 units
are entitled to distributions for the duration of the holder’s employment and will participate in additional value to the
extent there has been appreciation subsequent to the issuance of the Class B-1 unit. The fair value of these awards is
determined based on the present value of expected future dividends, an option pricing model where the strike price
reflects the threshold value over which appreciation is recognized, and the impact of award terms on the value of the
award. The Company also issued options to purchase Delayed Exchange Class B units. The fair value of these options
is determined using an option pricing model where the strike price reflects the fair value of Delayed Exchange Class
B units on the date of grant. Certain of the phantom Delayed Exchange Class B units are not entitled to dividends or
dividend equivalents while unvested.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market Risk
Our exposure to market risk is directly related to our role as investment adviser for separate accounts we manage,
funds we offer, and accounts for which we act as sub-investment adviser.
Our revenue for the two years ended December 31, 2021 was generally derived from advisory fees, which are
typically based on the market value of our AUM, which can be affected by adverse changes in interest rates, foreign
currency exchange rates and equity prices. Accordingly, a decline in the prices of securities would cause our revenue
and income to decline, due to a decrease in the value of the assets we manage. In addition, such a decline could cause
our clients to withdraw their funds in favor of investments offering higher returns or lower risk, which would cause
our revenue and income to decline further.
The value of our AUM was $52.5 billion as of December 31, 2021. A 10% increase or decrease in the value of
our AUM, if proportionately distributed over all of our investment strategies, products, and client relationships, would
cause an annualized increase or decrease in our revenues of approximately $20.9 million at our current weighted
average fee rate excluding the impact of performance fees and fulcrum fee arrangements of 0.398%. There are
differences in our fee rates across distribution channels, investment strategies and the size of client relationships. As
such, a change in the composition of our AUM, in particular an increase in the proportion of our total assets under
management attributable to strategies, clients or relationships with lower effective fee rates, could have a material
negative impact on our overall weighted average fee rates and thus different impact to revenues on the same 10%
increase or decrease in the value of our AUM.
45
We are also subject to market risk due to a decline in the value of our holdings and the holdings of our consolidated
subsidiaries, which as of December 31, 2021 consist primarily of equity securities at fair value, trading debt securities
and investments in equity method investees. At December 31, 2021, the aggregate value of our assets subject to market
risk was $95.5 million. At December 31, 2021, the aggregate value of our liabilities subject to market risk was $0.2
million. Assuming a 10% increase or decrease, the fair value of these assets would increase or decrease by $9.6 million,
at December 31, 2021.
Exchange Rate Risk
A substantial portion of the accounts that we advise, or sub-advise, hold investments that are denominated in
currencies other than the U.S. dollar. Movements in the rate of exchange between the U.S. dollar and the underlying
foreign currency affect the values of assets held in accounts that we manage, thereby affecting the amount of revenues
we earn. The value of our AUM was $52.5 billion as of December 31, 2021 and approximately 34% of our assets
under management across our investment strategies were invested in strategies that primarily invest in securities of
non-U.S. companies and approximately 47% of our assets under management were invested in securities denominated
in currencies other than the U.S. dollar. To the extent our assets under management are denominated in currencies
other than the U.S. dollar, the value of those assets under management will decrease with an increase in the value of
the U.S. dollar, or increase with a decrease in the value of the U.S. dollar. Because we believe that many of our clients
invest in those strategies in order to gain exposure to non-U.S. currencies, or may implement their own hedging
programs, we do not hedge an investment portfolio’s exposure to a non-U.S. currency.
We have not adopted a corporate-level risk management policy to manage this exchange rate risk. Assuming that
47% of our assets under management is invested in securities denominated in currencies other than the U.S. dollar and
excluding the impact of any hedging arrangements, a 10% increase or decrease in the value of the U.S. dollar would
decrease or increase the fair value of our assets under management by $2.6 billion, which would cause an annualized
increase or decrease in revenues of approximately $10.5 million at our current weighted average fee rate excluding
the impact of performance fees and fulcrum fee arrangements of 0.398%.
We operate in several foreign countries, but mainly in the United Kingdom. We incur operating expenses and
have foreign currency-denominated assets and liabilities associated with these operations, although our revenues are
predominately realized in U.S. dollar. We do not believe that foreign currency fluctuations materially affect our results
of operations.
Interest Rate Risk
As of December 31, 2021, approximately $81.1 million of our total cash was primarily held in demand deposit
accounts and money market funds. As such, interest rate changes would not have a material impact on the income we
earn from these deposits. Our interest sensitive assets and liabilities include trading debt securities. At December 31,
2021, the aggregate value of our assets subject to interest rate risk was $7.3 million. Assuming a 10% increase or
decrease, the fair value of these assets would increase or decrease by $0.7 million, at December 31, 2021. In addition,
the Company does not have any debt, and as a result does not have any direct exposure to interest rate risk at December
31, 2021.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Our consolidated financial statements and notes thereto begin on page F-4 of this Annual Report and are
incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
46
ITEM 9A. CONTROLS AND PROCEDURES
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
During the course of their review of our consolidated financial statements as of December 31, 2021, our
management, including our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our
disclosure controls and procedures pursuant to Rule 13a-15 under the Exchange Act. Based on that evaluation, our
Chief Executive Officer and Chief Financial Officer have concluded that, as of December 31, 2021, our disclosure
controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) were effective to ensure that
information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in SEC rules and forms, and that such information is
accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial
Officer, as appropriate, to allow timely decisions regarding required disclosure.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over our financial
reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control system is designed
to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of our financial
statements for external purposes in accordance with accounting principles generally accepted in the United States of
America. There are inherent limitations in the effectiveness of any internal controls, including the possibility of human
error and the circumvention or overriding of controls. Accordingly, even effective internal controls can provide only
reasonable assurances with respect to financial statement preparation. Further, because of changes in conditions, the
effectiveness of internal controls may vary over time.
Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, has
assessed the effectiveness of our internal control over financial reporting as of December 31, 2021. In making this
assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO) in Internal Control — Integrated Framework (2013).
Based on the assessment using those criteria, management concluded that, as of December 31, 2021, our internal
control over financial reporting was effective.
PricewaterhouseCoopers LLP, the independent registered public accounting firm that audited the financial
statements included in this Annual Report have issued an audit report on our internal control over financial reporting.
This report appears on page F-2 of this Annual Report.
Changes in Internal Control Over Financial Reporting
There have not been any changes in our internal control over financial reporting during the quarter ended
December 31, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control
over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not Applicable.
47
PART III.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by this Item will be set forth under the proposal “Election of Directors” and under the
heading "Other Matters" in the Company’s 2022 Proxy Statement to be filed with the U.S. Securities and Exchange
Commission (“SEC”) within 120 days after December 31, 2021 in connection with the solicitation of proxies for the
Company’s 2022 annual meeting of shareholders and is incorporated herein by reference ("Company's 2022 Proxy
Statement").
The Company has a code of ethics, “Code of Business Conduct and Ethics,” that applies to all employees,
including the Company’s principal executive officer and principal financial officer and principal accounting officer,
as well as to the members of the Board of Directors of the Company. The code is available at www.pzena.com. The
Company intends to disclose any changes in, or waivers from, this code by posting such information on the same
website or by filing a Form 8-K, in each case to the extent such disclosure is required by rules of the SEC or the New
York Stock Exchange.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item will be set forth under the headings “Executive Compensation” and "2021
Non-Employee Director Compensation" in the Company’s 2022 Proxy Statement and is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
The information required by this Item will be set forth under the headings “Security Ownership of Principal
Stockholders and Management,” and "Equity Compensation Plan Information," in the Company’s 2022 Proxy
Statement and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
The information required by this Item will be set forth under the heading “Related Party Transactions” and under
the subheading “Director Independence” under the proposal "Election of Directors” in the Company’s 2022 Proxy
Statement and is incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this Item will be set forth under the proposal “Ratification of Independent Auditors”
in the Company’s 2022 Proxy Statement and is incorporated herein by reference.
48
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
The following documents are filed as part of this Annual Report:
1.
Financial Statements
Pzena Investment Management, Inc.
Page
Report of PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm............................
F-2
Consolidated Statements of Financial Condition as of December 31, 2021 and 2020......................................
F-5
Consolidated Statements of Operations for the Years Ended December 31, 2021 and 2020............................
F-6
Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2021 and 2020.......
F-7
Consolidated Statements of Changes in Equity for the Years Ended December 31, 2021 and 2020................
F-8
Consolidated Statements of Cash Flows for the Years Ended December 31, 2021 and 2020 ..........................
F-9
Notes to Consolidated Financial Statements .....................................................................................................
F-10
2.
Financial Statement Schedules
There are no Financial Statement Schedules filed as part of this Annual Report, since the required information is
included in our consolidated financial statements and in the notes thereto.
3.
Exhibit List
We have incorporated by reference herein certain exhibits as specified below pursuant to Rule 12b-32 of the
Exchange Act. If specific material facts exist which contradict the representations and warranties contained in the
documents filed or incorporated by reference in this Annual Report, corrective disclosure has been provided.
Additional information about us may be found elsewhere in this Annual Report, and our other public filings,
which are available without charge through the SEC’s website at http://www.sec.gov, as well as through our website
at www.pzena.com.
Exhibit
Description of Exhibit
3.1
Second Amended and Restated Certificate of Incorporation of Pzena Investment Management, Inc.,
effective as of May 23, 2017(1)
3.2
Second Amended and Restated Bylaws of Pzena Investment Management, Inc., effective as of January
15, 2016(2)
4.1
Form of Pzena Investment Management, Inc. Class A Common Stock Certificate(3)
4.2
Form of Exchange Rights of Class B Members(4)
4.3
Form of Exchange Rights of Class B-1 Members(4)
4.4
Resale and Registration Rights Agreement, dated as of October 30, 2007, by and among Pzena
Investment Management, Inc. and the Holders named on the signature pages thereto(5)
4.5
Class B Stockholders’ Agreement, dated as of October 30, 2007, by and among Pzena Investment
Management, Inc. and the Class B Stockholders named on the signature pages thereto(5)
4.6
Description of Capital Stock(4)
10.1
Amended and Restated Operating Agreement of Pzena Investment Management, LLC, dated as of
December 30, 2019, by and among Pzena Investment Management, Inc. and the Class B Members
named on the signature pages thereto(4)
10.2
Tax Receivable Agreement, dated as of October 30, 2007, by and among Pzena Investment
Management, Inc., Pzena Investment Management, LLC and the Continuing Members and Exiting
Members named on the signature pages thereto(5)
10.3
Pzena Investment Management, LLC Amended and Restated 2006 Equity Incentive Plan(6)
49
10.4
Pzena Investment Management, LLC Amended and Restated Bonus Plan, as amended, dated as of
October 21, 2008(7)
10.5
Pzena Investment Management, Inc. 2007 Equity Incentive Plan, as amended, dated as of January 31,
2017(6)
10.6
Executive Employment Agreement for Richard S. Pzena, dated as of October 30, 2007, by and among
Pzena Investment Management, Inc., Pzena Investment Management, LLC and Richard S. Pzena(5)
10.7
Executive Employment Agreement for John P. Goetz, dated as of October 30, 2007, by and among
Pzena Investment Management, Inc., Pzena Investment Management, LLC and John P. Goetz(5)
10.8
Amended and Restated Executive Employment Agreement for William L. Lipsey, dated as of October
30, 2007, by and among Pzena Investment Management, Inc., Pzena Investment Management, LLC and
William L. Lipsey(5)
10.9
Indemnification Agreement for Richard S. Pzena, dated as of October 30, 2007, by and among Pzena
Investment Management, Inc. and Richard S. Pzena(5)
10.10
Indemnification Agreement for Steven M. Galbraith, dated as of October 30, 2007, by and among Pzena
Investment Management, Inc. and Steven M. Galbraith(5)
10.11
Indemnification Agreement for Joel M. Greenblatt, dated as of October 30, 2007, by and among Pzena
Investment Management, Inc. and Joel M. Greenblatt(5)
10.12
Indemnification Agreement for Richard P. Meyerowich, dated as of October 30, 2007, by and among
Pzena Investment Management, Inc. and Richard P. Meyerowich(5)
10.13
Indemnification Agreement for John P. Goetz, dated as of May 17, 2011, by and among Pzena
Investment Management, Inc. and John P. Goetz(8)
10.14
Indemnification Agreement for William L. Lipsey, dated as of May 17, 2011, by and among Pzena
Investment Management, Inc. and William L. Lipsey(8)
10.15
Pzena Investment Management, Inc. Non-Employee Director Deferred Compensation Plan, dated as of
July 21, 2009 (9)
10.16
Amendment to Executive Employment Agreement for Richard S. Pzena, dated as of November 1, 2012,
by and among Pzena Investment Management, Inc., Pzena Investment Management, LLC, and Richard
S. Pzena(10)
10.17
Amendment to Executive Employment Agreement for John P. Goetz, dated as of November 1, 2012, by
and among Pzena Investment Management, Inc., Pzena Investment Management, LLC, and John P.
Goetz(10)
10.18
Amendment to Amended and Restated Executive Employment Agreement for William L. Lipsey, dated
as of November 1, 2012, by and among Pzena Investment Management, Inc., Pzena Investment
Management, LLC, and William L. Lipsey(10)
10.19
Amendment, dated as of November 12, 2012, to Tax Receivable Agreement, dated as of October 30,
2007, by and among Pzena Investment Management, Inc., Pzena Investment Management, LLC and the
Continuing Members and Exiting Members named on the signature pages thereto (11)
10.20
Indemnification Agreement for Charles D. Johnston, dated as of February 5, 2014, by and among Pzena
Investment Management, Inc. and Charles D. Johnston (12)
10.21
Lease, dated as of June 13, 2014, between Mutual of America Life Insurance Company, as Landlord and
Pzena Investment Management, LLC, as Tenant (13)
10.22
Form of Class B-1 Unit Agreement (filed herewith)
10.23
Amendment to the Pzena Investment Management, LLC Amended and Restated Bonus Plan, dated
December 2, 2014(14)
10.24
Form of Unit-Based Award Agreement for Phantom Class B Units(14)
10.25
Form of Class B Unit Agreement - Delayed Exchange (14)
10.26
Form of Class B Unit-Based Agreement for Phantom Class B Units - Revised December, 2015(15)
10.27
Form of Class B Unit Agreement - Delayed Exchange - Revised December, 2015(15)
10.28
Amended and Restated Agreement of Limited Partnership of Pzena Investment Management, LP, dated
as of December 30, 2019(4)
50
10.29
Form of Class B Unit Option Agreement - Delayed Exchange (16)
10.30
Amendment, dated as of December 18, 2017, to Tax Receivable Agreement, dated as of October 30,
2007, as amended by and among Pzena Investment Management, Inc., Pzena Investment Management,
LLC and the Continuing Members and Exiting Members named on the signature pages thereto(16)
10.31
First Amendment of Lease dated November 8th, 2018 amending the Lease, dated as of June 13, 2014,
between Mutual of America Life Insurance Company, as Landlord and Pzena Investment Management,
LLC as Tenant(17)
10.32
Indemnification Agreement for Shavar Jeffries, dated as of January 26, 2021, by and among Pzena
Investment Management, Inc. and Shavar Jeffries(18)
10.33
Indemnification Agreement for Chenyu Caroline Cai, dated as of October 19, 2021, by and among Pzena
Investment Management, Inc. and Chenyu Caroline Cai(19)
10.34
Second Amendment of Lease dated January 21, 2022 between 320 Park Avenue LLC (as successor-in-
interest to Mutual of America Life Insurance Company) and Pzena Investment Management LLC,
amending the Lease, dated as of June 13, 2014, between Mutual of America Life Insurance Company, as
Landlord and Pzena Investment Management, LLC as Tenant as amended (filed herewith)
14.1
Code of Business Conduct and Ethics, effective as of October 25, 2007, amended as of June 30, 2020(20)
14.2
Code of Ethics for Senior Financial Officers(21)
21.1
List of Subsidiaries of Pzena Investment Management, Inc. (filed herewith)
23.1
Consent of PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm (filed
herewith)
31.1
Certification of Chief Executive Officer pursuant to Exchange Act Rule 13a-14(a) (filed herewith)
31.2
Certification of Chief Financial Officer pursuant to Exchange Act Rule 13a-14(a) (filed herewith)
32.1
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith)
32.2
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith)
101
Materials from the Pzena Investment Management, Inc. Annual Report on Form 10-K for the year ended
December 31, 2021, formatted in Inline XBRL (Extensible Business Reporting Language):
(i) Consolidated Statements of Financial Condition, (ii) Consolidated Statements of Operations,
(iii) Consolidated Statement of Changes in Equity, (iv) Consolidated Statements of Cash Flows, and
(vi) related Unaudited Notes to the Consolidated Financial Statements, tagged in detail
104
Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101)
(1)
Previously filed as an exhibit to our current report on Form 8-K filed with the Securities and Exchange Commission on May 24, 2017 (SEC
File No. 001-33761).
(2)
Previously filed as an exhibit to our current report on Form 8-K filed with the Securities and Exchange Commission on January 19, 2016
(SEC File No. 001-33761).
(3)
Previously filed as an exhibit to Amendment No. 4 of the Registration Statement on Form S-1 (No. 333-143660) of Pzena Investment
Management, Inc., which was filed with the Securities and Exchange Commission on October 22, 2007.
(4)
Previously filed as an exhibit to our annual report on Form 10-K filed with the Securities and Exchange Commission on March 10, 2020
(SEC File No. 001-33761).
(5)
Previously filed as an exhibit to our quarterly report on Form 10-Q filed with the Securities and Exchange Commission on December 5,
2007 (SEC File No. 001-33761).
(6)
Previously filed as an exhibit to our quarterly report on Form 10-Q filed with the Securities and Exchange Commission on August 8, 2017
(SEC File No. 001-33761).
(7)
Previously filed as an exhibit to our quarterly report on Form 10-Q filed with the Securities and Exchange Commission on November 13,
2008 (SEC File No. 001-33761).
(8)
Previously filed as an exhibit to our annual report on Form 10-K filed with the Securities and Exchange Commission on March 14, 2012
(SEC File No. 001-33761).
(9)
Previously filed as an exhibit to our quarterly report on Form 10-Q filed with the Securities and Exchange Commission on November 9,
2009 (SEC File No. 001-33761).
51
(10)
Previously filed as an exhibit to our current report on Form 8-K filed with the Securities and Exchange Commission on November 2, 2012
(SEC File No. 001-33761).
(11)
Previously filed as an exhibit to our annual report on Form 10-K filed with the Securities and Exchange Commission on March 12, 2013
(SEC File No. 001-33761).
(12)
Previously filed as an exhibit to our current report on Form 8-K filed with the Securities and Exchange Commission on January 30, 2014
(SEC File No. 001-33761).
(13)
Previously filed as an exhibit to our quarterly report on Form 10-Q filed with the Securities and Exchange Commission on August 7, 2014
(SEC File No. 001-33761).
(14)
Previously filed as an exhibit to our annual report on Form 10-K filed with the Securities and Exchange Commission on March 16, 2015
(SEC File No. 001-33761)
(15)
Previously filed as an exhibit to our annual report on Form 10-K filed with the Securities and Exchange Commission on March 14, 2016
(SEC File No. 001-33761).
(16)
Previously filed as an exhibit to our annual report on Form 10-K filed with the Securities and Exchange Commission on March 9, 2018
(SEC File No. 001-33761).
(17)
Previously filed as an exhibit to our annual report on Form 10-K filed with the Securities and Exchange Commission on March 8, 2019
(SEC File No. 001-33761).
(18)
Previously filed as an exhibit to our current report on Form 8-K filed with the Securities and Exchange Commission on January 28, 2021
(SEC File No. 001-33761).
(19)
Previously filed as an exhibit to our current report on Form 8-K filed with the Securities and Exchange Commission on October 21, 2021
(SEC File No. 001-33761).
(20)
Previously filed as an exhibit to our annual report on Form 10-K filed with the Securities and Exchange Commission on March 10, 2021
(SEC File No. 001-33761).
(21)
Previously filed as an exhibit to our annual report on Form 10-K filed with the Securities and Exchange Commission on March 31, 2008
(SEC File No. 001-33761).
ITEM 16. FORM OF 10-K SUMMARY
None.
52
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Pzena Investment
Management, Inc. has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: March 8, 2022
Pzena Investment Management, Inc.
By: /s/ Richard S. Pzena
Name: Richard S. Pzena
Title: Chief Executive Officer
Each person whose signature appears below constitutes and appoints Jessica R. Doran and Joan F. Berger, and
each of them, his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution,
for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments to this
Annual Report, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and necessary to be done to effectuate the intent
and purpose of this paragraph, as fully as he or she might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents or any of them, or their or his or her substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
53
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of Pzena Investment Management, Inc. and in the capacities and on the dates indicated.
SIGNATURE
TITLE
DATE
/s/ Richard S. Pzena
Richard S. Pzena
Chairman, Chief Executive Officer,
Co-Chief Investment Officer (principal executive officer)
March 8, 2022
/s/ Jessica R. Doran
Jessica R. Doran
Chief Financial Officer
(principal financial and accounting officer)
March 8, 2022
/s/ John P. Goetz
John P. Goetz
President, Co-Chief Investment Officer, Director
March 8, 2022
/s/ William L. Lipsey
William L. Lipsey
President, Head of Business Development and
Client Service, Director
March 8, 2022
/s/ Chenyu Caroline Cai
Chenyu Caroline Cai
Executive Vice President, Director
March 8, 2022
/s/ Steven M. Galbraith
Steven M. Galbraith
Director
March 8, 2022
/s/ Joel M. Greenblatt
Joel M. Greenblatt
Director
March 8, 2022
/s/ Richard P. Meyerowich
Richard P. Meyerowich
Director
March 8, 2022
/s/ Charles D. Johnston
Charles D. Johnston
Director
March 8, 2022
/s/ Shavar D. Jeffries
Shavar D. Jeffries
Director
March 8, 2022
F-1
INDEX TO FINANCIAL STATEMENTS OF
PZENA INVESTMENT MANAGEMENT, INC.
Page
Pzena Investment Management, Inc.
Report of PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm..........................
F-2
Consolidated Statements of Financial Condition as of December 31, 2021 and 2020....................................
F-5
Consolidated Statements of Operations for the Years Ended December 31, 2021 and 2020..........................
F-6
Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2021 and 2020.....
F-7
Consolidated Statements of Changes in Equity for the Years Ended December 31, 2021 and 2020..............
F-8
Consolidated Statements of Cash Flows for the Years Ended December 31, 2021 and 2020 ........................
F-9
Notes to Consolidated Financial Statements ...................................................................................................
F-10
F-2
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Pzena Investment Management, Inc.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated statements of financial condition of Pzena Investment
Management, Inc. and its subsidiaries (the “Company”) as of December 31, 2021 and 2020, and the related
consolidated statements of operations, comprehensive income, changes in equity and cash flows for each of the two
years in the period ended December 31, 2021, including the related notes (collectively referred to as the consolidated
financial statements”). We also have audited the Company's internal control over financial reporting as of December
31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee
of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the
financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash
flows for each of the two years in the period ended December 31, 2021 in conformity with accounting principles
generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in
Internal Control - Integrated Framework (2013) issued by the COSO.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective
internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial
reporting, included in the Management's Report on Internal Control
Over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s
consolidated financial statements and on the Company's internal control over financial reporting based on our audits.
We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States)
(PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal
securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the
PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of
material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting
was maintained in all material respects.
Our audits of the consolidated financial statements 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. 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
audits also included performing such other procedures as we considered necessary in the circumstances. We believe
that our audits provide a reasonable basis for our opinions.
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 (i) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable
F-3
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 (iii) 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.
Critical Audit Matters
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 (i)
relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our
especially challenging, subjective, or complex judgments. The communication of critical audit matters 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.
Income Taxes – Deferred Tax Assets and the Related Liability to Selling and Converting Shareholders Under the
Tax Receivable Agreement
As described in Notes 2 and 13 to the consolidated financial statements, the Company has recorded a deferred tax
assets (“DTA”) balance of $25.9 million as of December 31, 2021 while the liability to selling and converting
shareholders under the tax receivable agreement (“TRA”) was $24.7 million. These DTAs primarily reflect the
future tax benefits associated with the Company's initial public offering, and the subsequent and future exchanges by
holders of Class B units of the operating company for shares of Class A common stock (“Exchanges”). The
Company records an increase in DTAs for the estimated income tax effects of the increases in tax basis based on
enacted federal and state tax rates at the date of the Exchanges. The Company records 85% of the estimated
realizable tax benefit (which is the recorded DTA less any recorded valuation allowance) as an increase to the
liability due under the TRA, which is reflected as the liability to selling and converting shareholders. As disclosed
by management, the actual increase in the tax basis, as well as the amount and timing of any payments under the
TRA, may vary depending on a number of factors, including the timing of Exchanges, the price of the Class A
common stock at the time of the Exchange, the extent to which such Exchanges are taxable, the amount and timing
of income, and the tax rates and related laws then applicable. The determination of the tax basis also requires
management to make judgments in estimating the components included in the tax basis as of the date of Exchanges
(such as cash to be received by the Company on hypothetical sale of assets and allocation of gain/loss to the
Company at the time of the Exchanges taking into account complex partnership tax rules). In addition, management
estimates the period of time that may generate cash tax savings of such tax benefits and the realizability of the tax
benefits.
The principal considerations for our determination that performing procedures relating to deferred tax assets and the
related liability to selling and converting shareholders under the tax receivable agreement is a critical audit matter
are (i) the significant judgment by management to determine the impact of the change in tax basis, resulting from the
Exchanges in 2021, on the DTA and the related liabilities under the TRA, which in turn led to a high degree of
auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s determination of
the change in tax basis, the likelihood of the Company having sufficient future taxable income to utilize the deferred
tax asset, and the tax rate then applicable and (ii) the audit effort involved the use of professionals with specialized
skill and knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming
our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of
controls relating to income taxes, including controls over the DTAs and the related liabilities under the TRA. These
procedures also included, among others (i) testing management’s process for estimating the DTAs and the related
F-4
liabilities under the TRA, (ii) evaluating the reasonableness of the determination of (a) the change in tax basis from
the Exchanges in 2021 and (b) the likelihood of the Company having sufficient future taxable income to utilize the
DTA and the tax rate then applicable; and (iii) testing the completeness and accuracy of the data used by
management in the determination of the change in tax basis, future taxable income, and the tax rate then applicable.
Professionals with specialized skill and knowledge were used to assist in testing management's determination of the
change in tax basis and evaluating the appropriateness of the application of the tax laws.
/s/ PricewaterhouseCoopers LLP
New York, New York
March 8, 2022
We have served as the Company’s auditor since 2017.
See accompanying notes to consolidated financial statements.
F-5
PZENA INVESTMENT MANAGEMENT, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(in thousands, except share and per-share amounts)
As of
December 31,
2021
December 31,
2020
ASSETS
Cash and Cash Equivalents ($1,030 and $2,201)1
$
81,133
$
65,534
Restricted Cash
1,056
1,050
Due from Broker
55
87
Advisory Fees Receivable
41,127
36,524
Investments ($27,483 and $1,131)1
95,506
34,104
Receivable from Related Parties
3,871
2,880
Other Receivables ($40 and $8)1
265
154
Prepaid Expenses and Other Assets
1,700
2,569
Right-of-use Asset
10,014
11,578
Deferred Tax Assets
25,886
29,831
Property and Equipment, Net of Accumulated Depreciation of $7,086 and
$5,980, respectively
3,687
4,376
TOTAL ASSETS
$
264,300
$
188,687
LIABILITIES AND EQUITY
Liabilities:
Accounts Payable and Accrued Expenses ($62 and $28)1
$
44,167
$
36,317
Due to Broker ($0 and $2)1
—
56
Securities Sold Short, at Fair Value
237
714
Liability to Selling and Converting Shareholders
24,679
25,701
Lease Liability
10,323
11,905
Deferred Compensation Liability
6,840
5,039
Other Liabilities
—
-
TOTAL LIABILITIES
86,246
79,732
Commitments and Contingencies (see Note 12)
Equity:
Preferred Stock (Par Value $0.01; 200,000,000 Shares Authorized; None
Outstanding)
—
—
Class A Common Stock (Par Value $0.01; 750,000,000 Shares Authorized;
17,306,455 and 17,328,899 Shares Issued and Outstanding in 2021 and 2020,
respectively)
172
173
Class B Common Stock (Par Value $0.000001; 750,000,000 Shares
Authorized; 55,203,277 and 54,313,620 Shares Issued and Outstanding in
2021 and 2020, respectively)
—
—
Additional Paid-In Capital
3,989
5,190
Retained Earnings
38,420
25,611
Accumulated Other Comprehensive Loss
7
132
Total Pzena Investment Management, Inc.'s Equity
42,588
31,106
Non-Controlling Interests
135,466
77,849
TOTAL EQUITY
178,054
108,955
TOTAL LIABILITIES AND EQUITY
$
264,300
$
188,687
1 Asset and liability amounts in parentheses represent the aggregated balances at December 31, 2021 and 2020 attributable to Pzena U.S. Best Ideas
(GP), LLC, Pzena Global Best Ideas (GP), LLC, and Pzena Global Focused Value Fund which were variable interest entities as of December 31,
2021 and 2020, respectively.
See accompanying notes to consolidated financial statements.
F-6
PZENA INVESTMENT MANAGEMENT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per-share amounts)
For the Years Ended December 31,
2021
2020
REVENUE
$
199,334
$
138,619
EXPENSES
Compensation and Benefits Expenses
77,072
68,487
General and Administrative Expenses
16,403
14,859
TOTAL OPERATING EXPENSES
93,475
83,346
Operating Income
105,859
55,273
OTHER INCOME
Interest Income
210
466
Interest Expense
(2)
(16)
Dividend Income
976
329
Net Realized and Unrealized Gains from Investments
4,392
630
Equity in the Earnings/ (Losses) of Affiliates
2,170
(929)
Other Income
670
72
Total Other Income
8,416
552
Income Before Income Taxes
114,275
55,825
Income Tax Expense
7,798
4,287
Net Income
106,477
51,538
Less: Net Income Attributable to Non-Controlling Interests
87,798
42,664
Net Income Attributable to Pzena Investment Management, Inc.
$
18,679
$
8,874
Net Income for Basic Earnings per Share
$
18,679
$
8,874
Basic Earnings per Share
$
1.07
$
0.52
Basic Weighted Average Shares Outstanding
17,414,694
17,208,174
Net Income for Diluted Earnings per Share
$
83,661
$
40,766
Diluted Earnings per Share
$
1.00
$
0.52
Diluted Weighted Average Shares Outstanding1
84,007,638
79,143,710
Cash Dividends per Share of Class A Common Stock
$
0.34
$
0.55
1 The Company issues restricted shares of Class A common stock and the operating company issues restricted Class B units that have non-forfeitable
dividend rights. Under the “two-class method,” these shares and units are considered participating securities and are required to be included in the
computation of diluted earnings per share.
See accompanying notes to consolidated financial statements.
F-7
PZENA INVESTMENT MANAGEMENT, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
For the Years Ended December 31,
2021
2020
NET INCOME
$
106,477
$
51,538
OTHER COMPREHENSIVE INCOME
Foreign Currency Translation Adjustment
(866)
565
Total Other Comprehensive (Loss)/ Income
(866)
565
Comprehensive Income
105,611
52,103
Less: Comprehensive Income Attributable to Non-Controlling Interests
87,057
43,094
Total Comprehensive Income Attributable to Pzena Investment Management,
Inc.
$
18,554
$
9,009
See accompanying notes to consolidated financial statements.
F-8
PZENA INVESTMENT MANAGEMENT, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(in thousands, except share and per-share amounts)
Shares of Class A
Common Stock
Shares of Class B
Common Stock
Class A
Common Stock
Additional Paid-In
Capital
Accumulated Other
Comprehensive
Income/
(Loss)
Retained Earnings
Non-Controlling
Interests
Total
Balance at December 31, 2019
18,009,350
52,879,323
$
179
$
4,829
$
(3)
$
26,439
$
76,766
$
108,210
Unit Conversion
494,316
(494,316)
5
1,007
—
—
(622)
390
Amortization of Non-Cash Compensation
20,000
859,811
1
1,838
—
—
6,327
8,166
Issuance of Shares under Equity Incentive
Plan
—
637,349
—
890
—
—
2,952
3,842
Sale of Shares Under Equity Incentive Plan
—
554,860
—
523
—
—
1,772
2,295
Modification
16,806
(16,806)
—
-
—
—
-
-
Directors' Shares
—
—
—
103
—
—
352
455
Net Income
—
—
—
—
—
8,874
42,664
51,538
Foreign Currency Translation Adjustments
—
—
—
—
135
—
430
565
Options Exercised
—
603
—
—
—
—
—
—
Repurchase and Retirement of Class A
Common Stock
(1,211,573)
—
(12)
(1,723)
—
—
(5,928)
(7,663)
Repurchase and Retirement of Class B Units
-
(107,204)
-
(131)
—
—
(509)
(640)
Effect of Deconsolidation
—
—
—
—
—
—
(1,685)
(1,685)
Contributions from Non-Controlling Interests
—
—
—
—
—
—
1,013
1,013
Distributions to Non-Controlling Interests
—
—
—
—
—
(47,590)
(47,590)
Class A Cash Dividends Declared and Paid
($0.55 per share)
—
—
—
—
—
(9,702)
—
(9,702)
Tax Impact of Transactions with Non-
Controlling Shareholders
—
—
—
(239)
—
—
—
(239)
Other
—
—
—
(1,907)
—
—
1,907
—
Balance at December 31, 2020
17,328,899
54,313,620
$
173
$
5,190
$
132
$
25,611
$
77,849
$
108,955
Unit Conversion
790,414
(790,414)
8
1,430
—
—
(1,117)
321
Amortization of Non-Cash Compensation
24,201
851,263
—
1,977
—
—
7,012
8,989
Issuance of Shares under Equity Incentive
Plan
12,353
810,857
—
879
—
—
2,973
3,852
Sale of Shares Under Equity Incentive Plan
—
49,081
—
68
—
—
247
315
Directors' Shares
16,144
—
—
141
—
—
505
646
Net Income
—
—
—
—
—
18,679
87,798
106,477
Foreign Currency Translation Adjustments
—
—
—
—
(125)
—
(741)
(866)
Options Exercised
—
32,947
—
—
—
—
—
—
Repurchase and Retirement of Class A
Common Stock
(865,556)
—
(9)
(1,895)
—
—
(6,751)
(8,655)
Repurchase and Retirement of Class B Units
—
(64,077)
—
(107)
—
—
(384)
(491)
Effect of Consolidation
—
—
—
—
—
—
9,730
9,730
Contributions from Non-Controlling Interests
—
—
—
—
—
—
30,023
30,023
Distributions to Non-Controlling Interests
—
—
—
—
—
(73,773)
(73,773)
Class A Cash Dividends Declared and Paid
($0.34 per share)
—
—
—
—
—
(5,870)
—
(5,870)
Tax Impact of Transactions with Non-
Controlling Shareholders
—
—
—
(1,599)
—
—
—
(1,599)
Other
—
—
—
(2,095)
—
—
2,095
—
Balance at December 31, 2021
17,306,455
55,203,277
$
172
$
3,989
$
7
$
38,420
$
135,466
$
178,054
See accompanying notes to consolidated financial statements.
F-9
PZENA INVESTMENT MANAGEMENT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
For the Years Ended December 31,
2021
20201
OPERATING ACTIVITIES
Net Income
$
106,477
$
51,538
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
Depreciation
1,180
1,214
Loss on Disposal of Fixed Assets
—
—
Non-Cash Compensation
15,824
13,204
Directors' Share Grants
646
455
Net Realized and Unrealized Gains from Investments
(4,392)
(630)
Equity in the Losses/ (Earnings) of Affiliates
(2,170)
929
Non-Cash Performance Fees
(29)
—
Foreign Currency Translation Adjustment
(866)
565
Noncash Lease Expense
2,503
2,282
Change in Liability to Selling and Converting Shareholders
(607)
(213)
Deferred Income Taxes
4,787
3,432
Changes in Operating Assets and Liabilities:
Advisory Fees Receivable
(4,603)
(3,637)
Due from Broker
32
(113)
Prepaid Expenses and Other Assets
800
273
Due to Broker
(56)
16
Accounts Payable, Accrued Expenses, and Other Liabilities
6,686
(8,442)
Tax Receivable Agreement Payments
(2,476)
(2,881)
Change in Lease Liability
(2,521)
(2,330)
Purchases of Investments
(61,449)
(23,935)
Proceeds from Sale of Investments
17,061
19,602
Net Cash Provided by Operating Activities
76,827
51,329
INVESTING ACTIVITIES
Purchases of Investments
(18,981)
(25,169)
Proceeds from Sale of Investments
17,172
50,371
Net Consolidations (Deconsolidations) of Sponsored Investment Funds
578
(123)
Payments (to)/ from Related Parties
(1,049)
(1,011)
Purchase of Property and Equipment
(491)
(43)
Net Cash (Used In)/ Provided by Investing Activities
(2,771)
24,025
FINANCING ACTIVITIES
Repurchase and Retirement of Class A Common Stock
(8,655)
(7,662)
Repurchase and Retirement of Class B Units
(491)
(640)
Sale of Shares under Equity Incentive Plan
315
2,295
Distributions to Non-Controlling Interests
(73,773)
(47,590)
Contributions from Non-Controlling Interests
30,023
1,013
Dividends
(5,870)
(9,702)
Net Cash Used in Financing Activities
(58,451)
(62,286)
NET CHANGE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH
$
15,605
$
13,068
CASH, CASH EQUIVALENTS AND RESTRICTED CASH — Beginning of Year
$
66,584
$
53,516
Net Change in Cash, Cash Equivalents and Restricted Cash
15,605
13,068
CASH, CASH EQUIVALENTS AND RESTRICTED CASH — End of Year
$
82,189
$
66,584
Supplementary Cash Flow Information:
Unit Conversion
$
321
$
390
Issuance of Shares under Equity Incentive Plan
$
3,852
$
3,842
Income Taxes Paid
$
698
$
562
Supplementary Schedule of Non-Cash Investing Transactions:
Increase in Noncontrolling Interests Due to Net Consolidation (Deconsolidation) of
Sponsored Investment Vehicles
$
9,730
$
(1,685)
1 Net consolidation (Deconsolidation) of Sponsored Investment Funds have been reclassified to conform to the current year presentation.
F-10
Pzena Investment Management, Inc.
Notes to Consolidated Financial Statements
Note 1 — Organization
Pzena Investment Management, Inc. (the “Company”) functions as the sole managing member of its operating
company, Pzena Investment Management, LLC (the “operating company”). As a result, the Company: (i) consolidates
the financial results of the operating company and reflects the membership interests that it does not own as a non-
controlling interest in its consolidated financial statements; and (ii) recognizes income generated from its economic
interest in the operating company’s net income.
The operating company is an investment adviser which is registered under the Investment Advisers Act of 1940
and is headquartered in New York, New York. As of December 31, 2021, the operating company managed assets in
a variety of value-oriented investment strategies across a wide range of market capitalizations in both U.S. and non-
U.S. capital markets.
The Company also serves as the general partner of Pzena Investment Management, LP, a partnership formed with
the objective of aggregating employee ownership in the operating company into one entity.
The Company has consolidated the results of operations and financial condition of the following entities as of
December 31, 2021:
Legal Entity
Type of Entity (Date of Formation)
Ownership at
December 31,
2021
Pzena Investment Management, Pty
Australian Proprietary Limited Company
(12/16/2009)
100.0%
Pzena Financial Services, LLC
Delaware Limited Liability Company
(10/15/2013)
100.0%
Pzena Investment Management, LTD
England and Wales Private Limited Company
(1/08/2015)
100.0%
Pzena Investment Management Europe Limited
Irish Private Company Limited by Shares
(07/08/2021)
100.0%
Pzena U.S. Best Ideas (GP), LLC
Delaware Limited Liability Company
(11/16/2017)
100.0%
Pzena Global Best Ideas (GP), LLC
Delaware Limited Liability Company
(2/15/2018)
100.0%
Pzena Investment Management International 2,
LLC
Delaware Limited Liability Company
(1/21/2020)
100.0%
Pzena International Small Cap Value Fund, a
series of Advisors Series Trust
Open-end Management Investment Company,
series of Delaware Statutory Trust (6/28/2018)
51.3%
Pzena International Value Fund, a series of
Advisors Series Trust
Open-end Management Investment Company,
series of Delaware Statutory Trust (6/27/2021)
50.7%
Pzena Global Focused Value Fund
Australian Registered Investment Scheme
(6/10/2016)
15.9%
Pzena Investment Management, Inc.
Notes to Consolidated Financial Statements (Continued)
F-11
Note 2 — Significant Accounting Policies
Basis of Presentation:
The consolidated financial statements are prepared in conformity with accounting principles generally accepted
in the United States of America (“U.S. GAAP”) and related Securities and Exchange Commission (“SEC”) rules and
regulations.
Principles of Consolidation:
The Company’s policy is to consolidate those entities in which it has a direct or indirect controlling financial
interest. The consolidation guidance requires an analysis to determine if an entity should be evaluated for consolidation
using the voting interest entity (“VOE”) model or the variable interest entity (“VIE”) model. Under the VOE model,
controlling financial interest is generally defined as a majority ownership of voting interests. Under the VIE model,
controlling financial interest is established if the entity is determined to be the primary beneficiary, which is defined
as (i) the power to direct activities that most significantly impact the economic performance of the entity and (ii) the
right to receive potentially significant benefits or the obligation to absorb potentially significant losses.
Pursuant to the Consolidation Topic of the FASB Accounting Standards Codification (“FASB ASC”), for legal
entities evaluated for consolidation, the Company determines whether interests it holds and fees paid to the entity
qualify as a variable interest. If it is determined that the Company does not have a variable interest in the entity or a
voting interest in the entity, no further analysis is required and the Company does not consolidate the entity. If it is
determined that the Company has a variable interest, it considers its direct interests and the proportionate indirect
interests through related parties to determine if it is the primary beneficiary of the VIE.
For equity investments where the Company does not control the investee, and where it is not the primary
beneficiary of a VIE, but can exert significant influence over the financial and operating policies of the investee, the
Company follows the equity method of accounting. The evaluation of whether the Company exerts control or
significant influence over the financial and operating policies of the investee requires significant judgment based on
the facts and circumstances surrounding each investment. Factors considered in these evaluations may include the
type of investment, the legal structure of the investee, the terms of the investment agreement, or other agreements with
the investee.
The Company analyzes entities structured as series funds which comply with the requirements included in the
Investment Company Act of 1940 for registered mutual funds as voting interest entities because the shareholders are
deemed to have the ability to direct the activities of the fund that most significantly impact the fund's economic
performance.
Consolidated Entities
The Company consolidates the financial results of the operating company and records in its own equity its pro-
rata share of transactions that impact the operating company’s net equity, including unit and option issuances,
repurchases, and retirements. The operating company’s pro-rata share of such transactions are recorded as an
adjustment to additional paid-in capital or non-controlling interests, as applicable, on the consolidated statements of
financial condition.
The majority-owned subsidiaries in which the Company, through its interest in the operating company, has a
controlling financial interest and the VIEs for which the Company is deemed to be the primary beneficiary are
collectively referred to as “consolidated subsidiaries.” Non-controlling interests recorded on the consolidated financial
statements of the Company include the non-controlling interests of the outside investors in each of these entities, as
well as those of the operating company. All significant inter-company transactions and balances have been eliminated
through consolidation.
Pzena Investment Management, Inc.
Notes to Consolidated Financial Statements (Continued)
F-12
During June of 2021, the Company provided the initial cash investment for the launch of a Pzena mutual fund,
the Pzena International Value Fund. Due to its series fund structure, registration, and compliance with the requirements
of the Investment Company Act of 1940, the fund is analyzed for consolidation under the voting interest model. As a
result of the Company's initial interests, it consolidated the Pzena International Value Fund through September 17,
2021. During September of 2021, due to additional subscriptions into the Pzena International Value Fund, the
Company's ownership decreased below the threshold for consolidation under the voting interest model. As the
Company was no longer deemed to control the fund, it deconsolidated the entity and removed the related assets,
liabilities and non-controlling interest from the Company’s consolidated statements of financial condition and
classified the Company's remaining investment as an equity method investment. During December of 2021, due to
additional contributions from the Company into the Pzena International Value Fund, the Company's ownership
increased above the threshold for consolidation under the voting interest model. As of December 31, 2021, Pzena
International Value Fund’s $20.1 million in net assets were included in the Company’s consolidated statements of
financial condition.
During September of 2021, the Company redeemed its investment in Pzena Investment Management Special
Situations, LLC. As the Company was no longer deemed the primary beneficiary of this entity, it deconsolidated the
entity and removed the related assets, liabilities and non-controlling interest from the Company’s Consolidated
Statements of Financial Condition.
During December of 2021, the Company provided the initial cash investment for the launch of the Pzena
Emerging Markets Select Value Fund, a new sub-fund through Pzena Value Funds plc. Due to its fund structure, the
fund is analyzed for consolidation under the voting interest model. As a result of the Company's initial interests, it
consolidated the Pzena Emerging Markets Select Value Fund as of December 31, 2021. At December 31, 2021,
Emerging Markets Select Value Fund’s $10.3 million in net assets were included in the Company’s Consolidated
Statements of Financial Condition.
On January 1, 2020, the Company redeemed its investment in the Pzena International Value Service (a series of
Pzena Investment Management International, LLC). As the Company was no longer deemed the primary beneficiary
of this entity, it deconsolidated the entity and removed the related assets, liabilities and noncontrolling interest from
the Company’s Consolidated Statements of Financial Condition.
During 2020, the Company provided the initial cash investment for a Pzena-branded Australian Registered
Investment Scheme, Pzena Global Focused Value Fund, in an effort to generate an investment performance track
record to attract third-party investors. The Company is considered the primary beneficiary of this entity. At December
31, 2021 and 2020, Pzena Global Focused Value Fund’s $26.7 million and $3.6 million, respectively, in net assets
were included in the Company’s Consolidated Statements of Financial Condition.
These consolidated investment partnerships are investment companies and apply specialized industry accounting
for investment companies. The Company has retained this specialized accounting for these investment partnerships
pursuant to U.S. GAAP.
Non-Consolidated Variable Interest Entities
VIEs that are not consolidated continue to receive investment management services from the operating company
and are generally private investment partnerships sponsored by the operating company. The total net assets of these
VIEs was approximately $234.7 million and $265.9 million at December 31, 2021 and 2020, respectively.
Pzena Investment Management, Inc.
Notes to Consolidated Financial Statements (Continued)
F-13
As of December 31, 2021 and 2020, in order to satisfy certain of the Company's obligations under its deferred
compensation programs, the operating company had $1.8 million and $3.2 million in investments, respectively, in
certain of these firm-sponsored vehicles, for which the Company was not deemed to be the primary beneficiary. The
Company's exposure to risk in the non-consolidated VIEs is generally limited to any equity investment and any
uncollected management fees. As of December 31, 2021 and 2020, the Company's maximum exposure to loss as a
result of its involvement with the non-consolidated VIEs was $2.2 million and $3.6 million, respectively.
Accounting Pronouncements Adopted in 2021:
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for
Income Taxes. The amendments simplify the accounting for income taxes by removing certain exceptions to the
general principles in Topic 740. The amendments also improve consistent application of and simplify US GAAP for
other areas of Topic 740 by clarifying and amending the existing guidance. We adopted this standard prospectively
on January 1, 2021. The adoption of this standard did not have a material impact on the Company’s consolidated
financial condition or results of operations.
Management’s Use of Estimates:
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities
at the date of the financial statements, and the reported amounts of revenues and expenses for the period. Actual
results could materially differ from those estimates.
Revenue Recognition:
Revenue, comprised of advisory fee income, is recognized over the period in which advisory services are
provided. Advisory fee income includes management fees that are calculated based on percentages of assets under
management (“AUM”), generally billed quarterly, either in arrears or advance, depending on their contractual terms.
Advisory fee income also includes performance fees that may be earned by the Company depending on the investment
return of AUM, as well as fulcrum fee arrangements. Performance fee arrangements generally entitle the Company
to participate, on a fixed-percentage basis, in any returns generated in excess of an agreed-upon benchmark. The
Company’s participation percentage in such return differentials is then multiplied by AUM to determine the
performance fees earned. In general, returns are calculated on an annualized basis over the contract’s measurement
period, which usually extends to three years. Performance fees are generally payable annually or quarterly. Fulcrum
fee arrangements require a reduction in the base fee or allow for an increase in the base fee if the relevant investment
strategy underperforms or outperforms, respectively, the agreed-upon benchmark over the contract's measurement
period, which extends to three years. Fulcrum fees are generally payable quarterly. Following the preferred method
identified in the Revenue Recognition Topic of the FASB ASC, performance fee income is recorded at the conclusion
of the contractual performance period, when it is probable that significant reversal of the performance fee will not
occur. Advisory fee income is presented net of fund expense cap reimbursements.
Pzena Investment Management, Inc.
Notes to Consolidated Financial Statements (Continued)
F-14
Revenue from advisory fees is disaggregated into categories based on the composition of the Company's client
base and advisory fee structure for the years ended December 31, 2021, and 2020:
For the Years Ended December 31,
Revenue
2021
2020
(in thousands)
Separately Managed Accounts
Asset-Based Fees
$
102,841
$
74,725
Performance-Based Fees
—
—
Total Separately Managed Fees
102,841
74,725
Sub-Advised Accounts
Asset-Based Fees
$
80,990
$
52,741
Impact of Fulcrum Fees1
(3,776)
(4,027)
Performance-Based Fees
—
—
Total Sub-Advised Fees
77,214
48,714
Pzena Funds
Asset-Based Fees
$
20,096
$
15,154
Expense Cap Reimbursements
(909)
(1,052)
Performance-Based Fees
92
1,078
Total Pzena Funds Fees
19,279
15,180
Total
$
199,334
$
138,619
1
Represents the net impact of fulcrum fee arrangements which require a reduction in the base fee or allow for an increase in the base fee if the
relevant investment strategy underperforms or outperforms, respectively, the agreed-upon benchmark over the contract's measurement period.
Cash and Cash Equivalents:
At December 31, 2021 and 2020, Cash and Cash Equivalents was $81.1 million and $65.5 million, respectively.
The Company considers all money market funds and highly-liquid debt instruments with an original maturity of three
months or less at the time of purchase to be cash equivalents. The Company maintains its cash in bank deposits, other
accounts whose balances often exceed federally insured limits and treasury money market funds. Cash is stated at
cost, which approximates fair value.
Interest on cash and cash equivalents is recorded as Interest Income on an accrual basis in the consolidated
statements of operations.
Restricted Cash:
At December 31, 2021, and 2020, the Company had $1.1 million of compensating balances recorded in Restricted
Cash in the consolidated statements of financial condition. These balances reflect a letter of credit issued by a third
party in lieu of a cash security deposit, as required by the Company’s lease for its corporate headquarters.
The following table reconciles cash, cash equivalents, and restricted cash per the consolidated statements of cash
flows to the consolidated statements of financial condition.
For the Years Ended December 31,
2021
2020
2019
(in thousands)
Cash and Cash Equivalents
$
81,133
$
65,534
$
52,480
Restricted Cash
1,056
1,050
1,036
Total
$
82,189
$
66,584
$
53,516
Pzena Investment Management, Inc.
Notes to Consolidated Financial Statements (Continued)
F-15
Due to/from Broker:
Due to/from Broker consists primarily of amounts payable/receivable for unsettled securities transactions
held/initiated at the clearing brokers of the Company and its consolidated subsidiaries.
Non-Cash Compensation:
All non-cash compensation awards granted have varying vesting schedules and are issued at prices equal to the
assessed fair market value at the time of issuance. Expenses associated with these awards are recognized over the
period during which employees are required to provide service. The Company accounts for forfeitures as they occur.
Investments:
Investments, at Fair Value
Investments, at Fair Value consist of equity securities at fair value and trading debt securities held by the Company
and its consolidated subsidiaries, as well as investments in open-ended registered mutual funds. Management
determines the appropriate classification of its investments at the time of purchase and re-evaluates such determination
on an ongoing basis. Dividends and interest income associated with the Company's investments and the investments
of the Company's consolidated subsidiaries are recognized as Dividend Income on an ex-dividend basis and Interest
Income, respectively, in the consolidated statements of operations.
Securities Sold Short represents securities sold short, not yet purchased by the Company. Dividend expense
associated with these investments is recognized in Other Income/ (Expense) on an ex-dividend basis in the
consolidated statements of operations.
All such investments are recorded at fair value, with net realized and unrealized gains and losses recognized as a
component of Net Realized and Unrealized Gains/ (Losses) from Investments in the consolidated statements of
operations.
Investments in equity method investees
The Company accounts for its investments in certain private investment partnerships in which the Company has
non-controlling interests and exercises significant influence, using the equity method. These investments are included
in Investments in the Company's consolidated statements of financial condition. The carrying value of these
investments are recorded at the amount of capital reported by the private investment partnership or mutual fund. The
capital account reflects any contributions paid to, distributions received from, and equity earnings of, the entities. The
earnings of these investments are recognized in Equity in Earnings/ (Losses) of Affiliates in the consolidated
statements of operations.
Investments in equity method investees are evaluated for impairment as events or changes in circumstances
indicate that the carrying amount of such assets may not be recoverable. If the carrying amounts of the assets exceed
their respective fair values, additional impairment tests are performed to measure the amounts of impairment losses,
if any. For the years ended December 31, 2021 and 2020, no impairment losses were recognized.
Securities Valuation:
Investments in equity securities for which market quotations are available are valued at the last reported price or
closing price on the primary market or exchange on which they trade. If no reported equity sales occurred on the
valuation date, equity investments are valued at the bid price. Investments in registered mutual funds are carried at
fair value at their respective net asset values as of the valuation date. Otherwise, fair values for investment securities
are based on Level 2 or Level 3 inputs detailed in Note 9. Transactions are recorded on a trade date basis.
The net realized gain or loss on sales of securities is determined on a specific identification basis and is included
in Net Realized and Unrealized Gains/ (Losses) from Investments in the consolidated statements of operations.
Pzena Investment Management, Inc.
Notes to Consolidated Financial Statements (Continued)
F-16
Concentrations of Credit Risk:
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of
cash, amounts due from brokers, and advisory fees receivable. The Company maintains its cash in bank deposits and
other accounts whose balances often exceed federally insured limits.
The concentration of credit risk with respect to advisory fees receivable is generally limited due to the short
payment terms extended to clients by the Company. On a periodic basis, the Company evaluates its advisory fees
receivable and establishes an allowance for doubtful accounts, if necessary, based on a history of past write-offs,
collections, and current credit conditions. For the years ended December 31, 2021 and 2020, there were no client
relationships representing more than 10% of the Company's revenue. At December 31, 2021 and 2020, no allowance
for doubtful accounts has been deemed necessary.
Property and Equipment:
Property and equipment is carried at cost, less accumulated depreciation and amortization. Depreciation is
provided on a straight-line basis over the estimated useful lives of the respective assets, which range from three to
seven years. Leasehold improvements are amortized on a straight-line basis over the shorter of the useful life of the
improvements or the remaining lease term. Capitalized internal-use software development costs are amortized on a
straight-line basis over three years from the date of implementation.
Leases:
The Company determines if an arrangement is a lease at inception. Operating leases are included as a component
of Right-of-use (“ROU”) Assets and Lease Liabilities on the consolidated statements of financial condition. ROU
assets represent the right to use an underlying asset for the lease term and lease liabilities represent the obligation to
make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at
commencement date based on the present value of lease payments over the lease term. The lease terms may include
options to extend or terminate the lease. These options to extend or terminate are assessed on a lease-by-lease basis,
and the ROU assets and lease liabilities are adjusted when it is reasonably certain that an option will be exercised. If
a lease arrangement does not provide an implicit rate, the Company uses an incremental borrowing rate based on the
information available at commencement date in determining the present value of lease payments. Lease expense for
lease payments is recognized on a straight-line basis over the lease term. Lease expense associated with leases that
have a term of 12 months or less as of the commencement date are recognized as a component of general and
administrative expenses on a straight-line basis over the lease term.
Share Repurchases:
Share repurchases may be made from time-to-time in open market transactions or through privately negotiated
transactions under the authorization approved by the Board of Directors. The Company charges the entire excess of
cost over par to additional paid-in capital. If the Company’s additional paid-in capital balance is reduced to zero, any
additional amounts are recognized in retained earnings.
Business Segments:
The Company views its operations as comprising one operating segment.
Income Taxes:
The Company is a “C” corporation under the Internal Revenue Code, and is thus liable for federal, state, and local
taxes on the income derived from its economic interest in its operating company. The operating company is a limited
liability company that has elected to be treated as a partnership for tax purposes. It has not made a provision for
federal or state income taxes because it is the individual responsibility of each of the operating company’s members
(including the Company) to separately report their proportionate share of the operating company’s taxable income or
loss. The operating company has made a provision for New York City Unincorporated Business Tax (“UBT”) and its
consolidated subsidiary Pzena Investment Management, LTD has made a provision for U.K. income taxes.
Pzena Investment Management, Inc.
Notes to Consolidated Financial Statements (Continued)
F-17
Judgment is required in evaluating the Company's uncertain tax positions and determining its provision for income
taxes. The Company establishes reserves for tax-related uncertainties based on estimates of whether, and the extent to
which, additional taxes will be due. These liabilities are established when the Company believes that certain positions
might be challenged despite its belief that its tax return positions are in accordance with applicable tax laws. The
Company adjusts these liabilities in light of changing facts and circumstances, such as the closing of a tax audit, new
tax legislation, or the change of an estimate. To the extent that the final tax outcome of these matters is different than
the amounts recorded, such differences will affect the provision for income taxes in the period in which such
determination is made. The provision for income taxes includes the effect of reserve provisions and changes to
reserves that are considered appropriate. It is also the Company’s policy to recognize accrued interest, and penalties
associated with uncertain tax positions in Income Tax Expense on the consolidated statements of operations.
The Company and its consolidated subsidiaries account for all U.S. federal, state, local and U.K. taxation pursuant
to the asset and liability method, which requires deferred income tax assets and liabilities to be recorded for temporary
differences between the carrying amount and tax bases of assets and liabilities that will result in taxable or deductible
amounts in the future, based on enacted tax laws and rates applicable to the periods in which the temporary differences
are expected to affect taxable income.
The Company’s purchase of membership units of the operating company concurrent with the initial public
offering, and the subsequent and future exchanges by holders of Class B units of the operating company for shares of
Class A common stock (pursuant to the exchange rights provided for in the operating company’s operating agreement),
has resulted in, and is expected to continue to result in, increases in the Company’s share of the tax basis of the tangible
and intangible assets of the operating company, which will increase the tax depreciation and amortization deductions
that otherwise would not have been available to the Company. These increases in tax basis and tax depreciation and
amortization deductions have reduced, and are expected to continue to reduce, the amount of cash taxes that the
Company would otherwise be required to pay in the future. The computation of inside basis requires management to
make judgments in estimating the components included in the inside basis as of the date of the Exchange (i.e., cash
received by the Company on hypothetical sale of assets, allocation of gain/loss to the Company at the time of the
Exchange taking into account complex partnership tax rules). In addition, management estimates the period of time
that may generate cash tax savings of such tax attributes and the realizability of the tax attributes. The Company has
entered into a tax receivable agreement with past, current, and future members of the operating company that requires
the Company to pay to any member involved in any exchange transaction 85% of the amount of cash tax savings, if
any, in U.S. federal, state and local income tax or foreign or franchise tax that it realizes as a result of these increases
in tax basis and, in limited cases, transfers or prior increases in tax basis. The Company expects to benefit from the
remaining 15% of cash tax savings, if any, in income tax it realizes. Payments under the tax receivable agreement will
be based on the tax reporting positions that the Company will determine. The Company will not be reimbursed for
any payments previously made under the tax receivable agreement if a tax basis increase is successfully challenged
by the Internal Revenue Service.
The Company records an increase in deferred tax assets for the estimated income tax effects of the increases in
tax basis based on enacted federal and state tax rates at the date of the exchange. The Company records 85% of the
estimated realizable tax benefit (which is the recorded deferred tax asset less any recorded valuation allowance) as an
increase to the liability due under the tax receivable agreement, which is reflected as the liability to selling and
converting shareholders in the accompanying consolidated financial statements. The remaining 15% of the estimated
realizable tax benefit is initially recorded as an increase to the Company’s additional paid-in capital. All of the effects
to the deferred tax asset of changes in any of the estimates after the tax year of the exchange will be reflected in the
provision for income taxes. Similarly, the effect of subsequent changes in the enacted tax rates will be reflected in the
provision for income taxes.
Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount that is more-
likely-than-not to be realized. At December 31, 2021 and 2020, the Company did not have a valuation allowance
recorded against its deferred tax assets.
The income tax expense, or benefit, is the tax payable or refundable for the period, plus or minus the change
during the period in deferred tax assets and liabilities. The Company records its deferred tax liabilities as a component
of other liabilities in the consolidated statements of financial condition.
Pzena Investment Management, Inc.
Notes to Consolidated Financial Statements (Continued)
F-18
Foreign Currency:
The functional currency of the Company is the U.S. Dollar. Assets and liabilities of foreign operations whose
functional currency is not the U.S. Dollar are translated at the exchange rate in effect at the applicable reporting date,
and the consolidated statements of operations are translated at the average exchange rates in effect during the
applicable period. A charge or credit is recorded to other comprehensive income/ (loss) to reflect the translation of
these amounts to the extent the non-U.S. currency is designated the functional currency of the subsidiary. Non-
functional currency related transaction gains and losses are immediately recorded in the consolidated statements of
operations. For the year ended December 31, 2021, the Company recorded $0.9 million of other comprehensive losses
associated with foreign currency translation adjustments. For the year ended December 31, 2020, the Company
recorded approximately $0.6 million of other comprehensive income associated with foreign currency translation
adjustments.
Investment securities and other assets and liabilities denominated in foreign currencies are remeasured into U.S.
Dollar amounts at the date of valuation. Purchases and sales of investment securities, and income and expense items
denominated in foreign currencies, are remeasured into U.S. Dollar amounts on the respective dates of such
transactions.
The Company does not isolate the portion of the results of its operations resulting from the impact of fluctuations
in foreign exchange rates on its non-U.S. investments. Such fluctuations are included in Net Realized and Unrealized
Gains/ (Losses) from Investments in the consolidated statements of operations.
Reported net realized foreign exchange gains or losses arise from sales of foreign currencies, currency gains or
losses realized between the trade and settlement dates on securities transactions, and the difference between the
amounts of dividends, interest, foreign withholding taxes, and other receivables and payables recorded on the
Company’s consolidated statements of financial condition and the U.S. Dollar equivalent of the amounts actually
received or paid. Net unrealized foreign exchange gains and losses arise from changes in the fair values of assets and
liabilities resulting from changes in exchange rates.
Note 3 — Compensation and Benefits
Compensation and benefits expenses to employees and members is comprised of the following:
For the Years Ended December 31,
2021
2020
(in thousands)
Cash Compensation and Other Benefits
$
61,248
$
55,283
Non-Cash Compensation
15,824
13,204
Total Compensation and Benefits Expense
$
77,072
$
68,487
Pzena Investment Management, Inc.
Notes to Consolidated Financial Statements (Continued)
F-19
All non-cash compensation awards granted have varying vesting schedules and are issued at prices equal to the
assessed fair market value at the time of issuance, as discussed below. Details of awards of Class B-1 units of the
operating company, Delayed Exchange Class B units, phantom Delayed Exchange Class B units, options to purchase
shares of Class A common stock, and shares of Class A common stock awarded for the years ended December 31,
2021 and 2020, are as follows:
For the Years Ended December 31,
2021
2020
Amount
Fair Value1
Amount
Fair Value1
Class B-1 Units2
1,456,753 $
2.41
2,092,879 $
3.98
Delayed Exchange Class B Units3
810,857 $
4.68
620,543 $
5.95
Deferred Compensation Phantom Delayed Exchange
Class B Units4
— $
—
188,283 $
4.67
Options to Purchase Shares of Class A Common
Stock5
— $
—
146,804 $
2.03
Restricted Shares of Class A Common Stock6
17,706 $
4.67
16,806 $
4.74
1
Represents the weighted average grant date estimated fair value per share, unit, or option.
2
Represents Class B-1 units issued under the 2007 Equity Incentive Plan (as defined below). These Class B-1 units are entitled to receive
dividends for the duration of the holder’s employment, and upon the end of employment are exchanged for shares of Class A common stock
in an amount based upon the appreciation in price of the Class A common stock from the date of grant to the date of exchange. Of the units
issued during the year ended December 31, 2021, 1,400,305 units vest on the fifth anniversary of the grant date, 38,462 units vest ratably over
four years, and 17,986 units vested immediately. Of the units issued during the year ended December 31, 2020, 2,032,879 units vest on the
fifth anniversary of the grant date and 60,000 units vest ratably over four years. Amounts reflected include the impact of a modification as of
May 1, 2020, which resulted in the cancellation of 166,804 Class B-1 Units.
3
Represents Class B units issued under the 2006 Equity Incentive Plan (as defined below). These units vest immediately upon grant, but may
not be exchanged pursuant to the Amended and Restated Operating Agreement of the operating company until the seventh anniversary of the
date of grant. These units are also not entitled to any benefits under the Tax Receivable Agreement between the Company and members of
the operating company.
4
Represents phantom Delayed Exchange Class B units issued under the 2006 Equity Incentive Plan and pursuant to the Bonus Plan (as defined
below). These phantom units vest ratably over four years, but may not be exchanged pursuant to the Amended and Restated Operating
Agreement of the operating company until seven years after the date they vest. These units are also not entitled to any benefits under the Tax
Receivable Agreement between the Company and members of the operating company.
5
Represents options to purchase shares of Class A common stock issued under the 2007 Equity Incentive Plan. These options become
exercisable five years from the date of grant. Amounts reflected include the impact of a modification as of May 1, 2020, which resulted in the
issuance of 146,804 options to purchase shares of Class A common stock.
6
Represents shares of Class A common stock issued under the 2007 Equity Incentive Plan. Of the shares issued during the year ended
December 31, 2021, 12,353 shares vest immediately and 5,353 shares vest ratably over four years. The 16,806 shares issued during the year
ended December 31, 2020, vest ratably over four years. These shares are restricted and may not be sold until the seventh anniversary of the
date of grant. Amounts reflected include the impact of a modification as of May 1, 2020, which resulted in the issuance of 16,806 restricted
shares of Class A common stock.
As part of the Company's year-end bonus structure, certain employee members may elect to have all or part of
year-end cash compensation paid in the form of cash, or equity issued pursuant to Pzena Investment Management,
LLC Amended and Restated 2006 Equity Incentive Plan (“the 2006 Equity Incentive Plan”). For the year ended
December 31, 2021, $6.8 million of cash compensation was elected to be paid in the form of equity, which was issued
and vested immediately on January 1, 2021. Details of these awards issued on January 1, 2022 are as follows:
January 1,
2022
Amount
Fair Value1
Delayed Exchange Class B Units2
1,084,675 $
6.16
Restricted Shares of Class A Common Stock3
17,057 $
6.16
1
Represents the weighted average grant date estimated fair value per share, unit, or option as of December 31, 2021.
2
Represents Class B units issued under the 2006 Equity Incentive Plan. These units vest immediately upon grant, but may not be exchanged
pursuant to the Amended and Restated Operating Agreement of the operating company until the seventh anniversary of the date of grant.
These units are also not entitled to any benefits under the Tax Receivable Agreement between the Company and members of the operating
company.
3
Represents shares of Class A common stock issued under the 2007 Equity Incentive Plan. These shares vest immediately upon grant, but are
restricted and may not be sold until the seventh anniversary of the date of grant.
Pzena Investment Management, Inc.
Notes to Consolidated Financial Statements (Continued)
F-20
Pursuant to the 2006 Equity Incentive Plan, the operating company issues Class B units, Class B-1 units, phantom
Class B units, and options to purchase Class B units. The Company also issues Delayed Exchange Class B units
pursuant to the 2006 Equity Incentive Plan. These Delayed Exchange Class B units may not be exchanged pursuant
to the Amended and Restated Operating Agreement of the operating company until at least the seventh anniversary of
the date they vest. These Delayed Exchange Class B units are also not entitled to any benefit under the Tax Receivable
Agreement between the Company and current, future and past members of the operating company. The Company
also issues phantom Delayed Exchange Class B units and options to purchase Delayed Exchange Class B units. Under
the Pzena Investment Management, Inc. 2007 Equity Incentive Plan (“the 2007 Equity Incentive Plan”), the Company
issues shares of restricted Class A common stock, Class B-1 units, options to purchase Class A common stock, and
contingently vesting options to acquire shares of Class A common stock.
Under the Pzena Investment Management, LLC Amended and Restated Bonus Plan (the “Bonus Plan”), eligible
employees whose compensation is in excess of certain thresholds are required to defer a portion of that excess. These
deferred amounts may be invested, at the employee’s discretion, in certain investment options as designated by the
Compensation Committee of the Company's Board of Directors. Amounts deferred in any calendar year reduce that
year’s compensation expense and are amortized and vest ratably over a four year period commencing the following
year. As of December 31, 2021 and 2020, the liability associated with deferred compensation investment accounts
was $6.8 million and $5.0 million, respectively.
Pursuant to the Pzena Investment Management, Inc. Non-Employee Director Deferred Compensation Plan (the
“Director Plan”), non-employee directors may elect to have all or part of the compensation otherwise payable in cash,
deferred in the form of phantom shares of Class A common stock of the Company issued under the 2007 Equity
Incentive Plan. Elections to defer compensation under the Director Plan are made on a year-to-year basis. Elections
of deferred stock units result in the issuance of phantom shares of Class A common stock. Distributions under the
Director Plan shall be made in a single distribution of shares of our Class A common stock at such time as elected by
the participant when the deferral was made. Since inception of the Director Plan in 2009, the majority of the
Company’s directors have elected to defer 100% of their compensation in the form of phantom shares of Class A
common stock. Amounts deferred in any calendar year are amortized over the calendar year and reflected as General
and Administrative Expense. During the second quarter of 2020, the Company’s Board of Directors agreed to waive
compensation for the full year of 2020, which resulted in the forfeiture of 49,673 phantom shares of Class A common
stock. During the fourth quarter of 2020, the Board of Directors elected to re-instate 50% of their compensation for
the year of 2020. For the years ended December 31, 2021 and 2020, the directors were awarded 75,038 and 78,416
phantom shares of Class A common stock, respectively, reflecting the annual deferral of compensation and additional
phantom shares issued as of each date, and in the amount of dividends and/or special dividends and distributions that
are paid with respect to Class A common stock of the Company. As of December 31, 2021 and 2020, there were
597,412 and 533,444 phantom shares of Class A common stock outstanding, respectively. During the year ended
December 31, 2021, the Company distributed 11,070 shares of Class A common stock under the Director Plan. There
were no distributions made under the Director Plan during the year ended December 31, 2020. During the year ended
December 31, 2021, the Company issued 5,074 restricted shares of Class A common stock associated with non-
deferred nonemployee director compensation. These restricted shares will vest quarterly of the calendar year.
The Company uses a fair value method in recording the expense associated with the granting of Class B units,
Class B-1 units, Delayed Exchange Class B units, phantom Delayed Exchange Class B units, options to purchase
Class A common stock and Class B units, options to purchase Delayed Exchange Class B units, and shares of Class
A common stock under the 2006 and 2007 Equity Incentive Plans; phantom Delayed Exchange Class B units under
the Bonus Plan; and phantom shares of Class A common stock under the Director Plan.
Pzena Investment Management, Inc.
Notes to Consolidated Financial Statements (Continued)
F-21
The fair value of awarded restricted shares of Class A common stock under the 2007 Equity Incentive Plan and
phantom shares of Class A common stock under the Director Plan is determined based on the closing market price of
our Class A common stock on the date of grant. The fair value of awarded Class B and Class B-1 units under the
2006 and 2007 Equity Incentive Plans are determined by reference to the market price of our Class A common stock
on the date of grant, since Class B and Class B-1 units are exchangeable for shares of our Class A common stock,
adjusted for the impact of award terms on the value of the award. Certain of the restricted shares of Class A common
stock are not entitled to dividends or dividend equivalents while unvested. The fair value of these awards is determined
based on the closing market price of our Class A common stock on the date of grant, net of the present value of the
dividends using the applicable risk-free interest rate. The Delayed Exchange Class B Units have a seven years
exchange limitation and are not entitled to any benefits under the tax receivable agreement. The fair value of these
awards is determined based on the closing market price of our Class A common stock on the date of grant, net of the
effects of these terms. The Class B-1 units are entitled to distributions for the duration of the holder’s employment
and will participate in additional value to the extent there has been appreciation subsequent to the issuance of the Class
B-1 unit. The fair value of these awards is determined based on the present value of expected future dividends, an
option pricing model where the strike price reflects the threshold value over which appreciation is recognized, and the
impact of award terms on the value of the award. The Company also issued options to purchase Delayed Exchange
Class B units. The fair value of these options is determined using an option pricing model where the strike price
reflects the fair value of Delayed Exchange Class B units on the date of grant. Certain of the phantom Delayed
Exchange Class B units are not entitled to dividends or dividend equivalents while unvested.
The option model used in the fair value of Options to Purchase Shares of Class A Common Stock, Class B-1
units, and the Delayed Exchange Class B units is determined by using an appropriate option pricing model on the
grant date. For each of the years ended December 31, 2021 and 2020, the Company issued options and units valued
using the Black-Scholes option pricing model with the following weighted average assumptions:
2021
2020
January 1,
January 1,
Weighted Average Time Until Exercise
10 years
10 years
Expected Volatility
45%
44%
Risk-Free Rate
0.90%
1.90%
Dividend Yield
4.40%
4.40%
Weighted Average Time Until Exercise — The expected term is based on the Company’s historical experience
and the particular terms of its option awards.
Expected Volatility — Due to the lack of sufficient historical data for the Company’s own shares, the Company
based its expected volatility on a representative peer group.
Risk-Free Rate — The risk-free rate for periods within the expected term of the options is based on the interest
rate of a traded zero-coupon U.S. Treasury bond with a term equal to the options’ expected term on the date of grant.
Dividend Yield — The dividend yield is based on the Company’s anticipated dividend payout over the expected
term of the option awards.
Pzena Investment Management, Inc.
Notes to Consolidated Financial Statements (Continued)
F-22
The following is a summary of the Class B-1 unit activity for the two years ended December 31, 2021:
For the Years Ended December 31,
2021
2020
Units
Outstanding
Weighted
Average
Threshold Price
Units
Outstanding
Weighted
Average
Threshold Price
Beginning Balance
5,775,952
$
8.15
3,683,073
$
8.15
Units Granted1
1,456,753
7.06
2,092,879
8.15
Units Cancelled
—
—
—
—
Units Forfeited
—
—
—
—
Units Exercised
—
—
—
—
Ending Balance
7,232,705
$
7.93
5,775,952
$
8.15
1
Amounts reflected include the impact of a modification as of May 1, 2020, which resulted in the cancellation of 166,804 Class B-1 units.
The weighted average grant-date fair value per Class B-1 unit issued in 2021 and 2020 was $2.41 and $3.98,
respectively. During the years ended December 31, 2021 and 2020, no Class B-1 units were exercised.
Exercise prices for Class B-1 units outstanding and exercisable as of December 31, 2021 are as follows:
Units Outstanding
Units Exercisable
Number
Outstanding as of
December 31, 2021
Weighted Average
Threshold Price
Number
Exercisable as of
December 31, 2021
Weighted Average
Threshold Price
$5.00 – $10.00
7,214,719 $
7.92
3,709,776 $
8.15
$10.00 – $15.00
17,986
11.01
17,986
11.01
$5.00 – $15.00
7,232,705 $
7.93
3,727,762 $
8.16
Based on the closing market price of the Company’s Class A common stock on December 31, 2021, the aggregate
intrinsic value of the Company’s Class B-1 units was as follows:
Units
Outstanding
Units
Exercisable
(in thousands)
Aggregate Intrinsic Value
$
11,164
$
4,914
The following is a summary of the option activity for the two years ended December 31, 2021:
For the Years Ended December 31,
2021
2020
Options
Outstanding
Weighted
Average
Exercise Price
Options
Outstanding
Weighted
Average
Exercise Price
Beginning Balance
6,762,389
$
8.27
6,779,677
$
8.24
Options Granted1
—
—
189,539
7.65
Options Cancelled
—
—
(8,426)
7.58
Options Forfeited
—
—
(178,740)
6.57
Options Exercised
(61,334)
4.77
(19,661)
7.58
Ending Balance
6,701,055
$
8.30
6,762,389
$
8.27
1
Options granted for the year ended December 31, 2020 include 189,539 options to purchase shares of Class A common stock.
The weighted average grant-date fair values per option issued in 2020 was $1.84. The 61,334 options exercised
in 2021 resulted in 32,947 net Class B units issued, as a result of the redemption of 28,387 Class B units for the
cashless exercise of the options. The 19,661 options exercised in 2020 resulted in 603 net Class B units issued, as a
result of the redemption of 19,058 Class B units for the cashless exercise of the options. The 187,166 options to
purchase Class B units that were cancelled or forfeited during 2020 were in connection with employee departures and
Pzena Investment Management, Inc.
Notes to Consolidated Financial Statements (Continued)
F-23
option expirations. During the year ended December 31, 2021, 500,000 contingently vesting options vested. During
the year ended December 31, 2020, no contingently vesting options vested.
Exercise prices for options outstanding and exercisable as of December 31, 2021 are as follows:
Options Outstanding
Options Exercisable
Number
Outstanding as of
December 31,
2021
Weighted-
Average
Remaining
Contractual
Life
Weighted
Average
Exercise Price
Number
Exercisable as of
December 31,
2021
Weighted-
Average
Remaining
Contractual
Life
Weighted
Average
Exercise Price
$5.00 – $10.00
5,308,921
5.7 $
7.02
1,215,769
6.1 $
6.90
$10.00 – $15.00
1,392,134
1.7
13.19
522,134
0.6
12.88
$5.00 – $15.00
6,701,055
4.8 $
8.30
1,737,903
4.4 $
8.69
Based on the closing market price of the Company’s Class A common stock on December 31, 2021, the aggregate
intrinsic value of the Company’s options was as follows:
Options
Outstanding
Options
Exercisable
(in thousands)
Aggregate Intrinsic Value
$
12,989 $
3,130
Phantom Delayed Exchange Class B units issued pursuant to the Bonus Plan, which vest ratably over four years,
are summarized as follows:
For the Years Ended December 31,
2021
2020
Phantom
Units
Outstanding
Weighted
Average
Price
Phantom
Units
Outstanding
Weighted
Average
Price
Beginning Balance
472,302
$
5.57
503,869
$
6.33
Phantom Delayed Exchange Class B Units Issued1
-
-
188,283
4.67
Vesting of Phantom Delayed Exchange Class B Units1
(201,523)
5.97
(208,879)
6.56
Phantom Delayed Exchange Class B Units Forfetied1
-
-
(10,971)
6.04
Ending Balance
270,779
$
5.29
472,302
$
5.57
1
Represents phantom Delayed Exchange Class B units issued under the 2006 Equity Incentive Plan. These phantom units vest ratably over
four years, but may not be exchanged pursuant to the Amended and Restated Operating Agreement of the operating company until seven
years after the date they vest. These units are also not entitled to any benefits under the Tax Receivable Agreement between the Company
and members of the operating company.
Phantom Class B units and Phantom Delayed Exchange Class B units issued pursuant to the 2006 Equity Incentive
Plan, which vest ratably over 10 years and are not eligible to receive dividends or dividend equivalents until vested,
are summarized as follows:
For the Years Ended December 31,
2021
2020
Phantom
Units
Outstanding
Weighted
Average
Price
Phantom
Units
Outstanding
Weighted
Average
Price
Beginning Balance
3,108,154
$
4.00
3,734,050
$
4.05
Phantom Delayed Exchange Class B Units Issued
—
—
—
—
Vesting of Phantom Class B Units
(626,158)
4.29
(625,896)
4.29
Phantom Class B Units Forfeited
—
—
—
—
Ending Balance
2,481,996
$
3.93
3,108,154
$
4.00
Pzena Investment Management, Inc.
Notes to Consolidated Financial Statements (Continued)
F-24
As of December 31, 2021 and 2020, the Company had approximately $42.1 million and $34.8 million,
respectively, in unrecorded compensation expense related to unvested awards issued pursuant to its Bonus Plan; Class
B units, option grants, and phantom Class B units issued under the 2006 Equity Incentive Plan; and restricted Class A
common stock issued under the 2007 Equity Incentive Plan. The Company anticipates that this unrecorded cost will
amortize over the respective vesting periods of the awards.
As of December 31, 2021, the total units and shares remaining available for future issuance under the equity
incentive plans are as follows:
Plan
Number of Securities
Remaining Available
For Future Issuance
Under Equity
Incentive Plans
Pzena Investment Management, LLC 2006
Equity Incentive Plan
4,984,985
Pzena Investment Management, Inc. 2007
Equity Incentive Plan
6,555,791
Total
11,540,776
Note 4 — Employee Benefit Plans
The Profit Sharing and Savings Plan is a defined contribution profit sharing plan with a 401(k) deferral
component. All full-time employees and certain part-time employees who have met the age and length of service
requirements are eligible to participate in the plan. The plan allows participating employees to make elective deferrals
of compensation up to the annual limits which are set by law. The plan provides for a discretionary annual contribution
by the operating company which is determined by a formula based on the salaries of eligible employees as defined by
the plan. During the years ended December 31, 2021 and 2020, the expense recognized in connection with this plan
was $1.3 million and $1.1 million, respectively.
Note 5 — Earnings per Share
Basic earnings per share is computed by dividing the Company’s net income attributable to its common
stockholders by the weighted average number of shares outstanding during the reporting period.
Under the two-class method of computing basic earnings per share, basic earnings per share is calculated by
dividing net income for basic earnings per share by the weighted average number of common shares outstanding
during the period. The two-class method includes an earnings allocation formula that determines earnings per share
for each participating security according to dividends declared and undistributed earnings for the period. The
Company's net income for basic earnings per share is reduced by the amount allocated to participating restricted shares
of Class A common stock which participate for purposes of calculating earnings per share.
Pzena Investment Management, Inc.
Notes to Consolidated Financial Statements (Continued)
F-25
For the years ended December 31, 2021 and 2020, the Company’s basic earnings per share was determined as
follows:
For the Years Ended
December 31,
2021
2020
(in thousands, except share and
per share amounts)
Net Income Allocated to:
Class A Common Stock
$
18,657 $
8,868
Participating Shares of Restricted Class A Common Stock
22
6
Net Income for Basic Earnings Per Share
$
18,679 $
8,874
Basic Weighted-Average Shares Outstanding
17,394,327
17,196,939
Add: Participating Shares of Restricted Class A Common
Stock1
20,367
11,235
Total Basic Weighted-Average Shares Outstanding
17,414,694
17,208,174
Basic Earnings per Share
$
1.07 $
0.52
1
Certain unvested shares of Class A common stock granted to employees have nonforfeitable rights to dividends and therefore participate fully
in the results of the Company from the date they are granted. They are included in the computation of basic earnings per share using the two-
class method for participating securities.
Diluted earnings per share adjusts this calculation to reflect the impact of all outstanding membership units of the
operating company, phantom Class B units, phantom Class A common stock, phantom Delayed Exchange Class B
units, outstanding Class B unit options, options to purchase Class A common stock, and restricted Class A common
stock, to the extent they would have a dilutive effect on earnings per share for the reporting period. Net income for
diluted earnings per share generally assumes all outstanding operating company membership units are converted into
Company stock at the beginning of the reporting period and the resulting change to the Company's net income
associated with its increased interest in the operating company is taxed at the Company’s effective tax rate, exclusive
of any prior period and other adjustments. When this conversion results in an increase in earnings per share or a
decrease in loss per share, diluted net income and diluted earnings per share are assumed to be equal to basic net
income and basic earnings per share for the reporting period.
For the years ended December 31, 2021 and 2020, the Company’s diluted net income was determined as follows:
For the Years Ended
December 31,
2021
2020
(in thousands)
Net Income Attributable to Non-Controlling Interests of
Pzena Investment Management, LLC
$
86,781
$
42,421
Less: Assumed Corporate Income Taxes
(21,799)
(10,529)
Assumed After-Tax Income of Pzena Investment
Management, LLC
64,982
31,892
Net Income of Pzena Investment Management, Inc.
18,679
8,874
Diluted Net Income
$
83,661
$
40,766
Under the two-class method, earnings per share is calculated by dividing net income for diluted earnings per share
by the weighted average number of common shares outstanding during the period, plus the dilutive effect of any
potential common shares outstanding during the period using the more dilutive of the treasury method or two-class
method. The two-class method includes an earnings allocation formula that determines earnings per share for each
participating security according to dividends declared and undistributed earnings for the period. The Company’s net
income for diluted earnings per share is reduced by the amount allocated to participating Class B units for purposes
of calculating earnings per share. Dividend equivalent distributions paid per share on the Company’s unvested Class
B units are equal to the dividends paid per share of Class A common stock of the Company.
Pzena Investment Management, Inc.
Notes to Consolidated Financial Statements (Continued)
F-26
For the years ended December 31, 2021 and 2020, the Company’s diluted earnings per share were determined as
follows:
For the Years Ended
December 31,
2021
2020
(In thousands, except share and
per share amounts)
Diluted Net Income Allocated to:
Class A Common Stock
$
76,421 $
37,732
Participating Shares of Restricted Class A Common Stock
22
6
Participating Class B Units and Class B-1 Units
7,218
3,028
Total Diluted Net Income Attributable to Shareholders
$
83,661 $
40,766
Basic Weighted-Average Shares Outstanding
17,414,694
17,208,174
Dilutive Effect of Class B Units
55,037,164
54,156,631
Dilutive Effect of Options1
1,586,602
12,637
Dilutive Effect of Phantom Units
2,687,583
1,874,199
Dilutive Effect of Restricted Shares of Class A Common
Stock2
33,231
12,660
Dilutive Weighted-Average Shares Outstanding
76,759,274
73,264,301
Add: Participating Class B Units and Class B-1 Units3
7,248,364
5,879,409
Total Dilutive Weighted-Average Shares Outstanding
84,007,638
79,143,710
Diluted Earnings per Share
$
1.00 $
0.52
1
Represents the dilutive effect of options to purchase Class B units, Delayed Exchange Class B units, and Class A common stock.
2
Certain restricted shares of Class A common stock granted to employees are not entitled to dividend or dividend equivalent payments until
they are vested and are therefore non-participating securities and are not included in the computation of basic earnings per share. They are
included in the computation of diluted earnings per share when the effect is dilutive using the treasury stock method.
3
Unvested Class B Units granted to employees have nonforfeitable rights to dividends and therefore participate fully in the results of the
operating company's operations from the date they are granted. Vested and unvested Class B-1 units are entitled to receive distributions for
the duration of the holder’s employment with the operating company, will participate in additional value to the extent there has been
appreciation subsequent to the issuance of the Class B-1 membership unit. Unvested Class B units and vested and unvested Class B-1 units
are included in the computation of diluted earnings per share using the two-class method for participating securities.
Approximately 0.3 million options to purchase Class B units, 0.6 million options to purchase shares of Class A
common stock, and 0.5 million contingent options to purchase shares of Class A common stock were excluded from
the calculation of diluted earnings per share for the year ended December 31, 2021, as their inclusion would have had
an antidilutive effect based on current market prices or because the option had contingent vesting requirements that
were not met. Approximately 5.5 million options to purchase Class B units, 0.2 million options to purchase shares of
Class A common stock, and 1.0 million contingent options to purchase Class A common stock were excluded from
the calculation of diluted earnings per share for the year ended December 31, 2020, as their inclusion would have had
an antidilutive effect based on current market prices or because the option had contingent vesting requirements that
were not met.
Note 6 — Shareholders’ Equity
The Company functions as the sole managing member of the operating company. As a result, the Company: (i)
consolidates the financial results of the operating company and reflects the membership interest in it that it does not
own as a non-controlling interest in its consolidated financial statements; and (ii) recognizes income generated from
its economic interest in the operating company’s net income. Class A and Class B units of the operating company
have the same economic rights per unit. Class B-1 membership units, first issued on December 31, 2019, are entitled
to receive distributions for the duration of the holder’s employment with the operating company, will participate in
additional value to the extent there has been appreciation subsequent to the issuance of the Class B-1 membership
unit. Based on the closing price of the Company’s Class A common stock as of as of December 31, 2021, the holders
of Class A common stock (through the Company), the holders of Class B units of the operating company, and the
holders of Class B-1 units of the operating company held approximately 23.5%, 74.9%, and 1.6% respectively, of the
economic interest in the December 31, 2021 value of the operating company. As of December 31, 2021, the holders
of Class A common stock (through the Company), the holders of Class B units of the operating company, and the
holders of Class B-1 units of the operating company held 21.6%, 69.3%, and 9.1%, respectively, of the right to the
Pzena Investment Management, Inc.
Notes to Consolidated Financial Statements (Continued)
F-27
future income and distributions. As of December 31, 2020, the holders of Class A common stock (through the
Company) and the holders of Class B units of the operating company held approximately 24.2% and 75.8%,
respectively, of the economic interest in the December 31, 2020 value of the operating company. As of December 31,
2020, the holders of Class A common stock (through the Company), the holders of Class B units of the operating
company, and the holders of Class B-1 units of the operating company held 22.4%, 70.1%, and 7.5%, respectively, of
the right to the future income and distributions
Each Class B unit of the operating company has a corresponding share of the Company’s Class B common stock,
par value $0.000001 per share. Each share of the Company’s Class B common stock entitles its holder to five votes,
until the first time that the number of shares of Class B common stock outstanding constitutes less than 20% of the
number of all shares of the Company’s common stock outstanding. From this time and thereafter, each share of the
Company’s Class B common stock entitles its holder to one vote. When a Class B unit is exchanged for a share of
the Company’s Class A common stock or forfeited, a corresponding share of the Company’s Class B common stock
will automatically be redeemed and canceled. Conversely, to the extent that the Company causes the operating
company to issue additional Class B units to employees pursuant to its equity incentive plan, these additional holders
of Class B units would be entitled to receive a corresponding number of shares of the Company’s Class B common
stock (including if the Class B units awarded are subject to vesting). Class B-1 units have not been issued
corresponding shares and do not have voting rights.
All holders of the Company’s Class B common stock have entered into a stockholders’ agreement, pursuant to
which they agreed to vote all shares of Class B common stock then held by them in accordance with the majority of
votes of Class B common stockholders taken in a preliminary vote of the Class B common stockholders.
The outstanding shares of the Company’s Class A common stock represent 100% of the rights of the holders of
all classes of the Company’s capital stock to receive distributions, except that holders of Class B common stock will
have the right to receive the class’s par value upon the Company’s liquidation, dissolution or winding up.
Pursuant to the operating agreement of the operating company, each vested Class B unit is exchangeable for a
share of the Company’s Class A common stock, subject to certain exchange timing and volume limitations.
Pursuant to the operating agreement of the operating company, each vested Class B-1 unit, upon the end of the
holder’s employment, is exchanged for shares of Class A common stock in an amount based upon the appreciation in
price of the Class A common stock from the date of grant to the date of exchange.
On December 22, 2021, June 10, 2021 and December 22, 2020, certain of the operating company’s members
exchanged an aggregate of 30,414, 760,000, and 494,316, respectively, of their Class B units for an equivalent number
of shares of Class A common stock of the Company. These acquisitions of additional operating company membership
interests were treated as reorganizations of entities under common control as required by the Business Combinations
Topic of the FASB ASC.
The incremental assets and liabilities assumed in the exchanges were recorded on December 22, 2021, June 10,
2021, and December 22, 2020 as follows:
December 22,
2021
June 10,
2021
December 22,
2020
(in thousands)
Pzena Investment Management, LLC Members' Capital
$
372
$
9,279
$
6,694
Pzena Investment Management, LLC Accumulated
Deficit
(324)
(8,210)
(6,072)
Realizable Deferred Tax Asset
-
2,493
506
Net Tax Receivable Liability to Converting Unitholders
-
(2,119)
(430)
Total
$
48
$
1,443
$
698
Common Stock, at Par
$
-
$
8
$
5
Additional Paid-in Capital
48
1,435
693
Total
$
48
$
1,443
$
698
Pzena Investment Management, Inc.
Notes to Consolidated Financial Statements (Continued)
F-28
The Company announced a share repurchase program on April 24, 2012. The Board of Directors authorized the
Company to repurchase an aggregate of $10 million of the Company’s outstanding Class A common stock and the
operating company’s Class B units on the open market and in private transactions in accordance with applicable
securities laws. On February 5, 2014, the Board of Directors authorized the Company to repurchase an additional $20
million of the Company's outstanding Class A common stock and Class B units of the operating company. On April
19, 2018, the Company announced an additional increase of $30 million in the aggregate amount authorized under the
current program to repurchase Class A common stock and Class B units. On July 20, 2021, the Company announced
that its Board of Directors approved an increase of $40 million in the aggregate amount authorized under the program.
The timing, number and value of common shares and units repurchased are subject to the Company’s discretion. The
Company’s share repurchase program is not subject to an expiration date and may be suspended, discontinued, or
modified at any time, for any reason.
During the year ended December 31, 2021, the Company purchased and retired 865,556 shares of Class A
common stock and 64,077 Class B units at an average price per share of $9.99 and $7.66, respectively. During the
year ended December 31, 2020, the Company purchased and retired 1,211,573 shares of Class A common stock and
107,204 Class B units at an average price per share of $6.32 and $5.97, respectively. The Company records the
repurchase of shares and units at cost based on the trade date of the transaction.
During the years ended December 31, 2021 and 2020, 49,081 and 554,860 Delayed Exchange Class B units were
issued for approximately $0.3 million and $2.3 million in cash, respectively, to certain employee members pursuant
to the 2006 Equity Incentive Plan.
Note 7 — Non-Controlling Interests
Non-Controlling Interests in the operations of the Company’s operating company and consolidated subsidiaries
are comprised of the following:
For the Years Ended
December 31,
2021
2020
(in thousands)
Non-Controlling Interests of Pzena Investment Management,
LLC
$
86,781 $
42,421
Non-Controlling Interests of Consolidated Subsidiaries
1,017
243
Non-Controlling Interests
$
87,798 $
42,664
Distributions to non-controlling interests represent tax allocations and dividend equivalents paid to the members
of the operating company, as well as redemptions by investors in the Company’s consolidated subsidiaries.
Note 8 — Investments
The following is a summary of Investments:
As of
December 31, 2021
December 31, 2020
(in thousands)
Equity Investments, at Fair Value
Equity Securities
$
82,900 $
18,739
Mutual Funds
7,319
7,314
Total Equity Investments, at Fair Value $
90,219 $
26,053
Investment in Equity Method Investees
5,287
8,051
Total
$
95,506 $
34,104
Pzena Investment Management, Inc.
Notes to Consolidated Financial Statements (Continued)
F-29
Investment Securities, Trading
Investments, at Fair Value consisted of the following at December 31, 2021:
Cost
Unrealized
Gain/(Loss)
Fair Value
(in thousands)
Equity Securities
$
80,480
$
2,420
$
82,900
Mutual Funds
7,328
(9)
7,319
Total Equity Investments, at Fair Value
$
87,808
$
2,411
$
90,219
Securities Sold Short, at Fair Value consisted of the following at December 31, 2021:
Cost
Unrealized
Gain/(Loss)
Fair Value
(in thousands)
Equity Securities
$
259 $
(22) $
237
Total Securities Sold Short, at Fair Value
$
259 $
(22) $
237
Investments, at Fair Value consisted of the following at December 31, 2020:
Cost
Unrealized
(Gain)/Loss
Fair Value
(in thousands)
Equity Securities
$
16,521
$
2,218
$
18,739
Mutual Funds
$
7,293
$
21
$
7,314
Total Equity Investments, at Fair Value
$
23,814
$
2,239
$
26,053
Securities Sold Short, at Fair Value consisted of the following at December 31, 2020:
Cost
Unrealized
Gain/(Loss)
Fair Value
(in thousands)
Equity Securities
$
620
$
94
$
714
Total Securities Sold Short, at Fair Value
$
620
$
94
$
714
Investments in Equity Method Investees
The operating company sponsors and provides investment management services to certain private investment
partnerships and Pzena mutual funds through which it offers its investment strategies. The Company has made
investments in certain of these private investment partnerships and mutual funds to satisfy its obligations under the
Company's deferred compensation program and provide the initial cash investment in our mutual funds. The Company
holds a non-controlling interest and exercises significant influence in these entities, and accounts for its investments
as equity method investments which are included in Investments on the consolidated statements of financial condition.
As of December 31, 2021, the Company's investments range between 1% and 8% of the capital of these entities and
have an aggregate carrying value of $5.3 million.
Pzena Investment Management, Inc.
Notes to Consolidated Financial Statements (Continued)
F-30
Note 9 — Fair Value Measurements
The Fair Value Measurements and Disclosures Topic of the FASB ASC defines fair value as the price that would
be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the
measurement date. The Fair Value Measurements and Disclosures Topic of the FASB ASC also establishes a
framework for measuring fair value and a valuation hierarchy based upon the transparency of inputs used in the
valuation of an asset or liability. Classification within the hierarchy is based upon the lowest level of input that is
significant to the fair value measurement. The valuation hierarchy contains three levels: (i) valuation inputs are
unadjusted quoted market prices for identical assets or liabilities in active markets (Level 1); (ii) valuation inputs are
quoted prices for identical assets or liabilities in markets that are not active, quoted market prices for similar assets
and liabilities in active markets, and other observable inputs directly or indirectly related to the asset or liability being
measured (Level 2); and (iii) valuation inputs are unobservable and significant to the fair value measurement (Level
3).
Level 1 assets consist primarily of certain cash equivalents and equity investments held at fair value. Cash
investments in actively traded money market funds are measured at net asset values. Equity securities are exchange-
traded securities with quoted prices in active markets. The fair value of investments in mutual funds are based on
published net asset values.
Level 2 assets consist of debt securities for which the fair values are determined using independent third-party
broker or dealer price quotes. U.S. Treasury bills are valued upon quoted market prices for similar assets in active
markets, quoted prices for identical or similar assets that are not active and inputs other than quoted prices that are
observable or corroborated by observable market data. The fair value of corporate bonds is measured using various
techniques, which consider recently executed transactions in securities of the issuer or comparable issuers, market
price quotations (where observable), bond spreads and fundamental data relating to the issuer.
Also included in the Company's consolidated statements of financial condition are investments in American
Depositary Receipts (“ADRs”) and Global Depositary Receipts (“GDRs”). Certain of the Company’s ADRs and
GDRs may not be listed on a public exchange and may be valued using an evaluated price based on a compilation of
observable market information. Inputs used include currency factors, depositary receipt ratios, exchange prices of
underlying and common stock of the same issuer, and adjustments for corporate actions. ADRs and GDRs valued
using an evaluated price have been classified as Level 2.
The investments in equity method investees are held at their carrying value.
The following tables present these instruments’ fair value at December 31, 2021:
Level 1
Level 2
Level 3
Total
Assets
(in thousands)
Cash Equivalents:
Money Market Funds
$
8
$
—
$
—
$
8
Equity Investments, at Fair Value:
Equity Securities
82,163
737
—
82,900
Mutual Funds
7,319
—
—
7,319
Total
$
89,490
$
737
$
—
$
90,227
Liabilities
Securities Sold Short
237
—
—
237
Total
$
237
$
—
$
—
$
237
Pzena Investment Management, Inc.
Notes to Consolidated Financial Statements (Continued)
F-31
The following tables present these instruments’ fair value at December 31, 2020:
Level 1
Level 2
Level 3
Total
Assets
(in thousands)
Cash Equivalents:
Money Market Funds
$
8
$
—
$
—
$
8
Equity Investments, at Fair Value:
Equity Securities
18,006
733
—
18,739
Mutual Funds
7,314
—
—
7,314
Total
$
25,328
$
733
$
—
$
26,061
Liabilities
Securities Sold Short
714
—
—
714
Total
$
714
$
—
$
—
$
714
Transfers among levels, if any, are recorded as of the beginning of the reporting period. For the years ended
December 31, 2021, and 2020, there were no transfers between levels. In addition, the Company did not hold any
Level 3 securities as of December 31, 2021 and 2020.
Note 10 — Property and Equipment
Property and equipment, net, is comprised of the following:
As of
December 31,
2021
December 31,
2020
(in thousands)
Leasehold Improvements
$
6,967
$
6,929
Furniture and Fixtures
1,591
1,591
Computer Hardware
880
745
Computer Software
879
879
Office Equipment
212
212
Capitalized Internal-Use Software Development Costs
245
—
Total
10,773
10,356
Less: Accumulated Depreciation and Amortization
(7,086)
(5,980)
Total
$
3,687
$
4,376
Depreciation and amortization is included in general and administrative expense and totaled $1.2 million for each
of the years ended December 31, 2021, and 2020.
During the year ended December 31, 2021, the Company capitalized $0.2 million of internal-use software
development costs. During the year ended December 31, 2021, no amortization expense was recognized related to
capitalized internal-use software costs. As of and for the year ended December 31, 2020, the Company did not have
capitalized internal-use software development costs.
Note 11 — Related Party Transactions
For the years ended December 31, 2021, and 2020, the Company earned $1.2 million and $0.8 million,
respectively, in investment advisory fees from unconsolidated VIEs which receive investment management services
from the Company.
During the year ended December 31, 2021, and 2020, the Company offered loans to employees, excluding
executive officers, for the purpose of financing tax obligations associated with compensatory stock and unit vesting.
Loans are generally written for a seven-year period, at an interest rate equivalent to the Applicable Federal Rate,
payable in annual installments, and collateralized by units held by the employee. These loans are full recourse in
nature and totaled $3.6 million and $2.6 million at December 31, 2021, and 2020, respectively.
Pzena Investment Management, Inc.
Notes to Consolidated Financial Statements (Continued)
F-32
The operating company, as the investment adviser for certain Pzena branded SEC-registered mutual funds, private
placement funds, and non-U.S. funds, has contractually agreed to waive a portion or all of its management fees and
pay fund expenses to ensure that the annual operating expenses of the funds stay below certain established total
expense ratio thresholds. The Company recognized $1.3 million of such expenses for each of the years ended
December 31, 2021 and 2020.
The operating company manages the personal funds of certain of the Company’s employees, including the CEO
and its two Presidents. The operating company also manages accounts beneficially owned by a private fund in which
certain of the Company’s executive officers invest. Investments by employees in individual accounts are permitted
only at the discretion of the executive committee of the operating company, but are generally not subject to the same
minimum investment levels that are required of outside investors. The operating company also manages the personal
funds of some of its employees’ family members. Pursuant to the respective investment management agreements, the
operating company waives or reduces its regular advisory fees for these accounts and personal funds. The aggregate
value of the fees that the Company waived related to the Company’s executive officers, other employees, and family
members, was approximately $1.2 million for the year ended December 31, 2021, and $0.8 million in the year ended
December 31, 2020.
Pursuant to a tax receivable agreement signed between the members of the operating company and the Company,
85% of the cash savings generated by tax elections discussed in Note 13 — Income Taxes, are distributed to the selling
and converting shareholders upon the realization of this benefit. For the years ended December 31, 2021, and 2020,
$0.4 million and $0.5 million, respectively, of such payments were made to certain directors, executive officers and
employees of the Company.
On December 17, 2021, the Company entered into a revolving line of credit agreement with the operating
company, in which, the Company agrees to make loans to the operating company on a revolving basis from time to
time in such amounts as the operating company may request for such purposes as it may require in the ordinary course
of its business. The credit facility includes a $15 million line of credit with a five-year term, maturing on December
17, 2026. Principal amounts outstanding under the facility accrue interest at the variable Secured Overnight Financing
Rate (SOFR) plus 1.10%. As of December 31, 2021, there were total borrowings of $9,990,000 under the credit
facility. As intercompany accounts and transactions are eliminated upon consolidation, there is no corresponding
balance presented or included on the Consolidated Statements of Financial Condition.
Note 12 — Commitments and Contingencies
In the normal course of business, the Company enters into agreements that include indemnities in favor of third
parties, such as engagement letters with advisers and consultants. In certain cases, the Company may have recourse
against third parties with respect to these indemnities. The Company maintains insurance policies that may provide
coverage against certain claims under these indemnities. The Company has had no claims or payments pursuant to
these agreements, and it believes the likelihood of a claim being made is remote. Utilizing the methodology in the
Guarantees Topic of the FASB ASC, the Company’s estimate of the value of such guarantees is de minimis, and,
therefore, no accrual has been made in the consolidated financial statements.
During the year ended December 31, 2015, the Company moved to its new corporate headquarters. The new
office space is leased under a non-cancellable operating lease agreement that expires on December 31, 2025. The
Company reflects minimum lease expense for its headquarters on a straight-line basis over the lease term. The
Company entered into a four-year sublease agreement commencing on October 1, 2016, which terminated on January
31, 2019. The Company entered into a new sublease agreement commencing on February 1, 2019, that expires on
December 31, 2025. During October of 2020, the Company executed an amendment to the sublease agreement. The
sublease agreement is cancelable by either the Company or sublessee upon at least six months prior written notice.
For the years ended December 31, 2021 and 2020, sublease income decreased annual lease expense by approximately
$0.3 million and $0.4 million, respectively, per year.
During December 2018, the Company signed a non-cancellable amendment to the corporate headquarters lease
to obtain additional space that expires on December 31, 2025. In accordance with ASC 842, Leases, the lease term
commenced on February 1, 2019 and the Company recorded a Right-of-use Asset and Lease Liability on the
consolidated statements of financial condition associated with the new lease.
Pzena Investment Management, Inc.
Notes to Consolidated Financial Statements (Continued)
F-33
During June 2019, the Company signed a non-cancellable lease to the business development and client service
office in London lease to obtain additional space that expires on October 31, 2021. In accordance with ASC 842,
Leases, the lease term commenced on November 1, 2019 and the Company recorded a Right-of-use Asset and Lease
Liability on the consolidated statements of financial condition associated with the new lease. During July 2021, the
Company signed an extension of the non-cancellable lease to the business development and client service office in
London which commences on November 1, 2021 and expires on October 31, 2023.
During September 2021, the Company signed a non-cancellable lease for the business development and client
service office in Ireland to obtain office space that expires on August 31, 2023. In accordance with ASC 842, Leases,
the lease term commenced on September 1, 2021 and the Company recorded a Right-of-use Asset and Lease Liability
on the consolidated statements of financial condition associated with the new lease.
Lease expenses were $3.0 million and $2.9 million, respectively, for the years ended December 31, 2021, and
2020, and are included in general and administrative expense. Lease expense for each of the years ended December 31,
2021 and 2020, was net of $0.3 million and $0.4 million, respectively, in sublease income.
The following table presents the components of operating lease expense, as well as supplemental cash flow
information, related to the Company’s leases:
For the Years Ended December 31,
2021
2020
(in thousands)
Operating lease expense
$
2,503 $
2,282
Supplemental cash flow information:
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases
$
2,521 $
2,330
Right-of-use assets obtained in exchange for lease obligations
$
939 $
—
The following table presents information regarding the Company’s operating leases:
As of
December 31,
2021
(in thousands)
Operating lease right-of-use assets
$
10,014
Operating lease liabilities
$
10,323
Weighted-average remaining lease term (in years)
3.8
Weighted-average discount rate
4.3%
Future minimum lease payments are as follows:
Year Ending December 31,
Minimum
Payments
(in thousands)
2022
3,026
2023
2,981
2024
2,607
2025
2,607
2026
-
2027 and thereafter
-
Total undiscounted lease payments
11,221
Less discount
(898)
Total lease liabilities
$
10,323
Pzena Investment Management, Inc.
Notes to Consolidated Financial Statements (Continued)
F-34
Note 13 — Income Taxes
The operating company is a limited liability company that has elected to be treated as a partnership for tax
purposes. Neither it nor the Company’s other consolidated subsidiaries have made a provision for federal or state
income taxes because it is the individual responsibility of each of these entities’ members (including the Company) to
separately report their proportionate share of the respective entity’s taxable income or loss. The operating company
has made a provision for New York City UBT and its U.K. consolidated subsidiary has made a provision for U.K.
corporate taxes. The Company, as a “C” corporation under the Internal Revenue Code, is liable for federal, state and
local taxes on the income derived from its economic interest in its operating company, which is net of UBT and U.K.
taxes. Correspondingly, in its consolidated financial statements, the Company reports both the operating company’s
provision for UBT and U.K. taxes, as well as its provision for federal, state and local corporate taxes. The components
of the income tax expense are as follows:
For the Year Ended December 31,
2021
2020
(in thousands)
Current Provision:
Unincorporated and Other Business Taxes1
$
1,710
$
937
Local Corporate Tax
118
—
State Corporate Tax
123
15
Federal Corporate Tax
1,060
(103)
Total Current Provision
$
3,011
$
849
Deferred Provision:
Unincorporated and Other Business Taxes1
$
(126) $
(79)
Local Corporate Tax
447
304
State Corporate Tax
467
267
Federal Corporate Tax
3,999
2,946
Total Deferred Provision
$
4,787
$
3,438
Total Income Tax Expense
$
7,798
$
4,287
1
During each of the years ended December 31, 2021 and 2020, the operating company recognized a $2.5 million and $1.6 million tax benefit
associated with the reversal of uncertain tax position liabilities and interest related to unincorporated and other business tax expenses,
respectively.
Pzena Investment Management, Inc.
Notes to Consolidated Financial Statements (Continued)
F-35
A reconciliation between the provision for income taxes reported for financial reporting purposes, and the
application of the statutory U.S. Federal tax rate to the reported income before income taxes for the years ended
December 31, 2021 and 2020, were as follows:
For the Year Ended December 31,
2021
2020
Amount
% of Pretax
Income
Amount
% of Pretax
Income
(in thousands, except % amounts)
Federal Corporate Tax
$
23,998
21.0%
$
11,723
21.0%
State and Local Corporate Tax, net of Federal Benefit
1,155
1.0%
586
1.0%
Unincorporated and Other Business Tax1
1,251
1.1%
678
1.2%
Non-Controlling Interests
(18,438)
(16.1)%
(8,959)
(16.0)%
Non-Deductible Share-Based Compensation
20
0.0%
22
0.0%
Other
(189)
-0.2%
237
0.4%
Income Tax Expense
$
7,798
6.8%
$
4,287
7.7%
1
During each of the years ended December 31, 2021 and 2020, the operating company recognized a $2.5 million and $1.6 million tax benefit
associated with the reversal of uncertain tax position liabilities and interest related to unincorporated and other business tax expenses,
respectively.
The Income Taxes Topic of the FASB ASC establishes the minimum threshold for recognizing, and a system for
measuring, the benefits of tax return positions in financial statements.
A reconciliation of the beginning and ending amount of total unrecognized tax benefits for the years ended
December 31, 2021 and 2020 are as follows:
For the Year Ended
December 31, 2021
(in thousands)
Balance at December 31, 2020
$
7,612
Decreases Related to Prior Year Tax Positions
(1,870)
Increases Related to Current Year Tax Positions
2,593
Balance at December 31, 2021
$
8,335
For the Year Ended
December 31, 2020
(in thousands)
Balance at December 31, 2019
$
7,193
Decreases Related to Prior Year Tax Positions
(1,210)
Increases Related to Current Year Tax Positions
1,629
Balance at December 31, 2020
$
7,612
The Company recognizes accrued interest and penalties related to unrecognized tax benefits as a component of
Income Tax Expense on the consolidated statements of operations. As of December 31, 2021 and 2020, the Company
had $8.3 million and $7.6 million in unrecognized tax benefits, that, if recognized, would affect the provision for
income taxes. As of December 31, 2021 and 2020, the Company had interest related to unrecognized tax benefits of
$1.2 million and $1.2 million, respectively. As a result of legislative changes, changes in judgment related to
recognition or measurement, or potential settlements with taxing authorities, it is reasonably possible that the
company's gross unrecognized tax benefits balance may change within the next twelve months by a range of zero to
$4.5 million.
Pzena Investment Management, Inc.
Notes to Consolidated Financial Statements (Continued)
F-36
The Company and the operating company are generally no longer subject to U.S. Federal or state and local income
tax examinations by tax authorities for any year prior to 2018. All tax years subsequent to, and including, 2018 are
considered open and subject to examination by tax authorities.
During the twelve months ended December 31, 2020, the Company generated $0.8 million in net operating loss
carryforwards available for U.S. Federal, state and local income tax reporting purposes. As of December 31, 2021, the
Company had no remaining net operating loss carryforwards available for U.S. Federal, state and local income tax
reporting purposes.
The acquisition of the Class B units of the operating company, noted below, has allowed the Company to make
an election under Section 754 of the Internal Revenue Code (“Section 754”) to step up its tax bases in the net assets
acquired. This step up is deductible for tax purposes over a 15-year period.
Pursuant to a tax receivable agreement signed between the members of the operating company and the Company,
85% of the cash savings generated by this election will be distributed to the selling and converting shareholders upon
the realization of this benefit.
If the Company exercises its right to terminate the tax receivable agreement early, the Company will be obligated
to make an early termination payment to the selling and converting shareholders, based upon the net present value
(based upon certain assumptions and deemed events set forth in the tax receivable agreement) of all payments that
would be required to be paid by the Company under the tax receivable agreement. If certain change of control events
were to occur, the Company would be obligated to make an early termination payment.
As discussed in Note 6, Shareholders’ Equity, on December 22, 2021, June 10, 2021, and December 22, 2020,
certain of the operating company’s members exchanged an aggregate of 30,414, 760,000, and 494,316, respectively,
of their Class B units for an equivalent number of shares of Class A common stock of the Company. The Company
elected to step up its tax basis in the incremental assets acquired in accordance with Section 754. Based on the
exchange-date fair values of the Company’s common stock and the tax basis of the operating company, this election
gave rise to a $2.4 million deferred tax asset and corresponding $2.1 million liability to converting shareholders on
June 10, 2021 and a $0.8 million deferred tax asset and corresponding $0.4 million liability to converting shareholders
on December 22, 2020. There was no impact to the deferred tax asset or liability to converting shareholders associated
with the December 22, 2021 exchange-date. As required by the Income Taxes Topic of the FASB ASC, the Company
recorded the effects of these transactions in equity.
As of December 31, 2021 and 2020, the net values of all deferred tax assets were approximately $25.9 million
and $29.8 million, respectively. These deferred tax assets primarily reflect the future tax benefits associated with the
Company's initial public offering, and the subsequent and future exchanges by holders of Class B units of the operating
company for shares of Class A common stock. At December 31, 2021 and 2020, the Company did not have a valuation
allowance recorded against its deferred tax assets.
The change in the Company’s deferred tax assets for the year ended December 31, 2021, is summarized as
follows:
Section 754
Other
Total
(in thousands)
Balance at December 31, 2020
$
24,255
$
5,576
$
29,831
Deferred Tax (Expense)
(4,452)
(334)
(4,786)
Tax Impact of Transactions with Non-Controlling
Shareholders
—
(1,599)
(1,599)
Unit Exchange
2,493
(53)
2,440
Balance at December 31, 2021
$
22,296
$
3,590
$
25,886
Pzena Investment Management, Inc.
Notes to Consolidated Financial Statements (Continued)
F-37
The change in the Company’s deferred tax liabilities, which is included in other liabilities on the Company’s
consolidated statements of financial condition, for the year ended December 31, 2021, is summarized as follows:
Total
(in thousands)
Balance at December 31, 2020
$
(1)
Deferred Tax (Expense)
(1)
Balance at December 31, 2021
$
(2)
The change in the Company’s deferred tax assets for the year ended December 31, 2020 is summarized as follows:
Section 754
Other
Total
(in thousands)
Balance at December 31, 2019
$
27,953
$
4,730
$
32,683
Deferred Tax (Expense)
(4,204)
771
$
(3,433)
Tax Impact of Transactions with Non-Controlling
Shareholders
—
(239) $
(239)
Unit Exchange
506
314
$
820
Balance at December 31, 2020
$
24,255
$
5,576
$
29,831
The change in the Company’s deferred tax liabilities for the year ended December 31, 2020 is summarized as
follows:
Total
(in thousands)
Balance at December 31, 2019
$
(2)
Deferred Tax (Expense)
1
Balance at December 31, 2020
$
(1)
As of December 31, 2021 and 2020, the net values of the liability to selling and converting shareholders were
approximately $24.7 million and $25.7 million, respectively. The change in the Company’s liability to selling and
converting shareholders for the years ended December 31, 2021 and 2020, is summarized as follows:
For the Year Ended December 31,
2021
2020
(in thousands)
Beginning Balance
$
25,701 $
28,652
Unit Exchanges
2,119
430
Tax Receivable Agreement Payments
(2,486)
(2,881)
Change in Liability
(655)
(500)
Ending Balance
$
24,679 $
25,701
Pzena Investment Management, Inc.
Notes to Consolidated Financial Statements (Continued)
F-38
Note 14 — Subsequent Events
The Company evaluated the need for disclosures and/or adjustments resulting from subsequent events through
the date the financial statements were issued.
On January 21, 2022, the operating company entered into an amendment to its existing lease for its corporate
headquarters at 320 Park Avenue, 8th Floor, New York, New York. We currently occupy approximately 45,050 square
feet of space under a non-cancellable operating lease, the term of which expires on December 31, 2025. In January
2022, we entered into a lease amendment which extends the term until October 31, 2036 and provides for a total of
approximately 74,000 square feet of space. The total additional lease payments provided for in the lease amendment
aggregate approximately $78 million over the extended term after accounting for any rent abatement periods. The
operating company plans to sublet a portion of the expanded space, however its obligations on the lease are not subject
to finding suitable sublessee(s).
On February 1, 2022, the Company declared a year-end dividend of $0.53 per share of its Class A common stock
which was paid on February 25, 2022 to holders of record on February 11, 2022.
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Exhibit 10.22
PZENA INVESTMENT MANAGEMENT, LLC
PROFITS INTEREST AWARD AGREEMENT
This PROFITS INTEREST AWARD AGREEMENT (this “Agreement”), dated as of
[·], (the “Date of Grant”), is delivered by Pzena Investment Management, LLC, a Delaware limited
liability company (the “Company”) to [·] (the “Participant”).
RECITALS
WHEREAS, pursuant to the terms of the [Pzena Investment Management, LLC Amended
and Restated 2006 Equity Incentive Plan] [Pzena Investment Management, Inc. Equity Incentive
Plan] (the “Plan”), the Company desires to make a restricted unit grant of the Company’s Class
B-1 Units to the Participant (the “Grant”), and this Agreement sets forth the terms and conditions
of the Grant to the Participant.
NOW, THEREFORE, the parties to this Agreement, intending to be legally bound hereby,
agree as follows:
1.
Conditions to Receiving Grant. As a condition of receiving this Grant, the Participant hereby
agrees that the Participant shall execute an instrument agreeing to be bound by the terms,
conditions and obligations contained in the Plan and the Company’s Amended and Restated
Operating Agreement, dated as of December 30, 2019, or any amendment or restatement thereof
(the “Operating Agreement”), in each case in such form as the Committee (as defined in the Plan)
determines, with respect to the Units (as defined below).
2.
Restricted Unit Grant. Subject to the terms and conditions set forth in this Agreement, the
Committee hereby grants the Participant [·] of the Company’s Class B-1 Units, which are [LTIP
Units][Other Stock-Based Awards] (as defined in the Plan) (collectively, the “Units”), subject to
the restrictions and conditions set forth in this Agreement. The Units shall have a Threshold
Value, as defined in the Operating Agreement, of [__]. The Units issued to the Participant under
this Agreement are intended to be treated as a profits interest for federal income tax purposes
pursuant to Revenue Procedures 93-27 and 2001-43, and accordingly will have a $0 capital
account as of the Date of Grant.
3.
Vesting and Nonassignability of Units.
(a)
The Units shall [be vested immediately, or shall vest ratably or cliff with vesting
depending on continued employment or specified service type requirements]
As used in this Agreement, “employed by, or provide service to, the Company” shall mean
employment with the Company or service as an employee or consultant or key advisor who
performs services for the Company or any of its subsidiaries (so that, for purposes of satisfying
conditions under this Agreement, the Participant shall not be considered to have terminated
employment or service until the Participant ceases to be an employee, consultant and key advisor).
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(b)
[For non-immediately vesting awards, if the Participant’s employment or specified
service with the Company terminates for any reason before the Units are fully vested, the Units
that are not then vested shall be forfeited and shall no longer be deemed outstanding.]
(c)
Except as set forth in the Operating Agreement or unless the Committee approves
otherwise, in their sole discretion, during the period before the Units are fully vested (the
“Restriction Period”), the Units may not be assigned, transferred, pledged or otherwise disposed
of by the Participant. The Participant may only transfer the Units based on the express approval
of the Committee, and any attempt to assign, transfer, pledge or otherwise dispose of the Units
contrary to the provisions hereof, and the levy of any execution, attachment or similar process
upon the Units, shall be null, void and without effect. All Units, whether or not vested, shall be
subject to the transfer restrictions set forth in the Operating Agreement.
4.
Effect of Vesting; Distributions.
(a)
During the Restriction Period, the Participant shall receive any distributions with
respect to the Units as provided in the Operating Agreement.
(b)
The obligations of the Company to issue or deliver Units under this Agreement
shall be subject to all applicable laws, rules, and regulations and such approvals by governmental
agencies as may be deemed appropriate by the Committee, including such actions as Company
counsel shall deem necessary or appropriate to comply with any relevant laws and regulations.
The Company may require that the Participant represent that the Participant is holding the Units
for the Participant’s own account and not with a view to or for sale in connection with any
distribution of Units, or such other representations as the Committee deems appropriate.
(c)
All obligations of the Company under this Agreement shall be subject to the rights
of the Company as set forth in Section 7 below to withhold amounts required to be withheld for
any taxes, if applicable.
5.
Forfeiture and Exchange. The Units are subject to the exchange requirements and forfeiture
terms as set forth in the Operating Agreement. [Notwithstanding anything contained herein or the
Operating Agreement to the contrary, the Units shall not be subject to exchange as set forth in the
Operating Agreement until the second anniversary of the Date of Grant.]
6.
Grant Subject to Committee Determinations and Plan Provisions. The grant of the Units
under this Agreement is made pursuant to the Plan and is subject to interpretations, regulations
and determinations established from time to time by the Committee in good faith including, but
not limited to, provisions pertaining to (a) rights and obligations with respect to withholding taxes,
(b) the registration, qualification or listing of the Units, (c) changes in capitalization of the
Company, and (d) other requirements of applicable law. The Committee shall have the authority
to interpret and construe the grant of the Units under this Agreement, and its decisions shall be
conclusive as to any questions arising hereunder.
7.
Withholding. The Participant shall be required to pay to the Company, or make other
arrangements satisfactory to the Company to provide for the payment of, any federal (including
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DB1/ 109856585.5
FICA), state, local or other taxes that the Company is required to withhold with respect to the
grant or vesting of the Units.
8.
Tax Consequences and Election Under Section 83(b).
(c)
The Participant shall execute and timely file with the Internal Revenue Service an
election under Section 83(b) of the Internal Revenue Code of 1986, as amended (the “Code”),
substantially in the form attached hereto as Exhibit A. Participant shall deliver to the Company
with this executed Agreement, a copy of the executed Section 83(b) election.
THE PARTICIPANT ACKNOWLEDGES THAT IT IS THE PARTICIPANT’S SOLE
RESPONSIBILITY AND NOT THE COMPANY’S TO TIMELY FILE THE ELECTION
UNDER SECTION 83(b), EVEN IF THE PARTICIPANT REQUESTS THE COMPANY OR
ITS REPRESENTATIVES TO MAKE THIS FILING ON THE PARTICIPANT’S BEHALF.
(c)
The Participant has reviewed with the Participant’s own tax advisors the federal,
state, local and foreign tax consequences of this investment and the transactions contemplated by
this Agreement. The Participant is relying solely on such advisors and not on any statements or
representations of the Company or any of its agents. The Participant understands that the
Participant (and not the Company) shall be responsible for the Participant’s own tax liability that
may arise as a result of this investment or the transactions contemplated by this Agreement. The
Participant acknowledges that the Participant will be considered the owner of the Units for tax
purposes and will be subject to tax on the Participant’s share of the Company’s income without
regard to vesting and without regard to whether an election is made under section 83(b) of the
Code.
The Participant agrees to comply with any valuation determination that the Company
makes with regard to the Units and further acknowledges that in the event of forfeiture, certain
allocations of income and loss may be required for the Company to comply with the requirements
of Code section 704 and the regulations thereunder.
9.
Other Restrictions on Sale or Transfer of Units.
(c)
The Participant is acquiring the Units solely for investment purposes, with no
present intention of distributing or reselling any of the Units or any interest therein. The Participant
acknowledges that the Units have not been registered under the Securities Act of 1933, as amended
(the “Securities Act”).
(c)
The Participant is aware of the applicable limitations under the Securities Act
relating to a subsequent sale, transfer, pledge or other assignment or encumbrance of the Units.
The Participant further acknowledges that the Units must be held indefinitely unless they are
subsequently registered under the Securities Act and applicable state securities laws or an
exemption from such registration is available.
(d)
Subject to the other restrictions in the Operating Agreement or this Agreement,
including Section 3 of this Agreement, the Participant will not sell, transfer, pledge, donate, assign,
mortgage, hypothecate or otherwise encumber the Units unless the Units are registered under the
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DB1/ 109856585.5
Securities Act or the Company is given an opinion of counsel reasonably acceptable to the
Company that such registration is not required under the Securities Act.
(e)
The Participant realizes that there is no public market for the Units, that no market
may ever develop for them, and that they have not been approved or disapproved by the Securities
and Exchange Commission or any governmental agency.
(f)The Participant is aware of the applicable limitations under the Plan and the Company’s
Operating Agreement relating to transfers of the Units. The Participant acknowledges and agrees
that the Company may require the Participant to provide additional representations, warranties or
covenants relating to the securities into which the Units are exchangeable in connection with any
exchange thereof permitted under the Operating Agreement.
10. No Benefits Under Tax Receivable Agreement. The Participant acknowledges and agrees
that no Units granted under this Agreement shall be entitled to any benefits under the Tax
Receivable Agreement, dated October 30, 2007, by and among Pzena Investment Management,
Inc., the Company and the Continuing Members and Exiting Members named on the signature
pages thereto, as amended from time to time. This Section 10 shall be treated as part of the
Operating Agreement as described in Section 761(c) of the Code and Sections 1.704-1(b)(2)(ii)(h)
and 1.761-1(c) of the Treasury Regulations.
11. No Employment or Other Rights. Neither the grant of Units nor this Agreement shall confer
upon the Participant any right to be retained by or in the employ or service of the Company and
shall not interfere in any way with the right of the Company to terminate the Participant’s
employment or service at any time.
12. Arbitration. All disputes relating to, arising from, or connected in any manner with this
Agreement or the Participant’s employment with the Company shall be resolved exclusively
through final and binding arbitration under the rules and auspices of JAMS pursuant to its
Arbitration Rules & Procedures. The arbitration shall be held in the Borough of Manhattan, New
York, New York and the costs of such arbitration shall be borne by the Company. The arbitrator
shall have jurisdiction to determine any claim, including the arbitrability of any claim, submitted
to him/her. The arbitrator may grant any relief authorized by law for any properly established
claim. The interpretation and enforceability of this Section 12 shall be governed and construed in
accordance with the United States Federal Arbitration Act, 9 U.S.C. § 1, et seq. The parties
acknowledge that the purpose and effect of this Section 12 is solely to elect private mediation and
arbitration in lieu of any judicial proceeding either party might otherwise have available in the
event of a dispute, controversy or claim between the parties. Therefore, the parties hereby waive
the right to have any such dispute heard by a court or jury, as the case may be, and agrees that the
exclusive procedure to redress any and all disputes, controversies and claims will be mediation
and arbitration. Nothing contained in this Section 12 shall be construed to limit or otherwise
interfere in any respect with the authorities granted the Committee under the Plan, including
without limitation, its sole and exclusive discretion to interpret the Plan and all awards granted
thereunder (including pursuant to this Agreement).
13. Transfers in Violation of Agreement. Any transfer or attempted transfer of any Unit in
violation of any provision of this Agreement or the Operating Agreement shall be void, and the
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DB1/ 109856585.5
Company will not record such transfer on its books or treat any purported transferee of such Unit
as the owner of such Unit for any purpose.
14. Amendment and Waiver. The provisions of this Agreement may be amended or waived only
with the prior written consent of the Company and the Participant.
15. Assignment by Company. The rights and protections of the Company hereunder shall extend
to any successors or assigns of the Company and to the Company’s parents, subsidiaries, and
affiliates. This Agreement may be assigned by the Company without the Participant’s consent.
16. Applicable Law. The validity, construction, interpretation and effect of this instrument shall
be governed by and construed in accordance with the laws of the State of Delaware, without
giving effect to the conflicts of laws provisions thereof.
17. Notice. Any notice to the Company provided for in this instrument shall be addressed to the
Company at the address set forth in the Operating Agreement, Attention: CEO, and any notice
to the Participant shall be addressed to such Participant at the current address shown on the
Company’s records, or to such other address as the Participant may designate to the Company in
writing. Any notice shall be delivered by hand, sent by telecopy or enclosed in a properly sealed
envelope addressed as stated above, registered and deposited, postage prepaid, in a post office
regularly maintained by the United States Postal Service.
[Signature Page Follows]
[Signature Page to Profits Interest Award Agreement]
IN WITNESS WHEREOF, the Company has caused its duly authorized officer to execute
this instrument, and the Participant has placed his signature hereon evidencing his agreement to
the terms hereof, effective as of the Date of Grant.
PZENA INVESTMENT MANAGEMENT, LLC
By: Pzena Investment Management, Inc., its
Managing Member
By:
Name: Richard S. Pzena
Title: Chief Executive Officer
I hereby accept the grant of Units described in this Agreement, and I agree to be bound by the
terms of the Plan and this Agreement effective as of the Date of Grant. I have read the Plan and
the Company’s Operating Agreement and I agree to be bound by the terms of the Operating
Agreement and this Agreement, effective as of the Date of Grant. I hereby further agree that all
the decisions and determinations of the Committee shall be final and binding.
Participant:
[·]
DB1/ 109856585.5
EXHIBIT A
INSTRUCTIONS FOR FILING SECTION 83(B) ELECTION
Attached is a form of election under section 83(b) of the Internal Revenue Code. If you wish to
make such an election, you should complete, sign and date the election and then proceed as follows:
1. Execute three counterparts of your completed election (plus one extra counterpart for each person
other than you, if any who receives property that is the subject of your election), retaining at least one
photocopy for your records.
2. Send one counterpart to the Internal Revenue Service Center with which you will file your Federal
income tax return for the current year via certified mail, return receipt requested. THE ELECTION
SHOULD BE SENT IMMEDIATELY, AS YOU ONLY HAVE 30 DAYS FROM THE
ISSUANCE/PURCHASE/GRANT DATE WITHIN WHICH TO MAKE THE ELECTION – NO
WAIVERS, LATE FILINGS OR EXTENSIONS ARE PERMITTED.
3. Deliver one counterpart of the completed election to the Company for its files.
4. If anyone other than you (e.g., one of your family members) will receive property that is the subject
of your election, deliver one counterpart of the completed election to each such person.
Section 83(b) Election Form
DB1/ 109856585.5
This election is being made under section 83(b) of the Internal Revenue Code of 1986, as amended,
pursuant to Treasury Regulation section 1.83-2.
(1)
Name of taxpayer making election:
Address:
Social Security Number:
Tax Year for which election is being made:
(2)
The property with respect to which the election is being made: [__] Class B-1 Units (the “Units”)
of Pzena Investment Management, LLC (the “Company”).
(3)
Date the property was transferred: [DATE].
(4)
Forfeiture provision: The Units are subject to forfeiture to the Company if the taxpayer ceases to
be employed by, or provide service to, the Company during the restriction period. The restriction
period lapses [INSERT SCHEDULE]
(5)
The fair market value at the time of the transfer of the Units (determined without regard to any
restriction other than a restriction that by its terms will never lapse) is $0.00 per Unit.
(6)
The amount paid for the Units is $0.00 per Unit.
(7)
A copy of this statement has been furnished to the Company.
(8)
The amount to include in gross income is $0.
(8)
This statement is executed as of ______________________.
The undersigned taxpayer will file this election with the Internal Revenue Service office with which
taxpayer files his or her annual income tax return not later than 30 days after the date of transfer of
the property. A copy of the election also will be furnished to the Company. Additionally, the
undersigned will include a copy of the election with his or her income tax return for the taxable year
in which the property is transferred. The undersigned is the person performing the services in
connection with which the property was transferred.
____________________________
Taxpayer
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Exhibit 10.34
SECOND AMENDMENT OF LEASE
THIS SECOND AMENDMENT OF LEASE (this “Amendment”) is made as of
the 21st day of January, 2022, between 320 PARK AVENUE LLC, a Delaware limited liability
company (as successor-in-interest to Mutual of America Life Insurance Company), having an
office at 320 Park Avenue, New York, New York 10022 (hereinafter referred to as “Landlord”),
and PZENA INVESTMENT MANAGEMENT, LLC, a Delaware limited liability company,
having an office at 320 Park Avenue, 8th Floor, New York, New York 10022 (hereinafter referred
to as “Tenant”).
WHEREAS, Landlord and Tenant entered into a lease, dated as of June 13, 2014
(the “Original Lease”) for the entire rentable area of the eighth (8th) floor (the “Initial Demised
Premises”) in the building (the “Building”) known as 320 Park Avenue, New York, New York;
WHEREAS, Landlord and Tenant entered into a First Amendment of Lease, dated
as of November 8, 2018 (the “First Amendment;” the Original Lease, together with the First
Amendment, as modified by this Amendment, is sometimes referred to herein as the “Lease”)
pursuant to which a portion of the ninth (9th) floor of the Building consisting of 8,042 rentable
square feet (the “9th Floor Premises”) was added to the Initial Demised Premises (the Initial
Demised Premises, together with the 9th Floor Premises, collectively, the “Original Demised
Premises”); and
WHEREAS, Landlord and Tenant desire, among other things, (a) for Landlord to
lease, and for Tenant to hire and take, additional space, consisting of the entirety of the seventh
(7th) floor of the Building, consisting of 36,996 rentable square feet, as more particularly shown as
the cross-hatched space on the floor plan annexed hereto as Exhibit A and made a part hereof
(hereinafter referred to as the “7th Floor Premises”), (b) to extend the term of the Lease, (c) for
Tenant to surrender the 9th Floor Premises, and (d) for Tenant to have the right to use and occupy
the Building setbacks on the 7th floor of the Building that are appurtenant to the 7th floor portion
of the Demised Premises (the “Setbacks”), in each case, on the terms and conditions hereinafter
set forth.
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
and other good and valuable consideration the receipt and sufficiency of which are hereby
conclusively acknowledged, Landlord and Tenant hereby agree (and amend and modify the
Original Lease) as follows:
1.
Extension of Lease Term; Fixed Rent; Lease Modifications for the
Original Demised Premises; etc.
b. Effective as of the date hereof, the Lease Term shall be deemed to be
amended for the Initial Demised Premises only so that the term of the Lease with respect to the
Initial Demised Premises only is extended through and including October 31, 2036, and the
Expiration Date referred to in the Lease with respect to the Initial Demised Premises only shall be
deemed to be October 31, 2036 unless such term is sooner terminated as provided in the Lease or
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by law, or as the same may be renewed in accordance the terms of Article 34 of the Original Lease
(as modified by this Amendment) (the “Expiration Date”).
c. Commencing on January 1, 2026 (the “Renewal Date”), the “Fixed
Rent” payable by Tenant with respect to the Initial Demised Premises only shall be as [see
Schedule 1 attached]:
d. Notwithstanding anything to the contrary contained herein, if Tenant
shall not then be in default of any of Tenant’s obligations under the Lease beyond the expiration
of any applicable notice and cure periods, Landlord hereby excuses Tenant’s obligation to pay
Fixed Rent and Recurring Additional Rent for or with respect to the Initial Demised Premises only
for the period from the Renewal Date through and including September 30, 2026.
e. Effective as of the Renewal Date, Article 1 (and other provisions
referencing such) of the Original Lease shall hereby be deemed modified as follows with respect
to the Initial Demised Premises only:
i.
The term “Base Operating Year” shall mean the calendar year 2022.
ii.
The term “Base Tax Amount” shall mean the amount of Taxes with
respect to the fiscal year commencing July 1, 2022, and ending June 30, 2023.
f. For the avoidance of doubt, the Fixed Rent and Additional Rent, Base
Operating Year and Base Tax Amount for the Original Demised Premises shall remain as set forth
in the Original Lease from the date hereof through and including December 31, 2025 (i.e., prior to
the commencement of the Renewal Term).
2.
7th Floor Premises; Commencement Date; Rent Concessions; Delivery
Condition.
b.
7th Floor Lease Term. Landlord hereby leases to Tenant, and Tenant hereby
hires and lets from Landlord, the 7th Floor Premises, for the period commencing on the date on
which Landlord delivers the 7th Floor Premises to Tenant vacant (free of all movable property,
furniture, furnishings and trade fixtures), “broom-clean”, but otherwise in its “as-is” condition as
of the date hereof (such date, the “7th Floor Commencement Date”) and ending on the Expiration
Date (i.e., October 31, 2036) (the “7th Floor Lease Term”) as the same may be renewed in
accordance the terms of Article 34 of the Lease (as modified by this Amendment). In no event
shall the 7th Floor Commencement Date occur prior to May 1, 2022.
c.
7th Floor Commencement Date. Effective as of the 7th Floor Commencement
Date, Landlord is delivering possession of the 7th Floor Premises to Tenant in the condition set
forth in Section 2(a) above, and, accordingly, the Lease is hereby amended so that the 7th Floor
Premises shall be added to and become part of the premises demised under the Lease (with the
Original Demised Premises and the 7th Floor Premises being hereafter sometimes collectively
referred to as the “Demised Premises”). Landlord shall not be obligated to perform any work
whatsoever to prepare the 7th Floor Premises for Tenant’s use and occupancy. Tenant agrees to
accept possession on the 7th Floor Commencement Date of the 7th Floor Premises in “as is” and
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“where is” condition, provided that the 7th Floor Premises are vacant (free of all movable property,
furniture, furnishings and trade fixtures) and “broom-clean”. All materials, work, labor, fixtures
and installations required for completion of the 7th Floor Premises and the operation of Tenant’s
business thereat, shall (subject to the provisions of Article 5 of the Original Lease) be furnished
and performed by Tenant, at Tenant’s own cost and expense (any such work to prepare the 7th
Floor Premises for Tenant’s use and occupancy performed by Tenant or Persons Within Tenant’s
Control, the “7th Floor Initial Improvement Work”). Landlord agrees that the 7th Floor Initial
Improvement Work shall be considered to be “Tenant’s Initial Work” for the purposes of Article
5 only of the Original Lease.
d.
If Landlord shall be unable to deliver possession of the 7th Floor Premises on
the Target Date (as hereinafter defined) or any particular or estimated date by reason of the fact
that the 7th Floor Premises is not ready for occupancy, or for any other reason, then Landlord shall
not be subjected to any liability for the failure to give possession on said date, except as set forth
in this Section 2(c). Tenant agrees that Landlord shall have no liability whatsoever to Tenant in
the event that the 7th Floor Commencement Date shall not have occurred on the Target Date or any
other particular date, and no such failure shall affect the validity of this Amendment, the Lease or
the obligations of Tenant hereunder or thereunder, or be deemed to extend the Lease Term
applicable to the 7th Floor Premises and/or the Original Demised Premises, but neither the rent
reserved and covenanted to be paid hereunder (with respect only to the 7th Floor Premises) nor the
7th Floor Premises Rent Concession Period (as hereinafter defined) shall commence until the 7th
Floor Premises Rent Commencement Date and the 7th Floor Commencement Date, respectively,
shall each have each occurred. Landlord expects that the 7th Floor Commencement Date shall
occur on May 1, 2022 (the “Target Date”). For each day, beginning on the day that is the thirtieth
(30th) day following the Target Date through and including the day immediately prior to the 7th
Floor Commencement Date, the 7th Floor Rent Concession Period shall be extended by one day
for each day until the 7th Floor Commencement shall occur, subject to extension by any Force
Majeure Event. Landlord shall provide at least thirty (30) days’ notice of the actual date that the
7th Floor Commencement Date shall occur. Without limiting the generality of the foregoing,
Tenant expressly waives the provisions of Section 223-a of the Real Property Law, and agrees that
the provisions of this Section 2 are intended to constitute an express “provision to the contrary”
within the meaning of said Section 223-a.
d.
Promptly following the 7th Floor Commencement Date, Landlord and Tenant
shall execute and deliver a supplementary agreement (in the form annexed hereto as Exhibit B,
and pertaining to the matters set forth therein) setting forth the 7th Floor Commencement Date and
the 7th Floor Premises Rent Commencement Date, but the failure to so execute or deliver said
supplementary agreement shall not in any way reduce Tenant's obligations or Landlord’s rights
under the Lease.
e.
7th Floor Fixed Rent. Fixed Rent for the 7th Floor Premises only (the “7th
Floor Fixed Rent”) shall be paid in the following amounts (but otherwise in accordance with the
terms of the Original Lease applicable to payment of Fixed Rent): [see Schedule 2 attached]:
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f.
7th Floor Rent Concession. Notwithstanding anything to the contrary
contained herein, if and for so long as Tenant shall not then be in default beyond the expiration of
any applicable notice and cure periods with respect to any of Tenant’s obligations under this Lease,
Landlord hereby excuses Tenant’s obligation to pay the 7th Floor Fixed Rent or any Recurring
Additional Rent for or with respect to the 7th Floor Premises only for the period (the “7th Floor
Premises Rent Concession Period”) from the 7th Floor Commencement Date through and
including the date that occurs thirteen (13) months from the 7th Floor Commencement Date (with
the day immediately following the expiration of the 7th Floor Premises Rent Concession Period
being referred to as the “7th Floor Premises Rent Commencement Date”).
g.
General. Tenant shall pay additional rent for the 7th Floor Premises in a
manner consistent (without duplication of cost or obligation) with additional rent for the Initial
Demised Premises, subject to the provisions of this Amendment. In the event that Tenant’s
obligation to pay 7th Floor Fixed Rent shall commence on a date which shall be other than the first
day of a calendar month, the same shall be prorated accordingly. In the event that the 7th Floor
Lease Term shall expire or sooner terminate (other than a termination resulting from a default by
Tenant under the Lease) on a date that shall be other than the last day of a calendar month, Tenant’s
obligation to pay 7th Floor Fixed Rent therefore shall be prorated at the then prevailing rental rate.
h.
Base Operating Year; Base Tax Amount; Tenant’s Share for the 7th Floor;
Definitions. Effective as of the 7th Floor Premises Rent Commencement Date, Article 1 (and other
provisions referencing such terms) of the Original Lease shall hereby be deemed modified as
follows with respect to the 7th Floor Premises only; it being agreed that Article 1 (and other
provisions referencing such terms) shall remain unmodified with respect to the Original Demised
Premises until the Renewal Date (as defined above):
i.
The term “Base Operating Year” shall, for the 7th Floor Premises only,
mean the calendar year 2022.
ii.
The term “Base Tax Amount” shall, for the 7th Floor Premises only,
mean the amount of Taxes with respect to the fiscal year commencing July 1, 2022, and ending
June 30, 2023.
iii.
The term “Tenant’s Operating Share” shall, for the 7th Floor Premises
only, mean 5.02%, for so long as Landlord shall own the entire Building. If a portion or portions
of the Building (but not the entire Building) shall be sold, transferred or conveyed, then Tenant’s
Operating Share shall be changed to that percentage which shall be equal to a fraction, the
numerator of which shall be the Rentable Square Feet, and the denominator of which shall be the
aggregate rentable square feet of office space in that portion of the Building owned by Landlord
at such time (and from time to time), as determined by a reputable, independent architect engaged
by Landlord.
iv.
The term “Tenant’s Tax Share” shall, for the 7th Floor Premises only,
mean 4.83%, for so long as Landlord shall own the entire Building. If a portion or portions of the
Building (but not the entire Building) shall be sold, transferred or conveyed, then Tenant's Tax
Share shall be changed to that percentage which shall be equal to a fraction, the numerator of which
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shall be the Rentable Square Feet, and the denominator of which shall be the aggregate rentable
square feet of office space and retail space in that portion of the Building owned by Landlord at
such time (and from time to time), as determined by a reputable, independent architect engaged by
Landlord.
v.
The term “Rentable Square Feet” for the 7th Floor Premises shall be
deemed to mean 36,996 square feet.
vi.
“7th Floor Security Deposit Amount” shall mean, subject to Section 8
below, One Million Three Hundred Fifty-Five Thousand Four Hundred Sixty-Two and 67/100
Dollars ($1,355,462.67).
i. Freight Elevator. Landlord shall provide Tenant with up to eighty (80)
hours of Overtime Freight Elevator Service at no charge in connection with Tenant’s
Improvements (as hereinafter defined) and/or Tenant’s move-in to the 7th Floor Premises and/or
Tenant’s surrender of the 9th Floor Premises. In addition, Tenant may use the freight elevator
during Business Hours in connection with the performance of the 7th Floor Initial Improvement
Work solely for transportation of persons (and not for the receiving or transporting of deliveries),
subject to Landlord’s reasonable discretion.
j.
Base Electric Charge. As used in Section 20.03B(i) of the Original Lease,
with respect to the 7th Floor Premises only, the term “Base Electric Charge” shall mean the amount
of $139,986.00 per annum (except during the period which shall begin on the 7th Floor
Commencement Date and end on the day immediately preceding the date on which Tenant shall
first occupy the 7th Floor Premises for the purpose of conducting Tenant’s business operations
therein, during which period the term “Base Electric Charge” shall mean the amount of $69,993.00
per annum). Tenant shall pay Landlord’s Electricity Cost plus five percent (5%) thereof for
electricity in the 7th Floor Premises in accordance with Section 20.02B of the Lease.
k.
Date for Commencement of Additional Rent. Tenant shall commence
payment of the Tax Payment and the Operating Expense Payment with respect to the 7th Floor
Premises only on the 7th Floor Premises Rent Commencement Date.
l.
Setbacks.
i. Landlord hereby grants to Tenant, and Tenant hereby accepts from
Landlord, a non-transferable license (“License”) to use and occupy the Setbacks from and after
the 7th Floor Commencement Date and (subject to the provisions of this Amendment) continuing
through and including the Expiration Date solely for the purposes of (i) installing non-permanent
landscaping and other decorative installations and (ii) providing outdoor space for employees to
utilize during Business Hours and until 11 p.m. on Business Days, Saturdays, Sundays and
Holidays, subject to (1) seasonal and/or periodic usage restrictions during periods in which
weather, high wind conditions or other natural events make it infeasible or unsafe (in the sole and
absolute discretion of Landlord) to use the Setbacks, and (2) complaints from any tenants, and/or
occupants of the Building as to the emanation of noise or other disturbances from the Setbacks
(collectively, the “Permitted Setback Use”) and for no other purposes (Tenant hereby specifically
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agreeing that in no event shall the Setbacks be used for storage purposes of any kind), and in all
events subject to the then existing certificate of occupancy for the Building. Tenant shall, at its
sole expense, use and install all such landscaping and other decorative installations (subject to
Section 2(l)(vii) hereof), and maintain and repair all landscaping and any other installations and
personal property installed by, through or under Tenant (which installations and personal property
shall in all events be subject to the provisions of Section 2(l)(vii)) during the term of this License
in compliance with all applicable laws (including, without limitation, all present and future rules
and regulations of any local, state, or federal authority having jurisdiction with respect thereto),
any rules and regulations currently in effect or that Landlord may promulgate specifically with
respect to Tenant’s use of the Setbacks for the Permitted Setback Use (subject to, and in accordance
with, the provisions of Article 26 of the Lease), any requirements of Landlord’s insurers, any
direction of any public officer pursuant to law, and any applicable roofing warranties or guaranties
(collectively, the “Licensed Area Requirements”). All damage or injury to the Setbacks caused
by or arising from any act or omission of Tenant, or of any Person Within Tenant's Control,
including those which are structural, extraordinary and unforeseen, shall be promptly repaired,
restored or replaced by Tenant, at Tenant's own cost and expense; provided, that to the extent that
any structural elements of the Setbacks and/or the Building shall suffer damage or injury caused
by or arising from any act or omission of Tenant or of any Person Within Tenant’s Control, Tenant
shall promptly notify Landlord of the same, and Landlord shall repair the same (or, if necessary
(as determined by Landlord in its reasonable discretion), replace the affected structural elements),
and Tenant shall reimburse Landlord, as Additional Rent, for any and all reasonable, out-of-pocket
costs and expenses incurred by Landlord in connection therewith within thirty (30) days after
demand therefor. All repairs undertaken by Tenant shall be of quality or class equal to the original
work or construction. Furthermore, in connection with any repairs or maintenance or exercise of
its rights under this License, Tenant must not damage, nor permit any other party to damage, the
Setbacks or any other part of the roof or Building. Tenant shall, at its sole expense, obtain and
maintain all permits, licenses, variances, authorizations, and approvals (collectively, the
“Permits”) that may be required to use the Setbacks for the Permitted Setback Use, and to maintain
or repair the Setbacks in compliance with all Licensed Area Requirements. Subject to the
provisions of this Section 2(l)(i), Tenant, at its sole expense, shall keep and maintain the Setbacks
in good condition, order, and repair, and shall remove and properly dispose of any debris from the
Setbacks. Tenant shall, at its sole cost and expense, (i) keep all drains free of debris and all tiles
in good condition, (ii) clean, secure and remove all garbage from the Setbacks following each and
every use of the Setbacks by Tenant, (iii) place all garbage for pickup in accordance with this
Lease or as otherwise instructed by Landlord, and (iv) promptly pay all violations, fines or other
penalties that may be imposed upon Landlord or Tenant in connection with any failure on Tenant’s
part to dispose of garbage or debris properly, keep the Setbacks clean and free of garbage and
debris or similar matters.
ii. Tenant hereby expressly agrees that, should the 7th floor of the
Building no longer be a part of the Demised Premises, then this License shall automatically
terminate as to the Setbacks.
iii. Tenant shall reimburse Landlord, as Additional Rent, for any and
all reasonable, out-of-pocket costs and expenses incurred by Landlord arising from Tenant’s use
of the Setbacks (e.g., costs incurred by Landlord in connection with the provision of additional
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Building security personnel as a result of an event held by Tenant on a portion of the Setbacks)
within thirty (30) days after demand therefor.
iv. This License does not and shall not be deemed to constitute a lease
or a conveyance of the Setbacks by Landlord to Tenant, or to confer upon Tenant any right, title,
estate or interest in all or any portion of the Setbacks. Tenant acknowledges and agrees that the
Setbacks shall not constitute, or be deemed or construed to constitute, a part of the Demised
Premises, it being understood and agreed that Tenant’s use of the Setbacks for the Permitted
Setback Use is derived solely from the License granted herein.
v. Tenant acknowledges and agrees that Landlord shall not be
obligated to perform any work or incur any expense to prepare any portion of the Setbacks for
Tenant’s use, nor shall Landlord provide any Building services to the Setbacks, Tenant hereby
agreeing that Tenant shall accept the same on the 7th Floor Commencement Date in “as is” and
“where is” condition, and Tenant does not rely on any representations, warranties or promises
made by Landlord or any person or entity purporting to act on behalf of Landlord (including,
without limitation, Landlord’s employees and/or representatives of the Building manager) with
respect to the condition of the Setbacks or otherwise. Landlord makes no representation as to the
design, construction, development or use of the Setbacks, or whether the same shall be available
for Tenant’s use for the Permitted Setback Use, or whether the same shall be safe for Tenant’s use
(whether for the Permitted Setback use or otherwise), or whether applicable Legal Requirements
allow the Setbacks to be used for the Permitted Setback Use, or, if applicable Legal Requirements
do allow the Setbacks to be used for the Permitted Setback Use, that such Legal Requirements, or
any Legal Requirements subsequently implemented, will allow for such use throughout the Lease
Term.
vi. Prior to Tenant’s initial use of the Setbacks, Tenant shall provide
Landlord with evidence showing that the Setbacks are covered by all of the insurance policies
required to be obtained and carried by Tenant pursuant to the provisions of Article 8 of the Lease.
The provisions of Article 11 of the Lease shall apply with respect to the Setbacks and the use
thereof by Tenant or anyone acting claiming by, through or under Tenant.
vii. Tenant shall not (1) store or keep any equipment, furniture,
supplies, refuse, or merchandise on the Setbacks, (2) enclose the Setbacks or any portion thereof,
(3) perform any construction on the Setbacks or thereto (including, without limitation, the
installation of landscaping) without Landlord’s prior written approval (which approval may be
withheld in Landlord’s sole and absolute discretion); provided that, subject to the terms and
conditions of this 2(l), Tenant shall be entitled to install on the Setbacks the items shown on Exhibit
C annexed hereto and made a part hereof in the locations shown on such Exhibit C, subject to
Landlord’s approval of the plans and specifications therefor and manner of installation thereof, (4)
place anything on the ledges or railings on the Setbacks, (5) throw, drop or launch anything from
the Setbacks. Once so approved, all personal property installed on, and all landscaping and other
installations made to, the Setbacks by, through or under Tenant, Tenant, shall be of a high-quality
appearance consistent with the design and quality of the Building and be so installed and/or made
in a first-class manner. Landlord must approve in writing in advance the contractors,
subcontractors or other third parties that Tenant proposes to perform any work, landscaping or
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alterations on the Setbacks (which approval may be withheld in Landlord’s sole and absolute
discretion). Landlord may withdraw its approval of any work to be performed by Tenant without
any duty to be reasonable if Landlord subsequently determines that such work will or is reasonably
likely to (i) damage the structural integrity of the Setbacks, the roof, or any other part of the
Building, tear or damage the membrane of the roof, cause any leaks in the Building or adversely
affect or void any warranty or guaranty applicable to the Setbacks, the roof, or the Building, or (ii)
violate any zoning ordinance or other applicable laws. Subject to the terms of this Section 2(l),
Tenant’s use of the Setbacks shall also be subject to the following conditions: (i) no exterior
lighting shall be permitted on the Setbacks without the prior written approval of Landlord (which
approval may be withheld in Landlord’s sole and absolute discretion); (ii) no cooking or other
similar processes shall be permitted on the Setbacks; (iii) no smoking shall be permitted on the
Setbacks; (iv) Tenant shall not display, erect or inscribe any signs, signage or symbols of any kind
in, on or about the Setbacks without Landlord’s prior written consent (which consent may be
withheld in Landlord’s sole and absolute discretion), (v) Tenant shall not serve or sell (or permit
to be served or sold) any alcoholic beverages in connection with the use of the Setbacks; and (vi)
at no time shall Tenant’s use of the Setbacks interfere or adversely affect the normal conduct of
business of any other tenants or occupants of the Building. Tenant may bring into the Setbacks
food and non-alcoholic beverages that has been prepared in advance, provided that the presence
of such food and non-alcoholic beverages in the Setbacks shall not violate the restrictions set forth
in this paragraph or cause any unusual or other objectionable odors to emanate from the Setbacks.
Tenant shall not, by its use of the Setbacks, endanger the safety of any person or the property of
Landlord or any tenant or occupant of the Building. Tenant shall use the Setbacks at all times in a
safe, sanitary and professional manner and in a manner that does not disturb the quiet enjoyment
of the other tenants or occupants of the Building. In no event will Tenant’s use of the Setbacks
exceed the maximum occupancy permitted by applicable legal requirements or otherwise violate
the Licensed Area Requirements. Tenant shall take all necessary steps to minimize noise
emanating from the Setbacks and in no event shall Tenant permit music (live or recorded) or other
amplified sounds to be played, performed or made on or from the Setbacks.
viii. Tenant expressly acknowledges receipt of advice to the effect that
Landlord uses portions of the Setbacks in connection with the operation and storage of the
window-washing equipment for the Building (the “Equipment”) and, more generally, in
connection with operating, maintaining and repairing the Building. In connection therewith, and
in recognition of Landlord’s need to be able to access, move and operate the Equipment and to
otherwise access the Setbacks in connection with Landlord’s operation of and performance of
maintenance and repairs in and to the Building, Tenant shall incorporate the presence of such
Equipment on the Setbacks and the movement and operation thereof, and Landlord’s need for
access to the Equipment and the Setbacks more generally, into the design and installation of any
Alterations, personal property and/or landscaping in, on or about the Setbacks. Without limiting
the generality of the foregoing, Tenant agrees that nothing contained herein shall be construed to
limit Landlord’s rights to access the Setbacks in accordance with the provisions of the Lease
applicable to Landlord’s access to the Demised Premises for any purpose deemed necessary or
desirable by Landlord in connection with Landlord’s operation of the Building. If Landlord must
access mechanical or structural components of the Setbacks, the roof, or the Building located on
or adjacent to the Setbacks, Tenant is solely responsible for any additional costs incurred by
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Landlord as a result of Tenant’s use of the Setbacks, including, without limitation, removing and
replacing any planters or landscaping.
ix. Tenant hereby expressly agrees that, should Tenant do anything or
permit anything to be done, whether by action or inaction, in breach of any representation,
covenant, agreement, term, provision or condition of this Section 2(l) on the part of Tenant to be
kept, observed or performed, and should Tenant breach any such representation, covenant,
agreement, term, provision or condition and such breach not be fully remedied within thirty (30)
days after Landlord shall have given to Tenant a notice specifying the same, then the License shall
be deemed terminated effective as of the thirty-first (31st) day after the date on which such notice
shall have been given to Tenant, and, thereafter, Tenant shall have no right to use or occupy any
portion of the Setbacks.
x. Tenant specifically acknowledges and agrees that the Setbacks shall
be used only by Tenant and any Approved Subtenants, and by no other person or entity.
xi. Upon the expiration or sooner termination of the License, Tenant
shall surrender the Setbacks to Landlord in substantially the same condition as existed on the 7th
Floor Commencement Date, reasonable wear and tear and damage by fire or other casualty
excepted. Tenant hereby agrees that time shall be of the essence with respect to Tenant’s
obligation to vacate and surrender possession of the Setbacks upon the expiration or sooner
termination of the term of this License, and Tenant shall vacate and surrender possession of the
Setbacks at such time in accordance with the provisions of this Section 2. Without limiting the
generality of the foregoing, Tenant shall, prior to the expiration or sooner termination of the
License and subject to the provisions of Section 2(l)(i) above, repair any and all damage to the
Setbacks caused by the acts or omissions of Tenant and restore the same to the condition existing
on the 7th Floor Commencement Date
3.
Landlord’s Contribution.
b.
Subject to the terms and conditions hereinafter set forth, Landlord agrees to
provide a construction allowance (“Landlord’s Contribution”) to reimburse Tenant for the costs
expended by Tenant to perform (subject to the provisions of Article 5 of the Original Lease): the
7th Floor Initial Improvement Work, demolition of the 7th Floor Premises, refurbishment of the
base Building restrooms and/or such other work (if any) as shall be performed by Tenant or Persons
Within Tenant’s Control to prepare the Initial Demised Premises for Tenant’s continued
occupancy thereof (collectively, the “Tenant’s Improvements”) commencing on the 7th Floor
Commencement Date, in an aggregate amount not to exceed $9,005,048.00. Landlord shall fund
the portion of Landlord’s Contribution then being requisitioned in the manner set forth in Sections
3(b) and (c) below, but only if all of the following conditions shall have been satisfied:
i. Tenant (x) shall not then be in default with respect to any of the
terms, covenants or conditions to be performed or observed by Tenant under this Lease (after
notice of such default shall have been given), and (y) shall have submitted receipted invoices for
such Tenant’s Improvements as are sought to be reimbursed;
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ii. Tenant shall have obtained, and at all times during the construction
period shall maintain, all necessary and appropriate permits, licenses, authorizations and approvals
from all governmental authorities having or asserting jurisdiction in connection with such
construction, and shall have delivered true copies thereof to Landlord; and
iii. With respect to hard costs (as hereinafter defined), Tenant shall
have delivered to Landlord, for approval by Landlord: (x) a completed requisition for payment
(using the AIAG702 form, or any successor form, issued by the American Institute of Architects),
certified and sworn to by Tenant’s architect stating or accompanied by: (1) the amount being
requested, (2) receipted invoices for all labor and materials therefore performed as part of Tenant’s
Improvements, (3) to the best of such architect’s knowledge, the amount of Landlord’s
Contribution theretofore paid to Tenant, and (4) that the work completed to date has been
performed in good and workmanlike manner in accordance with the plans and specifications
approved by Landlord and in compliance with all Legal Requirements; and (y) waivers of lien
from all contractors and materialmen who shall have furnished materials or supplies or performed
work or services in connection with Tenant’s Improvements, in each case, pursuant to direct
contracts with Tenant (provided however nothing in this subclause (y) shall release Tenant from
any obligation with respect to liens in connection with Tenant’s Improvements pursuant to Section
5.03 of the Original Lease).
c. Within thirty (30) days after Tenant shall have complied with all of the
conditions set forth in the foregoing Section 3(a), Landlord shall pay to Tenant an amount equal
to that portion of Landlord’s Contribution which shall equal the cost of Tenant’s Improvements
then completed in accordance with the provisions hereof, as certified by Tenant’s architect, less
all amounts of Landlord’s Contribution previously disbursed; provided, however, that Landlord
shall not be required to make more than one (1) payment per calendar month.
d. Within thirty (30) days following the last to occur of: (i) Tenant’s
request for payment of the final installment of Landlord’s Contribution, (ii) completion of Tenant’s
Improvements in accordance with the provisions of Article 5 of the Lease, (iii) the certification of
Tenant’s architect that Tenant’s Improvements have been completed in a good and workmanlike
manner, to the satisfaction of Tenant’s architect, in accordance with the plans and specifications
approved by Landlord and in compliance with all Legal Requirements, (iv) delivery by Tenant to
Landlord of waivers of lien from all contractors and materialmen who shall have furnished
materials or supplies or performed work or services in connection with Tenant’s Improvements
pursuant to direct contracts with Tenant, (v) delivery by Tenant to Landlord of true copies of any
required final approvals of Tenant’s Improvements (including letters of completion or amended
certificates of occupancy for each and every permit application filed by or on behalf of Tenant) by
all governmental authorities having or asserting jurisdiction (including the New York City
Department of Buildings), and (vi) delivery by Tenant to Landlord of “as built” drawings with
respect to Tenant’s Improvements, the balance of Landlord’s Contribution that has not been
previously disbursed (but, in the aggregate, not in excess of the total cost of Tenant’s
Improvements) shall be disbursed to Tenant. Tenant expressly agrees that Landlord’s obligation
to pay the final installment of Landlord’s Contribution shall be conditioned upon Tenant’s timely
compliance with the requirements set forth in clauses (i) - (vi) of this Section 3(c).
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e. Landlord’s obligation to pay Landlord’s Contribution shall apply to that
part of Tenant’s Improvements that consists of the demolition of the existing improvements located
in the Demised Premises, installation of walls, partitions, fixtures, improvements and
appurtenances permanently attached to or built into the Demised Premises, including without
limitation the following: mechanical systems, flooring, ceilings, bathrooms, duct work, electrical
wiring, alarms, sprinklers, plumbing, millwork, glazing and supplemental air-conditioning systems
(if any), affixed carpeting and other floor and wall coverings (with all such work being referred to
herein collectively as “hard costs”), and (ii) design fees, engineering fees, permit and filing fees,
construction and/or project management fees (with all such fees being referred to herein
collectively as “soft costs”); provided, however, that (a) in no event shall Landlord be required to
pay more than fifteen (15%) percent (i.e., $1,350,757.20) of Landlord’s Contribution for any such
“soft costs” incurred in connection with the performance of Tenant’s Improvements, and (b)
neither such “hard costs” nor such “soft costs” shall include business and trade fixtures, machinery,
equipment or other articles of personal property.
4.
Surrender of the 9th Floor Premises.
b. Within thirty (30) days after the substantial completion of the 7th Floor
Initial Improvement Work, Tenant shall vacate and surrender possession of, and all of Tenant’s
right, title and interest in and to, the 9th Floor Premises to Landlord in the Surrender Condition (as
hereinafter defined) as though such date (such actual date of surrender, the “9th Floor Surrender
Date”) were the date originally set forth in the Lease as the expiration of the Term for the 9th Floor
Premises. In order to wholly extinguish the Term of the Lease for the 9th Floor Premises, and
effective as of the 9th Floor Surrender Date, Tenant hereby gives, grants and surrenders unto
Landlord, Landlord’s heirs, distributees, personal representatives, successors and assigns, the 9th
Floor Premises, and all of Tenant’s right, title and interest therein as of said date, TO HAVE AND
TO HOLD unto Landlord, Landlord’s heirs, distributees, personal representatives, successors and
assigns forever. On or before the 9th Floor Surrender Date, Tenant shall deliver to Landlord the
Surrender Notice attached hereto as Exhibit “D” and made a part hereof. Tenant shall give
Landlord at least thirty (30) days’ notice of the 9th Floor Surrender Date.
c. Tenant agrees that, on or before the 9th Floor Surrender Date, Tenant
shall (a) deliver the 9th Floor Premises to Landlord vacant (free of all moveable property, furniture,
furnishings and trade fixtures), “broom clean”, but otherwise in its “as-is” condition as of the date
hereof (subject to reasonable wear and tear), and (b) deliver possession of the 9th Floor Premises
to Landlord free and clear of all occupants and rights of occupancy (collectively, (a) and (b), the
“Surrender Condition”). If the 9th Floor Premises shall not be in the Surrender Condition upon
Tenant’s surrender thereof, then (i) Tenant shall be responsible to return the same to the Surrender
Condition on or prior to the 9th Floor Surrender Date (or, at Landlord’s election, Landlord shall
return the same to the Surrender Condition at Tenant’s reasonable cost, which cost shall be deemed
additional rent payable by Tenant to Landlord within thirty (30) days after Landlord’s written
request to Tenant therefor), and (ii) Landlord shall not be required to accept surrender of the 9th
Floor Premises until the same is returned to the Surrender Condition.
d. Tenant covenants and warrants on behalf of Tenant, and on behalf of any
and all of Tenant’s successors, predecessors and assigns, that Tenant (or Tenant’s predecessor) has
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not done or suffered, and shall not do or suffer, anything whereby the 9th Floor Premises or any
fixtures, equipment or personalty incorporated therein have been, or shall be, encumbered in any
way whatsoever.
e. (i)
Provided that the surrender of the 9th Floor Premises shall occur in
accordance with the provisions of this Agreement, then, from and after the 9th Floor Surrender
Date, Tenant does, for Tenant, and for any and all of Tenant’s successors, predecessors, assigns,
heirs, representatives, successors and guarantors, release and forever discharge Landlord,
Landlord’s heirs, distributees, personal representatives, successors, predecessors and assigns, from
all manner of actions, causes of action, suits, debts, dues, sums of money, accounts, reckonings,
bonds, bills, specialties, covenants, contracts, controversies, agreements, promises, variances,
trespasses, damages, acknowledgments, extents, executions, claims and demands whatsoever, in
law, admiralty or in equity, which Tenant, or any of Tenant’s successors, predecessors or assigns
ever had, now have, or may have, now or hereafter, for, upon or by reason of any matter, cause or
thing whatsoever relating to Tenant’s occupancy of the 9th Floor Premises, from the beginning of
the world through and including the 9th Floor Surrender Date, except (i) with respect to amounts
payable by Landlord pursuant to Section 4(e) below, and (ii) with respect to third-party claims that
arise prior to the 9th Floor Surrender Date that specifically survive the termination of the Lease
with respect to the 9th Floor Premises only.
(ii)
Provided that the surrender of the 9th Floor Premises shall
occur in accordance with the provisions of this Agreement, then, from and after the 9th Floor
Surrender Date, Landlord does, for Landlord, and for any and all of Landlord's successors,
predecessors, assigns, heirs, representatives, successors and guarantors, release and forever
discharge Tenant, Tenant's heirs, distributees, personal representatives, successors, predecessors
and assigns, from all manner of actions, causes of action, suits, debts, dues, sums of money,
accounts, reckonings, bonds, bills, specialties, covenants, contracts, controversies, agreements,
promises, variances, trespasses, damages, acknowledgments, extents, executions, claims and
demands whatsoever, in law, admiralty or in equity, which Landlord, or any of Landlord's
successors, predecessors or assigns ever had, now have, or may have, now or hereafter, for, upon
or by reason of any matter, cause or thing whatsoever relating to Tenant's occupancy of the 9th
Floor Premises, from the beginning of the world through and including the 9th Floor Surrender
Date, except with (i) respect to amounts payable by Tenant pursuant to Section 4(e) below and (ii)
with respect to third-party claims that arise prior to the 9th Floor Surrender Date that specifically
survive the termination of the Lease with respect to the 9th Floor Premises only.
f. Tenant’s liability for any and all amounts due under the Lease with
respect to the 9th Floor Premises, including without limitation, Fixed Rent and Recurring
Additional Rent, shall be apportioned as of the 9th Floor Surrender Date, by Landlord, in
Landlord’s reasonable estimation, except that Tenant’s obligation to pay all Post-Surrender
Amounts (hereinafter defined) shall survive the 9th Floor Surrender Date, and it shall remain
Tenant’s obligation to pay all Post-Surrender Amounts to Landlord in full as and when such
payments are required to be made pursuant to the Lease and this Amendment. For the purposes
of this Amendment, the term “Post-Surrender Amounts” shall mean such amounts as are due from
Tenant to Landlord pursuant to the Lease or this Amendment, and that are intended to be paid after
the 9th Floor Surrender Date. Furthermore (a) Landlord shall remain liable to distribute to Tenant
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any refund or credit (or pro-rated portion thereof based on the 9th Floor Surrender Date) of (i) any
Tenant’s Tax Payment made by Tenant with respect to any Tax Year, and (ii) any Operating
Expense Payment made by Tenant with respect to any Operating Year, in each case, for which
Tenant is due such refund with respect to the 9th Floor Premises pursuant to the terms of the Lease,
and (b) Tenant shall remain liable to pay to Landlord for any underpayment or additional fees (or
pro-rated portion thereof based on the 9th Floor Surrender Date) of (x) any Tenant’s Tax Payment
made by Tenant with respect to any Tax Year, and (y) any Operating Expense Payment made by
Tenant with respect to any Operating Year, in each case, for which Tenant has underpaid or is
required to pay additional fees with respect to the 9th Floor Premises pursuant to the terms of the
Lease.
g. Tenant shall indemnify and hold Landlord harmless from any and all
liability for real property transfer tax, if any, that may be due and owing to the City or State of
New York as a result of the surrender of the 9th Floor Premises. Tenant hereby irrevocably
constitutes and appoints Landlord (and any partner or officer of Landlord) as Tenant’s agent and
attorney-in-fact (coupled with an interest) to execute and file such tax returns as may be required
by law.
5.
Lease Modifications. From and after the date hereof:
b. The following shall be added to Section 32.01 of the Original Lease after
the phrase “governmental preemption,” and before the phrase “by reason of any Legal
Requirements”:
“inability to obtain labor or materials for any reason beyond Landlord’s reasonable control,
acts of God, war, fire, bioterrorism, terrorist acts or other casualty, any actual or threatened
health emergency, including, but not limited to, epidemics, pandemic, famine, disease,
plague, quarantine, and other health risk, including, but not limited, to health risks declared
or recognized by the Centers for Disease Control, the World Health Organization,”
c. All references in the Lease to (A) “this Lease”, shall refer to the Original
Lease, as amended by this Amendment, (B) “Demised Premises” shall be deemed to refer
collectively (but without duplication of cost or obligation) to the Original Demised Premises and
the 7th Floor Premises (except where expressly stated otherwise in the other provisions of this
Amendment), (C) “Term” or “Lease Term” shall be deemed to refer to the co-terminous term for
the 7th Floor Lease Term and the term for the Initial Demised Premises (except where expressly
stated otherwise in the other provisions of this Amendment), and (D) the “Expiration Date” shall
be deemed to refer collectively to the Expiration Date for the Initial Demised Premises and the 7th
Floor Premises, which are the same, and subject to renewal pursuant to and in accordance with the
terms and conditions set forth in Article 34 of the Original Lease (as amended by this Amendment).
All references in the Lease to the “Security Deposit Amount” shall be deemed to collectively refer
to the Security Deposit Amount, the Expansion Security Deposit Amount (as such term is defined
in the First Amendment) and the 7th Floor Security Deposit Amount.
d. Modifying the provisions of Article 10 of the Lease, Tenant shall have
the right (i) to create within the Demised Premises up to four (4) separately demised portions of
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the Demised Premises (collectively, the “Sublet Spaces”) (in addition to the premises occupied
by Tenant) for temporary sublet, which Sublet Spaces shall not exceed, in the aggregate, 20,000
Rentable Square Feet (which, for avoidance of doubt, one of the four Sublet Spaces may include
part or all of the portion of the Original Demised Premises now sublet to OceanSound Partners),
and (ii) to sublet the Sublet Spaces to subtenants (“Approved Subtenants”) upon notice to
Landlord in accordance with the provisions of Article 10 under the Lease and subject to the terms
of the next sentence. Provided that any proposed sublease of the Sublet Spaces occurs within the
first five (5) years after the 7th Floor Commencement Date, (x) Landlord shall not unreasonably
withhold, delay or condition consent to any such proposed subtenant, and (y) the following
provisions of the Lease shall not apply to the applicable proposed subletting of the Sublet Spaces:
(I) recapture rights under Section 10.03, (II) the profit-sharing rights under Section 10.07, or (III)
the limitations of Section 10.11. Vacant Sublet Spaces shall not be deemed to be Tenant’s
“abandonment” or “not in occupancy” under any provision of the Lease. Tenant shall be liable for
all costs or expenses to legally demise the Sublet Spaces and any such alterations (which may, at
Tenant’s option, be part of the 7th Floor Initial Improvement Work) shall be performed in
accordance with Article 5 of the Lease.
c. Tenant shall have reasonable non-exclusive access during the Lease
Term (a) to a proportional share of the electrical and telecommunications closet(s) located on the
7th and 8th floors of the Building that service the Demised Premises, and (b) reasonable and non-
exclusive access to a proportional share of existing vertical riser space, from the beginning of such
vertical riser space to the 7th and 8th floors of the Building for Tenant’s voice and data requirements
and for purposes of connecting telecom systems in the 7th Floor Premises and the Initial Demised
Premises (to be installed and maintained by Tenant at Tenant’s expense in accordance with the
provisions of Article 5 hereof). To the extent Landlord determines, in its reasonable judgement,
that a standby Building engineer must be present during such access, Landlord’s standard charges
therefor shall apply and be paid by Tenant to Landlord, as additional rent, within thirty (30) days
after Landlord’s delivery of an invoice therefor to Tenant.
3.
Condenser Water. Tenant shall have the right, exercisable only by delivery
of written notice (the “Condenser Water Notice”) to Landlord within thirty (30) days after the 7th
Floor Premises Rent Commencement Date to request that Landlord reserve sufficient additional
condenser water capacity for up to a maximum of twenty (20) additional tons of supplemental air-
conditioning in the 7th Floor Premises. If Tenant makes such election, Tenant shall pay Landlord
for such additional condenser water in accordance with the provisions of Section 18.01F of the
Original Lease.
6.
Renewal Term. Modifying and supplementing Article 34 of the Original
Lease, Tenant shall have the option to renew the Lease for the 7th Floor Premises as part of Tenant’s
Renewal Option in accordance with the provisions of Article 34 of the Lease (it being agreed and
understood that Tenant’s Renewal Option with respect to the 9th Floor is null and void and of no
further force or effect). For the avoidance of doubt, (a) Tenant shall have one (1) five (5) year
Renewal Option, with the Renewal Term commencing on November 1, 2036 and ending on
October 31, 2041, and (b) Tenant must exercise such Renewal Option for the Initial Demised
Premises and the 7th Floor Premises together.
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7.
Security Deposit Amount.
b. Upon execution of this Amendment, Tenant shall deliver to Landlord the
7th Floor Security Deposit Amount. Article 33 of the Original Lease shall govern with respect to
any use, application or retainage by Landlord, or any return thereof to Tenant, of the Security
Deposit Amount, including, without limitation, the 7th Floor Security Deposit Amount.
c. Notwithstanding anything to the contrary contained herein, the
remaining Expansion Security Deposit Amount (after any deduction of any amounts in connection
with the surrender of the 9th Floor Premises in accordance with the terms of the Lease, if any) shall
be continue to be held by Landlord, and Landlord shall have no obligation to return the Expansion
Security Deposit Amount (or any portion thereof) to Tenant following the surrender of the 9th Floor
Premises. In satisfaction of Tenant’s obligation to deliver the 7th Floor Security Deposit Amount,
Landlord shall accept a new Letter of Credit, or an amendment of the existing Letter of Credit
previously deposited by Tenant with Landlord, in each case, in the amount of the 7th Floor Security
Deposit Amount. Subject to the provisions of Subsection 33.03C of the Original Lease in all
respects, if no Event of Default shall have occurred at any time during the Lease Term, and
provided that Tenant shall not then be in default with respect to any of the terms, provisions,
covenants, agreements and conditions of the Lease, Tenant shall be permitted, in accordance with
the provisions of Subsection 33.03C of the Original Lease, to reduce the amount of the Security
Deposit Amount on the fourth (4th) anniversary of the 7th Floor Commencement Date to
$1,035,888.00, it being agreed, however, that at no time during the Lease Term shall the Letter of
Credit furnished to Landlord with respect to the 7th Floor Security Deposit Amount be reduced to
an amount less than $1,035,888.00.
8.
Signage. The initially named Tenant under the Lease (i.e., Pzena Investment
Management, LLC) and any Approved Subtenants, shall be permitted to install identification
signage on the entry doors to the 7th Floor Premises, the Original Demised Premises and the Sublet
Spaces, and directional signage in the 7th floor elevator lobby and in the 8th floor elevator lobby,
subject to Landlord’s approval as to the precise location, dimensions and motif thereof, such
approval not to be unreasonably withheld. Notwithstanding the foregoing, provided that Tenant
shall have obtained Landlord’s prior written approval to such signage (which approval shall not
be unreasonably withheld), Tenant shall have the right to install signage in the 7th floor elevator
lobby and the 8th floor elevator lobby identifying Tenant and/or any permitted occupant(s) of the
Demised Premises. Any additional signage requested by Tenant shall be governed by the
provisions of Subsection 10.15 of the Original Lease.
9.
Brokers. Tenant represents and warrants to Landlord that Tenant has not
employed, dealt or negotiated with any broker in connection with this Amendment other than
Savills and Jones Lang LaSalle Brokerage, Inc. (collectively, the “Second Amendment
Designated Broker”) in connection with this Amendment, and Tenant shall indemnify, protect,
defend and hold Landlord harmless from and against any and all liability, damage, cost and
expense (including reasonable attorneys’ fees and disbursements) arising out of any claim for a
fee or commission by any broker or other party in connection with this Amendment and the
extension of the Lease of the Initial Demised Premises and the leasing by Tenant of the 7th Floor
Premises. The provisions of this Section 10 shall not apply to the Second Amendment Designated
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Broker. Landlord agrees to pay the Second Amendment Designated Broker’s commission in
accordance with separate agreements between Landlord and the Second Amendment Designated
Broker. Landlord represents to Tenant that Landlord has not employed, dealt or negotiated with
any broker (other than the Second Amendment Designated Broker) in connection with this
Amendment; it being understood and agreed that mailings by Landlord to brokers with respect to
Landlord’s desire to lease the 7th Floor Premises shall not be deemed a breach of the foregoing
representation. For the avoidance of doubt, (x) the provisions of Section 21.01 of the Original
Lease shall be deemed to apply only to the Original Lease and (y) the provisions of Section 6 of
the First Amendment shall be deemed to apply only to the First Amendment and for the 9th Floor
Premises, in each case, as opposed to this Amendment for the extension of the Lease of the Initial
Demised Premises and the leasing of the 7th Floor Premises.
10.
Cafeteria and Amenities Center. Tenant and Approved Subtenants shall
have the right, subject to all applicable provisions of this Lease (including, without limitation, the
then-current Building rules and any and all rules, regulations and procedures promulgated by
Landlord specifically with respect to the use and operation of the Amenity Space (as hereinafter
defined)), to use the Amenity Space in common with Landlord and other tenants of the Building.
Notwithstanding the foregoing provisions of this Paragraph 11, Tenant hereby expressly
acknowledges and agrees that the Amenity Space is being offered for Tenant’s use as an
accommodation, and only insofar as the same may now or hereafter exist and/or be offered to other
tenants in the Building, and in the event that any Amenity Space shall be reduced in scope or
availability or shall cease to exist (in Landlord’s sole discretion), then this Lease and Tenant’s
obligations and Landlord’s rights under this Lease shall not in any manner be affected or
diminished thereby. If, at any point during the Lease Term, Landlord shall install, operate,
maintain and/or provide in the Building any additional amenity and shall make use of the same
available to occupants of the Building other than Landlord and its employees, then Tenant shall be
offered use of the same, subject to such fees as Landlord may charge (the “Fees”) and such
reasonable rules, regulations and procedures as Landlord may promulgate with respect thereto. As
used herein, “Amenity Space” shall mean (individually or collectively, as the case may require),
any existing, currently contemplated and all future Building amenities, including, without
limitation, (i) a dining area, “grab and go” food service, and/or conference and event space on the
16th floor of the Building, (ii) a lobby coffee bar, or (iii) additional event or conference space in
the Building. Notwithstanding anything to the contrary contained herein, Landlord may operate a
fitness center in the Building and access thereto by Tenant and/or other tenants in the Building
shall be permitted or restricted in Landlord’s sole discretion. All costs associated with the
operation and maintenance of the Amenity Space (“Amenity Space Costs”) may be included in
Operating Expenses, provided such costs are reasonable and competitive with services offered in
comparable Class A office buildings in Midtown Manhattan. Notwithstanding the foregoing, if
during any Operating Year in which Landlord includes Amenity Space Costs in Operating
Expenses, Tenant paid to Landlord any Fees for Tenant’s ordinary office usage (i.e., excluding
usage for any parties, events, conferences or other gatherings in which guests who do not regularly
work in the Building are in attendance) (such Fees, “Ordinary Use Fees”) of the Amenity Space
or any part thereof, then Landlord shall deduct the amount of such Ordinary Use Fees from
Amenity Space Costs for the applicable Operating Year (provided that in no event shall Amenity
Space Costs be reduced below $0 by virtue of the foregoing).
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11.
Miscellaneous.
b. Except as expressly modified herein, Landlord and Tenant affirm that
the Lease is in full force and effect. Tenant represents to Landlord that, to Tenant’s knowledge,
Tenant has not sent to Landlord any notice of default with respect to Landlord’s obligations under
the Lease, which default has not been cured. Landlord represents to Tenant that Landlord, to
Landlord’s knowledge, has not sent to Tenant any notice of default with respect to Tenant’s
obligations under the Lease, which default has not been cured or deemed cured. By entering into
this Amendment, Landlord does not and shall not be deemed either (i) to waive or forgive any
default, rent arrears or other condition with respect to the Lease or the use of the Demised Premises,
whether or not in existence or known to Landlord at the date hereof, or (ii) to consent to any matter
as to which Landlord’s consent is required under the terms of the Lease, except such as may
heretofore have been waived in writing, or consented to in writing, by Landlord.
c. All capitalized terms and other terms not otherwise defined herein shall
have the respective meanings ascribed to them in the Original Lease. No subsequent alteration,
amendment, change or addition to the Original Lease or to this Amendment shall be binding upon
Landlord or Tenant unless in writing and signed by both Landlord and Tenant. This Amendment
shall be binding upon and inure to the benefit of the parties hereto and their respective successors
and permitted assigns.
d. Except as may be expressly modified or amended by this Amendment,
all of the terms, covenants and conditions of the Lease are hereby ratified and confirmed and,
except insofar as reference to the contrary is made in any such instrument, all references to the
“Lease” in any future correspondence or notice shall be deemed to refer to the Lease as modified
by this Amendment. All obligations of Landlord and Tenant with respect to the 9th Floor Premises
shall remain in full force and effect through the 9th Floor Surrender Date.
e. This Amendment may be executed in counterparts, all of which together
shall constitute the original, but this Amendment shall not be binding upon either party hereto
unless and until such time as this Amendment or counterparts thereof shall have been executed by
both parties and delivered to the other.
f. To facilitate execution of this Amendment, the parties may exchange
counterparts of the same by facsimile or electronic mail (e-mail) (which shall include, but not be
limited to, electronic attachments in ‘pdf’ format containing counterparts of the signature page to
this Amendment), which shall be effective as original signature pages for all purposes. Following
such execution of this Amendment, each party shall deliver to the others an actual signed original
counterpart of this Amendment.
[Remainder of Page Intentionally Left Blank]
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IN WITNESS WHEREOF, Landlord and Tenant have duly executed this
Amendment as of the date first above written.
320 PARK AVENUE
LLC, Landlord
By:
/s/Anne Marie
Carroll
Name: Anne Marie
Carroll
Title: Authorized
Signatory
PZENA INVESTMENT
MANAGEMENT, LLC,
Tenant
By:
/s/
Richard
S. Pzena
Name:
Richard
S. Pzena
Title:
Managing
Principal
Exhibit 21.1
Subsidiaries of Pzena Investment Management, Inc.
Pzena Investment Management, LLC, a Delaware limited liability company.
Pzena Investment Management, Pty Ltd, is a proprietary limited company incorporated in Australia.
Pzena Investment Management, Ltd is a private limited company incorporated in England and Wales.
Pzena Investment Management Europe Limited is a private company limited by shares incorporated in Ireland.
Pzena Financial Services, LLC, a Delaware limited liability company.
Exhibit 23.1
Consent of Independent Registered Public Accounting Firm
We hereby consent to the incorporation by reference in the Registration Statement on Forms S-3 (No. 333-221340,
No. 33-205165, No. 333-194885, No. 333-186957, No. 333-172257 and No. 333-155354) and Forms S-8 (No. 333-
235756, No. 333-221339, No. 333-163370 and No. 333-147027) of Pzena Investment Management, Inc. of our
report dated March 8, 2022 relating to the financial statements and the effectiveness of internal control over
financial reporting, which appears in the 2021 Annual Report to Shareholders, which is incorporated in this Annual
Report on Form 10-K for the year ended December 31, 2021.
/s/ PricewaterhouseCoopers LLP
New York, New York
March 8, 2022
Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
I, Richard S. Pzena, certify that:
1.
I have reviewed this annual report on Form 10-K of Pzena Investment Management, Inc.
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state
a material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this report.
3.
Based on my knowledge, the financial statements, and other financial information included in this report,
fairly present in all material respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report.
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control
over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and
have:
a.
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures
to be designed under our supervision, to ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;
b.
Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles;
c.
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
d.
Disclosed in this report any change in the registrant’s internal control over financial reporting that
occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably
likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of
internal control over financial reporting, to the registrant’s auditors and the audit committee of the
registrant’s board of directors:
a.
All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record,
process, summarize and report financial information; and
b.
Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant’s internal control over financial reporting.
Date: March 8, 2022
/s/ Richard S. Pzena
Richard S. Pzena
Chief Executive Officer
(principal executive officer)
Exhibit 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
I, Jessica R. Doran, certify that:
1.
I have reviewed this annual report on Form 10-K of Pzena Investment Management, Inc.
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state
a material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this report.
3.
Based on my knowledge, the financial statements, and other financial information included in this report,
fairly present in all material respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report.
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control
over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and
have:
a.
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures
to be designed under our supervision, to ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;
b.
Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles;
c.
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
d.
Disclosed in this report any change in the registrant’s internal control over financial reporting that
occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably
likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of
internal control over financial reporting, to the registrant’s auditors and the audit committee of the
registrant’s board of directors:
a.
All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record,
process, summarize and report financial information; and
b.
Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant’s internal control over financial reporting.
Date: March 8, 2022
/s/ Jessica R. Doran
Jessica R. Doran
Chief Financial Officer
(principal financial and accounting
officer)
Exhibit 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report on Form 10-K of Pzena Investment Management, Inc. (the “Company”)
for the fiscal year ended December 31, 2021, as filed with the Securities and Exchange Commission (the “Report”),
I, Richard S. Pzena, as Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted
pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of
1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and
results of operations of the Company.
A signed original of this written statement required by section 906 has been provided to Pzena Investment
Management, Inc. and will be retained by Pzena Investment Management, Inc. and furnished to the Securities and
Exchange Commission or its staff upon request.
Date: March 8, 2022
/s/ Richard S. Pzena
Richard S. Pzena
Chief Executive Officer
(principal executive officer)
Exhibit 32.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report on Form 10-K of Pzena Investment Management, Inc. (the “Company”)
for the fiscal year ended December 31, 2021, as filed with the Securities and Exchange Commission (the “Report”),
I, Jessica R. Doran, as Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted
pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of
1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and
results of operations of the Company.
A signed original of this written statement required by section 906 has been provided to Pzena Investment
Management, Inc. and will be retained by Pzena Investment Management, Inc. and furnished to the Securities and
Exchange Commission or its staff upon request.
Date: March 8, 2022
/s/ Jessica R. Doran
Jessica R. Doran
Chief Financial Officer
(principal financial and accounting officer)