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VIRTUS_0007_Cover_2015_041715R.indd 1
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COORDINATED CAPABILITIES
SINGULAR FOCUS
2014 ANNUAL REPORT
Summary of Operations
(dollars in millions, except per share data)
Revenues
Operating Income
Operating Income, as Adjusted1
Net Income Attributable to Common Stockholders
Operating Margin
Operating Margin, as Adjusted1
2014
450.6
$
2013
389.2
$
Change
16%
$
$
$
130.7
162.8
97.7
29%
48%
$
$
$
113.5
131.0
75.2
29%
45%
15%
24%
30%
10%
18%
Per Share Data
Weighted Average Shares Outstanding – Diluted (in thousands)
Earnings per Share – Diluted
9,292
10.51
8,433
$ 8.92
$
Assets Under Management
(dollars in millions)
Ending Long-Term Assets Under Management2
$ 56,702.4
$ 56,183.0
1%
By product (12/31/2014):
l Long-Term Open-End Mutual Funds
l Closed-End Mutual Funds
l Variable Insurance Funds
l Separately Managed Accounts3
l Institutional Products3
Total
$ 36,292.3
7,581.4
1,221.9
6,884.8
4,722.0
$ 56,702.4
By asset category (12/31/2014):
l Equity
l Fixed Income
l Alternatives4
l Other5
Total
$ 34,180.7
16,681.6
5,372.4
467.7
$56,702.4
1 Certain supplemental performance measures are provided in addition to, but not as a substitute for, performance measures determined in accordance with GAAP. These
supplemental measures may not be comparable to non-GAAP performance measures of other companies. “Operating Income, as Adjusted” and “Operating Margin, as
Adjusted” are supplemental non-GAAP measures that net the distribution and administration expenses against the related revenue and remove certain non-cash and other
identified amounts. For our definition of these terms, as well as a reconciliation to GAAP measures, see “Reconciliation of Revenues, Operating Expenses and Operating
Income on a GAAP Basis to Revenues, Operating Expenses and Operating Income, as Adjusted” in the Supplemental Financial Information, included as an attachment to
this annual report after the Form 10-K.
2 Represents assets under management excluding cash management strategies
3 Includes assets under management related to options strategies
4 Consists of long/short equity, real estate, master-limited partnerships, and other
5 Consists of option strategies
This report may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, which, by their nature, are subject to
significant risks and uncertainties. Virtus Investment Partners, Inc. intends for these forward-looking statements to be covered by the safe harbor provisions of the federal
securities laws relating to forward-looking statements. For a further discussion, see “Forward-Looking Statements” on page 19 of the attached Form 10-K.
MESSAGE TO SHAREHOLDERS
To Our Fellow Shareholders,
COORDinATED CAp AbiLiTiES
SinGuLAR fOCuS
Virtus Investment Partners (NASDAQ:
VRTS) is a distinctive partnership of
boutique investment managers
singularly committed to the long-term
success of individual and institutional
investors. Our multi-style, multi-
manager approach gives advisors and
their clients unique access to a broad
array of investment capabilities from a
dynamic group of affiliated managers
and select subadvisers, each with
distinct investment style, autonomous
investment process and individual
brand. The combined strength and
disciplined, institutional-quality
strategies of our investment partners
offer solutions that meet a wide variety
of investor needs.
Our accomplishments in 2014 – and the progress that we
made toward the five strategic priorities that guide the
company – were broad-based and substantial:
> We achieved strong financial results in key metrics,
including higher operating income, as adjusted, and earnings
per share, as a result of growth in revenues and assets
under management.
> We expanded our investment capabilities by introducing
distinctive new products, including a suite of liquid alternative
funds, and focused our distribution resources to further
support the financial advisors who sell our products.
> We increased assets under management modestly,
notwithstanding the decrease in sales and flows.
> We maintained a strong balance sheet that provides
significant operating flexibility to position the company for
future growth while returning appropriate levels of capital
to shareholders.
Strategic Priorities
> Maintain a highly differentiated set of quality investment
strategies in a variety of product structures from disciplined
boutique managers
> Enhance our distribution capabilities to increase market
share in existing channels and develop opportunities in new
channels
> Enhance and align shared business support services to
maximize the leveragability of the business
George R. Aylward
President and
Chief Executive Officer
Mark C. Treanor
Chairman
Board of Directors
> Attract and retain the right talent and individual capabilities
to support the growth and success of the business
> Optimize the business model and capital structure to best
position the firm for continued growth
[1]
MESSAGE TO SHAREHOLDERS
Financial Results
In 2014 we achieved significant growth in operating
income, as adjusted, and earnings per share.
Revenue increased by 16 percent to $450.6 million from
$389.2 million in 2013 as a result of the 13 percent
increase in average long-term assets under management.
Operating income, as adjusted – the non-GAAP
performance measure that we believe best illustrates the
Investment Capabilities
ongoing earnings of the company – was $162.8 million
A commitment to providing investors with a well-
for 2014, a 24 percent increase from $131.0 million in
diversified array of distinctive investment strategies to
2013. The related margin increased to 48 percent from
address individual preferences and help navigate
45 percent. The comparable GAAP metric, operating
income, increased 15 percent to $130.7 million from
$113.5 million in 2013, with a related margin that was
unchanged at 29 percent.1
Net income attributable to common shareholders was
$97.7 million or $10.51 per share, an increase of 30
percent from $75.2 million or $8.92 per share in 2013.
changing market cycles is fundamental to our value
proposition, and during 2014 we introduced several
new capabilities:
> The Virtus Alternative Total Solution Fund,
Virtus Alternative Inflation Solution Fund and Virtus
Alternative Income Solution Fund are multi-manager,
multi-strategy open-end mutual funds managed by
Virtus – S&P 500® – Peer Companies2
Change from 1/2/09 Open to 12/31/14 Close
l VRTS l Peers l S&P 500
l 1794%
2340%
1740%
1140%
540%
-60%
[2]
l 167%
l 128%
1/2/09
4/2/10
2/2/11
05/2/12/12
3/2/13
11/2/14
1 The reconciliation of non-GAAP measures to GAAP measures is included as an attachment to this annual report after the Form 10-K.
2 The list of peer asset management companies is included as an attachment to this annual report after the Form 10-K.
Cliffwater Investments, a new majority-owned affiliate that
Strong relative performance remains important to our
is our joint venture with a leading institutional alternatives
product offerings. Twenty-eight of our 34 rated mutual
consultant. These “liquid alternative” funds offer
funds – representing 79 percent of open-end mutual
individual investors access to the hedge and alternative
fund assets – were in 5-, 4-, and 3-star Morningstar-rated
strategies that institutional investors have used for years
funds (on a load-waived basis) at year-end, with highly
to buffer their portfolios from the unpredictability of the
rated funds across all asset classes. On the strength of
financial markets. An education platform for financial
our Emerging Markets Opportunities and Foreign
advisors that takes advantage of the experience and
Opportunities funds, Virtus was ranked by Lipper as a top
broad reach of our distribution team supported the
mutual fund family in the World Equity category of
introduction of the funds.
Barron’s annual survey of fund companies for the second
time in the past four years.3
> Virtus Strategic Income Fund, which leverages the
broad multi-sector fixed-income capabilities of our
Newfleet Asset Management affiliate, seeks opportunities
Distribution
across undervalued sectors of the bond market.
> Virtus International Wealth Masters Fund invests in
companies managed by individuals who have a
Long-term assets under management, which exclude
money market assets, increased by 1 percent to
$56.7 billion at December 31, 2014 from $56.2 billion
substantial amount of their personal wealth invested in
at December 31, 2013, despite lower sales and weaker
the business and mirrors the successful Virtus Wealth
flows. Mutual fund assets under management ended
Masters Fund, also managed by Horizon Asset
2014 at $36.3 billion, compared with $36.4 billion at
Management.
> Duff & Phelps Select Energy MLP Fund (NYSE: DSE),
our ninth closed-end fund, raised $485 million in its
December 31, 2013. Closed-end fund assets under
management grew by 17 percent to $7.6 billion at
December 31, 2014 from $6.5 billion at December 31, 2013.
initial public offering. Managed by Duff & Phelps
After multiple years of consistent growth in mutual fund
Investment Management, DSE gives clients tax-efficient
and total sales and net flows, we were disappointed with
exposure to the growing U.S. energy economy.
2014 flows. These results were below expectations and
> We broadened distribution opportunities by adding
institutional share classes to 10 open-end mutual funds
primarily due to elevated mutual fund redemptions for
certain downside-protection and long/short equity
strategies. Total sales were $15.2 billion with net flows
for the defined contribution market and opening the
of $(1.2) billion, compared with $21.3 billion and $8.1
Virtus GF Multi-Sector Short-Duration Bond Fund, the
billion, respectively, in 2013. Long-term open-end mutual
first fund on our collective investment platform for
fund sales were $12.7 billion with net flows of $(0.5)
non-U.S. clients.
billion, compared with $19.1 billion in sales and $8.1
billion in net flows in 2013.
1 The reconciliation of non-GAAP measures to GAAP measures is included as an attachment to this annual report after the Form 10-K.
2 The list of peer asset management companies is included as an attachment to this annual report after the Form 10-K.
3 Additional information about fund performance is included as an attachment to this annual report after the Form 10-K.
[3]
Capital and Balance Sheet
that are focused on infrastructure and technology
projects aimed at meeting the world’s growing need for
Consistently strong financial performance – including five
water, food, and energy. We developed a new relationship
consecutive years of growth in operating income, as
adjusted – has strengthened our balance sheet,
increased our financial flexibility, allowed us to invest in
the business, and supported our goal of providing a
meaningful return to our shareholders.
with Aviva Investors, which will manage a global tactical
asset allocation mutual fund. We made a majority
investment in ETF Issuer Solutions, an early-stage
company that operates a platform for listing, operating,
and distributing exchange-traded funds.
> We ended 2014 with cash and investments of $469.5
million or the equivalent of $52.31 per share, an increase
of 18 percent from $398.4 million or $43.75 per share at
As we look toward 2015 and beyond, we believe Virtus
is well positioned with distinctive products from our
boutique asset management partners. We remain
the end of 2013. We have no outstanding debt and $75
intensely focused on delivering on our commitment to
million of unused capacity on our credit facility.
provide suitable investment solutions that are the building
blocks of a well-diversified investment portfolio.
We appreciate the trust and confidence our clients have
placed in Virtus and we look forward to continuing to
serve the needs of financial advisors and their clients
while delivering long-term value to our shareholders.
On behalf of the entire board, management team and
staff at Virtus, we thank you for your investment in our
company.
Sincerely,
George R. Aylward
President and
Chief Executive Officer
Mark C. Treanor
Chairman
> Our seed capital portfolio grew to $238.1 million from
$123.6 million at the end of 2013. We invested $130.0
million in the three alternative funds, $30.0 million in
fixed income strategies, and $5.0 million in International
Wealth Masters, among new strategies funded in 2014,
and recycled $52.7 million from successful strategies.
> We initiated a $0.45 per share quarterly cash dividend,
and continued our share repurchase and net share
settlement programs, which combined to return $61.7
million to shareholders – an increase of 127 percent over
2013.
Positioning for the Future
Our diversified product offerings, advisor-focused
distribution approach, strong financial position, and
flexible business model give us the ability to build on
our recent accomplishments to sustain our success.
We began 2015 by further enhancing investment
capabilities. We introduced the Virtus Essential
Resources Fund, managed by Kleinwort Benson
Investors International, which invests in companies
[4]
bOARD Of DiRECTORS
From left: Timothy A. Holt, Edward M. Swan, Jr., Melody L. Jones, Stephen T. Zarrilli, George R. Aylward, Mark C. Treanor,
James R. Baio, Susan S. Fleming, Russel C. Robertson, Diane M. Coffey
George R. Aylward
President and Chief Executive Officer
Virtus Investment Partners
Melody L. Jones 2
Chief Administrative Officer
CEB
James R. Baio 1,2
Chief Financial Officer, Treasurer
and Executive Vice President (Retired)
Franklin Templeton Investments
Diane M. Coffey 2,3
Managing Director and Partner
Peter J. Solomon Company, Ltd.
Susan S. Fleming, Ph.D. 3,4
Consultant and Executive Educator
Timothy A. Holt 1,4
Senior Vice President and
Chief Investment Officer (Retired)
Aetna, Inc.
Russel C. Robertson
Executive Vice President and Head, Anti-Money Laundering
BMO Financial Group
Edward M. Swan, Jr. 1,4
President (Retired)
FIS Group
Mark C. Treanor 2,3
Non-Executive Chairman of the Board of Directors
Senior Partner (Retired)
Treanor Pope & Hughes
Stephen T. Zarrilli 1
President and Chief Executive Officer
Safeguard Scientifics, Inc.
Board Committees
1 Audit
2 Compensation
3 Governance
4 Risk and Finance
[5]
pRinCipAL CORpORATE OffiCERS
From left: Barry M. Mandinach, W. Patrick Bradley, Francis G. Waltman, George R. Aylward,
Mardelle W. Peña, Mark S. Flynn, Michael A. Angerthal
George R. Aylward
President,
Chief Executive Officer and Director
Michael A. Angerthal
Executive Vice President
Chief Financial Officer and Treasurer
W. Patrick Bradley
Senior Vice President
Fund Services
Mark S. Flynn
Executive Vice President
General Counsel and
Corporate Secretary
Barry M. Mandinach
Executive Vice President
Head of Distribution
Mardelle W. Peña
Senior Vice President
Human Resources
Francis G. Waltman
Executive Vice President
Head of Product Management
[6]
SHAREHOLDER infORMATiOn
Security Listing
The common stock of Virtus Investment Partners, Inc. is traded
on the NASDAQ Global Market under the symbol “VRTS.”
Transfer Agent and Registrar
For information or assistance regarding your account,
please contact our transfer agent and registrar:
Virtus Investment Partners
c/o Computershare Investor Services
P.O. Box 43078
Providence, RI 02940
Toll-free (within U.S.): 866-205-7273
Foreign Shareowners: 413-775-6091
TDD for Foreign Shareowners: 781-575-2300
Web Site: www.computershare.com/investor
E-mail: investor.relations@virtus.com
Annual Meeting of Shareholders
All shareholders are invited to attend the annual meeting of Virtus
Investment Partners on Thursday, May 28, 2015, at 10:30 a.m. EDT at
100 Pearl Street, 2nd Floor, Hartford, CT.
For More Information
To receive additional information about Virtus Investment Partners
and access to other shareholder services, visit Investor Relations in the
“About Us” section of our Web site at www.virtus.com, or contact us at:
Virtus Investment Partners, Inc.
Investor Relations
100 Pearl Street
Hartford, CT 06103
Telephone: 800-248-7971 (Option 2)
Fax: 413-774-1714
e-mail: investor.relations@virtus.com
Affiliated Companies
Duff & Phelps
Investment Management Co.
200 S. Wacker Drive
Suite 500
Chicago, IL 60606
312-263-2610
Cliffwater Investments LLC
100 Pearl Street
Hartford, CT 06103
860-263-4707
Euclid Advisors LLC
1540 Broadway
Suite 1600
New York, NY 10036
646-376-5913
Kayne Anderson Rudnick
Investment Management, LLC
1800 Avenue of the Stars
Second Floor
Los Angeles, CA 90067
800-231-7414
Newfleet Asset Management, LLC
100 Pearl Street
Hartford, CT 06103
860-760-5828
Newfound Investments, LLC
100 Pearl Street
Hartford, CT 06103
860-263-4707
Rampart Investment
Management Co., Inc.
One International Place
Boston, MA 02110
617-342-6900
Zweig Advisers LLC
1540 Broadway
New York, NY 10036
800-272-2700
For more information on the Virtus Mutual Funds or other products, call your financial representative or visit our Web site
at www.virtus.com.
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VIRTUS_0007_Cover_2015_041715R.indd 1
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COORDINATED CAPABILITIES
SINGULAR FOCUS
2014 ANNUAL REPORT
2014 FORM 10-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
È ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2014
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 1-10994
VIRTUS INVESTMENT PARTNERS, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
95-4191764
(I.R.S. Employer
Identification No.)
100 Pearl St., Hartford, CT 06103
(Address of principal executive offices)
Registrant’s telephone number, including area code
(800) 248-7971
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, $.01 par value
(including attached Preferred Share Purchase Rights)
Name of each exchange on which registered
The NASDAQ Stock Market LLC
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. È Yes ‘ No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. ‘ Yes È 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. È 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). È 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 definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer È
Non-accelerated filer ‘ (Do not check if a smaller reporting company)
‘
Accelerated filer
Smaller reporting company ‘
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). ‘ Yes È No
The aggregate market value of the registrant’s voting and non-voting common equity held by non-affiliates computed by reference to the price at
which the common equity was last sold (based on the closing share price as quoted on the NASDAQ Global Market) as of the last business day of the
registrant’s most recently completed second fiscal quarter was $1,535,144,421. For purposes of this calculation, shares of common stock held or
controlled by executive officers and directors of the registrant have been treated as shares held by affiliates.
There were 8,977,784 shares of the registrant’s common stock outstanding on February 12, 2015.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s Proxy Statement which will be filed with the SEC in connection with the 2015 Annual Meeting of Shareholders are
incorporated by reference into Part III of this Form 10-K.
Virtus Investment Partners, Inc.
Annual Report on Form 10-K for the Fiscal Year Ended December 31, 2014
PART I
Item 1.
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1A. Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1B. Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 2.
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 3.
Mine Safety Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 4.
PART II
Item 5.
Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 6.
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations . . . .
Item 7A. Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 8.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . . .
Item 9.
Item 9A. Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 9B. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART III
Item 10. Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 11.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Item 12.
Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Certain Relationships and Related Transactions, and Director Independence . . . . . . . . . . . . . . .
Principal Accounting Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 13.
Item 14.
PART IV
Page
1
11
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19
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20
21
23
24
43
43
43
43
45
46
46
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47
Item 15.
Exhibits, Financial Statement Schedules
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
48
“We,” “us,” “our,” the “Company” and “Virtus” as used in this Annual Report on Form 10-K (“Annual
Report”), refer to Virtus Investment Partners, Inc., a Delaware corporation, and its subsidiaries.
PART I
Item 1.
Business.
Organization
Virtus Investment Partners, Inc. (the “Company”) commenced operations on November 1, 1995 through a
reverse merger with Duff & Phelps Corporation. The Company was a majority-owned subsidiary of The Phoenix
Companies, Inc. (“PNX”) from 1995 to 2001 and a wholly-owned subsidiary of PNX from 2001 until 2008. On
December 31, 2008, PNX distributed 100% of Virtus common stock to PNX stockholders in a spin-off
transaction.
Our Business
We are a provider of investment management and related services to individuals and institutions. We use a
multi-manager, multi-style approach, offering investment strategies from affiliated managers and select
unaffiliated subadvisors, each having its own distinct investment style, autonomous investment process and
individual brand. By offering a broad array of products, we believe we can appeal to a greater number of
investors, which allows us to have opportunities across market cycles and through changes in investor
preferences.
We provide our products in a number of forms and through multiple distribution channels. Our retail
products include open-end mutual funds, closed-end funds, variable insurance funds and separately managed
accounts. Our open-end mutual funds are distributed through intermediaries. Our closed-end funds trade on the
New York Stock Exchange. Our variable insurance funds are available as investment options in variable
annuities and life insurance products distributed by life insurance companies. Separately managed accounts are
comprised of intermediary programs, sponsored and distributed by unaffiliated brokerage firms, and private
client accounts, which are offered to the high net-worth clients of our affiliated managers. We also manage
institutional accounts for corporations, multi-employer retirement funds, public employee retirement systems,
foundations, endowments and as a subadviser to unaffiliated mutual funds. Our earnings are primarily driven by
asset-based fees charged for services relating to these products including investment management, fund
administration, distribution and shareholder services. These fees are based on a percentage of assets under
management (“AUM”) and are calculated using daily or weekly average assets, quarter-end assets or average
month-end assets.
Our Investment Managers
Our investment management services are provided by investment managers who are registered investment
advisers under the Investment Advisers Act of 1940, as amended (the “Investment Advisers Act”). The
investment managers are responsible for portfolio management activities for our retail and institutional products
operating under advisory or subadvisory agreements. We provide our affiliated managers with distribution,
operational and administrative support, thereby allowing each affiliated manager to focus primarily on
investment management. We also engage select unaffiliated subadvisers for certain of our open-end mutual
funds, separately managed accounts and variable insurance funds. At December 31, 2014, $21.6 billion or 38.1%
of our assets under management were managed by unaffiliated subadvisers. We monitor the quality of our
managers’ services by assessing their performance, style, consistency and the discipline with which they apply
their investment process.
1
Our affiliated investment managers and their respective assets under management, styles and strategies are as follows:
Duff & Phelps
Investment
Management
Newfleet
Asset
Management
Kayne
Anderson
Rudnick
Investment
Management
Zweig/Euclid
Advisors
Rampart
Investment
Management
Newfound
Investments
Cliffwater
Investments
Affiliated Managers
AUM at
December 31, 2014
($ in billions)
$10.8
$12.5
$9.3
$1.7
$0.6
$ —
$0.2
Location
Chicago, IL
Hartford, CT
Los Angeles, CA
New York, NY
Boston, MA
Hartford, CT
Hartford, CT
Investment Style
Quality-oriented,
equity income;
high quality fixed
income
Multi-sector,
value-driven
fixed income
Quality at a
reasonable price
Growth at a
reasonable price,
high quality
fixed income
Systematic,
disciplined
options solutions
Quantitative,
tactical model
driven portfolios
Multi-manager
alternative
portfolios
Investment Types
Equities
• Utilities
Fixed Income
• Tax
Advantaged
• High Grade
Core
• Municipals
• Multi-sector
• Core
• Core Plus
• Bank Loans
• High Yield
• Municipals
• Emerging
Markets
• Large, Mid &
Small Cap
Core/ Growth/
Value
• Large Cap
Core
• Tactical Asset
Allocation
• Large Cap
Core
• Low
Volatility
• Domestic and
International
• International &
• International
Emerging
Markets
Small-Cap
• California
Municipals
• U.S.
Government
Grade Agencies
• Core Plus
• Intermediate
Total Return &
Government
• Investment
Grade
Corporates
• Sovereign
Alternative/Other
• REITs
• Infrastructure
• MLPs
• Options
Strategies
• Multi-Strategy
Products
Open-End
Mutual Funds
Closed-End
Funds
Variable
Insurance Funds
Separately
Managed
Accounts
Institutional
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
2
Our Investment Products
Our assets under management are comprised of open-end mutual funds, closed-end funds, variable
insurance funds, separately managed accounts (intermediary sponsored and private client) and institutional
accounts (traditional institutional mandates and structured products).
Assets Under Management by Product as of December 31, 2014
($ in billions)
Retail Products
Mutual fund assets
Open-end mutual funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Closed-end funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total mutual fund assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Separately managed accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Variable insurance funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total retail assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total institutional assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total AUM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$36.3
7.6
43.9
6.9
1.2
52.0
4.7
$56.7
3
Open-End Mutual Funds
As of December 31, 2014, we managed 49 U.S. domiciled open-end mutual funds with total assets of $36.3
billion. Our U.S. domiciled, open-end mutual funds are offered in a variety of asset classes (equity, fixed income,
asset allocation and alternative investments), in all market capitalizations (large, mid and small), in different
styles (growth, blend and value) and with various investment approaches (fundamental, quantitative and
thematic). In 2013, we established an Ireland domiciled fund platform under the European Union framework for
Undertakings for Collective Investment in Transferable Securities (“UCITS”), which we refer to as the Global
Funds, to offer select investment strategies to non-US investors. At December 31, 2014, assets under
management in these open-end funds were $23.6 million.
Our open-end mutual funds as of December 31, 2014 were as follows:
Fund Type/Name
Inception
Assets
Advisory
Fee (1)
3-Year
Average
Return (2)
($ in millions)
(%)
(%)
Alternatives
Virtus Dynamic Alpha-Sector Fund (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Virtus Real Estate Securities Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Virtus Global Dividend Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Virtus Alternative Total Solution Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Virtus Global Real Estate Securities Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Virtus Alternative Income Solution Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Virtus International Real Estate Securities Fund . . . . . . . . . . . . . . . . . . . . . . .
Virtus Alternative Inflation Solution Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Virtus Herzfeld Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Virtus Global Commodities Stock Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Virtus Alternative Diversifier (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asset Allocation
Virtus Allocator Premium AlphaSector™ Fund (3) . . . . . . . . . . . . . . . . . . . . .
Virtus Balanced Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Virtus Tactical Allocation Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity
Virtus Premium AlphaSector™ Fund (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Virtus AlphaSector™ Rotation Fund (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Virtus Contrarian Value Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Virtus Strategic Growth Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Virtus Small-Cap Core Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Virtus Quality Small-Cap Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Virtus Growth & Income Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Virtus Wealth Masters Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Virtus Small-Cap Sustainable Growth Fund . . . . . . . . . . . . . . . . . . . . . . . . . .
Virtus Mid-Cap Growth Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Virtus Quality Large-Cap Value Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Virtus Mid-Cap Core Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Virtus Low Volatility Equity Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Virtus Disciplined Equity Style Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fixed Income
Virtus Multi-Sector Short Term Bond Fund . . . . . . . . . . . . . . . . . . . . . . . . . . .
Virtus Senior Floating Rate Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Virtus Multi-Sector Intermediate Bond Fund . . . . . . . . . . . . . . . . . . . . . . . . . .
Virtus Low Duration Income Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Virtus Tax-Exempt Bond Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Virtus High Yield Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Virtus Bond Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Virtus CA Tax-Exempt Bond Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Virtus Emerging Markets Debt Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Virtus Strategic Income Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Virtus Disciplined Select Bond Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4
1998
1995
2004
2014
2009
2014
2007
2014
2012
2011
2005
2011
1975
1940
2010
2003
1997
1995
2002
2006
1997
2012
2006
1975
2005
2009
2013
2012
1992
2008
1989
1999
2001
1980
1998
1983
2012
2014
2012
$1,896.7
1,664.9
168.1
75.3
66.8
41.5
40.1
32.4
24.5
10.9
—
680.9
587.6
188.9
6,187.2
988.7
466.8
437.7
374.4
266.8
159.4
145.9
119.0
89.2
87.3
8.1
4.8
2.4
8,711.4
796.4
361.7
218.9
196.8
85.1
76.2
34.3
28.1
24.4
1.5
1.50-1.40
0.75-0.65
0.65-0.55
1.95-1.90
0.85-0.75
1.80-1.75
1.00-0.90
1.75-1.70
1.00-0.95
1.00-0.90
—
1.10-1.00
0.55-0.45
0.70-0.60
1.10
0.45-0.40
0.75-0.70
0.70-0.60
0.75
0.70
0.75-0.65
0.85-0.80
0.90-0.80
0.80-0.70
0.75-0.65
0.80-0.70
0.95-0.85
1.00-0.90
0.55-0.45
0.60-0.50
0.55-0.45
0.55-0.45
0.45
0.65-0.55
0.45-0.40
0.45-0.35
0.75-.0.70
0.80-0.75
0.80-0.70
12.41
15.31
12.29
n/a
15.49
n/a
15.02
n/a
n/a
(5.72)
4.43
5.51
10.64
11.32
13.40
16.89
16.26
17.71
15.12
15.51
18.48
n/a
17.45
14.28
17.31
19.14
n/a
n/a
4.17
5.07
6.09
3.15
4.09
8.02
4.06
5.12
n/a
n/a
n/a
Fund Type/Name
Inception
Assets
Advisory
Fee (1)
3-Year
Average
Return (2)
International/Global
Virtus Emerging Markets Opportunities Fund . . . . . . . . . . . . . . . . . . . . . . . . .
Virtus Foreign Opportunities Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Virtus Global Premium AlphaSector™ Fund (3) . . . . . . . . . . . . . . . . . . . . . . .
Virtus Global Opportunities Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Virtus Emerging Markets Equity Income Fund . . . . . . . . . . . . . . . . . . . . . . . . .
Virtus International Small-Cap Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Virtus Greater European Opportunities Fund . . . . . . . . . . . . . . . . . . . . . . . . . .
Virtus International Equity Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Virtus Emerging Markets Small Cap Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Virtus International Wealth Masters Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Virtus Disciplined Select Country Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Global Funds
Virtus GF Multi-Sector Short Duration Bond Fund . . . . . . . . . . . . . . . . . . . . .
Virtus GF U.S. Small Cap Focus Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1999
1990
2011
1960
2012
2012
2009
2010
2013
2014
2012
2013
2014
($ in millions)
(%)
(%)
8,557.9
1,892.3
182.2
133.6
77.3
37.1
15.6
10.3
5.0
4.9
1.4
1.00-0.95
0.85-0.75
1.10-1.00
0.85-0.75
1.05-1.00
1.00-0.95
0.85-0.80
0.85-0.75
1.20-1.15
0.90-0.85
1.10-1.00
20.0
3.6
1.75-0.55
2.15-0.80
$36,292.3
5.83
9.24
7.53
13.76
n/a
n/a
10.45
8.66
n/a
n/a
n/a
n/a
n/a
(1) Percentage of average daily net assets of each fund. The percentages listed represent the range of
management advisory fees paid by the funds, from the highest to the lowest. A range indicates that the fund
has breakpoints at which management advisory fees decrease as assets in the funds increase. We pay
subadvisory fees on funds managed by unaffiliated subadvisers, which are not reflected in the percentages
listed.
(2) Represents average annual total return performance of the largest share class as measured by net assets for
which performance data is available.
(3) This fund invests in other Virtus open-end mutual funds and/or unaffiliated exchange traded funds. The
related assets invested in other Virtus open-end mutual funds are reflected only in the balances of the
respective funds.
Past performance does not guarantee future results. Investment return and principal value will fluctuate so
that shares, when redeemed, may be worth more or less than their original cost.
5
Closed-End Funds
We managed nine closed-end funds as of December 31, 2014, each of which is traded on the New York
Stock Exchange, with aggregate assets of $7.6 billion. Closed-end funds do not continually offer to sell and
redeem their shares; rather, daily liquidity is provided by the ability to trade the shares of these funds at prices
that may be above or below the shares’ net asset value.
Our closed-end funds as of December 31, 2014 are as follows:
Fund Type/Name
Balanced
Assets
Advisory
Fee
($ in billions)
%
DNP Select Income Fund Inc. . . . . . . . . . . . . . . . .
Zweig Total Return Fund Inc. . . . . . . . . . . . . . . . .
Virtus Total Return Fund . . . . . . . . . . . . . . . . . . .
Equity
Duff & Phelps Global Utility Income Fund
Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . .
Zweig Fund Inc.
Alternatives
Duff & Phelps Select Energy MLP Fund . . . . . . .
Fixed Income
Duff & Phelps Utility and Corporate Bond Trust
Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Virtus Global Multi-Sector Income Fund . . . . . . .
DTF Tax-Free Income Inc. . . . . . . . . . . . . . . . . . .
Total Closed-End Funds . . . . . . . . . . . . . . . . . . .
$3.8
0.5
0.2
1.2
0.4
0.6
0.4
0.3
0.2
$7.6
0.60-0.50 (1)
0.70(2)
0.85(2)
1.00(2)(3)
0.85(2)
1.00(2)
0.50(1)
0.95(2)
0.50(1)
(1) Percentage of average weekly net assets. The percentage listed represents the range of management advisory
fees paid by the funds, from the highest to the lowest. A range indicates that the fund has breakpoints at
which management advisory fees decrease as assets in the fund increase.
(2) Percentage of average daily net assets of each fund.
(3) The adviser has contractually agreed to waive a portion of its fee for a period of time, which is not reflected
in the percentage listed.
Separately Managed Accounts
Separately managed accounts are individually owned portfolios that include intermediary sponsored
programs, whereby an intermediary assists individuals in hiring investment managers that have been approved by
the broker-dealer to fulfill those objectives and private client accounts that are accounts of high net-worth
individuals who are direct clients of our affiliated managers. Separately managed account assets totaled $6.9
billion at December 31, 2014.
Variable Insurance Funds
Our variable insurance funds are available as investment options in variable annuities and life insurance
products distributed by life insurance companies.
6
Our variable insurance funds as of December 31, 2014 were as follows:
Fund Type/Name
Equity
Assets
Advisory
Fee (1)
($ in billions)
%
Virtus International Series . . . . . . . . . . . . . . . . . . .
Virtus Capital Growth Series . . . . . . . . . . . . . . . . .
Virtus Growth and Income Series . . . . . . . . . . . . .
Virtus Small-Cap Growth Series . . . . . . . . . . . . . .
Virtus Real Estate Securities Series . . . . . . . . . . . .
Virtus Small-Cap Value Series . . . . . . . . . . . . . . .
Fixed Income
Virtus Multi-Sector Fixed Income Series . . . . . . .
Asset Allocation
Virtus Strategic Allocation Series . . . . . . . . . . . . .
Total Variable Insurance Funds . . . . . . . . . . . . .
$0.3
0.2
0.1
0.1
0.1
0.1
0.2
0.1
$1.2
0.75-0.65
0.70-0.60
0.70-0.60
0.85
0.75-0.65
0.90
0.50-0.40
0.60-0.50
(1) Percentage of average daily net assets of each fund. The percentage listed represents the range of
management advisory fees paid by the funds, from the highest to the lowest. A range indicates that the fund
has breakpoints at which management advisory fees decrease as assets in the fund increase. Subadvisory
fees paid on funds managed by unaffiliated subadvisers are not reflected in the percentages listed.
Institutional Accounts
We offer a variety of equity and fixed income strategies to institutional clients, including corporations,
multi-employer retirement funds, public employee retirement systems, foundations, endowments and as a
subadviser to unaffiliated mutual funds. Our institutional assets under management totaled $4.7 billion as of
December 31, 2014.
Our Investment Management, Administration and Transfer Agent Fees
Our investment management fees, administration fees and transfer agent fees earned in each of the last three
years were as follows:
Years Ended December 31,
2014
2013
2012
($ in thousands)
Investment management fees:
Open-end mutual funds . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Closed-end funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Variable insurance funds . . . . . . . . . . . . . . . . . . . . . . . . . . .
Separately managed accounts . . . . . . . . . . . . . . . . . . . . . . . .
Institutional accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total investment management fees . . . . . . . . . . . . . . .
Administration fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Transfer agent fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$196,221
46,659
6,475
35,152
16,156
300,663
39,374
16,642
$166,596
39,921
7,347
31,510
15,183
260,557
33,736
14,449
$109,327
35,361
6,388
23,245
13,554
187,875
23,646
10,133
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$356,679
$308,742
$221,654
Investment Management Fees
We provide investment management services pursuant to investment management agreements through our
affiliated investment advisers (each, an “Adviser”). With respect to our open-end mutual funds, closed-end funds
and variable insurance funds, the Adviser provides overall management services to a fund, subject to supervision
7
by the fund’s board of directors, pursuant to agreements that must be approved annually by each fund’s board of
directors and which may be terminated by either party upon written notice, or automatically, in certain situations,
such as a “change in control” of the Adviser. We earn fees based on each fund’s average daily or weekly net
assets with most fee schedules providing for rate declines or “breakpoints” as asset levels increase to certain
thresholds. For funds managed by a subadviser, the agreement provides that the subadviser manage the day-to-
day investment management of the fund’s portfolio and receive a management fee from the Adviser based on the
percentage of average daily net assets in the funds they subadvise or a percentage of the Adviser’s management
fee. Each fund bears all expenses associated with its operations. In some cases, to the extent total fund expenses
exceed a specified percentage of a fund’s average net assets, the Adviser has agreed to reimburse the funds for
such excess expenses or voluntarily waive a portion of its fee for a period of time.
For separately managed accounts and institutional accounts, fees are negotiated and are based primarily on
asset size, portfolio complexity and individual client requests.
Administration Fees
We provide fund administration services to our open-end mutual funds, variable insurance funds and certain
of our closed-end funds. We earn fees based on each fund’s average daily or weekly net assets. Administrative
services include recordkeeping, preparing and filing documents required to comply with federal and state
securities laws, legal administration and compliance services, supervising the activities of the funds’ other
service providers, providing assistance with fund shareholder meetings, tax services and treasury services as well
as providing office space, equipment and personnel that may be necessary for managing and administering the
business affairs of the funds.
Transfer Agent Fees
We provide shareholder services to our open-end mutual funds. We earn fees based on each fund’s average
daily net assets. Shareholder services include maintaining shareholder accounts, processing shareholder
transactions, preparing filings and performing necessary reporting, among other things. We engage third-party
service providers to perform certain aspects of the shareholder services.
Our Distribution Services
We distribute our open-end mutual funds through financial intermediaries. We have broad access in the
retail market, with distribution partners that include national and regional broker-dealers and independent
financial advisory firms. Our sales efforts are supported by regional sales professionals, a national account
relationship group and separate teams for the retirement and insurance markets.
Our separately managed accounts are distributed through financial intermediaries and directly by teams at
our affiliated managers. Our institutional distribution strategy is an affiliate-centric model. Through relationships
with consultants, they target key market segments, including foundations and endowments, corporate, public and
private pension plans and subadvisory accounts.
Our Broker-Dealer Services
VP Distributors, LLC (“VPD”), a wholly-owned subsidiary of the Company, is a broker-dealer registered
under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and is a member of the Financial
Industry Regulatory Authority (“FINRA”). VPD serves as principal underwriter and distributor of our open-end
mutual funds and our separately managed accounts. Open-end mutual fund shares are distributed by VPD under
sales agreements with unaffiliated financial intermediaries. VPD also markets advisory services to sponsors of
separately managed account programs.
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Our Competition
We face significant competition from a wide variety of financial institutions, including other investment
management companies, as well as from proprietary products offered by our distribution partners such as banks,
broker-dealers and financial planning firms. Competition in our businesses is based on several factors including
investment performance, access to distribution channels, service to financial advisers and their clients and fees
charged. Our competitors, many of which are larger than we are, often offer similar products, use similar
distribution sources, may offer less expensive products, may have greater access to key distribution channels and
may have greater resources than we do.
Our Regulatory Matters
We are subject to regulation by the Securities and Exchange Commission (“SEC”), FINRA and other
federal and state agencies and self-regulatory organizations. Each affiliated manager and unaffiliated subadviser
is registered with the SEC under the Investment Advisers Act. Each open-end mutual fund, closed-end fund and
each series of our variable insurance fund is registered with the SEC under the Investment Company Act of 1940.
Our Global Funds are subject to regulation by the Central Bank of Ireland (“CBI”). The Global Funds and each
investment manager and sub-investment manager to the Global Funds are registered with the CBI.
The financial services industry is highly regulated and failure to comply with related laws and regulations
can result in the revocation of registrations, the imposition of censures or fines and the suspension or expulsion
of a firm and/or its employees from the industry. All of our U.S.-domiciled open-end mutual funds are currently
available for sale and are qualified in all 50 states, Washington, D.C., Puerto Rico, Guam and the U.S. Virgin
Islands. Our Global Funds are sold through financial intermediaries to investors who are not citizens of or
residents of the United States. Most aspects of our investment management business, including the business of
the unaffiliated subadvisers, are subject to various U.S. federal and state laws and regulations.
Our officers, directors and employees may, from time to time, own securities that are also held by one or
more of our funds. Our internal policies with respect to personal investments are established pursuant to the
provisions of the Investment Company Act and/or the Investment Advisers Act. Employees, officers and
directors who, in the function of their responsibilities to us, meet the requirements of the Investment Company
Act, Investment Advisers Act and/or of FINRA regulations, must disclose personal securities holdings and
trading activity. Those employees, officers and directors with investment discretion or access to investment
decisions are subject to additional restrictions with respect to the pre-clearance of the purchase or sale of
securities over which they have investment discretion or beneficial interest. Other restrictions are imposed upon
supervised persons with respect to personal transactions in securities held, recently sold or contemplated for
purchase by our mutual funds. All supervised persons are required to report holdings and transactions on an
annual and quarterly basis pursuant to the provisions of the Investment Company Act and Investment Advisers
Act. In addition, certain transactions are restricted so as to seek to avoid the possibility of improper use of
information relating to the management of client accounts.
Our Employees
As of December 31, 2014, we had 410 full time equivalent employees. None of our employees are
represented by a union.
Available Information
Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all
amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, as well as
proxy statements, will be available free of charge on our website located at www.virtus.com as soon as
reasonably practicable after they are filed with or furnished to the SEC. You may also read and copy any
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document we file at the SEC’s Public Reference Room at 100 F Street N.E., Washington, D.C. 20549. Please call
1-800-SEC-0330 for further information on the operation of the Public Reference Room. Reports, proxy
statements and other information regarding issuers that file electronically with the SEC, including our filings, are
also available to the public on the SEC’s website at http://www.sec.gov.
A copy of our Corporate Governance Principles, our Code of Conduct and the charters of our Audit
Committee, Compensation Committee, Governance Committee and Risk and Finance Committee are posted on
our website, www.virtus.com, under “About Us,” “Investor Relations,” “Corporate Governance” and are
available in print to any person who requests copies by contacting Investor Relations by email to:
investor.relations@virtus.com or by mail to Virtus Investment Partners, Inc., c/o Investor Relations, 100 Pearl
Street, Hartford, CT 06103. Information contained on the website is not incorporated by reference or otherwise
considered part of this document.
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Item 1A. Risk Factors
This section describes some of the potential risks relating to our business, such as market, liquidity,
operational, reputation and regulatory. The risks described below are some of the more important factors that
could affect our business. You should carefully consider the risks described below, together with all of the other
information included in this Annual Report on Form 10-K, in evaluating the Company and our common stock. If
any of the risks described below actually occur our business, revenues, profitability, results of operations,
financial condition, cash flows, reputation and stock price could be materially adversely affected.
We earn substantially all of our revenues based on assets under management, and therefore a reduction in
assets under management would reduce our revenues and profitability. Assets under management fluctuate
based on many factors including market conditions, investment performance and client withdrawals.
The majority of our revenues are generated from asset-based fees from investment management products
and services to individuals and institutions. Therefore, if the assets under management decline, our fee revenues
decline reducing profitability as some of our expenses are fixed. There are several reasons that assets under
management could decline as discussed below:
• The value of assets under management can decline due to price declines in specific securities or in
specific market segments or geographic areas where those assets are invested. Funds and
portfolios that we manage related to certain geographic markets and industry sectors are particularly
vulnerable to political, social and economic events in those markets and sectors. If these industries or
markets decline or experience volatility, this could have a negative impact on our assets under
management and our revenues. For example, certain non-U.S. markets, particularly emerging markets,
are not as developed or as efficient as the U.S. financial markets and, as a result, may be less liquid,
less regulated and significantly more volatile than the U.S. financial markets. Liquidity in such markets
may be adversely impacted by political or economic events, government policies, expropriation,
volume trading limits by foreign investors and social or civil unrest. These factors may negatively
impact our ability to dispose of an investment and its market value. In addition, an increase in the value
of the U.S. dollar relative to non-U.S. currencies could result in a decrease in the U.S. dollar value of
assets under management that are denominated in non-U.S. currencies.
• The performance of our investment strategies is critical to the maintenance and growth of assets
under management. Net flows related to our investment strategies can be affected by investment
performance relative to other competing investment strategies or to established benchmarks.
Investment management strategies are rated, ranked or assessed by independent third-parties,
distribution partners, and industry periodicals and services. These assessments often influence the
investment decisions of our clients. If the performance or assessment of our investment strategies is
seen as underperforming relative to peers, it could result in an increase in the withdrawal of assets by
existing clients and the inability to attract additional investments from existing and new clients. In
addition, certain of our investment strategies have capacity constraints, as there is a limit to the number
of securities available for the strategy to operate effectively. In those instances, we may choose to limit
access to new or existing investors.
• General domestic and global economic and political conditions throughout the world can
influence assets under management. Changes in interest rates, the availability and cost of credit,
inflation rates, economic uncertainty, changes in laws, trade barriers, commodity prices, currency
exchange rates and controls and national and international political circumstances (including wars,
terrorist acts and security operations) and other conditions may impact the equity and credit markets
which may influence our assets under management. In recent years, capital and credit markets have
experienced substantial volatility. While there has been some recovery in the capital markets since
then, high unemployment rates in the United States and elsewhere, a sluggish recovery in some real
estate markets, continued economic weakness in the Eurozone, increased austerity measures by several
European governments, uncertainty about the future of the euro, escalating regional turmoil in the
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Middle East, concern over growth prospects in China and emerging markets, growing debt loads for
certain countries and uncertainty about the consequences of governments eventually withdrawing
monetary stimulus all indicate that economic and political conditions remain unpredictable. If the
security markets decline or experience volatility, our assets under management and our revenues could
be negatively impacted.
In addition, the volatility in the markets in the recent past has highlighted the interconnection of the
global markets and demonstrated how the deteriorating financial condition of one institution may
materially adversely impact the performance of other institutions. Our assets under management have
exposure to many different industries and counterparties and may be exposed to credit, operational or
other risk due to the default by a counterparty or client or in the event of a market failure or disruption
or otherwise. In the event of extreme circumstances, including economic, political or business crises,
such as a widespread systemic failure in the global financial system or failures of firms that have
significant obligations as counterparties, we may suffer significant declines in assets under
management and severe liquidity or valuation issues.
Moreover, a significant amount of our assets under management are in investments represented by
strategies that primarily invest in securities in non-U.S. companies. Many non-U.S. financial markets
are not as developed or as efficient as the U.S. financial markets and, as a result, have limited liquidity
and greater price volatility and may lack established regulations. Liquidity in such markets also may be
adversely impacted by political or economic events, government policies, expropriation, volume
trading limits by foreign investors and social and civil unrest. An investment’s market value or the
ability to dispose of an investment may be adversely impacted by any of these factors. Governments of
foreign jurisdictions may assert their abilities to tax local gains and/or income of foreign investors,
including our clients, which could adversely impact the economics associated with investing in foreign
jurisdictions or non-U.S. based companies. These risks also could impact the performance of our
strategies that invest in such markets and, in particular, strategies that concentrate investments in
emerging market companies and countries.
• Changes in interest rates can have adverse effects on our assets under management. Increases in
interest rates from their historically low present levels may adversely affect the net asset values of our
assets under management. Furthermore, increases in interest rates may result in reduced prices in
equity markets. Conversely, decreases in interest rates could lead to outflows in fixed income assets
that we manage as investors seek higher yields. Any of these effects could lower our assets under
management and revenues and, if our revenues decline without a commensurate reduction in our
expenses, would lead to a reduction in our net income.
Any of these factors could cause our assets under management to decline and have an adverse impact on our
results of operations and financial condition.
Our investment advisory agreements are subject to withdrawal, renegotiation or termination on short notice.
Our clients include the boards of directors for our sponsored mutual funds, managed account program
sponsors, private clients and institutional clients. Our investment management agreements with these clients may
be terminated upon short notice without penalty. As a result, there would be little impediment to these sponsors
or clients terminating our agreements. Our clients may terminate or renegotiate their investment contracts with us
or reduce the aggregate amount of assets under management with us due to a number of reasons including
investment performance, reputational, regulatory or compliance issues, loss of key investment management or
other personnel or a change in management or control of clients, third-party distributors, subadvisers or others
with whom we have relationships. The directors of our sponsored funds may deem it to be in the best interests of
a fund’s shareholders to make decisions adverse to us, such as reducing the compensation paid to us, requesting
that we subsidize fund expenses over certain thresholds, or imposing restrictions on our management of the fund.
Under the Investment Company Act, investment advisory agreements automatically terminate in the event of an
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assignment, which may occur if, among other events, the Company undergoes a change in control, such as any
person acquiring 25% voting rights of our common stock. If an assignment were to occur, we could continue to
act as adviser to a fund only if that fund’s board of directors and its stockholders approved a new investment
advisory agreement. In addition, investment advisory agreements for the separate accounts we manage may not
be assigned without the consent of the client. If an assignment occurs, we cannot be certain that the Company
will be able to obtain the necessary fund approvals or the necessary consents from our clients. The withdrawal,
renegotiation or termination of any investment management contract relating to a material portion of assets under
management would have an adverse impact on our results of operations and financial condition.
Any damage to our reputation could harm our business and lead to a reduction in our revenues and
profitability.
Maintaining a strong reputation with the investment community is critical to our success. Our reputation is
vulnerable to many threats that can be difficult or impossible to control, and costly or impossible to remediate
even if they are without merit or satisfactorily addressed. Our reputation may be impacted by many factors,
including but not limited to: poor performance; litigation; conflicts of interests; regulatory inquiries,
investigations or findings; intentional or unintentional misrepresentation of our products or services; or employee
misconduct or rumors. Any damage to our reputation could impede our ability to attract and retain clients and
key personnel, adversely impact relationships with third-party distributors and other business partners and lead to
a reduction in the amount of our assets under management, any of which could adversely affect our results of
operations and financial condition.
We manage client assets under agreements that have established investment guidelines or other contractual
requirements, and any failure to comply could result in claims, losses or regulatory sanctions, which could
negatively impact our revenues and profitability.
The agreements under which we manage client assets often have established investment guidelines or other
contractual requirements that we are required to comply with in providing our investment management services.
Although we maintain various compliance procedures and other controls to prevent, detect, and correct such
errors, any failure or allegation of a failure to comply with these guidelines or other requirement could result in
client claims, reputational damage, withdrawal of assets and potential regulatory sanctions, any of which could
have an adverse impact on our results of operations and financial condition.
Our business relies on the ability to attract and retain key employees, and the loss of such employees could
negatively affect financial performance.
The success of our business is dependent to a large extent on our ability to attract and retain key employees
such as senior executives, portfolio managers, securities analysts and sales personnel. Competition in the job
market for these professionals is generally intense and compensation levels in the industry are highly
competitive. The market for investment managers is also characterized by the movement of investment managers
among different firms.
If we are unable to continue to attract and retain key employees, or if compensation costs required to attract
and retain key employees increase, our performance, including our competitive position, could be materially
adversely affected. Additionally, we utilize equity awards as part of our compensation philosophy and as a means
for recruiting and retaining key employees. Declines in our stock price could result in deterioration in the value
of equity awards granted, thus lessening the effectiveness of retaining key employees through stock-based
awards.
In certain circumstances, the departure of key employees could cause higher redemption rates for certain
assets under management, or the loss of certain client accounts. Any inability to retain our key employees, attract
qualified employees, or replace key employee positions in a timely manner, could lead to a reduction in the
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amount of our assets under management, which could have a material adverse effect on our revenues and
profitability. In addition, there could be additional costs to replace, retain or attract new talent which would result
in a decrease in our profitability and have an adverse impact on our results of operations and financial condition.
The highly competitive nature of the asset management industry may force us to reduce the fees we charge
to our clients, increase amounts paid to our financial intermediaries or provide more support to those
intermediaries, all of which could result in a reduction of our revenues and profitability.
We face significant competition from a wide variety of financial institutions, including other investment
management companies, as well as from proprietary products offered by our distribution partners such as banks,
broker-dealers and financial planning firms. Competition in our businesses is based on several factors including
investment performance, access to distribution channels, service to financial advisers and their clients and fees
charged. Our competitors, many of which are larger than we are, often offer similar products, use similar
distribution sources, offer less expensive products, have greater access to key distribution channels and have
greater resources, geographic footprints and name recognition than we do.
In addition, our profits are highly dependent on the fee levels for our products and services. In recent years,
there has been a trend in certain segments of our markets toward lower fees. Competition could cause us to
reduce the fees that we charge for products and services. In order to maintain appropriate fee levels in a
competitive environment, we must be able to continue to provide clients with investment products and services
that are viewed as appropriate in relation to the fees charged. If our clients, including our fund boards, were to
view our fees as being high relative to the market or the returns provided by our investment products, we may
choose to reduce our fee levels or we may experience significant redemptions in our assets under management,
which could have an adverse impact on our results of operations and financial condition.
We are subject to an extensive and complex regulatory environment, and changes in regulations or failure
to comply with regulation could adversely affect our revenues and profitability.
The investment management industry in which we operate is subject to extensive and frequently changing
regulation. We are regulated by the SEC under the Exchange Act, the Investment Company Act and the
Investment Advisers Act, and we are subject to regulation by the Commodities Futures Trading Commission
under the Commodities Exchange Act. Our Global Fund is subject to regulation by the Central Bank of Ireland.
We are also regulated by FINRA, the Department of Labor under the Employee Retirement Income Security Act
of 1974, as amended (“ERISA”), as well as other federal and state laws and regulations.
Although we spend extensive time and resources on compliance efforts designed to ensure compliance with
all applicable laws and regulations, if we or our affiliates fail to timely and properly modify and update our
compliance procedures in this changing and highly complex regulatory environment, we may be subject to
various legal proceedings, including civil litigation, governmental investigations and enforcement actions and
result in fines, penalties or suspensions of individual employees or limitations on particular business activities,
which could have an adverse impact on our results of operations and financial condition.
We have significant deferred tax assets in the U.S., and any limitations on our tax attributes could have an
adverse impact on our financial condition, results of operations and cash flows.
We are subject to federal and state income taxes in the United States. Tax authorities may disagree with
certain positions we have taken and assess additional taxes. We regularly assess the appropriateness of our tax
positions and reporting. We cannot provide assurance, however, that we will accurately predict the outcomes of
audits, and the actual outcomes of these audits could be unfavorable. In addition, our ability to use net operating
loss carryforwards and other tax attributes available to us will be dependent on our ability to generate taxable
income.
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A large portion of our deferred tax assets is related to the application of a particular Internal Revenue Code
section. We received a private letter ruling that relies on certain facts, assumptions and representations from
management regarding the past conduct of our businesses and other matters. If any of these facts, assumptions or
representations are determined to be incorrect, we may not be able to rely on the ruling and could be subject to
significant tax liabilities in the event we utilize the related deferred tax assets.
We utilize unaffiliated firms in providing investment management services and any matters that have an
adverse impact to their business, or any change in our relationships with these unaffiliated firms could lead
to a reduction in assets under management, which will adversely affect our revenues and profitability.
We utilize select unaffiliated subadvisers as investment managers on certain mutual funds and variable
insurance funds we offer. In addition, certain of our affiliated managers have licensing arrangements with
unaffiliated data providers. Because we typically have no ownership interests in these unaffiliated firms, we do
not control the business activities of such firms. Problems stemming from the business activities of these
unaffiliated firms may negatively impact or disrupt such firms’ operations or expose them to disciplinary action
or reputational harm. Furthermore, any such problems at these unaffiliated firms may have an adverse impact on
our business or reputation or expose us to regulatory scrutiny, including with respect to our oversight of such
firms. For example, in December 2014, the Securities and Exchange Commission announced a settlement with F-
Squared Investments, one of our unaffiliated subadvisers, which settled charges that F-Squared had violated the
federal securities laws in connection with its false performance advertising as well as aided and abetted and
caused certain mutual funds sub-advised by F-Squared to violate Section 34(b) of the Investment Company Act
of 1940. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations”
for additional information related to the impact of developments at F-Squared on the Company’s results of
operations and financial condition.
In addition, we periodically negotiate provisions and renewals of these relationships, and we cannot provide
assurance that such terms will remain acceptable to us or the unaffiliated firms. These relationships can also be
terminated upon short notice without penalty. An interruption or termination of our unaffiliated firm relationships
could affect our ability to market our products and result in a reduction in assets under management, which could
have an adverse impact on our results of operations and financial condition.
We distribute through intermediaries, and changes in key distribution relationships could reduce our
revenues, increase our costs and adversely affect our profitability.
Our primary source of distribution for our retail products is through intermediaries that include third party
financial intermediaries, such as: major wire houses; national, regional and independent broker-dealers and
financial advisors; banks and financial planners and registered investment advisors. Our success is highly
dependent on access to these various distribution systems. These distributors are generally not contractually
required to distribute our products and typically offer their clients various investment products and services,
including proprietary products and services, in addition to and in competition with our products and services.
While we compensate these distributors for selling our products and services pursuant to agreed amounts, we
may not be able to retain access to these channels at all or at similar pricing. Increasing competition for these
distribution channels could cause our distribution costs to rise, which could have a material adverse effect on our
business, revenues and profitability. To the extent that existing or future intermediaries prefer to do business with
our competitors, the sales of our products as well as our market share, revenues and profitability could decline.
We and our third-party service providers, which includes securities pricing and transaction processing
services, rely on numerous technology systems, and a temporary business interruption or security breach
could negatively impact our business and profitability. Our business will suffer if our technology systems
fail or are interrupted or if security breaches or other disruptions compromise our information.
15
Our technology systems and those of our third-party service providers are critical to our operations. The
ability to consistently and reliably obtain accurate securities pricing information, process client portfolio and
fund shareholder transactions and provide reports and other customer service to fund shareholders and clients in
other accounts managed by us is essential to our continuing success. Any delays or inaccuracies in obtaining
pricing information, processing such transactions or such reports, other breaches and errors, and any
inadequacies in other customer service, could result in reimbursement obligations or other liabilities, or alienate
customers and potentially give rise to claims against us. Our customer service capability, as well as our ability to
obtain prompt and accurate securities pricing information and to process transactions and reports, is highly
dependent on our third-party service providers’ information systems. Any failure or interruption of those
systems, whether resulting from technology or infrastructure breakdowns, defects or external causes such as fire,
natural disaster, viruses, acts of terrorism or power disruptions, could result in financial loss, negatively impact
our reputation, and negatively affect our ability to do business. Although we have in place disaster recovery
plans, we may experience temporary interruptions if a natural disaster or prolonged power outages were to occur
which could have an adverse impact on our results of operations and financial condition.
In addition, like other companies in the financial services industry, our computer systems are regularly
subject to and are expected to continue to be the target of computer viruses or other malicious codes,
unauthorized access, cyber-attacks or other computer-related penetrations. While we have experienced threats to
our data and systems, to date, we are not aware that we have experienced a material breach of cyber security.
Over time, however, the sophistication of cyber threats continues to increase, and any controls we put in place
and preventative actions we take to reduce the risk of cyber incidents and protect our information may be
insufficient to detect or prevent unauthorized access, cyber-attacks or other security breaches to our computer
systems or those of third parties with whom we do business. Breach of our technology systems or those of third
parties with whom we do business through cyber-attacks, or failure to manage and secure our technology
environment, could result in interruptions or malfunctions in the operations of our business, loss of valuable
information, liability for stolen assets or information, remediation costs to repair damage caused by a breach,
additional costs to mitigate against future incidents and litigation costs resulting from an incident.
We and certain of our third-party vendors receive and store personal information as well as non-public
business information. Although we and our third-party vendors take precautions, we may still be vulnerable to
hacking or other unauthorized use. A breach of the systems or hardware could result in an unauthorized access to
our proprietary business or client data or release of this type of data, which could subject us to legal liability or
regulatory action under data protection and privacy laws which may result in fines or penalties, the termination of
existing client contracts, costly mitigation activities and harm to our reputation, which could have an adverse
impact on our results of operations and financial condition.
Ownership of a relatively large percentage of our common stock is concentrated with a small number of
shareholders, which could increase the volatility in our stock trading and dramatically affect our share
price.
A large percentage of our common stock is held by a limited number of shareholders. If our larger
shareholders decide to liquidate their positions, it could cause significant fluctuation in the share price of our
common stock. Public companies with a relatively concentrated level of institutional shareholders, such as we
have, often have difficulty generating trading volume in their stock.
Civil litigation and government investigations or proceedings could adversely affect our business.
Many aspects of our business involve substantial risks of liability, and there have been substantial
incidences of litigation and regulatory investigations in the financial services industry in recent years, including
customer claims as well as class action suits seeking substantial damages. From time to time, we and/or our funds
may be named as defendants or co-defendants in lawsuits or be involved in disputes that involve the threat of
lawsuits seeking substantial damages. We and/or our funds are also involved from time to time in governmental
16
and self-regulatory organization investigations and proceedings. Any of these lawsuits, investigations or
proceedings could result in reputational damage, loss of clients and assets, settlements, awards, injunctions, fines,
penalties, increased costs and expenses in resolving a claim, diversion of employee resources and resulting
financial losses. Predicting the outcome of such matters is inherently difficult, particularly where claims are
brought on behalf of various classes of claimants or by a large number of claimants, when claimants seek
substantial or unspecified damages or when investigations or legal proceedings are at an early stage. A
substantial judgment, settlement, fine or penalty could be material to our operating results or cash flows for a
particular period, depending on our results for that period, or could cause us significant reputational harm, which
could harm our business prospects.
We depend to a large extent on our business relationships and our reputation to attract and retain clients. As
a result, allegations of improper conduct by private litigants, including investors in our funds, or regulators,
whether the ultimate outcome is favorable or unfavorable to us, as well as negative publicity and press
speculation about us, our investment activities or the asset management industry in general, whether or not valid,
may harm our reputation, which may be more damaging to our business than to other types of businesses. We
may incur substantial legal expenses in defending against proceedings commenced by a client, regulatory
authority or other private litigant. Substantial legal liability levied on us could cause significant reputational harm
and have an adverse impact on our results of operations and financial condition.
We have a significant portion of our assets invested in marketable securities that are primarily comprised of
our seed capital program.
At December 31, 2014, the Company had $238.1 million of seed capital investments. A decline in the value
of equity, fixed income and alternative securities could lower the value of these investments and result in
declines in our non-operating income and net income. In addition, increases or decreases in the value of these
investments will increase the volatility of our earnings.
We cannot assure you that our intended quarterly distributions will be paid each quarter or at all.
The declaration, payment and determination of the amount of our quarterly dividend, if any, will be at the
discretion of our Board of Directors, who may change our dividend policy at any time. In making decisions
regarding our quarterly dividend, our Board of Directors considers general economic and business conditions,
our strategic plans and prospects, our businesses and investment opportunities, our financial condition and
17
operating results, working capital requirements and anticipated cash needs, contractual restrictions and
obligations, legal, tax, regulatory and other restrictions that may have implications on the payment of
distributions by us to our common shareholders or by our subsidiaries to us, and such other factors as our Board
of Directors may deem relevant. We cannot assure you that any distributions, whether quarterly or otherwise,
will be paid.
We may need to raise additional capital in the future, and resources may not be available to us in sufficient
amounts or on acceptable terms, which could have an adverse impact on our business.
Our ability to meet the future cash needs of the Company is dependent upon our ability to generate cash.
Although the Company has been successful in generating sufficient cash in the past, it may not be successful in
generating additional cash in the future. As of December 31, 2014, we maintained a strong cash and working
capital position and had no debt outstanding, however, we may need to raise capital to fund new business
initiatives and financing may not be available to us in sufficient amounts, on acceptable terms, or at all. Our
ability to access capital markets efficiently depends on a number of factors, including the state of credit and
equity markets, interest rates and credit spreads. If we are unable to access sufficient capital on acceptable terms
our business could be adversely impacted.
We have corporate governance provisions that may make an acquisition of us more difficult.
Certain provisions of our certificate of incorporation and bylaws could discourage, delay, or prevent a
merger, acquisition, or other change in control that stockholders may consider favorable, including transactions
in which stockholders might otherwise receive a premium for their shares. These provisions also could limit the
price that investors might be willing to pay in the future for shares of our common stock, thereby depressing the
market price of our common stock. Stockholders who wish to participate in these transactions may not have the
opportunity to do so. In addition, the provisions of Section 203 of the Delaware General Corporation Law also
restrict certain business combinations with interested stockholders.
Our insurance policies may not cover all liabilities and losses to which we may be exposed.
We carry insurance in amounts and under terms that we believe are appropriate. Our insurance may not
cover all liabilities and losses to which we may be exposed. Certain insurance coverage may not be available or
may be prohibitively expensive in future periods. As our insurance policies come up for renewal, we may need to
assume higher deductibles or pay higher premiums, which could have an adverse impact on our results of
operations and financial condition.
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SPECIAL NOTE ABOUT FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains statements that are, or may be considered to be, forward-
looking statements within the meaning of The Private Securities Litigation Reform Act of 1995, as amended,
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. All statements that are not historical facts, including statements about our beliefs or expectations,
are forward-looking statements. These statements may be identified by such forward-looking terminology as
“expect,” “estimate,” “intend,” “believe,” “anticipate,” “may,” “will,” “should,” “could,” “continue,” “project,”
“opportunity,” “predict,” “would,” “potential,” “future,” “forecast,” “guarantee,” “assume,” “likely,” “target” or
similar statements or variations of such terms.
Our forward-looking statements are based on a series of expectations, assumptions and projections about our
Company and the markets in which we operate, are not guarantees of future results or performance and involve
substantial risks and uncertainty, including assumptions and projections concerning our assets under
management, net cash inflows and outflows, operating cash flows and future credit facilities, for all future
periods. All of our forward-looking statements contained in this Annual Report on Form 10-K are as of the date
of this Annual Report on Form 10-K only.
We can give no assurance that such expectations or forward-looking statements will prove to be correct.
Actual results may differ materially. We do not undertake or plan to update or revise any such forward-looking
statements to reflect actual results, changes in plans, assumptions, estimates or projections, or other
circumstances occurring after the date of this Annual Report on Form 10-K, even if such results, changes or
circumstances make it clear that any forward-looking information will not be realized. If there are any future
public statements or disclosures by us which modify or impact any of the forward-looking statements contained
in or accompanying this Annual Report on Form 10-K, such statements or disclosures will be deemed to modify
or supersede such statements in this Annual Report on Form 10-K.
Our business and our forward-looking statements involve substantial known and unknown risks and
uncertainties, including those discussed under “Risk Factors,” and “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” in this Annual Report on Form 10-K. Any occurrence of, or any
material adverse change in, one or more risk factors or risks and uncertainties referred to in this Annual Report
on Form 10-K or our other periodic reports filed with the SEC could materially and adversely affect our
operations, financial results, cash flows, prospects and liquidity. You are urged to carefully consider all such
factors.
Item 1B. Unresolved Staff Comments.
None.
Item 2.
Properties.
We lease our principal offices, which are located at 100 Pearl St., Hartford, CT 06103. In addition, we lease
office space in Illinois, California, Massachusetts and New York. We believe our office facilities are suitable and
adequate for our business as it is presently conducted.
Item 3.
Legal Proceedings.
The Company is regularly involved in litigation and arbitration as well as examinations, inquiries and
investigations by various regulatory bodies, including the SEC, involving its compliance with, among other
things, securities laws, client investment guidelines, laws governing the activities of broker-dealers and other
laws and regulations affecting its products and other activities. Legal and regulatory matters of this nature
involve or may involve the Company’s activities as an employer, issuer of securities, investor, investment
19
adviser, broker-dealer or taxpayer. In addition, in the normal course of business, the Company discusses matters
with its regulators raised during regulatory examinations or is otherwise subject to their inquiry. These matters
could result in censures, fines, penalties or other sanctions.
The Company accrues for a liability when it is both probable that a liability has been incurred and the
amount of the liability can be reasonably estimated. Significant judgment is required in both the determination of
probability and the determination as to whether a loss is reasonably estimable. In addition, in the event the
Company determines that a loss is not probable, but is reasonably possible, and it becomes possible to develop
what the Company believes to be a reasonable range of possible loss, then the Company will include disclosures
related to such matter as appropriate and in compliance with ASC 450, Loss Contingencies. The disclosures,
accruals or estimates, if any, resulting from the foregoing analysis are reviewed at least quarterly and adjusted to
reflect the impact of negotiations, settlements, rulings, advice of legal counsel and other information and events
pertaining to a particular matter. The Company believes, based on its current knowledge, that the outcomes of its
legal and regulatory proceedings are not likely, either individually or in the aggregate, to have a material adverse
effect on its consolidated financial condition. However, in the event of unexpected subsequent developments and
given the inherent unpredictability of these legal and regulatory matters, the Company can provide no assurance
that its assessment of any claim, dispute, regulatory examination or investigation or other legal matter will reflect
the ultimate outcome and an adverse outcome in certain matters could, from time to time, have a material adverse
effect on the Company’s results of operations or cash flows in particular quarterly or annual periods.
Tom Cummins v. Virtus Investment Partners Inc. et al
On February 20, 2015, a putative class action complaint alleging violation of the federal securities laws was
filed by an individual shareholder against the Company and certain of the Company’s current officers in the
United States District Court for the Southern District of New York. The complaint was purportedly filed on
behalf of all purchasers of the Company’s common stock between May 28, 2013 and December 22, 2014,
inclusive (the “Class Period”). The complaint alleges that, during the Class Period, the defendants disseminated
materially false and misleading statements and concealed material adverse facts relating to certain funds
subadvised by F-Squared Investments. The complaint alleges claims under Sections 10(b) and 20(a) of the
Securities Exchange Act of 1934, as amended, and Rule 10b-5. The plaintiff seeks to recover unspecified
damages on behalf of the class members. The Company believes that the suit is without merit and intends to
defend it vigorously.
Item 4. Mine Safety Disclosures.
Not applicable.
20
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities.
Our common stock is traded on the NASDAQ Global Market under the trading symbol “VRTS.” As of
February 12, 2015, we had 8,977,784 shares of our common stock outstanding that were held by approximately
68,000 holders of record. The table below sets forth the quarterly high and low sales prices of our common stock
on the NASDAQ Global Market for each quarter in the last two fiscal years.
Year Ended
December 31, 2014
Year Ended
December 31, 2013
Quarter Ended
High
Low
Dividends
Declared
First Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Second Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . .
$208.92
$215.72
$227.29
$188.04
$169.03
$165.00
$166.35
$151.81
$ —
$0.45
$0.45
$0.45
High
Low
$191.34
$248.89
$195.69
$214.49
$121.22
$175.96
$152.61
$154.30
Dividends
Declared
$—
$—
$—
$—
On February 18, 2015, the Company’s Board of Directors declared a quarterly cash dividend of $0.45 per
common share to be paid on May 13, 2015 to shareholders of record at the close of business on April 30, 2015.
There have been no non-cash dividends on our common stock with respect to the periods presented. The
continuation of the payment of any dividends on our common stock and the amount thereof will be determined
by the board of directors depending upon, among other factors, the Company’s earnings, operations, financial
condition, capital requirements and general business outlook at the time payment is considered.
Issuer Purchases of Equity Securities
During 2014, we repurchased a total of 225,441 shares of our common stock pursuant to the Board of
Director’s fourth quarter 2010 authorization. On December 10, 2014, our Board of Directors authorized an
additional 500,000 shares of our common stock to be repurchased under the share repurchase program. As of
December 31, 2014, 1.2 million shares of our common stock have been authorized to be repurchased under the
program, and 624,559 shares remain available for repurchase. Under the terms of the program, we may
repurchase shares of our common stock from time to time at our discretion through open market repurchases and/
or privately negotiated transactions, depending on price and prevailing market and business conditions. The
program is intended to generally offset dilution caused by shares issued under equity-based plans. The program,
which has no specified term, may be suspended or terminated at any time.
The following table sets forth information regarding our share repurchases in each month during the quarter
ended December 31, 2014:
Month
Total number of
shares repurchased
Average price
paid per share (1)
Total number of
shares repurchased
as part of publicly
announced plans
or programs
Maximum number of
shares that may
yet be repurchased
under the plans
or programs (2)
October 1—31, 2014 . . . . . . . . . . .
November 1—30, 2014 . . . . . . . . .
December 1—31, 2014 . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . .
—
88,567
—
88,567
$ —
$158.07
$ —
—
88,567
—
88,567
213,126
124,559
624,559
(1) Average price paid per share is calculated on a settlement basis and excludes commissions.
(2) The share repurchases above were completed pursuant to an expanded program announced in May 2013 and
December 2014.
21
There were no unregistered sales of equity securities during the period covered by this Annual Report.
Shares of our common stock purchased by participants in our Employee Stock Purchase Plan were delivered to
participant accounts via open market purchases at fair value by the third-party administrator under the plan. We
do not reserve shares for this plan or discount the purchase price of the shares.
For the year ended December 31, 2014, we paid $9.5 million in minimum employee tax withholding
obligations related to employee share transactions.
22
Item 6.
Selected Financial Data.
The following table sets forth our selected consolidated financial and other data at the dates and for the
periods indicated. The selected financial data should be read in conjunction with “Management’s Discussion and
Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the
notes thereto appearing elsewhere in this Annual Report on Form 10-K.
($ in thousands, except per share data)
Years Ended December 31,
Results of Operations
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating Expenses . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax expense (benefit) (3)
. . . . . . . . . . . . . . . .
Net income (3)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income attributable to common stockholders (3) . . .
Earnings per share—basic (3) . . . . . . . . . . . . . . . . . . .
Earnings per share—diluted (3) . . . . . . . . . . . . . . . . .
Cash dividends declared per share . . . . . . . . . . . . . . .
Balance Sheet Data
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . .
Investments
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill and other intangible assets, net . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued compensation and benefits . . . . . . . . . . . . . .
Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Convertible preferred stock (4) . . . . . . . . . . . . . . . . . .
Total equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net assets of consolidated sponsored investment
2014 (1)
2013 (1)
2012 (1)
2011 (2)
2010 (2)
$450,598
319,878
130,720
39,349
96,965
97,700
10.75
10.51
1.35
$389,215
275,711
113,504
44,778
77,130
75,190
9.18
8.92
—
$280,086
219,641
60,445
27,030
37,773
37,608
4.87
4.66
—
$ 204,652
190,749
13,903
(132,428)
145,420
111,678
17.98
16.34
—
$144,556
135,285
9,271
513
9,642
5,209
0.87
0.81
—
2014 (1)
2013 (1)
2012 (2)
2011 (2)
2010 (2)
As of December 31,
$202,847
63,448
47,043
698,773
54,815
—
112,350
—
563,352
$271,014
37,258
49,893
644,954
53,140
—
109,900
—
492,868
$ 63,432
18,433
53,971
332,749
41,252
15,000
85,115
—
244,471
$ 45,267
18,357
56,891
286,379
31,171
15,000
68,007
35,217
183,155
$ 43,948
12,913
57,772
148,911
19,245
15,000
64,720
35,921
48,270
products (5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
216,672
98,433
40,397
—
—
As of December 31,
2014
2013
2012
2011
2010
($ in millions)
Assets Under Management
Total assets under management
. . . . . . . . . . . . . . . . .
$ 56,702
$ 57,740
$ 45,537
$ 34,588
$ 29,473
(1) Derived from audited consolidated financial statements included elsewhere in this Annual Report on
Form 10-K.
(2) Derived from audited consolidated financial statements not included in this Annual Report on Form 10-K.
(3) The amount shown for the 2014 fiscal year includes a net tax benefit of approximately $15.5 million due to
the resolution of uncertain tax positions. The amount shown for the 2011 fiscal year includes a tax benefit of
$132.4 million, primarily related to the release of a valuation allowance on certain deferred tax assets.
(4) On October 27, 2011, the Company entered into an agreement with the Series B Convertible Preferred Stock
(“Series B”) stockholder to convert 35,217 shares of Series B into 1,349,300 shares of common stock. The
Series B was converted to shares of common stock on January 6, 2012. As a result of the conversion, all of
the preferred shares were retired.
(5) The Company consolidates sponsored investment products in which it has a majority voting interest. Net
assets of consolidated sponsored investment products are comprised of $252.3, $149.2 and $43.9 million of
total assets, $12.6, $8.6 and $0.3 million of total liabilities and $23.1, $42.2 and $3.2 million of redeemable
noncontrolling interests at December 31, 2014, 2013 and 2012, respectively.
23
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Overview
Our Business
We are a provider of investment management and related services to individuals and institutions. We use a
multi-manager, multi-style approach, offering investment strategies from affiliated managers and unaffiliated
subadvisers, each having its own distinct investment style, autonomous investment process and individual brand.
By offering a broad array of products, we believe we can appeal to a greater number of investors, which allows
us to have offerings across market cycles through changes in investor preferences. Our earnings are primarily
driven by asset-based fees charged for services relating to these various products including investment
management, fund administration, distribution and shareholder services.
We offer investment strategies for individual and institutional investors in different product structures and
through multiple distribution channels. Our investment strategies are available in a diverse range of styles and
disciplines, managed by a collection of boutique investment managers, both affiliated and unaffiliated. We have
offerings in various asset classes (domestic and international equity, fixed income and alternative), in all market
capitalizations (large, mid and small), in different styles (growth, blend and value) and with various investment
approaches (fundamental, quantitative and thematic). Our retail products include open-end mutual funds, closed-
end funds, variable insurance funds and separately managed accounts. We also offer certain of our investment
strategies to institutional clients.
We distribute our open-end mutual funds through financial intermediaries. We have broad access in the
retail market, with distribution partners that include national and regional broker-dealers, independent broker-
dealers and independent financial advisory firms. In many of these firms, we have a number of products that are
on firms’ preferred “recommended” lists and on fee-based advisory programs. Our sales efforts are supported by
regional sales professionals, a national account relationship group and separate teams for the retirement and
insurance markets.
Our separately managed accounts are distributed through financial intermediaries and directly by teams at
our affiliated managers. Our institutional distribution strategy is an affiliate-centric and coordinated model.
Through relationships with consultants, our affiliates target key market segments, including foundations and
endowments, corporate, public and private pension plans and unaffiliated mutual funds.
Market Developments
In 2014, the global equity markets were up as evidenced by the MSCI World Index ending the year at 1,710
as compared to 1,661 at the start of the year, an increase of 3.0%. The major U.S. equity indexes were also up for
2014, with the Dow Jones Industrial Average ending the year at 17,823, from 16,577 at the beginning of the year,
an increase of 7.5%, and the Standard & Poor’s 500 Index increased by 11.4% ending the year at 2,059, from
1,848 at the beginning of the year. The major U.S. bond index, the Barclays U.S. Aggregate Bond Index,
increased 6.0% in 2014 ending the year at 1,915, compared to 1,807 at the beginning of the year.
The financial markets have had and are likely to continue to have a significant impact on asset flows and the
value of our assets under management. The capital and financial markets could experience fluctuation and
volatility, as they have in the past, which could impact relative investment returns and asset flows among
investment products as well as investor choices and preferences among investment products, including equity,
fixed income and alternative products.
Financial Highlights
• Total revenues were $450.6 million in 2014, an increase of $61.4 million, or 15.8%, from $389.2
million in 2013. Total revenues increased in 2014 compared to the same period in the prior year as a
result of higher average assets under management and an increase in average fees earned.
24
• Long-term open-end mutual fund sales in 2014 of $12.7 billion represent a 34.8% sales rate (defined as
inflows divided by beginning assets under management). Open-end fund sales during 2014 remained
diversified by asset class, with 29.3% of sales in international equity funds, 29.7% in fixed income
strategies, 28.7% of sales in domestic equity funds and 12.3% in alternative strategies.
• Net income attributable to common stockholders in 2014 increased 29.9% to $97.7 million, from $75.2
million, in 2013. The 2014 earnings include a net tax benefit of $15.5 million related to the resolution
of uncertain tax positions. Earnings per diluted common share increased 17.8% to $10.51 in 2014 from
$8.92 in 2013.
•
In the second quarter of 2014, we launched the Duff & Phelps Select Energy MLP Fund Inc. (NYSE:
DSE), a new closed-end fund managed by Duff & Phelps Investment Management Co., an affiliated
manager. The fund added $493.8 million in assets under management during the year. At December 31,
2014 the fund had assets under management of $583.7 million inclusive of leverage.
Assets Under Management
At December 31, 2014, we managed $56.7 billion in total assets, representing a decrease of $1.0 billion, or
1.8%, from the $57.7 billion managed at December 31, 2013. The decrease in assets under management was due
to the liquidation of our money market open-end funds of $1.6 billion, net outflows of $1.2 billion, $1.0 billion
from dividends distributed, net of reinvestments, and the impact on assets from the use of leverage, offset by
market appreciation of $2.8 billion. The 2014 full year net outflows of $0.5 billion in our long-term open-end
funds was the result of fourth quarter 2014 net outflows of $2.2 billion, offset by net inflows of $1.7 billion from
the first three quarters of 2014. The $2.2 billion in net outflows during the fourth quarter of 2014 was primarily
attributable to $1.8 billion in net outflows in our domestic equity, Premium AlphaSector and alternative Dynamic
AlphaSector funds. We believe several factors individually and collectively contributed to the outflows,
including reactions to a large capital gain distribution communicated in the fourth quarter of 2014, the absolute
performance of these products in a rising market environment and developments at the funds’ subadviser,
F-Squared Investments, including a regulatory settlement and the resignation of its CEO in the fourth quarter of
2014 and the related announcements and media coverage. At December 31, 2014, F-Squared Investments served
as subadviser to the Virtus mutual funds that represented $9.9 billion of assets under management. In 2015, we
continued to experience net outflows in our long-term open-end funds primarily attributable to net outflows in
the Premium AlphaSector and Dynamic AlphaSector funds. The changes in our assets under management may
also be affected by the factors discussed in Item 1A of this Annual Report on Form 10-K “Risk Factors”.
Long-term assets under management, which exclude cash management products, were $56.7 billion at
December 31, 2014, an increase of $0.5 billion, or 0.9%, from $56.2 billion at December 31, 2013. Average
assets under management, which generally correspond to our fee-earning asset levels, were $59.1 billion for the
year ended December 31, 2014, an increase of $6.1 billion, or 11.6%, from $53.0 billion for the year ended
December 31, 2013.
Operating Results
In 2014, total revenues increased 15.8% to $450.6 million from $389.2 million in 2013. Revenues increased
in 2014 compared to 2013, primarily as a result of an increase in average assets under management and an
increase in fee rates. Operating income increased by 15.2% from $113.5 million in 2013 to $130.7 million in
2014, due to increased revenues driven by higher levels of average assets under management partially offset by
higher employment expenses associated with personnel additions to support the growth of the business and
distribution and administrative expenses attributable to the launch of the new DSE closed-end fund.
25
Assets Under Management by Product
The following table summarizes our assets under management by product:
As of December 31,
Change
2014
2013
2012
2014 vs.
2013
%
2013 vs.
2012
%
($ in millions)
Retail Assets
Mutual fund assets
Long-term open-end mutual
funds . . . . . . . . . . . . . . . . . $36,292.3 $36,367.7
6,499.6
7,581.4
Closed-end funds . . . . . . . . . .
Money market open-end
$25,827.1
6,231.6
$
(75.4)
1,081.8
(0.2)% $10,540.6
268.0
16.6%
40.8%
4.3%
funds (1)
. . . . . . . . . . . . . .
— 1,556.6
1,994.1
(1,556.6)
(100.0)%
(437.5)
(21.9)%
Total mutual fund assets . . . . . . . .
Variable insurance funds . . . . . . . .
. .
Separately managed accounts (2)
Total retail assets . . . . . . . . . . . . . .
Total institutional accounts (2) . . . .
43,873.7
1,221.9
6,884.8
51,980.4
4,722.0
44,423.9
1,311.8
7,433.1
53,168.8
4,570.8
34,052.8
1,295.7
5,829.0
41,177.5
4,359.5
(550.2)
(89.9)
(548.3)
(1.2)% 10,371.1
16.1
(6.9)%
1,604.1
(7.4)%
(1,188.4)
151.2
(2.2)% 11,991.3
211.3
3.3%
30.5%
1.2%
27.5%
29.1%
4.8%
Total Assets Under
Management
. . . . . . . . . . . . . . $56,702.4 $57,739.6
$45,537.0
$(1,037.2)
(1.8)% $12,202.6
26.8%
Average Assets Under
Management
. . . . . . . . . . . . . . $59,122.1 $52,975.8
$39,631.5
$ 6,146.3
11.6% $13,344.3
33.7%
(1) On October 20, 2014, our money market funds were liquidated. This liquidation had no impact on our
operating results.
Includes assets under management related to option strategies.
(2)
26
Asset Flows by Product
The following table summarizes our asset flows by product for the periods indicated:
($ in millions)
Retail Products
Years Ended December 31,
2014
2013
2012
Mutual Funds—Long-Term Open-End
Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inflows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outflows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 36,367.7
12,665.6
(13,198.3)
$ 25,827.1
19,097.6
(10,991.7)
$16,896.6
12,340.9
(5,921.7)
Net flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Market performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(532.7)
1,225.4
(768.1)
8,105.9
2,124.6
310.1
6,419.2
2,542.0
(30.7)
Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 36,292.3
$ 36,367.7
$25,827.1
Mutual Funds—Closed-End
Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inflows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outflows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 6,499.6
493.8
—
$ 6,231.6
—
—
$ 5,675.6
444.2
—
Net flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Market performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
493.8
799.3
(211.3)
—
728.2
(460.2)
444.2
362.7
(250.9)
Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 7,581.4
$ 6,499.6
$ 6,231.6
Mutual Funds—Money Market
Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1,556.6
(1,556.6)
$ 1,994.1
(437.5)
$ 2,294.8
(300.7)
Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
— $ 1,556.6
$ 1,994.1
Variable Insurance Funds
Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inflows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outflows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1,311.8
68.1
(229.8)
$ 1,295.7
48.7
(245.4)
$ 1,308.6
48.0
(238.2)
Net flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Market performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(161.7)
71.8
—
(196.7)
213.3
(0.5)
(190.2)
177.3
—
Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1,221.9
$ 1,311.8
$ 1,295.7
Separately Managed Accounts (2)
Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inflows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outflows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 7,433.1
1,333.6
(2,244.8)
$ 5,829.0
1,384.0
(1,225.9)
$ 3,933.8
1,178.4
(980.7)
Net flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Market performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(911.2)
355.5
7.4
158.1
1,481.4
(35.4)
197.7
526.8
1,170.7
Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 6,884.8
$ 7,433.1
$ 5,829.0
Institutional Accounts (2)
Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inflows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outflows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 4,570.8
650.5
(743.0)
$ 4,359.5
796.3
(782.1)
$ 4,478.2
435.9
(576.1)
Net flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Market performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(92.5)
389.2
(145.5)
14.2
314.7
(117.6)
(140.2)
233.4
(211.9)
Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 4,722.0
$ 4,570.8
$ 4,359.5
Total
Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inflows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outflows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 57,739.6
15,211.6
(16,415.9)
$ 45,537.0
21,326.6
(13,245.1)
$34,587.6
14,447.4
(7,716.7)
Net flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Market performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1,204.3)
2,841.2
(2,674.1)
8,081.5
4,862.2
(741.1)
6,730.7
3,842.2
376.5
Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 56,702.4
$ 57,739.6
$45,537.0
27
(1) Represents open-end and closed-end mutual fund distributions, net of reinvestments, net flows of cash
management strategies, net flows and market performance on structured products and net flows from non-
sales related activities such as asset acquisitions/(dispositions), marketable securities investments/
(withdrawals) and the impact on assets from the use of leverage.
Includes assets under management related to option strategies.
(2)
The following table summarizes our assets under management by asset class:
As of December 31,
Change
2014
2013
2012
2014 vs.
2013
%
2013 vs.
2012
%
($ in millions)
Asset Class
Equity . . . . . . . . . . . . . . . . . . .
Fixed income . . . . . . . . . . . . .
Alternatives (1) . . . . . . . . . . . .
Other (2) . . . . . . . . . . . . . . . . .
$34,180.7
16,681.6
5,372.4
467.7
$33,610.7
15,829.4
5,308.3
2,991.2
$24,668.1
14,861.2
2,694.7
3,313.0
$
570.0
852.2
64.1
(2,523.5)
1.7% $ 8,942.6
968.2
5.4%
2,613.6
1.2%
(321.8)
(84.4)%
36.3%
6.5%
97.0%
(9.7)%
Total . . . . . . . . . . . . . . . . . . . .
$56,702.4
$57,739.6
$45,537.0
$(1,037.2)
(1.8)% $12,202.6
26.8%
(1) Consists of long/short equity, real estate, master-limited partnerships and other.
(2) Consists of cash management and options strategies. Options strategies were $467.7 million, $1,403.6
million and $1,283.2 million at December 31, 2014, 2013 and 2012, respectively.
Average Assets Under Management and Average Basis Points
The following table summarizes average assets under management and the average management fee earned:
As of December 31,
Average Fee Earned
(expressed in basis points)
Average Assets Under Management
($ in millions)
2014
2013
2012
2014
2013
2012
Products
51.3
Mutual Funds—Long-term Open-End (1)(2) . . . . . .
Mutual Funds—Closed-End . . . . . . . . . . . . . . . . . . .
65.6
Mutual Funds—Money Market Open-End (1) . . . . . —
50.9
Variable Insurance Funds (1) . . . . . . . . . . . . . . . . . . .
51.9
Separately Managed Accounts (3) . . . . . . . . . . . . . . .
35.5
. . . . . . . . . . . . . . . . . . . . .
Institutional Accounts (3)
All Products . . . . . . . . . . . . . . . . . . . . . . . . . . .
50.9
51.1
61.6
1.6
56.5
48.7
33.7
49.2
50.5
58.8
4.2
48.4
50.7
30.7
47.4
$38,349.2
7,112.9
1,060.1
1,271.1
6,774.2
4,554.6
$32,520.4
6,476.0
1,700.7
1,300.6
6,471.4
4,506.7
$21,446.5
6,014.9
1,845.7
1,319.8
4,586.0
4,418.6
$59,122.1
$52,975.8
$39,631.5
(1) Average fees earned are net of fees paid to unaffiliated subadvisers.
(2) Excludes the impact of consolidated sponsored investment products.
Includes assets under management related to options strategies.
(3)
Long-term and money market open-end mutual fund and variable insurance fund fees are calculated based
on average daily net assets. Closed-end fund fees are calculated based on either average weekly or daily net
assets. Average fees earned will vary based on several factors, including the asset mix and reimbursements to
funds. Separately managed account fees are calculated based on the end of the preceding or current quarter’s
asset values or on an average of month-end balances. Institutional account fees are calculated based on an
average of month-end balances or current quarter’s asset values.
28
Year ended December 31, 2014 compared to year ended December 31, 2013. The average fee rate earned
for 2014 increased 1.7 basis points as compared to the prior year primarily related to the liquidation of our money
market funds in October 2014 and an increase in the closed-end fund fee rate related to the closed-end fund
launch during the year. The average fee rate earned on institutional and separately managed accounts increased in
2014 as compared to 2013 primarily due to the redemption of low fee earning accounts.
Year ended December 31, 2013 compared to year ended December 31, 2012. The average fee rate earned
for 2013 increased as compared to the prior year as equity and alternative products, which generally have higher
fees, represented a higher percentage of our assets under management due to strong sales, positive flows and
market appreciation. The average fee rate earned on closed-end funds increased for 2013 as compared to the
same period in 2012 due to decreased fee waivers. The average fee rate earned on variable insurance funds
increased in 2013 as compared to the same period in 2012 due to a decrease in fund reimbursements over the
same periods. The average fee rate earned on institutional products increased in 2013 as compared to 2012 due to
higher fee rates on new institutional mandates and additional fees on one of our structured products.
Results of Operations
Summary Financial Data
Years Ended December 31,
Change
2014
2013
2012
2014 vs. 2013
%
2013 vs. 2012
%
($ in thousands)
Investment management fees . . . .
Other revenue . . . . . . . . . . . . . . . .
$300,663
149,935
$260,557
128,658
$187,875
92,211
$40,106
21,277
Total revenues . . . . . . . . . . . . . . .
450,598
389,215
280,086
Operating expenses . . . . . . . . . . . .
Amortization expense . . . . . . . . . .
316,100
3,778
271,298
4,413
215,520
4,121
Total operating expenses . . . . . .
319,878
275,711
219,641
Operating income . . . . . . . . . . . .
Other (expense) income, net . . . . .
Interest income, net . . . . . . . . . . . .
Income before income taxes . . . .
Income tax expense . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . .
Noncontrolling interests . . . . . . . .
Allocation of earnings to preferred
stockholders . . . . . . . . . . . . . . .
Net income attributable to
130,720
(2,843)
8,437
136,314
39,349
96,965
735
113,504
5,939
2,465
121,908
44,778
60,445
3,925
433
64,803
27,030
77,130
(1,940)
37,773
(101)
15.4%
16.5%
15.8%
16.5%
(14.4)%
16.0%
15.2%
(147.9)%
242.3%
11.8%
(12.1)%
25.7%
(137.9)%
$ 72,682
36,447
109,129
55,778
292
56,070
53,059
2,014
2,032
57,105
17,748
38.7%
39.5%
39.0%
25.9%
7.1%
25.5%
87.8%
51.3%
469.3%
88.1%
65.7%
39,357
(1,839)
104.2%
1,820.8%
61,383
44,802
(635)
44,167
17,216
(8,782)
5,972
14,406
(5,429)
19,835
2,675
—
—
(64)
—
— %
64
(100.0)%
common stockholders . . . . . . .
$ 97,700
$ 75,190
$ 37,608
$22,510
29.9% $ 37,582
99.9%
29
Revenues
Revenues by source were as follows:
($ in thousands)
2014
2013
2012
2014 vs. 2013
%
2013 vs. 2012
%
Years Ended December 31,
Change
Investment management fees
Mutual funds . . . . . . . . . . . . . . . . . . . . . . . . . $242,880 $206,516 $144,688
23,245
Separately managed accounts . . . . . . . . . . . .
13,554
Institutional accounts . . . . . . . . . . . . . . . . . . .
6,388
Variable products . . . . . . . . . . . . . . . . . . . . .
31,510
15,184
7,347
35,152
16,156
6,475
$36,364
3,642
972
(872)
17.6% $ 61,828
8,265
11.6%
1,630
6.4%
959
(11.9)%
Total investment management fees . . . . . .
Distribution and service fees . . . . . . . . . . .
Administration and transfer agent fees . . .
Other income and fees . . . . . . . . . . . . . . . . .
300,663
91,950
56,016
1,969
260,557
78,965
48,185
1,508
187,875
56,866
33,779
1,566
40,106
12,985
7,831
461
15.4%
16.4%
16.3%
30.6%
72,682
22,099
14,406
(58)
42.7%
35.6%
12.0%
15.0%
38.7%
38.9%
42.6%
(3.7)%
Total revenues . . . . . . . . . . . . . . . . . . . . . . . $450,598 $389,215 $280,086
$61,383
15.8% $109,129
39.0%
Investment Management Fees
Year ended December 31, 2014 compared to year ended December 31, 2013. Investment management fees
are earned based on a percentage of assets under management and are paid pursuant to the terms of the respective
investment management contracts, which generally require monthly or quarterly payments. Investment
management fees increased by $40.1 million or 15.4% for the year ended December 31, 2014 due to an 11.6%
increase in average assets under management and an increase of approximately two basis points in average fee
rate earned. The increase in average assets under management for the year ended December 31, 2014 was due
primarily to the 2013 growth in assets under management. Revenues increased at a higher rate than assets under
management due to the increase in the average fee rate earned and the timing of flows during the year.
Year ended December 31, 2013 compared to year ended December 31, 2012. Investment management fees
increased by $72.7 million or 38.7% for the year ended December 31, 2013 due to a 33.7% increase in average
assets under management and an increase of approximately two basis points in average fee rate earned. The
increase in average assets under management for the year ended December 31, 2013 was due primarily to overall
positive net flows of $8.1 billion resulting from higher sales of long-term open-end mutual funds in 2013 and
market appreciation of $4.9 billion. Revenues increased at a higher rate than assets under management due to the
increase in the average fee rate earned and the mix of assets. Cash management assets represented 2.7% of total
assets under management at December 31, 2013 compared to 4.5% at December 31, 2012.
Distribution and Service Fees
Year ended December 31, 2014 compared to year ended December 31, 2013. Distribution and service fees,
which are asset-based fees earned from open-end mutual funds and variable insurance funds for distribution
services, increased by $13.0 million or 16.4% for the year ended December 31, 2014 as compared to the prior
year due to higher average long-term open-end assets under management. The increase in fees also resulted in a
corresponding increase in distribution and administrative expenses, primarily driven by increased payments to
third-party distribution partners for providing services to investors in our sponsored funds, including marketing
support services.
Year ended December 31, 2013 compared to year ended December 31, 2012. Distribution and service fees
increased by $22.1 million or 38.9% for the year ended December 31, 2013 as compared to the prior year due to
higher assets under management. The increase in fees also resulted in a corresponding increase in distribution
and administrative expenses, primarily driven by increased payments to our third-party distribution partners for
providing services to investors in our sponsored funds.
30
Administration and Transfer Agent Fees
Year ended December 31, 2014 compared to year ended December 31, 2013. Administration and transfer
agent fees represent fees earned for fund administration and shareholder services from our open-end mutual
funds, variable insurance funds and certain of our closed-end funds. Fund administration and transfer agent fees
increased $7.8 million or 16.3% for the year ended December 31, 2014 as compared to the prior year due to
higher average long-term open-end mutual fund assets under management.
Year ended December 31, 2013 compared to year ended December 31, 2012. Administration and transfer
agent fees increased $14.4 million for the year ended December 31, 2013 as compared to the prior year due to
higher long-term open-end mutual fund average assets under management.
Other Income and Fees
Year ended December 31, 2014 compared to year ended December 31, 2013. Other income and fees
primarily represent contingent sales charges earned from redemptions of certain shares sold without a front-end
sales charge and fees earned for the distribution of unaffiliated products. Other income and fees increased $0.5
million or 30.6%, primarily due to an increase in contingent sales charges earned from redemptions.
Year ended December 31, 2013 compared to year ended December 31, 2012. Other income and fees
decreased $0.1 million primarily due to a decrease in fees earned for the distribution of unaffiliated products.
Operating Expenses
Operating expenses by category were as follows:
Years Ended December 31,
Change
2014
2013
2012
2014 vs.
2013
%
2013 vs.
2012
%
($ in thousands)
Operating expenses
Employment expenses . . . . . . . . . .
Distribution and administrative
expenses . . . . . . . . . . . . . . . . . . .
Other operating expenses . . . . . . . .
Restructuring and severance . . . . .
Depreciation and other
amortization expense . . . . . . . . .
Amortization expense . . . . . . . . . .
$139,809
$131,768
$105,571
$ 8,041
6.1% $26,197
24.8%
123,665
49,569
294
2,763
3,778
97,786
39,119
203
2,422
4,413
72,210
34,332
1,597
1,810
4,121
25,879
10,450
91
26.5% 25,576
26.7%
4,787
44.8% (1,394)
35.4%
13.9%
(87.3)%
341
(635)
14.1%
(14.4)%
612
292
33.8%
7.1%
Total operating expenses . . . . . . . . . . .
$319,878
$275,711
$219,641
$44,167
16.0% $56,070
25.5%
Employment Expenses
Year ended December 31, 2014 compared to year ended December 31, 2013. Employment expenses
primarily consist of fixed and variable compensation and related employee benefit costs. Employment expenses
of $139.8 million increased $8.0 million or 6.1% as compared to the year ended December 31, 2013. The
increase was primarily due to personnel additions related to the growth of the business, increases in profit-based
variable incentive compensation, payroll taxes and other benefits, resulting from higher profits.
Year ended December 31, 2013 compared to year ended December 31, 2012. Employment expenses of
$131.8 million increased $26.2 million or 24.8% as compared to the year ended December 31, 2012. The
increase was primarily due to increases in sales and profit-based variable compensation, payroll taxes and other
benefits resulting from higher sales and profits and staff additions related to the growth of the business and the
full year impact from the addition of a new affiliate.
31
Distribution and Administrative Expenses
Year ended December 31, 2014 compared to year ended December 31, 2013. Distribution and
administrative expenses primarily consist of payments to third-party distribution partners for providing services
to investors in our sponsored funds. These payments are primarily based on percentages of assets under
management. These expenses also include the amortization of deferred sales commissions related to up-front
commissions on shares sold without a front-end sales charge to shareholders. The deferred sales commissions are
amortized on a straight line basis over the periods in which commissions are generally recovered from
distribution fee revenues and contingent sales charges received from shareholders of the funds upon redemption
of their shares. Distribution and administrative expenses increased $25.9 million or 26.5% in the year ended
December 31, 2014 as compared to the prior year. The increase was primarily attributable to closed-end fund
structuring costs of $9.6 million incurred in connection with the launch of the new DSE closed-end fund during
the second quarter of 2014 as well as higher average long-term open-end assets under management.
Year ended December 31, 2013 compared to year ended December 31, 2012. Distribution and
administrative expenses increased $25.6 million or 35.4% in the year ended December 31, 2013 as compared to
the prior year. The increase was primarily due to increases in higher average long-term open-end assets under
management. There were $3.9 million of closed-end fund launch costs in the first quarter of 2012 for which there
were no comparable costs incurred during the corresponding period in 2013.
Other Operating Expenses
Year ended December 31, 2014 compared to year ended December 31, 2013. Other operating expenses
primarily consist of investment research and technology costs, professional fees, travel and distribution related
costs, rent and occupancy expenses, operating expenses of our consolidated sponsored investment products and
other miscellaneous costs. Other operating expenses increased $10.5 million or 26.7% to $49.6 million for the
year ended December 31, 2014 as compared to $39.1 million in the prior year. The increase over the prior year
reflects additional costs primarily attributable to increased sales and marketing activities, professional fees and
costs related to the ongoing transition of middle-and-back office systems to a third party service provider. Other
operating expenses of consolidated sponsored investment products increased by $2.2 million over the prior year,
reflecting the consolidation of an additional four funds during the year.
Year ended December 31, 2013 compared to year ended December 31, 2012. Other operating expenses
increased $4.8 million or 13.9% to $39.1 million for the year ended December 31, 2013 as compared to $34.3
million in the prior year primarily due to increases in investment research costs, depreciation expense, rent and
occupancy costs as a result of the acquisition of Rampart Investment Management (“Rampart”) during the fourth
quarter of 2012 and travel and entertainment costs associated with the expansion of the retail distribution team,
partially offset by reductions in professional fees.
Restructuring and Severance
We incurred $0.3 million, $0.2 million, and $1.6 million of restructuring and severance costs in 2014, 2013,
and 2012, respectively, resulting from staff reductions.
Depreciation and Other Amortization Expense
Year ended December 31, 2014 compared to year ended December 31, 2013. Depreciation and other
amortization expense primarily consists of the straight-line depreciation of furniture, equipment and leasehold
improvements over their estimated useful lives. Depreciation and other amortization expense increased $0.3
million or 14.1% to $2.8 million for the year ended December 31, 2014 as compared to $2.4 million in the prior
year primarily as a result of the increase in our furniture, equipment and leasehold improvements as a result of
the growth in the business.
32
Year ended December 31, 2013 compared to year ended December 31, 2012. Depreciation and other
amortization expense increased $0.6 million or 33.8% to $2.4 million for the year ended December 31, 2013 as
compared to $1.8 million in the prior year primarily as a result of the increase in our furniture, equipment and
leasehold improvements as a result of the growth in the business.
Amortization Expense
Year ended December 31, 2014 compared to year ended December 31, 2013. Amortization expense
primarily consists of the straight-line amortization of acquired investment advisory contracts, recorded as
definite-lived intangible assets, over their estimated useful lives. Amortization expense was $3.8 million during
2014, representing a decrease of $0.6 million or 14.4%, compared to 2013. The decrease was primarily due to
certain definite-lived intangible assets becoming fully amortized during 2014.
Year ended December 31, 2013 compared to year ended December 31, 2012. Amortization expense of $4.4
million for the year ended December 31, 2013 increased from the prior year by $0.3 million or 7.1% due to the
addition of intangible assets as a result of the acquisition of Rampart in 2012.
Other Income (Expense), net
Year ended December 31, 2014 compared to year ended December 31, 2013. Other income (expense), net
primarily consists of realized and unrealized gains and losses recorded on investments, investments of
consolidated sponsored investment products as well as earnings from equity method investments. Other income
(expense), net, decreased from the prior year by $8.8 million or 147.9%. Excluding investments of consolidated
sponsored investment products, Other income (expense), net decreased $0.6 million primarily due to a decrease
in realized and unrealized gains on investments partially offset by an increase in earnings on equity method
investments. Investments of consolidated sponsored investment products recognized $4.6 million of unrealized
losses during 2014 versus $3.5 million of unrealized gains during the prior year.
Year ended December 31, 2013 compared to year ended December 31, 2012. Other income (expense), net
increased from the prior year by $2.0 million or 51.3% due to increases in the market value of trading securities
and realized and unrealized gains related to investments of consolidated sponsored investment products.
Interest Income (Expense), net
Year ended December 31, 2014 compared to year ended December 31, 2013. Interest income, net consists
of interest and dividend income earned on cash equivalents, investments and the investments of our consolidated
sponsored investment products. Interest income, net increased $6.0 million or 242.3% in 2014 compared to the
prior year. The increase in interest income, net was primarily due to higher interest and dividend income earned
on our investments and the investments of our consolidated sponsored investment products. Investments of
consolidated sponsored investment products have grown $97.6 million, or 70.2% during 2014 from $139.1
million at December 31, 2013 to $236.7 million at December 31, 2014.
Year ended December 31, 2013 compared to year ended December 31, 2012. Interest income (expense), net
increased $2.0 million for the year ended December 31, 2013 compared to the prior year. The increase in interest
income (expense), net was due to higher interest and dividend income earned on investments of our consolidated
sponsored investment products and $0.1 million in lower interest expense for the year since we repaid our debt
outstanding during the third quarter of 2013. During September 2013, we repaid the entire outstanding balance
under our amended senior secured revolving credit facility (“Credit Facility”). The effective interest rate on our
outstanding long-term debt, inclusive of the amortization of deferred financing costs, was 4.77% through the
period we had outstanding debt in 2013 as compared to 5.05% as of December 31, 2012. The decrease in our
effective interest rate was due to the decrease in our interest rate based on the terms of our Credit Facility.
33
Income Tax Expense
Year ended December 31, 2014 compared to year ended December 31, 2013. The provision for income
taxes reflected U.S. federal, state and local taxes at an estimated effective tax rate of 28.9% and 36.7% for 2014
and 2013, respectively. Our effective tax rate for 2014 was impacted by a net tax benefit of approximately $15.5
million due to the resolution of uncertain tax positions partially offset by a $2.2 million valuation allowance
primarily related to unrealized mark-to-market loss positions on our seed capital portfolio.
Year ended December 31, 2013 compared to year ended December 31, 2012. The provision for income
taxes reflected federal, state and local taxes at an estimated annual effective tax rate of 36.7% and 41.7%, for the
years ended December 31, 2013 and 2012, respectively. The primary difference in the annual effective tax rate
for 2013 compared to 2012 was attributable to a reduction of the recorded value of our state net deferred tax asset
of $3.4 million in 2012 due to an expected decrease in our state tax rate.
Effects of Inflation
Inflation can impact our organization primarily in two ways. First, inflationary pressures can result in
increases to our cost structure, especially to the extent that large expense components such as compensation are
impacted. To the degree that these expense increases are not recoverable or cannot be counterbalanced through
pricing increases due to the competitive environment, our profitability could be negatively impacted. Secondly,
the value of the assets that we manage may be negatively impacted when inflationary expectations result in a
rising interest rate environment. Declines in the values of these assets under management could lead to reduced
revenues as management fees are generally earned as a percent of assets under management.
Liquidity and Capital Resources
Certain Financial Data
The following tables summarize certain key financial data relating to our liquidity and capital resources:
($ in thousands)
2014
2013
2012
2014 vs.
2013
%
2013 vs.
2012
%
As of December 31,
Change
Balance Sheet Data (1)
Cash and cash equivalents . . . . . . . . . $202,847 $271,014 $ 63,432 $ (68,167)
26,190
Investments . . . . . . . . . . . . . . . . . . . .
(4,338)
Deferred taxes, net . . . . . . . . . . . . . . .
4,270
Dividends payable . . . . . . . . . . . . . . .
—
. . . . . . . . . . . . . . . . . . . . . . . . . .
Debt
Total equity . . . . . . . . . . . . . . . . . . . .
70,484
Net assets of consolidated sponsored
18,433
96,923
—
15,000
244,471
37,258
64,500
—
—
492,868
63,448
60,162
4,270
—
563,352
(25.2)% $207,582
70.3%
18,825
(6.7)% (32,423)
100.0%
—
— % (15,000)
14.3% 248,397
327.3%
102.1%
(33.5)%
— %
(100.0)%
101.6%
investment products (1) . . . . . . . . .
216,672
98,433
40,397
118,239
120.1%
58,036
143.7%
Years Ended December 31,
2014
2013
2012
Cash Flow Data (1)
Provided by (used in)
Operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(58,871) $ 28,837
(6,231)
185,493
(8,181)
(1,189)
$ 39,818
(5,167)
(16,472)
(1) Net assets of consolidated sponsored investment products were comprised of $252.3, $149.2 and $43.9
million of total assets, $12.6, $8.6 and $0.3 million of total liabilities and $23.1, $42.2 and $3.2 million of
redeemable noncontrolling interests at December 31, 2014, 2013 and 2012, respectively.
34
Overview
We maintained significant liquidity and capital resources during the year ended December 31, 2014. At
December 31, 2014, we had $202.8 million of cash and cash equivalents and $50.3 million of investments in
marketable securities compared to $271.0 million of cash and cash equivalents and $29.0 million of investments
in marketable securities at December 31, 2013. We have additional liquidity available through a Credit Facility
that allows us to borrow up to $75.0 million that expires in September 2017. Under the terms of the underlying
credit agreement, we can increase this facility to $125.0 million upon satisfaction of certain approval
requirements. At December 31, 2014, we had no outstanding borrowings under the Credit Facility.
Short-Term Capital Requirements
Our short-term capital requirements, which we consider to be those capital requirements due within one
year, include payment of annual incentive compensation, income tax payments and other operating expenses,
primarily consisting of investment research and technology costs, professional fees, distribution and occupancy
costs. Incentive compensation, which is one of the largest annual operating cash expenditures, is paid in the first
quarter of the year. In the first quarter of 2014 and 2013, we paid approximately $45.0 million and $33.0 million,
respectively, in incentive compensation earned during the years ended December 31, 2013 and 2012,
respectively. Short-term capital requirements may also be affected by employee tax withholding payments
related to the net share settlement of equity awards. The Company paid $9.5 million and $7.5 million in
minimum employee tax withholding obligations related to net share settlements in 2014 and 2013, respectively.
These net share settlements had the effect of share repurchases by the Company as they reduced the number of
shares that otherwise would have been issued as a result of the vesting or exercise. The amount of employee tax
withholdings we pay in future periods will vary based on our stock price, the number of equity awards net settled
during the period and whether we and our employees elect to satisfy withholding taxes through net share
settlement. Approximately 65,700 restricted stock units (“RSUs”) are expected to vest in March 2015 that may
require a cash outlay related to minimum employee tax withholdings.
Other Uses of Capital
We expect that our main uses of cash will be to (i) invest in our organic growth, including our distribution
efforts and closed-end fund launches; (ii) seed new investment strategies and mutual funds to introduce new
products or to enhance distribution access; (iii) return of capital to stockholders through acquisition of shares of
our common stock, payment of cash dividends on our common stock or other means; (iv) fund ongoing and
potential investments in our infrastructure to achieve greater economies of scale and a more efficient overall cost
structure; and (v) invest in inorganic growth opportunities as they arise.
In August and November 2014, we paid cash dividends on our common stock in the amount of $0.45 per
share, respectively, totaling $8.2 million. On December 10, 2014, our Board of Directors approved a third cash
dividend on our common stock in the amount of $0.45 per share to holders of record at the close of business on
January 30, 2015 which was paid on February 13, 2015. The amount paid for this dividend was $4.0 million. On
February 18, 2015, our Board of Directors declared a quarterly cash dividend of $0.45 per common share to be
paid on May 13, 2015 to shareholders of record at the close of business on April 30, 2015. In addition, during
2014 we paid approximately $40.3 million to repurchase a total of 225,441 common shares under the board
authorized share repurchase program. During 2013, we paid approximately $19.7 million to repurchase 105,000
common shares under the same program.
Capital and Reserve Requirements
VPD, a wholly-owned subsidiary of the Company, is a broker-dealer registered with the SEC and is
therefore subject to certain rules regarding minimum net capital, as defined by those rules. VPD is required to
maintain a ratio of “aggregate indebtedness” to “net capital,” as defined, which may not exceed 15 to 1 and must
also maintain a minimum amount of net capital. Failure to meet these requirements could result in adverse
consequences to us including additional reporting requirements, a lower required ratio of aggregate indebtedness
35
to net capital or interruption of our business. At December 31, 2014 and 2013, the ratio of aggregate indebtedness
to net capital of our broker-dealer was below the maximum allowed, and its net capital was significantly greater
than the required minimum.
Balance Sheet
Cash and cash equivalents consist of cash in banks and money market fund investments. Cash and cash
equivalents typically increase in the second, third and fourth quarters of the year as we record, but do not pay,
variable incentive compensation. Investments consist primarily of investments in our affiliated mutual funds.
Consolidated sponsored investment products primarily represent investment products we sponsor and where we
own a majority of the voting interest in the entity. As of December 31, 2014, we consolidated a total of 12
sponsored investment products. At both December 31, 2014 and 2013, we had no debt outstanding.
Operating Cash Flow
Net cash used in operating activities of $58.9 million for 2014 decreased by $87.7 million from net cash
provided by operating activities of $28.8 million in the prior year due primarily to increases in net purchases of
investments by consolidated sponsored investment products of $95.2 million. Excluding the net purchases of
investments by consolidated sponsored investment products, net cash provided by operating activities increased
$7.5 million. This increase is primarily attributable to increases in cash pledged or on deposit of consolidated
sponsored investment products, increases in the recognition of excess tax benefits from stock-based
compensation and decreased deferred income taxes and accrued compensation, accounts payable and accrued
liabilities, partially offset by cash generated from increased operating profitability and increases in sales of
trading securities, net.
Net cash provided by operating activities of $28.8 million for the year ended December 31, 2013 declined
by $11.0 million from net cash provided by operating activities of $39.8 million in the prior year due primarily to
increases in purchases of investments by consolidated sponsored investment products, payments of deferred
commissions, accounts receivable and realized and unrealized gains on investments of consolidated sponsored
investment products offset by an increase in our net income, amortization of deferred commissions and accrued
compensation, accounts payable and accrued liabilities. Cash flows from operating activities for the year ended
December 31, 2013 included the expected utilization of deferred tax assets to reduce current taxes payable in the
amount of $32.6 million.
Investing Cash Flow
Net cash used in investing activities consists primarily of capital expenditures and other investing activities
related to our business operations. Net cash used in investing activities of $8.2 million for 2014 increased by $2.0
million from net cash used in investing activities of $6.2 million in the prior year due to an increase in the
amount paid for asset acquisitions of equity method and other investments in the current year as compared to the
prior year.
Net cash used in investing activities of $6.2 million for the year ended December 31, 2013 increased by $1.1
million from net cash used in investing activities of $5.2 million in the prior year due primarily to the acquisition
of our equity method investment in Kleinwort Benson Investors International, Ltd. as well as the change in cash
and cash equivalents as a result of the deconsolidation of certain consolidated sponsored investment products
offset by a decrease in capital expenditures of approximately $1.8 million.
Financing Cash Flow
Cash flows used in financing activities consist primarily of repurchases of our common stock, payments to
settle minimum tax withholding obligations for the net share settlement of employee share transactions,
payments of cash dividends on our common stock and contributions to noncontrolling interests related to our
consolidated sponsored investment products. Net cash used in financing activities decreased $186.7 million to
36
$1.2 million in 2014 compared to net cash provided by financing activities of $185.5 million in the prior year.
The primary reason for the decrease was due to proceeds of $191.8 million from the issuance of 1.3 million
shares of our common stock in the prior year with no such issuance in the current year. Also contributing to the
change in 2014 was increased repurchases of our common stock of $20.6 million and dividends paid of $8.2
million, partially offset by the repayment of the entire $15.0 million of debt outstanding in the prior year that did
not recur in 2014. During the 2014, we received $24.8 million in excess tax benefits from stock-based
compensation compared to $0.5 million received in the prior year.
For the year ended December 31, 2013, net cash provided by financing activities of $185.5 million consisted
primarily of net proceeds of $191.8 million from the issuance of 1.3 million shares of common stock in a public
offering, $35.5 million in third-party contributions to the noncontrolling interests in our consolidated sponsored
investment products and $0.6 million in proceeds from stock option exercises offset by the repayment of the total
amount outstanding of $15.0 million on our Credit Facility, repurchases of our common stock of $19.7 million,
payments to settle minimum tax withholding obligations for the net share settlement of RSUs of $7.5 million and
contingent payments made related to acquired investment management contracts of $0.6 million.
Debt
Our Credit Facility, as amended and restated, has a five-year term expiring in September 2017 and provides
borrowing capacity of up to $75.0 million with a $7.5 million sub-limit for the issuance of standby letters of
credit. In addition, the Credit Facility provides for a $50.0 million increase in borrowing capacity conditioned on
approval by the lending group. The Credit Facility is secured by substantially all of our assets. At December 31,
2014 and 2013, no amount was outstanding under the Credit Facility. As of December 31, 2014 and 2013, we
had the capacity to draw on the entire $75.0 million available under the Credit Facility.
Amounts outstanding under the Credit Facility bear interest at an annual rate equal to, at our option, either
LIBOR for interest periods of 1, 2, 3 or 6 months or an alternate base rate (as defined in the Credit Facility
agreement), plus, in each case, an applicable margin, that ranges from 0.75% to 2.50%. Under the terms of the
Credit Facility, we are also required to pay certain fees, including an annual commitment fee that ranges from
0.35% to 0.50% on undrawn amounts and a letter of credit participation fee at an annual rate equal to the
applicable margin as well as any applicable fronting fees, each of which is payable quarterly in arrears.
The Credit Facility contains customary covenants, including covenants that restrict (subject in certain
instances to minimum thresholds or exceptions) our and certain of our subsidiaries’ ability to incur additional
indebtedness, create liens, merge or make acquisitions, dispose of assets, enter into leases, sale/leasebacks or
acquisitions of capital stock, and make loans, guarantees and investments, among other things. In addition, the
Credit Facility contains certain financial covenants, the most restrictive of which include: (i) a minimum interest
coverage ratio (generally, adjusted EBITDA to interest expense as defined in and for the period specified in the
Credit Facility agreement) of at least 4.00:1, and (ii) a leverage ratio (generally, total debt as of any date to
adjusted EBITDA as defined in and for the period specified in the Credit Facility agreement) of no greater than
2.75:1. For purposes of the Credit Facility, adjusted EBITDA generally means, for any period, our net income
before interest expense, income taxes, depreciation and amortization expense, and excluding non-cash stock-
based compensation, unrealized mark-to-market gains and losses, certain severance, and certain non-cash non-
recurring gains and losses as described in and specified under the Credit Facility. At December 31, 2014, we
were in compliance with all financial covenants under the Credit Facility.
The Credit Facility agreement also contains customary provisions regarding events of default which could
result in an acceleration of amounts due under the facility. Such events of default include our failure to pay
principal or interest when due, our failure to satisfy or comply with covenants, a change of control, the
imposition of certain judgments, the invalidation of liens we have granted and a cross-default to other debt
obligations.
37
Contractual Obligations
The following table summarizes our contractual obligations as of December 31, 2014:
($ in millions)
Lease obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Credit Facility, including commitment fee (1) . . . . . . . . . . . .
Minimum payments on service contracts (2) . . . . . . . . . . . . .
Total
$20.5
0.7
13.0
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$34.2
Payments Due
Less Than
1 Year
1-3 Years
3-5 Years
More Than
5 Years
$3.7
0.3
4.9
$8.9
$10.7
0.4
7.5
$18.6
$ 3.8
—
0.6
$ 4.4
$ 2.3
—
—
$ 2.3
(1) At December 31, 2014, we had no amount outstanding under our Credit Facility, which has a variable
interest rate. Amounts outstanding under the Credit Facility bear interest at an annual rate equal to, at our
option, either LIBOR for interest periods of one, two, three or six months or an alternate base rate, plus, in
each case, an applicable margin, that ranges from 0.75% to 2.50%. We are also required to pay an annual
commitment fee that ranges from 0.35% to 0.50% on undrawn amounts. Payments due are estimated based
on the commitment fee rate of 0.35% in effect on December 31, 2014.
(2) Service contracts include contractual amounts that will be due to purchase goods and services to be used in
our operations and may be canceled at earlier times than those indicated under certain conditions that may
include termination fees.
Impact of New Accounting Standards
For a discussion of accounting standards, see Note 2 to our consolidated financial statements.
Off-Balance Sheet Arrangements
We do not invest in any off-balance sheet vehicles that provide liquidity, capital resources, market or credit
risk support, or engage in any leasing activities that expose us to any liability that is not reflected in our
consolidated financial statements.
Critical Accounting Policies and Estimates
The Company’s consolidated financial statements and the accompanying notes are prepared in accordance
with Generally Accepted Accounting Principles, which requires the use of estimates. Actual results will vary
from these estimates. Management believes the following critical accounting policies are important to
understanding our results of operations and financial position.
Consolidation
The consolidated financial statements include the accounts of the Company, its subsidiaries and sponsored
investment products in which it has a controlling financial interest. The Company is generally considered to have
a controlling financial interest when it owns a majority of the voting interest in an entity or otherwise has the
power to govern the financial and operating policies of the subsidiary. See Note 19 to our consolidated financial
statements for additional information related to the consolidation of sponsored investment products.
The Company also evaluates any variable interest entities (“VIEs”) in which the Company has a variable
interest for consolidation. A VIE is an entity in which either (a) the equity investment at risk is not sufficient to
permit the entity to finance its own activities without additional financial support or (b) where as a group, the
holders of the equity investment at risk do not possess: (i) the power to direct the activities that most significantly
impact the entity’s performance; (ii) the obligation to absorb expected losses or the right to receive expected
38
residual returns of the entity; or (iii) proportionate voting and economic interests and where substantially all of
the entity’s activities either involve or are conducted on behalf of the equity holders. If any entity has any of
these characteristics, it is considered a VIE and required to be consolidated by its primary beneficiary. The
primary beneficiary is the entity that has both the power to direct the activities that most significantly impact the
VIE’s economic performance and has the obligation to absorb losses of, or the right to receive benefits from, the
VIE that could potentially be significant to the VIE.
Fair Value Measurements and Fair Value of Financial Instruments
The Financial Accounting Standards Board (“FASB”) defines fair value as the price that would be received
to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the
measurement date. Accounting Standards Codification (“ASC”) 820, Fair Value Measurements and Disclosures,
establishes a framework for measuring fair value and a valuation hierarchy based upon the transparency of inputs
used in the valuation of an asset or liability. Classification within the hierarchy is based upon the lowest level of
input that is significant to the fair value measurement. The valuation hierarchy contains three levels as follows:
Level 1 – Quoted prices for identical instruments in active markets. Level 1 assets and liabilities may
include debt securities and equity securities that are traded in an active exchange market.
Level 2 – Quoted prices for similar instruments in active markets; quoted prices for identical or similar
instruments in markets that are not active; and model-derived valuations in which all significant inputs and
significant value drivers are observable in active markets. Level 2 inputs may include observable market
data such as closing market prices provided by independent pricing services after considering factors such
as the yields or prices of comparable investments of comparable quality, coupon, maturity, call rights and
other potential prepayments, terms and type, reported transactions, indications as to values from dealers and
general market conditions. In addition, pricing services may determine the fair value of equity securities
traded principally in foreign markets when it has been determined that there has been a significant trend in
the U.S. equity markets or in index futures trading. Level 2 assets and liabilities may include debt and equity
securities, purchased loans and over-the-counter derivative contracts whose fair value is determined using a
pricing model without significant unobservable market data inputs.
Level 3 – Valuations derived from valuation techniques in which one or more significant inputs or
significant value drivers are unobservable in active exchange markets.
The following is a discussion of the valuation methodologies used for the Company’s assets measured at fair
value.
Sponsored funds represent investments in open-end mutual funds, variable insurance funds and closed-end
funds for which we act as the investment manager. The fair value of open-end mutual funds and variable
insurance funds is determined based on their published net asset values and are categorized as Level 1. The fair
value of closed-end funds is determined based on the official closing price of the exchange they are traded on and
are categorized as Level 1.
Equity securities include securities traded on active markets and are valued at the official closing price
(typically last sale or bid) on the exchange on which the securities are primarily traded and are categorized as
Level 1.
Nonqualified retirement plan assets represent mutual funds within a nonqualified retirement plan whose fair
value is determined based on their published net asset value and are categorized as Level 1.
Investments of consolidated sponsored investment products represent the underlying debt and equity
securities held in sponsored products which we consolidate. Equity securities are valued at the official closing
price on the exchange on which the securities are traded and are categorized within Level 1. Level 2 investments
include certain equity securities for which closing prices are not readily available or are deemed to not reflect
39
readily available market prices and are valued using an independent pricing service as well as most debt
securities, which are valued based on quotations received from independent pricing services or from dealers who
make markets in such securities. Pricing services do not provide pricing for all securities, and therefore indicative
bids from dealers are utilized, which are based on pricing models used by market makers in the security and are
also included within Level 2. Level 3 investments include debt securities that are not widely traded, are illiquid
and are priced by dealers based on pricing models used by market makers in the security.
Cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities equal or
approximate fair value based on the short-term nature of these instruments. Marketable securities are reflected in
the condensed consolidated financial statements at fair value based upon publicly quoted market prices.
Goodwill and Other Intangible Assets
As of December 31, 2014, the carrying values of goodwill, indefinite-lived and definite-lived intangible
assets was $5.3 million, $32.4 million and $9.4 million, respectively. Goodwill represents the excess of the
purchase price of acquisitions over the fair value of identified net assets and liabilities acquired. Indefinite-lived
intangible assets are comprised of acquired, closed-end fund investment advisory contracts.
For goodwill and indefinite-lived intangible assets, impairment tests are performed annually, or more
frequently, should circumstances change, which could reduce the fair value below its carrying value. We have
determined that the Company has only one reporting unit for purposes of assessing the carrying value of
goodwill. For definite-lived intangible assets, impairment testing is performed whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable. If the Company determines the carrying
value of the definite-lived intangible assets is less than the sum of the undiscounted cash flows expected to result
from the asset we will quantify the impairment using a discounted cash flow model. The key assumptions in the
discounted cash flow model include: the estimated remaining useful life of the intangible asset; the discount rate;
investment management fee rates on assets under management; and the market expense ratio factor.
Definite-lived intangible assets are comprised of acquired investment advisory contracts. The Company
monitors the useful lives of definite-lived intangible assets and revises the useful lives, if necessary, based on the
circumstances. Significant judgment is required in estimating the period that these assets will contribute to our
cash flows and the pattern over which these assets will be consumed. A change in the remaining useful life of any
of these assets could have a significant impact on our amortization expense. All amortization expense is
calculated on a straight-line basis.
We apply the rules issued in Accounting Standards Update (“ASU”) No. 2011-08, Testing Goodwill for
Impairment (the revised standard), which amends the rules for testing goodwill for impairment by allowing an
entity the option to first assess qualitative factors to determine whether the existence of events or circumstances
leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its
carrying amount. If, after assessing the totality of events or circumstances, an entity determines it is more likely
than not that the fair value of a reporting unit is greater than its carrying amount, then performing the two-step
impairment test is unnecessary.
We apply the rules issued in ASU No. 2012-02, Testing Indefinite-Lived Intangible Assets for Impairment,
which provides entities with an option to perform a qualitative assessment of indefinite-lived intangible assets
other than goodwill for impairment to determine if additional impairment testing is necessary.
In assessing the qualitative factors to determine whether it is more likely than not that the fair value of a
reporting unit for goodwill and each unit of accounting for indefinite-lived intangible assets is less than its
carrying amount, we assess relevant events and circumstances that may impact the fair value and the carrying
amount for each. The identification of relevant events and circumstances and how these may impact the fair
value or carrying amount involve significant judgments and assumptions. The judgment and assumptions include
the identification of macroeconomic conditions, industry and market considerations, cost factors, historical trends
40
in operating margins, trending of each unit’s assets under management levels, overall financial performance,
specific events such as secondary offerings and share price trends and making the assessment on whether each
relevant factor will impact the impairment test positively or negatively and the magnitude of any such impact.
Based upon our fiscal 2014 qualitative impairment analysis for goodwill and indefinite-lived intangible
assets, prepared in accordance with ASU No. 2011-08 and ASU No. 2012-02, we concluded that there was no
requirement to do a quantitative annual goodwill and indefinite-lived intangible asset impairment test. The key
qualitative factors that led to our conclusion were: (i) that our last quantitative goodwill impairment analysis
indicated that the fair value of our reporting unit significantly exceeded the carrying amount; (ii) that our last
quantitative indefinite-lived intangible asset impairment analysis indicated that the fair value of our units of
accounting significantly exceeded the carrying amount; (iii) the significant increase in our share price and market
capitalization since our last quantitative annual goodwill impairment analysis; (iv) the significant increase in our
assets under management since our last quantitative indefinite-lived intangible asset impairment analysis; (v) that
we continue to show positive financial performance overall; and (vi) positive operating margins and positive
performance of the underlying funds that represent the indefinite-lived intangible assets recorded. During the
year ended December 31, 2014, no events or circumstances occurred that indicated the carrying value of definite-
lived intangible assets might be impaired and therefore no quantitative impairment tests were performed during
this period.
No impairments have been identified or recorded by the Company for the year ended December 31, 2014.
Significant deterioration in markets or declines in revenues or in the value of the Company could result in
future impairment charges.
Revenue Recognition
Investment management fees, distribution and service fees and administration and transfer agent fees are
recorded as revenues during the period in which services are performed. Investment management fees are earned
based upon a percentage of assets under management and are paid pursuant to the terms of the respective
investment management contracts, which generally require monthly or quarterly payment. The Company
accounts for investment management fees in accordance with ASC 605, Revenue Recognition, and has recorded
its management fees net of fees paid to unaffiliated advisers. We consider the nature of our contractual
arrangements in determining whether to recognize revenue based on the gross amount billed or net amount
retained. We have evaluated the factors in ASC 605-45 in determining whether to record revenue on a gross or
net basis with significant weight placed on: (i) if we are the primary obligor in the arrangement; and (ii) if we
have latitude in establishing price. Amounts paid to unaffiliated subadvisers for the years ended December 31,
2014, 2013 and 2012 were $124.4 million, $96.1 million and $53.7 million, respectively.
Investment management fees are calculated based on our assets under management. We rely on data
provided to us by mutual funds and custodians in the pricing of assets under management, which are not reflected
within our consolidated financial statements. The boards of the mutual funds and the custodians of the assets we
manage have formal pricing policies and procedures over pricing of investments. As of December 31, 2014, our
total assets under management by fair value hierarchy level as defined by ASC 820, Fair Value Measurements
and Disclosures, was approximately 58.1% Level 1, 41.8% Level 2 and 0.1% Level 3.
Distribution and service fees are earned based on a percentage of assets under management and are paid
monthly pursuant to the terms of the respective distribution and service fee contracts.
Administration and transfer agent fees consist of fund administration fees, transfer agent fees and fiduciary
fees. Fund administration fees are earned based on the average daily assets in the funds. Transfer agent fees are
earned based on the average daily assets in the funds. Fiduciary fees are recorded monthly based on the number
of 401(k) accounts. The Company utilizes outside service providers to perform some of the functions related to
fund administration and shareholder services.
41
Other income and fees consist primarily of redemption income on the early redemption of certain share
classes of mutual funds and brokerage commissions and fees earned for the distribution of nonaffiliated products.
Commissions earned (and related expenses) are recorded on a trade date basis and are computed based upon
contractual agreements.
Accounting for Income Taxes
We account for income taxes in accordance with ASC 740, Income Taxes, which requires recognition of the
amount of taxes payable or refundable for the current year, as well as deferred tax liabilities and assets for the
future tax consequences of events that have been included in our financial statements or tax returns. Deferred tax
liabilities and assets result from differences between the book value and tax basis of our assets, liabilities and
carry-forwards, such as net operating losses or tax credits. We recognize the tax benefit from an uncertain tax
position only if it is more likely than not that the tax position will be sustained, based on the technical merits of
the position. 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. Our policy is
to record interest and penalties related to income taxes as a component of income tax expense.
Significant judgment is required in determining the provision for income taxes and, in particular, any
valuation allowance that is recorded against our deferred tax assets. Our methodology for determining the
realizability of deferred tax assets includes consideration of taxable income in prior carryback year(s) if
carryback is permitted under the tax law, as well as consideration of the reversal of deferred tax liabilities that are
in the same period and jurisdiction and are of the same character as the temporary differences that gave rise to the
deferred tax assets. Our methodology also includes estimates of future taxable income from our operations, as
well as the expiration dates and amounts of carryforwards related to net operating losses and capital losses. These
estimates are projected through the life of the related deferred tax assets based on assumptions that we believe to
be reasonable and consistent with demonstrated operating results. Changes in future operating results not
currently forecasted may have a significant impact on the realization of deferred tax assets. Valuation allowances
are provided when it is determined that it is more likely than not that the benefit of deferred tax assets will not be
realized.
Loss Contingencies
The likelihood that a loss contingency exists is evaluated using the criteria of ASC 450, Loss Contingencies,
and an accrued liability is recorded if the likelihood of a loss is considered both probable and reasonably
estimable at the date of the consolidated financial statements.
We believe that we have considered relevant circumstances that we may be currently subject to, and the
consolidated financial statements accurately reflect our reasonable estimate of the results of our operations,
financial condition and cash flows for the years presented.
42
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Market Risk
Substantially all of our revenues are derived from investment management, distribution and service, and
administration and transfer agent fees, which are based on the market value of assets under management.
Accordingly, a decline in the prices of securities would cause our revenues and income to decline due to a
decrease in the value of the assets under management. In addition, a decline in security prices could cause our
clients to withdraw their investments in favor of other investments offering higher returns or lower risk, which
would cause our revenues and income to decline.
We are also subject to market risk due to a decline in the market value of our investments, consisting
primarily of marketable securities. At December 31, 2014, the fair value of marketable securities was $266.7
million. Assuming a 10.0% increase or decrease in the fair value of marketable securities at December 31, 2014,
our net income attributable to common stockholders would change by $15.8 million, and our total comprehensive
income would change by $15.9 million, in each case for the year ended December 31, 2014.
Interest Rate Risk
Interest rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate
because of changes in market interest rates. At December 31, 2014, we were exposed to interest rate risk as a
result of holding investments in fixed-income sponsored funds of $101.7 million. Assuming a 1.0% increase or
decrease in interest rates, the fair value of our fixed income investments would change by $3.7 million for the
year ended December 31, 2014.
At December 31, 2014, we had no amounts outstanding under our Credit Facility. Amounts outstanding
under the Credit Facility bear interest at an annual rate equal to, at our option, either LIBOR for interest periods
of one, two, three or six months or an alternate base rate (as defined in the Credit Facility agreement), plus, in
each case, an applicable margin, that ranges from 0.75% to 2.50%.
Item 8.
Financial Statements and Supplementary Data.
The audited Consolidated Financial Statements, including the Report of Independent Registered Public
Accounting Firm and the required supplementary quarterly information, required by this item are presented under
Item 15 beginning on page F-1.
Item 9.
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
None.
Item 9A. Controls and Procedures.
Disclosure Controls and Procedures
We maintain disclosure controls and procedures designed to ensure that information required to be disclosed
in reports filed or submitted under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is
recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and
forms and that such information is accumulated and communicated to management, including our Chief
Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required
disclosure. Any controls and procedures, no matter how well designed and operated, can provide only reasonable
assurance of achieving the desired control objectives.
Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer,
evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and
15d-15(e) of the Exchange Act) as of the end of the period covered by this Annual Report on Form 10-K. Based
43
on their evaluation, our Chief Executive Officer and Chief Financial Officer concluded that the Company’s
disclosure controls and procedures were effective at the reasonable assurance level as of December 31, 2014, the
end of the period covered by this Annual Report on Form 10-K.
Changes in Internal Control over Financial Reporting
As previously disclosed in our Quarterly Report on Form 10-Q for the quarterly period ended September 30,
2014, the Company’s management, including our Chief Executive Officer and Chief Financial Officer, had
previously identified a material weakness in the Company’s internal control over financial reporting. A material
weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that
there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial
statements will not be prevented or detected on a timely basis. The Company failed to design controls upon the
adoption of ASC 810-10, as amended by ASU 2009-17, to assess whether it has the potential to receive collateral
management fees that could be significant and failed to design appropriate controls over the requirement to
continuously reassess its variable interest entities at appropriate levels of precision. As a result, the Company’s
analysis of whether it has the potential to receive collateral management fees that could be significant was not at
the appropriate levels of precision to determine whether to consolidate certain variable interest entities. This
material weakness, if not remediated, could have resulted in a failure to consolidate certain variable interest
entities that could result in a material misstatement to the annual or interim consolidated financial statements that
would not be prevented or detected.
As remediation measures to address the material weakness described above, the Company designed and
implemented new and enhanced controls to ensure that the primary beneficiary assessment for variable interest
entities is assessed at the appropriate level of precision and that in-house accounting personnel have training to
ensure they have the relevant expertise related to the consolidation of variable interest entities. With the
implementation of these new and enhanced controls, we have concluded that, as of December 31, 2014, the
previously identified material weakness in our internal control over financial reporting has been remediated.
The remediation measures discussed above were changes in our internal control over financial reporting (as
defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the most recent quarter
and materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Other than these remediation measures, there have been no changes in the Company’s internal control over
financial reporting that occurred during our most recent quarter which materially affected, or are reasonably
likely to materially affect, our internal control over financial reporting.
Management’s Report on Internal Control over Financial Reporting
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, is
responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule
13a-15(f) or Rule 15d-15(f) of the Exchange Act. Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to
future periods are subject to the risk that controls may become inadequate because of changes in conditions, or
that the degree of compliance with the policy or procedures may deteriorate. Under the supervision and with the
participation of our management, including our Chief Executive Officer and Chief Financial Officer, we have
conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31,
2014 based on the framework set forth by the Committee of Sponsoring Organizations of the Treadway
Commission in Internal Control—Integrated Framework (2013). Based on this evaluation, management,
including our Chief Executive Officer and Chief Financial Officer, has concluded that our internal control over
financial reporting was effective as of December 31, 2014.
The effectiveness of our internal control over financial reporting as of December 31, 2014 has been audited
by PricewaterhouseCoopers LLP, our independent registered public accounting firm, as stated in their report
which is included in Item 15 of this Annual Report on Form 10-K.
44
Item 9B. Other Information.
None.
45
PART III
Item 10. Directors, Executive Officers and Corporate Governance.
The information concerning the Company’s directors and nominees under the caption “Item 1—Election of
Directors,” information concerning the Audit Committee and the “audit committee financial expert” under the
caption “Corporate Governance—Audit Committee,” information concerning the Company’s executive officers
under the caption “Executive Officers,” and the information under the caption “Section 16(a) Beneficial
Ownership Reporting Compliance” in the Company’s Proxy Statement for the Company’s 2015 Annual Meeting
of Shareholders, are incorporated herein by reference.
The Company has adopted a Code of Conduct that applies to the Company’s Chief Executive Officer, senior
financial officers and all other Company employees, officers and Board members. The Code of Conduct is
available on the Company’s website, www.virtus.com, under “Investor Relations,” and is available in print to any
person who requests it. Any substantive amendment to the Code of Conduct and any waiver in favor of a Board
member or an executive officer may only be granted by the Board of Directors and will be publicly disclosed on
the Company’s website, www.virtus.com, under “About Us,” “Investor Relations.”
The information concerning procedures by which shareholders may recommend director nominees set forth
under the caption “Corporate Governance—Governance Committee—Director Nomination Process” in the
Company’s Proxy Statement for the Company’s 2015 Annual Meeting of Shareholders is incorporated herein
by reference.
Item 11. Executive Compensation.
The information relating to executive compensation and the Company’s policies and practices as they relate
to the Company’s risk management is set forth under the captions “Executive Compensation,” “Director
Compensation,” “Corporate Governance—Compensation Committee—Risks Related to Compensation Policies
and Practices” and “Corporate Governance—Compensation Committee Interlocks and Insider Participation” in
the Company’s Proxy Statement for the Company’s 2015 Annual Meeting of Shareholders and is incorporated
herein by reference. The information included under the caption “Executive Compensation—Report of the
Compensation Committee” in the Company’s Proxy Statement for the Company’s 2015 Annual Meeting of
Shareholders is incorporated herein by reference but shall be deemed “furnished” (and not “filed”) with this
report.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters.
The information set forth under the caption “Security Ownership by Certain Beneficial Owners and
Management” in the Company’s Proxy Statement for the Company’s 2015 Annual Meeting of Shareholders is
incorporated herein by reference.
46
The following table sets forth information as of December 31, 2014 with respect to compensation plans
under which shares of our common stock may be issued:
EQUITY COMPENSATION PLAN INFORMATION
Plan Category
Number of
securities to be
issued
upon exercise of
outstanding
options, warrants
and rights (a)
Weighted-average
exercise price of
outstanding
options, warrants
and rights (b) (1)
Number of
securities remaining
available for future
issuance
under equity
compensation plans
(excluding
securities reflected
in column (a)(c)
Equity compensation plans approved by security
holders (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
342,760
Equity compensation plans not approved by security
holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
342,760
$18.79
—
$18.79
427,781
—
427,781
(1) The weighted-average exercise price set forth in this column is calculated excluding outstanding restricted
stock unit awards (“RSUs”) since recipients of such awards are not required to pay an exercise price to
receive the shares subject to these awards. The weighted-average exercise price of outstanding options,
warrants and rights, including RSUs, was $8.93.
(2) Represents 162,824 shares of common stock issuable upon the exercise of stock options and 179,936 shares
of our common stock issuable upon the vesting of RSUs outstanding under the Company’s Omnibus
Incentive and Equity Plan (the “Omnibus Plan”). Of the 1,800,000 maximum number of shares of our
common stock authorized for issuance under the Omnibus Plan, 74,935 shares of common stock have been
issued on a cumulative basis in the form of direct grants to directors.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
The information set forth under the captions “Corporate Governance—Transactions with Related Persons”
and “Corporate Governance—Director Independence” in the Company’s Proxy Statement for the Company’s
2015 Annual Meeting of Shareholders is incorporated herein by reference.
Item 14. Principal Accounting Fees and Services.
The information regarding auditors fees and services and the Company’s pre-approval policies and
procedures for audit and non-audit services to be provided by the Company’s independent registered public
accounting firm set forth under the caption “Item 2—Ratification of the Appointment of the Independent
Registered Public Accounting Firm” in the Company’s Proxy Statement for the 2015 Annual Meeting of
Shareholders is incorporated herein by reference.
47
Item 15. Exhibits, Financial Statement Schedules.
PART IV
(a)(1) Financial Statements: The following Report of Independent Registered Public Accounting Firm and
Consolidated Financial Statements of Virtus are included in this Annual Report:
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2014 and 2013
Consolidated Statements of Operations for the Years Ended December 31, 2014, 2013 and 2012
Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2014, 2013
and 2012
Consolidated Statements of Changes in Stockholders’ Equity for the Years Ended December 31,
2014, 2013 and 2012
Consolidated Statements of Cash Flows for the Years Ended December 31, 2014, 2013 and 2012
Notes to Consolidated Financial Statements
(a)(2) Financial Statement Schedules:
All financial statement schedules have been omitted because the required information is either
presented in the consolidated financial statements or the notes thereto or is not applicable or required.
48
(a)(3) Exhibits:
The following exhibits are filed herewith or incorporated herein by reference:
Exhibit
Number
Exhibit Description
(2)
2.1
(3)
3.1
3.2
3.3
3.4
3.5
(4)
4.1
4.2
(10)
10.1
10.2
10.3
10.4
Plan of Acquisition, Reorganization, Arrangement, Liquidation or Succession
Separation Agreement, Plan of Reorganization and Distribution by and between The Phoenix
Companies, Inc. and the Registrant, dated as of December 18, 2008 (incorporated by reference to
Exhibit 2.1 of the Registrant’s Amendment No. 4 to Form 10, filed December 19, 2008).
Articles of Incorporation and Bylaws
Amended and Restated Certificate of Incorporation of the Registrant, dated December 18, 2008
(incorporated by reference to Exhibit 3.1 of the Registrant’s Amendment No. 4 to Form 10, filed
December 19, 2008).
Amended and Restated Bylaws of the Registrant, as adopted on January 28, 2010 (incorporated by
reference to Exhibit 3.1 of the Registrant’s Current Report on Form 8-K, filed February 2, 2010).
Certificate of Designations of Series A Non-Voting Convertible Preferred Stock and Series B Voting
Convertible Preferred Stock of the Registrant, dated October 31, 2008 (incorporated by reference to
Exhibit 4.2 of the Registrant’s Amendment No. 2 to Form 10, filed November 14, 2008).
Certificate of Amendment of the Certificate of Designations of Series A Non-Voting Convertible
Preferred Stock and Series B Voting Convertible Preferred Stock of the Registrant (incorporated by
reference to Exhibit 3.1 of the Registrant’s Quarterly Report on Form 10-Q, filed August 13, 2009).
Certificate of Designations of Series C Junior Participating Preferred Stock of the Registrant, dated
December 29, 2008 (incorporated by reference to Exhibit 3.1 of the Registrant’s Current Report on
Form 8-K, filed January 2, 2009).
Instruments Defining the Rights of Security Holders, Including Indentures
Note in favor of The Bank of New York Mellon as Lender, dated September 1, 2009 (incorporated
by reference to Exhibit 4.1 of the Registrant’s Current Report on Form 8-K, filed September 4,
2009).
Note in favor of PNC Bank, National Association as Lender, dated September 1, 2009 (incorporated
by reference to Exhibit 4.2 of the Registrant’s Current Report on Form 8-K, filed September 4,
2009).
Material Contracts
Transition Services Agreement by and between The Phoenix Companies, Inc. and the Registrant,
dated as of December 18, 2008 (incorporated by reference to Exhibit 10.1 of the Registrant’s
Amendment No. 4 to Form 10, filed December 19, 2008).
Tax Separation Agreement by and between The Phoenix Companies, Inc. and the Registrant, dated
December 18, 2008 (incorporated by reference to Exhibit 10.2 of the Registrant’s Amendment No. 4
to Form 10, filed December 19, 2008).
Amendment to Tax Separation Agreement, dated April 8, 2009, by and between The Phoenix
Companies, Inc. and the Registrant, dated as of December 18, 2008 (incorporated by reference to
Exhibit 10.15 of the Registrant’s Annual Report on Form 10-K, filed April 10, 2009).
Employee Matters Agreement by and between The Phoenix Companies, Inc. and the Registrant,
dated December 18, 2008 (incorporated by reference to Exhibit 10.3 of the Registrant’s Amendment
No. 4 to Form 10, filed December 19, 2008).
49
Exhibit
Number
*10.5
*10.6
*10.7
*10.8
*10.9
10.10
10.11
10.12
10.13
*10.14
*10.15
*10.16
10.17
Exhibit Description
Change in Control Agreement between George R. Aylward and the Registrant, effective as of
December 31, 2008 (incorporated by reference to Exhibit 10.4 of the Registrant’s Amendment No. 4
to Form 10, filed December 19, 2008).
Amended and Restated Virtus Investment Partners, Inc. Omnibus Incentive and Equity Plan,
effective as of January 1, 2014 (incorporated by reference to Exhibit 10.1 of the Registrant’s
Form 8-K, filed