UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED December 31, 2017
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: 001-35733
Silvercrest Asset Management Group Inc.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction
of incorporation)
45-5146560
(I.R.S. Employer
Identification No.)
1330 Avenue of the Americas, 38th Floor
New York, New York 10019
(Address of principal executive offices and zip code)
(212) 649-0600
(Registrant’s telephone number, including area code)
Not Applicable
(Formed name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Class A common stock, $0.01 par value per share
(Title of each class)
The Nasdaq Global Market
(Name of each exchange in which registered)
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 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 and posted on its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be
contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. ☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the
definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
Accelerated filer
Smaller reporting company
☒
☐
Non-accelerated filer
☐
☐ (Do not check if a 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 7(a)(2)(B) of the Securities Act ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The aggregate market value of the registrant’s common equity held by non-affiliates of the registrant (assuming for purposes of this computation only that the directors
and executive officers may be affiliates) at June 30, 2017, which was the last business day of the registrant’s most recently completed second fiscal quarter was
approximately $95.1 million based on the closing price of $13.45 for one share of common stock, as reported on The Nasdaq Global Market on June 30, 2017.
The number of outstanding shares of the registrant’s Class A common stock, par value $0.01 per share, and Class B common stock, par value $0.01 per share, as of
March 6, 2018 were 8,142,120 and 5,059,319, respectively.
Portions of the registrant’s definitive Proxy Statement for its 2018 Annual Meeting of Stockholders are incorporated by reference into Part III of this Annual Report on
Form 10-K where indicated. Such Definitive Proxy Statement will be filed with the Securities and Exchange Commission within 120 days after the end of the
registrant’s fiscal year ended December 31, 2017.
DOCUMENTS INCORPORATED BY REFERENCE
Business
Part I
Item 1.
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2.
Item 3.
Properties
Legal Proceedings
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Part II
Item 5.
Item 6.
Item 7.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Item 9A. Controls and Procedures
Financial Statements and Supplementary Data
Part III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
Part IV
Item 15.
Item 16 Form 10-K Summary
Exhibits, Financial Statement Schedules
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15
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34
34
35
38
39
60
60
60
61
61
61
61
61
62
63
Except where the context requires otherwise and as otherwise set forth herein, in this report, references to the “Company”, “we”, “us”
or “our” refer to Silvercrest Asset Management Group Inc. (“Silvercrest”) and its consolidated subsidiary, Silvercrest L.P., the managing
member of our operating subsidiary (“Silvercrest L.P.” or “SLP”). SLP is a limited partnership whose existing limited partners are referred
to in this report as “principals”. On June 26, 2013, Silvercrest completed its corporate reorganization, and on July 2, 2013, Silvercrest
closed its initial public offering. Prior to that date, Silvercrest was a private company.
Forward-Looking Statements
This report contains, and from time to time our management may make, forward-looking statements within the meaning of the safe
harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. In some cases, you can identify these statements by
forward-looking words such as “may”, “might”, “will”, “should”, “expects”, “intends”, “plans”, “anticipates”, “believes”, “estimates”,
“predicts”, “potential” or “continue”, the negative of these terms and other comparable terminology. These forward-looking statements,
which are subject to risks, uncertainties and assumptions, may include projections of our future financial performance, future expenses,
anticipated growth strategies, descriptions of new business initiatives and anticipated trends in our business or financial results. These
statements are only predictions based on our current expectations and projections about future events. Important factors that could cause
actual results, level of activity, performance or achievements to differ materially from those indicated by such forward-looking statements
include but are not limited to: incurrence of net losses, fluctuations in quarterly and annual results, adverse economic or market conditions,
our expectations with respect to future levels of assets under management, inflows and outflows of assets under management, our ability to
retain clients from whom we derive a substantial portion of our assets under management, our ability to maintain our fee structure, our
particular choices with regard to investment strategies employed, our ability to hire and retain qualified investment professionals, the cost
of complying with current and future regulation, coupled with the cost of defending ourselves from related investigations or litigation,
failure of our operational safeguards against breaches in data security, privacy, conflicts of interest or employee misconduct, our expected
tax rate, and our expectations with respect to deferred tax assets, adverse economic or market conditions, adverse effects of management
focusing on implementation of a growth strategy, failure to develop and maintain the Silvercrest brand and other factors disclosed under
“Risk Factors” in this annual report on Form 10-K. We undertake no obligation to publicly update or review any forward-looking
statement, whether as a result of new information, future developments or otherwise, except as required by law.
PART I.
Item 1. Business.
Our Guiding Principles
We operate our business in accordance with the following guiding principles:
•
•
•
•
We will create, build and maintain an environment that encourages innovation and original thought and apply this fresh
thinking to the needs of our clients and firm.
We will attract, motivate and retain unusually talented and ambitious professionals who share a passion for the investment
business and an antipathy for corporate bureaucracy and office politics.
We will conduct ourselves in all our dealings as highly ethical, responsible and competent professionals who always place
our clients’ financial interests ahead of our own.
We will encourage and nurture an entrepreneurial, collegial and action-oriented business culture in which “fun” is inevitable
and decisions are generally consensual.
Our Company
We are a full-service wealth management firm focused on providing financial advisory and related family office services to ultra-
high net worth individuals and institutional investors. In addition to a wide range of investment capabilities, we offer a full suite of
complementary and customized family office services for families seeking comprehensive oversight of their financial affairs. As of
December 31, 2017, our assets under management were $21.3 billion.
We were founded 15 years ago on the premise that if we staffed and organized our business to deliver a combination of excellent
investment performance together with high-touch client service, we would differentiate our business from a crowded field of firms
nominally in the wealth management business. We seek to attract and serve a base of individuals and families with $10 million or more of
investable assets, and we believe we are well-positioned to offer comprehensive investment and family office service solutions to families
with over $25 million of investable assets. As of December 31, 2017, we had 719 client relationships with an average size of $29 million
that represented approximately 98% of our assets under management. Our top 50 relationships averaged $254 million in size, and such
amount represented approximately 1.2% of our assets under management. As a boutique, we are large enough to provide an array of
comprehensive capabilities, yet agile enough to coordinate and deliver highly personalized client service.
Our annual client retention rate has averaged 98% since 2006 and, as shown below, the compound annual growth rate, or CAGR, in
our assets under management since inception is 35%. Our growth rate in any 12-month period ending on the last day of a fiscal quarter
since inception ranged from (23)% to 1,142%, with a mean of 42%. We believe our record of growth is a direct result of our demonstrated
record of delivering excellent performance together with highly personalized service to our clients.
2
Our organic growth has been complemented by selective hiring and by seven successfully completed strategic acquisitions that have
expanded not only assets under management, but also our professional ranks, geographic footprint and service capabilities. We believe
additional acquisitions will allow us to extend our geographic presence nationally. As we grow, we will maintain our value proposition to
continue to deliver to our clients excellent investment performance together with excellent client service, the essence of what differentiates
us from our competitors.
Our clients engage us to advise them on traditional investment strategies focused on equities, fixed income and cash as well as non-
traditional investment strategies including hedge funds, private equity funds, real estate and commodities. Our clients receive a full menu of
proprietary investment capabilities together with a focused array of complementary non-proprietary capabilities offered by unaffiliated
firms selected by us. In addition to our investment capabilities, we also provide our clients with family office services and related
administrative services, which include financial planning, tax planning and preparation, partnership accounting and fund administration,
and consolidated wealth reporting. Our fees for our investment advisory services, non-proprietary services and family office and related
administrative services are structured to align our financial incentives with those of our clients to ensure they receive unconflicted advice.
The vast majority of our fees are derived from discretionary assets under management, and are based on the value of the assets we manage
for our clients. These fees increase if our clients’ assets grow in value; on the other hand, these fees decrease if our clients’ assets decline in
value. Unlike our management fees, our fees for family office services and related administrative services are generally not based on or
correlated to market values. For these services, we generally charge our clients a negotiated fee based on the scope of work. These services
create strong client relationships and contribute meaningfully to our record of client retention.
As of December 31, 2017, approximately 76% of our discretionary assets under management were held for individual clients and
24% for institutional clients. Based on the results we have achieved in a number of our equity strategies, we continue to attract a significant
amount of institutional investor interest. Our equity capabilities are on the approved lists of several prominent institutional consultants and,
as a result, we believe significant institutional growth is likely to continue in future years.
History, Organization and Philosophy
When forming our company, our founders had the objective of creating a large full-service boutique operation focused on managing
portfolios and delivering financial advice to wealthy individuals and select institutions. We commenced operations in April of 2002. Our
first partners and employees came almost entirely from Donaldson, Lufkin & Jenrette (“DLJ”) Asset Management Group, which had been
acquired by Credit Suisse Asset Management in late 2000. In 2002, we carefully recruited and hired the same equity, fixed income and
client service teams with whom our clients had worked at DLJ Asset Management Group. As of December 31, 2017, approximately eleven
percent of our 122 employees are veterans of DLJ. Many of our principals, therefore, have worked together for 21 years and, in some cases,
even longer.
Our headquarters are located in New York City with additional offices in Massachusetts, Virginia and New Jersey. From inception,
we have embraced an organizational structure in which the primary functions of client service, investments, technology and operations, and
business administration are organized and staffed with professionals who specialize in each of those functions. This structure permits each
professional to focus on his or her area of expertise without the distraction of other business responsibilities. At many other firms, the
senior professionals are expected to serve multiple roles simultaneously, which we believe dilutes the value to clients and makes scaling the
business effectively unachievable. We firmly believe that our business structure represents a better approach and will permit us to greatly
expand our business on our existing platform.
In meeting our primary objective to deliver strong investment results, we seek to add value through our asset allocation advice, as
well as through our proprietary equity and fixed income strategies and outsourced investment capabilities. We recruited and hired a team of
seasoned securities analysts who have an institutional caliber approach to security selection and a long record of success in implementing
their strategies. We encourage them to focus 100% of their professional time on the task of securities selection. Our in-house equity
analysts are focused on U.S. large cap, small cap, smid cap, multi cap, equity income and focused value equity strategies. On the fixed
income side, our analysts are focused on high-grade municipals, high-yield municipals and high-grade taxables.
In order to deliver excellent client service, our portfolio managers are charged with the responsibility of working individually with
each client to help define investment objectives, risk tolerance, cash flow requirements and other financial needs. Client-facing portfolio
managers, their support staffs and the family office services group, account for 58% of our total employees, a reflection of our high
commitment to excellent client service. We are staffed to ensure that each client receives senior level personal attention.
3
We have a staff of eight professionals who work with our portfolio managers to deliver family office services to interested clients.
The fees for family office services are negotiated with the client and generally are not asset-based. For this reason, the revenues generated
by our family office services are non-correlated to market movements and provide us with a diversified source of earnings. We believe
these family office services have been an attractive component of our overall value proposition and engender a stronger relationship with
our clients, leading to greater client retention and the institutionalization of client relationships.
Our Growth Strategy
We built our company to take market share from financial services firms whose wealth management models we believe are flawed.
Our growth strategy has been and will continue to be to grow our business organically, to complement our organic growth with strategic
hires and acquisitions and to expand our presence in the institutional market. In support of each of these initiatives we plan to continue to
invest in establishing our brand through continued selective advertising and public relations.
Organic Growth
We have a proven ability to identify, attract and retain ultra-high net worth clients who seek a firm designed to deliver excellent
investment performance and excellent client service. Our organizational model of separate and distinct business functions has proven
scalable and our company’s assets under management have grown to $21.3 billion as of December 31, 2017 without a commensurate
increase in headcount. Importantly, we have achieved our growth while maintaining our profitability during one of the most challenging
periods in the history of the U.S. financial markets. Going forward, we will continue to execute our business plan for attracting ultra-high
net worth clients.
The business of attracting ultra-high net worth clients is the business of obtaining referrals and gaining trust. At our company, these
responsibilities reside principally with our portfolio managers. Our senior portfolio managers have on average nearly 35 years of industry
experience and they have developed a wealth of contacts and professional referral sources as a result of that experience. In spearheading the
effort to deliver excellent performance and service to their clients, our portfolio managers have developed very close relationships with their
clients and in many cases these relationships are much older than our company itself. Much of our new business results from referrals from
existing clients. In this regard, it is critical that our portfolio managers work closely with each of their clients to establish and maintain the
trust that is at the heart of the relationship.
Where appropriate, our portfolio managers are also encouraged to introduce our clients to our family office services capabilities and
we have capacity for growth in client utilization of these services. Four of our ten largest clients use our family office services and some of
these clients have closed their own family offices to consolidate those activities with us. This is a profitable business for us and it serves to
tighten our ties to those clients who avail themselves of the services we offer. It is also extremely useful to us in new business competitions
where we use these services as a differentiator from our competitors. We continue to see the opportunity for greater penetration with our
current clients in future years.
Complementing the efforts of our senior portfolio managers to cultivate client referrals, our business development team is charged
with identifying newly-formed wealth (resulting from merger, acquisition or corporate finance) and then creating customized solicitations.
Our objective is two-fold: we will expand awareness of our company and its capabilities by distributing our marketing materials to this new
audience and we will attract a certain amount of new business. The basis of this effort is careful research designed to ascertain if the
prospect has any relationship with us-or any of our clients or friends-and then our solicitation is tailored to those circumstances.
In all of our business development efforts we devote a great deal of time and effort to developing highly customized and detailed
proposals for our prospects. In order to do so, we spend as much time as is required to thoroughly understand the prospect’s circumstances
and goals as well as the sources of its dissatisfaction with its existing adviser. Where appropriate our proposals include the integration of
our entire suite of family office services. We believe our customized new business presentations distinguish us from both our much larger
competitors, which have substantial resources, but whose size, we believe, may impede them from easily tailoring solutions to suit clients’
needs, as well as from our smaller competitors whom, we believe, do not have our depth of resources or capabilities.
4
Acquired Growth
From our inception, our organic growth has been complemented by selective hiring and strategic acquisitions, which have served to
enlarge our client base, expand our professional ranks, increase our geographic presence and broaden our service capabilities. We therefore
expect to continue to recruit and hire senior portfolio managers with significant client relationships as well as successful investment
professionals with capabilities currently not available internally to us. We have used acquisitions to extend our presence into new
geographies (Boston, Virginia and New Jersey) and to gain new investment expertise. The seven strategic acquisitions we have
successfully completed have allowed us to benefit from economies of scale and scope.
In making acquisitions, we look for firms with compatible professionals of the highest integrity who believe in our high service-high
performance model for the business. It is important that their clientele be principally clients of high net worth and it is helpful if they have a
similar value-based investment methodology. These firms are attracted to our company by the strength of our brand, the breadth of our
services and the integrity of our people. Often these firms are extremely limited in the investment products and services they can offer their
clients and it is not uncommon that they have succession or other management issues to resolve. In addition, the high and growing cost of
compliance with federal and state laws governing their business is often an added inducement. We believe we will become the partner of
choice for many such firms.
Continuing our short-term growth strategy, we intend to establish offices in major wealth centers on the West Coast, in the Southwest
and in the Midwest in order to be closer to both our clients and to prospective clients.
Our past acquisitions have sharpened our ability to integrate acquired businesses, and we believe that once we identify an acquisition
target we will be able to complete the acquisition and integrate the acquired business expeditiously.
Institutional Growth
After nine years of effort focused on cultivating relationships with institutional investment consultants, we continue to regularly make
new business presentations to institutional investors, including public and corporate pension funds, endowments, foundations, and their
consultants.
We are on the “approved” lists of certain prominent institutional investment consultants, which means that these consultants would
be prepared to recommend our firm to clients in search of a particular investment strategy for their clients. This has significantly enhanced
our ability to win mandates these consultants seek for their institutional clients and as a result we have won institutional mandates in our
equity strategies. We expect this trend to continue once it is publicly known that these and other institutions have engaged us to manage
significant portfolios for them. The importance of institutional growth to our company is noteworthy: institutional assets will likely expand
not only our assets under management but also our profit margins; and the due diligence conducted by these institutions before selecting us
will ratify and confirm the decisions to hire us made by our individual clients.
Brand Management
We have invested heavily to build, maintain and extend our brand. We have done so in the belief that creating awareness of our
company and its differentiated characteristics would support all aspects of our business but most notably our growth.
With limited resources, we have created a focused national advertising campaign, which has drawn praise from clients, prospects and
competitors alike. We have carefully chosen media outlets that reach our target audience efficiently and we estimate that the new business
that we get directly as a result of our advertising now finances its cost.
Complementing our advertising strategy and again with limited resources, we have also invested in an effort to get media coverage of
our company in some of the nation’s most prestigious national publications as well as in industry journals and newsletters. This effort has
resulted in press coverage by the Wall Street Journal, Barron’s, Bloomberg, the Financial Times and The New York Times as well as
various trade publications distributed within our industry. This public relations effort has proven very helpful in establishing our company
as a leader in our industry.
Our Business Model
We were founded in 2002 to provide independent investment advisory and related family office services to ultra-high net worth
individuals and endowments, foundations and other institutional investors. To this end, we are structured to provide our clients with
institutional-quality investment management with the superior level of service expected by wealthy individuals.
5
To provide this high level of service, we rely on portfolio management teams and our family office services team to provide
objective, conflict-free investment management selection and a fully integrated, customized family-centric approach to wealth
management. We believe the combination of comprehensive family office service, excellent investment capabilities and a high level of
personal service allows us to take advantage of economies of scale to service the needs of our ultra-high net worth clients.
We have dedicated investment management teams tasked with successfully implementing their respective investment strategies. To
increase the probability of success in meeting this objective, our analysts are not responsible for client interaction, management of our
business, marketing or compliance oversight. This enables us to effectively serve ultra-high net worth clients as well as institutions that
typically perform in-depth due diligence before selecting a manager.
Delivering Investment Performance
The Investment Policy & Strategy Group, or IPSG, which is comprised of our chief strategist and several of our senior portfolio
managers, is charged with the responsibility of adding value through asset allocation and manager selection. This is done through the use of
our proprietary investment management by our internal analysts, and by those whom we believe are best-of-breed external managers.
The IPSG develops model asset allocations assuming differing levels of risk, liquidity and income tolerance as well as conducting
outside manager due diligence. Our proprietary model portfolio structures are not merely a backward-looking, mechanical exercise based
on the past performance of different asset classes. Instead, our IPSG overlays our judgment on the likely future performance of different
asset classes in arriving at optimal portfolio structures. None of our dedicated investment analysts serves on this committee, which
safeguards the independence of the IPSG’s recommendations.
Our portfolio managers are responsible for creating a customized investment program for each client based upon the IPSG’s work.
An interactive dialogue ensures that each portfolio plan is based upon each client’s defined written objectives. Each client’s portfolio
strategy takes into account that client’s risk tolerance, income and liquidity requirements as well as the effect of diversifying out of low-
basis and/or sentimental holdings.
Historically, the IPSG has added value to our clients’ portfolios through asset allocation weightings and manager selection.
From inception, we have employed a system of peer group reviews to ensure that client portfolios have been constructed in a manner
consistent with our best collective thinking. In annual peer group reviews, the asset allocation within each client portfolio is compared with
such portfolio’s defined objectives and portfolios that are not fully aligned with the investment objective are then singled out for further
review and discussion. Our objective is for all clients to receive our best thinking and for portfolio managers to manage portfolios
consistently with our policy. As a combination of these various factors, the client relationship is with us and not merely with an individual
at our company.
We believe that it is impossible for a single manager to perform all forms of investing equally well. Thus, our core proprietary
investment capabilities are focused on a narrow range of highly disciplined U.S. equity and fixed income management strategies. Our
investment teams have exhibited strong performance records. With respect to these strategies, roughly 63% of our total assets under
management are managed in our proprietary investment strategies.
Our outsourced investment capabilities include alternative investments as well as traditional investment approaches in the categories
of domestic large, mid and small cap growth equity, international equities and high-yield bonds.
Proprietary Equity Strategies
Our equity strategies rely on a team-based investment approach and a rigorous investment process. This approach has resulted in
returns that exceed relevant market benchmarks. We believe this team approach has provided and will continue to provide consistency to
our investment process and results over the long-term. Our investment analysts are generalists who employ a “bottom-up” value oriented
equity selecting methodology. Our analysts collectively monitor a universe of approximately 100 stocks that are deemed to be attractively
valued relative to their business outlook and management’s history of adding value.
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Once stocks have been approved for investment from this body of research, they become part of one or more model equity portfolios.
These are generally large cap, small cap, smid cap, multi-cap, equity income and focused value. Each stock position is continually
monitored against its investment thesis to ensure investment discipline, and we employ a strict discipline to trim or sell securities in the
following circumstances:
•
•
•
•
when a stock is excessively valued in our models or the best case scenario is reflected in the stock price;
due to a stock’s outperformance, which can adversely affect a portfolio’s diversification;
due to underperformance, when a stock trails relevant benchmarks by more than 10%; or
when the investment thesis changes, due to a loss of confidence in management, a change in business prospects or the
deterioration in earnings quality.
Below is a breakdown of assets among the various proprietary equity strategies as of December 31, 2017:1
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1 As of the filing of this annual report our small cap strategy is closed to new investors. The strategy may be reopened if one or more of
our investors elects to rebalance its assets, which may occur at any time.
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Each of our equity strategies has outperformed its benchmark since inception as illustrated by the following chart:
PROPRIETARY EQUITY PERFORMANCE 1, 2
AS OF 12/31/17
INCEPTION
1-YEAR
ANNUALIZED PERFORMANCE
5-YEAR
3-YEAR
7-YEAR INCEPTION
Large Cap Value Composite
Russell 1000 Value Index
Small Cap Value Composite
Russell 2000 Value Index
Smid Cap Value Composite
Russell 2500 Value Index
Multi Cap Value Composite
Russell 3000 Value Index
Equity Income Composite
Russell 3000 Value Index
Focused Value Composite
Russell 3000 Value Index
4/1/02
4/1/02
10/1/05
7/1/02
12/1/03
9/1/04
24.9
13.7
12.2
7.8
15.4
10.4
19.5
13.2
20.1
13.2
18.3
13.2
13.3
8.7
12.7
9.6
14.2
9.3
12.6
8.7
13.4
8.7
13.8
8.7
16.5
14.0
16.0
13.0
16.3
13.3
16.4
14.0
17.1
14.0
17.3
14.0
13.6
12.5
13.8
10.8
14.1
11.5
14.0
12.3
14.9
12.3
13.6
12.3
9.3
7.6
11.7
8.7
10.9
8.2
10.3
8.4
12.5
8.6
11.6
8.4
1
Returns are based upon a time weighted rate of return of various fully discretionary equity portfolios with similar investment objectives, strategies and policies
and other relevant criteria managed by Silvercrest Asset Management Group LLC (“SAMG LLC”), a subsidiary of Silvercrest. Performance results are gross
of fees and net of commission charges. An investor’s actual return will be reduced by the advisory fees and any other expenses it may incur in the
management of the investment advisory account. SAMG LLC’s standard advisory fees are described in Part 2 of its Form ADV. Actual fees and expenses
will vary depending on a variety of factors, including the size of a particular account. Returns greater than one year are shown as annualized compounded
returns and include gains and accrued income and reinvestment of distributions. Past performance is no guarantee of future results. This report contains no
recommendations to buy or sell securities or a solicitation of an offer to buy or sell securities or investment services or adopt any investment position. This
report is not intended to constitute investment advice and is based upon conditions in place during the period noted. Market and economic views are subject to
change without notice and may be untimely when presented here. Readers are advised not to infer or assume that any securities, sectors or markets described
were or will be profitable. SAMG LLC is an independent investment advisory and financial services firm created to meet the investment and administrative
needs of individuals with substantial assets and select institutional investors. SAMG LLC claims compliance with the Global Investment Performance
Standards (GIPS®).
2
The market indices used to compare to the performance of our strategies are as follows:
The Russell 1000 Index is a capitalization-weighted, unmanaged index that measures the 1000 smallest companies in the Russell 3000. The Russell 1000
Value Index is a capitalization-weighted, unmanaged index that includes those Russell 1000 Index companies with lower price-to-book ratios and lower
expected growth values.
The Russell 2000 Index is a capitalization-weighted, unmanaged index that measures the 2000 smallest companies in the Russell 3000. The Russell 2000
Value Index is a capitalization-weighted, unmanaged index that includes those Russell 2000 Index companies with lower price-to-book ratios and lower
expected growth values.
The Russell 2500 Index is a capitalization-weighted, unmanaged index that measures the 2500 smallest companies in the Russell 3000. The Russell 2500
Value Index is a capitalization-weighted, unmanaged index that includes those Russell 2000 Index companies with lower price-to-book ratios and lower
expected growth values.
The Russell 3000 Value Index is a capitalization-weighted, unmanaged index that measures those Russell 3000 Index companies with lower price-to-book
ratios and lower forecasted growth.
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Proprietary Fixed Income Strategies
In the management of fixed income investments, clients typically give us the mandate to produce stable returns to dampen the
volatility of their portfolios as a counter-weight to equities as part of their complete asset allocation. For those investors who can take
advantage of the tax exemption of municipal bonds, we have developed two high-yield municipal bond products designed to add value to
the returns possible from high-grade bonds in a low interest rate environment. Below is the breakdown of assets under management by
strategy as of December 31, 2017:
Our fixed income strategy employs a bottom-up fundamental value approach designed to minimize the risk of loss. Almost all of our
bond portfolios are highly customized and focused on income and liquidity generation as opposed to capital appreciation.
Outsourced Manager Selection
Recognizing the value of diversification to our clients, we offer a variety of outsourced investment capabilities designed to
complement our proprietary capabilities. These outsourced capabilities include managers who have long records of success in managing
growth equities, international equities, taxable high-yield bonds, hedge funds and other strategies not offered on a proprietary basis by us.
In selecting these managers, we utilize an investment manager database for initial screening and then a dedicated staff conducts on-site due
diligence. Potential managers are reviewed and selected by our IPSG. Our selection criteria include the following:
•
•
•
•
•
Highly Consistent Returns. We emphasize consistency of performance over strong performance marked by high volatility.
Tax Sensitivity. We seek managers with a low turnover style of management designed to achieve attractive after-tax rates of
return.
Solid Operations and Technology. We require each manager to produce evidence that it has strong technology and operations
capabilities as well as vigorous compliance adherence.
Alignment of Interest. We require evidence that the strategy’s key people have significant equity in their company and are
motivated to stay in place.
Willingness to Negotiate Fees. We require our managers to accept a significant discount in their management fees because we
expect to manage all aspects of the client relationship. Their only responsibility is to manage the capital entrusted to them. No
manager has refused to offer the discounts we seek.
For large clients with significant hedge fund exposure, we offer a hedge fund advisory service that creates customized hedge fund
portfolios. Each of our funds of funds appears below:
•
•
Silvercrest Hedged Equity Fund is designed to complement and diversify long-only equity portfolios through investments
with managers who employ long and short strategies;
Silvercrest Emerging Markets Fund provides international and non-dollar exposure and diversification focused on long, short,
credit and other managers who invest in emerging markets;
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•
•
•
Silvercrest International Fund provides investors with broad coverage of international markets, spanning developed, emerging
and frontier markets;
Silvercrest Special Situations Fund is designed to outperform traditional benchmarks with less volatility; and
Silvercrest Jefferson Fund is designed to outperform its benchmarks on a risk-adjusted basis for investors who seek to
minimize risk and preserve capital.
We have two types of fee arrangements with outsourced managers. Clients either pay a discounted fee, negotiated by us, directly to
the manager who retains the entire fee or directly to the manager who distributes a portion of the fee to us. Clients are informed of the
applicable arrangement and sign a written acknowledgement.
Delivering Client Service
We take a holistic approach to client service, whereby a senior portfolio manager spearheads the coordination of the IPSG
recommendations, family office services work and the investment management team in order to deliver the full range of our capabilities to
the client.
Four out of our ten largest high net worth clients use one or more components of our family office services. We believe that this is an
attractive growth area for our company and we have initiated plans to increase the provision of these services to both broaden relationships
with existing clients and to attract potential clients. Our family office services are profitable and are not used as a loss-leader for attracting
clients. Our family office capabilities include the following:
•
•
•
•
•
•
Financial Planning;
Tax Planning and Preparation;
Partnership Accounting and Fund Administration;
Consolidated Wealth Reporting;
Estate or Trust Agency; and
Art Consultancy and Management.
For institutional client relationships, contact with our clients is handled by a dedicated institutional client service team headed by a
Managing Director who also maintains our relationships with institutional investment consultants. This structure permits our investment
professionals to maintain their focus on achieving superior investment results without the distraction of client demands.
Competition
The wealth management industry is highly competitive and is comprised of many players. We compete directly with some of the
largest financial service companies, as well as some of the smallest. We primarily compete on the basis of several factors, including our
level of service, the quality of our advice, independence, stability, performance results, breadth of our capabilities and fees. In general,
these competitors fall into one of the following categories:
•
•
•
•
Diversified Financial Institutions have divisions aimed at providing wealth management solutions to the high net worth
segment that are usually staffed by brokers.
Asset Management Firms offer proprietary institutional and retail asset management services catering to the high net worth
segment largely with off-the-shelf products.
Trust Companies combine fiduciary and investment services as well as ancillary financial services.
MFO/RIAs focus exclusively on the high net worth segment and are frequently dominated by one or two families.
As a registered investment adviser that is not affiliated with other financial firms, we are free from the conflicts associated with
brokerage or investment banking firms. In advising our clients on portfolio strategies, we are motivated to meet our clients’ investment
objectives—not to generate commissions or placement fees—and to focus solely on providing excellent service and investment
performance.
We have the size and resources to compete with larger organizations, and unlike many smaller firms, to provide our clients with fully
customized, full-service wealth management and integrated family office solutions.
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While many competitors outsource investment management, we have chosen to compete with excellent proprietary investment
capabilities coupled with a focused array of complementary non-proprietary capabilities offered by unaffiliated firms. This combination
enables us to compete for and win the business of wealthy investors. We believe this is a key to our past and future success.
Employees
As of December 31, 2017, we had 119 full-time employees and three part-time employees. None of our employees are subject to a
collective bargaining agreement. We believe that relations with our employees continue to remain strong.
Our Structure and Reorganization
Holding Company Structure
Our only business is acting as the general partner of Silvercrest L.P. and, as such, we will continue to operate and control all of its
business and affairs and consolidate its financial results into our financial statements. The ownership interests of holders of limited
partnership interests of Silvercrest L.P. are accounted for as a non-controlling interest in our consolidated financial statements.
Net profits, net losses and distributions of Silvercrest L.P. are allocated and made to each of its partners on a pro rata basis in
accordance with the number of partnership units of Silvercrest L.P. held by each of them. In addition, Silvercrest L.P. has issued deferred
equity units and restricted stock units exercisable for Class B units that entitle the holders thereof to receive distributions from Silvercrest
L.P. to the same extent as if the underlying Class B units were outstanding.
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Set forth below is our holding company structure and ownership as of December 31, 2017.
(1)
(2)
(3)
Each share of Class B common stock is entitled to one vote per share. Class B stockholders have the right to receive the par value of the Class B common
stock upon our liquidation, dissolution or winding-up.
Each share of Class A common stock is entitled to one vote per share. Class A common stockholders have 100% of the rights of all classes of our capital stock
to receive distributions, and substantially all assets, after payment in full to creditors and holders of preferred stock, if any.
Each Class B unit held by a principal is exchangeable for one share of Class A common stock. The principals collectively hold 5,059,319 Class B units as of
December 31, 2017, which represents the right to receive approximately 40.5% of the distributions made by Silvercrest L.P. The principals also collectively
hold 486,098 restricted stock units which are exercisable for one Class B unit, which collectively represent the right to receive approximately 3.6% of the
distributions made by Silvercrest L.P. The 486,098 restricted stock units which have been issued to our principals entitle the holders thereof to participate in
distributions from Silvercrest L.P. as if the underlying Class B units are outstanding and thus are taken into account to determine the economic interest of each
holder of units in Silvercrest L.P. However, because the Class B units underlying the restricted stock units have not been issued and are not deemed
outstanding, the holders of restricted stock units have no voting rights with respect to the underlying Class B units. We will not issue shares of Class B
common stock in respect of restricted stock units of Silvercrest L.P. until such time that the underlying Class B units are issued.
(4) We hold 8,142,120 Class A units, which represents the right to receive approximately 59.5% of the distributions made by Silvercrest L.P. The 486,098
restricted stock units which have been issued to our principals entitle the holders thereof to participate in distributions from Silvercrest L.P. as if the
underlying Class B units are outstanding and thus are taken into account to determine the economic interest of each holder of units in Silvercrest L.P.
However, because the Class B units underlying the restricted stock units have not been issued and are not deemed outstanding, the holders of restricted stock
units have no voting rights with respect to those Class B units. We will not issue shares of Class B common stock in respect of restricted stock units of
Silvercrest L.P. until such time that the underlying Class B units are issued.
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Regulatory Environment
Our business is subject to extensive regulation in the United States at the federal level and, to a lesser extent, the state level. 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.
The legislative and regulatory environment in which we operate has undergone significant changes in recent years. New laws or
regulations, or changes in the enforcement of existing laws or regulations, applicable to us, our activities and our clients may adversely
affect our business. Our ability to function in this environment will depend on our ability to monitor and promptly react to legislative and
regulatory changes. There have been a number of highly publicized regulatory inquiries that have focused on the investment management
industry. These inquiries have resulted in increased scrutiny of the industry and new rules and regulations for investment advisers. This
regulatory scrutiny may limit our ability to engage in certain activities that might be beneficial to our stockholders.
In addition, as a result of market events, acts of serious fraud in the investment management industry and perceived lapses in
regulatory oversight, U.S. and non-U.S. governmental and regulatory authorities may increase regulatory oversight of our businesses. We
may be adversely affected as a result of new or revised legislation or regulations imposed by the Securities and Exchange Commission, or
the SEC, the U.S. Commodity Futures Trading Commission, or the CFTC, other U.S. or non-U.S. regulatory authorities or self-regulatory
organizations that supervise the financial markets. We also may be adversely affected by changes in the interpretation or enforcement of
existing laws and rules by these governmental authorities and self-regulatory organizations, as well as by U.S. and non-U.S. courts. It is
impossible to determine the extent of the impact of any new laws, regulations or initiatives that may be proposed on us or the markets in
which we trade, or whether any of the proposals will become law. Compliance with any new laws or regulations could add to our
compliance burden and costs and affect the manner in which we conduct our business.
SEC Regulation
SAMG LLC is registered with the SEC as an investment adviser under the Investment Advisers Act of 1940, as amended, or the
Advisers Act. The Advisers Act, together with the SEC’s regulations and interpretations thereunder, imposes substantive and material
restrictions and requirements on the operations of investment advisers. The SEC is authorized to institute proceedings and impose sanctions
for violations of the Advisers Act, ranging from fines and censures to termination of an adviser’s registration.
The Advisers Act imposes substantive regulation on virtually all aspects of our business and relationships with our clients. As a
registered investment adviser, we are subject to many requirements that cover, among other things, disclosure of information about our
business to clients; maintenance of written policies and procedures; maintenance of extensive books and records; restrictions on the types
of fees we may charge, including performance fees; solicitation arrangements; engaging in transactions with clients; maintaining an
effective compliance program; custody of client assets; client privacy; advertising; pay-to-play; cybersecurity and proxy voting. The SEC
has authority to inspect any registered investment adviser from time to time to determine whether the adviser is conducting its activities
(i) in accordance with applicable laws, (ii) consistent with disclosures made to clients and (iii) with adequate systems and procedures to
ensure compliance.
As an investment adviser, we have a fiduciary duty to our clients. The SEC has interpreted this duty to impose standards,
requirements and limitations on, among other things: trading for proprietary, personal and client accounts; allocations of investment
opportunities among clients; use of soft dollars; execution of transactions; and recommendations to clients. We manage 67% of our
accounts on a discretionary basis, with authority to buy and sell securities for each portfolio, select broker-dealers to execute trades and
negotiate brokerage commission rates. In connection with these transactions, we receive soft dollar credits from broker-dealers that have
the effect of reducing certain of our expenses. Section 28(e) of the Securities Exchange Act of 1934, or the Exchange Act, provides a “safe
harbor” to an investment adviser against claims that it breached its fiduciary duty under state or federal law (including The Employee
Retirement Income Security Act of 1974, as amended, or ERISA) solely because the adviser caused its clients’ accounts to pay more than
the lowest available commission for executing a securities trade in return for brokerage and research services. To rely on the safe harbor
offered by Section 28(e), (i) we must make a good-faith determination that the amount of commissions is reasonable in relation to the value
of the brokerage and research services being received and (ii) the brokerage and research services must provide lawful and appropriate
assistance to us in carrying out our investment decision-making responsibilities. In permissible circumstances, we may receive technology-
based research, market quotation and/or market survey services which are paid for in whole or in part by soft dollar brokerage
arrangements. If our ability to use soft dollars were reduced or eliminated as a result of the implementation of statutory amendments or new
regulations, our operating expenses would increase.
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Under the Advisers Act, our investment management agreements may not be assigned without the client’s consent. The term
“assignment” is broadly defined and includes direct assignments as well as assignments that may be deemed to occur upon the transfer,
directly or indirectly, of a controlling interest in an investment adviser.
The failure of SAMG LLC to comply with the requirements of the Advisers Act, and the regulations and interpretations thereunder,
could have a material adverse effect on us.
CFTC Regulation
SAMG LLC is registered with the CFTC and the National Futures Association, or the NFA, as a commodity pool operator and/or
commodity trading advisor. Registration subjects us and our affiliates to substantive and material restrictions and requirements, including,
among other things, reporting, recordkeeping, disclosure, self-examination and training requirements. Registration also subjects us to
periodic on-site audits, and the CFTC is authorized to institute proceedings and impose sanctions for violations of the Commodity
Exchange Act and/or CFTC rules.
Dodd-Frank
The Dodd-Frank Wall Street Reform and Consumer Protection Act, or the Dodd-Frank Act, was signed into law on July 21, 2010.
The Dodd-Frank Act will not cause us to reconsider our basic strategy. However, certain provisions have, and others may continue to
increase regulatory burdens related to compliance costs. The scope of many provisions of the Dodd-Frank Act has been, or will be,
determined by implementing regulations, some of which will require lengthy proposal and promulgation periods.
Pursuant to the mandate of the Dodd-Frank Act, the SEC and the CFTC have adopted certain reporting requirements that require us
to report certain information about a number of our private funds, commodity pools and commodity trading advisers, including regulations
promulgated under the authority given to the SEC and CFTC under Sections 404 and 406 of the Dodd-Frank Act requiring a Form-PF
and/or a CTA-PQR and CTA-PR to be filed by us. These filings have required and will continue to require investments in people and
systems to ensure timely and accurate reporting. Further, we will need to monitor compliance with new SEC and CFTC rules concerning
swaps and other derivatives including, among other things, designated trading venues, mandated central clearing arrangements and other
conduct requirements.
The Dodd-Frank Act affects a broad range of market participants with whom we interact or may interact. Regulatory changes that
will affect other market participants are likely to change the way in which we conduct business with our counterparties. Although many
aspects of the Dodd-Frank Act have been implemented, there remains significant uncertainty regarding implementation of other aspects of
the Dodd-Frank Act. While its impact on the investment management industry and us cannot be predicted at this time, it will continue to be
a risk for our business.
ERISA-Related Regulation
To the extent that SAMG LLC or any other of our affiliates is a “fiduciary” under ERISA with respect to benefit plan clients
(including IRAs), it is subject to ERISA (and/or applicable provisions of the Internal Revenue Code of 1986, as amended, referred to as the
Internal Revenue Code) and to regulations promulgated thereunder. Among other things, ERISA and applicable provisions of the Internal
Revenue Code of 1986, as amended, referred to as the Internal Revenue Code, impose certain duties on persons who are fiduciaries under
ERISA, prohibit certain transactions involving benefit plan clients and provide monetary penalties and taxes for violations of these
prohibitions. Our failure to comply with these requirements could have a material adverse effect on our business.
Other Jurisdictions
The Alternative Investment Fund Managers Directive (“AIFMD”) went into effect in the European Union (“EU”) on July 22, 2013.
The AIFMD imposes significant regulatory requirements on alternative investment fund managers ("AIFMs''), operating within the EU, as
well as prescribing certain conditions with regard to regulatory standards, cooperation and transparency that will need to be satisfied for
non-EU AIFMs to market alternative investment funds ("AIFs'') into EU Member States. To date, we have not registered any funds in EU
Member States pursuant to the AIFMD, but may do so in the future. Should SAMG LLC or any other our other affiliates market AIFs in
the EU, it and such funds may be subject to significant conditions on their respective operations.
Similarly, revisions to the EU’s Markets in Financial Instruments Directive (MiFID II) which took effect in January 2018 introduced
new requirements for certain non-EU portfolio managers who provide certain investment services to EU investors. Should SAMG LLC or
any other our other affiliates provide such services in the EU, it and such funds may be subject to the regulatory requirements of MiFID II.
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In addition, we and/or our affiliates may become subject to additional regulatory demands in the future to the extent we expand our
investment advisory business in existing and new jurisdictions. There are also a number of pending or recently enacted legislative and
regulatory initiatives in the United States and in other jurisdictions that could significantly impact our business.
Compliance
Our legal and compliance functions are integrated into a team of professionals. This group is responsible for all legal and regulatory
compliance matters, as well as monitoring adherence to client investment guidelines. Senior management is involved at various levels in all
of these functions.
Available Information
We maintain a website at http://ir.silvercrestgroup.com/. We provide access to our annual reports on Form 10-K, quarterly reports on
Form 10-Q, current reports on Form 8-K and all amendments to those reports free of charge through this website as soon as reasonably
practicable after such material is electronically filed with the SEC. Paper copies of annual and periodic reports filed with the SEC may be
obtained free of charge upon written request by contacting our headquarters at the address located on the front cover of this report or under
Investor Relations on our website. In addition, our Corporate Governance Guidelines, Code of Business Conduct and Ethics, By-Laws,
Audit Committee Charter, Compensation Committee Charter and Nominating and Governance Committee Charter are available on our
website (under Corporate Governance) and are available in print without charge to any stockholder requesting them. You may obtain and
copy any document we furnish or file with the SEC at the SEC's public reference room at 100 F Street, NE, Room 1580, Washington, D.C.
20549. You may obtain information on the operation of the SEC's public reference facilities by calling the SEC at 1-800-SEC-0330. The
SEC maintains a website that contains reports, information statements, and other information regarding issuers like us who file
electronically with the SEC. The SEC's website is located at www.sec.gov.
Item 1A. Risk Factors.
Risks Related to our Investment Performance and the Financial Markets
Volatile market conditions could adversely affect our business in many ways, including by reducing the value of our assets under
management and causing clients to withdraw funds, either of which could materially reduce our revenues and adversely affect our
financial condition.
The fees we earn under our investment management agreements with clients are based on the value of our assets under management.
The prices of the securities held in the portfolios we manage and, therefore, our assets under management, may decline due to any number
of factors beyond our control, including, among others, a declining stock or bond market, general economic downturn, political uncertainty
or acts of terrorism. In connection with the severe market dislocations of 2008 and early 2009, the value of our assets under management
declined substantially due primarily to the significant decline in stock prices worldwide. In future periods of difficult market conditions we
may experience accelerated client redemptions or withdrawals if clients move assets to investments they perceive as offering greater
opportunity or lower risk, which could further reduce our assets under management in addition to market depreciation. The economic
outlook remains uncertain and we continue to operate in a challenging business environment. If market conditions, or actions taken by
clients in response to market conditions, cause a decline in our assets under management, it would result in lower investment management
fees and other revenue. If our revenues decline without a commensurate reduction in our expenses, our net income will be reduced and our
business will be negatively affected.
If market conditions improve greatly, driving the prices of the securities in our clients’ accounts higher, it may lead to withdrawals or
redemptions. In many cases, we advise only a portion of our clients’ complete financial portfolio. This is because many clients prefer to
diversify their portfolio among more than one asset manager or investment type. As to those clients, if the portion of their portfolio held by
us increases significantly, it may become too large a percentage of their overall portfolio, and they may withdraw assets from our
management and invest it elsewhere, thereby rebalancing their overall portfolio and returning their allocation to us to its prior level.
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If our investment strategies perform poorly, clients could withdraw their assets and we could suffer a decline in our assets under
management and/or become the subject of litigation, either of which would reduce our earnings.
The performance of our investment strategies is critical in retaining existing client assets as well as attracting new client assets. If our
investment strategies perform poorly for any reason on an absolute basis or relative to other investment advisers, or the rankings of mutual
funds we sub-advise decline, our earnings could decline because:
•
•
our existing clients may withdraw funds from our investment strategies or terminate their relationships with us, or investors in
the mutual funds we sub-advise may redeem their investments, which would cause a decline in the revenues that we generate
from investment management and other fees; or
third-party financial intermediaries, advisers or consultants may rate our investment products poorly, which may lead our
existing clients to withdraw funds from our investment strategies or reduce asset inflows from these third parties or their
clients.
Our investment strategies can perform poorly for a number of reasons, including general market conditions, investment decisions that
we make and the performance of the companies in which we invest on behalf of our clients. In addition, while we seek to deliver long-term
value to our clients, volatility may lead to under-performance in the near term, which could adversely affect our results of operations.
While clients do not generally have legal recourse against us solely on the basis of poor investment results, if our investment
strategies perform poorly, we are more likely to become subject to litigation brought by dissatisfied clients. In addition, to the extent clients
are successful in claiming that their losses resulted from fraud, gross negligence, willful misconduct, breach of contract or other similar
misconduct, these clients may have remedies against us and/or our investment professionals under the federal securities laws and/or state
law.
The historical returns of our existing investment strategies may not be indicative of their future results or of the future results of
investment strategies we may develop in the future.
We have presented the historical returns of our existing investment strategies outlined under “Business” in this report. The historical
returns of our strategies should not be considered indicative of the future results of these strategies or of the results of any other strategies
that we may develop in the future. The investment performance we achieve for our clients varies over time and the variance can be wide.
The historical performance presented herein is as of December 31, 2017 and for the period then ended. The performance we achieve as of a
subsequent date and for a subsequent period may be higher or lower and the difference may be material. Our strategies’ returns have
benefited during some periods from investment opportunities and positive economic and market conditions. In other periods, such as in
2008, the first quarter of 2009, the second quarter of 2010 and the third quarter of 2015, general economic and market conditions have
negatively affected investment opportunities and our strategies’ returns. These negative conditions may occur again, and in the future, we
may not be able to identify and invest in profitable investment opportunities within our current or future strategies.
We derive a substantial portion of our revenues from a limited number of our strategies.
As of December 31, 2017, $15.5 billion of our assets under management were concentrated in discretionary managed accounts, and
the revenue from these discretionary managed accounts represents approximately 93% of our investment management fees for the twelve
months ended December 31, 2017. In addition, $0.5 billion of our assets under management were invested in private partnerships as of
December 31, 2017, and the revenue from these private partnerships represents approximately 7% of our investment management fees for
the twelve months ended December 31, 2017. As a result, a substantial portion of our operating results depends upon the performance of a
limited number of investment strategies used to manage those discretionary managed accounts and private partnerships, and our ability to
retain client assets. If a significant portion of the investors in our larger strategies decided to withdraw their investments or terminate their
investment management agreements for any reason, including poor investment performance or adverse market conditions, our revenues
from those strategies would decline, which would have a material adverse effect on our results of operations and financial condition.
A significant portion of our assets under management are or may be derived from a small number of clients, the loss of which could
significantly reduce our investment management fees and have a material adverse effect on our results of operations.
Certain of our strategies are or may derive a significant portion of their total assets under management from assets of a single client
or a small number of clients. If any such clients withdraw all or a portion of their assets under management, our business would be
significantly affected, which would negatively impact our investment management fees and could have a material adverse effect on our
results of operations and financial condition.
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We may not be able to maintain our current fee structure as a result of poor investment performance, competitive pressures or as a
result of changes in our business mix, which could have a material adverse effect on our profit margins and results of operations.
We may not be able to maintain our current fee structure for any number of reasons, including as a result of poor investment
performance, competitive pressures or changes in our business mix. In recent years, there has been a general trend toward lower fees in the
investment management industry, and some of our investment strategies, because they tend to invest in larger-capitalization companies and
were designed to have larger capacity and to appeal to larger clients, have lower fee schedules. In order to maintain our fee structure in a
competitive environment, we must be able to continue to provide clients with investment returns and service that our clients believe justify
our fees. We may not succeed in providing the investment returns and service that will allow us to maintain our current fee structure. If our
investment strategies perform poorly, we may be forced to lower our fees in order to retain current, and attract additional, assets to manage.
Furthermore, if a larger part of our assets under management are invested in our larger capacity, lower fee strategies, our revenue could be
adversely affected.
We derive substantially all of our revenues from contracts and relationships that may be terminated upon no notice.
We derive our revenues principally from our assets under management, which may be reduced by our clients, or investors in the
mutual funds we sub-advise, at any time. A client may reduce his assets under management with us by re-allocating all or any portion of
the assets that we manage away from us at any time with little or no notice. In addition, investors in the mutual funds we advise can redeem
their investments in those funds at any time without prior notice. A client may also reduce his assets under management with us through the
termination of his investment advisory agreement with us. Our investment management agreements are terminable by our clients upon
short notice or no notice. These investment management agreements and client relationships may be terminated or not renewed for any
number of reasons. The decrease in revenues that could result from a reduction in assets under management or the termination of a material
client relationship or group of client relationships could have a material adverse effect on our business.
The long-only, equity investment focus of the majority of our strategies exposes us to greater risk than certain of our competitors whose
investment strategies may also include non-equity securities or hedged positions.
Our largest equity investment strategies hold long positions in publicly traded equity securities of companies across a wide range of
market capitalizations, geographies and industries. Accordingly, under market conditions in which there is a general decline in the value of
equity securities, each of our equity strategies is likely to perform poorly on an absolute basis. Aside from our privately managed funds and
funds of funds, we do not have strategies that invest in privately held companies or take short positions in equity securities, which could
offset some of the poor performance of our long-only, equity strategies under such market conditions. Even if our investment performance
remains strong during such market conditions relative to other long-only, equity strategies, investors may choose to withdraw assets from
our management or allocate a larger portion of their assets to non-long-only or non-equity strategies. In addition, the prices of equity
securities may fluctuate more widely than the prices of other types of securities, making the level of our assets under management and
related revenues more volatile.
The performance of our investment strategies or the growth of our assets under management may be constrained by the unavailability
of appropriate investment opportunities.
The ability of our investment teams to deliver strong investment performance depends in large part on their ability to identify
appropriate investment opportunities in which to invest client assets. If the investment team for any of our strategies is unable to identify
sufficiently appropriate investment opportunities for existing and new client assets on a timely basis, the investment performance of the
strategy could be adversely affected. In addition, if we determine that there are insufficient investment opportunities available for a
strategy, we may choose to limit the growth of the strategy by limiting the rate at which we accept additional client assets for management
under the strategy, closing the strategy to all or substantially all new investors or otherwise taking action to limit the flow of assets into the
strategy. If we misjudge the point at which it would be optimal to limit access to or close a strategy, the investment performance of the
strategy could be negatively impacted. The risk that sufficiently appropriate investment opportunities may be unavailable is influenced by a
number of factors, including general market conditions, but is particularly acute with respect to our small cap and smid cap strategies that
focus on small-cap investments, and is likely to increase as our assets under management increase, particularly if these increases occur very
rapidly. If we are unable to identify appropriate investment opportunities in which to invest client assets, our growth and results of
operations may be negatively affected. As of the filing of this annual report our small cap strategy is closed to new investors. The strategy
may be reopened if one or more of our investors elects to rebalance its assets, which may occur at any time.
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Our investment strategies may not obtain attractive returns in the short-term or during certain market periods.
Our products are best suited for investors with long-term investment horizons. In order for our classic value investment approach to
yield attractive returns, we must typically hold securities for an average of over three years. Therefore, our investment strategies may not
perform well during short periods of time. In addition, 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 or during periods where the markets
are focused on one investment thesis or sector, investors may purchase relatively expensive stocks in order to obtain access to above
average growth, as was the case in the late 1990s.
Our investment approach may underperform other investment approaches, which may result in significant withdrawals of client assets,
client departures or otherwise result in a reduction in our assets under management.
Even when securities prices are rising generally, portfolio performance may be affected by our investment approach. We employ a
long-term investment approach in all of our investment strategies. This investment 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 some clients, consultants or third-party
intermediaries. Poor performance relative to peers, coupled with changes in personnel, unfavorable market environments or other
difficulties may result in significant withdrawals of client or investor assets, client or investor departures or otherwise result in a reduction
in our assets under management.
Our investment process requires us to conduct extensive fundamental research on any company before investing in it, 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 in order to understand the company and the business well enough
to make an informed decision whether we are willing to own a significant position in a company whose current earnings are below its
historic norms and that does not yet have 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 Core International Equity Strategy invests principally in the securities of non-U.S. companies, which involve foreign currency
exchange, tax, political, social and economic uncertainties and risks.
As of December 31, 2017, our Core International Equity Strategy, which invests in companies domiciled outside of the United States,
accounted for approximately 0.3% of our assets under management. In addition, some of our other strategies also invest on a more limited
basis in securities of non-U.S. companies. Fluctuations in foreign currency exchange rates could negatively affect the returns of our clients
who are invested in these strategies. In addition, an increase in the value of the U.S. dollar relative to non-U.S. currencies is likely to result
in a decrease in the U.S. dollar value of our assets under management, which, in turn, could result in lower revenue since we report our
financial results in U.S. dollars.
Investments in non-U.S. issuers may also be affected by tax positions taken in countries or regions in which we are invested, as well
as political, social and economic uncertainty, particularly as a result of the recent decline in economic conditions. Declining tax revenues
may cause governments to assert their ability to tax the local gains and/or income of foreign investors (including our clients), which could
adversely affect clients’ interests in investing outside the United States. Many financial markets are not as developed, or as efficient, as the
U.S. financial markets, and, as a result, those markets may have limited liquidity and higher price volatility. Liquidity also may be
adversely affected by political or economic events within a particular country, and our ability to dispose of an investment also may be
adversely affected if we increase the size of our investments in smaller non-U.S. issuers. Non-U.S. legal and regulatory environments,
including financial accounting standards and practices, also may be different, and there may be less publicly available information about
such companies. These risks could adversely affect the performance of our Core International Equity Strategy and may be particularly acute
in the emerging or less developed markets in which we invest.
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Risks Related to our Key Professionals
The loss of key investment professionals or members of our senior management team could have a material adverse effect on our
business.
We depend on the skills and expertise of our investment professionals and our success depends on our ability to retain the key
members of our senior management and investment teams, who possess substantial experience in investing and have been primarily
responsible for the historically strong investment performance we have achieved. In particular, we depend on our portfolio managers. As of
December 31, 2017, $9 billion, representing 43% of our assets under management, were managed using one of our proprietary equity
strategies. Our five largest strategies as of December 31, 2017 were Small Cap, Large Cap, Equity Income, Multi Cap and Focused Value
which represented 18%, 8%, 8%, 5% and 2% of assets under management, respectively. Each of these five strategies has been managed by
its current portfolio manager since its inception at Silvercrest.
Because of the long tenure and stable track record of our portfolio managers, our clients may attribute the investment performance
we have achieved to these individuals. While we have generally experienced very few departures among our portfolio managers, there can
be no assurance that this stability will continue in the future. The departure of one of a strategy’s portfolio managers could cause clients to
withdraw funds from the strategy, which would reduce our assets under management, our investment management and other fees and, if we
were not able to reduce our expenses sufficiently, our net income, and these reductions could be material to our business. The departure of
one of a strategy’s portfolio managers also could cause clients or investors to refrain from allocating additional funds to the strategy or
delay such allocation of additional funds until a sufficient track record under a new portfolio manager or managers has been established.
This would have a negative effect on the future growth of our assets under management and, therefore, our results of operations.
We depend on the contributions of our senior management team led by Richard R. Hough, our Chairman and Chief Executive
Officer, as well as other members of our senior management team. In addition, our senior marketing and client service personnel have
direct contact with our clients and their consultants and advisors and other key individuals within each of our distribution channels. The loss
of any of these key professionals could limit our ability to successfully execute our business strategy, prevent us from sustaining the
historically strong investment performance and adversely affect our ability to retain or attract client assets.
If any member of our senior management or a key investment professional were to join a competitor or form a competing company,
some of our current clients or other prominent members of the investing community could choose to invest with that competitor rather
than us.
Certain of our investment or management professionals have resigned and joined a competitor, and others may resign at any time,
join our competitors or form competing companies. Although the unvested shares of Class A common stock and Class B units held by our
principals are subject to forfeiture, and the vested shares of Class A common stock and Class B units held by our principals are subject to
repurchase, if the principal voluntarily resigns or retires and competes with us while employed or during the 12-month period following
termination of employment, these forfeiture and repurchase provisions may not be enforceable or may not be enforceable to their full
extent. We do not carry “key man” insurance on any of our key investment professionals that would provide us with proceeds in the event
of the death or disability of any of the key members of our investment or management teams.
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The professional reputations, expertise in investing and client relationships of our senior management and key investment
professionals are important elements to executing our business strategy and attracting and retaining clients. Accordingly, the retention of
our senior management and key investment professionals is a key element to our future success. There is no guarantee that they will not
resign, join our competitors or form a competing company. The terms of the second amended and restated limited partnership agreement of
Silvercrest L.P. restrict each of the principals of Silvercrest L.P. from soliciting our clients or other employees during the term of their
employment with us and for 18 months thereafter. In addition to the legal rights and remedies available to us to enforce these restrictive
covenants, the penalty for a breach of these restrictive covenants or, if a principal voluntarily resigns or retires from our company, for
competing with us during the 12-month period following termination of employment, will be the forfeiture of all of the unvested shares of
Class A common stock and Class B units of the offending party and his or her permitted transferees and, at the option of Silvercrest L.P.,
the required sale to Silvercrest L.P. of all of the vested Class B units of the offending party and his or her permitted transferees at a
purchase price equal to the lesser of (i) the aggregate capital account balance of the offending party and his or her permitted transferees in
Silvercrest L.P. and (ii) the purchase price paid by the offending party to first acquire the Class B units, and, at our option, the required sale
to us of all of the Class A common stock collectively held by the offending party and his or her permitted transferees at a purchase price
equal to the purchase price paid by the offending party to first acquire the Class B units for which such shares of Class A common stock
had been exchanged. Although we also would likely seek specific performance of these restrictive covenants, there can be no assurance that
we would be successful in obtaining this relief. Further, after this post-employment restrictive period, we will not be able to prohibit a
departed professional from soliciting our clients or employees. If any of our principals were to join a competitor or form a competing
company, some of our current clients or other prominent members of the investing community could choose to invest with that competitor
rather than us or otherwise withdraw assets from our company which could have a negative impact on our results of operations.
Competition for qualified investment, management and marketing and client service professionals is intense and we may fail to
successfully attract and retain qualified personnel in the future.
Our ability to attract and retain qualified personnel will depend heavily on the amount and structure of compensation and
opportunities for equity ownership we offer. Historically we have offered key employees equity ownership through interests in Silvercrest
L.P. Those key employees who are currently limited partners of Silvercrest L.P. hold these interests in the form of Class B units. We expect
our compensation structure to include a combination of cash and equity-based incentives as appropriate. Although we intend for overall
compensation levels to remain commensurate with amounts paid to our key employees in the past, we may not be successful in designing
and implementing an attractive compensation model. Any cost-reduction initiative or adjustments or reductions to compensation could
negatively impact our ability to retain key personnel. In addition, changes to our management structure, corporate culture and corporate
governance arrangements could negatively impact our ability to retain key personnel. If we are unable to retain key personnel, our results of
operations may be negatively affected.
Risks Related to the Regulatory Environment in Which We Operate
We are subject to extensive regulation that imposes numerous obligations on our business.
We are subject to extensive regulation in the United States, primarily at the federal level, including regulation by the SEC under the
Advisers Act, by the CFTC, and by the National Futures Association, or the NFA, under the Commodity Exchange Act, by the U.S.
Department of Labor under ERISA, and Nasdaq. The Advisers Act and the Commodity Exchange Act impose numerous obligations on us
including advertising, recordkeeping and operating requirements, disclosure obligations and prohibitions on fraudulent activities. In
addition, we regularly rely on exemptions from various requirements of the Securities Act of 1933, as amended, or the Securities Act, the
Exchange Act, the Investment Company Act of 1940, as amended, or the Investment Company Act, and the Employee Retirement Income
Security Act of 1974, or ERISA. These exemptions are sometimes highly complex and may in certain circumstances depend on compliance
by third parties whom we do not control. If for any reason these exemptions were to be revoked or challenged or otherwise become
unavailable to us, we could be subject to regulatory action or third-party claims, and our business could be materially and adversely
affected.
In the future, we may further expand our business outside of the United States in such a way or to such an extent that we may be
required to register with additional foreign regulatory agencies or otherwise comply with additional non-U.S. laws and regulations that do
not currently apply to us and with respect to which we do not have compliance experience. Our lack of experience in complying with any
such non-U.S. laws and regulations may increase our risk of becoming party to litigation and subject to regulatory actions.
Our business is highly regulated in the United States, and has seen a significant increase of regulatory oversight in recent years. Some
of the regulations adopted in recent years, as well as proposed regulations that may be adopted are focused directly on the investment
management industry, while others broadly impact our industry.
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The Dodd-Frank Act will not cause us to reconsider our basic strategy. However, certain provisions have, and others may continue
to increase regulatory burdens related to compliance costs. The scope of many provisions of the Dodd-Frank Act have been, or will be,
determined by implementing regulations, some of which will require lengthy proposal and promulgation periods.
Pursuant to the mandate of the Dodd-Frank Act, the SEC and the CFTC have adopted certain reporting requirements that require us
to report certain information about a number of our private funds, commodity pools and commodity trading advisers, including regulations
promulgated under the authority given to the SEC and CFTC under Sections 404 and 406 of the Dodd-Frank Act requiring a Form-PF
and/or a CTA-PQR and CTA-PR to be filed by us. These filings have required and will continue to require investments in people and
systems to assure timely and accurate reporting. Further, we will need to monitor compliance with new SEC and CFTC rules concerning
swaps and other derivatives including, among other things, designated trading venues, mandated central clearing arrangements, and other
conduct requirements.
The Dodd-Frank Act will affect a broad range of market participants with whom we interact or may interact. Regulatory changes that
will affect other market participants are likely to change the way in which we conduct business with our counterparties. Although many
aspects of the Dodd-Frank Act have been implemented, there remains significant uncertainty regarding implementation of other aspects of
the Dodd-Frank Act, and its impact on the investment management industry and us cannot be predicted at this time but will continue to be a
risk for our business.
Accordingly, we 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.
Among other things, we could be fined or be prohibited from engaging in some of our business activities. The requirements imposed by our
regulators, other than the Exchange Act and the Nasdaq rules, are generally designed to ensure the integrity of the financial markets and to
protect clients and other third parties who deal with us, and are generally not designed to protect our stockholders. Consequently, these
regulations often serve to limit our activities, including through net capital, customer protection and market conduct requirements.
Moreover, recent extreme volatility events in the U.S. equities markets have led to heightened scrutiny of sophisticated trading technology
and execution methods.
The regulatory environment in which we operate is subject to continuous change, and regulatory developments designed to increase
oversight may adversely affect our business.
The legislative and regulatory environment in which we operate has undergone significant changes in the recent past, including
additional filings with the SEC and the CFTC required by investment advisors, which have resulted in increased costs to the Company.
Significant regulatory changes in our industry may to continue, which would likely subject industry participants to additional, more costly
and generally more detailed regulation. New laws or regulations, or changes in the enforcement of existing laws or regulations, applicable
to us and our clients may adversely affect our business. Our ability to function in this environment will depend on our ability to monitor
and promptly react to legislative and regulatory changes. There have been a number of highly publicized regulatory inquiries that have
focused on the investment management industry. These inquiries already have resulted in increased scrutiny of the industry and new rules
and regulations for investment advisers. This regulatory scrutiny may limit our ability to engage in certain activities that might be beneficial
to our stockholders.
In addition, acts of serious fraud in the investment management industry and perceived lapses in regulatory oversight, U.S. and non-
U.S. governmental and regulatory authorities may increase regulatory oversight of our businesses. We may be adversely affected as a result
of new or revised legislation or regulations imposed by the SEC, the CFTC, other U.S. or non-U.S. governmental regulatory authorities or
self-regulatory organizations that supervise the financial markets. We also may be adversely affected by changes in the interpretation or
enforcement of existing laws and rules by these governmental authorities and self-regulatory organizations, as well as by U.S. and non-U.S.
courts. It is impossible to determine the extent of the impact of any new laws, regulations or initiatives that may be proposed on us or the
markets in which we trade, or whether any of the proposals will become law. Compliance with any new laws or regulations could add to our
compliance burden and costs and affect the manner in which we conduct business.
We could be subject to regulatory investigations, which could harm our reputation and cause our funds to lose existing investors or us to
lose existing accounts or fail to attract new investors or accounts.
The failure by us to comply with applicable laws or regulations could result in fines, suspensions of individual employees or other
sanctions. Even if an investigation or proceeding did not result in a fine or sanction or the fine or sanction imposed against us or our
employees by a regulator were small in monetary amount, the adverse publicity relating to an investigation, proceeding or imposition of
these fines or sanctions could harm our reputation and cause our funds to lose existing investors or us to lose existing accounts or fail to
attract new investors or accounts.
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Failure to comply with “pay to play” regulations implemented by the SEC and certain states, and changes to the “pay to play”
regulatory regimes, could adversely affect our business.
The SEC and several states have initiated investigations alleging that certain private equity firms and hedge funds or agents acting on
their behalf have paid money to current or former government officials or their associates in exchange for improperly soliciting contracts
with state pension funds. The SEC has also recently initiated a similar investigation into contracts awarded by sovereign wealth funds. The
SEC approved Rule 206(4)-5 under the Advisers Act regarding “pay to play” practices by investment advisers involving campaign
contributions and other payments to government officials able to exert influence on potential government entity clients. Among other
restrictions, the rule prohibits investment advisers from providing advisory services for compensation to a government entity for two years,
subject to very limited exceptions, after the investment adviser, its senior executives or its personnel involved in soliciting investments from
government entities have made contributions to certain candidates and officials in a position to influence the hiring of an investment
adviser by such government entity. Advisers are required to implement compliance policies designed, among other matters, to track
contributions by certain of the adviser’s employees and engagements of third parties that solicit government entities (and political action
committees controlled by such persons) and to keep certain records in order to enable the SEC to determine compliance with the rule.
Additionally, California enacted legislation that requires placement agents (including in certain cases employees of investment managers)
who solicit funds from California state retirement systems, such as the California Public Employees’ Retirement System and the California
State Teachers’ Retirement System, to register as lobbyists, thereby becoming subject to increased reporting requirements and prohibited
from receiving contingent compensation for soliciting investments from California state retirement systems. There also has been similar
rulemaking in New York and other states. Such additional regulations may require the attention of senior management and may result in
fines if any of our funds are deemed to have violated any regulations, thereby imposing additional expenses on us. Any failure on our part
to comply with these rules could cause us to lose compensation for our advisory services or expose us to significant penalties and
reputational damage.
Risks Related to Our Growth
Our efforts to establish new investment teams and strategies may be unsuccessful and could negatively impact our results of operations
and our reputation.
As part of our growth strategy, we may seek to take advantage of opportunities to add new investment teams that invest in a way that
is consistent with our philosophy of offering high value-added investment strategies. To the extent we are unable to recruit and retain
investment teams that will complement our existing business model, we may not be successful in further diversifying our investment
strategies and client assets, any of which could have a material adverse effect on our business and future prospects. In addition, the costs
associated with establishing a new team and investment strategy initially will exceed the revenues they generate. If any such new strategies
perform poorly and fail to attract sufficient assets to manage, our results of operations will be negatively impacted. A new strategy’s poor
performance also may negatively impact our reputation and the reputation of our other investment strategies within the investment
community.
We may enter into new lines of business, make strategic investments or acquisitions or enter into joint ventures, each of which may
result in additional risks and uncertainties for our business.
The second amended and restated limited partnership agreement of Silvercrest L.P. permits us to enter into new lines of business,
make future strategic investments or acquisitions and enter into joint ventures. As we have in the past, and subject to market conditions, we
may grow our business through increasing assets under management in existing investment strategies, pursue new investment strategies,
which may be similar or complementary to our existing strategies or be wholly new initiatives, consummating acquisitions of other
investment advisers or entering into joint ventures.
To the extent we make strategic investments or acquisitions, enter into strategic relationships or joint ventures or enter into new lines
of business, we will face numerous risks and uncertainties, including risks associated with the required investment of capital and other
resources and with combining or integrating operational and management systems and controls and managing potential conflicts. Entry into
certain lines of business may subject us to new laws and regulations with which we are not familiar, or from which we are currently
exempt, and may lead to increased litigation and regulatory risk. If a new business generates insufficient revenues, or produces investment
losses, or if we are unable to efficiently manage our expanded operations, our results of operations will be adversely affected, and our
reputation and business may be harmed. In the case of joint ventures, we are subject to additional risks and uncertainties in that we may be
dependent upon, and subject to liability, losses or reputational damage relating to, systems, controls and personnel that are not under our
control.
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We may be unable to successfully execute strategic investments or acquisitions or enter into joint ventures, and we may fail to
successfully integrate and operate new investment teams, which could limit our ability to grow assets under management and adversely
affect our results of operations.
Although we periodically consider strategic investments or acquisitions as part of our growth strategy, we have not at this time
entered into any binding agreements with respect to any strategic investments or acquisitions or any strategic relationships or joint ventures
and we cannot assure you that we will actually make any additional acquisitions. Our ability to execute our acquisition strategy will depend
on our ability to identify new lines of businesses or new investment teams that meet our investment criteria and to successfully negotiate
with the owners/managers who may not wish to give up control of the target fund general partner or managing member, as the case may be.
We cannot be certain that we will be successful in finding new investment teams or investing in new lines of business or that they will have
favorable operating results following our acquisitions.
Moreover, our future acquisition strategies may focus on privately-held asset managers that pursue single strategy specialized
investments. This approach presents challenges, including the lack of publicly available information, and greater risks than are generally
associated with transactions with more traditional asset managers. The asset managers that we may acquire and their financial information
may not be subject to the reporting requirements and other rules that govern public companies, including the Sarbanes-Oxley Act of 2002,
or Sarbanes-Oxley. Moreover, such asset managers may not be subject to regulation under the Advisers Act and/or the Commodity
Exchange Act at the time we acquire them. As a result, such asset managers could be more susceptible to irregular accounting or fraudulent
practices. The targets we seek to acquire in the future may have shorter operating histories than us on which to estimate future performance
and may not have significant or any operating revenues. They also may have a lower capitalization and fewer resources (including cash)
and be more vulnerable to failure than traditional asset managers. We will be required to rely on the ability of the professionals employed
by us to obtain adequate information to evaluate the manager affiliates we seek to acquire.
In addition, our ability to acquire asset managers on favorable terms and successfully integrate and operate them is subject to the
following significant risks:
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•
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we may acquire asset managers that are not accretive to our financial results upon acquisition, and we may not successfully
manage acquired funds to meet our expectations;
we may be unable to generate sufficient management fees from operations or obtain the necessary debt or equity financing to
consummate an acquisition on favorable terms or at all;
agreements for the acquisition of such asset managers will typically be subject to customary conditions to closing, including
satisfactory completion of due diligence investigations and negotiation of ancillary documentation, and we may spend
significant time and money on potential acquisitions that we do not consummate;
the process of acquiring or pursuing the acquisition of such asset managers may divert the attention of our management team
from the operations of our business and our initial funds;
we will need to attract, hire, train, supervise and manage new employees as a result of the acquisitions of asset managers;
we may acquire such asset managers without any recourse, or with only limited recourse, for liabilities, whether known or
unknown, such as claims against the former owners of the asset managers and claims for indemnification by the asset
managers, limited partners and others indemnified by the former owners of the managers of the funds; and
we may be unable to quickly and efficiently integrate new acquisitions into our existing operations.
If we cannot complete acquisitions of such asset managers on favorable terms, or integrate or operate new investment teams to meet
our goals or expectations, our financial condition, results of operations, cash flows, trading price of our common stock and ability to satisfy
any debt service obligations and to pay distributions could be adversely affected. Additionally, any acquisitions that we make generally will
not be subject to our stockholders’ consent. These factors increase the risk of investing in our Class A common stock.
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The due diligence process that we undertake in connection with strategic investments or acquisitions or entry into joint ventures may
not reveal all facts that may be relevant in connection with an investment, which could subject us to unknown liabilities.
In connection with strategic investments, acquisitions or entry into joint ventures, we conduct due diligence that we deem reasonable
and appropriate based on the facts and circumstances applicable to such investments, acquisitions or joint ventures and expect to use our
resources and oversight to enhance the risk management functions and diligence of our business and any investments going forward. When
conducting due diligence, we have been required and will be required to evaluate important and complex business, financial, tax,
accounting and legal issues. Outside consultants, legal advisers, accountants and investment banks may be involved in the due diligence
process in the future in varying degrees depending on the type of investment. When conducting due diligence and making an assessment
regarding a strategic investment, acquisition or joint venture, we have and will continue to rely on the resources available to us, including
information provided by the target of the strategic investment, acquisition or joint venture, in some circumstances, third-party
investigations. The due diligence investigations that we have carried out or will carry out with respect to any strategic investment,
acquisition or joint venture may not reveal or highlight all relevant facts that may be necessary or helpful in evaluating the strategic
investment, acquisition or joint venture, which could subject us to unknown liabilities that could adversely affect our profitability, financial
condition and results of operations. Moreover, such investigations will not necessarily result in the strategic investment, acquisition or joint
venture being successful.
Risk Related Generally to our Business
Our failure to comply with investment guidelines set by our clients and limitations imposed by applicable law could result in damage
awards against us and a loss of our assets under management, either of which could adversely affect our results of operations or
financial condition.
Certain clients who retain us to manage assets on their behalf specify guidelines regarding investment allocation and strategy that we
are required to follow in managing their portfolios. In addition, the boards of mutual funds we sub-advise generally establish similar
guidelines regarding the investment of assets in those funds. We are also required to invest the mutual funds’ assets in accordance with
limitations under the Investment Company Act, and applicable provisions of the Internal Revenue Code. Our failure to comply with any of
these guidelines and other limitations could result in losses to clients which, depending on the circumstances, could result in our obligation
to make clients whole for such losses. If we believed that the circumstances did not justify a reimbursement, or clients believed the
reimbursement we offered was insufficient, they could seek to recover damages from us, withdraw assets from our management or
terminate their investment advisory agreement with us. Any of these events could harm our reputation and adversely affect our business.
Operational risks, including the threat of cyber attacks, may disrupt our business, breach our clients’ security, result in losses or limit
our growth.
We are heavily dependent on the capacity and reliability of the communications, information and technology systems supporting our
operations, whether developed, owned and operated by us or by third parties. Operational risks, such as trading or operational errors or
interruption of our financial, accounting, trading, compliance and other data processing systems, whether caused by the failure to prevent or
mitigate data loss or other security breaches, or other cyber security threats or attacks, including breaches of our vendors’ technology and
systems, fire or other 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 have a material adverse effect on our
business. Some types of operational risks, including, for example, trading errors, may be increased in periods of increased volatility, which
can magnify the cost of an error. Cyber security risks relating to our business primarily involve the potential security breaches of our
clients’ personal and financial information and illegal use thereof through system-wide “hacking” or other means. While we have never had
any cyber security threat or attack on our technology systems, this may occur in the future.
Although we have back-up systems and cyber security and consumer protection measures in place, our back-up procedures, cyber
defenses and capabilities in the event of a failure, interruption, or breach of security may not be adequate. Insurance and other safeguards
we use may not be available or may only partially reimburse us for our losses related to operational failures or cyber attacks. In addition,
we may choose to reimburse a client in the event of a trading error or under other circumstances, even if we are not legally required to do
so, and any such reimbursements could adversely affect our results of operations.
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As a public company and as our client base, number of investment strategies and/or physical locations increase, developing and
maintaining our operational systems and infrastructure and protecting our systems from cyber security attacks and threats may become
increasingly challenging and costly, which could constrain our ability to expand our businesses. Any upgrades or expansions to our
operations and/or technology to accommodate increased volumes of transactions or otherwise may require significant expenditures and
may increase the probability that we will suffer system interruptions and failures. We also depend substantially on our New York office
where a majority of our employees, administration and technology resources are located, for the continued operation of our business. Any
significant disruption to that office could have a material adverse effect on us.
Improper disclosure of personal data could result in liability and harm our reputation.
We and our service providers store and process personal client information. It is possible that the security controls, training and other
processes with respect to personal data may not prevent the improper disclosure of client information. Such disclosure could harm our
reputation as well and subject us to liability, resulting in increased costs or loss of revenue.
Employee misconduct could expose us to significant legal liability and reputational harm.
We are vulnerable to reputational harm because we operate in an industry in which personal relationships, integrity and the
confidence of our clients are of critical importance. Our employees could engage in misconduct that adversely affects our business. For
example, if an employee were to engage in illegal or suspicious activities, we could be subject to regulatory sanctions and suffer serious
harm to our reputation (as a consequence of the negative perception resulting from such activities), financial position, client relationships
and ability to attract new clients.
Our business often requires that we deal with confidential information. If our employees were to improperly use or disclose this
information, even if inadvertently, we could be subject to legal action and suffer serious harm to our reputation, financial position and
current and future business relationships. It is not always possible to deter employee misconduct, and the precautions we take to detect and
prevent this activity may not always be effective. In addition, the SEC has increased its scrutiny of the use of non-public information
obtained from corporate insiders by professional investors. Misconduct by our employees, or even unsubstantiated allegations of
misconduct, could result in an adverse effect on our reputation and our business.
Failure to properly address conflicts of interest could harm our reputation, business and results of operations.
As we expand the scope of our business and our client base, we must continue to monitor and address any conflicts between our
interests and those of our clients. The SEC and other regulators have increased their scrutiny of potential conflicts of interest, and we have
implemented procedures and controls that we believe are reasonably designed to address these issues. However, appropriately dealing with
conflicts of interest is complex, and if we fail, or appear to fail, to deal appropriately with conflicts of interest, we could face reputational
damage, litigation or regulatory proceedings or penalties, any of which may adversely affect our results of operations.
We provide a broad range of services to the Silvercrest Funds and family office services, which may expose us to liability.
We provide a broad range of administrative services to the management of certain of our company’s funds of funds and other
investment funds, or collectively, the Silvercrest Funds, including preparation or supervision of the preparation of some of the Silvercrest
Funds’ regulatory filings, provision of shareholder services and communications, accounting services including the supervision of the
activities of Silvercrest Funds’ accounting services providers in the calculation of the funds’ net asset values, supervision of the preparation
of Silvercrest Funds’ financial statements and coordination of the audits of those financial statements, tax services, including supervision of
tax return preparation and supervision of the work of Silvercrest Funds’ other service providers. If it were determined that the Silvercrest
Funds failed to comply with applicable regulatory requirements as a result of action or failure to act by our employees, we could be
responsible for losses suffered or penalties imposed.
We also provide a range of family office services, in addition to investment management services, to some of our clients, including
philanthropic, estate and wealth planning services, tax planning and preparation, financial statement, bill paying and record keeping
services, bank loan arrangement and payment services and property and casualty insurance review. If we fail to perform these services
properly, we could incur costs and reputational harm for which we might be liable. Further, we could have penalties imposed on us, be
required to pay fines or be subject to private litigation, any of which could decrease our future income, or negatively affect our current
business or our future growth prospects.
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The investment management industry faces substantial litigation risks that could have a material adverse effect on our business,
financial condition or results of operations or cause significant reputational harm to us.
We depend to a large extent on our network of relationships and on our reputation in order to attract and retain client assets. We make
investment decisions on behalf of our clients that could result in substantial losses to them. If our clients suffer significant losses, or are
otherwise dissatisfied with our services, we could be subject to the risk of legal liabilities or actions alleging negligent misconduct, breach
of fiduciary duty, breach of contract, unjust enrichment and/or fraud. These risks are often difficult to assess or quantify and their existence
and magnitude often remain unknown for substantial periods of time, even after an action has been commenced. We may incur significant
legal expenses in defending against litigation commenced by a client or regulatory authority. Substantial legal liability or significant
regulatory action against us could have a material adverse effect on our business, financial condition or results of operations or cause
significant reputational harm to us.
The investment management industry is intensely competitive.
The investment management industry is intensely competitive, with competition based on a variety of factors, including investment
performance, investment management fee rates, continuity of investment professionals and client relationships, the quality of services
provided to clients, reputation, continuity of selling arrangements with intermediaries and differentiated products. A number of factors,
including the following, serve to increase our competitive risks:
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a number of our competitors have greater financial, technical, marketing, name recognition and other resources and more
personnel than we do;
potential competitors have a relatively low cost of entering the investment management industry;
the recent trend toward consolidation in the investment management industry and the securities business in general, has
served to increase the size and strength of a number of our competitors;
some investors may prefer to invest with an investment manager that is not publicly traded based on the perception that a
publicly traded asset manager may focus on the manager’s own growth to the detriment of investment performance for
clients;
some competitors may invest according to different investment styles or in alternative asset classes that the markets may
perceive as more attractive than the investment strategies we offer;
other industry participants, hedge funds and alternative asset managers may seek to recruit our investment professionals; and
some competitors charge lower fees for their investment services than we do.
If we are unable to compete effectively, our results of operations may be materially adversely affected.
Reductions in business sourced through third-party distribution channels, or their poor reviews of us or our products, could materially
reduce our revenue and ability to attract new clients.
Accounts sourced through consultant-led searches have been, and may continue to be, a major component of our future growth. We
also have accessed the high-net-worth segment of the investing community through relationships with well-respected wealth advisers who
use our investment strategies in investment programs they construct for their clients. As of December 31, 2017 we had approximately
$3.9 billion in assets under management from third party distribution channels, which constituted approximately 18.3% of our total assets
under management. If we fail to successfully maintain these third-party distribution channels, our business could be materially and
adversely affected. In addition, many of these parties review and evaluate our products and our organization. Poor reviews or evaluations of
either the particular product or of us may result in client withdrawals or may impact our ability to attract new assets through such
intermediaries.
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The significant growth we have experienced may be difficult to sustain.
Our assets under management have increased from $7.8 billion as of December 31, 2006 to $21.3 billion as of December 31, 2017.
The absolute measure of our assets under management represents a significant rate of growth that may be difficult to sustain. The growth of
our business will depend on, among other things, our ability to retain key investment professionals, to devote sufficient resources to
maintaining existing investment strategies and to selectively develop new investment strategies. Our business growth also will depend on
our success in achieving superior investment performance from our investment strategies, as well as our ability to maintain and extend our
distribution capabilities, to deal with changing market conditions, to maintain adequate financial and business controls and to comply with
new legal and regulatory requirements arising in response to both the increased sophistication of the investment management industry and
the significant market and economic events of the last few years. If we believe that in order to continue to produce attractive returns from
some or all of our investment strategies we should limit the growth of those strategies, we have in the past chosen, and in the future may
choose, to limit or close access to those strategies to some or most categories of new investors or clients or otherwise take action to slow the
flow of assets into those strategies.
In addition, we expect there to be significant demand on our infrastructure and investment teams and we may not be able to manage
our growing business effectively or be able to sustain the level of growth we have achieved historically, and any failure to do so could
adversely affect our ability to generate revenue and control our expenses.
A change of control could result in termination of our sub-investment advisory and investment advisory agreements.
Pursuant to the Advisers Act, each of our investment advisory agreements for the separate accounts we manage may not be assigned
without the consent of the client. In addition, under the Investment Company Act, each of the investment advisory agreements with SEC
registered mutual funds that we sub-advise automatically terminates in the event of its assignment. A sale of a controlling block of our
voting securities and certain other transactions would be deemed an “assignment” pursuant to the Advisers Act and the Investment
Company Act. Such an assignment may be deemed to occur in the event that the holders of the Class B units of Silvercrest L.P. exchange
enough of their Class B units for shares of our Class A common stock and dispose of such shares of Class A common stock such that they
no longer own a controlling interest in us, even if no other person or group acquires a controlling interest. If such a deemed assignment
occurs, there can be no assurance that we will be able to obtain the necessary consents from our clients and, unless the necessary approvals
and consents are obtained, the deemed assignment could adversely affect our ability to continue managing client accounts, resulting in the
loss of assets under management and a corresponding loss of revenue.
If our techniques for managing risk are ineffective, we may be exposed to material unanticipated losses.
In order to manage the significant risks inherent in our business, we must maintain effective policies, procedures and systems that
enable us to identify, monitor and control our exposure to operational, legal and reputational risks. Our risk management methods may
prove to be ineffective due to their design, implementation or insufficient scope, or as a result of the lack of adequate, accurate or timely
information or otherwise. If our risk management efforts are ineffective, we could suffer losses that could have a material adverse effect on
our financial condition or operating results. Additionally, we could be subject to litigation, particularly from our clients, and sanctions or
fines from regulators or self-regulatory organizations. Our techniques for managing risks in client portfolios may not fully mitigate the risk
exposure in all economic or market environments, or against all types of risk, including risks that we might fail to identify or anticipate.
Our reliance on prime brokers, custodians, administrators and other agents subjects us to certain risks relating to their execution of
transactions and their solvency, and the failure by or insolvency of, any such person could adversely affect our business and financial
performance.
Our business generally depends on the services of prime brokers, custodians, administrators and other agents to carry out securities
transactions. For example, in the event of the insolvency of a prime broker and/or custodian, our funds might not be able to recover
equivalent assets in full as they will rank among the prime broker’s and custodian’s unsecured creditors in relation to assets, which the
prime broker or a custodian borrows, lends or otherwise uses. In addition, our funds’ cash held with a prime broker or a custodian will not
be segregated from the prime broker’s or custodian’s own cash, and our funds will therefore rank as unsecured creditors in relation thereto.
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If we incur indebtedness or issue senior equity securities, we will be exposed to additional risks, including the typical risks associated
with leverage.
The amount of leverage that we employ will depend on our board of directors’ assessment of market and other factors at the time of
any proposed borrowing. We may also use leverage to make certain investments. There is no assurance that a leveraging strategy will be
successful. Leverage involves risks and special considerations that include the following:
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there is a likelihood of greater volatility of net asset value of our business and market price of our common stock than a
comparable business without leverage;
we will be exposed to increased risk of loss if we incur debt or issue senior equity securities to finance acquisitions or
investments because a decrease in the value of our investments would have a greater negative impact on our returns, and
therefore the value of our Class A common stock than if we did not use leverage;
it is likely that such debt or equity securities will be governed by instruments containing covenants restricting our operating
flexibility. These covenants may impose asset overage or investment composition requirements that are more stringent than
those of our business plan and could require our business to liquidate investments at an inopportune time;
if we are required to pledge a substantial portion of our assets in order to obtain debt financing, it may limit our ability to
enter into subsequent financings at attractive terms;
we, and indirectly our investors, will bear the cost of leverage, including issuance and servicing costs; and
any preferred, convertible or exchangeable securities that we issue may have rights, preferences and privileges more favorable
than those of our common stock.
In addition, the credit facility entered into in June 2013, as explained below, by all of the subsidiaries of Silvercrest L.P. and
guaranteed by Silvercrest L.P. contains financial and other restrictive covenants, including restrictions on distributions, incurrence of
additional indebtedness, mergers and certain other dispositions of our business and sale of assets.
Any requirement that we sell assets at a loss to redeem or pay interest on any leverage or for other reasons would reduce our equity
value and also make it difficult for our net asset value to recover. Our board of directors, in its best judgment, nevertheless may determine
to use leverage if it expects that the benefits to our common stockholders of maintaining the leveraged position will outweigh the risks.
General interest rate fluctuations may have a substantial negative impact on our investments and investment opportunities. In addition, an
increase in interest rates would make it more expensive for us to use debt to finance these investments.
Future financings could adversely affect us and our common stockholders by diluting existing stockholders or by placing restrictions
on our ability to run our business, including making distributions to unitholders.
The subsidiaries of Silvercrest L.P. entered into a credit facility in June 2013, pursuant to which the subsidiaries of Silvercrest L.P.
will be able to borrow up to $15.0 million in principal amount from time to time for working capital needs and other purposes. Although we
believe that available borrowings under our credit facility and future cash flow from operations will be sufficient to meet our working
capital requirements for normal operations pursuant to our business plan, these sources of capital may not fully fund our growth strategy in
the immediate future. If we decide to pursue future acquisitions, we may draw down proceeds from our existing credit facilities and then
raise additional capital through the incurrence of long-term or short-term indebtedness or the issuance of additional equity securities in
private or public transactions. This could result in dilution of existing common stockholders’ equity positions, increased interest expense
and decreased net income. In addition, significant capital requirements associated with such investments may impair our ability to make
distributions to our Class A common stockholders.
Newly enacted laws, such as Tax Cuts and Jobs Act, or regulations and future changes in the U.S. taxation of businesses may impact
our effective tax rate or may adversely affect our business, financial condition and operating results.
On December 22, 2017, the President signed into law the Tax Cuts and Jobs Act, which significantly changed the Code, including a
reduction in the statutory corporate income tax rate to 21%, a new limitation on the deductibility of business interest expense and
restrictions on the use of net operating loss carryforwards arising in taxable years beginning after December 31, 2017. The Tax Cuts and
Jobs Act also authorizes the Treasury Department to issue regulations with respect to the new provisions. We cannot predict how the
changes in the Tax Cuts and Jobs Act, regulations, or other guidance issued under it or conforming or non-conforming state tax rules might
affect us or our business. In addition, there can be no assurance that U.S. tax laws, including the corporate income tax rate, would not
undergo significant changes in the near future.
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Risks Related to Our Structure
The rights of holders of Class B units of Silvercrest L.P. may give rise to conflicts of interest.
As a result of our principals holding all or a portion of their ownership interests in our business through Silvercrest L.P., rather than
through Silvercrest, these existing owners may have other conflicting interests with holders of our Class A common stock. For example,
our principals may have different tax positions from holders of our Class A common stock which could influence their decisions regarding
whether and when we should dispose of assets, whether and when we should incur new or refinance existing indebtedness, especially in
light of the existence of the tax receivable agreement that was entered into in connection with our initial public offering, and whether and
when our company should terminate the tax receivable agreement and accelerate its obligations thereunder. Also, the structuring of future
transactions may take into consideration our principals’ tax or other considerations even where no similar benefit would accrue to us.
Our ability to pay regular dividends to our stockholders is subject to the discretion of our board of directors and may be limited by our
structure and applicable provisions of Delaware law.
We intend to declare cash dividends on our Class A common stock. However, our board of directors may, in its sole discretion,
change the amount or frequency of dividends or discontinue the payment of dividends entirely. In addition, because of our structure, we
will be dependent upon the ability of our subsidiaries to generate earnings and cash flows and distribute them to us so that we may pay
dividends to our stockholders. We expect to cause Silvercrest L.P., which is a Delaware limited partnership, to make distributions to its
partners, including us, in an amount sufficient for us to pay dividends. However, its ability to make such distributions will be subject to its
subsidiaries’ operating results, cash requirements and financial condition, the applicable provisions of Delaware law that may limit the
amount of funds available for distribution to its partners, its compliance with covenants and financial ratios related to current and future
indebtedness (including the credit facility entered into in June 2013 by the subsidiaries of Silvercrest L.P.), its other agreements with third
parties, as well as its obligation to make tax distributions under the second amended and restated limited partnership agreement (which
distributions would reduce the cash available for distributions by Silvercrest L.P. to us). As a Delaware corporation, our ability to pay cash
dividends to our Class A common stockholders with the distributions received by us as general partner of Silvercrest L.P. also will be
subject to the applicable provisions of Delaware law. Also, each of the companies in the corporate chain must manage its assets, liabilities
and working capital in order to meet all of its cash obligations, including the payment of dividends or distributions. As a consequence of
these various limitations and restrictions, we may not be able to make, or may have to reduce or eliminate, the payment of dividends on our
Class A common stock. Any change in the level of our dividends or the suspension of the payment thereof could adversely affect the
market price of our Class A common stock.
Our ability to pay taxes and expenses, including payments under the tax receivable agreement, may be limited by our structure.
We have no material assets other than our ownership of Class A units of Silvercrest L.P. and have no independent means of
generating revenue. Silvercrest L.P. is treated as a partnership for U.S. federal income tax purposes and, as such, is not subject to U.S.
federal income tax. Instead, taxable income is allocated to holders of its partnership units, including us. Accordingly, we will incur income
taxes on our proportionate share of any net taxable income of Silvercrest L.P. and also will incur expenses related to our operations. Under
the terms of its second amended and restated limited partnership agreement, Silvercrest L.P. is obligated to make tax distributions to holders
of its partnership units, including us. In addition to tax expenses, we also will incur expenses related to our operations, including expenses
under the tax receivable agreement, which we expect will be significant. We intend to cause Silvercrest L.P. to make distributions in an
amount sufficient to allow us to pay our taxes and operating expenses, including any payments due under the tax receivable agreement.
However, its ability to make such distributions will be subject to various limitations and restrictions as set forth in the preceding risk factor.
If, as a consequence of these various limitations and restrictions, we do not have sufficient funds to pay tax or other liabilities to fund our
operations, we may need to borrow funds and thus this could have a material adverse effect on our liquidity and financial condition. To the
extent we are unable to make payments under the tax receivable agreement for any reason, such payments will be deferred and will accrue
interest at LIBOR plus 300 basis points until paid.
We will be required to pay principals for certain tax benefits we may claim, and the amounts we may pay could be significant.
The corporate reorganization of Silvercrest L.P. resulted in favorable tax attributes for us. In addition, future exchanges of Class B
units of Silvercrest L.P. held by our principals for shares of our Class A common stock are expected to produce additional favorable tax
attributes for us. When we acquire Class B units from existing principals, both the existing basis and the anticipated basis adjustments are
likely to increase (for tax purposes) depreciation and amortization deductions allocable to us from Silvercrest L.P. and therefore reduce the
amount of income tax we would otherwise be required to pay in the future. This increase in tax basis also may decrease gain (or increase
loss) on future dispositions of certain capital assets to the extent the increased tax basis is allocated to those capital assets.
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The tax receivable agreement, which we entered into with our principals, generally provides for the payment by us to each of them of
85% of the amount of the cash savings, if any, in U.S. federal and state income tax that we actually realize (or are deemed to realize in
certain circumstances) in periods after our initial public offering as a result of (i) any step-up in tax basis in Silvercrest L.P.’s assets
resulting from (a) the purchases or exchanges of Class B units (along with the corresponding shares of our Class B common stock) for
shares of our Class A common stock and (b) payments under this tax receivable agreement; (ii) certain prior distributions by Silvercrest L.P.
and prior transfers or exchanges of Class B units which resulted in tax basis adjustments to the assets of Silvercrest L.P.; and (iii) tax
benefits related to imputed interest deemed to be paid by us as a result of this tax receivable agreement.
We expect that the payments we will be required to make under the tax receivable agreement will be substantial. Assuming no
material changes in the relevant tax law and that we earn sufficient taxable income to realize all tax benefits that are subject to the tax
receivable agreement, we expect that the reduction in tax payments for us associated with (i) the purchase of Class B units from certain of
the limited partners of Silvercrest L.P. with a portion of the net proceeds of our initial public offering and (ii) exchanges of Class B units
subsequent to our initial public offering as described above would aggregate approximately $11.1 million over a 15-year period. Under
such scenario we would be required to pay the holders of Class B limited partnership units approximately $8.7 million, over a 15-year
period. The actual amounts may materially differ from these hypothetical amounts, as potential future reductions in tax payments for us
and tax receivable agreement payments by us will be calculated using the market value of our Class A common stock and the prevailing tax
rates at the time of the exchange and will be dependent on us generating sufficient future taxable income to realize the benefit.
The actual increase in tax basis, as well as the amount and timing of any payments under this agreement, will vary depending upon a
number of factors, including the timing of exchanges by principals, 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 the taxable income we generate in the future and the tax rate then
applicable, as well as the portion of our payments under the tax receivable agreement constituting imputed interest or depreciable or
amortizable basis. Payments under the tax receivable agreement will be based on the tax reporting positions that we determine. Although
we are not aware of any issue that would cause the Internal Revenue Service, or the IRS, to challenge a tax basis increase or other tax
attributes subject to the tax receivable agreement, we will not be reimbursed for any payments previously made under the tax receivable
agreement. As a result, in certain circumstances, payments could be made under the tax receivable agreement in excess of the benefits that
we actually realize in respect of the attributes to which the tax receivable agreement relates.
In certain cases, payments under the tax receivable agreement to our principals may be accelerated and/or significantly exceed the
actual benefits we realize in respect of the tax attributes subject to the tax receivable agreement.
The tax receivable agreement provides that upon certain mergers, asset sales, other forms of business combinations or other changes
of control, or if, at any time, we elect an early termination of the tax receivable agreement, our (or our successor’s) obligations under the
tax receivable agreement (with respect to all Class B units held by our principals, whether or not such Class B units have been exchanged or
acquired before or after such transaction) would be based on certain assumptions, including that we would have sufficient taxable income to
fully avail ourselves of the deductions arising from the increased tax deductions and tax basis and other benefits related to entering into the
tax receivable agreement. As a result, (i) we could be required to make payments under the tax receivable agreement that are greater than or
less than the specified percentage of the actual benefits we realize in respect of the tax attributes subject to the tax receivable agreement,
and (ii) if we elect to terminate the tax receivable agreement early, we would be required to make an immediate payment equal to the
present value of the anticipated future tax benefits, which payment may be made significantly in advance of the actual realization of such
future benefits. In these situations, our obligations under the tax receivable agreement could have a substantial negative impact on our
liquidity and could have the effect of delaying, deferring or preventing certain mergers, asset sales, other forms of business combinations or
other changes of control. There can be no assurance that we will be able to finance our obligations under the tax receivable agreement. If
we were to elect to terminate the tax receivable agreement, we estimate that we would be required to pay approximately $8.7 million in the
aggregate under the tax receivable agreement.
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If we were deemed an investment company under the Investment Company Act as a result of our ownership interest in Silvercrest L.P.,
applicable restrictions could make it impractical for us to continue our business as contemplated and could have a material adverse
effect on our business.
We do not believe that we are an “investment company” under the Investment Company Act. Because we, as the sole general partner
of Silvercrest L.P., control and operate Silvercrest L.P., we believe that our interest in Silvercrest L.P. is not an “investment security” as that
term is used in the Investment Company Act. If we were to cease participation in the management of Silvercrest L.P., our interest in
Silvercrest L.P. could be deemed an “investment security” for purposes of the Investment Company Act. A person may be an “investment
company” if it owns investment securities having a value exceeding 40% of the value of its total assets (exclusive of U.S. government
securities and cash items). Our sole asset is our general partner interest in Silvercrest L.P. A determination that such investment was an
investment security could cause us to be deemed an investment company under the Investment Company Act and to become subject to the
registration and other requirements of the Investment Company Act. In addition, we do not believe that we are an investment company
under Section 3(b)(1) of the Investment Company Act because we are not primarily engaged in a business that causes us to fall within the
definition of “investment company.” We and Silvercrest L.P. intend to conduct our operations so that we will not be deemed an investment
company. However, if we were to be deemed an investment company, restrictions imposed by the Investment Company Act, including
limitations on our capital structure and our ability to transact with affiliates, could make it impractical for us to continue our business as
contemplated and could have a material adverse effect on our business.
Risks Related to our 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 may be highly volatile and could be subject to wide fluctuations. Moreover, the
trading volume of our Class A common stock may fluctuate and cause significant price variations to occur. If the market price of our
Class A common stock declines significantly, you may be unable to sell your shares of Class A common stock at or above the price at
which you purchased it, if at all. The market price of our Class A common stock may fluctuate or decline significantly in the future. Some
of the factors that could negatively affect the price of our Class A common stock, or result in fluctuations in the price or trading volume of
our Class A common stock, include:
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variations in our quarterly or annual operating results;
failure to meet the market’s earnings expectations;
publication of research reports about us or the investment management industry, or the failure of securities analysts to
continue to cover our Class A common stock;
the public’s reactions to our press releases, other public announcements and filings with the SEC;
departures of any of our portfolio managers or members of our senior management team or additions or departures of other
key personnel;
adverse market reaction to any indebtedness we may incur or securities we may issue in the future;
market and industry perception of our success, or lack thereof, in pursuing our growth strategies;
actions by stockholders;
strategic actions by us or our competitors, such as acquisitions or restructurings;
changes in market valuations of similar companies;
changes in our capital structure;
actual or anticipated poor performance in one or more of the investment strategies we offer;
changes or proposed changes in laws or regulations, or differing interpretations thereof, affecting our business, or
enforcement of these laws and regulations, or announcements relating to these matters;
changes in accounting standards, policies, guidance, interpretations or principles;
adverse publicity about the investment management industry generally or as a result of specific events;
sales of shares of our Class A common stock by us or members of our management team;
litigation and governmental investigations;
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the expiration of contractual lockup agreements; and
changes in general market, economic and political conditions in the United States and global economies or financial markets,
including those resulting from natural disasters, terrorist attacks, acts of war, and responses to such.
Future issuances and sales of our Class A common stock in the public market could lower our stock price, and any additional capital
raised by us through the sale of equity or convertible securities may dilute your ownership in us.
The market price of our Class A common stock could decline as a result of sales of a large number of shares of our Class A common
stock available for sale, or the perception that such sales could occur. These sales, or the possibility that these sales may occur, also may
make it more difficult for us to raise additional capital by selling equity securities in the future, at a time and price that we deem
appropriate.
We have 8,142,120 shares of our Class A common stock outstanding as of March 6, 2018. The shares of Class A common stock that
will be issuable upon exchange of Class B units held by our principals may only be sold in the manner and at the times described in our
exchange agreement with our principals. For so long as a principal remains employed by us, during any 12-month period, each principal
and his permitted transferees (e.g., family trusts) may collectively exchange vested Class B units that equal 20% of the Class B units such
persons collectively held at the beginning of such 12-month period, subject to certain exceptions described under the second amended and
restated limited partnership agreement of Silvercrest L.P. Upon a termination of employment other than due to retirement or for cause, all
Class B units held by a principal, other than those Class B units forfeited under certain circumstances, will be exchanged automatically for
shares of Class A common stock. The shares of Class A common stock received upon exchange for Class B units held by our principals
may be sold (i) at any time and in any manner by retired employees and employees or estates of employees terminated due to death or
disability, (ii) for any principal whose employment is terminated by us without cause, in an amount equal to 50% of the total shares of
Class A common stock held by the principal at the time of termination of employment less any amounts sold for taxes in each 12-month
period following the 18-month anniversary of the date of termination of employment, and (iii) for any principal who voluntarily resigns his
employment, in an amount equal to one-third of the total shares of Class A common stock held by the principal at the time of termination of
employment less any amounts sold for taxes in each 12-month period following the 18-month anniversary of the date of resignation of
employment subject to manner of sale restrictions. The estate of our former Chief Executive Officer may sell portions or all of its Class A
common shares in Silvercrest in order to diversify its portfolio.
As of December 31, 2017, we have reserved for issuance 690,077 shares of our Class A common stock pursuant to, upon the exercise
of options or other equity awards granted under, or upon exchange of Class B units granted under, our 2012 Equity Incentive Plan. We may
increase the number of shares registered for this purpose from time to time. Once we register these additional shares, they will be able to be
sold in the public market upon issuance.
We cannot predict the size of future issuances of our Class A common stock or the effect, if any, that future issuances and sales of
shares of our Class A common stock may have on the market price of our Class A common stock. Sales or distributions of substantial
amounts of our Class A common stock (including shares issued in connection with an acquisition), or the perception that such sales could
occur, may cause the market price of our Class A common stock to decline.
We are an “emerging growth company,” and any decision on our part to comply only with certain reduced disclosure requirements
applicable to emerging growth companies could make our Class A common stock less attractive to investors.
We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act, or the JOBS Act, enacted in April
2012, and, for as long as we continue to be an “emerging growth company,” we may take advantage of exemptions from various reporting
requirements applicable to other public companies but not to “emerging growth companies,” including, but not limited to, not being
required to comply with the auditor attestation requirements of Section 404 of Sarbanes-Oxley, reduced disclosure obligations regarding
executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding
advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. We could
remain an “emerging growth company” for up to five years from the last day of the fiscal year in which our IPO closed, or until the earliest
of (i) the last day of the first fiscal year in which our annual gross revenues exceed $1 billion, (ii) the date that we become a “large
accelerated filer” as defined in Rule 12b-2 under the Exchange Act, which would occur if the market value of our Class A common stock
that is held by non-affiliates exceeds $700 million as of the last business day of an issuer’s most recently completed second fiscal quarter
before the end of that five-year period, or (iii) the date on which we have issued more than $1.07 billion in nonconvertible debt during the
preceding three-year period. Investors may find our Class A common stock less attractive if we rely on these exemptions. If some investors
find our Class A common stock less attractive as a result there may be a less active trading market for our Class A common stock and our
stock price may be more volatile.
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In addition, Section 107 of the JOBS Act also provides that an “emerging growth company” can take advantage of the extended
transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other
words, an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply
to private companies. We chose, however, to “opt out” of such extended transition period, and as a result, we will comply with new or
revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies.
Section 107 of the JOBS Act provides that our decision to opt out of the extended transition period for complying with new or revised
accounting standards is irrevocable.
The requirements of being a public company may strain our resources and distract our management, which could make it difficult to
manage our business, particularly after we are no longer an “emerging growth company.”
As a public company, we are required to comply with various regulatory and reporting requirements, including those required by the
SEC. Complying with these reporting and other regulatory requirements is time-consuming and results in increased costs to us and could
have a negative effect on our business, results of operations and financial condition. As a public company, we are subject to the reporting
requirements of the Exchange Act and requirements of Sarbanes Oxley. These requirements may place a strain on our systems and
resources. The Exchange Act requires that we file annual, quarterly and current reports with respect to our business and financial condition.
Sarbanes Oxley requires that we maintain effective disclosure controls and procedures and internal controls over financial reporting. To
maintain and improve the effectiveness of our disclosure controls and procedures, we need to commit significant resources, hire additional
staff and provide additional management oversight. We have implemented additional procedures and processes for the purpose of
addressing the standards and requirements applicable to public companies. Sustaining our growth also will require us to commit additional
management, operational and financial resources to identify new professionals to join our company and to maintain appropriate operational
and financial systems to adequately support our expansion. In addition, as a public company, we have enhanced our investor relations, legal
and corporate communications functions. All of these activities and additional efforts may increase our costs, strain our resources and divert
management’s attention from other business concerns, which could have a material adverse effect on our business, financial condition,
results of operations and cash flows.
As an “emerging growth company” as defined in the JOBS Act, we will take advantage of certain temporary exemptions from
various reporting requirements, including, but not limited to, not being required to comply with the auditor attestation requirements of
Section 404 of Sarbanes Oxley (and rules and regulations of the SEC thereunder, which we refer to as Section 404) and reduced disclosure
obligations regarding executive compensation in our periodic reports and proxy statements. When these exemptions cease to apply, we
expect to incur additional expenses and devote increased management effort toward ensuring compliance with them. We cannot predict or
estimate the amount of additional costs we may incur as a result of becoming a public company or the timing of such costs.
Stockholders may experience dilution in the future.
Stockholders will experience further dilution upon the issuance of restricted Class B units or restricted shares of our Class A
common stock, or upon the grant of options or other equity awards to purchase Class B units or shares of our Class A common stock, in
each case under our 2012 Equity Incentive Plan.
Anti-takeover provisions in our second amended and restated certificate of incorporation and amended and restated bylaws could
discourage a change of control that our stockholders may favor, which also could adversely affect the market price of our Class A
common stock.
Provisions in our second amended and restated certificate of incorporation and amended and restated 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 second amended and restated certificate of incorporation authorizes our board of directors to issue up to 10,000,000 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. In addition, our second amended and restated certificate of incorporation will provide that our board of directors is
classified into three classes of directors. The anti-takeover provisions in our second 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.
For example, our stockholders are unable to take any action by written consent, call a special meeting or require our board to call a
special meeting, each of which impedes stockholders’ ability to take certain actions related to takeovers. In addition, the advance notice
requirements in our amended and restated bylaws hinder a stockholder’s ability to bring matters before the board, in particular matters
relating to a change in control, due to the 90-day notice period required before any action may be requested in some circumstances.
33
Our second amended and restated certificate of incorporation and amended and restated bylaws also grant the board the power to
increase the authorized number of directors without stockholder consent, by resolution adopted by the affirmative vote of a majority of the
entire board, thus preventing a stockholder from being able to control the board and its decisions. Similarly, the board has the sole ability to
fill newly created directorships. Further, while any director or the whole board may only be removed for cause by the vote of the holders of
a majority of the shares of common stock and preferred stock, there is no power of stockholders to remove a director without cause. Our
board also has the power to adopt, amend or repeal the bylaws, subject only to such limitation, if any, as may from time to time be imposed
by law or by the bylaws, while stockholder action to adopt, amend or repeal the bylaws requires a vote of 66 2/3% of the outstanding
common stock. Many of these provisions could hinder stockholders’ ability to consummate certain transactions that may benefit our
business and the price of our common stock.
Moreover, the market price of our Class A common stock could be adversely affected to the extent that provisions of our second
amended and restated certificate of incorporation and amended and restated bylaws discourage potential takeover attempts, or other
transactions, that our stockholders may favor.
If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our stock
price and trading volume could decline.
The trading market for our Class A common stock depends in part on the research and reports that securities or industry analysts
publish about us or our business. If one or more of the analysts who covers us downgrades our stock or publishes inaccurate or unfavorable
research about our business, our stock price would likely decline. If one or more of these analysts ceases coverage of us or fails to publish
reports on us regularly, demand for our stock could decrease, which could cause our stock price and trading volume to decline.
Item 1B. Unresolved Staff Comments.
None.
Item 2. Properties.
Our corporate headquarters are located at 1330 Avenue of the Americas, 38th Floor, New York, New York 10019, where we occupy
approximately 41,000 square feet of space under a lease, the extended terms of which expire on September 30, 2028. We also lease space
for our other six offices. We believe our current facilities are adequate for our current needs and that suitable additional space will be
available as and when needed.
Item 3. Legal Proceedings.
We are, and will continue to be, subject to litigation from time to time in the ordinary course of business. Currently, there are no
material legal proceedings pending or threatened against us.
34
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Our Class A common stock has been listed on The Nasdaq Global Market under the symbol “SAMG” since June 27, 2013. Prior to
June 27, 2013, there was no established public trading market for our Class A common stock. Our Class B common stock is not listed on
The Nasdaq Global Market and there is no established trading market for such shares.
The following table presents information on the high and low sales prices per share as reported on The Nasdaq Global Market for our
Class A common stock for the periods indicated and dividends declared during such periods:
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
High
14.50 $
14.10 $
14.95 $
16.80 $
High
13.15 $
13.56 $
12.88 $
13.85 $
$
$
$
$
$
$
$
$
2017
Low
2016
Low
Dividends
Declared
Per Share
12.60 $
11.85 $
11.85 $
13.31 $
0.12
0.12
0.12
0.12
Dividends
Declared
Per Share
9.84 $
11.65 $
11.50 $
11.07 $
0.12
0.12
0.12
0.12
No purchases of our Class A common stock were made by us or on our behalf during the quarter ended December 31, 2017.
Holders
As of March 1, 2018, there were six holders of record of our Class A common stock and 47 holders of record of our Class B common
stock. A substantially greater number of holders of our Class A common stock are held in “street name” and held of record by banks,
brokers and other financial institutions.
Dividends
We pay and intend to continue paying quarterly cash dividends to the holders of our Class A common stock. Only holders of our
Class A common stock will be entitled to any dividend declared by us on our capital stock. We are a holding company and have no material
assets other than our ownership of the general partnership interest of Silvercrest L.P. As a result, we intend to fund any future dividends
from our portion of the distributions from Silvercrest L.P. If Silvercrest L.P. makes distributions to its partners, holders of Class B units will
be entitled to receive equivalent distributions on a pro rata basis.
All of the foregoing is subject to the qualification that the declaration and payment of any distributions by Silvercrest L.P. is at our
sole discretion, as general partner, and we may change our distribution policy at any time.
In addition, the declaration and payment of any dividends to our stockholders is at the sole discretion of our board of directors. Our
board or directors may decide not to declare a dividend on our Class A common stock even if Silvercrest L.P. makes a distribution to its
partners, including Silvercrest. In determining whether to make a dividend payment to our Class A stockholders, our board of directors will
take into account:
•
•
•
•
our financial results as well as the financial results of Silvercrest L.P.;
our available cash and anticipated cash needs;
the capital requirements of our company and our direct and indirect subsidiaries (including Silvercrest L.P.);
contractual, legal, tax and regulatory restrictions on, and implications of, the payment of dividends by us to our stockholders
or by our direct and indirect subsidiaries (including Silvercrest L.P.) to us;
35
•
•
general economic and business conditions; and
such other factors as our board of directors may deem relevant.
Other than our credit facility, which SAMG LLC and other of our direct and indirect subsidiaries, entered into in June 2013, neither
we nor any of our direct or indirect subsidiaries has any debt obligations that limit our or its ability to pay dividends or distributions. Our
credit facility limits SAMG LLC’s and other of our direct and indirect subsidiaries ability to make distributions to the extent SLP and its
subsidiaries are not in compliance with covenants and financial ratios related to such facility. However, pursuant to its second amended and
restated limited partnership agreement, Silvercrest L.P. may not make any distributions to its partners, including us, if doing so would
violate any agreement to which it is then a party or any law then applicable to it, have the effect of rendering it insolvent or result in it
having net capital lower than that required by applicable law.
Our dividend policy has certain risks and limitations, particularly with respect to liquidity. Although we expect to pay dividends
according to our dividend policy, we may not pay dividends according to our policy, or at all, if, among other things, we do not have the
cash necessary to pay our intended dividends. By paying cash dividends rather than saving or investing that cash, we risk, among other
things, slowing the pace of our growth and having insufficient cash to fund our operations or unanticipated capital expenditures.
During each of 2017 and 2016, we paid quarterly dividends totaling $0.48 per share of Class A common stock or $3.9 million and
$3.9 million in 2017 and 2016, respectively. In February 2018, our board of directors declared a dividend of $0.14 per share, or an
aggregate of approximately $1.1 million, to our Class A common shareholders in respect of the fourth quarter of 2017 payable on March
16, 2018 to holders of record of Class A common stock at the close of business on March 9, 2018.
Equity Compensation Plan Information
(c)
Number of
securities remaining
available for future
issuance
under equity
(a)
Number of
issued
securities to be
(b)
Weighted-average
upon exercise of exercise price of compensation plans
outstanding
options, warrants options, warrants securities reflected
and rights
in column (a))
outstanding
(excluding
and rights
Plan Category
Equity compensation plans approved by security holders
Equity compensation plans not approved by security holders
Total
980,883
—
980,883
$13.23
—
$13.23
690,077
—
690,077
A total of 1,670,960 shares of Class A common stock were registered, 966,510 restricted stock units were granted in August 2015 and
14,373 restricted stock units were granted in May 2016, and 690,077 remain reserved for issuance under the 2012 Equity Incentive Plan as
of December 31, 2017.
36
Performance Graph
The following graph compares the cumulative total stockholder return on our common stock from June 27, 2013 (the date our
Class A common stock first began trading on The Nasdaq Global Market) through December 31, 2017, with the cumulative total return of
the Standard & Poor’s 500 Stock Index and the SNL Asset Manager Index. The SNL Asset Manager Index is a composite of 41 publicly
traded asset management companies prepared by SNL Financial, Charlottesville, Virginia. The graph assumes the investment of $100 in
our Class A common stock and in each of the two indexes on June 26, 2013 and the reinvestment of all dividends, if any. The initial public
offering price of our Class A common stock was $11.00 per share.
Index
Silvercrest Asset Management Group Inc.
S&P500
SNL Asset Manager*
6/27/2013
12/31/2013
12/31/2014
12/31/2015
12/31/2016
12/31/2017
100.00
100.00
100.00
156.17
116.54
127.71
147.63
132.49
134.73
116.58
134.33
114.90
134.15
150.39
121.55
169.64
183.22
161.41
*
As of 12/31/2017, the SNL Asset Manager Index comprised the following companies: Affiliated Managers Group Inc.; AllianceBernstein Holding L.P.;
Apollo Global Mgmt LLC; Ares Mgmt LP; Artisan Partners Asset Mgmt.; Ashford Inc.; Associated Capital Group; BlackRock Inc.; Blackstone Group L.P.;
Carlyle Group L.P.; Cohen & Steers Inc.; Diamond Hill Investment Group; Eaton Vance Corp.; Federated Investors Inc.; Fifth Street Asset Management Inc.;
Financial Engines Inc.; Franklin Resources Inc.; GAMCO Investors Inc.; Great Elm Capital Group Inc.; Hamilton Lane Inc.; Hennessy Advisors Inc.;
Invesco Ltd.; Janus Henderson Group Plc; KKR & Co. L.P.; Legg Mason Inc.; Manning & Napier Inc.; Medley Management Inc.; Oaktree Capital Group
LLC; Och-Ziff Capital Mgmt Group LLC; OM Asset Management plc; Pzena Investment Mgmt Inc.; Safeguard Scientifics Inc.; SEI Investments Co.;
Silvercrest Asset Mgmt Group; T. Rowe Price Group Inc.; U.S. Global Investors Inc.; Virtus Investment Partners Inc.; Waddell & Reed Financial Inc.;
Westwood Holdings Group Inc.; WisdomTree Investments Inc.; ZAIS Group Holdings Inc.
In accordance with the rules of the SEC, this section entitled “Performance Graph” shall not be incorporated by reference into any
future filings by us under the Securities Act or Exchange Act, and shall not be deemed to be soliciting material or to be filed under the
Securities Act or the Exchange Act.
37
Item 6. Selected Financial Data.
The following tables set forth selected historical consolidated financial and other data of Silvercrest as of and for the years ended
December 31, 2017, 2016, 2015, 2014 and 2013. The portion of the operating results included in the consolidated statement of operations
data for the year ended December 31, 2013 that relates to the six months ended June 30, 2013 are those of Silvercrest L.P., our predecessor
for accounting purposes. The consolidated statement of operations data for the year ended December 31, 2013 represents the combination
of Silvercrest L.P.’s results of operations for the six months ended June 30, 2013 and Silvercrest’s results of operations for the six months
ended December 31, 2013.
The following selected historical consolidated financial data has been derived from the Company’s audited consolidated financial
statements. You should read the following selected historical consolidated financial data together with “Management’s Discussion and
Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and related notes included elsewhere
in this report.
Statements of operations data:
Revenue:
Management and advisory fees
Performance fees and allocations
Family office services
Total revenue
Expenses:
Compensation and benefits
General and administrative
Total expenses
Income before other income (expense), net
Other income (expense), net:
Other income (expense)
Interest income
Interest expense
Equity income (loss) from investments
Total other income (expense), net
Income before (provision) benefit for income taxes
Provision for income taxes
Net income
Less: net income attributable to non-controlling interests
Net income attributable to Silvercrest
Net income per share/unit:
Basic
Diluted
Weighted average shares/units outstanding:
Basic
Diluted
Dividends paid per share
Selected statements of financial position data:
Total assets
Notes payable
Total liabilities
Total Silvercrest Asset Management Group Inc.’s equity
Non-controlling interests
Selected other data:
Assets under management (in billions) (1)
(1)
As of the last day of the period.
2017
Years Ended December 31,
2015
2016
2014
2013
(In thousands, except share and per share data)
86,542 $
834
3,982
91,358
54,143
16,846
70,989
20,369
5,346
47
(112)
615
5,896
26,265
(13,734 )
12,531
(7,194)
5,337 $
76,185 $
322
3,755
80,262
49,009
16,617
65,626
14,636
(105)
61
(228)
304
32
14,668
(4,686)
9,982
(4,967)
5,015 $
71,759 $
11
3,368
75,138
42,856
15,325
58,181
16,957
1,268
72
(261)
18
1,097
18,054
(6,969)
11,085
(5,761)
5,324 $
65,026 $
221
4,225
69,472
40,290
13,860
54,150
15,322
876
69
(381)
1,208
1,772
17,094
(6,386)
10,708
(5,933)
4,775 $
53,465
1,830
4,756
60,051
30,322
13,197
43,519
16,532
3,118
92
(447)
21
2,784
19,316
(2,148)
17,168
(3,478)
13,690
0.66 $
0.66 $
0.62 $
0.62 $
0.68 $
0.68 $
0.63 $
0.63 $
1.68
1.63
8,110,128
8,117,407
8,031,161
8,038,177
7,855,038
7,855,038
7,600,739
7,600,739
8,145,476
8,374,025
0.48 $
0.48 $
0.48 $
0.48 $
0.12
117,360 $
740
45,241
49,095
23,024
112,281 $
2,486
46,197
47,305
18,779
108,211 $
4,514
46,574
45,835
15,802
99,696 $
4,148
46,634
42,516
10,546
100,727
11,303
52,562
41,222
6,943
$
$
$
$
$
$
$
21.3 $
18.6 $
18.1 $
17.9 $
15.7
38
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
We are a full-service wealth management firm focused on providing financial advisory and related family office services to ultra-
high net worth individuals and institutional investors. In addition to a wide range of investment capabilities, we offer a full suite of
complementary and customized family office services for families seeking a comprehensive oversight of their financial affairs. During the
twelve months ended December 31, 2017, our assets under management grew 14.5% from $18.6 billion to $21.3 billion. On June 30, 2015,
we acquired $0.7 billion of assets under management in connection with the Jamison Acquisition (as defined herein).
The business includes the management of funds of funds, and other investment funds, collectively referred to as the “Silvercrest
Funds”. Silvercrest L.P. has issued restricted stock units exercisable for 486,098 Class B units which entitle the holders thereof to receive
distributions from Silvercrest L.P. to the same extent as if the underlying Class B units were outstanding. Net profits and net losses of
Silvercrest L.P. will be allocated, and distributions from Silvercrest L.P. will be made, to its current partners pro rata in accordance with
their respective partnership units (and assuming the Class B units underlying all restricted stock units are outstanding).
The historical results of operations discussed in this Management’s Discussion and Analysis of Financial Condition and Results of
Operations include those of Silvercrest L.P. and its subsidiaries. As the general partner of Silvercrest L.P., we control its business and
affairs and, therefore, consolidate its financial position and results with ours. The interests of the limited partners’ collective 38%
partnership interest in Silvercrest L.P. as of December 31, 2017 are reflected in non-controlling interests in our Consolidated Financial
Statements.
Key Performance Indicators
When we review our performance, we focus on the indicators described below:
(in thousands except as indicated)
Revenue
Income before other income (expense), net
Net income
Net income margin
Net income attributable to Silvercrest
Adjusted EBITDA (1)
Adjusted EBITDA margin (2)
Assets under management at period end (billions)
Average assets under management (billions) (3)
$
$
$
$
$
$
$
For the Years Ended December 31,
2016
2017
2015
91,358
20,369
12,531
$
$
$
13.7%
$
5,337
$
27,887
30.5%
21.3 $
20.0 $
$
80,262
$
14,636
9,982
$
12.4%
$
5,015
$
22,453
28.0%
$
18.6
$
18.4
75,138
16,957
11,085
14.8%
5,324
21,858
29.1%
18.1
18.0
(1)
EBITDA, a non-GAAP measure of earnings, represents net income before provision for income taxes, interest income, interest expense, depreciation and
amortization. We define Adjusted EBITDA as EBITDA without giving effect to items, including but not limited to professional fees associated with
acquisitions or financing transactions, gains on extinguishment of debt or other obligations related to acquisitions, losses on disposals or abandonment of
assets and leaseholds, severance and other similar expenses, but including partner incentive allocations, prior to our initial public offering, as an expense. We
use this non-GAAP financial measure to assess the strength of our business. These adjustments and the non-GAAP financial measures that are derived from
them provide supplemental information to analyze our business from period to period. Investors should consider these non-GAAP financial measures in
addition to, and not as a substitute for financial measures in accordance with GAAP. See “Supplemental Non-GAAP Financial Information” for a
reconciliation of non-GAAP financial measures.
(2)
Adjusted EBITDA margin, a non-GAAP measure of earnings, is calculated by dividing Adjusted EBITDA by total revenue.
(3) We have computed average assets under management by averaging assets under management at the beginning of the applicable period and assets under
management at the end of the applicable period.
39
Revenue
We generate revenue from management and advisory fees, performance fees and family office services fees. Our management and
advisory fees are generated by managing assets on behalf of separate accounts and acting as investment adviser for various investment
funds. Our performance fees relate to assets managed in external investment strategies in which we have a revenue sharing arrangement and
in funds in which we have no partnership interest. Our management and advisory fees and family office services fees income is recognized
through the course of the period in which these services are provided. Income from performance fees is recorded at the conclusion of the
contractual performance period when all contingencies are resolved. In certain arrangements, we are only entitled to receive performance
fees and allocations when the return on assets under management exceeds certain benchmark returns or other performance targets.
The discretionary investment management agreements for our separately managed accounts do not have a specified term. Rather,
each agreement may be terminated by either party at any time, unless otherwise agreed with the client, upon written notice of termination to
the other party. The investment management agreements for our private funds are generally in effect from year to year, and may be
terminated at the end of any year (or, in certain cases, on the anniversary of execution of the agreement) (i) by us upon 30 or 90 days’ prior
written notice and (ii) after receiving the affirmative vote of a specified percentage of the investors in the private funds that are not
affiliated with us, by the private fund on 60 or 90 days’ prior written notice. The investment management agreements for our private funds
may also generally be terminated effective immediately by either party where the non-terminating party (i) commits a material breach of
the terms subject, in certain cases, to a cure period, (ii) is found to have committed fraud, gross negligence or willful misconduct or
(iii) becomes bankrupt, becomes insolvent or dissolves. Each of our investment management agreements contains customary
indemnification obligations from us to our clients. The tables below set forth the amount of assets under management, the percentage of
management and advisory fees revenues, the amount of revenue recognized, and the average assets under management for discretionary
managed accounts and for private funds for each period presented.
Discretionary Managed Accounts
(in billions)
AUM concentrated in Discretionary Managed Accounts
Average AUM For Discretionary Managed Accounts
Discretionary Managed Accounts Revenue (in millions)
Percentage of management and advisory fees revenue
As of and for the Year Ended December 31,
2015
2016
2017
$
$
$
15.5
14.4
80.5
93%
$
$
$
13.3
12.2
69.1
92%
$
$
$
11.6
11.1
63.6
88%
Private Funds
(in billions)
AUM concentrated in Private Funds
Average AUM For Private Funds
Private Funds Revenue (in millions)
Percentage of management and advisory fees revenue
As of and for the Year Ended December 31,
2016
2017
2015
$
$
$
$
$
$
0.5
0.5
6.0
7%
$
$
$
0.5
0.5
7.1
8%
0.5
0.6
8.1
11%
Our advisory fees are primarily driven by the level of our assets under management. Our assets under management increase or
decrease based on the net inflows or outflows of funds into our various investment strategies and the investment performance of our
clients’ accounts. In order to increase our assets under management 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. Our ability to continue to
attract clients will depend on a variety of factors including, among others:
•
•
•
•
•
our ability to educate our target clients about our classic value investment strategies and provide them with exceptional client
service;
the relative investment performance of our investment strategies, as compared to competing products and market indices;
competitive conditions in the investment management and broader financial services sectors;
investor sentiment and confidence; and
our decision to close strategies when we deem it to be in the best interests of our clients.
40
The majority of advisory fees that we earn on separately managed accounts are based on the value of assets under management on
the last day of each calendar quarter. Most of our advisory fees are billed quarterly in advance on the first day of each calendar quarter. Our
basic annual fee schedule for management of clients’ assets in separately managed accounts is: (i) for managed equity or balanced
portfolios, 1% of the first $10 million and 0.60% on the balance, (ii) for managed fixed income only portfolios, 0.40% on the first $10
million and 0.30% on the balance, (iii) for the municipal value strategy, 0.65% and (iv) for outsourced chief investment officer portfolios,
0.40% on the first $50 million, 0.32% on the next $50 million and 0.24% on the balance . Our fee for monitoring non-discretionary assets
can range from 0.05% to 0.01%, but can also be incorporated into an agreed-upon fixed family office service fee. The majority of our client
relationships pay a blended fee rate since they are invested in multiple strategies.
Management fees earned on investment funds that we advise are calculated primarily based on the net assets of the funds. Some
funds calculate investment fees based on the net assets of the funds as of the last business day of each calendar quarter, whereas other
funds calculate investment fees based on the value of net assets on the first business day of the month. Depending on the investment fund,
fees are paid either quarterly in advance or quarterly in arrears. For our private funds, the fees range from 0.25% to 1.5% annually. Certain
management fees earned on investment funds for which we perform risk management and due diligence services are based on flat fee
agreements customized for each engagement.
Average management fee is calculated by dividing our actual revenue earned over a period by our average assets under management
during the same period (which is calculated by averaging quarter-end assets under management for the applicable period). Our average
management fee was 0.46%, 0.44% and 0.42% for the years ended December 31, 2017, 2016 and 2015, respectively. Changes in our total
average management fee rates are typically the result of changes in the mix of our assets under management and increased concentration in
our equities strategies whose fee rates are higher than those of other investment strategies. Advisory fees are also adjusted for any cash
flows into or out of a portfolio, where the cash flow represents greater than 10% of the previous quarter-end market value of the portfolio.
These cash flow-related adjustments were insignificant for the years ended December 31, 2017, 2016 and 2015. Silvercrest L.P. has
authority to take fees directly from external custodian accounts of its separately managed accounts.
Our advisory fees may fluctuate based on a number of factors, including the following:
•
•
•
•
changes in assets under management due to appreciation or depreciation of our investment portfolios, and the levels of the
contribution and withdrawal of assets by new and existing clients;
allocation of assets under management among our investment strategies, which have different fee schedules;
allocation of assets under management between separately managed accounts and advised funds, for which we generally earn
lower overall advisory fees; and
the level of our performance with respect to accounts and funds on which we are paid incentive fees.
Our family office services capabilities enable us to provide comprehensive and integrated services to our clients. Our dedicated
group of tax and financial planning professionals provide financial planning, tax planning and preparation, partnership accounting and fund
administration, and consolidated wealth reporting, among other services. Family office services income fluctuates based on both the
number of clients for whom we perform these services and the level of agreed-upon fees, most of which are flat fees. Therefore, non-
discretionary assets under management, which are associated with family office services, do not typically serve as the basis for the amount
of family office services revenue that is recognized.
Expenses
Our expenses consist primarily of compensation and benefits expenses, as well as general and administrative expense including rent,
professional services fees, data-related costs and sub-advisory fees. These 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 partners of Silvercrest L.P., changes in our employee count and mix, and competitive factors; and
the level of management fees from funds that utilize sub-advisors will affect the amount of sub-advisory fees.
41
Compensation and Benefits 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 principals and employees. Our compensation methodology is intended to meet the following
objectives: (i) support our overall business strategy; (ii) attract, retain and motivate top-tier professionals within the investment
management industry; and (iii) align our employees’ interests with those of our equity owners. We have experienced, and expect to
continue to experience, a general rise in compensation and benefits expense commensurate with growth in headcount and with the need to
maintain competitive compensation levels.
The components of our compensation and benefits expenses for the years ended December 31, 2017, 2016 and 2015 are as follows:
(in thousands)
Cash compensation and benefits (1)
Non-cash equity-based compensation expense
Total compensation expense
For the Year Ended December 31,
2016
2017
2015
$
$
50,895 $
3,248
54,143 $
45,781 $
3,228
49,009 $
41,332
1,524
42,856
(1)
For the years ended December 31, 2017, 2016 and 2015, $24,940, $20,868 and $18,535 of partner incentive payments were included in cash compensation
and benefits expense, respectively.
On February 29, 2012, February 28, 2011 and February 24, 2010, Silvercrest L.P. and Silvercrest GP LLC, our predecessor, granted
equity-based compensation awards to certain of their principals based on the fair value of the equity interests of Silvercrest L.P. and
Silvercrest GP LLC. Each grant included a deferred equity unit and performance unit, subject to forfeiture and acceleration of vesting. As a
result of the reorganization of Silvercrest L.P. and the initial public offering, each 100 deferred equity units represent the unsecured right to
receive 100 Class B units of Silvercrest L.P., subject to vesting over a four-year period beginning on the first anniversary of the date of
grant. Each deferred equity unit, whether vested or unvested, entitles the holder to receive distributions from Silvercrest L.P. as if such
holder held such unit. Upon each vesting date, a holder may receive the number of units vested or a combination of the equivalent cash
value of some of the units and units, but in no event may the holder receive more than 50% of the aggregate value of the vested units in
cash. To the extent that holders elect to receive up to 50% of the aggregate value of the vested units in cash, we could have less cash to
utilize. We have accounted for the distributions on the portion of the deferred equity units that are subject to forfeiture as compensation
expense. Equity-based compensation expense has been recognized on the February 29, 2012 grant date of the deferred equity unit and
performance unit awards through February 29, 2016.
Each performance unit represents the right to receive one Class B unit of Silvercrest L.P. for each two units of Silvercrest L.P. issued
upon vesting of the deferred equity units awarded to the employee, in each case subject to the achievement of defined performance goals.
Although performance units will only vest upon the achievement of the performance goals, they are expensed over the same vesting period
as the deferred equity units with which they are associated because there is an explicit service period.
During 2016 and 2015, Silvercrest L.P. granted restricted stock units (“RSU”) to existing Class B unit holders, certain members of
the board of directors, and a certain employee. Information regarding restricted stock units can be found in Note 16. “Equity Based
Compensation” in the “Notes to Consolidated Financial Statements” in “— Item 8. Financial Statements and Supplementary Data” of this
filing.
General and Administrative Expenses
General and administrative expenses include occupancy-related costs, professional and outside services fees, office expenses,
depreciation and amortization, sub-advisory fees and the costs associated with operating and maintaining our research, trading and portfolio
accounting systems. Our costs associated with operating and maintaining our research, trading and portfolio accounting systems and
professional services expenses generally increase or decrease in relative proportion to the number of employees retained by us and the
overall size and scale of our business operations. Sub-advisory fees will fluctuate based on the level of management fees from funds that
utilize sub-advisors.
42
Other Income
Other income is derived primarily from investment income arising from our investments in various private investment funds that
were established as part of our investment strategies. We expect the investment components of other income, in the aggregate, to fluctuate
based on market conditions and the success of our investment strategies. Performance fees earned from those investment funds in which we
have a partnership interest have been earned over the past few years as a result of the achievement of various high water marks depending
on the investment fund. These performance fees are recorded based on the equity method of accounting. The majority of our performance
fees over the past few years have been earned from our fixed income-related funds.
Non-Controlling Interests
We are the general partner of Silvercrest L.P. and control its business and affairs and, therefore, consolidate its financial results with
ours. In light of the limited partners’ interest in Silvercrest L.P., we reflect their partnership interests as non-controlling interests in our
Consolidated Financial Statements.
Provision for Income Tax
We are subject to taxes applicable to C-corporations. Our effective tax rate, and the absolute dollar amount of our tax expense, will
be offset by the benefits of the tax receivable agreement entered into with our Class B stockholders.
Acquisitions
On December 15, 2015, we executed an Asset Purchase Agreement (the “Cappiccille Asset Purchase Agreement”), by and among
Silvercrest, SLP, SAMG LLC and Cappiccille & Company, LLC (“Cappiccille”), and Michael Cappiccille, to acquire certain assets of
Cappiccille. The transaction contemplated by the Cappiccille Asset Purchase Agreement closed on January 11, 2016 and is referred to
herein as the “Cappiccille Acquisition”.
On March 30, 2015, we executed an Asset Purchase Agreement (the “Jamison Asset Purchase Agreement”), by and among
Silvercrest, Silvercrest L.P., SAMG LLC and Jamison Eaton & Wood, Inc. (“Jamison”), and Keith Wood, Ernest Cruikshank, III, William
F. Gadsden and Frederick E. Thalmann, Jr., each such individual a principal of Jamison, to acquire certain assets of Jamison. The
transaction contemplated by the Jamison Asset Purchase Agreement closed on June 30, 2015 and is referred to herein as the “Jamison
Acquisition”.
Information regarding the Cappiccille and Jamison Acquisitions can be found in Note 3. “Acquisitions” in the “Notes to Consolidated
Financial Statements” in “— Item 8. Financial Statements and Supplementary Data” of this filing.
Operating Results
Revenue
Our revenues for the years ended December 31, 2017, 2016 and 2015 are set forth below:
(in thousands)
Management and advisory fees
Performance fees and allocations
Family office services
Total revenue
(in thousands)
Management and advisory fees
Performance fees and allocations
Family office services
Total revenue
For the Years Ended December 31,
2017
2016
2017 vs. 2016 ($) 2017 vs. 2016 (%)
$
$
86,542 $
834
3,982
91,358 $
76,185 $
322
3,755
80,262 $
10,357
512
227
11,096
13.6%
159.0%
6.0%
13.8%
For the Years Ended December 31,
2016
2015
2016 vs. 2015 ($) 2016 vs. 2015 (%)
$
$
76,185 $
322
3,755
80,262 $
71,759 $
11
3,368
75,138 $
4,426
311
387
5,124
6.2%
NM
11.5%
6.8%
43
The growth in our assets under management from January 1, 2015 to December 31, 2017 is described below:
(in billions)
As of January 1, 2015
Gross client inflows
Gross client outflows
Market depreciation
As of December 31, 2015
Gross client inflows
Gross client outflows
Market appreciation (depreciation)
As of December 31, 2016
Gross client inflows
Gross client outflows
Market appreciation
As of December 31, 2017
(1)
Less than 5% of assets under management generate performance fees.
Discretionary
Assets Under Management
Non-
Discretionary
Total
11.6
4.3
(3.4)
(0.4)
12.1 $
4.6
(4.2)
1.3
13.8 $
6.8
(6.2)
1.6
16.0 $
6.3
0.3
(0.3)
(0.2)
6.0 $
0.3
(1.2)
(0.3)
4.8 $
0.5
(0.5)
0.5
5.3 $
17.9(1)
4.6
(3.7)
(0.7)
18.1(1)
4.9
(5.4)
1.0
18.6(1)
7.3
(6.7)
2.1
21.3(1)
$
$
44
PROPRIETARY EQUITY PERFORMANCE 1, 2
AS OF 12/31/17
INCEPTION
ANNUALIZED PERFORMANCE
1-YEAR
3-YEAR
5-YEAR
7-YEAR
INCEPTION
Large Cap Value Composite
Russell 1000 Value Index
Small Cap Value Composite
Russell 2000 Value Index
Smid Cap Value Composite
Russell 2500 Value Index
Multi Cap Value Composite
Russell 3000 Value Index
Equity Income Composite
Russell 3000 Value Index
Focused Value Composite
Russell 3000 Value Index
4/1/02
4/1/02
10/1/05
7/1/02
12/1/03
9/1/04
24.9
13.7
12.2
7.8
15.4
10.4
19.5
13.2
20.1
13.2
18.3
13.2
13.3
8.7
12.7
9.6
14.2
9.3
12.6
8.7
13.4
8.7
13.8
8.7
16.5
14.0
16.0
13.0
16.3
13.3
16.4
14.0
17.1
14.0
17.3
14.0
13.6
12.5
13.8
10.8
14.1
11.5
14.0
12.3
14.9
12.3
13.6
12.3
9.3
7.6
11.7
8.7
10.9
8.2
10.3
8.4
12.5
8.6
11.6
8.4
1
Returns are based upon a time weighted rate of return of various fully discretionary equity portfolios with similar investment objectives, strategies and policies
and other relevant criteria managed by Silvercrest Asset Management Group LLC (“SAMG LLC”), a subsidiary of Silvercrest. Performance results are gross
of fees and net of commission charges. An investor’s actual return will be reduced by the advisory fees and any other expenses it may incur in the
management of the investment advisory account. SAMG LLC’s standard advisory fees are described in Part 2 of its Form ADV. Actual fees and expenses
will vary depending on a variety of factors, including the size of a particular account. Returns greater than one year are shown as annualized compounded
returns and include gains and accrued income and reinvestment of distributions. Past performance is no guarantee of future results. This report contains no
recommendations to buy or sell securities or a solicitation of an offer to buy or sell securities or investment services or adopt any investment position. This
report is not intended to constitute investment advice and is based upon conditions in place during the period noted. Market and economic views are subject to
change without notice and may be untimely when presented here. Readers are advised not to infer or assume that any securities, sectors or markets described
were or will be profitable. SAMG LLC is an independent investment advisory and financial services firm created to meet the investment and administrative
needs of individuals with substantial assets and select institutional investors. SAMG LLC claims compliance with the Global Investment Performance
Standards (GIPS®).
2
The market indices used to compare to the performance of our strategies are as follows:
The Russell 1000 Index is a capitalization-weighted, unmanaged index that measures the 1000 smallest companies in the Russell 3000. The Russell 1000
Value Index is a capitalization-weighted, unmanaged index that includes those Russell 1000 Index companies with lower price-to-book ratios and lower
expected growth values.
The Russell 2000 Index is a capitalization-weighted, unmanaged index that measures the 2000 smallest companies in the Russell 3000. The Russell 2000
Value Index is a capitalization-weighted, unmanaged index that includes those Russell 2000 Index companies with lower price-to-book ratios and lower
expected growth values.
The Russell 2500 Index is a capitalization-weighted, unmanaged index that measures the 2500 smallest companies in the Russell 3000. The Russell 2500
Value Index is a capitalization-weighted, unmanaged index that includes those Russell 2000 Index companies with lower price-to-book ratios and lower
expected growth values.
The Russell 3000 Value Index is a capitalization-weighted, unmanaged index that measures those Russell 3000 Index companies with lower price-to-book
ratios and lower forecasted growth.
Year Ended December 31, 2017 versus Year Ended December 31, 2016
Our total revenue increased by $11.1 million, or 13.8%, to $91.4 million for year ended December 31, 2017, from $80.3 million for
year ended December 31, 2016. This increase was driven primarily by growth in our management and advisory fees as a result of increased
assets under management and performance fees earned.
45
Assets under management increased by $2.7 billion, or 14.5%, to $21.3 billion at December 31, 2017 from $18.6 billion at December
31, 2016. Our growth in assets under management for the year ended December 31, 2017 was attributable to an increase in discretionary
assets under management of $2.2 billion and an increase of $0.5 billion in non-discretionary assets under management. The growth in our
discretionary assets under management was driven by market appreciation and net client inflows. With respect to our discretionary assets
under management, equity assets grew by 19.1% during the year ended December 31, 2017 and fixed income assets grew by 14.0% during
the same period. With respect to our discretionary assets under management, most of our growth came from our core international, large
cap value, multi cap value and equity income strategies with composite returns of 26.2%, 24.9%, 20.2% and 20.2%, respectively, for the
year ended December 31, 2017. Compared to the year ended December 31, 2016, there was an increase of $2.4 billion of client inflows, an
increase of $1.3 billion in client outflows, and an increase of $1.1 billion in market appreciation. Our market appreciation during the year
ended December 31, 2017 constituted a 9.9% rate of increase in our total assets under management compared to December 31, 2016, as
compared to our market appreciation during the year ended December 31, 2016 which constituted a 5.5% rate of increase in our total assets
under management compared to December 31, 2015. Sub-advised fund management revenue remained flat for the year ended December
31, 2017 as compared to the prior year. Proprietary fund management revenue decreased by $0.1 million for the year ended December 31,
2017 as compared to the prior year. As of December 31, 2017, the composition of our assets under management was 75% in discretionary
assets, which includes both separately managed accounts and proprietary and sub-advised funds, and 25% in non-discretionary assets which
represent assets on which we provide portfolio reporting but do not have investment discretion.
Family office services revenue increased by $0.2 million or 6.0% to $4.0 million for the year ended December 31, 2017, from $3.8
million for the year ended December 31, 2016.
Performance fee revenue increased by $0.5 million to $0.8 million for the year ended December 31, 2017 from $0.3 million for the
year ended December 31, 2016. These performance fees are primarily related to external investment strategies in which we have a revenue
sharing arrangement.
Year Ended December 31, 2016 versus Year Ended December 31, 2015
Our total revenue increased by $5.1 million, or 6.8%, to $80.3 million for year ended December 31, 2016, from $75.2 million for
year ended December 31, 2015. This increase was driven primarily by growth in our management and advisory fees as a result of increased
assets under management mainly as a result of the Jamison Acquisition, and, to a lesser extent, by growth in our family office services fees,
mainly as a result of the Cappiccille Acquisition. Revenue related to the Jamison Acquisition for the year ended December 31, 2016 was
$4.9 million and for the six months ended December 31, 2015 was $2.6 million. Revenue related to the Cappiccille Acquisition for the
year ended December 31, 2016 was $0.6 million.
Assets under management increased by $0.5 billion, or 2.8%, to $18.6 billion at December 31, 2016 from $18.1 billion at December
31, 2015. Our growth in assets under management for the year ended December 31, 2016 was attributable to an increase in discretionary
assets under management of $1.7 billion partially offset by a decrease of $1.2 billion in non-discretionary assets under management. The
growth in our discretionary assets under management was primarily driven by net gross client inflows. With respect to our discretionary
assets under management, equity assets grew by 19.3% during the year ended December 31, 2016 and fixed income assets decreased by
2.8% during the same period. With respect to our discretionary assets under management, most of our growth came from our small cap
value, small cap concentrated, smid cap value and real estate investment trust strategies with composite returns of 30.5%, 30.3%, 29.8% and
24.4%, respectively, for the year ended December 31, 2016. Compared to the year ended December 31, 2015, there was an increase of
$0.3 billion of client inflows, an increase of $1.7 billion in client outflows, and an increase of $1.7 billion in market appreciation. Our
market appreciation during the year ended December 31, 2016 constituted a 5.5% rate of increase in our total assets under management
compared to December 31, 2015, as compared to our market depreciation during the year ended December 31, 2015 which constituted a
3.9% rate of decrease in our total assets under management compared to December 31, 2014. Sub-advised fund management revenue
decreased by $0.2 million for the year ended December 31, 2016 as compared to the prior year. Proprietary fund management revenue
decreased by $1.1 million for the year ended December 31, 2016 as compared to the prior year. As of December 31, 2016, the composition
of our assets under management was 74% in discretionary assets, which includes both separately managed accounts and proprietary and
sub-advised funds, and 26% in non-discretionary assets which represent assets on which we provide portfolio reporting but do not have
investment discretion.
Family office services revenue increased by $0.4 million or 11.5% to $3.8 million for the year ended December 31, 2016, from $3.4
million for the year ended December 31, 2015. The increase is primarily the result of the Cappiccille Acquisition.
Performance fee revenue increased by $0.3 million to $0.3 million for the year ended December 31, 2016 from $11 thousand for the
year ended December 31, 2015. These performance fees are primarily related to external investment strategies in which we have a revenue
sharing arrangement.
46
The following table represents a further breakdown of our assets under management for the years ended December 31, 2017, 2016
and 2015:
(in billions)
Total AUM as of January 1,
Discretionary AUM:
Total Discretionary AUM as of January 1,
New client accounts/assets
Closed accounts
Net cash inflow/(outflow)
Non-discretionary to Discretionary AUM
Market appreciation/(depreciation)
Change to Discretionary AUM
Total Discretionary AUM at December 31,
Change to Non-Discretionary AUM
Total AUM as of December 31,
$
For the Years Ended December 31,
2016
2017
2015
$
18.6 $
18.1 $
13.8
0.4
(0.1)
0.3
—
1.6
2.2
16.0
0.5
21.3 $
12.1
0.6
(0.1)
(0.2)
—
1.4
1.7
13.8
(1.2)
$
18.6
17.9
11.6
1.3 (1)
(0.2) (2)
(0.2) (3)
— (4)
(0.4)
0.5
12.1
)
(5)
(0.3
18.1
(1)
(2)
(3)
(4)
(5)
Represents new account flows from both new and existing client relationships
Represents closed accounts of existing client relationships and those that terminated
Represents periodic cash flows related to existing accounts
Represents client assets that converted to Discretionary AUM from Non-Discretionary AUM
Represents the net change to Non-Discretionary AUM
Expenses
Our expenses for the years ended December 31, 2017, 2016 and 2015 are set forth below:
(in thousands)
Compensation and benefits (1)
General and administrative
Total expenses
(in thousands)
Compensation and benefits (1)
General and administrative
Total expenses
For the Years Ended December 31,
2017
2016
2017 vs. 2016 ($) 2017 vs. 2016 (%)
$
$
54,143 $
16,846
70,989 $
49,009 $
16,617
65,626 $
5,134
229
5,363
10.5%
1.4%
8.2%
For the Years Ended December 31,
2016
2015
2016 vs. 2015 ($) 2016 vs. 2015 (%)
$
$
49,009 $
16,617
65,626 $
42,856 $
15,325
58,181 $
6,153
1,292
7,445
14.4%
8.4%
12.8%
(1)
For the years ended December 31, 2017 and 2016, $24,940 and $20,868, respectively, of partner incentive payments was included in compensation
and benefits expense.
Our expenses are driven primarily by our compensation costs. The table included in “—Expenses—Compensation and Benefits
Expense” describes the components of our compensation expense for the three years ended December 31, 2017. Other expenses, such as
rent, professional service fees, data-related costs, and sub-advisory fees incurred are included in our general and administrative expenses in
the Consolidated Statement of Operations.
Year Ended December 31, 2017 versus Year Ended December 31, 2016
Total expenses increased by $5.4 million, or 8.2%, to $71.0 million for the year ended December 31, 2017 from $65.6 million for the
year ended December 31, 2016. This increase was primarily attributable to increases in compensation and benefits expense of $5.1 million
and an increase in general and administrative expenses of $0.2 million.
47
Compensation and benefits expense increased by $5.1 million, or 10.5%, to $54.1 million for the year ended December 31, 201 7
from $49.0 million for the year ended December 31, 201 6. The increase was primarily attributable to an increase in the accrual for bonuses
of $4.3 million, an increase in benefits costs of $0.1 million and an increase in salaries expense of $0.7 million primarily as a result of
merit-based increases.
General and administrative expenses increased by $0.2 million, or 1.4%, to $16.8 million for the year ended December 31, 2017 from
$16.6 million for the year ended December 31, 2016. This increase was primarily due to an increase in occupancy and related costs of $0.6
million, an increase in professional fees of $0.2 million, an increase in travel and related expenses of $0.2 million, an increase in insurance
costs of $0.1 million, an increase in sub-advisory and referral fees of $0.1 million related to increased sub-advised revenue and an increase
in depreciation and amortization of $0.1 million. This was partially offset by a decrease in investment research costs of $0.5 million mainly
due to a reduction in soft dollar-related research cost conversions, a decrease in business taxes of $0.1 million, a decrease in client
reimbursements of $0.1 million, a decrease in the fair value of earnout payments related to the acquisitions of Milbank Winthrop & Co.
(“Milbank”) and Jamison of $0.3 million and a decrease in office expenses of $0.1 million. Information regarding acquisitions can be found
in Note 3. “Acquisitions” in the “Notes to Consolidated Financial Statements” in “— Item 8. Financial Statements and Supplementary
Data” of this filing.
Year Ended December 31, 2016 versus Year Ended December 31, 2015
Total expenses increased by $7.4 million, or 12.8%, to $65.6 million for the year ended December 31, 2016 from $58.2 million for
the year ended December 31, 2015. This increase was primarily attributable to increases in compensation and benefits expense of $6.1
million and an increase in general and administrative expenses of $1.3 million.
Compensation and benefits expense increased by $6.1 million, or 14.4%, to $49.0 million for the year ended December 31, 2016
from $42.9 million for the year ended December 31, 2015. The increase was primarily attributable to an increase in the accrual for bonuses
of $2.5 million, an increase in benefits costs of $0.2 million, an increase in equity-based compensation of $1.7 million due to the granting of
restricted stock units in August 2015 and May 2016 and an increase in salaries expense of $1.7 million primarily as a result of both merit-
based increases and increased headcount due to the Jamison and Cappiccille acquisitions.
General and administrative expenses increased by $1.3 million, or 8.4%, to $16.6 million for the year ended December 31, 2016 from
$15.3 million for the year ended December 31, 2015. This increase was primarily due to an increase in investment research costs of $0.2
million, mainly as a result of the Jamison Acquisition, an increase in occupancy and related costs of $0.1 million, an increase in client
reimbursements of $0.1 million, an increase in business taxes of $0.1 million, an increase to our accounts receivable reserve of $0.3 million
in conjunction with increased revenue levels, an increase in the fair value of earnout payments related to the acquisitions of Milbank
Winthrop & Co., (“Milbank”) and Jamison of $0.4 million and an increase in depreciation and amortization of $0.3 million due primarily to
intangibles acquired as part of the Jamison Acquisition. This was partially offset by a decrease in professional fees of $0.2
million. Information regarding acquisitions can be found in Note 3. “Acquisitions” in the “Notes to Consolidated Financial Statements” in
“— Item 8. Financial Statements and Supplementary Data” of this filing.
Other Income (Expense), Net
(in thousands)
Other income (expense), net
Interest income
Interest expense
Equity income from investments
Total other income (expense), net
For the Years Ended December 31,
2017
2016
2017 vs. 2016 ($) 2017 vs. 2016 (%)
$
$
5,346 $
47
(112)
615
5,896 $
(105) $
61
(228)
304
32
$
5,451
(14)
116
311
5,864
NM
-23.0%
50.9%
102.3%
NM
(in thousands)
Other income (expense), net
Interest income
Interest expense
Equity income from investments
Total other income (expense), net
NM – Not Meaningful
For the Years Ended December 31,
2016
2015
2016 vs. 2015 ($) 2016 vs. 2015 (%)
$
$
(105) $
61
(228)
304
32 $
1,268 $
72
(261)
18
1,097 $
(1,373)
(11)
33
286
(1,065)
-108.3%
-15.3%
-12.6%
NM
-97.1%
48
Year Ended December 31, 2017 versus Year Ended December 31, 2016
Other income (expense), net increased by $5.9 million to $5.9 million for the year ended December 31, 2017 from $32 thousand for
the year ended December 31, 2016 primarily due to a $5.3 million adjustment to the fair value of our tax receivable agreement liability as
of December 31, 2017. The adjustment in fair value is a result of a reduction in the future effective corporate tax rates at the federal level
and in New York City as a result of law changes. Equity income from investments increased by $0.3 million in 2017 as compared with the
same period in the prior year as a result of increased performance fee allocations. Interest expense decreased for the year ended December
31, 2017 as compared to the prior year as a result of payments made on notes payable resulting in lower outstanding balances.
Year Ended December 31, 2016 versus Year Ended December 31, 2015
Other income (expense), net decreased by $1.1 million to $32 thousand for the year ended December 31, 2016 from $1.1 million for
the year ended December 31, 2015 primarily due to a $1.3 million adjustment to the fair value of our tax receivable agreement liability as
of December 31, 2015. The adjustment in fair value is a result of a reduction in the future effective corporate tax rate in New York City as
a result of a law change. Equity income from investments increased by $0.3 million in 2016 as compared with the same period in the prior
year as a result of increased performance fee allocations. Interest expense decreased for the year ended December 31, 2016 as compared to
the prior year as a result of payments made on notes payable resulting in lower outstanding balances.
Provision for Income Taxes
Year Ended December 31, 2017 versus Year Ended December 31, 2016
The provision for income taxes was $13.7 million and $4.7 million for the year ended December 31, 2017 and 2016, respectively.
The change was a result of tax reform enacted in 2017 which resulted in a reduction in the future federal statutory corporate tax rate. This
change required a revaluation of the deferred tax assets attributable to Silvercrest which resulted in a significant discrete tax expense related
to the reduction in future tax benefits. Our provision for income taxes as a percentage of income before provision for income taxes for the
year ended December 31, 2017 and 2016 was 52.3% and 31.9%, respectively.
Year Ended December 31, 2016 versus Year Ended December 31, 2015
The provision for income taxes was $4.7 million and $7.0 million for the year ended December 31, 2016 and 2015, respectively. The
change was a result of both the recognition of decreased corporate income tax expense related to decreased profitability for the year ended
December 31, 2016 as compared with the comparable period in the prior year, and a decrease in deferred tax expense due to a discrete item
recorded during the year ended December 31, 2015 related to a reduction in future statutory corporate tax rates in New York City. Our
provision for income taxes as a percentage of income before provision for income taxes for the year ended December 31, 2016 and 2015
was 31.9% and 38.6%, respectively.
Supplemental Non-GAAP Financial Information
To provide investors with additional insight, promote transparency and allow for a more comprehensive understanding of the
information used by management in its financial and operational decision-making, we supplement our consolidated financial statements
presented on a basis consistent with U.S. generally accepted accounting principles, or GAAP, with Adjusted EBITDA, Adjusted EBITDA
margin, Adjusted Net Income, and Adjusted Earnings Per Share, which are non-GAAP financial measures of earnings.
•
•
EBITDA represents net income before provision for income taxes, interest income, interest expense, depreciation and
amortization.
We define Adjusted EBITDA as EBITDA without giving effect to the Delaware franchise tax, professional fees associated
with acquisitions or financing transactions, gains on extinguishment of debt or other obligations related to acquisitions,
impairment charges and losses on disposals or abandonment of assets and leaseholds, client reimbursements and fund
redemption costs, severance and other similar expenses, but including partner incentive allocations, prior to our initial public
offering, as an expense. We feel that it is important to management and investors to supplement our consolidated financial
statements presented on a GAAP basis with Adjusted EBITDA, a non-GAAP financial measure of earnings, as this measure
provides a perspective of recurring earnings of the Company, taking into account earnings attributable to both Class A and
Class B shareholders.
49
•
•
•
Adjusted EBITDA Margin is calculated by dividing Adjusted EBITDA by total revenue. We feel that it is important to
management and investors to supplement our consolidated financial statements presented on a GAAP basis with Adjusted
EBITDA Margin, a non-GAAP financial measure of earnings, as this measure provides a perspective of recurring profitability
of the Company, taking into account profitability attributable to both Class A and Class B shareholders.
Adjusted Net Income represents recurring net income without giving effect to professional fees associated with acquisitions
or financing transactions, losses on forgiveness of notes receivable from our principals, gains on extinguishment of debt or
other obligations related to acquisitions, impairment charges and losses on disposals or abandonment of assets and leaseholds,
client reimbursements and fund redemption costs, severance and other similar expenses, but including partner incentive
allocations, prior to our initial public offering, as an expense. Furthermore, Adjusted Net Income includes income tax expense
assuming a blended corporate rate of 40%. We feel that it is important to management and investors to supplement our
consolidated financial statements presented on a GAAP basis with Adjusted Net Income, a non-GAAP financial measure of
earnings, as this measure provides a perspective of recurring income of the Company, taking into account income attributable
to both Class A and Class B shareholders.
Adjusted Earnings Per Share represents Adjusted Net Income divided by the actual Class A and Class B shares outstanding as
of the end of the reporting period for basic Adjusted Earnings Per Share, and to the extent dilutive, we add unvested deferred
equity units and performance units to the total shares outstanding to compute diluted Adjusted Earnings Per Share. As a result
of our structure, which includes a non-controlling interest, we feel that it is important to management and investors to
supplement our consolidated financial statements presented on a GAAP basis with Adjusted Earnings Per Share, a non-
GAAP financial measure of earnings, as this measure provides a perspective of recurring earnings per share of the Company
as a whole as opposed to being limited to our Class A common stock.
These adjustments, and the non-GAAP financial measures that are derived from them, provide supplemental information to analyze
our operations between periods and over time. Investors should consider our non-GAAP financial measures in addition to, and not as a
substitute for, financial measures prepared in accordance with GAAP.
50
The following tables contain reconciliations of net income to Adjusted EBITDA, Adjusted Net Income and Adjusted Earnings Per
Share (amounts in thousands except per share amounts).
Adjusted EBITDA
Year Ended December 31,
2016
2017
2015
Reconciliation of non-GAAP financial measure:
Net income
GAAP Provision for income taxes
Delaware Franchise Tax
Interest expense
Interest income
Depreciation and amortization
Equity-based compensation
Other adjustments (A)
Adjusted EBITDA
Adjusted EBITDA Margin
Adjusted Net Income and Adjusted Earnings Per Share
Reconciliation of non-GAAP financial measure:
Net income
GAAP Provision for income taxes
Delaware Franchise Tax
Other adjustments (A)
Adjusted earnings before provision for income taxes
Adjusted provision for income taxes:
Adjusted provision for income taxes (40% assumed tax rate)
$
$
$
$
$
12,531
13,734
180
112
(47)
2,801
3,248
(4,672)
27,887
9,982
4,686
182
228
(61)
2,664
3,228
1,544
22,453
$
30.5%
$
28.0%
11,085
6,969
190
261
(72)
2,359
1,524
(458)
21,858
29.1%
$
$
12,531
13,734
180
(4,672)
21,773
9,982
4,686
182
1,544
16,394
11,085
6,969
190
(458)
17,786
(8,709)
(6,558)
(7,114)
Adjusted net income
$
13,064
$
9,836
$
10,672
GAAP net income per share (B):
Basic and diluted
Adjusted earnings per share/unit (B):
Basic
Diluted
Shares/units outstanding:
Basic Class A shares outstanding
Basic Class B shares/units outstanding
Total basic shares/units outstanding
Diluted Class A shares outstanding (C)
Diluted Class B shares/units outstanding (D)
Total diluted shares/units outstanding
(A)
Other adjustments consist of the following:
Client reimbursement
Acquisition costs (a)
Severance
Non-acquisition expansion costs (b)
Other (c)
Total other adjustments
$
$
$
0.66
$
0.62
$
0.68
0.99
0.95
$
$
0.76
0.72
$
$
0.84
0.78
8,142
5,059
13,201
8,148
5,545
13,693
8,074
4,866
12,940
8,085
5,595
13,680
7,990
4,695
12,685
7,990
5,666
13,656
Year Ended December 31,
2016
2017
2015
$
$
—
—
167
194
(5,033)
(4,672)
$
$
—
22
—
310
1,212
1,544
$
$
46
281
48
361
(1,194)
(458)
(a)
In 2016, represents legal fees of $12 related to the Cappiccille acquisition and professional fees of $10 related to the Jamison Acquisition. In
2015, primarily represents legal fees of $105 and other professional fees of $164 associated with the Jamison acquisition.
51
(b)
(c)
In 2017, represents $194 of accrued earnout r elated to our Richmond, VA office expansion . In 2016, represents $310 of accrued earnout related
to our Richmond, VA office expansion. In 2015, represents $292 of accrued earnout and $69 of professional fees related to our Richmond, VA
office expansion.
In 2017, represents a sign-on bonus paid to an employee of $207, professional fees of $18 related to a readiness assessment in advance of the
requirements of Section 404 of the Sarbanes-Oxley Act as it relates to emerging growth companies and professional fees of $27 related to a
technology initiative, compensatory incentive fees of $52 paid to a former Marathon Capital Group, LLC principal and a
the Cappiccille contingent purchase price consideration of $41. This was offset by a fair value adjustment to the Jamison contingent purchase
price consideration of ($79) and a true-up adjustment to our tax receivable agreement of ($5,299) . In 2016, represents a sign on bonus of $364
paid to a new employee, compensatory incentive fees of $322 paid to a former Marathon Capital Group, LLC principal, costs associated with the
upgrade of our telephone system of $82, software implementation costs of $13, professional fees related to a mock compliance audit of $78,
professional fees related to a mock Sarbanes 404 audit of $43, a fair value adjustment to the Milbank contingent purchase price consideration of
$80, a fair value adjustment to the Jamison contingent purchase price consideration of $79 and a true-up adjustment to our tax receivable
agreement of $152. This was partially offset by a fair value adjustment to the Cappiccille contingent purchase price consideration of ($7). In
2015, represents professional fees of $57 related to the initial award agreements of restricted stock unit grants, relocation expenses for a specific
partner of $28, software implementation costs of $40, professional fees of $49 related to a telecom project and compensatory incentive fees of
$11 paid to a former Marathon Capital Group, LLC principal. This was offset by a fair value adjustment to the Milbank contingent purchase
price consideration of ($82), a fair value adjustment to the Jamison contingent purchase price consideration of ($87) and a true-up adjustment to
our tax receivable agreement of ($1,209). The adjustment in fair value of the tax receivable agreement is the result in a reduction in future
effective corporate tax rate in New York City as a result of a law change. The reduction in the future effective corporate tax rate will result in less
tax benefits being recognized by the Company from future amortization reducing its liability pursuant to the tax receivable agreement.
fair value adjustment to
(B)
(C)
(D)
GAAP net income per share is strictly attributable to Class A shareholders. Adjusted earnings per share takes into account earnings attributable to both Class
A and Class B shareholders.
Includes 5,687 and 10,582 unvested restricted stock units at December 31, 2017 and 2016, respectively.
Includes 486,098 and 728,674 unvested restricted stock units at December 31, 2017 and 2016, respectively. Includes 4,911 unvested deferred equity units
and 966,510 unvested restricted stock units at December 31, 2015.
Liquidity and Capital Resources
Historically, the working capital needs of our business have primarily been met through cash generated by our operations. We expect
that our cash and liquidity requirements in the next twelve months will be met primarily through cash generated by our operations.
On June 24, 2013, the subsidiaries of Silvercrest L.P. entered into a $15.0 million credit facility with City National Bank. The
subsidiaries of Silvercrest L.P. are the borrowers under such facility and Silvercrest L.P. guarantees the obligations of its subsidiaries under
the credit facility. The credit facility is secured by certain assets of Silvercrest L.P. and its subsidiaries. The credit facility consists of a $7.5
million delayed draw term loan that matures on June 24, 2020 and a $7.5 million revolving credit facility that was scheduled to mature on
December 24, 2016. On December 21, 2017, the revolving credit facility was extended for one year to December 20, 2018. The loan
bears interest at either (a) the higher of the prime rate plus a margin of 0.05 percentage points and 2.5% or (b) the LIBOR rate plus 3
percentage points, at the borrowers’ option. As of December 31, 2017 and 2016, there were no borrowings outstanding on the revolving
credit facility. As of December 31, 2017 and 2016, no amount has been drawn on the term loan credit facility and the borrowers may draw
up to the full amount of the term loan through June 25, 2018. Borrowings under the term loan on or prior to June 24, 2015 will be payable
in twenty equal quarterly installments. Borrowings under the term loan after June 24, 2015 will be payable in equal quarterly installments
through the maturity date. The credit facility contains restrictions on, among other things, (i) incurrence of additional debt, (ii) creating
liens on certain assets, (iii) making certain investments, (iv) consolidating, merging or otherwise disposing of substantially all of our assets,
(v) the sale of certain assets, and (vi) entering into transactions with affiliates. In addition, the credit facility contains certain financial
covenants including a test on discretionary assets under management, maximum debt to EBITDA and a fixed charge coverage ratio. The
credit facility contains customary events of default, including the occurrence of a change in control which includes a person or group of
persons acting together acquiring more than 30% of total voting securities of Silvercrest. Any undrawn amounts under this facility would be
available to fund future acquisitions or for working capital purposes, if needed. We were in compliance with the covenants under the credit
facility as of December 31, 2017 and 2016.
Our ongoing sources of cash will primarily consist of management fees and family office services fees, which are principally
collected quarterly. We will primarily use cash flow from operations to pay compensation and related expenses, general and administrative
expenses, income taxes, debt service, capital expenditures, distributions to Class B unit holders and dividends on shares of our Class A
common stock.
Seasonality typically affects cash flow since the first quarter of each year, includes as a source of cash, the prior year’s annual
performance fee payments, if any, from our various funds and external investment strategies and, as a use of cash, the prior fiscal year’s
incentive compensation. We believe that we have sufficient cash from our operations to fund our operations and commitments for the next
twelve months.
52
The following table sets forth certain key financial data relating to our liquidity and capital resources as of December 31, 2017,
December 31, 2016 and December 31, 2015.
(in thousands)
Cash and cash equivalents
Accounts receivable
Due from Silvercrest Funds
2017
Years Ended December 31,
2016
2015
$
$
$
53,822 $
9,436 $
1,094 $
37,517 $
6,270 $
2,876 $
31,562
4,502
4,330
We anticipate that distributions to the Principals of Silvercrest L.P. will continue to be a material use of our cash resources and will
vary in amount and timing based on our operating results and dividend policy. We pay and intend to continue paying quarterly cash
dividends to holders of our Class A common stock. We are a holding company and have no material assets other than our ownership of
interests in Silvercrest L.P. As a result, we will depend upon distributions from Silvercrest L.P. to pay any dividends to our Class A
stockholders. We expect to cause Silvercrest L.P. to make distributions to us in an amount sufficient to cover dividends, if any, declared by
us. Our dividend policy has certain risks and limitations, particularly with respect to liquidity. Although we expect to pay dividends
according to our dividend policy, we may not pay dividends according to our policy, or at all, if, among other things, we do not have the
cash necessary to pay our intended dividends or our subsidiaries are prevented from making a distribution to us under the terms of our
current credit facility or any future financing. To the extent we do not have cash on hand sufficient to pay dividends, 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.
Our purchase of Class B units in Silvercrest L.P. that occurred concurrently with the consummation of our initial public offering, and
the future exchanges of Class B units of Silvercrest L.P., are expected to result in increases in our share of the tax basis of the tangible and
intangible assets of Silvercrest L.P. at the time of our acquisition and these future exchanges, which will increase the tax depreciation and
amortization deductions that otherwise would not have been available to us. These increases in tax basis and tax depreciation and
amortization deductions are expected to reduce the amount of tax that we would otherwise be required to pay in the future. We entered into
a tax receivable agreement with the current principals of Silvercrest L.P. and any future employee-holders of Class B units pursuant to
which we agreed 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
as a result of these increases in tax basis and certain other tax benefits related to entering into the tax receivable agreement, including tax
benefits attributable to payments thereunder. The timing of these payments is currently unknown. The payments to be made pursuant to the
tax receivable agreement will be a liability of Silvercrest and not Silvercrest L.P., and thus this liability has been recorded as an “other
liability” on our Consolidated Statement of Financial Condition. For purposes of the tax receivable agreement, cash savings in income tax
will be computed by comparing our actual income tax liability to the amount of such taxes that we would have been required to pay had
there been no increase in our share of the tax basis of the tangible and intangible assets of Silvercrest L.P.
The actual increase in tax basis, as well as the amount and timing of any payments under the tax receivable agreement, will vary
depending upon a number of factors, including the timing of exchanges, the price of shares 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 then applicable.
Nevertheless, we expect that as a result of the size of the increases in the tax basis of our tangible and intangible assets, the payments that
we may make under the tax receivable agreement likely will be substantial. Assuming no material changes in the relevant tax law and that
we earn sufficient taxable income to realize the full tax benefit of the increased depreciation and amortization of our assets, we expect that
future payments to the selling principals of Silvercrest L.P. in respect of our purchase of Class B units from them will aggregate
approximately $8.6 million. Future payments to current principals of Silvercrest L.P. and future holders of Class B units in respect of
subsequent exchanges would be in addition to these amounts and are expected to be substantial. We intend to fund required payments
pursuant to the tax receivable agreement from the distributions received from Silvercrest L.P.
53
Cash Flows
The following table sets forth our cash flows for the years ended December 31, 2017, 2016 and 2015. Operating activities consist of
net income subject to adjustments for changes in operating assets and liabilities, depreciation, and equity-based compensation expense.
Investing activities consist primarily of acquiring and selling property and equipment, distributions received from investments in
investment funds, and cash paid as part of business acquisitions. Financing activities consist primarily of contributions from partners,
distributions to partners, the issuance and payments on partner notes, other financings, and earnout payments related to business
acquisitions.
(in thousands)
Net cash provided by operating activities
Net cash used in investing activities
Net cash used in financing activities
Net change in cash
2017
Years Ended December 31,
2016
2015
$
$
29,586 $
(804)
(12,477)
16,305 $
17,978 $
(284)
(11,739)
5,955 $
16,243
(3,936)
(11,565)
742
Operating Activities
Year Ended December 31, 2017 versus Year Ended December 31, 2016
Operating activities provided $29.6 million and $18.0 million for the years ended December 31, 2017 and 2016, respectively. This
difference is primarily the result of an increase in net income of $2.5 million, increased prepaid expense and other assets of $3.5 million
due to the timing of certain payments to vendors, increased deferred rent of $3.5 million mainly related to the extension of the New York
City lease, an increase in deferred income taxes of $7.1 million primarily due to movements in discrete items recorded during 2017, an
increase in the change in accrued compensation of $2.4 million as a result of an increase in the incentive compensation pool, increased
distributions received from investment funds related to performance fees of $0.3 million and increased depreciation and amortization of
$0.1 million. These changes were partially offset by a change in the fair value adjustment to the tax receivable agreement of $5.5 million,
decreased accounts payable and accrued expenses of $1.7 million mainly due to the timing of payments to vendors, a decrease in bad debt
expense of $0.3 million, a decrease in equity income from investments related to performance fees of $0.3 million, an increase in accounts
receivable and due from Silvercrest funds of $0.8 million.
Year Ended December 31, 2016 versus Year Ended December 31, 2015
Operating activities provided $18.0 million and $16.2 million for the years ended December 31, 2016 and 2015, respectively. This
difference is primarily the result of a decrease in net income of $1.1 million, decreased prepaid expense and other assets of $0.2 million due
to the timing of certain payments to vendors, increased depreciation and amortization of $0.3 million due mainly to the amortization of
intangibles related to the Jamison Acquisition, a decrease in the tax receivable adjustment of $1.4 million, increased equity-based
compensation of $1.7 million related to the issuance of RSUs, increased accounts payable and accrued expenses of $0.9 million due mainly
to the timing of certain payments to vendors, an increase in the provision for doubtful accounts of $0.3 million and increased receivables
and due from Silvercrest funds of $0.1 million. These changes were partially offset by increased payouts of accrued compensation of $1.7
million, a decrease in distributions received from investment funds related to performance fees of $1.3 million and a decrease in deferred
income taxes of $1.9 million primarily due to movements in discrete items recorded during 2015 related to a reduction in future statutory
corporate tax rates in New York State and changes in the rules with respect to sourcing sales in New York City.
Investing Activities
Year Ended December 31, 2017 versus Year Ended December 31, 2016
For the years ended December 31, 2017 and 2016, investing activities used $0.8 million and $0.3 million, respectively. The primary
use of cash during 2017 was for the acquisition of furniture, equipment and leasehold improvements. The primary use of cash during 2016
was cash paid at closing for the Cappiccille Acquisition of $0.1 million and $0.7 million for the acquisition of furniture, equipment and
leasehold improvements partially offset by a reduction in restricted certificates of deposit of $0.6 million.
Year Ended December 31, 2016 versus Year Ended December 31, 2015
For the years ended December 31, 2016 and 2015, investing activities used $0.3 million and $3.9 million, respectively. The primary
use of cash during 2016 was cash paid at closing for the Cappiccille Acquisition of $0.1 million and $0.7 million for the acquisition of
furniture, equipment and leasehold improvements. This was partially offset by a reduction in restricted certificates of deposit of $0.6
million. The primary use of cash during 2015 was cash paid at the closing of the Jamison Acquisition of $3.5 million.
54
Financing Activities
Year Ended December 31, 2017 versus Year Ended December 31, 2016
For the years ended December 31, 2017 and 2016, financing activities used $12.5 million and $11.7 million, respectively. Dividends
of $3.9 million were paid during each of 2017 and 2016. Distributions to principals of Silvercrest L.P. of $6.2 million and $5.8 million
were paid during 2017 and 2016, respectively. Repayments of notes payable were $1.8 million in $2.2 million during 2017 and 2016,
respectively.
Year Ended December 31, 2016 versus Year Ended December 31, 2015
For the years ended December 31, 2016 and 2015, financing activities used $11.7 million and $11.6 million, respectively. Dividends
of $3.9 million and $3.8 million were paid during 2016 and 2015, respectively. Distributions to principals of Silvercrest L.P. increased
during 2016 by $0.2 million as compared to the previous year.
We anticipate that distributions to principals of Silvercrest L.P. will continue to be a material use of our cash resources, and will vary
in amount and timing based on our operating results and dividend policy.
As described below, we have outstanding fixed rate notes payable to Jamison, Eaton & Wood, Inc. and its principals and Ten-Sixty
Asset Management, LLC (“Ten-Sixty”) related to the Jamison and Ten-Sixty acquisitions, respectively, and variable rate notes issued to
former principals of Silvercrest L.P. to redeem units held by them under which we exercised our call right upon their
termination. Information regarding acquisitions can be found in Note 3. “Acquisitions” in the “Notes to Consolidated Financial
Statements” in “— Item 8. Financial Statements and Supplementary Data” of this filing.
The aggregate principal amount of the note related to the Ten-Sixty acquisition is payable in quarterly installments from
March 31, 2015 through March 31, 2017 of $0.1 million each.
As of December 31, 2017, the note payable related to the Ten-Sixty acquisition has been paid in full.
As of December 31, 2016, $0.1 million remained outstanding on the note payable related to the Ten-Sixty acquisition. The principal
amount outstanding under this note bears interest at the rate of 5% per annum. There was no accrued but unpaid interest on the note
payable related to the Ten-Sixty acquisition as of December 31, 2016.
As of December 31, 2017 and 2016, there were no borrowings outstanding on our revolving credit facility with City National Bank.
On June 3, 2013, we redeemed units from two of our former principals. In conjunction with this redemption, we issued promissory
notes with an aggregate principal amount of approximately $5.3 million, subject to downward adjustments to the extent of any breach by
the holders of such notes. The principal amounts of the notes were originally payable in four equal annual installments on each of June 3,
2014, 2015, 2016 and 2017. The principal amount outstanding under these notes bear interest at the U.S. Prime Rate plus 1% in effect at
the time payments are due. The June 3, 2014 payment was not made as it was being assessed as to whether the former principals had
complied with the note covenants and whether any reduction to these notes should be made. In October 2014, certain reductions totaling
$1.7 million were agreed to, based upon a review of the note covenants. As a result, the principal amounts of the notes of $3.6 are payable
in four equal installments of approximately $0.9 million on November 1, 2014, and on each of August 1, 2015, 2016 and 2017. The
principal amounts outstanding under these notes bear interest at the U.S. Prime Rate plus 1% in effect at the time payments are due. As of
December 31, 2017 and 2016, $0 and $0.9 million remained outstanding on these notes and accrued but unpaid interest was approximately
$0 and $17 thousand, respectively.
On June 30, 2015, we issued promissory notes in an aggregate principal amount of approximately $2.2 million in connection with the
Jamison Acquisition. The principal amount outstanding under the notes bears interest at 5%. The principal amounts of the notes are
payable in three equal installments of approximately $0.7 million on each of June 30, 2016, 2017 and 2018. As of December 31, 2017 and
2016, $0.7 million and $1.4 million remained outstanding on these notes and accrued but unpaid interest was $18 thousand and $36
thousand, respectively.
55
Contractual Obligations
The following table sets forth information regarding our consolidated contractual obligations as of December 31, 2017.
Operating leases (1)
Capital leases
Tax receivable agreement (2)
Notes payable
Total
Payments Due by Period
Less Than
Total
1 Year
1-3 Years
(in thousands)
3-5 Years
More Than
5 Years
$
$
60,247 $
299
8,653
722
69,921 $
2,034 $
157
789
722
3,702 $
12,347 $
113
1,135
—
13,595 $
12,269 $
29
1,191
—
13,489 $
33,597
—
5,538
—
39,135
(1)
(2)
In December 2015, we extended our lease for our New York City office space. The extended lease period begins October 1, 2017 and expires on September
30, 2028. The estimated payments for operating leases included above include amounts for this lease extension.
The estimated payments under the tax receivable agreement as of December 31, 2017 are described above under “Liquidity and Capital Resources”.
However, amounts payable under the tax receivable agreement will increase upon exchanges of Class B units for our Class A common stock, with the
increase representing 85% of the estimated future tax benefits, if any, resulting from the exchanges. The actual amount and timing of payments associated
with our existing payable under our tax receivable agreements or future exchanges, and associated tax benefits, will vary depending upon a number of factors
as described under “Liquidity and Capital Resources.”
Off-Balance Sheet Arrangements
We did not have any significant off-balance sheet arrangements as of December 31, 2017 or December 31, 2016.
Critical Accounting Policies and Estimates
The preparation of the consolidated financial statements requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial
statements and the reported amounts of revenues, expenses and other income reported in the consolidated financial statements and the
accompanying notes. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable
under current circumstances, our 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. Actual results could differ from those estimates. Significant estimates and assumptions made
by management include the fair value of acquired assets and liabilities, impairment of goodwill and intangible assets, revenue recognition,
equity based compensation, accounting for income taxes, and other matters that affect the consolidated financial statements and related
disclosures. Accounting policies are an integral part of our consolidated financial statements. An 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 and estimates discussed below involve additional management judgment due to the sensitivity of the methods and
assumptions used.
Business Combinations
We account for business combinations using the acquisition method of accounting. The acquisition method of accounting requires
that purchase price, including the fair value of contingent consideration, of the acquisition be allocated to the assets acquired and liabilities
assumed using the estimated fair values determined by management as of the acquisition date.
We measure the fair value of contingent consideration at each reporting period using a probability-adjusted discounted cash flow
method based on significant inputs not observable in the market and any change in the fair value from either the passage of time or events
occurring after the acquisition date, is recorded in earnings. In relation to our acquisitions of Milbank and Jamison, the fair value of the
contingent consideration was based on discounted cash flow models using projected EBITDA for each earnout period. The discount rate
applied to the projected EBITDA was determined based on our weighted average cost of capital and considered that the overall risk
associated with the payments was similar to the overall risks of our business as there is no target, floor or cap associated with the contingent
payments.
56
The excess of the purchase price over the fair value of the identifiable assets acquired, inc luding intangibles, and liabilities assumed
is recorded as goodwill. The Company generally uses valuation specialists to perform appraisals and assist in the determination of the fair
values of the assets acquired and liabilities assumed. These valuations require management to make estimates and assumptions that are
critical in determining the fair values of the assets and liabilities. During the measurement period, the Company may record adjustments to
the assets acquired and liabilities assumed. Any adjustments to provisional amounts that are identified during the measurement period are
recorded in the reporting period in which the adjustment amounts are determined. Upon the conclusion of the measurement period, any
subsequent adjustments are recorded to earnings.
Goodwill
Goodwill is not amortized but is evaluated for impairment at least annually, on October 1st of every year, or whenever events or
circumstances indicate that impairment may have occurred.
We account for Goodwill under Accounting Standard Codification (“ASC”) No. 350, “Intangibles - Goodwill and Other,” which
provides an entity the option to first perform a qualitative assessment of whether a reporting unit’s fair value is more likely than not less
than its carrying value, including goodwill. In performing its qualitative assessment, an entity considers the extent to which adverse events
or circumstances identified, such as changes in economic conditions, industry and market conditions or entity specific events, could affect
the comparison of the reporting unit’s fair value with its carrying amount. If an entity concludes that the fair value of a reporting unit is
more likely than not less than its carrying amount, the entity is required to perform the currently prescribed two-step goodwill impairment
test to identify potential goodwill impairment and, accordingly, measure the amount, if any, of goodwill impairment loss to be recognized
for that reporting unit. We utilized this option when performing our annual impairment assessment in 2017, 2016 and 2015, and concluded
that our single reporting unit’s fair value was more likely than not greater than its carrying value, including goodwill.
Revenue Recognition
Investment advisory fees are typically billed quarterly in advance at the beginning of the quarter or in arrears after the end of the
quarter, based on a contractual percentage of the assets managed. Family office services fees are also typically billed quarterly in advance at
the beginning of the quarter or in arrears after the end of the quarter based on a contractual percentage of the assets managed or upon a
contractually agreed-upon flat fee arrangement. Revenue is recognized on a ratable basis over the period in which services are performed.
We account for performance-based revenue in accordance with ASC 606-10-32, Accounting for Management Fees Based on a
Formula, by recognizing performance fees and allocations as revenue only when it is certain that the fee income is earned and payable
pursuant to the relevant agreements. In certain arrangements, we are only entitled to receive performance fees and allocations when the
return on assets under management exceeds certain benchmark returns or other performance targets. We record performance fees and
allocations as a component of revenue once the performance fee has crystallized. As a result, there is no estimate or variability in the
consideration when revenue is recorded.
Because the majority of our revenues are earned based on assets under management that have been determined using fair value
methods and since market appreciation/depreciation has a significant impact on our revenue, we have presented our assets under
management using the GAAP framework for measuring fair value. That framework provides a three-level fair value hierarchy that
prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted
prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs based on company
assumptions (Level 3). A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is
significant to the instrument’s fair value measurement. The three levels within the fair value hierarchy are described as follows:
•
•
•
Level 1—includes quoted prices (unadjusted) in active markets for identical instruments at the measurement date. The types
of financial instruments included in Level 1 include unrestricted securities, including equities listed in active markets.
Level 2—includes inputs other than quoted prices that are observable for the instruments, including quoted prices for similar
instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, or inputs other
than quoted prices that are observable for the instruments. The type of financial instruments in this category include less
liquid and restricted securities listed in active markets, securities traded in other than active markets, government and agency
securities, and managed funds whose net asset value is based on observable inputs.
Level 3—includes one or more significant unobservable inputs. Financial instruments that are included in this category
include assets under management primarily comprised of investments in privately held entities, limited partnerships, and
other instruments where the fair value is based on unobservable inputs.
57
The table below summarizes the approximate amount of assets under management for the periods indicated for which fair value is
measured based on Level 1, Level 2 and Level 3 inputs.
December 31, 2017 AUM
December 31, 2016 AUM
Level 1
Level 2
Level 3
Total
$
$
16.2 $
13.8 $
(in billions)
3.0 $
2.8 $
2.1 $
2.0 $
21.3
18.6
As substantially all our assets under management are valued by independent pricing services based upon observable market prices or
inputs, we believe market risk is the most significant risk underlying valuation of our assets under management, as discussed under the
heading “Risk Factors” in this annual report.
The average value of our assets under management for the year ended December 31, 2017 was approximately $20.0 billion.
Assuming a 10% increase or decrease in our average assets under management and the change being proportionately distributed over all our
products, the value would increase or decrease by approximately $2.0 billion for the year ended December 31, 2017, which would cause an
annualized increase or decrease in revenues of approximately $9.1 million for the year ended December 31, 2017, at a weighted average fee
rate for the year ended December 31, 2017 of 0.46%.
The average value of our assets under management for the year ended December 31, 2016 was approximately $18.4 billion.
Assuming a 10% increase or decrease in our average assets under management and the change being proportionately distributed over all our
products, the value would increase or decrease by approximately $1.8 billion for the year ended December 31, 2016, which would cause an
annualized increase or decrease in revenues of approximately $8.0 million for the year ended December 31, 2016, at a weighted average fee
rate for the year ended December 31, 2016 of 0.44%.
Equity-Based Compensation
Deferred Equity Units
Equity-based compensation costs relating to the issuance of share-based awards to principals are based on the fair value of the award
at the date of grant, which is expensed ratably over the requisite service period, net of estimated forfeitures. Prior to our initial public
offering, the fair value of the award was based upon the calculation of a per unit limited partnership interest of Silvercrest L.P. company
utilizing both discounted cash flow and guideline company valuation methodologies. Subsequent to our initial public offering, the fair
value of the award is based upon the per share price of our Class A common stock. The forfeiture assumption is ultimately adjusted to the
actual forfeiture rate. Therefore, changes in the forfeiture assumptions may affect the timing of the total amount of expense recognized over
the vesting period. The service period is the period over which the employee performs the related services, which is normally the same as
the vesting period. Equity-based awards that do not require future service are expensed immediately. Equity-based awards that have the
potential to be settled in cash at the election of the employee are classified as liabilities, or Liability Awards, and are adjusted to fair value
at the end of each reporting period.
In order to determine the fair value of our limited partnership interests underlying equity-based compensation awards issued prior to
our initial public the offering, we first determined the market value of our invested capital, or MVIC. Our MVIC was estimated using a
combination of two generally accepted approaches: the income approach using the discounted cash flow method, or DCF, and the market-
based approach using the comparable company method. The DCF method estimates enterprise value based on the estimated present value
of future net cash flows the business is expected to generate over a forecasted period and an estimate of the present value of cash flows
beyond that period, which is referred to as terminal value. The estimated present value is calculated using our weighted average cost of
capital, which accounts for the time value of money and the appropriate degree of risks inherent in the business. The market-based
approach considers multiples of financial metrics based trading multiples of a selected peer group of companies. These multiples are then
applied to our financial metrics to derive a range of indicated values. Once calculated, the discounted cash flow and comparable company
methods are then weighted. Estimates of the volatility of our limited partnership interests were based on available information regarding
the volatility of common stock of comparable, publicly traded companies.
58
Prior to our initial public offering, the fair value of the limited partnership interests underlying equity-based compensation awards
were determined in accordance with the guidelines outlined in the American Institute of Certified Public Accountants Practice Aid,
“Valuation of Privately Held Company Equity Securities Issued as Compensation.” The assumptions we used in the valuation model were
based on future expectations combined with management judgment. Because there had been no public market for our limited partnership
units, management exercised significant judgment and considered numerous objective and subjective factors to determine the fair value of
our limited partnership interests as of the date of each equity-based compensation award grant, including the following factors:
•
•
•
•
•
•
•
•
•
the provisions of our limited partnership agreement;
our operating and financial performance;
current business conditions and projections;
lack of control discount;
lack of marketability discount;
the likelihood of achieving a liquidity event for the limited partnership interests underlying these equity-based compensation
awards, such as an initial public offering or sale of our company, given prevailing market conditions;
historical trading activity of comparable publicly traded companies;
the market performance of comparable publicly traded companies; and
the U.S. and global capital market conditions.
In February 2010, we granted 15,808 units with fair value at grant date of $68.36 per unit. By February 2011, U.S. markets improved
which resulted in an increase in our valuation and the market value of comparable companies. As a result of these factors in addition to
organic growth, we projected increases in our budget for 2011 as compared to our actual performance in 2010. In February 2011, we
granted 10,802 units with fair value at grant date of $148.35 per unit. Our valuation determined a MVIC by weighting the DCF approach at
50% and the market-based approach at 50%. Our MVIC reflected a discount for lack of control of 13% based on the existence of a non-
managing partnership interest and a discount for lack of marketability of 20% based on a liquidity event expected to occur within
approximately twelve months. In February 2012, we granted 1,000 units with fair value at grant date of $207.71 per unit. The U.S. markets
continued to improve into the first quarter of 2012 as compared to the end of 2011. As a result, we projected increases in our 2012 budget
as compared to actual performance in 2011. Our valuation for the February 2012 grants was determined using a market-based approach.
As of December 31, 2017, there are no outstanding deferred equity units.
Restricted Stock Units
On November 2, 2012, our board of directors adopted the 2012 Equity Incentive Plan.
Information regarding restricted stock units can be found in Note 16. “Equity Based Compensation” in the “Notes to Consolidated
Financial Statements” in “— Item 8. Financial Statements and Supplementary Data” of this filing.
Income Taxes
Silvercrest L.P., our operating company, is not subject to federal and state income taxes, since all income, gains and losses are passed
through to its partners. Our operating company is subject to New York City Unincorporated Business Tax. We, including our affiliated
incorporated entities, are subject to federal and state corporate income tax, which requires an asset and liability approach to the financial
accounting and reporting of income taxes. With respect to our incorporated entities, the annual tax rate is based on the income, statutory tax
rates and tax planning opportunities available in the various jurisdictions in which we operate. Tax laws are complex and subject to different
interpretations by the taxpayer and respective governmental taxing authorities. Judgment is required in determining the tax expense and in
evaluating tax positions. The tax effects of an uncertain tax position, or UTP, taken or expected to be taken in income tax returns are
recognized only if it is “more likely-than-not” to be sustained on examination by the taxing authorities, based on its technical merits as of
the reporting date. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit
that has a greater than 50% likelihood of being realized upon ultimate settlement. We recognize estimated interest and penalties related to
UTPs in income tax expense.
59
We recognize the benefit of a UTP in the period when it is effectively settled. Previously recognized tax positions are derecognized
in the first period in which it is no longer more likely than not that the tax position would be sustained upon examination.
Recently Issued Accounting Pronouncements
Information regarding recent accounting developments and their impact on Silvercrest can be found in Note 2. “Summary of
Significant Accounting Policies” in the “Notes to Consolidated Financial Statements” in “— Item 8. Financial Statements and
Supplementary Data” of this filing.
Item 7A. Qualitative and Quantitative Disclosures Regarding Market Risk
Our exposure to market risk is directly related to our role as investment adviser for the separate accounts we manage and the funds
for which we act as sub-investment adviser. Most of our revenue for the years ended December 31, 2017, 2016 and 2015 was derived from
advisory fees, which are typically based on the market value of assets under management. 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. Due to the nature of our business, we believe that we do not face any material risk from inflation. Please see our
discussion of market risks in “—Critical Accounting Policies and Estimates—Revenue Recognition” which is part of Item 7.
“Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
Item 8. Financial Statements and Supplementary Data.
See “Index to Consolidated Financial Statements” which appears on page F-1 of this report.
Item 9A. Controls and Procedures
Disclosure Controls and Procedures
Our management, including our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure
controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act of 1934, as amended)
at December 31, 2017. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our
disclosure controls and procedures were effective at December 31, 2017.
Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the quarter ended December 31, 2017 that
have materially affected or are reasonably likely to materially affect our internal control over financial reporting.
Report of Management on Internal Control Over Financial Reporting
Company management is responsible for establishing and maintaining effective internal control over financial reporting as defined in
Rule 13a-15(f) under the Exchange Act. Our 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
accounting principles generally accepted in the United States. There are inherent limitations in the effectiveness of internal control over
financial reporting, including the possibility that misstatements may not be prevented or detected. Accordingly, even effective internal
control over financial reporting can provide only reasonable assurance with respect to financial statement preparation. Furthermore, the
effectiveness of internal controls can change with circumstances. Company management, including our Chief Executive Officer and Chief
Financial Officer, evaluated the effectiveness of our internal control over financial reporting as of December 31, 2017, based on the 2013
version of the Internal Control - Integrated Framework set forth by the Committee of Sponsoring Organizations of the Treadway
Commission in Internal Control - Integrated Framework (2013). Based on that assessment, management concluded that our internal control
over financial reporting was effective as of December 31, 2017.
This annual report does not include an attestation report of our registered public accounting firm due to our status as an emerging
growth company.
60
PART III.
Item 10. Directors, Executive Officers and Corporate Governance
Information required by this item will be included in our definitive Proxy Statement for our 2018 Annual Meeting of Stockholders,
which will be filed within 120 days of the end of our fiscal year ended December 31, 2017 (“2018 Proxy Statement”) and is incorporated
herein by reference.
Item 11. Executive Compensation
Information required by this item will be included in the 2018 Proxy Statement and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Information required by this item will be included in the 2018 Proxy Statement and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence
Information required by this item will be included in the 2018 Proxy Statement and is incorporated herein by reference.
Item 14. Principal Accounting Fees and Services
Information required by this item will be included in the 2018 Proxy Statement and is incorporated herein by reference.
61
PART IV.
Item 15. Exhibits, Financial Statement Schedules.
(a)
The following documents are filed as part of this Annual Report on Form 10-K:
(1)
Financial Statements
(i)
Consolidated Statements of Financial Condition as of December 31, 2017 and 2016
(ii) Consolidated Statements of Operations for the years ended December 31, 2017, 2016 and 2015
(iii) Consolidated Statements of Changes in Equity for the years ended December 31, 2017, 2016 and 2015
(iv) Consolidated Statements of Cash Flows for the years ended December 31, 2017, 2016 and 2015
(v) Notes to Consolidated Financial Statements
(2)
Financial Statement Schedules
There are no Financial Statement Schedules filed as part of this Annual Report on 10-K, as the required information is not
applicable.
(b) Exhibit Index:
Exhibit
Number
3.1*
3.2*
4.1*
4.2*
4.3*
4.4*+
10.1*
10.2*
10.3*+
10.5*
10.6*
10.7*+
10.8*
Description
Second Amended and Restated Certificate of Incorporation of Silvercrest Asset Management Group Inc. (incorporated by
reference to Exhibit 3.1 to the Registrant’s Registration Statement on Form S-1 filed April 19, 2013).
Bylaws of Silvercrest Asset Management Group Inc. (incorporated by reference to Exhibit 3.2 to the Registrant’s
Registration Statement on Form S-1 filed April 19, 2013).
Specimen Stock Certificate for Shares of Class A Common Stock (incorporated by reference to Exhibit 4.1 to the
Registrant’s Registration Statement on Form S-1 filed April 19, 2013).
Exchange Agreement (incorporated by reference to Exhibit 4.2 to the Registrant’s Registration Statement on Form S-1 filed
April 19, 2013).
Resale and Registration Rights Agreement (incorporated by reference to Exhibit 4.3 to the Registrant’s Registration
Statement on Form S-1 filed April 19, 2013).
2012 Equity Incentive Plan (incorporated by reference to Exhibit 4.4 to the Registrant’s Registration Statement on Form S-
1 filed April 19, 2013).
Form of Second Amended and Restated Limited Partnership Agreement of Silvercrest L.P. (incorporated by reference to
Exhibit 10.1 to the Registrant’s Registration Statement on Form S-1 filed April 19, 2013).
Tax Receivable Agreement (incorporated by reference to Exhibit 10.2 to the Registrant’s Registration Statement on Form
S-1 filed April 19, 2013).
Form of Indemnification Agreement with Directors (incorporated by reference to Exhibit 10.3 to the Registrant’s
Registration Statement on Form S-1 filed April 19, 2013).
Credit Agreement (incorporated by reference to Exhibit 10.5 to the Registrant’s Registration Statement on Form S-1 filed
June 25, 2013).
First Amendment to Credit Agreement (incorporated by reference to Exhibit 4.1 to the Registrant’s Form 8-K filed on
December 23, 2016).
Form of 2012 Equity Incentive Plan Class B Restricted Stock Unit Award Agreement. (incorporated by reference to Exhibit
10.6 to the Registrant’s Form 10-Q filed on August 6, 2015).
First Amendment to Lease, dated December 23, 2015, by and between RXR 1330 Owner LLC and Silvercrest Asset
Management Group LLC (incorporated by reference to Exhibit 10.7 to the Registrant’s Form 10-K filed on March 10,
2016).
62
Exhibit
Number
10.9*
Third Amendment to Credit Agreement (incorporated by reference to Exhibit 4.1 to the Registrant’s Form 8-K filed on
December 21, 2017).
Description
21.1**
List of subsidiaries
23.1**
Consent of Deloitte & Touche LLP
24.1**
Power of Attorney (included in the Form 10-K under “Signatures”).
31.1**
31.2**
32.1***
32.2***
Certification of the Company’s Chief Executive Officer pursuant to Exchange Act Rules 13a-14(a)/15d-14(a), as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of the Company’s Chief Financial Officer pursuant to Exchange Act Rules 13a-14(a)/15d-14(a), as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of the Company’s Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
Certification of the Company’s Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
101.INS** XBRL Instance Document
101.SCH** XBRL Taxonomy Extension Schema Document
101.CAL** XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB** XBRL Taxonomy Extension Label Linkbase Document
101.PRE** XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF** XBRL Taxonomy Extension Definition Linkbase Document
Previously filed
*
**
Filed herewith
*** Furnished herewith
+
Constitutes a management contract or compensatory plan or arrangement.
Item 16. Form 10-K Summary.
None.
63
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized, in the city of New York, state of New York on March 9, 2018.
SIGNATURES
SILVERCREST ASSET MANAGEMENT GROUP INC.
By: /s/ Richard R. Hough III
Richard R. Hough III
Chairman, Chief Executive Officer and President
By: /s/ Scott A. Gerard
Scott A. Gerard
Chief Financial Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Richard R.
Hough III and Scott A. Gerard his true and lawful attorneys-in-fact and agents, with full power to act separately and full power of
substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this
Annual Report on Form 10-K for the year ended December 31, 2017 and to file the same, with all exhibits thereto, and all other documents
in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and
authority to do and perform each and every act in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or his
substitute or substitutes may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf
of the Registrant and in the capacities indicated on the 9th day of March, 2018:
Signature
/s/ Richard R. Hough III
Richard R. Hough III
/s/ Scott A. Gerard
Scott A. Gerard
/s/ Albert S. Messina
Albert S. Messina
/s/ Winthrop B. Conrad, Jr.
Winthrop B. Conrad, Jr.
/s/ Brian D. Dunn
Brian D. Dunn
/s/ Wilmot H. Kidd III
Wilmot H. Kidd III
Title
Date
(Principal Executive Officer), Chairman and Director
March 9, 2018
(Principal Financial and Accounting Officer)
March 9, 2018
Managing Director, Portfolio Manager and Director
March 9, 2018
Director
Director
Director
64
March 9, 2018
March 9, 2018
March 9, 2018
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Silvercrest Asset Management Group Inc.
Report of Independent Registered Public Accounting Firm
Consolidated Statements of Financial Condition as of December 31, 2017 and December 31, 2016
Consolidated Statements of Operations for the years ended December 31, 2017, 2016 and 2015
Consolidated Statements of Changes in Equity for the years ended December 31, 2017, 2016 and 2015
Consolidated Statements of Cash Flows for the years ended December 31, 2017, 2016 and 2015
Notes to Consolidated Financial Statements
F– 2
F– 3
F– 4
F– 5
F– 6
F– 8
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Silvercrest Asset Management Group Inc:
Opinion on the Financial Statements
We have audited the accompanying consolidated statements of financial condition of Silvercrest Asset Management Group Inc. and
subsidiaries (the "Company") as of December 31, 2017 and 2016, the related consolidated statements of operations, changes in
stockholders’ equity, and cash flows, for each of the three years in the period ended December 31, 2017, and the related notes to the
consolidated financial statements (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated
financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and
the results of their operations and their cash flows for each of the three years in the period ended December 31, 2017, in conformity with
the accounting principles generally accepted in the United States of America.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on
the Company's consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company
Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with
the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or
fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As
part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of
expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such
opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether
due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence
regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial
statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Deloitte & Touche LLP
New York, New York
March 9, 2018
We have served as the Company’s auditor since 2006.
F-2
Silvercrest Asset Management Group Inc.
Consolidated Statements of Financial Condition
(In thousands, except share data)
December 31,
2017
December 31,
2016
Assets
Cash and cash equivalents
Investments
Receivables, net
Due from Silvercrest Funds
Furniture, equipment and leasehold improvements, net
Goodwill
Intangible assets, net
Deferred tax asset—tax receivable agreement
Prepaid expenses and other assets
Total assets
Liabilities and Equity
Accounts payable and accrued expenses
Accrued compensation
Notes payable
Deferred rent
Deferred tax and other liabilities
Total liabilities
Commitments and Contingencies (Note 10)
Equity
Preferred Stock, par value $0.01, 10,000,000 shares authorized; none issued and outstanding
Class A Common Stock, par value $0.01, 50,000,000 shares authorized; 8,142,120 and 8,074,197 issued and
$
$
$
outstanding as of December 31, 2017 and 2016, respectively
Class B Common Stock, par value $0.01, 25,000,000 shares authorized; 5,059,319 and 4,866,303 issued and
53,822 $
626
9,436
1,094
2,453
25,168
11,578
11,838
1,345
117,360 $
3,506 $
28,274
740
3,473
9,248
45,241
37,517
335
6,270
2,876
2,411
25,168
13,404
20,221
4,079
112,281
4,485
23,797
2,486
436
14,993
46,197
—
81
—
81
outstanding as of December 31, 2017 and 2016, respectively
Additional Paid-In Capital
Retained earnings
Total Silvercrest Asset Management Group Inc.’s equity
Non-controlling interests
Total equity
Total liabilities and equity
49
41,606
7,359
49,095
23,024
72,119
117,360 $
48
41,260
5,916
47,305
18,779
66,084
112,281
$
See accompanying notes to consolidated financial statements.
F-3
Silvercrest Asset Management Group Inc.
Consolidated Statements of Operations
(In thousands, except share and per share data)
Revenue
Management and advisory fees
Performance fees and allocations
Family office services
Total revenue
Expenses
Compensation and benefits
General and administrative
Total expenses
Income before other income (expense), net
Other income (expense), net
Other income (expense), net
Interest income
Interest expense
Equity income from investments
Total other income (expense), net
Income before provision for income taxes
Provision for income taxes
Net income
Less: net income attributable to non-controlling interests
Net income attributable to Silvercrest
Net income per share:
Basic
Diluted
Weighted average shares outstanding:
Basic
Diluted
$
$
$
$
For the year ended December 31,
2016
2017
2015
86,542 $
834
3,982
91,358
54,143
16,846
70,989
20,369
5,346
47
(112)
615
5,896
26,265
(13,734)
12,531
76,185 $
322
3,755
80,262
49,009
16,617
65,626
14,636
(105)
61
(228)
304
32
14,668
(4,686)
9,982
(7,194)
5,337 $
(4,967)
$
5,015
71,759
11
3,368
75,138
42,856
15,325
58,181
16,957
1,268
72
(261)
18
1,097
18,054
(6,969)
11,085
(5,761)
5,324
0.66 $
0.66 $
0.62 $
0.62 $
0.68
0.68
8,110,128
8,117,407
8,031,161
8,038,177
7,855,038
7,855,038
See accompanying notes to consolidated financial statements.
F-4
Silvercrest Asset Management Group Inc.
Consolidated Statements of Changes in Equity
(In thousands)
December 31, 2014
Distributions to partners
Equity-based compensation
Repayment of notes receivable from partners
Net Income
Deferred tax, net of amounts payable under
tax receivable agreement
Accrued interest on notes receivable from
partners
Share Conversion
Issuance of Class B shares in connection with
the Jamison Acquisition
Dividends paid on Class A common
stock - $0.48 per share
December 31, 2015
Distributions to partners
Contributions from partners
Issuance of notes receivable by partners
Equity-based compensation
Repayment of notes receivable from partners
Net Income
Deferred tax, net of amounts payable under
tax receivable agreement
Accrued interest on notes receivable from
partners
Share Conversion
Dividends paid on Class A common
stock - $0.48 per share
December 31, 2016
Distributions to partners
Issuance of Class B shares
Issuance of notes receivable by partners
Equity-based compensation
Repayment of notes receivable from partners
Net Income
Deferred tax, net of amounts payable under
tax receivable agreement
Accrued interest on notes receivable from
partners
Share Conversion
Dividends paid on Class A common
stock - $0.48 per share
December 31, 2017
Class A
Common
Stock
Shares
Class A
Common
Stock Amount
78
—
—
—
—
7,768 $
—
—
—
—
Class B
Common
Stock
Shares
Class B
Common
Stock Amount
46 $
—
—
—
—
4,520 $
—
127
—
—
—
—
222
—
—
7,990 $
—
—
—
—
—
—
—
—
84
—
8,074 $
—
—
—
5
—
—
—
—
63
—
8,142
—
—
2
—
—
80
—
—
—
—
—
—
—
—
1
—
81
—
—
—
—
—
—
—
—
—
—
81
—
—
(211 )
259
—
4,695 $
—
9
—
246
—
—
—
—
(84 )
—
4,866 $
—
13
—
243
—
—
—
—
(63 )
—
5,059
—
—
(3 )
3
—
46 $
—
1
—
2
—
—
—
—
(1 )
—
48 $
—
—
—
1
—
—
—
—
—
—
49
Additional
Paid-In
Capital
Retained
Earnings
Total
Silvercrest Asset
Management
Group Inc.’s
Equity
Non-
controlling
Interest
Total
Equity
39,175 $
—
—
—
—
1,049
—
727
—
—
40,951 $
—
—
—
42
—
—
9
—
258
—
41,260 $
—
—
—
38
—
—
23
—
285
3,217 $
—
—
—
5,324
—
—
—
—
(3,783 )
4,758 $
—
—
—
—
—
5,015
—
—
—
(3,857 )
5,916 $
—
—
—
—
—
5,337
—
—
—
42,516 $
—
—
—
5,324
10,546 $
(5,546 )
1,782
489
5,761
53,062
(5,546 )
1,782
489
11,085
1,049
—
1,049
—
726
(66 )
(726 )
(66 )
—
3
3,562
3,565
(3,783 )
45,835 $
—
1
—
44
—
5,015
—
15,802 $
(5,761 )
120
(120 )
3,205
880
4,967
9
—
—
258
(3,857 )
47,305 $
—
—
—
39
—
5,337
23
—
285
(56 )
(258 )
—
18,779 $
(6,205 )
165
(165 )
3,209
371
7,194
—
(39 )
(285 )
(3,783 )
61,637
(5,761 )
121
(120 )
3,249
880
9,982
9
(56 )
—
(3,857 )
66,084
(6,205 )
165
(165 )
3,248
371
12,531
23
(39 )
—
—
41,606
(3,894 )
7,359
(3,894 )
49,095
—
23,024
(3,894 )
72,119
See accompanying notes to consolidated financial statements.
F-5
Silvercrest Asset Management Group Inc.
Consolidated Statements of Cash Flows
(In thousands)
Cash Flows From Operating Activities
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
For the year ended December 31,
2016
2017
2015
$
12,531 $
9,982 $
11,085
Equity-based compensation
Depreciation and amortization
Deferred rent
Deferred income taxes
Tax receivable agreement fair value adjustment
Provision for doubtful accounts
Non-cash interest on notes receivable from partners
Distributions received from investment funds
Equity income from investments
Other
Cash flows due to changes in operating assets and liabilities:
Receivables and due from Silvercrest Funds
Prepaid expenses and other assets
Accounts payable and accrued expenses
Accrued compensation
Other liabilities
Interest payable on notes payable
Net cash provided by operating activities
Cash Flows From Investing Activities
Release of restricted certificates of deposit and escrow
Acquisition of furniture, equipment and leasehold improvements
Acquisition of Cappicille
Acquisition of Jamison
Net cash used in investing activities
Cash Flows From Financing Activities
Earn-outs paid related to acquisitions completed on or after January 1, 2009
Repayments of notes payable
Payments on capital leases
Distributions to partners
Dividends paid on Class A common stock
Payments from partners on notes receivable
Net cash used in financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
$
$
$
3,248
2,801
3,037
8,646
(5,299)
—
(39)
322
(615)
1
(1,384)
2,744
(940)
4,477
(24)
80
29,586
— $
(804)
—
—
(804)
(756) $
(1,826)
(166)
(6,205)
(3,895)
371
(12,477)
16,305
37,517
53,822 $
3,228
2,664
(416)
1,587
152
294
(56)
1
(304)
1
(608)
(801)
730
2,032
(679)
171
17,978
587 $
(723)
(148)
—
(284)
(630) $
(2,200)
(171)
(5,761)
(3,857)
880
(11,739)
5,955
31,562
37,517 $
1,524
2,359
(466)
3,533
(1,209)
—
(66)
1,292
(18)
2
(501)
(973)
(121)
285
(695)
212
16,243
(1)
(388)
—
(3,547)
(3,936)
(570)
(2,010)
(145)
(5,546)
(3,783)
489
(11,565)
742
30,820
31,562
See accompanying notes to consolidated financial statements.
F-6
Silvercrest Asset Management Group Inc.
Consolidated Statements of Cash Flows
(continued)
(In thousands)
Supplemental Disclosures of Cash Flow Information
Net cash paid during the period for:
Income taxes
Interest
Supplemental Disclosures of Non-cash Financing and Investing Activities
Notes receivable from new partners issued for capital contributions to
Silvercrest L.P.
Earnout accrual for acquisition of certain assets of Cappicille
Earnout accrual for acquisition of certain assets of Jamison
Issuance of notes payable for acquisition of certain assets of Jamison
Issuance of Class B shares of Silvercrest L.P. in conjunction with the acquisition of
certain assets of Jamison
Issuance of Class B shares of Silvercrest L.P. in conjunction with the acquisition of
certain assets of Jamison, par value $0.01
Recognition of deferred tax assets as a result of share conversions
Assets acquired under capital leases
$
$
For the year ended December 31,
2016
2017
2015
1,713 $
115
4,079 $
204
3,967
149
165
$
—
—
—
—
—
279
301
120
$
354
—
—
—
—
328
—
—
—
1,342
2,165
3,562
3
1,038
50
See accompanying notes to consolidated financial statements.
F-7
Silvercrest Asset Management Group Inc.
Notes to Consolidated Financial Statements
As of and for the Years ended December 31, 2017, 2016 and 2015
(Dollars in thousands, except per share or per unit amounts)
1. ORGANIZATION AND BUSINESS
Silvercrest Asset Management Group Inc. (“Silvercrest”), together with its consolidated subsidiary, Silvercrest L.P., a limited partnership,
(collectively the “Company”), was formed as a Delaware corporation on July 11, 2011. Silvercrest is a holding company that was formed in
order to carry on the business of Silvercrest L.P., the managing member of our operating subsidiary, and its subsidiaries. Effective on
June 26, 2013, Silvercrest became the sole general partner of Silvercrest L.P. and its only material asset is the general partner interest in
Silvercrest L.P., represented by 8,142,120 Class A units or approximately 61.6% of the outstanding interests of Silvercrest L.P. Silvercrest
controls all of the businesses and affairs of Silvercrest L.P. and, through Silvercrest L.P. and its subsidiaries, continues to conduct the
business previously conducted by these entities prior to the reorganization.
Silvercrest L.P., together with its consolidated subsidiaries (collectively “SLP”), provides investment management and family office
services to individuals and families and their trusts, and to endowments, foundations and other institutional investors primarily located in
the United States of America. The business includes the management of funds of funds and other investment funds, collectively referred to
as the “Silvercrest Funds”.
Silvercrest L.P. was formed on December 10, 2008 and commenced operations on January 1, 2009.
On March 11, 2004, Silvercrest Asset Management Group LLC (“SAMG LLC”) acquired 100% of the outstanding shares of James C.
Edwards Asset Management, Inc. (“JCE”) and subsequently changed JCE’s name to Silvercrest Financial Services, Inc. (“SFS”). On
December 31, 2004, SLP acquired 100% of the outstanding shares of the LongChamp Group, Inc. (now SAM Alternative Solutions, Inc.)
(“LGI”). Effective March 31, 2005, SLP entered into an Asset Contribution Agreement with and acquired all of the assets, properties, rights
and certain liabilities of Heritage Financial Management, LLC (“HFM”). Effective October 3, 2008, SLP acquired 100% of the outstanding
limited liability company interests of Marathon Capital Group, LLC (“MCG”) through a limited liability company interest purchase
agreement dated September 22, 2008. On November 1, 2011, SLP acquired certain assets of Milbank Winthrop & Co. (“Milbank”). On
April 1, 2012, SLP acquired 100% of the outstanding limited liability company interests of MW Commodity Advisors, LLC (“Commodity
Advisors”). On March 28, 2013, SLP acquired certain assets of Ten-Sixty Asset Management, LLC (“Ten-Sixty”). On June 30, 2015, SLP
acquired certain assets of Jamison, Eaton & Wood, Inc. (“Jamison”). On January 11, 2016, SLP acquired certain assets of Cappiccille &
Company, LLC (“Cappiccille”). See Notes 3, 7 and 8 for additional information related to the acquisition, goodwill and intangible assets
arising from these acquisitions.
Tax Receivable Agreement
In connection with the IPO and reorganization of SLP that was completed on June 23, 2013, Silvercrest entered into a tax receivable
agreement (the “TRA”) with the partners of SLP that will require it to pay them 85% of the amount of cash savings, if any, in U.S. federal,
state and local income tax that it actually realizes (or is deemed to realize in the case of an early termination payment by it, or a change in
control) as a result of the increases in tax basis and certain other tax benefits related to entering into the TRA, including tax benefits
attributable to payments under the TRA. This will be Silvercrest’s obligation and not the obligation of SLP. As of December 31, 2017, this
liability is estimated to be $8,653 and is included in deferred tax and other liabilities in the Consolidated Statements of Financial
Condition. Silvercrest expects to benefit from the remaining 15% of cash savings, if any, realized.
The TRA was effective upon the consummation of the IPO and will continue until all such tax benefits have been utilized or expired,
unless Silvercrest exercises its right to terminate the TRA for an amount based on an agreed upon value of the payments remaining to be
made under the agreement. The TRA will automatically terminate with respect to Silvercrest’s obligations to a partner if a partner (i) is
terminated for cause, (ii) breaches his or her non-solicitation covenants with Silvercrest or any of its subsidiaries or (iii) voluntarily resigns
or retires and competes with Silvercrest or any of its subsidiaries in the 12-month period following resignation of employment or
retirement, and no further payments will be made to such partner under the TRA.
For purposes of the TRA, cash savings in income tax will be computed by comparing Silvercrest’s actual income tax liability to the amount
of such taxes that it would have been required to pay had there been no increase in its share of the tax basis of the tangible and intangible
assets of SLP.
F-8
Estimating the amount of payments that Silvercrest may be required to make under the TRA is imprecise by its nature, because the actual
increase in its share of the tax basis, as well as the amount and timing of any payments under the TRA, will vary depending upon a number
of factors, including:
•
•
•
•
•
the timing of exchanges of Class B units for shares of Silvercrest’s Class A common stock—for instance, the increase in any
tax deductions will vary depending on the fair market value, which may fluctuate over time, of the depreciable and
amortizable assets of SLP at the time of the exchanges;
the price of Silvercrest’s Class A common stock at the time of exchanges of Class B units—the increase in Silvercrest’s share
of the basis in the assets of SLP, as well as the increase in any tax deductions, will be related to the price of Silvercrest’s
Class A common stock at the time of these exchanges;
the extent to which these exchanges are taxable—if an exchange is not taxable for any reason (for instance, if a principal who
holds Class B units exchanges units in order to make a charitable contribution), increased deductions will not be available;
the tax rates in effect at the time Silvercrest utilizes the increased amortization and depreciation deductions; and
the amount and timing of Silvercrest’s income—Silvercrest will be required to pay 85% of the tax savings, as and when
realized, if any. If Silvercrest does not have taxable income, it generally will not be required to make payments under the
TRA for that taxable year because no tax savings will have been actually realized.
For the years ended December 31, 2017, 2016 and 2015, the valuation adjustment to the TRA related to the underlying deferred tax assets
was $5,299, ($152) and $1,209, respectively, and is included in Other income (expense), net in the Consolidated Statements of Operations.
In addition, the TRA provides that, upon certain mergers, asset sales, other forms of business combinations or other changes of control,
Silvercrest’s (or its successors’) obligations with respect to exchanged or acquired Class B units (whether exchanged or acquired before or
after such transaction) would be based on certain assumptions, including that Silvercrest would have sufficient taxable income to fully
utilize the deductions arising from the increased tax deductions and tax basis and other benefits related to entering into the TRA.
Decisions made by the continuing partners of SLP in the course of running Silvercrest’s business, such as with respect to mergers, asset
sales, other forms of business combinations or other changes in control, may influence the timing and amount of payments that are
received by an exchanging or selling principal under the TRA. For example, the earlier disposition of assets following an exchange or
acquisition transaction will generally accelerate payments under the TRA and increase the present value of such payments, and the
disposition of assets before an exchange or acquisition transaction will increase an existing owner’s tax liability without giving rise to any
rights of a principal to receive payments under the TRA.
Were the IRS to successfully challenge the tax basis increases described above, Silvercrest would not be reimbursed for any payments
previously made under the TRA. As a result, in certain circumstances, Silvercrest could make payments under the TRA in excess of its
actual cash savings in income tax. For the years ended December 31, 2017, 2016 and 2015, Silvercrest made TRA payments totaling
$731, $690 and $689, respectively.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Principles of Consolidation
The accompanying Consolidated Financial Statements include the accounts of Silvercrest and its wholly-owned subsidiaries, SLP, SAMG
LLC, SFS, MCG, Silvercrest Investors LLC, Silvercrest Investors II LLC and Silvercrest Investors III LLC as of and for the years ended
December 31, 2017, 2016 and 2015. All intercompany transactions and balances have been eliminated.
The Company evaluates for consolidation those entities it controls through a majority voting interest or otherwise, including those
Silvercrest Funds over which the general partner or equivalent is presumed to have control, e.g. by virtue of the limited partners not being
able to remove the general partner. The initial step in the Company’s determination of whether a fund for which SLP is the general partner
is required to be consolidated is assessing whether the fund is a variable interest entity or a voting interest entity.
F-9
SLP then considers whether the fund is a voting interest entity (“VoIE”) in which the unaffiliated limited partners have substantive “kick-
out” rights that provide the ability to dissolve (liquidate) the limited partnership or otherwise remove the general partner without cause.
SLP considers the “kick-out” rights to be substantive if the general partner for the fund can be removed by the vote of a simple majority of
the unaffiliated limited partners and there are no significant barriers to the unaffiliated limited partners’ ability to exercise these rights in
that among other things, (1) there are no conditions or timing limits on when the rights can be exercised, (2) there are no financial or
operational barriers associated with replacing the general partner, (3) there are a number of qualified replacement investment advisors that
would accept appointment at the same fee level, (4) each fund’s documents provide for the ability to call and conduct a vote, and (5) the
information necessary to exercise the kick-out rights and related vote are available from the fund and its administrator.
If the fund is a variable interest entity, SLP then determines whether it has a variable interest in the fund, and if so, whether SLP is the
primary beneficiary.
As of December 31, 2017 and December 31, 2016 and for the years ended December 31, 2017, 2016 and 2015, each fund is deemed to be a
VoIE and neither SLP nor Silvercrest consolidated any of the Silvercrest Funds.
Non-controlling interest
As of December 31, 2017 and 2016, Silvercrest holds approximately 62% of the economic interests in SLP. Silvercrest is the sole general
partner of SLP and, therefore, controls the management of SLP. As a result, Silvercrest consolidates the financial position and the results of
operations of SLP and its subsidiaries, and records a non-controlling interest, as a separate component of equity on its Consolidated
Statement of Financial Condition for the remaining economic interests in SLP that is held by the limited partners. The non-controlling
interest in the income or loss of SLP is included in the Consolidated Statement of Operations as a reduction or addition to net income
derived from SLP.
Segment Reporting
The Company views its operations as comprising one operating segment. Each of the Company’s acquired businesses have similar
economic characteristics and have been fully integrated upon acquisition. Furthermore, our chief operating decision maker, which is the
Company’s Chief Executive Officer, monitors and reviews financial information at a consolidated level for assessing operating results and
the allocation of resources.
Use of Estimates
The preparation of the Consolidated Financial Statements requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the Consolidated Financial Statements and
the reported amounts of revenues, expenses and other income reported in the Consolidated Financial Statements and the accompanying
notes. Actual results could differ from those estimates. Significant estimates and assumptions made by management include the fair value
of acquired assets and liabilities, equity based compensation, accounting for income taxes, the useful lives of long-lived assets and other
matters that affect the Consolidated Financial Statements and related disclosures.
Cash and Cash Equivalents
The Company considers all highly liquid securities with original maturities of 90 days or less when purchased to be cash equivalents.
Restricted Certificates of Deposit
Certain certificates of deposit held at a major financial institution are restricted and serve as collateral for letters of credit for the
Company’s lease obligations as described in Note 10.
Equity Method Investments
Entities and investments over which the Company exercises significant influence over the activities of the entity but which do not meet the
requirements for consolidation are accounted for using the equity method of accounting, whereby the Company records its share of the
underlying income or losses of these entities. Intercompany profit arising from transactions with affiliates is eliminated to the extent of its
beneficial interest. Equity in losses of equity method investments is not recognized after the carrying value of an investment, including
advances and loans, has been reduced to zero, unless guarantees or other funding obligations exist.
F-10
The Company evaluates its equity method investments for impairment, whenever events or changes in circumstances indicate that t he
carrying amounts of such investments may not be recoverable. The difference between the carrying value of the equity method investment
and its estimated fair value is recognized as an impairment when the loss in value is deemed other than temporary. The Company’s equity
method investments approximate their fair value at December 31, 2017. The fair value of the equity method investments is estimated based
on the Company’s share of the fair value of the net assets of the equity method investee. No impairment charges related to equity method
investments were recorded during the years ended December 31, 2017, 2016 and 2015.
Receivables and Due from Silvercrest Funds
Receivables consist primarily of amounts for advisory fees due from clients and management fees, and are stated as net realizable value.
The Company maintains an allowance for doubtful receivables based on estimates of expected losses and specific identification of
uncollectible accounts. The Company charges actual losses to the allowance when incurred.
Furniture, Equipment and Leasehold Improvements
Furniture, equipment and leasehold improvements consist primarily of furniture, fixtures and equipment, computer hardware and software
and leasehold improvements and are recorded at cost less accumulated depreciation and amortization. Depreciation and amortization are
calculated using the straight-line method over the assets’ estimated useful lives, which for leasehold improvements is the lesser of the lease
term or the life of the asset, generally 10 years, and 3 to 7 years for other fixed assets.
Business Combinations
The Company accounts for business combinations using the acquisition method of accounting. The acquisition method of accounting
requires that purchase price, including the fair value of contingent consideration, of the acquisition be allocated to the assets acquired and
liabilities assumed using the fair values determined by management as of the acquisition date. Contingent consideration is recorded as part
of the purchase price when such contingent consideration is not based on continuing employment of the selling shareholders. Contingent
consideration that is related to continuing employment is recorded as compensation expense. Payments made for contingent consideration
recorded as part of an acquisition’s purchase price are reflected as financing activities in the Company’s Consolidated Statements of Cash
Flows.
The Company remeasures the fair value of contingent consideration at each reporting period using a probability-adjusted discounted cash
flow method based on significant inputs not observable in the market and any change in the fair value from either the passage of time or
events occurring after the acquisition date, is recorded in earnings. Contingent consideration payments that exceed the acquisition date fair
value of the contingent consideration are reflected as an operating activity in the Consolidated Statements of Cash Flows.
The excess of the purchase price over the fair value of the identifiable assets acquired, including intangibles, and liabilities assumed is
recorded as goodwill. The Company generally uses valuation specialists to perform appraisals and assist in the determination of the fair
values of the assets acquired and liabilities assumed. These valuations require management to make estimates and assumptions that are
critical in determining the fair values of the assets and liabilities. During the measurement period, the Company may record adjustments to
the assets acquired and liabilities assumed. Any adjustments to provisional amounts that are identified during the measurement period are
recorded in the reporting period in which the adjustment amounts are determined. Upon the conclusion of the measurement period, any
subsequent adjustments are recorded to earnings.
Goodwill and Intangible Assets
Goodwill consists of the excess of the purchase price over the fair value of identifiable net assets of businesses acquired. Goodwill is not
amortized but is evaluated for impairment at least annually, on October 1st of each year, or whenever events or circumstances indicate that
impairment may have occurred.
F-11
The Company accounts for goodwill under Accounting Standard Codificat ion (“ASC”) No. 350, “Intangibles - Goodwill and Other,”
which provides an entity the option to first perform a qualitative assessment of whether a reporting unit’s fair value is more likely than not
less than its carrying value, including goodwill. In performing its qualitative assessment, an entity considers the extent to which adverse
events or circumstances identified, such as changes in economic conditions, industry and market conditions or entity specific events, could
affect the comparison of the reporting unit’s fair value with its carrying amount. If an entity concludes that the fair value of a reporting unit
is more likely than not less than its carrying amount, the entity is required to perform the currently prescribed two-step goodwill
impairment test to identify potential goodwill impairment and, accordingly, measure the amount, if any, of goodwill impairment loss to be
recognized for that reporting unit. The Company utilized this option when performing its annual impairment assessment in 2017, 2016 and
2015, and concluded that its single reporting unit’s fair value was more likely than not greater than its carrying value, including goodwill.
The Company has one reporting unit at December 31, 2017 and 2016. No goodwill impairment charges were recorded during the years
ended December 31, 2017, 2016 and 2015.
Identifiable finite-lived intangible assets are amortized over their estimated useful lives ranging from 3 to 20 years. The method of
amortization is based on the pattern over which the economic benefits, generally expected undiscounted cash flows, of the intangible asset
are consumed. Intangible assets for which no pattern can be reliably determined are amortized using the straight-line method. Intangible
assets consist primarily of the contractual right to future management, advisory and performance fees from customer contracts or
relationships.
Long-lived Assets
Long-lived assets of the Company are reviewed for impairment whenever events or changes in circumstances indicate that the net carrying
amount of the asset may not be recoverable. In connection with such review, the Company also re-evaluates the periods of depreciation and
amortization for these assets. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset
to undiscounted future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to
be recognized is measured by the amount by which the carrying amount of the assets exceeds their fair value.
Partner Distributions
Partner incentive allocations, which are determined by the general partner, can be formula-based or discretionary. Partner incentive
allocations are treated as compensation expense and recognized in the period in which they are earned. In the event there is insufficient
distributable cash flow to make incentive distributions, the general partner in its sole and absolute discretion may determine not to make any
distributions called for under the partnership agreement. The remaining net income or loss after partner incentive allocations is generally
allocated to unit holders based on their pro rata ownership.
Redeemable Partnership Units
If a principal of SLP is terminated for cause, SLP has the right to redeem all of the vested Class B units collectively held by the principal
and his or her permitted transferees for a purchase price equal to the lesser of (i) the aggregate capital account balance in SLP of the
principal and his or her permitted transferees or (ii) the purchase price paid by the terminated principal to first acquire the Class B units.
SLP also makes distributions to its partners of various nature including incentive payments, profit distributions and tax distributions. The
profit distributions and tax distributions are accounted for as equity transactions.
F-12
Class A Common Stock
The Company’s Class A stockholders are entitled to one vote for each share held of record on all matters submitted to a vote of the
Company’s stockholders. Also, Class A stockholders are entitled to receive dividends, when and if declared by the Company’s board of
directors, out of funds legally available therefor, subject to any statutory or contractual restrictions on the payment of dividends and to any
restrictions on the payment of dividends imposed by the terms of any outstanding preferred stock. Dividends consisting of shares of
Class A common stock may be paid only as follows: (i) shares of Class A common stock may be paid only to holders of shares of Class A
common stock and (ii) shares will be paid proportionately with respect to each outstanding share of the Company’s Class A common stock.
Upon the Company’s liquidation, dissolution or winding-up, or the sale of all, or substantially all, of the Company’s assets, after payment
in full of all amounts required to be paid to creditors and to holders of preferred stock having a liquidation preference, if any, the Class A
stockholders will be entitled to share ratably in the Company’s remaining assets available for distribution to Class A stockholders. Class B
units of SLP held by principals will be exchangeable for shares of the Company’s Class A common stock, on a one-for-one basis, subject to
customary adjustments for share splits, dividends and reclassifications.
Class B Common Stock
Shares of the Company’s Class B common stock are issuable only in connection with the issuance of Class B units of SLP. When a vested
or unvested Class B unit is issued by SLP, the Company will issue the holder one share of its Class B common stock in exchange for the
payment of its par value. Each share of the Company’s Class B common stock will be redeemed for its par value and cancelled by the
Company if the holder of the corresponding Class B unit exchanges or forfeits its Class B unit pursuant to the terms of the Second
Amended and Restated Limited Partnership Agreement of SLP and the terms of the Silvercrest Asset Management Group Inc. 2012 Equity
Incentive Plan (the “2012 Equity Incentive Plan”). The Company’s Class B stockholders will be entitled to one vote for each share held of
record on all matters submitted to a vote of the Company’s stockholders. The Company’s Class B stockholders will not participate in any
dividends declared by the Company’s board of directors. Upon the Company’s liquidation, dissolution or winding-up, or the sale of all, or
substantially all, of its assets, Class B stockholders only will be entitled to receive the par value of the Company’s Class B common stock.
Revenue Recognition
In May 2014, the Financial Accounting Standards Board (the “FASB”) issued ASC 606 (ASU No. 2014-09), “Revenue from Contracts
with Customers”, which requires an entity to recognize the amount of revenue to which it expects to be entitles for the transfer of promised
goods or services to customers. The Company has evaluated the impact of ASC 606 on the Consolidated Financial Statements. The
impact of adopting ASC 606 (ASU 2014-09) is de minimis to the Company’s consolidated financial statements and recognition of revenue
when compared to ASC 605. The new revenue standard requires more comprehensive revenue recognition disclosure in the Company’s
notes to the financial statements.
The Company generates revenue from management and advisory fees, performance fees, and family office services fees. Management and
advisory fees are generated by managing assets on behalf of separate accounts and acting as investment adviser for various investment
funds. Performance fees relate to assets managed in external investment strategies in which the Company has a revenue sharing
arrangement and in funds in which the Company has no partnership interest. Management and advisory fees and family office services fees
income is recognized through the course of the period in which these services are provided. Income from performance fees is recorded at
the conclusion of the contractual performance period when all contingencies are resolved. In certain arrangements, the Company is only
entitled to receive performance fees and allocations when the return on assets under management exceeds certain benchmark returns or
other performance targets.
The discretionary investment management agreements for the Company’s separately managed accounts do not have a specified term.
Rather, each agreement may be terminated by either party at any time, unless otherwise agreed with the client, upon written notice of
termination to the other party. The investment management agreements for the Company’s private funds are generally in effect from year
to year, and may be terminated at the end of any year (or, in certain cases, on the anniversary of execution of the agreement) (i) by the
Company upon 30 or 90 days’ prior written notice and (ii) after receiving the affirmative vote of a simple majority of the investors in the
private fund that are not affiliated with the Company, by the private fund on 60 or 90 days’ prior written notice. The investment
management agreements for the private funds may also generally be terminated effective immediately by either party where the non-
terminating party (i) commits a material breach of the terms subject, in certain cases, to a cure period, (ii) is found to have committed fraud,
gross negligence or willful misconduct or (iii) terminates, becomes bankrupt, becomes insolvent or dissolves. Each of the Company’s
investment management agreements contains customary indemnification obligations from the Company to their clients.
F-13
The advisory fees are primarily driven by the level of the Company’s assets under management. The assets under management increase or
decrease based on the net inflows or outflows of funds into the Company’s various investment strategies and the investment performance of
their clients’ accounts. In order to increase the Company’s assets under management and expand their business, the Company must develop
and market investment strategies that suit the investment needs of their target clients and provide attractive returns over the long term. The
Company’s ability to continue to attract clients will depend on a variety of factors including, among others:
•
•
•
•
•
the ability to educate the Company’s target clients about the Company’s classic value investment strategies and provide them
with exceptional client service;
the relative investment performance of the Company’s investment strategies, as compared to competing products and market
indices;
competitive conditions in the investment management and broader financial services sectors;
investor sentiment and confidence; and
The decision to close strategies when the Company deems it to be in the best interests of their clients.
The majority of advisory fees that the Company earns on separately-managed accounts are based on the value of assets under management
on the last day of each calendar quarter. Most of the advisory fees are billed quarterly in advance on the first day of each calendar quarter.
The Company’s basic annual fee schedule for management of clients’ assets in separately managed accounts is generally: (i) for managed
equity or balanced portfolios, 1% of the first $10 million and 0.60% on the balance, (ii) for managed fixed income only portfolios, 0.40%
on the first $10 million and 0.30% on the balance and (iii) for the municipal value strategy, 0.65%. The Company’s fee for monitoring non-
discretionary assets can range from 0.05% to 0.01%, but can also be incorporated into an agreed-upon fixed family office service fee. The
majority of the Company’s client relationships pay a blended fee rate since they are invested in multiple strategies.
Management fees earned on investment funds that the Company advises are calculated primarily based on the net assets of the funds. Some
funds calculate investment fees based on the net assets of the funds as of the last business day of each calendar quarter, whereas other
funds calculate investment fees based on the value of net assets on the first business day of the month. Depending on the investment fund,
fees are paid either quarterly in advance or quarterly in arrears. For the Company’s private funds, the fees range from 0.25% to 1.5%
annually. Certain management fees earned on investment funds for which the Company performs risk management and due
diligence services are based on flat fee agreements customized for each engagement.
The Company’s advisory fees may fluctuate based on a number of factors, including the following:
•
•
•
•
changes in assets under management due to appreciation or depreciation of their investment portfolios, and the levels of the
contribution and withdrawal of assets by new and existing clients;
allocation of assets under management among their investment strategies, which have different fee schedules;
allocation of assets under management between separately managed accounts and advised funds, for which the Company
generally earn lower overall advisory fees; and
the level of their performance with respect to accounts and funds on which the Company is paid incentive fees.
The Company’s family office services capabilities enable us to provide comprehensive and integrated services to their clients. The
Company’s dedicated group of tax and financial planning professionals provide financial planning, tax planning and preparation,
partnership accounting and fund administration and consolidated wealth reporting among other services. Family office services income
fluctuates based on both the number of clients for whom the Company performs these services and the level of agreed-upon fees, most of
which are flat fees. Therefore, non-discretionary assets under management, which are associated with family office services, do not
typically serve as the basis for the amount of family office services revenue that is recognized. Family office services fees are also typically
billed quarterly in advance at the beginning of the quarter or in arrears after the end of the quarter based on a contractual percentage of the
assets managed or upon a contractually agreed-upon flat fee arrangement. Revenue is recognized on a ratable basis over the period in which
services are performed.
The Company accounts for performance-based revenue in accordance with ASC 606 by recognizing performance fees and allocations as
revenue only when it is certain that the fee income is earned and payable pursuant to the relevant agreements. In certain arrangements, the
Company is only entitled to receive performance fees and allocations when the return on assets under management exceeds certain
benchmark returns or other performance targets. The Company records performance fees and allocations as a component of revenue once
the performance fee which is recognized at a point in time upon crystallization of the performance fee. As a result, there is no estimate or
variability in the consideration when revenue is recorded.
F-14
Transition approach
The Company will utilize the modified cumulative effect method as part its adoption of ASU 2014-09. The Company will recognize the
modified cumulative effective of initially applying ASU 2014-09 as an adjustment to the opening balance of retained earnings of the annual
reporting period that includes the date of initial application. As stated above, the impact of the adoption of the ASU will be
immaterial. This method will be applied to either incomplete contracts of the revenue which has not been recognized in accordance with
prior revenue guidance as of the date of initial application or all contracts as of, and new contracts after, the date of initial application. As of
December 31, 2017, all revenue recognized is for complete contracts of revenue. As a result, there will be no adjustment to the opening
balance of retained earnings of the annual reporting period that includes the date of initial application upon adoption on January 1, 2018.
Equity-Based Compensation
Equity-based compensation costs relating to the issuance of share-based awards to employees are based on the fair value of the award at the
date of grant, which is expensed ratably over the requisite service period, net of estimated forfeitures. The forfeiture assumption is
ultimately adjusted to the actual forfeiture rate. Therefore, changes in the forfeiture assumptions may affect the timing of the total amount
of expense recognized over the vesting period. The service period is the period over which the employee performs the related services,
which is normally the same as the vesting period. Equity-based awards that do not require future service are expensed immediately. Equity-
based awards that have the potential to be settled in cash at the election of the employee are classified as liabilities (“Liability Awards”)
and are adjusted to fair value at the end of each reporting period.
Leases
The Company expenses the net lease payments associated with operating leases on a straight-line basis over the respective lease terms
including any rent-free periods. Leasehold improvements are recorded at cost and are amortized using the straight-line method over the
lesser of the estimated useful lives of the improvements (generally 10 years) or the remaining lease term.
Income Taxes
Silvercrest and SFS are subject to federal and state corporate income tax, which requires an asset and liability approach to the financial
accounting and reporting of income taxes. SLP is not subject to federal and state income taxes, since all income, gains and losses are passed
through to its partners. SLP is, however, subject to New York City unincorporated business tax. With respect to the Company’s
incorporated entities, the annual tax rate is based on the income, statutory tax rates and tax planning opportunities available in the various
jurisdictions in which the Company operates. Tax laws are complex and subject to different interpretations by the taxpayer and respective
governmental taxing authorities. Judgment is required in determining the tax expense and in evaluating tax positions. The tax effects of any
uncertain tax position (“UTP”) taken or expected to be taken in income tax returns are recognized only if it is “more likely-than-not” to be
sustained on examination by the taxing authorities, based on its technical merits as of the reporting date. The tax benefits recognized in the
consolidated financial statements from such a position are measured based on the largest benefit that has a greater than fifty percent
likelihood of being realized upon ultimate settlement. The Company recognizes estimated accrued interest and penalties related to UTPs in
income tax expense.
The Company recognizes the benefit of a UTP in the period when it is effectively settled. Previously recognized tax positions are
derecognized in the first period in which it is no longer more likely than not that the tax position would be sustained upon examination.
On December 22, 2017, the tax legislation commonly known as the Tax Cuts and Jobs Act (“TCJA”) was signed into law. Under FASB
ASC 740 “Accounting for Income Taxes”, the effects of new legislation are recognized upon enactment. Accordingly, recognition of the
tax effects of the TCJA is required in the interim and annual periods that include December 22, 2017. The TCJA reduces the corporate tax
rate to 21 percent, effective January 1, 2018, for all corporations. Because ASC 740-10-25-47 requires the effect of a change in tax laws or
rates to be recognized as of the date of enactment, all corporations, regardless of their year-end, must adjust their deferred tax assets and
deferred tax liabilities as of December 22, 2017, the enactment date. The effect of changes in tax laws or rates on deferred tax assets and
deferred tax liabilities is allocated to continuing operations as a discrete item rather than through the annual effective tax rate.
The Company has completed the accounting for the income tax effects under the new tax reform legislation that is relevant to the
Company and required to be recorded and disclosed pursuant to ASC 740. The Company believes that the accounting is final relative to the
TCJA and there are no provisional amounts. The Consolidated Financial Statements reflect all such adjustments and disclosures related to
the TCJA that are required under the guidance referenced above.
F-15
Recent Accounting Developments
In January 2016, the FASB issued ASU 2016-01, "Financial Instruments—Overall (Topic 825-10): "Recognition and Measurement of
Financial Assets and Financial Liabilities." Although the ASU retains many current requirements, it significantly revises an entity’s
accounting related to (1) the classification and measurement of investments in equity securities and (2) the presentation of certain fair value
changes for financial liabilities measured at fair value. The ASU also amends certain disclosure requirements associated with the fair value
of financial instruments. Some of the amendments in ASU 2016-01 include the following: (1) requires equity investments (except those
accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with
changes in fair value recognized in net income; (2) simplifies the impairment assessment of equity investments without readily
determinable fair values by requiring a qualitative assessment to identify impairment; (3) requires public business entities to use the exit
price notion when measuring the fair value of financial instruments for disclosure purposes; and (4) requires an entity to present separately
in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-
specific credit risk when the entity has elected to measure the liability at fair value, among others. ASU 2016-01 became effective on
January 1, 2018. The adoption of this ASU did not have a material effect on the Company’s Consolidated Financial Statements.
In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842).” This amendment introduces a lessee model that brings most
leases on the balance sheet. The new standard also aligns many of the underlying principles of the new lessor model with those in ASC
606, the FASB’s new revenue recognition standard (e.g., those related to evaluating when profit can be recognized). Furthermore, the ASU
addresses other concerns related to the current lease accounting model. This amendment is effective for all entities for fiscal years
beginning after December 15, 2018, including interim periods within those fiscal years. The Company is in the process of evaluating the
impact of the adoption of this guidance on its Consolidated Financial Statements. However, the Company expects the adoption of this
guidance will result in an increase to its assets and liabilities as a result of substantially all operating leases existing as of the adoption date
being capitalized along with the associated obligations.
In June 2016, the FASB issued ASU 2016-13, “Accounting for Credit Losses” which amends the Board’s guidance on the impairment of
financial instruments. The ASU adds to U.S. GAAP an impairment model (known as the current expected credit loss (CECL) model) that is
based on expected losses rather than incurred losses. Under the new guidance, an entity recognizes as an allowance its estimate of expected
credit losses, which the FASB believes will result in more timely recognition of such losses. This amendment is effective for all entities for
fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company is in the process of
evaluating the impact of the adoption of this guidance on its Consolidated Financial Statements.
In August 2016, the FASB issued ASU 2016-15, “Cash Flow Classification” which amends the guidance in ASC 230 on the classification
of certain cash receipts and payments in the statement of cash flows. This amendment is effective for fiscal years beginning after December
15, 2017, including interim periods within those fiscal years. The adoption of this ASU will not have a material effect on the Company’s
Consolidated Financial Statements.
In November 2016, the FASB issued ASU 2016-18, “Restricted Cash” which requires that a statement of cash flows explain the change
during a reporting period in the total of cash, cash equivalents, and amounts generally described as restricted cash and restricted cash
equivalents. This amendment is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal
years. The adoption of this ASU will not have a material effect on the Company’s Consolidated Financial Statements.
In January 2017, The FASB issued ASU 2017-01, “Business Combinations (Topic 85): Clarifying the Definition of a Business”. The
amendments in this update clarify the definition of a business with the objective of adding guidance to assist entities with evaluating
whether transactions should be accounted for as acquisitions or disposals of assets or businesses. ASU 2017-01 will be effective for the
Company in fiscal year 2019 and interim reporting periods within that year. Early adoption is permitted for transactions that have not been
reported in financial statements that have been issued or made available for issuance. The Company expects the adoption of this guidance
will not have a material effect on its Consolidated Financial Statements.
F-16
In January 2017, The FASB issued ASU 2017-04, “Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill
Impairment”. ASU 2017-04 simplifies the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment
testing. An entity will no longer determine goodwill impairment by calculating the implied fair value of goodwill by assigning the fair
value of a reporting unit to all of its assets and liabilities as if that reporting unit had been acquired in a business combination. Instead, an
entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying
amount and recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. The loss
recognized should not exceed the total amount of goodwill allocated to that reporting unit. An entity has the option to perform the
qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. ASU 2017-04 will be effective for
the Company in fiscal year 2021 and interim reporting periods within that year. Early adoption is permitted for interim or annual goodwill
impairment tests performed on testing dates after January, 1, 2017. The Company expects the adoption of this guidance will not have a
material effect on the Company’s Consolidated Financial Statements.
In February 2017, the FASB issued ASU No. 2017-05, “Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets
(Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets”. The
ASU conforms the derecognition guidance on nonfinancial assets with the model for transactions in the new revenue standard (ASC 606, as
amended). Subtopic 610-20 was issued as part of the new revenue standard. It provides guidance for recognizing gains and losses from the
transfer of nonfinancial assets in contracts with non-customers. The new guidance defines “in substance nonfinancial assets,” unifies
guidance related to partial sales of nonfinancial assets, eliminates rules specifically addressing sales of real estate, removes exceptions to the
financial asset derecognition model, and clarifies the accounting for contributions of nonfinancial assets to joint ventures. The amendments
are effective for annual periods beginning after December 15, 2017 with early adoption permitted. Transition can use either the full
retrospective approach or the modified retrospective approach. The adoption of this ASU will not have a material effect on the Company’s
Consolidated Financial Statements.
In May 2017, the FASB issued ASU 2017-09 “Compensation – Stock”. The ASU amends the scope of modification accounting for share-
based payment arrangements. The ASU provides guidance on the types of changes to the terms or conditions of share-based payment
awards to which an entity would be required to apply modification accounting under ASC 718. Specifically, an entity would not apply
modification accounting if the fair value, vesting conditions, and classification of the awards are the same immediately before and after the
modification. For all entities, the ASU is effective for annual reporting periods, including interim periods within those annual reporting
periods, beginning after December 15, 2017. Early adoption was permitted, including adoption in any interim period. The adoption of this
ASU will not have a material effect on the Company’s Consolidated Financial Statement.
3. ACQUISITIONS
Cappiccille:
On December 15, 2015, the Company executed an Asset Purchase Agreement (the “Asset Purchase Agreement”) by and among the
Company, SLP, SAMG LLC (the “Buyer”) and Cappiccille & Company, LLC, a Delaware limited liability company (“Cappiccille” or the
“Seller”), and Michael Cappiccille (the “Principal”), to acquire certain assets of Cappiccille. The transaction contemplated by the Asset
Purchase Agreement closed on January 11, 2016 and is referred to herein as the “Cappiccille Acquisition”.
Pursuant to the terms of the Asset Purchase Agreement, SAMG LLC acquired (i) substantially all of the business and assets of the Seller, a
provider of tax services, including goodwill and the benefit of the amortization of goodwill related to such assets, and (ii) the personal
goodwill of the Principal. In consideration of the purchased assets and goodwill, SAMG LLC paid to the Seller and the Principal an
aggregate purchase price consisting of a cash payment of $148. The Company determined that the acquisition-date fair value of the
contingent consideration was $354, based on the likelihood that the financial and performance targets described in the Asset Purchase
Agreement will be achieved. SAMG LLC will make earnout payments to the Principal as soon as practicable following December 31,
2016, 2017, 2018, 2019, and during 2020, in an amount equal to 19% of the revenue attributable to the business and assets of Cappiccille,
based on revenue gained or lost post-transaction during the twelve months ended on the applicable determination date, except that the
earnout payment for 2016 shall be equal to 19% of the revenue attributable to the Cappiccille for the period between the closing date of the
Cappiccille Acquisition and December 31, 2016 and the earnout payment for 2020 shall be equal to 19% of the revenue attributable to the
Cappiccille Acquisition for the period between January 1, 2020 and the fifth anniversary of the closing date of the Cappiccille
Acquisition. The estimated fair value of contingent consideration is recognized at the date of acquisition, and adjusted for changes in facts
and circumstances until the ultimate resolution of the contingency. Changes in the fair value of contingent consideration are reflected as a
component of general and administrative expenses in the Condensed Consolidated Statement of Operations. The fair value of the
contingent consideration was based on discounted cash flow models using projected revenue for each earnout period. The discount rate
applied to the projected revenue was determined based on the weighted average cost of capital for the Company and took into account that
the overall risk associated with the payments was similar to the overall risks of the Company as there is no target, floor or cap associated
the contingent payments.
F-17
A fair value adjustment to contingent purchase price consideration of $41 and ($7) was recorded at December 31, 2017 and 2016,
respectively, and is included in general, and administrative expenses in the Consolidated Statement of Operations for the year then ended.
The Company has a liability of $279 and $347 related to Cappiccille included in accounts payable and accrued expenses in the Consolidated
Statement of Financial Condition as of December 31, 2017 and 2016, respectively, for contingent consideration. During the year ended
December 31, 2017, the Company made a contingent purchase price payment to Cappiccille of $109.
Jamison:
On March 30, 2015, the Company executed an Asset Purchase Agreement (the “Asset Purchase Agreement”), by and among the Company,
SLP, SAMG LLC (the “Buyer”) and Jamison Eaton & Wood, Inc., a New Jersey corporation (“Jamison” or the “Seller”), and Keith Wood,
Ernest Cruikshank, III, William F. Gadsden and Frederick E. Thalmann, Jr., each such individual a principal of Jamison (together, the
“Principals of Jamison”), to acquire certain assets of Jamison. The transaction contemplated by the Asset Purchase Agreement closed on
June 30, 2015 and is referred to herein as the “Jamison Acquisition”.
Pursuant to the terms of the Asset Purchase Agreement, SAMG LLC acquired (i) substantially all of the business and assets of the Seller,
an investment adviser, including goodwill and the benefit of the amortization of goodwill related to such assets and (ii) the personal
goodwill of the Principals of Jamison. In consideration of the purchased assets and goodwill, SAMG LLC paid to the Seller and the
Principals of Jamison an aggregate purchase price consisting of (1) cash payments in the aggregate amount of $3,550 (the “Closing Cash
Payment”), (2) a promissory note issued to the Seller in the principal amount of $394, with an interest rate of 5% per annum (the “Seller
Note”), (3) promissory notes in varying amounts issued to each of the Principals of Jamison for an aggregated total amount of $1,771, each
with an interest rate of 5% per annum (together, the “Principals of Jamison Notes”) and (4) Class B units of SLP (the “Class B Units”)
issued to the Principals of Jamison with a value equal to $3,562 and an equal number of shares of Class B common stock of the Company,
having voting rights but no economic interest (together, the “Equity Consideration”). The Company determined that the acquisition-date
fair value of the contingent consideration was $1,429, based on the likelihood that the financial and performance targets described in the
Asset Purchase Agreement will be achieved. SAMG LLC will make earnout payments to the Principals of Jamison as soon as practicable
following December 31, 2015, 2016, 2017, 2018, 2019 and during 2020, in an amount equal to 20% of the EBITDA attributable to the
business and assets of Jamison (the “Jamison Business”), based on revenue gained or lost post-transaction during the twelve months ended
on the applicable determination date, except that the earnout payment for 2015 shall be equal to 20% of the EBITDA attributable to the
Jamison Business for the period between the closing date of the Jamison Acquisition and December 31, 2015 and the earnout payment for
2020 shall be equal to 20% of the EBITDA attributable to the Jamison Business for the period between January 1, 2020 and the fifth
anniversary of the closing date of the Jamison Acquisition. The estimated fair value of contingent consideration is recognized at the date
of acquisition, and adjusted for changes in facts and circumstances until the ultimate resolution of the contingency. Changes in the fair
value of contingent consideration are reflected as a component of general and administrative expenses in the Consolidated Statement of
Operations. The fair value of the contingent consideration was based on discounted cash flow models using projected EBITDA for each
earnout period. The discount rate applied to the to the projected EBITDA was determined based on the weighted average cost of capital for
the Company and took into account that the overall risk associated with the payments was similar to the overall risks of the Company as
there is no target, floor or cap associated the contingent payments. The Company has a liability of $817 and $1,242 related to earnout
payments to be made in conjunction with the Jamison Acquisition which is included in accounts payable and accrued expenses in the
Consolidated Statement of Financial Condition as of December 31, 2017 and 2016, respectively, for contingent consideration.
In connection with their receipt of the Equity Consideration, the Principals of Jamison became subject to the rights and obligations set forth
in the limited partnership agreement of SLP and are entitled to distributions consistent with SLP’s distribution policy. In addition, the
Principals of Jamison became parties to the Exchange Agreement, which governs the exchange of Class B Units for Class A common stock
of the Company, the Resale and Registration Rights Agreement, which provides the Principals of Jamison with liquidity with respect to
shares of Class A common stock of the Company received in exchange for Class B Units, and the TRA of the Company, which entitles the
Principals of Jamison to share in a portion of the tax benefit received by the Company upon the exchange of Class B Units for Class A
common stock of the Company.
The Asset Purchase Agreement includes customary representations, warranties and covenants.
The strategic acquisition of Jamison, a long-standing and highly regarded investment boutique, strengthens the Company’s presence in the
greater New York market and the Company obtains investment managers that have significant experience and knowledge of the industry.
Jamison’s clients will gain access to the Company’s complete investment management, wealth planning and reporting capabilities,
including proprietary value equity and fixed income disciplines and alternative investment advisory services.
Jamison revenue and income before provision for income taxes that are included in the Consolidated Statement of Operations for the year
ended December 31, 2017 are $4,921 and $834, respectively, for the year ended December 31, 2016 are $4,917 and $741, respectively, and
for the six months ended December 31, 2015 are $2,568 and $407, respectively.
F-18
During the year ended December 31, 2015, the Company incurred $245 in costs related to the Jamison Acquisition, and has included these
in general, administrative and other in the Consolidated Statement of Operations.
Cash paid on date of acquisition
Notes payable to Jamison and Principals of Jamison
Units issued
Contingent consideration
Total purchase consideration
$
$
3,550
2,165
3,562
1,429
10,706
The purchase price allocations were finalized as of December 31, 2015.
The Company believes the recorded goodwill is supported by the anticipated revenues and expected synergies of integrating the operations
of Jamison into the Company. The goodwill is expected to be deductible for tax purposes.
The unaudited pro forma information below represents consolidated results of operations as if the acquisition of Jamison occurred on
January 1, 2015. The pro forma information has been included for comparative purposes and is not indicative of results of operations of the
Company had the acquisitions occurred as of January 1, 2015, nor is it necessarily indicative of future results.
A fair value adjustment to contingent purchase price consideration of $(79), $79 and ($87) was recorded at December 31, 2017, 2016 and
2015, respectively, and is included in general, and administrative expenses in the Consolidated Statement of Operations for each of the
years then ended. The Company has a liability of $817 and $1,242 related to Jamison included in accounts payable and accrued expenses in
the Consolidated Statement of Financial Condition as of December 31, 2017 and 2016, respectively, for contingent consideration. During
the years ended December 31, 2017 and 2016, the Company made contingent purchase price payments to Jamison of $345 and $180,
respectively.
Total Revenue
Net Income
Pro Forma
Year Ended
December 31, 2015
$
$
77,812
11,401
4. INVESTMENTS AND FAIR VALUE MEASUREMENTS
Investments include $626 and $335 as of December 31, 2017 and 2016, respectively, representing the Company’s equity method
investments in affiliated investment funds which have been established and managed by the Company and its affiliates. The Company’s
financial interest in these funds can range up to 2%. Despite the Company’s insignificant financial interest, the Company exercises
significant influence over these funds as the Company typically serves as the general partner, managing member or equivalent for these
funds. During 2007, the Silvercrest Funds granted rights to the unaffiliated investors in each respective fund to provide that a simple
majority of the fund’s unaffiliated investors will have the right, without cause, to remove the general partner or equivalent of that fund or to
accelerate the liquidation date of that fund in accordance with certain procedures. At December 31, 2017 and 2016, the Company
determined that none of the Silvercrest Funds were required to be consolidated. The Company’s involvement with these entities began on
the dates that they were formed, which range from July 2003 to July 2014.
Fair Value Measurements
GAAP establishes a hierarchal disclosure framework which prioritizes and ranks the level of market price observability used in measuring
investments at fair value. Market price observability is affected by a number of factors, including the type of investment, the characteristics
specific to the investment and the state of the marketplace including the existence and transparency of transactions between market
participants. Investments with readily available active quoted prices or for which fair value can be measured from actively quoted prices in
an orderly market generally will have a higher degree of market price observability and a lesser degree of judgment used in measuring fair
value.
•
Level I: Quoted prices are available in active markets for identical investments as of the reporting date. The type of
investments in Level I include listed equities and listed derivatives.
F-19
•
•
Level II: Pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of
the reporting date, and fair value is determined through the use of models or other valuation methodologies. Investments
which are generally included in Level II include corporate bonds and loans, less liquid and restricted equity securities, certain
over-the counter derivatives, and certain fund of hedge funds investments in which the Company has the ability to redeem its
investment at net asset value at, or within three months of, the reporting date.
Level III: Pricing inputs are unobservable for the investment and includes situations where there is little, if any, market
activity for the investment. The inputs into the determination of fair value require significant management judgment or
estimation. Investments that are included in Level III generally include general and limited partnership interests in private
equity and real estate funds, credit-oriented funds, certain over-the-counter derivatives, funds of hedge funds which use net
asset value per share to determine fair value in which the Company may not have the ability to redeem its investment at net
asset value at, or within three months of, the reporting date, distressed debt and non-investment grade residual interests in
securitizations and collateralized debt obligations.
In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the
determination of which category within the fair value hierarchy is appropriate for any given investment is based on the lowest level of input
that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value
measurement in its entirety requires judgment and considers factors specific to the investment.
At December 31, 2017 and 2016, the Company did not have any financial assets or liabilities that are recorded at fair value on a recurring
basis.
At December 31, 2017 and December 31, 2016, financial instruments that are not held at fair value are categorized in the table below:
Financial Assets:
Cash and cash equivalents
Investments
Financial liabilities:
Notes Payable
December 31, 2017
December 31, 2016
Carrying
Amount
Fair
Value
Carrying
Amount
Fair
Value
Fair Value
Hierarchy
53,822 $
626 $
53,822 $
626 $
37,517 $
335 $
37,517
335
N/A (1)
740 $
740 $
2,486 $
2,486
Level 2(2)
$
$
$
(1)
Investments consist of the Company’s equity method investments in affiliated investment funds which have been established and managed by the Company
and its affiliates. Fair value of investments is based on the net asset value of the affiliated investment funds which is a practical expedient for fair value,
which is not included in the fair value hierarchy under GAAP.
(2)
The carrying value of notes payable approximates fair value, which is determined based on interest rates currently available to the Company for similar debt.
5. RECEIVABLES, NET
The following is a summary of receivables as of December 31, 2017 and December 31, 2016:
Management and advisory fees receivable
Unbilled receivables
Other receivables
Receivables
Allowance for doubtful receivables
Receivables, net
2017
2016
$
$
5,077 $
2,897
2,083
10,057
(621)
9,436 $
4,369
2,552
2
6,923
(653)
6,270
F-20
6. FURNITURE, EQUIPMENT AND LEASEHOLD IMPROVEMENTS, NET
The following is a summary of furniture, equipment and leasehold improvements, net as of December 31, 2017 and December 31, 2016:
Leasehold improvements
Furniture and equipment
Artwork
Total cost
$
Accumulated depreciation and amortization
Furniture, equipment and leasehold improvements, net
$
2017
2016
4,034 $
6,607
468
11,109
(8,656)
2,453 $
3,915
5,802
466
10,183
(7,772)
2,411
Depreciation and amortization expense for the years ended December 31, 2017, 2016 and 2015 was $975, $737, and $719, respectively.
7. GOODWILL
The following is a summary of the changes to the carrying amount of goodwill as of December 31, 2017 and December 31, 2016:
Beginning
Gross balance
Accumulated impairment losses
Net balance
Acquisition of Cappicille
Ending
Gross balance
Accumulated impairment losses
Net balance
F-21
2017
2016
$
42,583 $
(17,415)
25,168
—
42,097
(17,415)
24,682
486
42,583
(17,415)
25,168 $
42,583
(17,415)
25,168
$
8. INTANGIBLE ASSETS
The following is a summary of intangible assets as of December 31, 2017 and December 31, 2016:
Cost
Balance, January 1, 2017
Balance, December 31, 2017
Useful lives
Accumulated amortization
Balance, January 1, 2017
Amortization expense
Balance, December 31, 2017
Net book value
Cost
Balance, January 1, 2016
Balance, December 31, 2016
Useful lives
Accumulated amortization
Balance, January 1, 2016
Amortization expense
Balance, December 31, 2016
Net book value
Customer
Relationships
Other
Intangible
Assets
Total
$
22,560 $
22,560
10-20 years
2,467 $
2,467
3-5 years
(9,721)
(1,646)
(11,367)
11,193 $
(1,902)
(180)
(2,082)
385 $
22,560 $
22,560
10-20 years
2,467 $
2,467
3-5 years
(8,062)
(1,659)
(9,721)
12,839 $
(1,634)
(268)
(1,902)
565 $
$
$
$
25,027
25,027
(11,623)
(1,826)
(13,449)
11,578
25,027
25,027
(9,696)
(1,927)
(11,623)
13,404
Amortization expense related to intangible assets was $1,826, $1,927 and $1,640 for the years ended December 31, 2017, 2016 and 2015,
respectively.
Amortization related to the Company’s finite life intangible assets is scheduled to be expensed over the next five years and thereafter as
follows:
2018
2019
2020
2021
2022
Thereafter
Total
F-22
$
$
1,685
1,390
1,299
1,196
1,142
4,866
11,578
9. DEBT
Credit Facility
On June 24, 2013, the subsidiaries of SLP entered into a $15,000 credit facility with City National Bank. The subsidiaries of SLP are the
borrowers under such facility and SLP guarantees the obligations of its subsidiaries under the credit facility. The credit facility is secured
by certain assets of SLP and its subsidiaries. The credit facility consists of a $7,500 delayed draw term loan that matures on June 24, 2020
and a $7,500 revolving credit facility that was to mature on December 23, 2017. As of December 21, 2017, the revolving credit facility was
extended for one year. The loan bears interest at either (a) the higher of the prime rate plus a margin of 0.05 percentage points and 2.5% or
(b) the LIBOR rate plus 3 percentage points, at the borrowers’ option. On June 28, 2013, the borrowers borrowed $7,000 on the revolving
credit loan. As of December 31, 2017 and 2016, no amount has been drawn on the term loan credit facility and the borrowers may draw up
to the full amount of the term loan through June 25, 2018. Borrowings under the term loan on or prior to June 24, 2015 will be payable in
20 equal quarterly installments. Borrowings under the term loan after June 24, 2015 will be payable in equal quarterly installments through
the maturity date. The credit facility contains restrictions on, among other things, (i) incurrence of additional debt, (ii) creating liens on
certain assets, (iii) making certain investments, (iv) consolidating, merging or otherwise disposing of substantially all of our assets, (v) the
sale of certain assets, and (vi) entering into transactions with affiliates. In addition, the credit facility contains certain financial covenants
including a test on discretionary assets under management, maximum debt to EBITDA and a fixed charge coverage ratio. The credit facility
contains customary events of default, including the occurrence of a change in control which includes a person or group of persons acting
together acquiring more than 30% of the total voting securities of Silvercrest.
As of December 31, 2017 and 2016, the Company did not have any outstanding borrowings under the revolving credit loan.
Interest expense, which also includes amortization of deferred financing fees, incurred on the revolving credit and term loans was $17, $47
and $40 for the years ended December 31, 2017, 2016 and 2015.
Notes Payable
The following is a summary of notes payable:
Principal on fixed rate notes
Interest payable
Total, December 31, 2017
Principal on fixed rate notes
Variable rate notes issued for redemption of partners’ interest (see
Note 15)
Interest payable
Total, December 31, 2016
December 31, 2017
Interest Rate
Amount
5.0% $
$
722
18
740
December 31, 2016
Interest Rate
Amount
5.0% $
1,538
Prime plus 1 %
$
895
53
2,486
The carrying value of notes payable approximates fair value. The fixed rate notes, which are related to the Jamison, Ten-Sixty and Milbank
acquisitions, approximate fair value based on interest rates currently available to the Company for similar debt. The variable rate notes are
based on the U.S. Prime Rate.
As of December 31, 2017, future principal amounts payable under the fixed and variable rate notes are as follows:
2018
Total
$
$
722
722
F-23
On June 3, 2013, Silvercrest redeemed units from two of our former principals. In conjunction with this redemption, Silvercrest issued
promissory notes with an aggregate principal amount of approximately $5,300, subject to downward adjustments to the extent of any breach
by the holders of such notes. The principal amounts of the notes were originally payable in four equal annual installments on each of
June 3, 2014, 2015, 2016 and 2017. The principal amount outstanding under these notes bear interest at the U.S. Prime Rate plus 1% in
effect at the time payments are due. Silvercrest elected not to make the June 3, 2014 payment as it was being assessed as to whether the
former principals had complied with the note covenants and whether any reduction to these notes should be made. In October 2014, certain
reductions totaling $1,722 were agreed to, based upon a review of the note covenants. As a result, the principal amounts of the notes of
$3,578 are payable in four equal installments of approximately $900 on November 1, 2014, and on each of August 1, 2015, 2016 and
2017. As of December 31, 2017 and 2016, $0 and $895, respectively, remained outstanding on the notes issued to the two former
principals. Accrued but unpaid interest on these notes issued to the two former principals was approximately $0 and $17 as of December
31, 2017 and 2016, respectively.
On June 30, 2015, Silvercrest issued promissory notes in an aggregate principal amount of approximately $2,165 in connection with the
Jamison Acquisition. The principal amount outstanding under the notes bears interest at 5% per annum. The principal amounts of the
notes are payable in three equal installments of approximately $722 on each of June 30, 2016, 2017 and 2018. As of December 31, 2017
and 2016, $722 and $1,443, respectively, remained outstanding on these notes. Accrued but unpaid interest on the notes was approximately
$18 and $36 as of December 31, 2017 and 2016, respectively.
10. COMMITMENTS AND CONTINGENCIES
Lease Commitments
The Company leases office space pursuant to operating leases that are subject to specific escalation clauses. Rent expense charged to
operations for the years ended December 31, 2017, 2016 and 2015 amounted to $4,369, $3,760, and $3,766, respectively. The Company
received sub-lease income from subtenants during the years ended December 31, 2017, 2016 and 2015 of $278, $289, and $433,
respectively. Therefore, for the years ended December 31, 2017, 2016 and 2015, net rent expense amounted to $4,091, $3,471, and $3,333,
respectively, and is included in general and administrative expenses in the Consolidated Statement of Operations.
As security for performance under the leases, the Company is required to maintain letters of credit in favor of the landlord totaling $506 as
of December 31, 2017 and 2016. The letter of credit was collateralized by the Company’s revolving credit facility with City National Bank
in 2017 and 2016. Furthermore, the Company maintains an $80 letter of credit in favor of its Boston landlord that is collateralized by the
Company’s revolving credit facility with City National Bank.
In March 2014, the Company entered into a lease agreement for additional office space in Richmond, VA. The lease commenced on May
1, 2014 and expires July 31, 2019. The lease is subject to escalation clauses and provides for a rent-free period of three months. Monthly
rent expense is $5. The Company paid a refundable security deposit of $3. In September 2016, the Company entered into Lease
Amendment Number One (“Amendment Number One”) to expand its space and extend its lease. This expansion will occur on or about
October 1, 2017, and the lease is extended to November 30, 2024. This was further amended on January 16, 2018 (“Amendment Number
Two”) to update the expansion date to January 12, 2018 and to extend the term of the lease to November 30, 2028. The amended lease
provides for a rent credit of $40,000. Monthly rent expense under the amended lease is $10.
In June 2015, the Company entered into a lease agreement for office space in Charlottesville, VA. The lease commenced on June 30, 2015
and expires on June 30, 2018. The lease is subject to escalation clauses and provides for a rent-free period of two months. Monthly rent
expense is $2. The Company paid a refundable security deposit of $2.
In connection with the Jamison Acquisition, the Company assumed lease agreements for office space in Bedminster and Princeton,
NJ. The Bedminster lease, as extended, expires on March 31, 2022. Monthly rent expense on this lease is $11. The Princeton lease, as
extended, expired on April 30, 2016. Monthly rent expense on this lease was $5. Both leases are subject to escalation clauses, and the
Bedminster lease provides for a rent-fee period of four months.
In December 2015, the Company extended its lease related to its New York City office space. The amended lease commences on October
1, 2017 and expires on September 30, 2028. The lease is subject to escalation clauses, and provides for a rent-free period of twelve months
and for tenant improvements of up to $2,080. Monthly rent expense under this extension will be $446.
In January 2016, the Company entered into a lease agreement for office space in Princeton, NJ. The lease commenced April 23, 2016 and
expires on August 31, 2022. This lease replaces the Princeton lease discussed above that expired on April 30, 2016. Monthly rent expense
on this lease is $6. The lease is subject to escalation clauses, and provides for a rent-free period of five months.
F-24
With the Cappiccille Acquisition, the Company assumed a lease agreement for office space in Livingston, NJ. The lease is month-to-
month. Monthly rent expense is $2.
In January 2018, the Company extended its lease related to its Boston, MA office space. The amended lease commences on January 1,
2018 and expires on April 30, 2023. The lease provides for a rent-free period of one month. Monthly rent expense under this extension is
$33.
Future minimum lease payments and rentals under lease agreements which expire through 2028 are as follows:
2018
2019
2020
2021
2022
Thereafter
Total
Minimum Lease
Commitments
Non-cancellable
Subleases
Minimum Net
Rentals
$
$
2,034 $
6,167
6,180
6,193
6,076
33,597
60,247 $
(131) $
—
—
—
—
—
(131) $
1,903
6,167
6,180
6,193
6,076
33,597
60,116
The Company has capital leases for certain office equipment. The Company entered into a capital lease agreement for a telephone system
during 2014. The amount financed was $321 and the lease has a term of five years, which began on March 1, 2014. Monthly minimum
lease payments are $5, and continue through November 30, 2018. On June 30, 2015, the Company assumed certain capital leases for
equipment totaling $253 as part of the Jamison Acquisition. In July 2015, the Company entered into a capital lease for a copier. The
amount financed was $21 and the lease has a term of three years, which began on July 1, 2015. Monthly minimum lease payments are $1,
and continue through June 30, 2018. In October 2015, the Company entered in a capital lease for a copier. The amount financed was $18
and the lease has a term of three years, which began on November 1, 2015. Monthly minimum lease payments are $1, and continue
through October 31, 2018. In January 2017, the Company entered into a capital lease agreement for a copier. The amount financed was
$11 and the lease has a term of two years, which began on January 1, 2017. Monthly minimum lease payments are $1, and continue
through December 31, 2018. In January 2017, the Company entered into a capital lease agreement for two copiers. The amount financed
was $152 and the lease has a term of five years, which began on February 1, 2017. Monthly minimum lease payments are $3, and continue
through January 31, 2022. In July 2017, the Company entered into a lease agreement for four copiers. The amount financed was $72 and
the lease has a term of three years, which began on July 1, 2017. Monthly minimum lease payments are $2, and continue through June 30,
2020. The aggregate principal balance of capital leases was $299 and $267 as of December 31, 2017 and 2016, respectively.
The assets relating to capital leases that are included in equipment are as follows:
Capital lease assets included in furniture and equipment
Capital lease assets included in software
Less: Accumulated depreciation and amortization
December 31,
2017
December 31,
2016
$
$
747 $
58
(426)
379 $
625
58
(374)
309
Depreciation expense relating to capital lease assets was $142, $124 and $123 for the years ended December 31, 2017, 2016 and 2015,
respectively.
Future minimum lease payments under capital leases are as follows:
2018
2019
2020
2021
2022
Total
Future Minimum Lease
Commitments
$
$
157
68
45
28
1
299
F-25
11. EQUITY
SLP historically made, and will continue to make, distributions of its net income to the holders of its partnership units for income tax
purposes as required under the terms of its Second Amended and Restated Limited Partnership Agreement and also made, and will continue
to make, additional distributions of net income under the terms of its Second Amended and Restated Limited Partnership
Agreement. Partnership distributions totaled $6,205, $5,761 and $5,546 for the years ended December 31, 2017, 2016 and 2015,
respectively. Distributions are included in non-controlling interests in the Consolidated Statements of Financial Condition.
Pursuant to SLP’s Second Amended and Restated Limited Partnership Agreement, as amended and restated, partner incentive allocations
are treated as distributions of net income. The remaining net income or loss after partner incentive allocations was generally allocated to
the partners based on their pro rata ownership. Net income allocation is subject to the recovery of the allocated losses of prior periods.
Distributions of partner incentive allocations of net income for the years ended December 31, 2017, 2016 and 2015 amounted to $21,177,
$18,827 and $18,568, respectively. The distributions are included in non-controlling interests in the Consolidated Statements of Financial
Condition and Consolidated Statement of Changes in Equity for the years ended December 31, 2017, 2016 and 2015. The Company treats
SLP’s partner incentive allocations as compensation expense and accrues such amounts when earned. During the years ended December
31, 2017, 2016 and 2015, SLP accrued partner incentive allocations of $25,101, $20,238 and $18,535, respectively.
Silvercrest—Equity
Silvercrest has the following authorized and outstanding equity:
Shares at December 31, 2017
Authorized Outstanding Voting Rights
Economic
Rights
Common shares
Class A, par value $0.01 per share
50,000,000
8,142,120
1 vote per
share (1), (2)
All (1), (2)
Class B, par value $0.01 per share
25,000,000
5,059,319
1 vote per
share (3),(4)
None (3), (4)
Preferred shares
Preferred stock, par value $0.01 per share
10,000,000
—
See footnote (5)
below
See footnote (5)
below
(1)
(2)
(3)
(4)
Each share of Class A common stock is entitled to one vote per share. Class A common stockholders have 100% of the rights of all classes of Silvercrest’s
capital stock to receive dividends.
During 2016, Silvercrest granted 10,582 restricted stock units which will vest and settle in the form of Class A shares of Silvercrest, of which 5,687 remain
unvested as of December 31, 2017.
Each share of Class B common stock is entitled to one vote per share.
Each Class B unit of SLP held by a principal is exchangeable for one share of the Company’s Class A common stock. The principals collectively hold
5,059,319 Class B units, which represents the right to receive their proportionate share of the distributions made by SLP and 486,098 restricted stock units
which will vest and settle in the form of Class B units of SLP. The 486,098 restricted stock units which have been issued to our principals entitle the holders
thereof to participate in distributions from SLP as if the underlying Class B units are outstanding and thus are taken into account to determine the economic
interest of each holder of units in SLP. However, because the Class B units underlying the deferred equity units have not been issued and are not deemed
outstanding, the holders of deferred equity units have no voting rights with respect to those Class B units. Silvercrest will not issue shares of Class B common
stock in respect of deferred equity units of SLP until such time that the underlying Class B units are issued.
(5)
Silvercrest’s board of directors has the authority to issue preferred stock in one or more classes or series and to fix the rights, preferences, privileges and
related restrictions, including dividend rights, dividend rates, conversion rights, voting rights, terms of redemption, redemption prices, liquidation preferences
and the number of shares constituting any class or series, or the designation of the class or series, without the approval of its stockholders.
Silvercrest is dependent on cash generated by SLP to fund any dividends. Generally, SLP will distribute its profits to all of its partners,
including Silvercrest, based on the proportionate ownership each holds in SLP. Silvercrest will fund dividends to its stockholders from its
proportionate share of those distributions after provision for income taxes and other obligations.
F-26
During the year ended December 31, 2017, Silvercrest issued the following shares:
Class A Common Stock
Transaction
Date
# of
Shares
Class A common stock outstanding - January 1, 2017
Issuance of Class A common stock upon conversion of Class B units to Class A common stock March 2017
April 2017
Issuance of Class A common stock upon vesting of restricted stock units
Issuance of Class A common stock upon vesting of restricted stock units
May 2017
Issuance of Class A common stock upon conversion of Class B units to Class A common stock May 2017
Issuance of Class A common stock upon conversion of Class B units to Class A common stock August 2017
Issuance of Class A common stock upon conversion of Class B units to Class A common stock November 2017
Class B common shares outstanding - December 31, 2017
Class B Common Stock
Class B common stock outstanding - January 1, 2017
Cancellation of Class B common stock upon conversion of Class B units to Class A common stock March 2017
Issuance of Class B common stock upon vesting of restricted stock units
May 2016
Cancellation of Class B common stock upon conversion of Class B units to Class A common stock May 2017
June 2017
Issuance of Class B common stock
Issuance of Class B common stock upon vesting of restricted stock units
August 2017
Cancellation of Class B common stock upon conversion of Class B units to Class A common stock August 2017
Cancellation of Class B common stock upon conversion of Class B units to Class A common stock November 2017
Class B common shares outstanding - December 31, 2017
Transaction
Date
8,074,197
26,008
1,000
3,896
2,000
24,119
10,900
8,142,120
# of
Shares
4,866,303
(26,008)
947
(2,000)
13,468
241,628
(24,119)
(10,900)
5,059,319
In March 2017, the Company redeemed from certain existing partners 26,008 shares of Class B common stock in connection with the
exchange of a like number of Class B units to Class A common stock pursuant to the resale and registration rights agreement between the
Company and its principals.
In April 2017, the Company issued 1,000 shares of Class A common stock upon the vesting of restricted stock units.
In May 2017, the Company issued 3,896 shares of Class A common stock and 947 shares of Class B common stock upon the vesting of
restricted stock units.
In May 2017, the Company redeemed from certain existing partners 2,000 shares of Class B common stock in connection with the
exchange of a like number of Class B units to Class A common stock pursuant to the resale and registration rights agreement between the
Company and its principals.
In June 2017, the Company issued 13,468 shares of Class B common stock to certain principals in connection with their admission to SLP.
In August 2017, the Company issued 241,628 shares of Class B common stock upon the vesting of restricted stock units.
In August 2017, the Company redeemed from certain existing partners 24,119 shares of Class B common stock in connection with the
exchange of a like number of Class B units to Class A common stock pursuant to the resale and registration rights agreement between the
Company and its principals.
F-27
In November 2017, the Company redeemed from certain existing partners 10,900 shares of Class B common stock in connection with the
exchange of a like number of Class B units to Class A common stock pursuant to the resale and registration rights agreement between the
Company and its principals.
The total number of shares of Class B common stock outstanding and held by employee-principals equals the number of Class B units
those individuals hold in SLP. Shares of Silvercrest’s Class B common stock are issuable only in connection with the issuance of Class B
units of SLP. When a vested or unvested Class B unit is issued by SLP, Silvercrest will issue to the holder one share of its Class B common
stock in exchange for the payment of its par value, subject to the holder’s agreement to be bound by the terms of a stockholders’ agreement
amongst the Class B stockholders of the Company. Each share of Silvercrest’s Class B common stock will be redeemed for its par value
and cancelled by Silvercrest if the holder of the corresponding Class B unit exchanges or forfeits its Class B unit pursuant to the terms of
the Second Amended and Restated Limited Partnership Agreement of SLP, the terms of the 2012 Equity Incentive Plan of Silvercrest, or
otherwise.
12. NOTES RECEIVABLE FROM PARTNERS
Partner contributions to SLP are made in cash, in the form of five or six year interest-bearing promissory notes and/or in the form of nine
year interest-bearing limited recourse promissory notes. Limited recourse promissory notes were issued in January 2008 and August 2009
with interest rates of 3.53% and 2.77%, respectively. The recourse limitation includes a stated percentage of the initial principal amount of
the limited recourse note plus a stated percentage of the accreted principal amount as of the date upon which all amounts due are paid in
full plus all costs and expenses required to be paid by the borrower and all amounts required to be paid pursuant to a pledge agreement
associated with each note issued. Certain notes receivable are payable in annual installments and are collateralized by SLP’s units that are
purchased with the note. Notes receivable from partners are reflected as a reduction of non-controlling interests in the Consolidated
Statements of Financial Condition.
Notes receivable from partners are as follows:
Beginning balance
New notes receivable issued to partners
Repayment of notes
Interest accrued and capitalized on notes receivable
Ending balance
December 31,
2017
December 31,
2016
$
$
2,085 $
165
(371)
39
1,918 $
2,789
120
(880)
56
2,085
Full recourse notes receivable from partners as of December 31, 2017 and 2016 are $1,093 and $1,207, respectively. Limited recourse
notes receivable from partners as of December 31, 2017 and 2016 are $825 and $878, respectively. There is no allowance for credit losses
on notes receivable from partners as of December 31, 2017 and 2016.
13. RELATED PARTY TRANSACTIONS
During 2017 and 2016, the Company provided services to the following, which operate as feeder funds investing through master-feeder or
mini-master feeder structures:
•
•
•
•
•
•
•
•
•
the domesticated Silvercrest Hedged Equity Fund, L.P. (formed in 2011 and formerly Silvercrest Hedged Equity Fund),
Silvercrest Hedged Equity Fund (International), Ltd. (which invests through Silvercrest Hedged Equity Fund, L.P.),
the domesticated Silvercrest Emerging Markets Fund, L.P. (formed in 2011 and formerly Silvercrest Emerging Markets
Fund),
Silvercrest Emerging Markets Fund (International), Ltd. (which invests through Silvercrest Emerging Markets Fund L.P.),
Silvercrest Market Neutral Fund (currently in liquidation),
Silvercrest Market Neutral Fund (International) (currently in liquidation),
Silvercrest Municipal Advantage Portfolio A LLC,
Silvercrest Municipal Advantage Portfolio P LLC,
Silvercrest Municipal Advantage Portfolio S LLC (formed in 2015),
F-28
•
•
the Silvercrest Jefferson Fund, L.P. (formed in 2014), and
the Silvercrest Jefferson Fund, Ltd. (the Company took over as investment manager in 2014, formerly known as the Jefferson
Global Growth Fund, Ltd.), which invests in Silvercrest Jefferson Master Fund, L.P. (formed in 2014).
The Company also provides services to the following, which operate and invest separately as stand-alone funds:
•
•
•
•
•
•
•
•
•
•
•
the Silvercrest Global Opportunities Fund, L.P. (currently in liquidation),
Silvercrest Global Opportunities Fund (International), Ltd. (currently in liquidation),
Silvercrest Capital Appreciation Fund LLC (currently in liquidation),
Silvercrest International Equity Fund, L.P. (merged into Silvercrest International Fund, L.P. in October 2013),
Silvercrest Municipal Special Situations Fund LLC (merged into Silvercrest Municipal Advantage Portfolio S LLC in 2015),
Silvercrest Municipal Special Situations Fund II LLC (merged into Silvercrest Municipal Advantage Portfolio S LLC in
2015),
Silvercrest Select Growth Equity Fund, L.P. (liquidated as of December 31, 2015),
Silvercrest International Fund, L.P. (previously known as Silvercrest Global Fund, L.P. Silvercrest International Equity
Fund, L.P. merged into this fund in October 2013),
Silvercrest Small Cap Fund, L.P. (currently in liquidation),
Silvercrest Special Situations Fund, L.P., and
Silvercrest Commodity Strategies Fund, L.P. (currently in liquidation).
Pursuant to agreements with the above entities, the Company provides investment advisory services and receives an annual management
fee of 0% to 1.75% of assets under management and a performance fee or allocation of 0% to 10% of the above entities’ net appreciation
over a high-water mark.
For the years ended December 31, 2017, 2016 and 2015 the Company earned management fee income from the funds listed above, which
is included in “Management and advisory fees” in the Consolidated Statement of Operations, of $6,049, $6,188, and $7,503, respectively,
and performance fees and allocations of $613, $303, and $13, respectively, of which $613, $303 and $2, respectively, is included in equity
income from investments and $0, $0 and $11, respectively, is included in performance fees in the Consolidated Statements of Operations.
As of December 31, 2017 and 2016, the Company was owed $1,094 and $2,876, respectively, from its various funds, which is included in
the Due from Silvercrest Funds on the Consolidated Statements of Financial Condition.
For the years ended December 31, 2017, 2016 and 2015, the Company earned advisory fees of $985, $713 and $525, respectively, from
assets managed on behalf of certain of its partners. As of December 31, 2017 and 2016, the Company is owed approximately $6 and $2,
respectively, from certain of its partners, which is included in receivables, net on the Consolidated Statements of Financial Condition.
14. INCOME TAXES
Current Provision:
Federal
State and local
Total Current Provision
Deferred Provision:
Federal
State and local
Total Deferred Provision
Total Provision for Income Taxes
2017
Year Ended December 31,
2016
2015
$
$
2,492 $
2,596
5,088
8,062
584
8,646
13,734 $
1,180 $
1,919
3,099
1,676
(89)
1,587
4,686 $
1,479
1,957
3,436
1,151
2,382
3,533
6,969
F-29
Deferred taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial
reporting purposes and their bases for income tax purposes. The deferred tax expense for the year ended December 31, 2 017 includes
additional deferred tax expense of $7,262 related to the revaluation of the Company’s net deferred tax assets resulting from the reduction in
the federal corporate tax rate due to the Tax Cuts and Jobs Act, which was signed by the President on December 22, 2017. The deferred tax
expense for the year ended December 31, 2015 includes additional deferred tax expense of $1,694 related to revaluation of the Company’s
net deferred tax assets resulting from the reduction in the future statutory corporate tax rates and changes in methods of apportioning
income in New York State & New York City.
As of December 31, 2017 and 2016, the Company had a net deferred tax asset of $11,612 and $19,989, respectively.
A summary of deferred tax assets and liabilities as follows:
Deferred tax assets
Intangible assets
Other
Total deferred tax assets
Deferred tax liabilities
Intangible assets
Investment on underlying SLP partnership
Other
Total deferred tax liabilities
Net deferred tax assets (liabilities)
As of December 31,
2017
2016
$
$
$
$
$
12,817 $
21
12,838 $
247 $
979
—
1,226 $
11,612 $
21,792
—
21,792
221
1,571
11
1,803
19,989
The following table reconciles the provision for income taxes to the U.S. Federal statutory tax rate:
Statutory U.S. federal income tax rate
Income passed through to Partners
State and local income taxes
Permanent items
Discrete expenses due to Corporate Tax Reform
Other
Effective income tax rate
2017
Year Ended December 31,
2016
2015
35.00%
(11.38)%
8.14%
(6.70)%
27.69%
(0.46)%
52.29%
35.00%
(14.17)%
9.78%
0.33%
0.00%
1.01%
31.95%
35.00%
(12.43)%
18.50%
(2.18)%
0.00%
(0.29)%
38.60%
As of December 31, 2017, the Company had net tax payables receivable of $701 which consisted of net federal and state and local tax
payables of $662 and $39, respectively. As of December 31, 2016, the Company had net tax refunds receivable of $2,625 which consisted
of net federal and state and local tax refunds of $1,427 and $1,198, respectively.
Of the total net deferred taxes at December 31, 2017 and 2016, $92 and $95, respectively, of the net deferred tax liabilities relate to non-
controlling interests. These amounts are included in deferred tax and other liabilities on the Consolidated Statement of Financial Position,
respectively.
In the normal course of business, the Company is subject to examination by federal, state, and local tax regulators. As of December 31,
2017, the Company’s U.S. federal income tax returns for the years 2014 through 2016 are open under the normal three-year statute of
limitations and therefore subject to examination.
The impact from the Tax Cuts and Jobs Act of 2017 is incorporated in the 2017 financials. We do not view any items as provisional under
SAB 118 and the Company has finalized its calculation of the impact of tax reform.
F-30
The guidance for accounting for uncertainty in income taxes prescribes a recognition threshold and a measurement attribute for the
financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be
recognized, a tax position must be more likely than not to be sustained upon examination by taxing authorities. The amount recognized is
measured as the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement. The Company does not
believe that it has any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly
increase or decrease within the next twelve months. Furthermore, the Company does not have any material uncertain tax positions at
December 31, 2017 and 2016.
15. REDEEMABLE PARTNERSHIP UNITS
If a principal of SLP is terminated for cause, SLP would have the right to redeem all of the vested Class B units collectively held by the
principal and his or her permitted transferees for a purchase price equal to the lesser of (i) the aggregate capital account balance in SLP of
the principal and his or her permitted transferees and (ii) the purchase price paid by the terminated principal to first acquire the Class B
units.
16. EQUITY-BASED COMPENSATION
Deferred Equity Units
Determining the appropriate fair value model and calculating the fair value of equity compensation awards requires the input of complex
and subjective assumptions, including the expected life of the equity compensation awards and the stock price volatility. In addition,
determining the appropriate amount of associated periodic expense requires management to estimate the amount of employee forfeitures
and the likelihood of the achievement of certain performance targets. The assumptions used in calculating the fair value of equity
compensation awards and the associated periodic expense represent management’s best estimates, but these estimates involve inherent
uncertainties and the application of judgment. As a result, if factors change and the Company deems it necessary in the future to modify the
assumptions it made or to use different assumptions, or if the quantity and nature of the Company’s equity-based compensation awards
changes, then the amount of expense may need to be adjusted and future equity compensation expense could be materially different from
what has been recorded in the current period.
SLP has granted equity-based compensation awards to certain partners under SLP’s 2010, 2011 and 2012 Deferred Equity programs (the
“Equity Programs”). The Equity Programs allow for the granting of deferred equity units based on the fair value of the Company’s units.
These deferred equity units contain both service and performance requirements.
Each grant includes a deferred equity unit (“Deferred Equity Unit”) and performance unit (“Performance Unit”) subject to various terms
including terms of forfeiture and acceleration of vesting. The Deferred Equity Unit represents the unsecured right to receive one unit of
SLP or the equivalent cash value of up to 50% (or such other percentage as may be determined by the Company’s Executive Committee) of
SLP’s units issuable upon the vesting of any such Deferred Equity Units and the remaining 50% in units upon the vesting of any such
Deferred Equity Units. Such cash amount is to be calculated using the equivalent share price of the Silvercrest’s Class A Common Stock as
of the applicable vesting date. The Performance Unit represents the unsecured right to receive one unit of SLP for every two units of SLP
issuable upon the vesting of any such Deferred Equity Units.
Twenty-five percent of the Deferred Equity Units vest on each of the first, second, third, and fourth anniversaries of the grant date until the
Deferred Equity Units are fully vested. The Performance Units are subject to forfeiture and subject to the satisfaction of a predetermined
performance target at the end of the four-year vesting period. If the performance target is achieved, then the Performance Units vest at the
end of the four-year vesting period. The rights of the partners with respect to the Performance Units remain subject to forfeiture at all times
prior to the date on which such rights become vested and will be forfeited if the performance target is not achieved.
Distributions related to Deferred Equity Units that are paid to partners are charged to non-controlling interests. Distributions related to the
unvested portion of Deferred Equity Units that are assumed to be forfeited are recognized as compensation expense because these
distributions are not required to be returned by partners to SLP upon forfeiture.
The grant date fair values of Performance Units were determined by applying a performance probability factor to the Deferred Equity Unit
Value. These methodologies included the use of third party data and discounts for lack of control and marketability.
Only the portion of Deferred Equity Units that can be settled in cash are considered to be liability awards and are adjusted to fair value at
the end of each reporting period.
F-31
For the years ended December 31, 2017, 2016 and 2015, the Company recorded compensation expense related to such units of $ 0, $14 and
$248, respectively, of which $0, $1 and $81, respectively, related to the Performance Units given that there was an explicit service period
associated with the Deferred Equity Units, and the likelihood that the performance target would be met was considered probable.
Distributions include cash distributions paid on liability awards. Cash distributions paid on awards expected to be forfeited were $0 for the
years ended December 31, 2017, 2016 and 2015.
During the years ended December 31, 2017, 2016 and 2015, no vested Deferred Equity Units were settled in cash. As of December 31,
2017 and December 31, 2016, there was no remaining estimated unrecognized compensation expense related to unvested awards.
A summary of these equity grants by the Company as of December 31, 2017, 2016 and 2015 during the periods then ended is presented
below:
Balance at January 1, 2015
Vested
Forfeited
Balance at December 31, 2015
Vested
Forfeited
Balance at December 31, 2016
Deferred Equity Units
Performance Units
Units
52,188 $
(47,277)
—
4,911 $
(4,911)
—
— $
Range of Fair Value
per unit
12.00
(12.00)
—
12.00 $
(12.00)
—
— $
15.65
(13.97)
—
11.89
(10.92)
—
—
Units
96,971 $
(90,585)
—
6,386 $
(6,386)
—
— $
Fair Value
per unit
3.75
(3.75)
—
3.75
(3.75)
—
—
The Company estimated 10% of all awards would be forfeited and the related service period was four years.
Restricted Stock Units
On November 2, 2012, the Company’s board of directors adopted the 2012 Equity Incentive Plan.
A total of 1,687,500 shares were originally reserved and available for issuance under the 2012 Equity Incentive Plan. As of December 31,
2017 and 2016, 690,077 shares were available for grant. The equity interests may be issued in the form of shares of the Company’s Class A
common stock and/or Class B units of SLP. (All references to units or interests of SLP refer to Class B units of SLP and accompanying
shares of Class B common stock of Silvercrest.)
The purposes of the 2012 Equity Incentive Plan are to (i) align the long-term financial interests of our employees, directors, consultants and
advisers with those of our stockholders; (ii) attract and retain those individuals by providing compensation opportunities that are consistent
with our compensation philosophy; and (iii) provide incentives to those individuals who contribute significantly to our long-term
performance and growth. To accomplish these purposes, the 2012 Equity Incentive Plan provides for the grant of units of SLP. The 2012
Equity Incentive Plan also provides for the grant of stock options, stock appreciation rights, or SARs, restricted stock awards, restricted
stock units, performance-based stock awards and other stock-based awards (collectively, stock awards) based on our Class A common
stock. Awards may be granted to employees, including officers, members, limited partners or partners who are engaged in the business of
one or more of our subsidiaries, as well as non-employee directors and consultants.
It is initially anticipated that awards under the 2012 Equity Incentive Plan granted to our employees will be in the form of units of SLP that
will not vest until a specified period of time has elapsed, or other vesting conditions have been satisfied as determined by the Compensation
Committee of the Company’s board of directors, and which may be forfeited if the vesting conditions are not met. During the period that
any vesting restrictions apply, unless otherwise determined by the Compensation Committee, the recipient of the award will be eligible to
participate in distributions of income from SLP. In addition, before the vesting conditions have been satisfied, the transferability of such
units is generally prohibited and such units will not be eligible to be exchanged for cash or shares of our Class A common stock.
In August 2015, the Company granted 966,510 restricted stock units (“RSUs”) under the 2012 Equity Incentive Plan at a fair value of
$13.23 per share to existing Class B unit holders. These RSUs will vest and settle in the form of Class B units of SLP. Twenty-five percent
of the RSUs granted vest and settle on each of the first, second, third and fourth anniversaries of the grant date.
In May 2016, the Company granted 3,791 RSUs under the 2012 Equity Incentive Plan at a fair value of $13.19 per share to existing Class B
unit holders. These RSUs will vest and settle in the form of Class B units of SLP. Twenty-five percent of the RSUs granted vest and settle
on each of the first, second, third and fourth anniversaries of the grant date.
F-32
In May 2016, the Company granted 3,000 RSUs under the 2012 Equity Incentive Plan at a fair value of $13.19 per share to certain
members of the Board of Directors. These RSUs will vest and settle in the form of Class A shares of Silvercrest. One hundred percent of
the RSUs granted vest and settle on the first anniversary of the grant date.
In May 2016, the Company granted 7,582 RSUs under the 2012 Equity Incentive Plan at a fair value of $13.19 per share to an
employee. These RSUs will vest and settle in the form of Class A shares of Silvercrest. Twenty-five percent of the RSUs granted vest and
settle on each of the first, second, third and fourth anniversaries of the grant date.
For the years ended December 31, 2017 and 2016, the Company recorded compensation expense related to such RSUs of $3,248 and
$3,247, respectively, as part of total compensation expense in the Consolidated Statements of Operations for the years then ended. As of
December 31, 2017 and 2016, there was $5,140 and $5,169, respectively, of unrecognized compensation expense related to unvested
awards. As of December 31, 2017 and 2016, the unrecognized compensation expense related to unvested awards is expected to be
recognized over a period of 2.09 and 2.40 years, respectively.
A summary of these RSU grants by the Company as of December 31, 2017 and 2016 is presented below:
Restricted Stock Units
Granted
Total granted at January 1, 2016
Granted in May 2016
Vested in August 2016
Total granted at December 31, 2016
Vested in April 2017
Vested in May 2017
Vested in August 2017
Total granted at December 31, 2017
Units
966,510 $
14,373
(241,627)
739,256 $
(1,000)
(4,843)
(241,627)
491,786 $
Fair Value per unit
13.19 – 13.23
13.19
(13.23)
13.19 – 13.23
(13.19)
(13.19)
(13.23)
13.19 – 13.23
For the years ended December 31, 2017 and 2016, the Company recorded total compensation expense related to such Deferred Equity
Units and Restricted Stock Units of $3,248 and $3,228, respectively, of which $0 and ($32), respectively, related to the Performance Units
given that there was an explicit service period associated with the Deferred Equity Units, and the likelihood that the performance target
would be met was considered probable.
17. DEFINED CONTRIBUTION AND DEFERRED COMPENSATION PLANS
SAMG LLC has a defined contribution 401(k) savings plan (the “Plan”) for all eligible employees who meet the minimum age and service
requirements as defined in the Plan. The Plan is designed to be a qualified plan under sections 401(a) and 401(k) of the Internal Revenue
Code. For employees who qualify under the terms of the Plan, on an annual basis Silvercrest matches dollar for dollar an employee’s
contributions up to the first 4% of compensation. For the years ended December 31, 2017, 2016 and 2015, Silvercrest made matching
contributions of $75, $112 and $86, respectively, for the benefit of employees.
18. SOFT DOLLAR ARRANGEMENTS
The Company obtains research and other services through “soft dollar” arrangements. The Company receives credits from broker-dealers
whereby technology-based research, market quotation and/or market survey services are effectively paid for in whole or in part by “soft
dollar” brokerage arrangements. Section 28(e) of the Securities Exchange Act of 1934, as amended, provides a “safe harbor” to an
investment adviser against claims that it breached its fiduciary duty under state or federal law (including ERISA) solely because the adviser
caused its clients’ accounts to pay more than the lowest available commission for executing a securities trade in return for brokerage and
research services. To rely on the safe harbor offered by Section 28(e), (i) the Company must make a good-faith determination that the
amount of commissions is reasonable in relation to the value of the brokerage and research services being received and (ii) the brokerage
and research services must provide lawful and appropriate assistance to the Company in carrying out its investment decision-making
responsibilities. If the use of soft dollars is limited or prohibited in the future by regulation, the Company may have to bear the costs of
such research and other services. For the years ended December 31, 2017, 2016 and 2015, the Company utilized “soft dollar” credits of
$859, $804 and $940, respectively.
F-33
19. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a summary of the quarterly results of operations of the Company for the years ended December 31, 2017 and 2016.
Revenue
Income before other income (expense), net
Net income
Net income (loss) attributable to Silvercrest
Net income (loss) per share/unit - basic
Net income (loss) per share/unit - diluted
Weighted average shares/units outstanding - basic
Weighted average shares/units outstanding - diluted
Revenue
Income before other income (expense), net
Net income
Net income attributable to Silvercrest
Net income per share/unit - basic
Net income per share/unit – diluted
Weighted average shares/units outstanding - basic
Weighted average shares/units outstanding - diluted
2017
First Quarter Second Quarter Third Quarter Fourth Quarter
21,951 $
24,471
$
4,747 $
5,152
$
3,300 $
1,917
$
1,687 $
(80)
$
(0.01)
0.21 $
$
$
(0.01)
0.21 $
8,136,986
8,078,643
8,136,986
8,089,225
22,845 $
5,316 $
3,714 $
1,872 $
0.23 $
0.23 $
8,119,444
8,125,131
22,091 $
5,154 $
3,600 $
1,858 $
0.23 $
0.23 $
8,104,697
8,111,930
2016
First Quarter Second Quarter Third Quarter Fourth Quarter
21,192
$
3,326
$
2,487
$
1,286
$
0.15
$
0.15
$
8,062,041
8,072,623
19,263 $
3,624 $
2,496 $
1,307 $
0.16 $
0.16 $
7,995,720
7,995,720
20,470 $
4,181 $
2,893 $
1,496 $
0.19 $
0.19 $
8,038,638
8,049,220
19,337 $
3,505 $
2,106 $
926 $
0.12 $
0.12 $
8,027,825
8,034,686
*****
F-34
Subsidiaries of Silvercrest Asset Management Group Inc.
Subsidiary
Silvercrest L.P.
Silvercrest Investors LLC
Silvercrest Investors II LLC
Silvercrest Investors III LLC
Silvercrest Asset Management Group LLC
Silvercrest Financial Services Inc.
MW Commodity Advisors, LLC
Organization and Jurisdiction
Delaware Limited Partnership
Delaware Limited Liability Company
Delaware Limited Liability Company
Delaware Limited Liability Company
Delaware Limited Liability Company
New York Corporation
Delaware Limited Liability Company
Exhibit 21.1
CONSENT OF DELOITTE & TOUCHE LLP
Exhibit 23.1
We consent to the incorporation by reference in this Registration Statement No. 333-190342 on Form S-8 and Registration Statement No.
333-197047 on Form S-3 of our report dated March 9, 2018, relating to the consolidated financial statements of Silvercrest Asset
Management Group Inc. and Subsidiaries (the “Company”), which report expresses an unqualified opinion, appearing in the Annual Report
on Form 10-K of Silvercrest Asset Management Group Inc. for the year ended December 31, 2017.
/s/ Deloitte & Touche LLP
New York, New York
March 9, 2018
CERTIFICATION
Exhibit 31.1
I, Richard R. Hough III, certify that:
1.
2.
3.
4.
I have reviewed this report on Form 10-K of Silvercrest Asset Management Group Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with
respect to the period covered by this report;
Based on my knowledge, the consolidated financial statements, and other financial information included in this report, fairly
present in all material respects the consolidated financial condition, results of operations and cash flows of the registrant as of, and
for, the periods presented in this report;
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rule 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act
Rule 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 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 (the registrant's fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing
the equivalent functions):
(a) 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.
/s/ Richard R. Hough III
Richard R. Hough III
Chairman, Chief Executive Officer, President and Director
(Principal Executive Officer)
Date: March 9, 2018
CERTIFICATION
Exhibit 31.2
I, Scott A. Gerard, certify that:
1.
2.
3.
4.
I have reviewed this report on Form 10-K of Silvercrest Asset Management Group Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with
respect to the period covered by this report;
Based on my knowledge, the consolidated financial statements, and other financial information included in this report, fairly
present in all material respects the consolidated financial condition, results of operations and cash flows of the registrant as of, and
for, the periods presented in this report;
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rule 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act
Rule 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 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 (the registrant's fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing
the equivalent functions):
(a) 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 9, 2018
/s/ Scott A. Gerard
Scott A. Gerard
Chief Financial Officer
(Principal Financial and Accounting Officer)
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Richard R. Hough III, the Chairman, Chief Executive Officer, President and Director of Silvercrest Asset Management Group Inc. (the
“Company”), hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
that:
•
•
The Annual Report on Form 10-K of the Company for the period ended December 31, 2017 as filed with the Securities and
Exchange Commission on the date hereof (the “Form 10-K”), fully complies with the requirements of Section 13(a) or 15(d) of the
Securities Exchange Act of 1934, as amended; and
The information contained in the Form 10-K fairly presents, in all material respects, the financial condition and results of operations
of the Company.
/s/ Richard R. Hough III
Richard R. Hough III
Chairman, Chief Executive Officer, President and Director
(Principal Executive Officer)
Date: March 9, 2018
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Scott A. Gerard, the Chief Financial Officer of Silvercrest Asset Management Group Inc. (the “Company”), hereby certify, pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
•
•
The Annual Report on Form 10-K of the Company for the period ended December 31, 2017 as filed with the Securities and
Exchange Commission on the date hereof (the “Form 10-K”), fully complies with the requirements of Section 13(a) or 15(d) of the
Securities Exchange Act of 1934, as amended; and
The information contained in the Form 10-K fairly presents, in all material respects, the financial condition and results of operations
of the Company.
Exhibit 32.2
Date: March 9, 2018
/s/ Scott A. Gerard
Scott A. Gerard
Chief Financial Officer
(Principal Financial and Accounting Officer)