e424b4
Filed pursuant to
Rule 424(b)(4)
Registration Statement Nos. 333-149178 and
333-162086
25,000,000 Shares
Class A Common Stock
This is an initial public offering of shares of Class A
common stock of Artio Global Investors Inc. All of the shares of
Class A common stock included in this offering are being
sold by Artio Global Investors Inc.
Prior to this offering, there has been no public market for the
Class A common stock. The Class A common stock of
Artio Global Investors Inc. has been approved for listing on the
New York Stock Exchange under the symbol ART.
The net proceeds of this offering will be used to repurchase an
aggregate of 22.6 million shares of Class C common
stock from our parent, Julius Baer Holding Ltd.,
1.2 million shares of Class A common stock from
Richard Pell, our Chief Executive Officer and Chief Investment
Officer, and 1.2 million shares of Class A common
stock from Rudolph-Riad Younes, our Head of International
Equity. Following the application of the net proceeds of this
offering and, after giving effect to the transactions described
herein, Julius Baer Holding Ltd. will have approximately 32.3%
of the voting power in Artio Global Investors Inc. through its
ownership of the shares of our Class C common stock, and
Richard Pell and Rudolph-Riad Younes, whom we collectively refer
to as our Principals, will each have approximately 13% of the
voting power through their respective ownership of the shares of
our Class B common stock. Investors that purchase shares of
Class A common stock in this offering will have
approximately 41.7% of the voting power. Shares of the
Class A common stock and Class B common stock each
entitle the holder to one vote per share. Shares of Class C
common stock entitle the holders to an aggregate vote equal to
the greater of (1) the number of votes they would be
entitled to on a one-vote-per-share basis and (2) 20% of
the combined voting power of all classes of common stock. Julius
Baer Holding Ltd. will enter into a shareholders agreement under
which it will agree that, to the extent it has a vote as holder
of the Class C common stock greater than that which it
would be entitled to on a one-vote-per-share basis, it will on
all matters vote such excess on the same basis and in the same
proportion as the votes cast by the holders of our Class A
and Class B common stock.
See Risk Factors on page 18 to read about
factors you should consider before buying shares of the
Class A common stock.
Neither the Securities and Exchange Commission nor any other
regulatory body has approved or disapproved of these securities
or passed upon the accuracy or adequacy of this prospectus. Any
representation to the contrary is a criminal offense.
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Per Share
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Total
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Initial public offering price
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$
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26.0000
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$
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650,000,000
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Underwriting discount
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$
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1.4040
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$
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35,100,000
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Proceeds, before expenses, to Artio Global Investors Inc
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$
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24.5960
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$
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614,900,000
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To the extent that the underwriters sell more than
25,000,000 shares of Class A common stock, the
underwriters have the option to purchase up to an additional
3,750,000 shares from Artio Global Investors Inc. at the
initial public offering price less the underwriting discount.
The underwriters expect to deliver the shares of Class A
common stock against payment in New York, New York on
September 29, 2009.
Goldman, Sachs &
Co.
BofA Merrill Lynch
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Deutsche Bank
Securities |
UBS Investment
Bank |
Keefe, Bruyette & Woods
Prospectus dated September 23, 2009.
Historical
Returns of Largest Global and International Investment
Strategies
(Returns Since Strategy Inception Through June 30,
2009)*
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International Equity I
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International Equity II
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Inception: May 1995
AuM: $19.1bn
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Inception: April 2005
AuM: $20.4bn
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Global Equity
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Total Return Bond
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Inception: July 1995
AuM: $0.5bn
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Inception: February 1995
AuM: $3.9bn
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High
Yield
Inception:
April 2003
AuM: $2.0bn
* Note:
Historical returns presented above represent an aggregate of
various performance composites and are not indicative of future
returns, or of returns of other strategies. The above five
strategies accounted for 97.9% of assets under management
(AuM) at June 30, 2009. For additional details
on investment performance and unabbreviated names of each
strategys benchmarks, please see
pages 120-131
of this prospectus. See also Performance Information Used
in this Prospectus.
TABLE OF
CONTENTS
PROSPECTUS
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Page
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1
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18
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33
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34
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41
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42
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44
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45
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48
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66
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68
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113
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136
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138
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155
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162
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164
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169
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171
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173
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186
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186
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187
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F-1
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A-1
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Through and including October 18, 2009 (the
25th day
after the date of this prospectus), all dealers effecting
transactions in these securities, whether or not participating
in this offering, may be required to deliver a prospectus. This
is in addition to a dealers obligation to deliver a
prospectus when acting as an underwriter and with respect to
unsold allotments or subscriptions.
No dealer, salesperson or other person is authorized to give any
information or to represent anything not contained in this
prospectus. You must not rely on any unauthorized information or
representations. This prospectus is an offer to sell only the
shares offered hereby, but only under circumstances and in
jurisdictions where it is lawful to do so. The information
contained in this prospectus is current only as of its date.
Except where the context requires otherwise, in this prospectus:
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Artio Global Investors Inc., the
company, we, us and
our refer to Artio Global Investors Inc. and, unless
the context otherwise requires, its direct and indirect
subsidiaries;
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operating company and Artio Global
Holdings refer to Artio Global Holdings LLC and, unless
the context otherwise requires, its subsidiary Artio Global
Management LLC, or Artio Global Management, our
operating subsidiary; and
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parent and Julius Baer Holding Ltd.
refer to Julius Baer Holding Ltd., a Zurich-based financial
holding company whose shares are listed on the SIX Swiss
Exchange, our parent company and sole stockholder prior to the
consummation of this offering. On May 20, 2009, Julius Baer
Holding Ltd. announced its intention to separate its private
banking and asset management businesses into two distinct
independently-listed corporate groups. Following completion of
the separation, Julius Baer Holding Ltd. will be renamed GAM
Holding Ltd. and will hold any remaining shares of our
Class C common stock then held by Julius Baer Holding
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Ltd. Julius Baer Group Ltd. will comprise Julius
Baer Holding Ltd.s former private banking business and
will have shares listed on the SIX Swiss Exchange. Julius Baer
Group Ltd. will not receive any shares of our common stock as a
result of the separation.
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Performance
Information Used in This Prospectus
We manage investments through proprietary funds
(which include Securities and Exchange Commission, or SEC,
registered mutual funds such as our Artio International Equity
Fund, and private offshore funds that are not SEC registered)
and other types of accounts. Funds and other accounts that are
managed by us with a broadly common investment objective are
referred to as being part of the same strategy. We
measure the results both of our individual funds and of our
composites, which represent the aggregate
performance of substantially all client accounts (including
discretionary, fee-paying, non-taxable and taxable accounts,
private offshore, institutional commingled and mutual funds)
invested in the same general investment strategy. Our composites
are reviewed annually for compliance with the Global Investment
Performance Standards (GIPS), and include, for
example, Global Equity and High Yield.
None of the information in this prospectus or the registration
statement constitutes either an offer or a solicitation to buy
or sell any fund securities, nor is any such information a
recommendation for any fund security or investment service.
Results for any investment strategy described herein, and for
different investment products within a strategy, are affected by
numerous factors, including different material market or
economic conditions; different advisory fees, brokerage
commissions and other expenses; and the reinvestment of
dividends or other earnings. The returns for any strategy may be
positive or negative, and past performance does not guarantee
future results.
Throughout this prospectus, we present the annualized returns of
our investment strategies on a gross and
net basis, which represent annualized returns before
and after payment of fees, respectively. In connection with this
presentation, we have also disclosed the returns of certain
market indices or benchmarks for the comparable
period. Indices that are used for these performance comparisons
are unmanaged and have differing volatility, credit and other
characteristics. You should not assume that there is any
material overlap between the securities included in the
portfolios of our investment strategies during these periods and
those that comprise any Merrill Lynch Index, any MSCI Index, any
Russell Index, the Citigroup USD 3 Month EUR Deposit Index,
the Barclays Capital U.S. Aggregate TR Value Index, or the
S&P
500®
Index referred to in this prospectus. It is not possible to
invest directly in any of the indices described above. The
returns of these indices, as presented in this prospectus, have
not been reduced by fees and expenses associated with investing
in securities, but do include the reinvestment of dividends. In
this prospectus, we refer to the date on which we began tracking
the performance of an investment strategy as that
strategys inception date, and to the date an
investment strategy began managing capital as that
strategys launch date.
Each Russell Index referred to in this prospectus is a
registered trademark or trade name of The Frank Russell Company.
The Frank Russell Company is the owner of all copyrights
relating to these indices and is the source of the performance
statistics of these indices that are referred to in this
prospectus.
The MSCI
EAFE®
Index and the MSCI
EAFE®
and Canada Index, which we refer to as the MSCI
EAFE®
and Canada Index, are trademarks of MSCI Inc. The MSCI AC World
ex USA
Indexsm
ND is a service mark of MSCI Inc. MSCI Inc. is the owner of all
copyrights relating to these indices and is the source of the
performance statistics of these indices that are referred to in
this prospectus.
We refer to the Barclays Capital U.S. Aggregate TR Value
Index as the Barclays Capital U.S. Aggregate Index.
Barclays Capital is the source of the performance statistics of
this index that are referred to in this prospectus.
ii
The S&P
500®
Index is a registered trademark of Standard &
Poors, a division of The McGraw-Hill Companies, Inc.,
which is the owner of all copyrights relating to this index and
the source of the performance statistics of this index that are
referred to in this prospectus.
In this prospectus we present Morningstar, Inc.
(Morningstar) and Lipper Analytical Services, Inc.
(Lipper) ratings for our SEC registered mutual
funds. The Morningstar ratings refer to the ratings by
Morningstar of the Class A and Class I shares of our
SEC registered mutual funds and are based on a 5-star scale. The
Lipper ratings refer to the ratings by Lipper of the
Class I shares of our SEC registered mutual funds and are
based on a percentile. Morningstar and Lipper provide
independent, third-party ratings using their own defined
methodologies.
Unless we tell you otherwise, all performance information that
we present, including assets under management, relate to the
operations that are part of our company as of the time of this
offering. In previous years, our company conducted certain
businesses that are no longer part of our continuing operations,
which we refer to as legacy or
discontinued businesses. For a description of these
businesses, see Managements Discussion and Analysis
of Financial Condition and Results of Operations. In most
cases, those businesses are considered discontinued operations
in our financial statements. In order to make the information
comparable, we present performance information exclusive of such
legacy businesses, unless otherwise indicated.
Any discrepancies in any table included in this prospectus
between totals and the sums of the amounts listed are due to
rounding.
iii
PROSPECTUS
SUMMARY
This summary highlights information contained elsewhere in
this prospectus. This summary does not contain all of the
information that you should consider before deciding to invest
in our Class A common stock. You should read this entire
prospectus carefully, including the Risk Factors
section, our historical consolidated financial statements and
the notes thereto, and unaudited pro forma financial
information, each included elsewhere in this prospectus.
Our
Business
We are an asset management company that provides investment
management services to institutional and mutual fund clients. We
are best known for our International Equity strategies, which
represented 84% of our assets under management as of
June 30, 2009. We also offer a broad range of other
investment strategies, including High Grade Fixed Income, High
Yield and Global Equity. As of June 30, 2009, all the
composites of these strategies had outperformed their benchmarks
since inception. In addition, since 2006, we have further
expanded our investment offerings by launching a series of
U.S. equity strategies. Our superior investment performance
has enabled us to attract a diverse group of clients and to
increase our assets under management from $7.5 billion as
of December 31, 2003 to $53.3 billion as of
August 31, 2009, representing a compound annual growth
rate, or CAGR, of 41%. This has driven a similar growth in our
total revenues and other operating income, from
$106.3 million to $422.0 million for the years ended
December 31, 2004 and 2008, respectively, representing a
CAGR of 41%. Our revenues consist almost entirely of investment
management fees which are based primarily on the fair value of
our assets under management rather than investment
performance-based fees. We believe that our record of investment
excellence and range of investment strategies position us well
for continued growth.
Our primary business objective is to consistently generate
superior investment returns for our clients. We manage our
investment portfolios based on a philosophy of style-agnostic
investing across a broad range of opportunities, focusing on
macro-economic factors and broad-based global investment themes.
We also emphasize fundamental research and analysis in order to
identify specific investment opportunities and capitalize on
price inefficiencies. We believe that the depth and breadth of
the intellectual capital and experience of our investment
professionals, together with this investment philosophy and
approach, have been the key drivers of the strong relative
returns we have generated for clients over the past decade. As
an organization, we concentrate our resources on meeting our
clients investment objectives and we seek to outsource,
whenever appropriate, support functions to industry leaders
thereby allowing us to focus our business on the areas where we
believe we can add the most value.
Our distribution efforts target institutions and organizations
that demonstrate institutional buying behavior and longer-term
investment horizons, such as pension fund consultants, broker
dealers, registered investment advisors, or RIAs, mutual fund
platforms and sub-advisory relationships, enabling us to achieve
significant leverage from a relatively small sales force and
client service infrastructure. As of June 30, 2009, we
provided investment management services to a broad and
diversified spectrum of approximately 1,200 institutional
clients, including some of the worlds leading
corporations, public and private pension funds, endowments and
foundations and major financial institutions through our
separate accounts, commingled funds and proprietary funds. We
also managed assets for more than 758,000 retail mutual fund
shareholders through SEC-registered Artio Global Investment
Funds and other retail investors through 17 funds that we
sub-advise for others.
In the mid-1990s, our Principals assumed responsibility
for managing our International Equity strategy. In the years
that followed, our superior performance began to attract
attention from third parties such as Morningstar, which awarded
a 5-star rating to the Artio International Equity Fund in 1999.
Consequently, we began to attract significant inflows. Since
1999, we have expanded to other strategies, added portfolio
managers and increased our assets under management to
$53.3 billion as of August 31, 2009. Revenues from our
parent and its affiliates represented less than 1.5% of total
1
revenues and other operating income for each of the years ended
December 31, 2006, 2007 and 2008 and the six months ended
June 30, 2008 and 2009.
As a holding company, we conduct all of our business activities
through Artio Global Management LLC, a subsidiary of our direct
subsidiary Artio Global Holdings LLC (an intermediate holding
company). Net profits and net losses of Artio Global Holdings
will be allocated, and distributions will be made, approximately
74% to us and approximately 13% to each of our Principals, after
giving effect to the transactions described herein. See
Our Structure and Reorganization.
Competitive
Strengths
We believe our success as an investment management company is
based on the following competitive strengths:
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Long-Term Track Record of Superior Investment
Performance. We have a
well-established
track record of achieving superior investment returns across our
key investment strategies relative to our competitors and the
relevant benchmarks. Our longest-standing composite, the
International Equity I composite, has outperformed its
benchmark, the MSCI AC World ex USA
Indexsm
ND, by 8.1% on an annualized basis since its inception in 1995
through June 30, 2009 (calculated on a gross basis before
payment of fees). As of June 30, 2009, each of our next
four largest composites had also outperformed their benchmarks
on a gross basis since inception. As of June 30, 2009, four
of our five funds eligible for a Morningstar rating and
representing over 99% of our assets were rated 4- or 5- stars by
Morningstar and of those five funds, three were in the top
quartile of Lipper rankings for performance since inception.
Although our composites and mutual funds have achieved superior
investment performance since inception, declines in global
capital markets adversely affected and may continue to adversely
affect returns on our investment strategies. As a result, our
assets under management have declined from $71.5 billion as
of March 31, 2008 to $53.3 billion as of
August 31, 2009.
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Experienced Investment Professionals and Management
Team. We have an investment-centric culture
that has enabled us to maintain a consistent investment
philosophy and to attract and retain world-class professionals.
Our current team of lead portfolio managers averages
approximately 20 years of industry experience among them
and our team of senior managers (including marketing and sales
directors and client service managers) averages approximately
24 years of industry experience.
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Leading Position in International
Equity. We have a leading position in
international equity investment management and our strategies
have attracted a disproportionate share of net asset flows in
both the institutional and mutual fund markets in recent years.
As of December 31, 2008, we ranked as the 11th largest
manager of international equity assets for
U.S. institutional, tax-exempt clients and the
11th largest manager of international equity mutual funds
in the United States, according to Pensions &
Investments and Strategic Insight, respectively. We believe that
we are well-positioned to take advantage of opportunities in
this attractive asset class over the next several years.
However, in the first six months of 2009, our International
Equity strategies have generated returns that are well below
their benchmarks, which, despite our strong long-term investment
performance, could negatively impact our competitive position.
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Strong Track Records in Other Investment
Strategies. In addition to our leading
position in international equity, we enjoy strong long-term
track records in several of our other key strategies. Our Total
Return Bond Fund ranked in the 3rd quartile of its Lipper
universe over the one-year period, in the 2nd quartile of
its Lipper universe over the three-year period and in the
1st decile of its Lipper universe over the five-year period
ended June 30, 2009 and since inception, as of
June 30, 2009. Our Global High Income Fund ranked in the
1st quartile of its Lipper universe over the one-year
period and in the top decile over the three and five-year
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periods ended June 30, 2009 and since inception, as of
June 30, 2009. Our Global Equity Fund ranked in the
3rd quartile of its Lipper universe over the one-year
period, in the 1st quartile of its Lipper universe over the
three-year period ended June 30, 2009 and in the
2nd quartile of its Lipper universe since inception, as of
June 30, 2009.
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Strong Relationships with Institutional
Clients. We focus our efforts on institutions
and organizations that demonstrate institutional buying behavior
and longer-term investment horizons. As of June 30, 2009,
we provided investment management services to approximately
1,200 institutional clients invested in separate accounts,
commingled funds or proprietary funds. We have found that while
institutional investors generally have a longer and more
extensive due diligence process prior to investing, this results
in clients who are more focused on our method of investing and
our long-term results, and, as a result, our institutional
relationships tend to be longer, with less year-to-year
turnover, than is typical among retail clients.
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Effective and Diverse Distribution. Our
assets under management are distributed through multiple
channels. By utilizing our intermediated distribution sources
and focusing on institutions and organizations that exhibit
institutional buying behavior, we are able to achieve
significant leverage from a relatively small sales force and
client service infrastructure. We have developed strong
relationships with most of the major pension and industry
consulting firms, which have allowed us access to a broad range
of institutional clients. As of June 30, 2009, no single
consulting firm represented greater than approximately 5% of our
assets under management and our largest individual client
represented approximately 4% of our total assets under
management. We access retail investors through our relationships
with intermediaries such as RIAs and broker dealers as well as
through mutual fund platforms and sub-advisory relationships.
Although recent consolidation in the broker-dealer industry has
reduced the number of broker-dealer platforms, we believe it
will provide us with opportunities to reach additional retail
investors through our existing relationships.
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Strong Organic Growth in Assets under Management and
Sustained Net Client Inflows. In the period from
December 31, 2003 through August 31, 2009, our assets
under management grew from $7.5 billion to
$53.3 billion, representing a CAGR of 41%. Until mid-2008,
our assets under management growth was the result of a
combination of general market appreciation, our record of
outperforming the relevant benchmarks and an increase in net
client cash inflows, which we define as the amount by which
client additions to new and existing accounts exceed withdrawals
from client accounts. However, since mid-2008, market
depreciation has had a significant negative impact on our assets
under management. During the period between December 31,
2003 and June 30, 2009, net client inflows represented 107%
of our overall growth, including $1.9 billion of net client
cash inflows during the year ended December 31, 2008,
$1.0 billion of net client cash inflows during the six
months ended June 30, 2009 and $0.4 billion of net
client cash flows for the months of July and August 2009. The
negative markets in 2008 and early 2009 reinforce the importance
of sustained net client inflows in supporting our long-term
growth in assets under management.
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Focused Business Model. Our business
model is designed to focus the vast majority of our resources on
meeting our clients investment objectives. Accordingly, we
take internal ownership of the aspects of our operations that
directly influence the investment process, our client
relationships and risk management, while seeking to outsource,
whenever appropriate, support functions, including middle- and
back-office activities, to industry leaders whose services we
closely monitor. This allows us to focus our efforts where we
believe we can add the most value. We believe this approach has
resulted in an efficient and streamlined operating model, which
has generated strong operating margins, limited fixed expenses
and an ability to maintain profitability during difficult
periods.
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Strategy
We seek to achieve consistent and superior long-term investment
performance for our clients. Our strategy for continued success
and future growth is guided by the following principles:
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Continue to Capitalize on our Strong Position in
International Equity. We expect to continue
to grow our International Equity assets under management. Our
International Equity II strategy, launched in March 2005 as
a successor strategy to our International Equity I strategy
(which is currently closed to new investors), has produced
attractive investment returns relative to industry benchmarks
since inception and has grown to $20.4 billion in assets
under management in four years (as of June 30, 2009). We
believe we have the capacity to handle substantial additional
assets within our International Equity II strategy. In
addition to continuing to grow our International Equity
strategies, we plan to continue to leverage our experience in
International Equity to grow our Global Equity strategy in order
to capitalize on increasing flows into this strategy from
investors in the United States.
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Grow our other Investment
Strategies. Historically, we concentrated our
distribution efforts primarily on our International Equity
strategies. In recent years, we have focused on expanding and
growing our other strategies, including our High Grade Fixed
Income and High Yield strategies which have experienced
significant growth in assets under management as a result. We
expect our U.S. Equity strategies to provide additional
growth now that they have achieved their three-year performance
track records, which are an important pre-requisite to investing
for many institutional investors. In July 2009, Morningstar
awarded the following ratings for Class I shares: 5-star
rating for Artio US Smallcap Fund, 3-star rating for Artio US
Multicap Fund, 3-star rating for Artio US Midcap Fund and 2-star
rating for Artio US Microcap Fund. We also intend to continue to
initiate new product offerings in additional asset classes where
we believe our investment professionals have the potential to
produce attractive risk-adjusted returns.
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Further Extend our Distribution
Capabilities. We continue to focus on
expanding our distribution capabilities into those markets and
client segments where we see demand for our product offerings
and which we believe are consistent with our philosophy of
focusing on distributors who display institutional buying
behavior through their selection process and due diligence. We
have selectively strengthened our international distribution by
expanding into Canada and expect to further develop our
international distribution over time.
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Maintain a Disciplined Approach to
Growth. We are an investment-centric firm
that focuses on the delivery of superior long-term investment
returns for our clients through the application of our
established investment processes and risk management discipline.
While we have generated significant growth in our assets under
management over the past several years and have continued to
develop a broader range of investment offerings, we are focused
on long-term success and we will only pursue expansion
opportunities that are consistent with our operating philosophy.
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Continue to Focus on Risk
Management. We manage risk at multiple levels
throughout the organization, including directly by the portfolio
manager, at the Chief Investment Officer level, under the
Enterprise Risk Management Committee, among a dedicated risk
management group and through our legal and compliance team. Our
approach to managing portfolio-level risk is not designed to
avoid taking risks, but to seek to ensure that the risks we
choose to take are rewarded with an appropriate premium
opportunity for those risks. This approach to managing
portfolio-level risk has contributed significantly to our strong
relative investment performance and will continue to be an
integral component of our investment processes.
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Risk
Factors
An investment in our Class A common stock involves
substantial risks and uncertainties. These risks and
uncertainties include, among others, those listed below:
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The loss of either of our Principals or other key investment
professionals or members of our senior management team could
have a material adverse effect on our business. Our ability to
attract and retain qualified investment professionals is
critical to our success.
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If our investment strategies perform poorly for any reason,
including due to a declining stock market, general economic
downturn or otherwise, clients could withdraw their funds and we
could suffer a decline in assets under management, which would
reduce our earnings.
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The recent deterioration in global economic and market
conditions has adversely affected and may continue to adversely
affect our business.
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The historical returns of our existing investment strategies may
not be indicative of their future results or of the results of
investment strategies we are in the process of developing.
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Most of our investment strategies consist of investments in the
securities of issuers located outside of the United States,
which involve foreign currency exchange, tax, political, social
and economic uncertainties and risks.
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We derive a substantial portion of our revenues from a limited
number of our products.
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The foregoing is not a comprehensive list of the risks and
uncertainties we face. Investors should carefully consider all
of the information in this prospectus, including information
under Risk Factors, prior to making an investment in
our Class A common stock.
5
Our Structure and
Reorganization
The diagram below depicts our organizational structure
immediately after the consummation of this offering and related
transactions.
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Note: Percentages in this table include the 6,924 shares of
fully-vested Class A common stock expected to be awarded to our
non-employee directors in connection with this offering, but
exclude the approximately 2.1 million restricted stock
units, each of which represents the right to receive one share
of our Class A common stock upon the lapse of restrictions,
which generally lapse over a five-year period, expected to be
awarded to our employees (other than our Principals) in
connection with this offering. |
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(1) |
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Represents shares beneficially owned by Messrs. Pell and Younes,
including shares held by grantor retained annuity trusts
(GRATs) as to which they retain beneficial ownership. |
6
As a holding company, we conduct all of our business activities
through Artio Global Management LLC, a subsidiary of our direct
subsidiary Artio Global Holdings LLC, an intermediate holding
company. Net profits and net losses of Artio Global Holdings
will be allocated, and distributions will be made, approximately
74% to us and approximately 13% to each of our Principals, after
giving effect to the transactions described herein.
Reorganization
Transactions
In connection with this offering, we will enter into a series of
transactions to reorganize our capital structure and effectuate
a separation from our parent company. We refer throughout this
prospectus to the transactions described below as the
reorganization or the reorganization
transactions.
Revisions to our Organization. Prior to
this offering, each of our Principals has a 15% profits interest
in Artio Global Management LLC, our operating subsidiary, but
this interest is subject to vesting and includes certain put and
call rights. Prior to this offering, we contributed our
interests in Artio Global Management LLC to Artio Global
Holdings LLC. Immediately prior to this offering, our Principals
will each contribute their interests in Artio Global Management
LLC to Artio Global Holdings LLC and we will amend and restate
Artio Global Holdings operating agreement to, among other
things, modify its capital structure by creating a single new
class of units called New Class A Units,
approximately 70% of which will be issued to us and
approximately 15% of which will be issued to each of our
Principals, in each case, upon receipt of those contributions,
before giving effect to the transactions described herein. The
New Class A Units issued to our Principals will be fully
vested and will not be subject to any put and call rights.
Following such steps, Artio Global Management will be 100% owned
by Artio Global Holdings, and our Principals interests in
Artio Global Management will instead be indirect through their
ownership of interests in Artio Global Holdings. Upon completion
of this offering, there will be approximately 60,006,924 New
Class A Units issued and outstanding, including 6,924 New
Class A Units, corresponding to the shares of fully-vested
Class A common stock expected to be awarded to our
non-employee directors in connection with this offering.
Revisions to our Capitalization
Structure. Julius Baer Holding Ltd., our
parent company and existing stockholder, owns all of our
outstanding capital stock, consisting of 42,000,000 shares
of Class C common stock. Immediately prior to this
offering, we will amend and restate our certificate of
incorporation to authorize three classes of common stock,
Class A common stock, Class B common stock and
Class C common stock.
Class A Shares. Shares of our
Class A common stock will be issued to the public in this
offering. Class A common stock will entitle holders to one
vote per share and economic rights (including rights to
dividends and distributions upon liquidation).
Class B Shares. Immediately prior
to this offering, all of our authorized shares of Class B
common stock will be issued to the Principals, in an amount
equal to the number of New Class A Units to be issued
simultaneously to the Principals. Class B common stock will
entitle holders to one vote per share but will have no economic
rights (including no rights to dividends and distributions upon
liquidation).
Class C Shares. Our parent owns
all of our outstanding common stock, consisting of 42,000,000
shares of Class C common stock, equal to the number of New
Class A Units to be issued to Artio Global Investors Inc.
immediately prior to the closing of this offering. Each share of
Class C common stock has economic rights (including rights
to dividends and distributions upon liquidation) equal to the
economic rights of each share of the Class A common stock.
In order to allow Julius Baer Holding Ltd., when selling the
remainder of its holdings, to avail itself of certain Swiss tax
exemptions that require it to have voting rights equal to 20% of
the combined voting power of the common stock, the outstanding
shares of Class C common stock will have an aggregate vote
equal to the greater of (1) the number of votes they would
be entitled to on a one-vote-per-share basis and (2) 20% of
the combined voting power of all classes of common stock. Prior
to this offering, Julius Baer Holding Ltd.
7
will enter into a shareholders agreement under which it will
agree that, to the extent it has voting power as holder of the
Class C common stock in excess of that which it would be
entitled to on a one-vote-per-share basis, it will on all
matters vote the shares representing such excess on the same
basis and in the same proportion as the votes cast by the
holders of our Class A and Class B common stock.
If Julius Baer Holding Ltd. transfers any shares of Class C
common stock to anyone other than any of its subsidiaries or us,
such shares will automatically convert into shares of
Class A common stock. In addition, on the second
anniversary of the completion of this offering, any outstanding
shares of Class C common stock will automatically convert
into Class A common stock.
Following this offering, we will own a number of New
Class A Units equal to the aggregate number of shares of
our Class A and Class C common stock then outstanding.
Incurrence of New Debt and Related
Distributions. In connection with this
offering, Artio Global Holdings has established a
$60.0 million term debt facility which, together with
available cash, will fund a distribution to us that we will use
to fund a distribution to our parent, and will also be utilized
to provide working capital for our business and, potentially,
seed capital for future investment products. In addition, Artio
Global Holdings has entered into a $50.0 million revolving
credit facility to be used primarily for working capital needs.
Our distribution to our parent, which we have declared prior to
this offering, will be calculated as $40.1 million plus
total stockholders equity as of the date of the closing of
this offering and is estimated to be $201.3 million on a
pro forma basis (approximately $161.2 million of which will
be paid shortly after the completion of this offering and
$40.1 million of which will be payable within one year of
the completion of this offering).
New Agreements with the Principals. In
connection with the closing of this offering, we will enter into
an exchange agreement with the Principals that will grant each
Principal and certain permitted transferees the right to
exchange his New Class A Units, which represent ownership
rights in Artio Global Holdings, for shares of our Class A
common stock on a one-for-one basis, subject to certain
restrictions. The exchange agreement will permit each Principal
to exchange a number of New Class A Units for shares of
Class A common stock that we will repurchase in connection
with this offering as described under Use of
Proceeds. Each Principal will also be permitted to
exchange additional New Class A Units that he owns at the
time of this offering at any time following the completion of
this offering. Any exchange of New Class A Units will
generally be a taxable event for the exchanging Principal. As a
result, at any time following the expiration of the
underwriters lock-up, 180 days after the date of this
prospectus, subject to extension as described under
Underwriting, each Principal will be permitted to
sell shares of Class A common stock in connection with any
exchange in an amount necessary to generate proceeds (after
deducting discounts and commissions) sufficient to cover the
taxes payable on such exchange (the amount of shares permitted
to be sold determined based upon the stock price on the date of
exchange, whether or not such shares are sold then or
thereafter). In addition, each Principal will be permitted to
sell up to 20% of the remaining shares of Class A common
stock that he owns (calculated assuming all New Class A
Units have been exchanged by him) on or after the first
anniversary of the pricing of this offering and an additional
20% of such remaining shares of Class A common stock on or
after each of the next four anniversaries. As a result, each
Principal will, over time, have the ability to convert his
illiquid ownership interests in Artio Global Holdings into
Class A common stock that can more readily be sold in the
public markets. The exchange agreement will also include certain
non-compete restrictions applicable to each of the Principals.
See Relationships and Related Party
Transactions Exchange Agreement.
The exchange of units for stock by the Principals is expected to
generate tax savings for us. We will enter into an agreement
with the Principals that will provide for the payment by us to
each of the Principals of 85% of the amount of reduction in tax
payments created by each Principals exchanges, if any, in
U.S. federal, state and local income tax that we realize as
a result of the exchanges referred to above by each such
Principal. See Relationships and Related Party
Transactions Tax Receivable Agreement.
8
New Compensation Arrangements with our Senior
Management. Prior to this offering we have
not had employment contracts with our senior management, other
than our Principals, or granted equity-based incentive
compensation to our employees. We expect to enter into new
employment agreements with our Principals and certain other
senior members of management that will become effective on
completion of this offering. We also expect to grant
6,924 shares of fully-vested Class A common stock (subject
to transfer restrictions) to non-employee directors and
2,147,132 restricted stock units to our employees (other than
our Principals) in connection with this offering, which
generally vest over a five-year period.
New Arrangements with our Parent. Prior
to this offering, we obtained from our parent certain services
and paid it license fees. Following this offering, we will no
longer be required to pay license fees to our parent. We will
enter into a transition services agreement pursuant to which
Julius Baer Group Ltd. will provide us, and we will provide
Julius Baer Group Ltd., with a limited number of services
for a transitional period following this offering. In addition,
we will enter into an indemnification and co-operation agreement
with Julius Baer Holding under which Julius Baer
Holding will indemnify us for any future losses relating to
certain of our legacy activities. See Relationships and
Related Party Transactions Transition Services and
Indemnification Agreements.
New Agreement with our Parent and the
Principals. In connection with this offering,
we will enter into a registration rights agreement with the
Principals and our parent to provide customary registration
rights, including demand registration rights and piggyback
registration rights. See Relationships and Related Party
Transactions Registration Rights Agreement.
Distributions and
Expenses Associated with our Existing Owners
Certain elements of the reorganization transactions described
above will cause distributions and other payments to be made to
our existing owners or will require us to record expenses
related to such owners. The following is a summary of such items
as described in this prospectus:
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Artio Global Holdings declared a distribution prior to this
offering to us that we will use to fund a distribution to our
parent. Our distribution will be calculated as
$40.1 million plus total stockholders equity as of
the date of the closing of this offering and is estimated to be
$201.3 million on a pro forma basis (approximately
$161.2 million of which will be paid shortly after the
completion of this offering and $40.1 million of which will
be payable within one year of the completion of this offering).
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Based on an initial public offering price of $26.00 per share,
we will use $555.9 million of the net proceeds of this
offering to repurchase 22.6 million shares of Class C
common stock from Julius Baer Holding Ltd. in order to enable
Julius Baer Holding Ltd. to monetize and reduce its shareholding
in us, and we will use $29.5 million of the net proceeds of
this offering to repurchase 1.2 million shares of
Class A common stock from Richard Pell, and
$29.5 million of the net proceeds of this offering to
repurchase 1.2 million shares of Class A common stock
from Rudolph-Riad Younes, which shares they will receive upon
conversion of an equivalent amount of New Class A Units
immediately prior to this offering.
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As a result of this offering, the unvested component of each
Principals Class B profits interest will completely
vest. We will record compensation charges of $230.6 million
relating to this acceleration and $103.6 million relating
to the tax receivable agreement we will enter into with our
Principals, or $334.2 million in total.
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In contemplation of this offering, we accelerated the vesting of
the unvested portion of a deferred compensation plan for our
Principals in December 2008 and made payments of
$7.0 million to each of our Principals.
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Historically our operating subsidiary has made distributions to
the Principals relating to their profits interests. From
January 1, 2008 to July 31, 2009, our operating
subsidiary has made distributions of $363.9 million in the
aggregate, $222.0 million of which were to us (and which
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in turn financed $131.0 million of dividends to Julius Baer
Holding Ltd.) and $141.9 million of which were, in the
aggregate, to our Principals.
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In connection with this offering, each of our Principals will
exchange his Class B profits interests in Artio Global
Management for New Class A Units in Artio Global Holdings.
Upon such exchange, we will no longer have an obligation to
repurchase the Class B profits interests of each Principal
and each Principal will no longer have the ability to put his
interests to us. In connection with this offering, we will pay
out to our Principals the unpaid balance of their aggregate
allocation of profits interests, as of immediately prior to this
offering. This amount was $11.4 million as of June 30,
2009.
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Distributions
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Rudolph
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Julius Baer
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Richard
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-Riad
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Distributions
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Holding Ltd.
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Pell
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Younes
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Total
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Estimated distribution to be made following this offering(1)
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$
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201,311,000
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$
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5,779,695
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$
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5,580,895
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$
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212,671,590
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Total net proceeds used to repurchase shares of Class C
common stock
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555,869,600
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555,869,600
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Total net proceeds used to repurchase shares of Class A
common stock
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29,515,200
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29,515,200
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59,030,400
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Payment (December 2008) relating to vesting of
Principals deferred compensation plan
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7,008,750
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7,008,750
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14,017,500
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Distributions related to profits interests during 2008
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48,438,329
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(2)
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49,297,328
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(2)
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97,735,657
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Distributions related to profits interests during 2009 (to
July 31)
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22,671,959
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(2)
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21,540,759
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(2)
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44,212,718
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Dividends during 2008 and 2009 (to July 31)
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131,000,000
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131,000,000
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(1) |
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Actual distribution to Julius Baer Holding will be
$40.1 million plus total stockholders equity as of
the date of the closing of this offering; actual distribution to
Mr. Pell and Mr. Younes represents the unpaid portion
of the profits interests relating to 2009 which will be based on
our pre-tax profits from January 1, 2009 to the completion
of this offering. |
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Each Principal is entitled to receive distributions relating to
his 15% share of the profits of Artio Global Management, as
defined in the operating agreement. |
Future
Distributions
Following this offering, we intend to make (or cause our
operating company to make) the following distributions:
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Pursuant to the tax receivable agreement we will enter into with
the Principals in connection with this offering, we will pay
each of them 85% of the amount of the reduction in tax payments
that we would otherwise be required to pay, if any, in
U.S. federal, state and local income tax that we actually
realize as a result of each Principals exchanges of New
Class A Units for shares of our Class A common stock.
Assuming no material changes in the relevant tax law and that we
can earn sufficient taxable income to realize the full tax
benefits generated by such exchanges, such payments would total
$274.2 million over the
15-year
period from the assumed year of exchange based on an assumed
price of $26.00 per share of our Class A common stock at
the time of the exchange of all of the Principals New
Class A Units. The amount and timing of these payments will
vary depending on a number of factors, including the
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timing of exchanges, the price of our Class A common stock
at the time of the exchange, the extent to which such exchanges
are taxable, the amount and timing of our income and the tax
rates then applicable, and could differ materially from this
hypothetical payment amount.
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Artio Global Holdings will make distributions on a quarterly
basis to us and the Principals, on a pro rata basis based on
ownership interests, in amounts sufficient to pay taxes payable
on earnings, calculated using an assumed tax rate.
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Beginning in 2010, we intend to pay quarterly dividends on
shares of our Class A common stock and Class C common
stock, which we expect to fund from our portion of distributions
made by our operating company to us and the Principals on a pro
rata basis based on ownership interests. The first quarterly
dividend payment, which will be paid in the first quarter, is
expected to be $0.06 per share and we expect to fund it by an
aggregate distribution by our operating company of approximately
$3.6 million, approximately 74% of which will be
distributed to us and approximately 13% of which will be
distributed to each of Messrs. Pell and Younes, after
giving effect to the transactions described herein. See
Dividend Policy and Dividends. The declaration and
payment of all future dividends, if any, will be at the sole
discretion of our board of directors and may be discontinued at
any time. In determining the amount of any future dividends, our
board of directors will take into account any legal or
contractual limitations, our actual and anticipated future
earnings, cash flow, debt service and capital requirements and
the amount of distributions to us from our operating company.
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Our
Parent
Our parent and sole stockholder prior to the consummation of
this offering is Julius Baer Holding Ltd., a Zurich-based
financial holding company whose shares are listed on the SIX
Swiss Exchange. On May 20, 2009, our parent announced its
intention to separate its private banking and asset management
businesses into two distinct independently-listed corporate
groups. Following completion of the separation, Julius Baer
Holding Ltd. will be renamed GAM Holding Ltd. and will hold any
remaining shares of our Class C common stock then held by
Julius Baer Holding Ltd. Julius Baer Group Ltd. will comprise
Julius Baer Holding Ltd.s former private banking business.
Julius Baer Group Ltd. will not receive any shares of our common
stock as a result of the separation.
Our parent has agreed to distribute to Julius Baer Group Ltd.
the first $300.0 million of the net proceeds received from
us as a result of this offering.
We do not expect the separation of our parents private
banking and asset management businesses to have a material
impact on us.
Our Corporate
Information
Our headquarters are located at 330 Madison Ave, New York, NY
10017. Our telephone number at this address is
(212) 297-3600
and our website address is www.artioglobal.com.
Information contained on our website is not part of this
prospectus. The company was incorporated on November 21,
1962 in Delaware.
11
THE
OFFERING
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Class A common stock we are offering |
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25,000,000 shares of Class A common stock. |
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Class A common stock to be outstanding immediately after
this offering and the application of the net proceeds as
described under Use of Proceeds |
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25,006,924 shares of Class A common stock. If all
holders of New Class A Units (other than us) immediately
after this offering and the reorganization elected to exchange
them for shares of our Class A common stock and all shares
of Class C common stock were converted into shares of
Class A common stock, 60,006,924 shares of
Class A common stock would be outstanding immediately after
this offering. |
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Class B common stock to be outstanding immediately after
this offering and the application of the net proceeds as
described under Use of Proceeds |
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15,600,000 shares of Class B common stock. Shares of
our Class B common stock have voting but no economic rights
(including no rights to dividends and distributions upon
liquidation) and will be issued in an amount equal to the number
of New Class A Units issued in the reorganization to the
Principals. When a New Class A Unit is exchanged by a
Principal for a share of Class A common stock, the
corresponding share of Class B common stock will be
cancelled. See Relationships and Related Party
Transactions Exchange Agreement. |
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Class C common stock to be outstanding immediately after
this offering and the application of the net proceeds as
described under Use of Proceeds |
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19,400,000 shares of Class C common stock. Shares of
Class C common stock will have economic rights (including
rights to dividends and distributions upon liquidation) equal to
the economic rights of the Class A common stock. If Julius
Baer Holding Ltd. transfers any shares of Class C common
stock to anyone other than any of its subsidiaries or us, such
shares will automatically convert into an equal number of shares
of Class A common stock. In addition, on the second
anniversary of this offering, any outstanding shares of
Class C common stock will automatically convert into
Class A common stock on a one-for-one basis. |
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Voting rights |
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One vote per share of Class A common stock and Class B
common stock. Shares of Class C common stock will have an
aggregate vote equal to the greater of (1) the number of
votes they would be entitled to on a
one-vote-per-share
basis and (2) 20% of the combined voting power of all
classes of common stock. Julius Baer Holding Ltd. will enter
into a shareholders agreement under which it will agree that, to
the |
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extent it has voting power as holder of the Class C common
stock in excess of that which it would be entitled to on a
one-vote-per-share
basis, it will on all matters vote the shares representing such
excess on the same basis and in the same proportion as the votes
cast by the holders of our Class A and Class B common
stock. Under this shareholders agreement, as long as Julius Baer
Holding Ltd. owns shares of our Class C common stock
constituting at least 10% of our outstanding common stock, it
will be entitled to appoint a member to our board of directors
or to exercise observer rights. Julius Baer Holding Ltd. has
opted to exercise its observer rights but may in the future
decide to appoint a member to our board of directors in lieu of
exercising such observer rights. |
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Use of proceeds |
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We estimate that the net proceeds from the sale of shares of our
Class A common stock by us in this offering will be
approximately $614.9 million, or approximately
$707.1 million if the underwriters exercise their option to
purchase additional shares of Class A common stock in full,
based on an offering price of $26.00 per share, in each case
after deducting assumed underwriting discounts payable by us. |
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We intend to use the net proceeds from this offering to
repurchase and retire an aggregate of 22.6 million shares
of Class C common stock (26.35 million shares of
Class C common stock if the underwriters exercise in full
their option to purchase additional shares) from our parent and
to repurchase 1.2 million shares of Class A common
stock from Richard Pell and 1.2 million shares of
Class A common stock from Rudolph-Riad Younes. We will not
retain any of the net proceeds. |
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Dividend policy |
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Following this offering, we intend to pay quarterly cash
dividends. We expect that our first dividend will be paid in the
first quarter of 2010 (in respect of the fourth quarter of
2009) and will be $0.06 per share of our Class A
common stock and Class C common stock. |
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The declaration and payment of all future dividends, if any,
will be at the sole discretion of our board of directors and may
be discontinued at any time. In determining the amount of any
future dividends, our board of directors will take into account
any legal or contractual limitations, our actual and anticipated
future earnings, cash flow, debt service and capital
requirements and the amount of distributions to us from our
operating company. See Dividend Policy and Dividends. |
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As a holding company, we will have no material assets other than
our ownership of New Class A Units of Artio Global Holdings
and, accordingly, will depend on distributions from it to fund
any dividends we may pay. We intend to cause it to make
distributions to us with available cash generated from its
subsidiaries operations in an amount sufficient to cover
dividends, if any, declared by us. If Artio Global Holdings |
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makes such distributions, the other holders of New Class A
Units will be entitled to receive equivalent distributions on a
pro rata basis. |
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Risk Factors |
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The Risk Factors section included in this prospectus
contains a discussion of factors that you should carefully
consider before deciding to invest in shares of our Class A
common stock. |
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New York Stock Exchange symbol |
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ART |
The number of shares of Class A common stock outstanding
immediately after this offering excludes:
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15,600,000 shares of Class A common stock reserved for
issuance upon the exchange of the New Class A Units held by
the Principals, 2,400,000 shares of Class A common
stock repurchased from our Principals in connection with this
offering and held as treasury stock and 19,400,000 shares
of Class A common stock reserved for issuance upon the
conversion of the Class C common stock held by our parent,
in each case that will be outstanding immediately after this
offering; and
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9,693,076 shares of Class A common stock reserved for
issuance under the Artio Global Investors Inc. 2009 Stock
Incentive Plan, of which 2,147,132 will be reserved for delivery
upon vesting of restricted stock units (each of which represents
the right to receive one share of our Class A common stock
upon the lapse of restrictions, which generally lapse over a
five-year period), expected to be awarded to our employees
(other than our Principals) in connection with this offering.
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Unless otherwise indicated in this prospectus, all information
in this prospectus (other than historical financial information)
(i) gives effect to the sale of 25,000,000 shares of
our Class A common stock at $26.00 per share and assumes no
exercise by the underwriters of their option to purchase
additional shares of Class A common stock, (ii) gives
effect to the filing of an amendment to our certificate of
incorporation effecting a 10,500:1 stock split of our common
stock into 42,000,000 shares of Class C common stock
that was effected as of August 28, 2009 and
(iii) reflects the inclusion of 6,924 shares of
fully-vested Class A common stock, expected to be awarded to our
non-employee directors in connection with this offering.
14
SUMMARY SELECTED
HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL DATA
The following tables set forth the summary historical and pro
forma consolidated financial and other data for Artio Global
Investors Inc. and subsidiaries as of the dates and for the
periods indicated. In accordance with Securities and Exchange
Commissions Staff Accounting Bulletin Topic 4:C, the
summary of selected consolidated statement of income data for
the years ended December 31, 2006, 2007 and 2008, and the
six months ended June 30, 2008 and 2009 give retroactive
effect to a 10,500:1 stock split that was effected as of
August 28, 2009. The summary of selected consolidated
statement of income data for the years ended December 31,
2006, 2007 and 2008 and the selected consolidated statement of
financial position data as of December 31, 2007 and 2008
have been derived from our audited consolidated financial
statements, included elsewhere in the prospectus. The selected
consolidated statement of income data for the six months ended
June 30, 2008 and 2009 and the consolidated statement of
financial position data as of June 30, 2009 have been
derived from our unaudited interim consolidated financial
statements. These unaudited interim consolidated financial
statements have been prepared on substantially the same basis as
our audited consolidated financial statements and include all
adjustments that we consider necessary for a fair presentation
of our consolidated results of operations and financial
condition for the periods presented therein. Our results for the
six months ended June 30, 2008 and 2009 are not necessarily
indicative of our results for a full fiscal year.
The unaudited pro forma consolidated financial data gives effect
to all of the transactions described under Unaudited Pro
Forma Consolidated Financial Information, including the
incurrence of debt by Artio Global Holdings in connection with
this offering, the reorganization transactions and this offering.
You should read the summary selected historical and pro forma
consolidated financial and other data in conjunction with
Our Structure and Reorganization, Unaudited
Pro Forma Consolidated Financial Information,
Managements Discussion and Analysis of Financial
Condition and Results of Operations, the historical
consolidated financial statements and related notes and the
unaudited pro forma financial statements and related notes
included elsewhere in this prospectus.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical
|
|
|
Pro Forma
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months
|
|
|
|
|
|
Six Months
|
|
|
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
Year Ended
|
|
|
Ended
|
|
|
|
Year Ended December 31,
|
|
|
June 30,
|
|
|
December 31,
|
|
|
June 30,
|
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
|
(In thousands, except per share data)
|
|
|
Statement of Income Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues and other operating income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment management fees
|
|
$
|
300,432
|
|
|
$
|
445,558
|
|
|
$
|
425,003
|
|
|
$
|
243,507
|
|
|
$
|
132,576
|
|
|
$
|
425,003
|
|
|
$
|
132,576
|
|
Net gains (losses) on securities held for deferred compensation
|
|
|
|
|
|
|
|
|
|
|
(2,856
|
)
|
|
|
(601
|
)
|
|
|
712
|
|
|
|
(2,856
|
)
|
|
|
712
|
|
Foreign currency gains (losses)
|
|
|
|
|
|
|
186
|
|
|
|
(101
|
)
|
|
|
(21
|
)
|
|
|
32
|
|
|
|
(101
|
)
|
|
|
32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues and other operating income
|
|
|
300,432
|
|
|
|
445,744
|
|
|
|
422,046
|
|
|
|
242,885
|
|
|
|
133,320
|
|
|
|
422,046
|
|
|
|
133,320
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee compensation and benefits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries, incentive compensation and benefits
|
|
|
69,677
|
|
|
|
92,277
|
|
|
|
92,487
|
|
|
|
52,854
|
|
|
|
34,917
|
|
|
|
101,579
|
|
|
|
43,902
|
|
Allocation of Class B profits interests
|
|
|
53,410
|
|
|
|
83,512
|
|
|
|
76,074
|
|
|
|
43,991
|
|
|
|
21,472
|
|
|
|
|
|
|
|
|
|
Change in redemption value of Class B profits interests
|
|
|
46,932
|
|
|
|
76,844
|
|
|
|
54,558
|
|
|
|
36,433
|
|
|
|
35,538
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total employee compensation and benefits
|
|
|
170,019
|
|
|
|
252,633
|
|
|
|
223,119
|
|
|
|
133,278
|
|
|
|
91,927
|
|
|
|
101,579
|
|
|
|
43,902
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,317
|
|
|
|
1,658
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical
|
|
|
Pro Forma
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months
|
|
|
|
|
|
Six Months
|
|
|
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
Year Ended
|
|
|
Ended
|
|
|
|
Year Ended December 31,
|
|
|
June 30,
|
|
|
December 31,
|
|
|
June 30,
|
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
|
(In thousands, except per share data)
|
|
|
Shareholder servicing and marketing
|
|
|
20,134
|
|
|
|
25,356
|
|
|
|
23,369
|
|
|
|
12,725
|
|
|
|
7,208
|
|
|
|
23,369
|
|
|
|
7,208
|
|
General and administrative
|
|
|
31,510
|
|
|
|
50,002
|
|
|
|
62,833
|
|
|
|
34,665
|
|
|
|
17,578
|
|
|
|
47,972
|
|
|
|
15,164
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
221,663
|
|
|
|
327,991
|
|
|
|
309,321
|
|
|
|
180,668
|
|
|
|
116,713
|
|
|
|
176,237
|
|
|
|
67,932
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income before income tax expense
|
|
|
78,769
|
|
|
|
117,753
|
|
|
|
112,725
|
|
|
|
62,217
|
|
|
|
16,607
|
|
|
|
245,809
|
|
|
|
65,388
|
|
Non-operating income (loss)
|
|
|
3,288
|
|
|
|
7,034
|
|
|
|
3,181
|
|
|
|
1,397
|
|
|
|
(333
|
)
|
|
|
100
|
|
|
|
(333
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income tax expense
|
|
|
82,057
|
|
|
|
124,787
|
|
|
|
115,906
|
|
|
|
63,614
|
|
|
|
16,274
|
|
|
|
245,909
|
|
|
|
65,055
|
|
Income tax expense
|
|
|
38,514
|
|
|
|
58,417
|
|
|
|
54,755
|
|
|
|
31,992
|
|
|
|
7,874
|
|
|
|
79,488
|
|
|
|
21,079
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
43,543
|
|
|
|
66,370
|
|
|
|
61,151
|
|
|
|
31,622
|
|
|
|
8,400
|
|
|
|
166,421
|
|
|
|
43,976
|
|
Income from discontinued operations, net of taxes
|
|
|
1,231
|
|
|
|
1,616
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income(2)
|
|
|
44,774
|
|
|
|
67,986
|
|
|
|
61,151
|
|
|
|
31,622
|
|
|
|
8,400
|
|
|
|
166,421
|
|
|
|
43,976
|
|
Less: Net income attributable to non-controlling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
61,732
|
|
|
|
16,219
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Artio Global Investors(2)
|
|
$
|
44,774
|
|
|
$
|
67,986
|
|
|
$
|
61,151
|
|
|
$
|
31,622
|
|
|
$
|
8,400
|
|
|
$
|
104,689
|
|
|
$
|
27,757
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income per share attributable to Artio Global
Investors Class A (pro forma only) and Class C common
stockholders: Income per share from continuing operations before
discontinued operations(1)
|
|
$
|
1.04
|
|
|
$
|
1.58
|
|
|
$
|
1.46
|
|
|
$
|
0.75
|
|
|
$
|
0.20
|
|
|
$
|
2.35
|
|
|
$
|
0.62
|
|
Income per share from discontinued operations, net of taxes(1)
|
|
|
0.03
|
|
|
|
0.04
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share(1)
|
|
$
|
1.07
|
|
|
$
|
1.62
|
|
|
$
|
1.46
|
|
|
$
|
0.75
|
|
|
$
|
0.20
|
|
|
$
|
2.35
|
|
|
$
|
0.62
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per share attributable to Artio Global
Investors Class A (pro forma only) and Class C common
stockholders: Income per share before discontinued operations(1)
|
|
$
|
1.04
|
|
|
$
|
1.58
|
|
|
$
|
1.46
|
|
|
$
|
0.75
|
|
|
$
|
0.20
|
|
|
$
|
2.30
|
|
|
$
|
0.60
|
|
Income per share from discontinued operations, net of taxes(1)
|
|
|
0.03
|
|
|
|
0.04
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share(1)
|
|
$
|
1.07
|
|
|
$
|
1.62
|
|
|
$
|
1.46
|
|
|
$
|
0.75
|
|
|
$
|
0.20
|
|
|
$
|
2.30
|
|
|
$
|
0.60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared per basic share(1)
|
|
$
|
|
|
|
$
|
1.43
|
|
|
$
|
2.79
|
|
|
$
|
1.95
|
|
|
$
|
0.33
|
|
|
$
|
2.63
|
|
|
$
|
0.31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average Class A (pro forma only) and Class C
common shares used in basic net income per share(1)
|
|
|
42,000
|
|
|
|
42,000
|
|
|
|
42,000
|
|
|
|
42,000
|
|
|
|
42,000
|
|
|
|
44,483
|
|
|
|
44,897
|
|
Weighted average Class A (pro forma only) and Class C
common shares used in diluted net income per share(1)
|
|
|
42,000
|
|
|
|
42,000
|
|
|
|
42,000
|
|
|
|
42,000
|
|
|
|
42,000
|
|
|
|
60,290
|
|
|
|
60,601
|
|
|
|
|
(1) |
|
Historical data as recast to give retroactive effect to a
10,500:1 stock split that was effected as of August 28,
2009. |
|
(2) |
|
Pro forma results are before non-recurring charges directly
attributable to the transaction. |
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
As of
|
|
|
As of June 30,
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
2009
|
|
|
|
2007
|
|
|
2008
|
|
|
Historical
|
|
|
Pro Forma
|
|
|
|
(In thousands)
|
|
|
Statement of Financial Position Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
133,447
|
|
|
$
|
86,563
|
|
|
$
|
111,324
|
|
|
$
|
17,652
|
|
Total assets
|
|
|
355,355
|
|
|
|
319,476
|
|
|
|
306,145
|
|
|
|
130,689
|
|
Accrued compensation and benefits
|
|
|
245,245
|
|
|
|
268,925
|
|
|
|
264,253
|
|
|
|
15,464
|
|
Long-term debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
60,000
|
|
Total liabilities
|
|
|
266,261
|
|
|
|
286,231
|
|
|
|
278,500
|
|
|
|
164,643
|
|
Total Artio Global Investors stockholders equity (deficit)
|
|
$
|
89,094
|
|
|
$
|
33,245
|
|
|
$
|
27,645
|
|
|
$
|
(23,614
|
)
|
Non-controlling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,340
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity (deficit)
|
|
$
|
89,094
|
|
|
$
|
33,245
|
|
|
$
|
27,645
|
|
|
$
|
(33,954
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
Year Ended December 31,
|
|
|
June 30,
|
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2008
|
|
|
2009
|
|
|
|
(In millions)
|
|
|
Selected Unaudited Operating Data (excluding legacy
activities):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets under management(1)
|
|
$
|
53,486
|
|
|
$
|
75,362
|
|
|
$
|
45,200
|
|
|
$
|
72,604
|
|
|
$
|
46,826
|
|
Net client cash flows(2)
|
|
|
7,582
|
|
|
|
12,150
|
|
|
|
1,930
|
|
|
|
4,991
|
|
|
|
973
|
|
Market appreciation (depreciation)(3)
|
|
|
11,054
|
|
|
|
9,726
|
|
|
|
(32,092
|
)
|
|
|
(7,749
|
)
|
|
|
653
|
|
|
|
|
(1) |
|
Reflects the amount of money our clients have invested in our
strategies as of the period-end date. |
|
(2) |
|
Reflects the amount of money our clients have invested in our
strategies during the period, net of outflows and excluding
appreciation (depreciation) due to changes in market value. |
|
(3) |
|
Represents the appreciation (depreciation) of the value of
assets under our management during the period due to market
performance and fluctuations in exchange rates. |
17
RISK
FACTORS
You should carefully consider each of the risks below,
together with all of the other information contained in this
prospectus, before deciding to invest in shares of our
Class A common stock. If any of the following risks develop
into actual events, our business, financial condition or results
of operations could be negatively affected, the market price of
your shares could decline and you could lose all or part of your
investment.
Risks Related to
our Business
The loss of
either of our Principals or other key investment professionals
or members of our senior management team could have a material
adverse effect on our business. Our ability to attract and
retain qualified investment professionals is critical to our
success.
We depend on the skills and expertise of qualified investment
professionals and our success depends on our ability to retain
the key members of our investment team and to attract new
qualified investment professionals. In particular, we depend on
our Principals, who were the architects of our International
Equity strategies. Our Principals, as well as other key members
of our investment team, possess substantial experience in
investing and have developed strong relationships with our
clients. The loss of either of our Principals or any of our
other key investment professionals could limit our ability to
successfully execute our business strategy and may prevent us
from sustaining the performance of our investment strategies or
adversely affect our ability to retain existing and attract new
client assets. In addition, our investment professionals and
senior marketing personnel have direct contact with our
institutional separate account clients and their consultants,
and with key individuals within each of our other distribution
sources and the loss of these personnel could jeopardize those
relationships and result in the loss of such accounts. We do not
carry any key man insurance that would provide us
with proceeds in the event of the death or disability of our
Principals or other key members of our investment team.
We also anticipate that it will be necessary for us to hire
additional investment professionals as we further diversify our
investment products and strategies. Competition for employees
with the necessary qualifications is intense and we may not be
successful in our efforts to recruit and retain the required
personnel. Our ability to retain and attract these personnel
will depend heavily on the amount of compensation we offer.
Compensation levels in the investment management industry are
highly competitive and can fluctuate significantly from year to
year. Consequently, our profitability could decline as we
compete for personnel. An inability to recruit and retain
qualified personnel could affect our ability to provide
acceptable levels of service to our clients and funds and hinder
our ability to attract new clients and investors to our
strategies, each of which could have a material adverse effect
on our business.
If our
investment strategies perform poorly, clients could withdraw
their funds and we could suffer a decline in assets under
management and/or become subject to litigation which would
reduce our earnings.
The performance of our investment strategies is critical in
retaining existing clients as well as attracting new clients. If
our investment strategies perform poorly for any reason, our
earnings could be reduced because:
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|
|
|
|
our existing clients may withdraw their funds from our
investment strategies, which would cause the revenues that we
generate from investment management fees to decline;
|
|
|
|
our Morningstar and Lipper ratings may decline, which may
adversely affect the ability of our funds to attract new or
retain existing assets;
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|
|
|
third-party financial intermediaries, advisors or consultants
may rate our investment products poorly, which may lead our
existing clients to withdraw funds from our investment
strategies or to reduce asset inflows from these third parties
or their clients; or
|
18
|
|
|
|
|
the mutual funds and other investment funds that we advise or
sub-advise may decide not to renew or to terminate the
agreements pursuant to which we advise or sub-advise them and we
may not be able to replace these relationships.
|
Our investment strategies can perform poorly for a number of
reasons, including general market conditions and investment
decisions that we make. In addition, while we seek to deliver
long-term value to our clients, volatility may lead to
under-performance in the near-term, which could impair our
earnings. The global economic environment deteriorated sharply
in 2008, particularly in the third and fourth quarters, with
virtually every class of financial asset experiencing
significant price declines and volatility as a result of the
global financial crisis. In the period from January 1, 2008
through August 31, 2009, our assets under management
decreased by approximately 29% primarily as a result of general
market conditions. Our largest strategy has under-performed to
date in 2009 compared to its benchmarks as we avoided certain
sectors that have outperformed the market.
In contrast, when our strategies experience strong results
relative to the market, clients allocations to our
strategies may increase relative to their other investments and
we could suffer withdrawals as our clients rebalance their
investments to fit their asset allocation preferences.
While clients do not have legal recourse against us solely on
the basis of poor investment results, if our investment
strategies perform poorly, we are more likely to become subject
to litigation brought by dissatisfied clients. In addition, to
the extent clients are successful in claiming that their losses
resulted from fraud, negligence, willful misconduct, breach of
contract or other similar misconduct, such clients may have
remedies against us, our investment funds, our investment
professionals
and/or our
affiliates under the federal securities law
and/or state
law.
The historical
returns of our existing investment strategies may not be
indicative of their future results or of the investment
strategies we are in the process of developing.
We have presented the historical returns of our existing
investment strategies under Business
Investment Strategies, Products and Performance. The
historical returns of our strategies and the rankings we have
received in the past should not be considered indicative of the
future results of these strategies or of any other strategies
that we may be in the process of developing or that we may
develop in the future. Our strategies returns have
benefited during some periods from investment opportunities and
positive economic and market conditions. More recent general
economic and market conditions have negatively affected
investment opportunities and our strategies returns, and
there can be no assurance that such negative conditions will not
continue or that, in the future, we will be able to identify and
invest in profitable investment opportunities within our current
or future strategies. For example, in the first six months of
2009, our International Equity strategies performed well below
historical averages on a relative basis.
Difficult
market conditions can adversely affect our business in many
ways, including by reducing the value of our assets under
management and causing clients to withdraw funds, each of which
could materially reduce our revenues and adversely affect our
financial condition.
The fees we earn under our investment management fee agreements
are typically based on the market value of our assets under
management. Investors in open-end funds can redeem their
investments in those funds at any time without prior notice and
our clients may reduce the aggregate amount of assets under
management with us for any number of reasons, including
investment performance, changes in prevailing interest rates and
financial market performance. In addition, the prices of the
securities held in the portfolios we manage may decline due to
any number of factors beyond our control, including, among
others, a declining stock market, general economic downturn,
political uncertainty or acts of terrorism. As we have seen in
connection with the market dislocations of 2008 and 2009, in
difficult market conditions, the pace of client redemptions or
withdrawals from our investment strategies could accelerate if
clients move assets to investments they perceive as offering
greater opportunity or lower risk. Any of these sources of
declining assets under management would result in lower
investment management fees.
19
For example, since the beginning of 2008, we have seen
historically difficult market conditions as world financial
markets have experienced record volatility and many key market
indices have declined substantially. Global equity markets fell
in 2008, particularly as the financial crisis intensified in the
third and fourth quarters. For example, by year-end the MSCI All
Country World Index (ex-US) was down 41% in local currency terms
and 45% in U.S. dollar terms. In addition, equity market
volatility reached extreme levels around the world, evidenced by
dramatically higher average levels for the VSTOXX and VIX
indices.
The sizeable decline in stock prices worldwide resulted in
substantial withdrawals from equity funds during 2008 throughout
the asset management industry. By the end of 2008, it was clear
that the U.S. and other major economies were in recession,
and despite the coordinated efforts of governments around the
world to stabilize financial markets, volatility persisted.
Economic conditions worsened in the first quarter of 2009 and
the flight to quality continued. As a result, we continue to
operate in a challenging business environment, and the economic
outlook remains uncertain for the remainder of the year.
As a result of these market conditions, we have experienced an
increase in client redemptions and our assets under management
have also decreased substantially since the end of the second
quarter of 2008. If our revenue declines without a commensurate
reduction in our expenses, our net income will be reduced and
our business may be negatively affected.
Most of our
investment strategies consist of investments in the securities
of companies located outside of the United States, which may
involve foreign currency exchange, tax, political, social and
economic uncertainties and risks.
As of June 30, 2009, approximately 85% of our assets under
management across our investment strategies were invested in
strategies that primarily invest in securities of companies
located outside the United States. Fluctuations in foreign
currency exchange rates could negatively affect the returns of
our clients who are invested in these strategies. In addition,
an increase in the value of the U.S. dollar relative to
non-U.S. currencies
is likely to result in a decrease in the U.S. dollar value
of our assets under management, which, in turn, could result in
lower
U.S.-dollar
denominated revenue.
Investments in
non-U.S. issuers
may also be affected by tax positions taken in countries or
regions in which we are invested as well as political, social
and economic uncertainty, particularly as a result of the recent
decline in economic conditions. Many financial markets are not
as developed, or as efficient, as the U.S. financial
market, and, as a result, liquidity may be reduced and price
volatility may be higher. Liquidity may also be adversely
affected by political or economic events within a particular
country, and by increasing the size of our investments in
smaller
non-U.S. issuers.
Non-U.S. legal
and regulatory environments, including financial accounting
standards and practices, may also be different, and there may be
less publicly available information in respect of such
companies. These risks could adversely affect the performance of
our strategies that are invested in securities of
non-U.S. issuers.
We derive a
substantial portion of our revenues from a limited number of our
strategies.
As of June 30, 2009, over 84% of our assets under
management were concentrated in the International Equity I and
International Equity II strategies, and 93% of our
investment management fees for the six months ended
June 30, 2009 were attributable to fees earned from those
strategies. As a result, our operating results are substantially
dependent upon the performance of those strategies and our
ability to attract positive net client flows into those
strategies. In addition, our smaller strategies, due to their
size, may not be able to generate sufficient fees to cover their
expenses. If a significant portion of the investors in either
the International Equity I or International Equity II
strategies decided to withdraw their investments or terminate
their investment management agreements for any reason, including
poor investment performance or adverse market conditions, our
revenues from those strategies would decline and it could have a
material adverse effect on our earnings.
20
We derive
substantially all of our revenues from contracts that may be
terminated on short notice.
We derive substantially all of our revenues from investment
advisory and sub-advisory agreements, almost all of which are
terminable by clients upon short notice. Our investment
management agreements with mutual funds, as required by law, are
generally terminable by the funds board of directors or a
vote of the majority of the funds outstanding voting
securities on not more than 60 days written notice.
After an initial term, each funds investment management
agreement must be approved and renewed annually by the
independent members of such funds board of directors. Our
sub-advisory agreements are generally terminable on not more
than 60 days notice. These investment management
agreements may be terminated or not renewed for any number of
reasons. The decrease in revenues that could result from the
termination of a material contract could have a material adverse
effect on our business.
We depend on
third-party distribution sources to market our investment
strategies and access our client base.
Our ability to grow our assets under management is highly
dependent on access to third-party intermediaries, including
RIAs and broker dealers. We also provide our services to retail
clients through mutual fund platforms and sub-advisory
relationships. As of June 30, 2009, our largest mutual fund
platform represented approximately 9% of our total assets under
management, our largest intermediary accounted for approximately
6% of our total assets under management and our largest
sub-advisory relationship represented approximately 4% of our
total assets under management. We cannot assure you that these
sources and client bases will continue to be accessible to us on
commercially reasonable terms, or at all. The absence of such
access could have a material adverse effect on our earnings. Our
institutional separate account business is highly dependent upon
referrals from pension fund consultants. Many of these
consultants review and evaluate our products and our firm from
time to time. Poor reviews or evaluations of either a particular
product or of us may result in client withdrawals or may impair
our ability to attract new assets through these intermediaries.
As of June 30, 2009, the consultant advising the largest
portion of our client assets under management represented
approximately 5% of our assets under management. In addition,
the recent economic downturn and consolidation in the
broker-dealer industry have led to increased competition to
market through broker dealers and higher costs, and may lead to
reduced distribution access and further cost increases.
The
significant growth we have experienced over the past five years
has been and may continue to be difficult to
sustain.
Our assets under management have increased from approximately
$7.5 billion as of December 31, 2003 to approximately
$53.3 billion as of August 31, 2009. Our
August 31, 2009 assets under management represent a
substantial decline from our quarter-end high of
$75.4 billion as of December 31, 2007, but still
represent a significant rate of growth that has been and may
continue to be difficult to sustain. The growth of our business
will depend on, among other things, our ability to devote
sufficient resources to maintaining existing investment
strategies and developing new investment strategies, our success
in producing attractive returns from our investment strategies,
our ability to extend our distribution capabilities, our ability
to deal with changing market conditions, our ability to maintain
adequate financial and business controls and our ability to
comply with new legal and regulatory requirements arising in
response to both the increased sophistication of the investment
management market and the significant market and economic events
of the last 18 months. In addition, the growth in our
assets under management since December 31, 2003 has
benefited from a general depreciation of the U.S. dollar
relative to many of the currencies in which we invest and such
currency trends may not continue, as evidenced by recent
volatility. If we believe that in order to continue to produce
attractive returns from our investment strategies we should
close certain of those strategies to new investors, we may
choose to do so. In addition, we expect there to be significant
demand on our infrastructure and investment team and we cannot
assure you that we will be able to manage our growing business
effectively or that we will be able to sustain the level of
growth we have
21
achieved historically, and any failure to do so could adversely
affect our ability to generate revenue and control our expenses.
Our failure to
comply with investment guidelines set by our clients, including
the boards of mutual funds, could result in damage awards
against us and a loss of assets under management, either of
which could cause our earnings to decline.
As an investment advisor, we have a fiduciary duty to our
clients. When clients retain us to manage assets on their
behalf, they generally specify certain guidelines regarding
investment allocation and strategy that we are required to
follow in the management of their portfolios. In addition, the
boards of mutual funds we manage generally establish similar
guidelines regarding the investment of assets in those funds. We
are also required to invest the mutual funds assets in
accordance with limitations under the U.S. Investment
Company Act of 1940, as amended (the 1940 Act), and
applicable provisions of the Internal Revenue Code of 1986, as
amended. Our failure to comply with these guidelines and other
limitations could result in losses to a client or an investor in
a fund which, depending on the circumstances, could result in
our making clients or fund investors whole for such losses. If
we believed that the circumstances did not justify a
reimbursement, or clients and investors believed the
reimbursement offered was insufficient, they could seek to
recover damages from us or could withdraw assets from our
management or terminate their investment management agreement.
Any of these events could harm our reputation and cause our
earnings to decline.
We outsource a
number of services to third-party vendors and if they fail to
perform properly, we may suffer financial loss and liability to
our clients.
We have developed a business model that is primarily focused on
our investment strategies. Accordingly, we seek to outsource,
whenever appropriate, support functions. The services we
outsource include middle- and back-office activities such as
trade confirmation, trade settlement, custodian reconciliations
and client reporting services as well as our front-end trading
system and data center, data replication, file transmission,
secure remote access and disaster recovery services. The ability
of the third-party vendors to perform their functions properly
is highly dependent on the adequacy and proper functioning of
their communication, information and computer systems. If these
systems of the third-party vendors do not function properly, or
if the third-party vendors fail to perform their services
properly or choose to discontinue providing services to us for
any reason, or if we are unable to renew any of our key
contracts on similar terms or at all, it could cause our
earnings to decline or we could suffer financial losses,
business disruption, liability to clients, regulatory
intervention or damage to our reputation.
A change of
control of our company could result in termination of our
investment advisory agreements.
Under the 1940 Act, each of the investment advisory agreements
for SEC registered mutual funds that our subsidiary, Artio
Global Management LLC, advises automatically terminates in the
event of an assignment. Each funds board and shareholders
must therefore approve a new agreement in order for our
subsidiary to continue to act as its advisor. In addition, under
the U.S. Investment Advisers Act of 1940, as amended (the
Advisers Act), each of the investment advisory
agreements for the separate accounts we manage may not be
assigned without the consent of the client.
An assignment of our subsidiarys investment management
agreements may occur if, among other things, Artio Global
Management LLC undergoes a change of control. If such an
assignment occurs, we cannot be certain that Artio Global
Management LLC will be able to obtain the necessary approvals
from the boards and shareholders of the SEC registered funds
that it advises, or the necessary consents from clients whose
funds are managed pursuant to separate accounts. Under the 1940
Act, if an SEC registered funds investment advisor engages
in a transaction that results in the assignment of its
investment management agreement with the fund, the advisor may
not impose an unfair burden on that fund as a result
of the transaction for a two-year period after the transaction
is completed. It is expected that this offering will constitute
a change of control for purposes of the 1940
22
Act. We have obtained all necessary approvals in connection with
this offering, but will be subject to the limits on unfair
burdens for the next two years which could be adverse to
our interests.
Operational
risks may disrupt our business, result in losses or limit our
growth.
We are heavily dependent on the capacity and reliability of the
communications, information and technology systems supporting
our operations, whether owned and operated by us or by third
parties. Operational risks such as trading errors or
interruption of our financial, accounting, trading, compliance
and other data processing systems, whether caused by fire, other
natural disaster or pandemic, power or telecommunications
failure, act of terrorism or war or otherwise, could result in a
disruption of our business, liability to clients, regulatory
intervention or reputational damage, and thus materially
adversely affect our business. The risks related to trading
errors are increased by the recent extraordinary market
volatility, which can magnify the cost of an error, and by the
companys increased use of derivatives in client accounts,
which brings additional operational complexity. For example, in
2008 we suffered trading errors that cost us approximately
$5.5 million. Insurance and other safeguards might not be
available or might only partially reimburse us for our losses.
Although we have
back-up
systems in place, our
back-up
procedures and capabilities in the event of a failure or
interruption may not be adequate. The inability of our systems
to accommodate an increasing volume of transactions also could
constrain our ability to expand our businesses. Additionally,
any upgrades or expansions to our operations
and/or
technology may require significant expenditures and may increase
the probability that we will suffer system degradations and
failures. We also depend on our headquarters in New York City,
where a majority of our employees are located, for the continued
operation of our business. Any significant disruption to our
headquarters could have a material adverse effect on us.
Employee
misconduct could expose us to significant legal liability and
reputational harm.
We are vulnerable to reputational harm as we operate in an
industry where integrity and the confidence of our clients are
of critical importance. Our employees could engage in misconduct
that adversely affects our business. For example, if an employee
were to engage in illegal or suspicious activities, we could be
subject to regulatory sanctions and suffer serious harm to our
reputation (as a consequence of the negative perception
resulting from such activities), financial position, client
relationships and ability to attract new clients. Our business
often requires that we deal with confidential information. If
our employees were to improperly use or disclose this
information, we could suffer serious harm to our reputation,
financial position and current and future business
relationships. It is not always possible to deter employee
misconduct, and the precautions we take to detect and prevent
this activity may not always be effective. Misconduct by our
employees, or even unsubstantiated allegations of misconduct,
could result in an adverse effect on our reputation and our
business.
If our
techniques for managing risk are ineffective, we may be exposed
to material unanticipated losses.
In order to manage the significant risks inherent in our
business, we must maintain effective policies, procedures and
systems that enable us to identify, monitor and control our
exposure to market, operational, legal and reputational risks.
Our risk management methods may prove to be ineffective due to
their design or implementation, or as a result of the lack of
adequate, accurate or timely information or otherwise. If our
risk management efforts are ineffective, we could suffer losses
that could have a material adverse effect on our financial
condition or operating results. Additionally, we could be
subject to litigation, particularly from our clients, and
sanctions or fines from regulators.
Our techniques for managing risks in client portfolios may not
fully mitigate the risk exposure in all economic or market
environments, or against all types of risk, including risks that
we might fail to identify or anticipate. Any failures in our
risk management techniques and strategies to accurately quantify
such risk exposure could limit our ability to manage risks in
those portfolios or to seek positive, risk-adjusted returns. In
addition, any risk management failures could cause portfolio
losses to be significantly greater than historical measures
predict. Our more qualitative approach to
23
managing those risks could prove insufficient, exposing us to
material unanticipated losses in the value of client portfolios
and therefore a reduction in our revenues.
Our failure to
adequately address conflicts of interest could damage our
reputation and materially adversely affect our
business.
Potential, perceived and actual conflicts of interest are
inherent in our existing and future investment activities. For
example, certain of our strategies have overlapping investment
objectives and potential conflicts of interest may arise with
respect to our decisions regarding how to allocate investment
opportunities among those strategies. In addition, investors (or
holders of our Class A common stock) may perceive conflicts
of interest regarding investment decisions for strategies in
which our investment professionals, who have and may continue to
make significant personal investments, are personally invested.
Potential, perceived or actual conflicts of interest could give
rise to investor dissatisfaction, litigation or regulatory
enforcement actions. Adequately addressing conflicts of interest
is complex and difficult and we could suffer significant
reputational harm if we fail, or appear to fail, to adequately
address potential, perceived or actual conflicts of interest.
Our business
depends on strong brand recognition and, if we are not
successful in our rebranding efforts as a result of our change
in name, our business could be materially
affected.
In June 2008 we changed our name from Julius Baer Americas Inc.
to Artio Global Investors Inc. and in October 2008 we changed
the names of our mutual funds. The impact of these changes on
our business cannot be fully predicted, and the lack of an
established brand image for the new name in the marketplace may
disrupt our sales and adversely affect our business. If the
rebranding effort is not accepted by our clients, creates
confusion in the market, or if there are negative connotations
associated with our new name that we cannot successfully
address, our business may be adversely affected.
As part of our rebranding, we may be required to devote a
substantial amount of time and resources to reestablish our
identity. We have no significant experience in the type of
marketing that will be required to reestablish our identity and
we cannot assure you that these efforts will be successful.
Our
reputation, revenues and business prospects could be adversely
impacted by events relating to our parent or any of Its
affiliates.
Immediately following this offering and, after giving effect to
the transactions described herein, our parent will have
approximately 32.3% of our outstanding voting power. We exercise
no control over the activities of our parent or its affiliates.
We may be subject to reputational harm if our parent or any of
its affiliates have, or in the future were to, among other
things, engage in poor business practices, experience adverse
results, be subject to litigation or otherwise damage their
reputations or business prospects. Any of these events might in
turn adversely affect our own reputation, our revenues and our
business prospects.
Our use of
leverage may expose us to substantial risks.
In connection with this offering, Artio Global Holdings has
established a $60.0 million term debt facility which,
together with available cash, will fund a distribution to us
that we will use to fund a distribution to our parent, and will
also be utilized to provide working capital for our business
and, potentially, seed capital for future investment products.
In addition, Artio Global Holdings has entered into a
$50.0 million revolving credit facility to be used
primarily for working capital needs. The incurrence of this debt
will expose us to the typical risks associated with the use of
leverage. Increased leverage makes it more difficult for us to
withstand adverse economic conditions or business plan
variances, to take advantage of new business opportunities, or
to make necessary capital expenditures. The agreements governing
our debt facilities may contain covenant restrictions that limit
our ability to conduct our business, including restrictions on
our ability to incur additional indebtedness. A substantial
portion of our cash flow could be required for debt service and,
as a
24
result, might not be available for our operations or other
purposes. Any substantial decrease in net operating cash flows
or any substantial increase in expenses could make it difficult
for us to meet our debt service requirements or force us to
modify our operations. Our level of indebtedness may make us
more vulnerable to economic downturns and reduce our flexibility
in responding to changing business, regulatory and economic
conditions.
Failure to
comply with fair value pricing, market
timing and late trading policies and procedures may
adversely affect us.
The SEC has adopted rules that require mutual funds to adopt
fair value pricing procedures to address time zone
arbitrage, selective disclosure procedures to protect mutual
fund portfolio information and procedures to ensure compliance
with a mutual funds disclosed market timing policy. Recent
SEC rules also require our mutual funds to ensure compliance
with their own market timing policies. Our mutual funds are
subject to these rules and, in the event of our non-compliance,
we may be required to disgorge certain revenue. In addition, we
could have penalties imposed on us, be required to pay fines or
be subject to private litigation, any of which could decrease
our future income, or negatively affect our current business or
our future growth prospects. During periods of market volatility
there is often an increased need to adjust a securitys
price to approximate its fair value. This in turn increases the
risk that we could breach the fair value pricing and market
timing rules.
We are subject
to risks relating to new initiatives which may adversely affect
our growth strategy and business.
A key component of our growth strategy is to focus on achieving
superior, long-term investment performance. Any new initiative
we pursue will be subject to numerous risks, some unknown and
some known, which may be different from and in addition to the
risks we face in our existing business, including, among others,
risks associated with newly established strategies without any
operating history, risks associated with potential, perceived or
actual conflicts of interest, risks relating to the misuse of
confidential information, risks due to potential lack of
liquidity in the securities in which these initiatives invest
and risks due to a general lack of liquidity in the global
financial market that could make it harder to obtain equity or
debt financing.
In developing any new initiatives, we intend to leverage the
expertise and research of our current investment professionals,
which may place significant strain on resources and distract our
investment professionals from the strategies that they currently
manage. This leverage of our existing investment teams may also
increase the possibility of a conflict of interest arising,
given the differing fee structures associated with these new
initiatives. Our growth strategy may require significant
investment, including capital commitments to our future hedge
fund strategies as well as the hiring of additional investment
professionals, which may place significant strain on our
financial, operational and management resources. We cannot
assure you that we will be able to achieve our growth strategy
or that we will succeed in any new initiatives. Failure to
achieve or manage such growth could have a material adverse
effect on our business, financial condition and results of
operations. See Business Investment
Strategies, Products and Performance New
Initiatives.
The cost of
insuring our business is substantial and may
increase.
Our insurance costs are substantial and can fluctuate
significantly from year to year. Insurance costs increased in
2008 and additional increases in the short term are possible. In
addition, certain insurance coverage may not be available or may
only be available at prohibitive costs. As we renew our
insurance policies, we may be subject to additional costs
resulting from rising premiums, the assumption of higher
deductibles
and/or
co-insurance liability and, to the extent certain of our
U.S. funds purchase separate director and officer
and/or error
and omission liability coverage, an increased risk of insurance
companies disputing responsibility for joint claims. In
addition, we intend to obtain additional liability insurance for
our directors and officers in connection with this offering.
Higher insurance costs and incurred deductibles would reduce our
net income.
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Risks Related to
our Industry
We are subject
to extensive regulation.
We are subject to extensive regulation in the United States,
primarily at the federal level, including regulation by the SEC
under the 1940 Act and the Advisers Act by the Department of
Labor under the Employee Retirement Income Security Act of 1974,
as amended, or ERISA, as well as regulation by the Financial
Industry Regulatory Authority, Inc., or FINRA, and state
regulators. The mutual funds we manage are registered with the
SEC as investment companies under the 1940 Act. The Advisers Act
imposes numerous obligations on investment advisors including
record keeping, advertising and operating requirements,
disclosure obligations and prohibitions on fraudulent
activities. The 1940 Act imposes similar obligations, as well as
additional detailed operational requirements, on registered
investment companies, which must be strictly adhered to by their
investment advisors.
In addition, our mutual funds are subject to the USA PATRIOT Act
of 2001, which requires each fund to know certain information
about its clients and to monitor their transactions for
suspicious financial activities, including money laundering. The
U.S. Office of Foreign Assets Control, or OFAC, has issued
regulations requiring that we refrain from doing business, or
allowing our clients to do business through us, in certain
countries or with certain organizations or individuals on a list
maintained by the U.S. government. Our failure to comply
with applicable laws or regulations could result in fines,
censure, suspensions of personnel or other sanctions, including
revocation of the registration of any of our subsidiaries as a
registered investment advisor.
In addition to the extensive regulation our asset management
business is subject to in the United States, we are also subject
to regulation internationally by the Ontario Securities
Commission, the Irish Financial Institutions Regulatory
Authority and the Hong Kong Securities and Futures Commission.
Our business is also subject to the rules and regulations of the
more than 40 countries in which we currently conduct investment
activities. Failure to comply with applicable laws and
regulations in the foreign countries where we invest could
result in fines, suspensions of personnel or other sanctions.
See Regulatory Environment and Compliance.
The regulatory
environment in which we operate is subject to continual change
and regulatory developments designed to increase oversight may
adversely affect our business.
The legislative and regulatory environment in which we operate
has undergone significant changes in the recent past and while
there is an ordinary evolution to regulation, we believe there
will be significant regulatory changes in our industry, which
will result in subjecting participants to additional regulation.
The requirements imposed by our regulators are designed to
ensure the integrity of the financial markets and to protect
customers and other third parties who deal with us, and are not
designed to protect our stockholders. Consequently, these
regulations often serve to limit our activities, including
through customer protection and market conduct requirements. New
laws or regulations, or changes in the enforcement of existing
laws or regulations, applicable to us and our clients may
adversely affect our business. Our ability to function in this
environment will depend on our ability to constantly monitor and
promptly react to legislative and regulatory changes. For
investment management firms in general, there have been a number
of highly publicized regulatory inquiries that focus on the
mutual fund industry. These inquiries already have resulted in
increased scrutiny in the industry and new rules and regulations
for mutual funds and their investment managers. This regulatory
scrutiny may limit our ability to engage in certain activities
that might be beneficial to our stockholders. See
Regulatory Environment and Compliance.
In addition, as a result of the recent economic downturn, acts
of serious fraud in the asset management industry and perceived
lapses in regulatory oversight, U.S. and
non-U.S. governmental
and regulatory authorities may increase regulatory oversight of
our businesses. We may be adversely affected as a result of new
or revised legislation or regulations imposed by the SEC, other
U.S. or
non-U.S. governmental
regulatory authorities or self-regulatory organizations that
supervise the financial markets. We also may be adversely
affected by changes in the interpretation or enforcement of
existing laws and rules by these governmental authorities and
self-regulatory organizations. It is
26
impossible to determine the extent of the impact of any new
laws, regulations or initiatives that may be proposed, or
whether any of the proposals will become law. Compliance with
any new laws or regulations could make compliance more difficult
and expensive and affect the manner in which we conduct business.
We may not be
able to maintain our current fee structure as a result of
industry pressure to reduce fees or as a result of changes in
our business mix, which could have an adverse effect on our
profit margins and results of operations.
We may not be able to maintain our current fee structure as a
result of industry pressures to reduce fees (including those
arising out of legal challenges to the long-established criteria
for determining the reasonableness of fees) or as a result of
changes in our business mix. Although our investment management
fees vary from product to product, historically we have competed
primarily on the basis of our performance and not on the level
of our investment management fees relative to those of our
competitors. In recent years, however, there has been a general
trend toward lower fees in the investment management industry.
In order to maintain our fee structure in a competitive
environment, we must be able to continue to provide clients with
investment returns and service that incentivize our investors to
pay our fees. We cannot assure you that we will succeed in
providing investment returns and service that will allow us to
maintain our current fee structure.
The board of directors of each mutual fund we manage must make
certain findings as to the reasonableness of our fees and can
renegotiate them annually which, in the past, has led to a
reduction in fees. Fee reductions on existing or future new
business could have an adverse effect on our profit margins
and/or
results of operations. For more information about our fees see
Business Investment Management Fees and
Managements Discussion and Analysis of Financial
Condition and Results of Operations.
The investment
management business is intensely competitive.
The investment management business is intensely competitive,
with competition based on a variety of factors, including
investment performance, continuity of investment professionals
and client relationships, the quality of services provided to
clients, corporate positioning and business reputation,
continuity of selling arrangements with intermediaries and
differentiated products. A number of factors, including the
following, serve to increase our competitive risks:
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a number of our competitors have greater financial, technical,
marketing and other resources, better name recognition and more
personnel than we do;
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there are relatively low barriers impeding entry to new
investment funds, including a relatively low cost of entering
these businesses;
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the recent trend toward consolidation in the investment
management industry, and the securities business in general, has
served to increase the size and strength of a number of our
competitors;
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some investors may prefer to invest with an investment manager
that is not publicly traded based on the perception that
publicly traded companies focus on growth to the detriment of
performance;
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some competitors may invest according to different investment
styles or in alternative asset classes that the markets may
perceive as more attractive than our investment approach;
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some competitors may have a lower cost of capital and access to
funding sources that are not available to us, which may create
competitive disadvantages for us with respect to investment
opportunities; and
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other industry participants, hedge funds and alternative asset
managers may seek to recruit our qualified investment
professionals.
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If we are unable to compete effectively, our earnings would be
reduced and our business could be materially adversely affected.
27
The investment
management industry faces substantial litigation risks which
could materially adversely affect our business, financial
condition or results of operations or cause significant
reputational harm to us.
We depend to a large extent on our network of relationships and
on our reputation in order to attract and retain clients. If a
client is not satisfied with our services, such dissatisfaction
may be more damaging to our business than to other types of
businesses. We make investment decisions on behalf of our
clients that could result in substantial losses to them. If our
clients suffer significant losses, or are otherwise dissatisfied
with our services, we could be subject to the risk of legal
liabilities or actions alleging negligent misconduct, breach of
fiduciary duty, breach of contract, unjust enrichment
and/or
fraud. These risks are often difficult to assess or quantify and
their existence and magnitude often remain unknown for
substantial periods of time, even after an action has been
commenced. We may incur significant legal expenses in defending
against litigation. Substantial legal liability or significant
regulatory action against us could materially adversely affect
our business, financial condition or results of operations or
cause significant reputational harm to us.
Risks Related to
this Offering
There is no
existing market for our Class A common stock, and we do not
know if one will develop, which may cause our Class A
common stock to trade at a discount from Its initial offering
price and make it difficult to sell the shares you
purchase.
Prior to this offering, there has not been a public market for
our Class A common stock and we cannot predict the extent
to which investor interest in us will lead to the development of
an active trading market on the New York Stock Exchange, or
NYSE, or otherwise, or how liquid that market might become. If
an active trading market does not develop, you may have
difficulty selling your shares of Class A common stock at
an attractive price, or at all. The initial public offering
price for our Class A common stock will be determined by
negotiations between us and the representative of the
underwriters and may not be indicative of prices that will
prevail in the open market following this offering.
Consequently, you may not be able to sell shares of our
Class A common stock at prices equal to or greater than the
price you paid in this offering.
The market
price and trading volume of our Class A common stock may be
volatile, which could result in rapid and substantial losses for
our stockholders.
Even if an active trading market develops, the market price of
our Class A common stock may be highly volatile and could
be subject to wide fluctuations. In addition, the trading volume
on our Class A common stock may fluctuate and cause
significant price variations to occur. If the market price of
our Class A common stock declines significantly, you may be
unable to resell your shares of Class A common stock at or
above your purchase price, if at all. We cannot assure you that
the market price of our Class A common stock will not
fluctuate or decline significantly in the future. Some of the
factors that could negatively affect the price of our
Class A common stock, or result in fluctuations in the
price or trading volume of our Class A common stock,
include:
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variations in our quarterly operating results;
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failure to meet the markets earnings expectations;
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publication of research reports about us or the investment
management industry, or the failure of securities analysts to
cover our Class A common stock after this offering;
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departures of our Principals or additions/departures of other
key personnel;
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adverse market reaction to any indebtedness we may incur or
securities we may issue in the future;
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actions by stockholders;
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changes in market valuations of similar companies;
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actual or anticipated poor performance in our underlying
investment strategies;
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changes or proposed changes in laws or regulation, or differing
interpretations thereof, affecting our business, or enforcement
of these laws and regulations, or announcements relating to
these matters;
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adverse publicity about the investment management industry,
generally, or individual scandals specifically;
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litigation and governmental investigations; and
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general market and economic conditions.
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Future sales
of our Class A common stock in the public market could
lower our stock price, and any additional capital raised by us
through the sale of equity or convertible securities may dilute
your ownership in us.
The market price of our Class A common stock could decline
as a result of sales of a large number of shares of our
Class A common stock by Julius Baer Holding Ltd. or the
Principals after completion of this offering, or the perception
that such sales could occur. These sales, or the possibility
that these sales may occur, also might make it more difficult
for us to raise additional capital by selling equity securities
in the future, at a time and price that we deem appropriate.
Pursuant to the
lock-up
agreements described under Underwriting, our
existing stockholders, directors and officers may not sell,
otherwise dispose of or hedge any shares of our Class A
common stock or securities convertible or exercisable into or
exchangeable for shares of Class A common stock, subject to
certain exceptions, for the
180-day
period following the date of this prospectus, without the prior
written consent of Goldman, Sachs & Co. Pursuant to a
registration rights agreement that we will enter into with
Julius Baer Holding Ltd. and the Principals, we will agree to
use our reasonable best efforts to file registration statements
from time to time for the sale of the shares of our Class A
common stock, including Class A common stock which is
deliverable upon exchange of New Class A Units or the
conversion of Class C common stock held by them now or in
the future. See Relationships and Related Party
Transactions Registration Rights Agreement.
We cannot predict the size of future issuances of our
Class A common stock or the effect, if any, that future
issuances and sales of shares of our Class A common stock
may have on the market price of our Class A common stock.
Sales or distributions of substantial amounts of our
Class A common stock (including shares issued in connection
with an acquisition), or the perception that such sales could
occur, may cause the market price of our Class A common
stock to decline. See Shares Eligible for Future
Sale.
Fulfilling our
public company financial reporting and other regulatory
obligations will be expensive and time consuming and may strain
our resources.
As a public company, we will be subject to the reporting
requirements of the Securities Exchange Act of 1934, as amended,
and will be required to implement specific corporate governance
practices and adhere to a variety of reporting requirements
under the Sarbanes-Oxley Act of 2002
(Sarbanes-Oxley) and the related rules and
regulations of the SEC, as well as the rules of the NYSE.
In accordance with Section 404 of Sarbanes-Oxley, our
management will be required to conduct an annual assessment of
the effectiveness of our internal control over financial
reporting and include a report on these internal controls in the
annual reports we will file with the SEC on
Form 10-K.
In addition, we will be required to have our independent
registered public accounting firm provide an opinion regarding
the effectiveness of our internal controls. We are in the
process of reviewing our internal control over financial
reporting and are establishing formal policies, processes and
practices related to financial reporting and to the
identification of key financial reporting risks, assessment of
their potential impact and linkage of those risks to specific
areas and controls within our organization. If we are not able
to implement the requirements of Section 404 in a timely
manner or with adequate compliance, we may be subject to adverse
regulatory consequences and there could be a negative reaction
in the financial markets due to a loss of investor confidence in
us and the reliability of our
29
financial statements. This could have a material adverse effect
on us and lead to a decline in the price of our Class A
common stock.
The Securities Exchange Act of 1934, as amended, will require us
to file annual, quarterly and current reports with respect to
our business and financial condition. Compliance with these
requirements will place significant additional demands on our
legal, accounting and finance staff and on our accounting,
financial and information systems and will increase our legal
and accounting compliance costs as well as our compensation
expense as we will be required to hire additional accounting,
finance, legal and internal audit staff with the requisite
technical knowledge.
As a public company we will also need to enhance our investor
relations, marketing and corporate communications functions.
These additional efforts may strain our resources and divert
managements attention from other business concerns, which
could have a material adverse effect on our business, financial
condition and results of operations.
You will
suffer immediate and substantial dilution and may experience
additional dilution in the future.
The initial public offering price per share of our Class A
common stock will be substantially higher than the pro forma net
tangible book value per share of our Class A common stock
immediately after this offering, and after giving effect to the
exchange of all outstanding New Class A Units for shares of
our Class A common stock and the conversion of all
outstanding shares of Class C common stock into shares of
our Class A common stock. As a result, you will pay a price
per share that substantially exceeds the book value of our
assets after subtracting our liabilities. At the offering price
of $26.00, you will incur immediate and substantial dilution in
an amount of $25.87 per share of our Class A common
stock. See Dilution.
Anti-takeover
provisions in our amended and restated certificate of
incorporation and bylaws could discourage a change of control
that our stockholders may favor, which could negatively affect
the market price of our Class A common stock.
Provisions in our amended and restated certificate of
incorporation and bylaws may make it more difficult and
expensive for a third party to acquire control of us even if a
change of control would be beneficial to the interests of our
stockholders. For example, our amended and restated certificate
of incorporation, which will be in effect at the time this
offering is consummated, will authorize the issuance of
preferred stock that could be issued by our board of directors
to thwart a takeover attempt. The market price of our
Class A common stock could be adversely affected to the
extent that the provisions of our amended and restated
certificate of incorporation and bylaws discourage potential
takeover attempts that our stockholders may favor. See
Description of Capital Stock for additional
information on the anti-takeover measures applicable to us.
Risks Relating to
our Structure
Our ability to
pay regular dividends to our stockholders is subject to the
discretion of our board of directors and may be limited by our
holding company structure and applicable provisions of Delaware
law.
Following completion of this offering, we intend to pay cash
dividends to our Class A and Class C stockholders on a
quarterly basis, beginning in the first quarter of 2010. Our
board of directors may, in its sole discretion, change the
amount or frequency of dividends or discontinue the payment of
dividends entirely. In addition, as a holding company, we will
be dependent upon the ability of our subsidiaries to generate
earnings and cash flows and distribute them to us so that we may
pay dividends to our stockholders. We expect to cause Artio
Global Holdings to make distributions to its members, including
us. However, its ability to make such distributions will be
subject to its operating results, cash requirements and
financial condition, the applicable provisions of Delaware law
which may limit the amount of funds available for distribution
to its members, its compliance with covenants and financial
ratios related to existing or future indebtedness, and its other
agreements with third parties. In addition, each of the
companies in the corporate chain must manage its assets,
liabilities
30
and working capital in order to meet all of its cash
obligations, including the payment of dividends or
distributions. As a consequence of these various limitations and
restrictions, we may not be able to make, or may have to reduce
or eliminate, the payment of dividends on our Class A and
Class C common stock.
Our ability to
pay taxes and expenses may be limited by our holding company
structure and applicable provisions of Delaware
law.
As a holding company, we will have no material assets other than
our ownership of New Class A Units of Artio Global Holdings
and will have no independent means of generating revenue. Artio
Global Holdings will be treated as a partnership for
U.S. federal income tax purposes and, as such, will not be
subject to U.S. federal income tax. Instead, taxable income
will be allocated to its members, including us and the
Principals. Accordingly, we will incur income taxes on our
proportionate share of any net taxable income of Artio Global
Holdings and will also incur expenses related to our operations.
We intend to cause Artio Global Holdings to distribute cash to
its members (the Principals and us). However, its ability to
make such distributions will be subject to various limitations
and restrictions as set forth in the preceding risk factor. If,
as a consequence of these various limitations and restrictions,
we do not have sufficient funds to pay tax or other liabilities
to fund our operations, we may have to borrow funds and thus,
our liquidity and financial condition could be materially
adversely affected.
We will be
required to pay the Principals most of the tax benefit of any
depreciation or amortization deductions we may claim as a result
of the tax basis step up we receive in connection with the
future exchanges of New Class A Units.
Any taxable exchanges by the Principals of New Class A
Units for shares of our Class A common stock are expected
to result in increases in the tax basis in the tangible and
intangible assets of Artio Global Holdings connected with such
New Class A Units. The increase in tax basis is expected to
reduce the amount of tax that we would otherwise be required to
pay in the future, although the Internal Revenue Service, or
IRS, might challenge all or part of this tax basis increase, and
a court might sustain such a challenge.
We will enter into a tax receivable agreement with the
Principals, pursuant to which we will agree to pay each of them
85% of the amount of the reduction in tax payments, if any, in
U.S. federal, state and local income tax that we realize
(or are deemed to realize upon an early termination of the tax
receivable agreement or a change of control, both discussed
below) as a result of these increases in tax basis created by
such Principals exchanges. We have previously recorded a
deferred tax asset on our historical financial statements with
respect to the tax basis increase that we would have received in
connection with our prior obligation to redeem certain interests
of our Principals. Upon this offering we will de-recognize this
deferred tax asset recorded on our balance sheet. Following this
offering, we will record a deferred tax asset upon the exchange
of each Principals New Class A Units for shares of
our Class A common stock. In conjunction with the
establishment of the deferred tax asset we will establish a
related liability for amounts due under the tax receivable
agreement. The actual increase in tax basis, as well as the
amount and timing of any payments under this agreement, will
vary depending on a number of factors, including the timing of
each Principals exchanges, the price of our Class A
common stock at the time of the exchange, the extent to which
such exchanges are taxable, the amount and timing of our income
and the tax rates then applicable. Payments under the tax
receivable agreement are expected to give rise to certain
additional tax benefits attributable to further increases in
basis or, in certain circumstances, in the form of deductions
for imputed interest. Any such benefits are covered by the tax
receivable agreement and will increase the amounts due
thereunder. In addition, the tax receivable agreement will
provide for interest accrued from the due date (without
extensions) of the corresponding tax return to the date of
payment specified by the tax receivable agreement. We expect
that, as a result of the size and increases in the tax basis of
the tangible and intangible assets of Artio Global Holdings
attributable to the exchanged New Class A Units, the
payments that we may make to the Principals will be substantial.
See Relationships and Related Party
Transactions Tax Receivable Agreement.
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Moreover, if we exercise our right to terminate the tax
receivable agreement early, we will be obligated to make an
early termination payment to the Principals, or their
transferees, based upon the net present value (based upon
certain assumptions and deemed events set forth in the tax
receivable agreement, including the assumption that we would
have enough taxable income in the future to fully utilize the
tax benefit resulting from any increased tax basis that results
from an exchange and that any New Class A Units that the
Principals or their transferees own on the termination date are
deemed to be exchanged on the termination date) of all payments
that would be required to be paid by us under the tax receivable
agreement. If certain change of control events were to occur, we
would be obligated to make payments to the Principals using
certain assumptions and deemed events similar to those used to
calculate an early termination payment.
We will not be reimbursed for any payments previously made under
the tax receivable agreement if such basis increase is
successfully challenged by the IRS. As a result, in certain
circumstances, payments could be made under the tax receivable
agreement in excess of our cash tax savings.
Our amended
and restated certificate of incorporation contains a provision
renouncing our interest and expectancy in certain corporate
opportunities.
Our amended and restated certificate of incorporation will
provide for the allocation of certain corporate opportunities
between us and Julius Baer Holding Ltd. Under these provisions,
neither Julius Baer Holding Ltd., nor any director, officer or
employee of Julius Baer Holding Ltd. or any of its subsidiaries
will have any duty to refrain from engaging, directly or
indirectly, in the same business activities or similar business
activities or lines of business in which we operate. Therefore,
a director or officer of our company who also serves as a
director, officer or employee of Julius Baer Holding Ltd. or any
of its subsidiaries may pursue certain acquisition or other
opportunities that may be complementary to our business and, as
a result, such acquisition or other opportunities may not be
available to us. These potential conflicts of interest could
have a material adverse effect on our business, financial
condition, results of operations or prospects if attractive
corporate opportunities are allocated by Julius Baer Holding
Ltd. to itself or its other affiliates instead of to us. The
terms of our amended and restated certificate of incorporation
are more fully described in Description of Capital
Stock.
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CAUTIONARY
NOTE REGARDING FORWARD-LOOKING STATEMENTS
We have made statements under the captions Prospectus
Summary, Risk Factors, Managements
Discussion and Analysis of Financial Condition and Results of
Operations, Business and in other sections of
this prospectus that are forward-looking statements. In some
cases, you can identify these statements by forward-looking
words such as may, might,
will, should, expects,
plans, anticipates,
believes, estimates,
predicts, potential or
continue, the negative of these terms and other
comparable terminology. These forward-looking statements, which
are subject to risks, uncertainties and assumptions, may include
projections of our future financial performance, our anticipated
growth strategies, descriptions of new business initiatives and
anticipated trends in our business. These statements are only
predictions based on our current expectations and projections
about future events. There are important factors that could
cause our actual results, level of activity, performance or
achievements to differ materially from the results, level of
activity, performance or achievements expressed or implied by
the forward-looking statements, including those factors
discussed under the caption entitled Risk Factors.
Although we believe the expectations reflected in the
forward-looking statements are reasonable, we cannot guarantee
future results, level of activity, performance or achievements.
Moreover, neither we nor any other person assumes responsibility
for the accuracy and completeness of any of these
forward-looking statements. We are under no duty to update any
of these forward-looking statements after the date of this
prospectus to conform our prior statements to actual results or
revised expectations.
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OUR STRUCTURE AND
REORGANIZATION
The diagram below depicts our organizational structure
immediately after the consummation of this offering and related
transactions.
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Note: Percentages in this table include the 6,924 shares of
fully-vested Class A common stock expected to be awarded to our
non-employee directors in connection with this offering, but
exclude the approximately 2.1 million restricted stock
units, each of which represents the right to receive one share
of our Class A common stock upon the lapse of restrictions,
which generally lapse over a five-year period, expected to be
awarded to our employees (other than our Principals) in
connection with this offering. |
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Represents shares beneficially owned by Messrs. Pell and Younes,
including shares held by GRATs as to which they retain
beneficial ownership. |
Artio Global
Holdings LLC
As a holding company, we conduct all of our business activities
through our direct subsidiary Artio Global Holdings LLC, an
intermediate holding company, which holds our ownership interest
in Artio Global Management LLC, our operating subsidiary.
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Prior to this offering, we contributed our interests in Artio
Global Management LLC to Artio Global Holdings LLC. Immediately
prior to this offering, our Principals will each contribute
their interests in Artio Global Management LLC to Artio Global
Holdings LLC and we will amend and restate Artio Global
Holdings operating agreement to, among other things,
modify its capital structure by creating a single new class of
units called New Class A Units, approximately
70.0% of which will be issued to us and approximately 15.0% of
which will be issued to each of our Principals, in each case,
upon receipt of those contributions, before giving effect to the
transactions described herein. See Relationships and
Related Party Transactions Amended and Restated
Limited Liability Company Agreement of Artio Global Holdings
LLC. The New Class A Units issued to our Principals
will be fully vested and will not be subject to any put and call
rights. Following such steps, Artio Global Management will be
100% owned by Artio Global Holdings, and our Principals
interests in Artio Global Management will instead be indirect
through their ownership of interests in Artio Global Holdings.
Upon completion of this offering, there will be approximately
60,006,924 New Class A Units issued and outstanding,
including 6,924 New Class A Units, corresponding to the
shares of fully-vested Class A common stock expected to be
awarded to our non-employee directors in connection with this
offering.
Artio Global
Investors Inc.
Julius Baer Holding Ltd., our parent company and existing
stockholder, owns all of our outstanding capital stock,
consisting of 42,000,000 shares of Class C common
stock. Immediately prior to this offering, we will amend and
restate our certificate of incorporation to authorize three
classes of common stock, Class A common stock, Class B
common stock and Class C common stock, each having the
terms described in Description of Capital Stock.
Class A Shares. Shares of our
Class A common stock will be issued to the public in this
offering. Class A common stock will entitle holders to one
vote per share and economic rights (including rights to
dividends and distributions upon liquidation).
Class B Shares. Immediately prior
to this offering, all of our authorized shares of Class B
common stock will be issued to the Principals, in an amount
equal to the number of New Class A Units to be issued
simultaneously to the Principals. Class B common stock will
entitle holders to one vote per share but will have no economic
rights (including no rights to dividends and distributions upon
liquidation).
Class C Shares. Our parent owns
all of our outstanding common stock, consisting of
42,000,000 shares of Class C common stock, equal to
the number of New Class A Units to be issued to Artio
Global Investors Inc. immediately prior to the closing of this
offering. Each share of Class C common stock has economic
rights (including rights to dividends and distributions upon
liquidation) equal to the economic rights of each share of the
Class A common stock. In order to allow Julius Baer Holding
Ltd., when selling the remainder of its holdings, to avail
itself of certain Swiss tax exemptions that require it to have
voting rights equal to 20% of the combined voting power of the
common stock, the outstanding shares of Class C common
stock will have an aggregate vote equal to the greater of
(1) the number of votes they would be entitled to on a
one-vote-per-share basis and (2) 20% of the combined voting
power of all classes of common stock. Prior to this offering,
Julius Baer Holding Ltd. will enter into a shareholders
agreement under which it will agree that, to the extent it has
voting power as holder of the Class C common stock in
excess of that which it would be entitled to on a
one-vote-per-share
basis, it will on all matters vote the shares representing such
excess on the same basis and in the same proportion as the votes
cast by the holders of our Class A and Class B common
stock.
If Julius Baer Holding Ltd. transfers any shares of Class C
common stock to anyone other than any of its subsidiaries or us,
such shares will automatically convert into shares of
Class A common stock. In addition, on the second
anniversary of the completion of this offering, any outstanding
shares of Class C common stock will automatically convert
into Class A common stock.
Following this offering, we will own a number of New
Class A Units equal to the aggregate number of shares of
Class A and Class C common stock then outstanding.
In connection with this offering, we have adopted the Artio
Global Investors Inc. 2009 Stock Incentive Plan. We expect to
make initial grants of 6,924 shares of fully-vested Class A
common stock
35
(subject to transfer restrictions) to our non-employee directors
and 2,147,132 restricted stock units to our employees (other
than our Principals) under this plan on the date of the closing
of this offering, which generally vest over a
five-year
period, and to make future equity awards under this plan to our
directors and employees as appropriate. See
Management Artio Global Investors Inc. 2009
Stock Incentive Plan.
The table below sets forth the number of shares of Class A,
Class B and Class C common stock and New Class A
Units (i) issued and outstanding following the
reorganization transactions described below under
Offering Transactions, but prior to the
completion of this offering and the application of the net
proceeds as described under Use of Proceeds,
(ii) issued
and/or
repurchased in connection with completion of this offering and
the application of the net proceeds, and (iii) issued and
outstanding immediately following completion of this offering,
after giving effect to the application of the net proceeds. As
set forth in the table below, following completion of this
offering, the total number of New Class A Units issued and
outstanding will equal the aggregate number of shares of
Class A, Class B and Class C common stock issued
and outstanding.
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Transactions in
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Connection with
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Immediately
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Pre-Offering
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Offering
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Post-Offering
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Artio Global Investors Inc.
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Class A common stock
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Public
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25,000,000
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(1)
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25,000,000
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Non-employee directors
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6,924
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(2)
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6,924
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Richard Pell
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1,200,000
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(3)
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(1,200,000
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)(3)
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Rudolph-Riad Younes
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1,200,000
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(3)
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(1,200,000
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)(3)
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Total Class A common stock
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25,006,924
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Class B common stock
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Richard Pell
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9,000,000
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(1,200,000
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)(4)
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7,800,000
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Rudolph-Riad Younes
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9,000,000
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(1,200,000
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)(4)
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7,800,000
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Total Class B common stock
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18,000,000
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15,600,000
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Class C common stock
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Julius Baer Holding Ltd.
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42,000,000
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(22,600,000
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)(5)
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19,400,000
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Total Class C common stock
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42,000,000
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19,400,000
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Total Class A, Class B and Class C common
stock issued and outstanding
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60,000,000
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60,006,924
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Class A common stock reserved for issuance
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under compensation plans
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9,700,000
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(6)
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(6,924
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)
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9,693,076
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for Julius Baer Holding Ltd. upon conversion of Class C
common stock
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42,000,000
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(22,600,000
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)
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19,400,000
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for Principals upon exchange of New Class A Units
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18,000,000
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(2,400,000
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)
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15,600,000
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Total Class A common stock reserved for issuance
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69,700,000
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44,693,076
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Artio Global Holdings LLC
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New Class A Units issued and outstanding
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Artio Global Investors Inc.
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42,000,000
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2,406,924
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(7)
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44,406,924
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Richard Pell
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9,000,000
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(1,200,000
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)(8)
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7,800,000
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Rudolph-Riad Younes
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9,000,000
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(1,200,000
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)(8)
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7,800,000
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Total New Class A Units issued and outstanding
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60,000,000
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60,006,924
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(1) |
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Represents the 25,000,000 shares of Class A common
stock we will issue to the public in connection with this
offering. |
36
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(2) |
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Represents the 6,924 shares of fully-vested Class A
common stock (subject to transfer restrictions) that we expect
to award to our non-employee directors in connection with this
offering. The table does not reflect as outstanding the
2,147,132 restricted stock units, each of which represents the
right to receive one share of our Class A common stock upon the
lapse of restrictions, which generally lapse over a five-year
period, that we expect to grant to our employees (other than our
Principals) in connection with this offering. |
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(3) |
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Represents the effect of the issuance of 1,200,000 shares
of Class A common stock to each of the Principals upon
exchange of an equivalent number of New Class A Units and
subsequent repurchase of such shares by us with a portion of the
net proceeds of this offering. |
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(4) |
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Corresponds to the number of New Class A Units to be
exchanged by each of the Principals for shares of Class A
common stock. |
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(5) |
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Represents the 22,600,000 shares of Class C common
stock we will repurchase and retire from Julius Baer Holding Ltd. |
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(6) |
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We will reserve 9,700,000 shares of Class A common
stock for issuance under the Artio Global Investors Inc. 2009
Stock Incentive Plan to be effective upon the closing of this
offering. |
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(7) |
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Corresponds to the aggregate number of: (i) New
Class A Units that we will receive from the Principals in
exchange for shares of Class A common stock and
(ii) New Class A Units that we will receive when we
issue shares of Class A common stock to our non-employee
directors pursuant to the Artio Global Investors Inc. 2009 Stock
Incentive Plan. |
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(8) |
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Corresponds to the number of New Class A Units the
Principals will provide to us in exchange for shares of
Class A common stock that we will then repurchase from each
of our Principals. |
Offering
Transactions
Upon the consummation of this offering, Artio Global Investors
Inc. will use the net proceeds from this offering to repurchase
and retire an aggregate of 22.6 million shares of
Class C common stock (assuming the underwriters do not
exercise their option to purchase additional shares) from our
parent, Julius Baer Holding Ltd., and to repurchase
1.2 million shares of Class A common stock from
Richard Pell, and 1.2 million shares of Class A common
stock from Rudolph-Riad Younes in order to enable our parent and
our Principals to liquidate a portion of their shareholding in
us. We will not retain any of the net proceeds. See Use of
Proceeds.
Incurrence of New Debt and Related
Distributions. In connection with this
offering, Artio Global Holdings has established a
$60.0 million term debt facility which, together with
available cash, will fund a distribution to us that we will use
to fund a distribution to our parent, and will also be utilized
to provide working capital for our business and, potentially,
seed capital for future investment products. In addition, Artio
Global Holdings has entered into a $50.0 million revolving
credit facility to be used primarily for working capital needs.
Our distribution to our parent, which we have declared prior to
this offering, will be calculated as $40.1 million plus
total stockholders equity as of the date of the closing of
this offering and is estimated to be $201.3 million on a
pro forma basis (approximately $161.2 million, of which
will be paid shortly after the completion of this offering and
$40.1 million of which will be payable within one year of
the completion of this offering).
New Agreements with the Principals. In
connection with the closing of this offering, we will enter into
an exchange agreement with the Principals under which, subject
to certain exchange and other restrictions, including notice
requirements, from time to time, each Principal and certain
permitted transferees will have the right to exchange his New
Class A Units, which represent ownership rights in Artio
Global Holdings, for shares of Class A common stock of our
company on a one-for-one basis, subject to customary conversion
rate adjustments for stock splits, stock dividends and
reclassifications and other similar transactions. The exchange
agreement will permit each Principal to exchange a number of New
Class A Units for shares of Class A common stock that
we will repurchase in connection with this offering as described
under Use of Proceeds. Each Principal will also be
permitted to exchange additional New Class A Units that he
owns at the time of this offering at any time
37
following the completion of this offering. Any exchange of New
Class A Units will generally be a taxable event for the
exchanging Principal. As a result, at any time following the
expiration of the underwriters lock-up, 180 days
after the date of this prospectus, subject to extension as
described under Underwriting, each Principal will be
permitted to sell shares of Class A common stock in
connection with any exchange in an amount necessary to generate
proceeds (after deducting discounts and commissions) sufficient
to cover the taxes payable on such exchange (the amount of
shares permitted to be sold determined based upon the stock
price on the date of exchange, whether or not such shares are
sold then or thereafter). In addition, each Principal will be
permitted to sell up to 20% of the remaining shares of
Class A common stock that he owns (calculated assuming all
New Class A Units have been exchanged by him) on or after
the first anniversary of the pricing of this offering and an
additional 20% of such remaining shares of Class A common
stock on or after each of the next four anniversaries. As a
result, each Principal will, over time, have the ability to
convert his illiquid ownership interests in Artio Global
Holdings into Class A common stock that can be more readily
sold on the NYSE. The exchange agreement will also include
certain non-compete restrictions applicable to each of the
Principals. See Relationships and Related Party
Transactions Exchange Agreement.
New Compensation Arrangements with our Senior
Management. Prior to this offering we have
not had employment contracts with our senior management, other
than our Principals, or granted equity-based incentive
compensation to our employees. We expect to enter into new
employment agreements with our Principals and certain other
senior members of management that will become effective on
completion of this offering. We also expect to grant
6,924 shares of fully-vested Class A common stock (subject
to transfer restrictions) to non-employee directors and
2,147,132 restricted stock units to our employees (other than
our Principals) in connection with this offering, which
generally vest over a five-year period. In addition, in
contemplation of this offering, the unvested benefit under the
deferred compensation plan for our Principals, described under
Management Executive Compensation
Summary Compensation Table Nonqualified Deferred
Compensation, was completely vested during 2008 and paid
out.
New Arrangements with our Parent. Prior
to this offering, we obtained from our parent certain services
and paid it license fees. Following this offering, we will no
longer be required to pay license fees to our parent. We will
enter into a transition services agreement pursuant to which
Julius Baer Group Ltd. will provide us, and we will provide
Julius Baer Group Ltd., with a limited number of services for a
transitional period following this offering. In addition, we
will enter into an indemnification and co-operation agreement
with Julius Baer Holding under which Julius Baer Holding will
indemnify us for any future losses relating to certain of our
legacy activities. See Relationships and Related Party
Transactions Transition Services and Indemnification
Agreements.
New Agreement with our Parent and the
Principals. In connection with this offering,
we will enter into a registration rights agreement with the
Principals and our parent to provide customary registration
rights, including demand registration rights and piggyback
registration rights. See Relationships and Related Party
Transactions Registration Rights Agreement.
As a result of the transactions described above, which we
collectively refer to as the reorganization or the
reorganization transactions:
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we will become the sole managing member of Artio Global
Holdings, the entity through which we operate our business. We
will have an approximate 74% economic interest in Artio Global
Holdings and a 100% voting interest and control its management
(subject to certain limited exceptions with respect to certain
fundamental matters). As a result, we will consolidate the
financial results of Artio Global Holdings and will record a
non-controlling interest on our balance sheet for the economic
interest in it held by the other existing members, which
initially will be the Principals;
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each Principal will initially hold 7,800,000 shares of our
Class B common stock and 7,800,000 New Class A Units,
and we will hold 44,406,924 New Class A Units, which
includes 6,924 New
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38
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Class A Units corresponding to the shares of Class A common
stock expected to be awarded to our non-employee directors in
connection with this offering;
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through their holdings of our Class B common stock, each
Principal will have approximately 13% of the voting power in
Artio Global Investors;
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through its holdings of our Class C common stock, Julius
Baer Holding Ltd. will have approximately 32.3% of the voting
power in Artio Global Investors (or approximately 26.1% if the
underwriters exercise in full their option to purchase
additional shares). Julius Baer Holding Ltd. will enter into a
shareholders agreement under which it will agree that, to the
extent it has voting power as holder of the Class C common
stock in excess of that which it would be entitled to on a
one-vote-per-share basis, it will on all matters vote the shares
representing such excess on the same basis and in the same
proportion as the votes cast by the holders of our Class A
and Class B common stock. Under this shareholders
agreement, Julius Baer Holding Ltd. will have the right to
designate one member of our board of directors as long as it
(together with its subsidiaries) owns at least 10% of the
aggregate number of shares outstanding of our common stock;
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the new investors will collectively have approximately 41.7% of
the voting power in Artio Global Investors (or approximately
47.9% if the underwriters exercise in full their option to
purchase additional shares) and our non-employee directors will
collectively have less than 0.1% of the voting power in Artio
Global Investors through their holdings of shares of stock
(subject to transfer restrictions) that we expect to grant to
them in connection with this offering; and
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the New Class A Units held by the Principals are
exchangeable for shares of our Class A common stock on a
one-for-one basis, subject to customary conversion rate
adjustments for stock splits, stock dividends and
reclassifications and other similar transactions. In connection
with an exchange, a corresponding number of shares of our
Class B common stock will be cancelled. However, the
exchange of New Class A Units for shares of our
Class A common stock will not affect our Class B common
stockholders voting power since the votes represented by
the cancelled shares of our Class B common stock will be
replaced with the votes represented by the shares of
Class A common stock for which such New Class A Units
are exchanged.
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Holding Company
Structure
We are a holding company and, immediately after the consummation
of the reorganization transactions and this offering, our sole
asset will be our approximate 74% equity interest in Artio
Global Holdings and our controlling interest and related rights
as its sole managing member. Our only business following this
offering will be to act as the sole managing member of Artio
Global Holdings, and, as such, we will operate and control all
of the business and affairs of Artio Global Holdings and will
consolidate its financial results into our consolidated
financial statements.
The number of New Class A Units we will own equals the
number of outstanding shares of our Class A common stock
and Class C common stock. The economic interest represented
by each New Class A Unit that we will own will correspond
to one of our shares of Class A common stock or
Class C common stock, and the total number of New
Class A Units owned by us and the holders of our
Class B common stock will equal the sum of outstanding
shares of our Class A, Class B and Class C common
stock. In addition, you should note that:
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if Julius Baer Holding Ltd. transfers any shares of Class C
common stock to anyone other than any of its subsidiaries or us,
such shares will automatically convert into shares of
Class A common stock. In addition, on the second
anniversary of the completion of this offering, any outstanding
shares of Class C common stock will automatically convert
into Class A common stock;
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a share of Class B common stock cannot be transferred
except in connection with a transfer of a New Class A Unit.
Further, a New Class A Unit cannot be exchanged with Artio
Global Holdings for a share of our Class A common stock
without the corresponding share of our
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39
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Class B common stock being delivered together at the time
of exchange, at which time, such Class B common stock will
be automatically cancelled; and
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we do not intend to list our Class B common stock or
Class C common stock on any stock exchange.
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As a member of Artio Global Holdings, we incur
U.S. federal, state and local income taxes on our allocable
share of any of its net taxable income. The operating agreement
of Artio Global Holdings provides that it shall make quarterly
cash distributions on a pro rata basis to its members at least
to the extent necessary to provide funds to pay the
members tax obligations (calculated at an assumed tax
rate), if any, with respect to the earnings of the operating
company. See Relationships and Related Party
Transactions Amended and Restated Limited Liability
Company Agreement of Artio Global Holdings LLC.
As a result of a U.S. federal income tax election made by
Artio Global Holdings, the income tax basis of the assets of
Artio Global Holdings connected with the New Class A Units
we acquire upon a taxable exchange with a Principal will be
adjusted to reflect the amount that we have paid for the New
Class A Units. We intend to enter into an agreement with
the Principals that will provide for the payment by us to each
of them of 85% of the amount of reduction in tax payments, if
any, in U.S. federal, state and local income tax that we
realize from our increased tax basis in the assets of Artio
Global Holdings created by each Principals exchanges and
the U.S. federal income tax election referred to above. See
Relationships and Related Party Transactions
Tax Receivable Agreement.
40
USE OF
PROCEEDS
We estimate that the net proceeds from the sale of shares of our
Class A common stock by us in this offering will be
approximately $614.9 million, or approximately
$707.1 million if the underwriters exercise in full their
option to purchase additional shares of Class A common
stock, based on the initial public offering price of $26.00 per
share, in each case after deducting assumed underwriting
discounts payable by us.
We intend to use the net proceeds from this offering to
repurchase and retire an aggregate of 22.6 million shares
of Class C common stock (26.35 million shares of
Class C common stock if the underwriters exercise in full
their option to purchase additional shares) from our parent,
Julius Baer Holding Ltd., and to repurchase 1.2 million
shares of Class A common stock from Richard Pell and
1.2 million shares of Class A common stock from
Rudolph-Riad Younes in order to enable our parent and our
Principals to liquidate a portion of their respective
shareholdings in us. We will not retain any of the net proceeds.
As a result, the per share repurchase price of the
22.6 million shares of Class C common stock held by
our parent and the 1.2 million shares of Class A
common stock held by each of our Principals will equal the
offering price of our Class A common stock in this
offering, less the underwriting discount.
41
DIVIDEND POLICY
AND DIVIDENDS
Dividend
Policy
Following this offering, we intend to pay quarterly cash
dividends. We expect that our first dividend will be paid in the
first quarter of 2010 (in respect of the fourth quarter of
2009) and will be $0.06 per share of our Class A
common stock and Class C common stock. We intend to fund
our initial dividend, as well as any future dividends, from our
portion of distributions made by our operating company from its
available cash generated from operations. The holders of our
Class B common stock will not be entitled to any cash
dividends in their capacity as stockholders, but will, in their
capacity as members of Artio Global Holdings, participate on a
pro rata basis in distributions by Artio Global Holdings.
The declaration and payment of all future dividends, if any,
will be at the sole discretion of our board of directors. In
determining the amount of any future dividends, our board of
directors will take into account: (i) the financial results
of the operating company, (ii) our available cash, as well
as anticipated cash requirements (including debt servicing),
(iii) our capital requirements and the capital requirements
of our subsidiaries (including the operating company),
(iv) contractual, legal, tax and regulatory restrictions
on, and implications of, the payment of dividends by us to our
stockholders or by our subsidiaries (including the operating
company) to us, (v) general economic and business
conditions and (vi) any other factors that our board of
directors may deem relevant.
As a holding company, we will have no material assets other than
our ownership of New Class A Units of Artio Global Holdings
and, accordingly, will depend on distributions from it to fund
any dividends we may pay. We intend to cause Artio Global
Holdings to distribute cash to its members, including us, in an
amount sufficient to cover dividends, if any, declared by us. If
Artio Global Holdings makes such distributions, other holders of
New Class A Units (i.e., our Principals) will be entitled
to receive equivalent distributions on a pro rata basis.
Our dividend policy has certain risks and limitations,
particularly with respect to liquidity. Although we expect to
pay dividends according to our dividend policy, we may not pay
dividends according to our policy, or at all, if, among other
things, Artio Global Holdings is unable to make distributions to
us as a result of its operating results, cash requirements and
financial condition, the applicable laws of the State of
Delaware (which may limit the amount of funds available for
distribution), its compliance with covenants and financial
ratios related to anticipated indebtedness (including the term
debt facility and revolving credit facility) and its other
agreements with third parties. Under Delaware law, we may only
pay dividends from legally available surplus or, if there is no
such surplus, out of our net profits for the fiscal year in
which the dividend is declared
and/or the
preceding fiscal year. Surplus is defined as the excess of a
companys total assets over the sum of its total
liabilities plus the par value of its outstanding capital stock.
Under Delaware law, our board of directors can use the fair
value of assets and liabilities, rather than book value, in
making this determination. To the extent we do not have
sufficient cash to pay dividends, we may decide not to pay
dividends. By paying cash dividends rather than investing that
cash in our future growth, we risk slowing the pace of our
growth, or not having a sufficient amount of cash to fund our
operations or unanticipated capital expenditures. Artio Global
Holdings term debt facility and revolving credit facility
contain covenants limiting Artio Global Holdings ability
to make dividend payments if its consolidated leverage ratio (as
defined in the credit facility agreement) would exceed 1.5x on a
pro forma basis after giving effect to such payments or if Artio
Global Holdings is in default under the term debt facility or
the revolving credit facility. See Managements
Discussion and Analysis of Financial Condition and Results of
Operations Liquidity and Capital
Resources Future Capital Requirements.
We are taxable as a corporation for U.S. federal income tax
purposes and therefore holders of our Class A common stock
will not be taxed directly on our earnings. Distributions of
cash or other property that we pay to our stockholders will
constitute dividends for U.S. federal income tax purposes
to the extent paid from our current or accumulated earnings and
profits (as determined under
42
U.S. federal income tax rules). If the amount of a
distribution by us to our stockholders exceeds our current and
accumulated earnings and profits, such excess will be treated
first as a tax-free return of capital to the extent of a
holders basis in the Class A common stock and
thereafter as capital gain.
Historical
Dividend Information
The following table sets forth the total ordinary dividends paid
by us during the periods indicated:
|
|
|
|
|
Period
|
|
Amount
|
|
|
|
(In thousands)
|
|
|
Year ended December 31, 2004
|
|
$
|
|
|
Year ended December 31, 2005
|
|
$
|
30,000
|
|
Year ended December 31, 2006
|
|
$
|
|
|
Year ended December 31, 2007
|
|
$
|
60,100
|
|
Year ended December 31, 2008
|
|
$
|
117,000
|
|
Year ended December 31, 2009 (through August 31, 2009)
|
|
$
|
14,000
|
|
These dividends were not declared pursuant to any agreement.
43
CAPITALIZATION
The following table sets forth our cash and cash equivalents and
our capitalization as of June 30, 2009:
|
|
|
|
|
on an actual basis; and
|
|
|
|
on a pro forma basis after giving effect to the transactions
described under Unaudited Pro Forma Consolidated Financial
Information, including the expected incurrence of debt by
Artio Global Holdings in connection with this offering and the
application of the net proceeds thereof, the reorganization
transactions and this offering.
|
You should read the following table in conjunction with our
consolidated financial statements and related notes and
Managements Discussion and Analysis of Financial
Condition and Results of Operations appearing elsewhere in
this prospectus.
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2009
|
|
(In thousands except shares and
per share amounts)
|
|
Actual
|
|
|
Pro Forma
|
|
|
Cash and cash equivalents
|
|
$
|
111,324
|
|
|
$
|
17,652
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
$
|
|
|
|
$
|
60,000
|
|
Artio Global Investors stockholders equity (deficit):
|
|
|
|
|
|
|
|
|
Class A common stock, $0.001 par value per share, none
authorized and outstanding on an actual basis,
500,000,000 shares authorized and 27,406,924 shares
issued and 25,006,924 shares outstanding on a pro forma
basis
|
|
$
|
|
|
|
$
|
27
|
|
Class B common stock, $0.001 par value per share, none
authorized and outstanding on an actual basis,
50,000,000 shares authorized and 15,600,000 shares
issued and outstanding on a pro forma basis
|
|
|
|
|
|
|
16
|
|
Class C common stock, $0.01 par value per share,
210,000,000 shares authorized and 42,000,000 shares
issued and outstanding on an actual basis,
19,400,000 shares issued and outstanding on a pro forma
basis(1)
|
|
|
420
|
|
|
|
194
|
|
Additional paid-in capital(1)
|
|
|
17,930
|
|
|
|
665,257
|
|
Retained earnings (deficit)
|
|
|
9,295
|
|
|
|
(630,078
|
)
|
Treasury Stock (2,400,000 shares of Class A common
stock), at cost
|
|
|
|
|
|
|
(59,030
|
)
|
|
|
|
|
|
|
|
|
|
Artio Global Investors stockholders equity (deficit)
|
|
|
27,645
|
|
|
|
(23,614
|
)
|
Non-controlling interests
|
|
|
|
|
|
|
(10,340
|
)
|
|
|
|
|
|
|
|
|
|
Total equity (deficit)
|
|
$
|
27,645
|
|
|
$
|
(33,954
|
)
|
|
|
|
|
|
|
|
|
|
Total capitalization
|
|
$
|
27,645
|
|
|
$
|
26,046
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
As recast to give retroactive effect to a 10,500:1 stock split
that was effected as of August 28, 2009. |
44
DILUTION
If you invest in our Class A common stock, your interest
will be diluted to the extent of the difference between the
initial public offering price per share of our Class A
common stock and the pro forma, as adjusted net tangible book
value (deficit) per share of our Class A common stock
immediately after this offering. Dilution results from the fact
that the per share offering price of the Class A common
stock is substantially in excess of the net tangible book value
(deficit) per share attributable to the existing equity holders.
Net tangible book value represents net book equity excluding
intangible assets, if any.
Our pro forma, net tangible book value (deficit) as of
June 30, 2009 was approximately $(40.1) million, or
approximately $(0.67) per share of 60.0 million shares of
our Class A common stock. Pro forma, net tangible book
value represents the amount of total tangible assets less total
liabilities, after giving effect to the reorganization and the
incurrence by Artio Global Holdings of $60.0 million of
indebtedness and the declaration and assumed distribution to us
by Artio Global Holdings (calculated as $40.1 million plus
total stockholders equity as of the date of the closing of
this offering, estimated to be $201.3 million (on a pro
forma basis)) that we will use to fund a distribution to our
parent which has been declared prior to this offering
(approximately $161.2 million of which will be paid shortly
after the completion of this offering and $40.1 million of
which will be payable within one year of the completion of this
offering). Pro forma, as adjusted, net tangible book value
(deficit) per share represents pro forma net tangible book value
divided by the number of shares of Class A common stock
outstanding after giving effect to the reorganization
transactions and assuming that (1) the Principals have
exchanged all of their New Class A Units for shares of our
Class A common stock on a one-for-one basis and we have
benefited from the resulting increase in tax basis, (2) the
holder of Class C common stock has converted all of its
shares of Class C common stock into shares of our
Class A common stock on a one-for-one basis and
(3) the 2,147,132 restricted stock units that we expect to
issue to our employees (other than our Principals) and the 6,924
shares of fully-vested Class A common stock (subject to transfer
restrictions) that we expect to issue to our non-employee
directors in connection with this offering, have vested.
After giving effect to the sale of 25,000,000 shares of
Class A common stock that we are offering at an offering
price of $26.00 per share, the deduction of assumed underwriting
discounts payable by us and the use of the estimated net
proceeds as described under Use of Proceeds, our pro
forma, as adjusted net tangible book value at June 30, 2009
was $8.3 million, or $0.13 per share of Class A common
stock, assuming that (1) the Principals have exchanged all
of their New Class A Units for shares of our Class A
common stock on a one-for-one basis and we have benefited from
the resulting increase in tax basis, (2) the holder of
Class C common stock has converted all of its shares of
Class C common stock into shares of our Class A common
stock on a one-for-one basis and (3) the 2,147,132
restricted stock units that we expect to issue to our employees
(other than our Principals) and the 6,924 shares of
fully-vested Class A common stock (subject to transfer
restrictions) that we expect to issue to our non-employee
directors in connection with this offering, have vested.
45
The following table illustrates the immediate increase in pro
forma net tangible book value of $0.80 per share for existing
equity holders and the immediate dilution of $25.87 per share to
new stockholders purchasing Class A common stock in this
offering, assuming the underwriters do not exercise their option
to purchase additional shares.
|
|
|
|
|
|
|
|
|
|
|
|
|
Initial public offering price per share
|
|
|
|
|
|
|
|
|
|
$
|
26.00
|
|
Pro forma, net tangible book value (deficit) per share as of
June 30, 2009
|
|
|
|
|
|
$
|
(0.67
|
)
|
|
|
|
|
Increase (decrease) in pro forma, net tangible book value per
share attributable to:
|
|
|
|
|
|
|
|
|
|
|
|
|
Underwriters discount of $1.4040 per share on sale of
25,000,000 shares of Class A common stock
|
|
$
|
(0.56
|
)
|
|
|
|
|
|
|
|
|
Repurchase of 22,600,000 shares of Class C common
stock and 2,400,000 shares of Class A common stock at
a $1.4040 per share discount to offering price
|
|
$
|
0.56
|
|
|
|
|
|
|
|
|
|
Issuance of 2,147,132 shares of Class A common stock to
employees upon vesting of 2,147,132 restricted stock units and
issuance of 6,924 shares of fully-vested Class A
common stock to our directors
|
|
$
|
0.02
|
|
|
|
|
|
|
|
|
|
Recognition of benefit relating to increased tax basis
|
|
$
|
0.78
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in pro forma, net tangible book value per share
|
|
|
|
|
|
$
|
0.80
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less pro forma, as adjusted net tangible book value per share
after this offering
|
|
|
|
|
|
|
|
|
|
$
|
0.13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilution in pro forma, as adjusted net tangible book value per
share to new investors
|
|
|
|
|
|
|
|
|
|
$
|
25.87
|
|
The following table sets forth, on the same pro forma basis, as
of June 30, 2009, the number of shares of Class A
common stock purchased from us, the total consideration paid, or
to be paid, and the average price per share paid, or to be paid,
by existing stockholders and by the new investors, assuming that
(1) the Principals have exchanged all of their New
Class A Units for shares of our Class A common stock
on a one-for-one basis and we have benefited from the resulting
increase in tax basis and (2) the holder of Class C
common stock has converted all of its shares of Class C
common stock into shares of our Class A common stock on a
one-for-one basis, calculated at an initial public offering
price of $26.00 per share, before deducting estimated
underwriting discounts payable by us:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Total
|
|
|
Average
|
|
|
|
Purchased
|
|
|
Consideration
|
|
|
Price per
|
|
|
|
Number
|
|
|
Percent
|
|
|
Amount
|
|
|
Percent
|
|
|
Share
|
|
|
Existing stockholders
|
|
|
35,000,000
|
|
|
|
58
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
New investors
|
|
|
25,000,000
|
|
|
|
42
|
%
|
|
$
|
650,000,000
|
|
|
|
100
|
%
|
|
$
|
26.00
|
|
Total
|
|
|
60,000,000
|
|
|
|
100
|
%
|
|
$
|
650,000,000
|
|
|
|
100
|
%
|
|
|
|
|
The table above does not give effect to the issuance of 6,924
shares of fully-vested Class A common stock (subject to
transfer restrictions) that we expect to grant under our
incentive compensation plans to our
non-employee
directors or the approximately 2.1 million restricted stock
units, each of which represents the right to receive one share
of our Class A common stock upon the lapse of restrictions,
which generally lapse over a
five-year
period, that we expect to grant to our employees (other than our
Principals) in connection with this offering.
46
If the underwriters exercise their option to purchase additional
shares of Class A common stock in full:
|
|
|
|
|
the pro forma percentage of shares of our Class A common
stock held by existing equity holders will decrease to
approximately 52.1% of the total number of pro forma shares of
our Class A common stock outstanding after this
offering; and
|
|
|
|
|
|
the pro forma number of shares of our Class A common stock
held by new investors will increase to approximately 47.9% of
the total pro forma shares of our Class A common stock
outstanding after this offering.
|
If the underwriters exercise their option to purchase additional
shares of Class A common stock in full, pro forma, as
adjusted net tangible book value would be approximately $0.13
per share, representing no impact to existing equity holders and
there would be an immediate dilution of approximately $25.87 per
share to new investors.
47
UNAUDITED PRO
FORMA CONSOLIDATED FINANCIAL INFORMATION
The following unaudited pro forma consolidated financial
statements present the consolidated statements of income and
financial position of Artio Global Investors Inc. and
subsidiaries, assuming that all of the transactions described in
the bullet points below had been completed as of:
(i) January 1, 2008 with respect to the unaudited pro
forma consolidated statements of income and
(ii) June 30, 2009 with respect to the unaudited pro
forma consolidated statement of financial position. The pro
forma adjustments are based on available information and upon
assumptions that our management believes are reasonable in order
to reflect, on a pro forma basis, the impact of these
transactions and this offering on the historical financial
information of Artio Global Investors Inc. and subsidiaries.
These adjustments are described in the notes to the unaudited
pro forma consolidated financial statements.
The pro forma adjustments give effect to the following
transactions:
|
|
|
|
|
Artio Global Holdings incurrence, in connection with this
offering, of $60.0 million of indebtedness and the
application of the net proceeds of the debt, together with
available cash, to fund a distribution to us that we will use to
fund a distribution to Julius Baer Holding Ltd. Our
distribution, which we have declared prior to this offering,
will be calculated as $40.1 million plus total
stockholders equity as of the date of the closing of this
offering and is estimated to be $201.3 million on a pro
forma basis (approximately $161.2 million of which will be
paid shortly after the completion of this offering and
$40.1 million of which will be payable within one year of
the completion of this offering);
|
|
|
|
|
|
the reorganization transactions described in Our Structure
and Reorganization, including (i) an amendment to the
operating agreement of our operating subsidiary that will result
in the complete acceleration of the unvested portion of the
Class B profits interest of each Principal and the
elimination of both our obligation to repurchase such interests
and the ability of each Principal to put its interest to our
operating subsidiary and (ii) the receipt by each of the
Principals of 9.0 million New Class A Units of Artio
Global Holdings, which New Class A Units are exchangeable
into shares of our Class A common stock on a one-for-one
basis;
|
|
|
|
the receipt by each Principal of 9.0 million shares of our
Class B common stock, each share of which will be cancelled upon
the exchange of one New Class A Unit for one share of Class A
common stock;
|
|
|
|
the elimination of costs related to each Principals
deferred compensation arrangement;
|
|
|
|
|
|
the issuance of 6,924 shares of fully-vested Class A common
stock (subject to transfer restrictions) to our
non-employee
directors and 2,147,132 restricted stock units to our employees
(other than our Principals) in connection with this offering,
which generally vest over a five-year period. Of the total grant
of stock subject to transfer restrictions and restricted stock
units, the 6,924 shares of fully-vested Class A common stock are
entitled to non-forfeitable dividends and as such are considered
participating securities;
|
|
|
|
|
|
the establishment of new employment agreements with each of our
Principals, providing for a $500,000 annual base salary and
$3.5 million minimum target annual bonus for each of the
Principals;
|
|
|
|
the establishment of a tax receivable agreement with our
Principals;
|
|
|
|
the elimination of license fees paid to Julius Baer Holding Ltd.
after the completion of this offering; and
|
|
|
|
|
|
the sale of 25.0 million shares of our Class A common
stock in this offering at an offering price of $26.00 per share
and the application of the net proceeds therefrom, after payment
of the assumed underwriting discounts payable by us to
repurchase and retire 22.6 million shares of Class C
common stock from Julius Baer Holding Ltd. and to repurchase
1.2 million shares of Class A common stock from each
of the Principals, which they will receive immediately prior to
|
48
|
|
|
|
|
this offering in exchange for 1.2 million New Class A
Units in Artio Global Holdings and 1.2 million shares of
our Class B common stock held by each Principal.
|
Pro forma basic net income per share attributable to our
Class A and Class C common stock for the year ended
December 31, 2008 and the six months ended June 30,
2009 was computed by dividing pro forma net income attributable
to such shares by the 44,482,790 and 44,897,043 shares
outstanding as of such dates. Shares of stock subject to
transfer restrictions expected to be awarded to our non-employee
directors and restricted stock units expected to be awarded to
our employees (other than our Principals) totaling 82,790 and
497,043 shares as of December 31, 2008 and
June 30, 2009, respectively, are included as they are
considered participating securities.
Pro forma diluted net income per share for the year ended
December 31, 2008 and the six months ended June 30,
2009 was computed by dividing pro forma net income attributable
to our Class A and Class C common stockholders, as
adjusted to reflect the exchange of each Principals
respective interest in our operating company for shares of our
Class A common stock, which results in the elimination of
the non-controlling interests, as well as an increase in our
effective tax rate, by 60,289,917 and 60,600,606 shares of
our Class A and Class C common stock, which includes
the impact of the shares of stock expected to be awarded to our
non-employee
directors and the unvested restricted stock units expected to be
awarded to employees (other than our Principals) in connection
with this offering.
The unaudited pro forma consolidated financial information is
included for informational purposes only and does not purport to
reflect our statement of income or financial position that would
have occurred had we operated as a public company during the
periods presented. The unaudited pro forma consolidated
financial information should not be relied upon as being
indicative of our statement of income or financial position had
the transactions contemplated in connection with the
reorganization and this offering been completed on the dates
assumed. The unaudited pro forma consolidated financial
information also does not project the statement of income or
financial position for any future period or date. We have not
made any pro forma adjustments relating to reporting,
compliance, investor relations and other incremental costs that
we may incur as a public company.
49
UNAUDITED PRO
FORMA CONSOLIDATED STATEMENT OF INCOME
For the Year Ended December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual
|
|
|
Adjustments
|
|
|
Pro Forma
|
|
|
|
(In thousands, except share and per
|
|
|
|
share amounts)
|
|
|
Revenues and other operating income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment management fees
|
|
$
|
425,003
|
|
|
$
|
|
|
|
$
|
425,003
|
|
Net (losses) on securities held for deferred compensation
|
|
|
(2,856
|
)
|
|
|
|
|
|
|
(2,856
|
)
|
Foreign currency (losses)
|
|
|
(101
|
)
|
|
|
|
|
|
|
(101
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues and other operating income
|
|
|
422,046
|
|
|
|
|
|
|
|
422,046
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee compensation and benefits
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries, incentive compensation and benefits
|
|
|
92,487
|
|
|
|
7,200
|
(a)
|
|
|
101,579
|
|
|
|
|
|
|
|
|
10,770
|
(b)
|
|
|
|
|
|
|
|
|
|
|
|
(8,878
|
)(c)
|
|
|
|
|
Allocation of Class B profits interests
|
|
|
76,074
|
|
|
|
(76,074
|
)(d)
|
|
|
|
|
Change in redemption value of Class B profits interests
|
|
|
54,558
|
|
|
|
(54,558
|
)(d)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total employee compensation and benefits
|
|
|
223,119
|
|
|
|
(121,540
|
)
|
|
|
101,579
|
|
Interest expense
|
|
|
|
|
|
|
2,700
|
(e)
|
|
|
3,317
|
|
|
|
|
|
|
|
|
617
|
(e)
|
|
|
|
|
Shareholder servicing and marketing
|
|
|
23,369
|
|
|
|
|
|
|
|
23,369
|
|
General and administrative
|
|
|
62,833
|
|
|
|
(6,414
|
)(f)
|
|
|
47,972
|
|
|
|
|
|
|
|
|
(8,447
|
)(g)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
309,321
|
|
|
|
(133,084
|
)
|
|
|
176,237
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income before income tax expense
|
|
|
112,725
|
|
|
|
133,084
|
|
|
|
245,809
|
|
Non-operating income
|
|
|
3,181
|
|
|
|
(3,081
|
)(h)
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense
|
|
|
115,906
|
|
|
|
130,003
|
|
|
|
245,909
|
|
Income tax expense
|
|
|
54,755
|
|
|
|
56,759
|
(i)
|
|
|
79,488
|
|
|
|
|
|
|
|
|
(32,026
|
)(j)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income before non-recurring charges directly attributable to
the transaction
|
|
|
61,151
|
|
|
|
105,270
|
|
|
|
166,421
|
|
Less: Net income attributable to non-controlling interests
|
|
|
|
|
|
|
61,732
|
(k)
|
|
|
61,732
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Artio Global Investors before
non-recurring charges directly attributable to the transaction
|
|
$
|
61,151
|
|
|
$
|
43,538
|
(l)
|
|
$
|
104,689
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual
|
|
|
Adjustments
|
|
|
Pro Forma
|
|
|
|
(In thousands, except share and per
|
|
|
|
share amounts)
|
|
|
Basic net income per share attributable to Artio Global
Investors Class A (pro forma only) and Class C common
stockholders before non-recurring charges directly attributable
to the transaction
|
|
$
|
1.46
|
|
|
|
|
|
|
$
|
2.35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per share attributable to Artio Global
Investors Class A (pro forma only) and Class C common
stockholders before non-recurring charges directly attributable
to the transaction
|
|
$
|
1.46
|
|
|
|
|
|
|
$
|
2.30
|
(o)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends declared per Class A (pro forma only) and
Class C basic share
|
|
$
|
2.79
|
|
|
|
|
|
|
$
|
2.63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares used in basic net income per share
attributable to Artio Global Investors Class A (pro forma
only) and Class C common stockholders
|
|
|
42,000,000
|
|
|
|
25,000,000
|
(m)
|
|
|
44,482,790
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(22,600,000
|
)(m)
|
|
|
|
|
|
|
|
|
|
|
|
2,400,000
|
(m)
|
|
|
|
|
|
|
|
|
|
|
|
(2,400,000
|
)(m)
|
|
|
|
|
|
|
|
|
|
|
|
6,924
|
(n)
|
|
|
|
|
|
|
|
|
|
|
|
75,866
|
(n)
|
|
|
|
|
Weighted average shares used in diluted net income per share
attributable to Artio Global Investors Class A (pro forma
only) and Class C common stockholders
|
|
|
42,000,000
|
|
|
|
207,127
|
(b)(n)
|
|
|
60,289,917
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,000,000
|
(m)
|
|
|
|
|
|
|
|
|
|
|
|
(22,600,000
|
)(m)
|
|
|
|
|
|
|
|
|
|
|
|
2,400,000
|
(m)
|
|
|
|
|
|
|
|
|
|
|
|
(2,400,000
|
)(m)
|
|
|
|
|
|
|
|
|
|
|
|
15,600,000
|
(n)
|
|
|
|
|
|
|
|
|
|
|
|
6,924
|
(n)
|
|
|
|
|
|
|
|
|
|
|
|
75,866
|
(n)
|
|
|
|
|
The accompanying notes are an integral part of these unaudited
pro forma consolidated financial statements.
51
UNAUDITED PRO
FORMA CONSOLIDATED STATEMENT OF INCOME
For the Six Months Ended June 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual
|
|
|
Adjustments
|
|
|
Pro Forma
|
|
|
|
(In thousands, except share and per
|
|
|
|
share amounts)
|
|
|
Revenues and other operating income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment management fees
|
|
$
|
132,576
|
|
|
$
|
|
|
|
$
|
132,576
|
|
Net gains on securities held for deferred compensation
|
|
|
712
|
|
|
|
|
|
|
|
712
|
|
Foreign currency (losses)
|
|
|
32
|
|
|
|
|
|
|
|
32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues and other operating income
|
|
|
133,320
|
|
|
|
|
|
|
|
133,320
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee compensation and benefits
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries, incentive compensation and benefits
|
|
|
34,917
|
|
|
|
3,600
|
(a)
|
|
|
43,902
|
|
|
|
|
|
|
|
|
5,385
|
(b)
|
|
|
|
|
|
|
|
|
|
|
|
|
(c)
|
|
|
|
|
Allocation of Class B profits interests
|
|
|
21,472
|
|
|
|
(21,472
|
)(d)
|
|
|
|
|
Change in redemption value of Class B profits interests
|
|
|
35,538
|
|
|
|
(35,538
|
)(d)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total employee compensation and benefits
|
|
|
91,927
|
|
|
|
(48,025
|
)
|
|
|
43,902
|
|
Interest expense
|
|
|
|
|
|
|
1,350
|
(e)
|
|
|
1,658
|
|
|
|
|
|
|
|
|
308
|
(e)
|
|
|
|
|
Shareholder servicing and marketing
|
|
|
7,208
|
|
|
|
|
|
|
|
7,208
|
|
General and administrative
|
|
|
17,578
|
|
|
|
(1,614
|
)(f)
|
|
|
15,164
|
|
|
|
|
|
|
|
|
(800
|
)(g)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
116,713
|
|
|
|
(48,781
|
)
|
|
|
67,932
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income before income tax expense
|
|
|
16,607
|
|
|
|
48,781
|
|
|
|
65,388
|
|
Non-operating income (loss)
|
|
|
(333
|
)
|
|
|
|
(h)
|
|
|
(333
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense
|
|
|
16,274
|
|
|
|
48,781
|
|
|
|
65,055
|
|
Income tax expense
|
|
|
7,874
|
|
|
|
21,298
|
(i)
|
|
|
21,079
|
|
|
|
|
|
|
|
|
(8,093
|
)(j)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income before non-recurring charges directly attributable to
the transaction
|
|
|
8,400
|
|
|
|
35,576
|
|
|
|
43,976
|
|
Less: Net income attributable to non-controlling interests
|
|
|
|
|
|
|
16,219
|
(k)
|
|
|
16,219
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Artio Global Investors before
non-recurring charges directly attributable to the transaction
|
|
$
|
8,400
|
|
|
$
|
19,357
|
(l)
|
|
$
|
27,757
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual
|
|
|
Adjustments
|
|
|
Pro Forma
|
|
|
|
(In thousands, except share and per
|
|
|
|
share amounts)
|
|
|
Basic net income per share attributable to Artio Global
Investors Class A (pro forma only) and Class C common
stockholders before non-recurring charges directly attributable
to the transaction
|
|
$
|
0.20
|
|
|
|
|
|
|
$
|
0.62
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per share attributable to Artio Global
Investors Class A (pro forma only) and Class C common
stockholders before non-recurring charges directly attributable
to the transaction
|
|
$
|
0.20
|
|
|
|
|
|
|
$
|
0.60
|
(o)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends declared per Class A (pro forma only) and
Class C basic share
|
|
$
|
0.33
|
|
|
|
|
|
|
$
|
0.31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares used in basic net income per share
attributable to Artio Global Investors Class A (pro forma
only) and Class C common stockholders
|
|
|
42,000,000
|
|
|
|
25,000,000
|
(m)
|
|
|
44,897,043
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(22,600,000
|
)(m)
|
|
|
|
|
|
|
|
|
|
|
|
2,400,000
|
(m)
|
|
|
|
|
|
|
|
|
|
|
|
(2,400,000
|
)(m)
|
|
|
|
|
|
|
|
|
|
|
|
6,924
|
(n)
|
|
|
|
|
|
|
|
|
|
|
|
75,866
|
(n)
|
|
|
|
|
|
|
|
|
|
|
|
414,253
|
(n)
|
|
|
|
|
Weighted average shares used in diluted net income per share
attributable to Artio Global Investors Class A and
Class C common stockholders
|
|
|
42,000,000
|
|
|
|
103,563
|
(b)(n)
|
|
|
60,600,606
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,000,000
|
(m)
|
|
|
|
|
|
|
|
|
|
|
|
(22,600,000
|
)(m)
|
|
|
|
|
|
|
|
|
|
|
|
2,400,000
|
(m)
|
|
|
|
|
|
|
|
|
|
|
|
(2,400,000
|
)(m)
|
|
|
|
|
|
|
|
|
|
|
|
15,600,000
|
(n)
|
|
|
|
|
|
|
|
|
|
|
|
6,924
|
(n)
|
|
|
|
|
|
|
|
|
|
|
|
75,866
|
(n)
|
|
|
|
|
|
|
|
|
|
|
|
414,253
|
(n)
|
|
|
|
|
The accompanying notes are an integral part of these unaudited
pro forma consolidated financial statements.
53
Notes to
Unaudited Pro Forma Consolidated Statement of Income
For the Year Ended December 31, 2008 and the Six Months
Ended June 30, 2009
|
|
|
(a) |
|
Represents incremental salary and bonus expense payable to the
Principals pursuant to new compensation arrangements in effect
upon completion of this offering. Our historical compensation
arrangements with each of our Principals included an annual
salary of $0.4 million, as well as distributions associated
with the allocation of each Principals profits interest.
Upon the consummation of this offering, each of the Principals
will enter into an employment agreement with us that provides
for an annual base salary of not less than $0.5 million and
an annual bonus for each calendar year, targeted at a minimum of
$3.5 million annually for each of the first two years after
the date of the completion of this offering. This adjustment
represents the aggregate increase of $7.2 million in
salaries, incentive compensation and benefits expense for the
year ended December 31, 2008 and an increase of
$3.6 million for the six months ended June 30, 2009. |
|
(b) |
|
In connection with this offering, we expect to grant
6,924 shares of fully-vested Class A common stock
(subject to transfer restrictions) to our non-employee directors
and 2,147,132 restricted stock units to our employees (other
than our Principals), approximating $56.0 million in value
based on an initial offering price of $26.00 per share.
Approximately $53.9 million of these securities will vest
pro rata, on an annual basis, over a
5-year
period from the date of grant, while approximately
$2.2 million will vest no later than February 2010.
This adjustment represents the increase in compensation expense
associated with the amortization of these awards of
$10.8 million in salaries, incentive compensation and
benefits expense for the year ended December 31, 2008 and
$5.4 million for the six months ended June 30, 2009.
For purposes of the pro forma statements of income, we have
excluded the impact of the $2.2 million charge for the
securities that are expected to vest no later than
February 2010, as that adjustment only occurs in the first
year after the offering and not thereafter. |
|
(c) |
|
In December 2007, in contemplation of this offering, we
accelerated the vesting of the unvested portion of a deferred
compensation arrangement for our Principals to December 2008 and
made payments of $7.0 million to each of our Principals.
Historically, the vesting of this plan was reflected as a
compensation charge within the consolidated financial
statements. We will no longer record compensation charges
relating to this deferred compensation arrangement and this
adjustment to eliminate this expense represents an aggregate
decrease of $8.9 million in salaries, incentive
compensation and benefits expense for the year ended
December 31, 2008 and has no impact for the six months
ended June 30, 2009. |
|
(d) |
|
Immediately prior to this offering, each of our Principals will
contribute his interests in Artio Global Management LLC to Artio
Global Holdings LLC and we will amend and restate Artio Global
Holdings operating agreement to, among other things,
modify its capital structure by creating a single new class of
units called New Class A Units, approximately
70% of which will be issued to us and approximately 15% of which
will be issued to each of our Principals, in each case, upon
receipt of those contributions, and before giving effect to the
transactions described herein (following these transactions, we
will own approximately 74% and the Principals will each own
approximately 13%). We will also issue shares of Class B
common stock to each Principal in an amount equal to the number
of New Class A Units held by such Principal. Accordingly,
we will no longer record as a compensation expense the
allocation of income relating to the profits interests of the
Principals or changes in the redemption value of each
Principals Class B profits interests. Upon completion
of this offering, each of our Principals will be fully vested in
his New Class A Units of Artio Global Holdings and our
Class B common stock. This adjustment represents the
aggregate decrease of $54.6 million and $35.5 million
in change in redemption value of our Principals profits
interests for the year ended December 31, 2008 and six
months ended June 30, 2009, respectively, and the aggregate
decrease of $76.1 million and $21.5 million in
allocation of profits interests to our Principals for the year
ended December 31, 2008 and six months ended June 30,
2009, respectively. |
54
|
|
|
(e) |
|
Represents interest expense of $2.7 million and
$1.4 million on our $60 million term debt facility, as
well as the amortization of deferred financing costs and the
commitment fee on our $50 million revolving credit facility
of $0.6 million and $0.3 million for the year ended
December 31, 2008 and six months ended June 30, 2009,
respectively. Borrowings under our term debt facility will bear
interest at a rate equal to, at our option, (i) LIBOR plus
300 basis points when our consolidated leverage ratio (as
defined in the credit facility agreement) is less than or equal
to 1.0 to 1.0 (pricing tier 1), 350 basis
points when our consolidated leverage ratio is less than or
equal to 1.5 to 1.0 but greater than 1.0 to 1.0 (pricing
tier 2) and 400 basis points when our
consolidated leverage ratio is greater than 1.5 to 1.0
(pricing tier 3) or (ii) the base
rate (calculated as the highest of (x) the federal
funds rate plus 50 basis points per annum, (y) the
rate of interest per annum publicly announced from time to time
by the administrative agent under our term debt facility as its
prime rate (the prime rate) and (except under
certain circumstances) (z) LIBOR plus 100 basis
points) plus 200 basis points under pricing tier 1;
250 basis points under pricing tier 2 and
300 basis points under pricing tier 3. Interest is
payable on our term debt facility in arrears (x) at our
option, on a one-, two- or three-month basis, if related to a
LIBOR borrowing or (y) quarterly, in the case of a base
rate borrowing. The interest rate is assumed to be 4.5% for
purposes of determining interest expense in the pro forma
consolidated statement of income. A 1/4% change in interest
rates would change interest expense by $0.2 million per
year. Financing costs of $1.1 million, or 1.0% of both the
$60 million term debt and $50 million revolving credit
facility, and will be paid from the proceeds of the debt and be
amortized over three years. The annual commitment fee on our
$50.0 million revolving credit facility is 50 basis
points under pricing tier 1; 60 basis points under pricing tier
2 and 75 basis points under pricing tier 3. |
|
(f) |
|
Represents license fees paid to our parent, Julius Baer Holding
Ltd., that will not be payable after this offering. This
adjustment represents an aggregate decrease of $6.4 million
in general and administrative costs for the year ended
December 31, 2008 and a decrease of $1.6 million for
the six months ended June 30, 2009. |
|
(g) |
|
We have incurred expenses that are directly associated with this
offering and are not expected to recur. Because these expenses
are non-recurring, we have eliminated them. The result of this
adjustment is an aggregate decrease in general and
administrative costs of $8.4 million and $0.8 million
for the year ended December 31, 2008 and six months ended
June 30, 2009, respectively. |
|
(h) |
|
We will earn reduced interest income as a result of
significantly lower cash balances following the cash
distribution to our parent. This adjustment represents the
estimated decrease in
non-operating
income of $3.1 million for the year ended December 31,
2008 and has no impact for the six months ended June 30,
2009, calculated by adjusting non-operating income to reflect a
very low cash balance. Although we had significant investable
cash balances during the six months ended June 30, 2009,
our interest income for the period amounted to $0.2 million
as a result of low interest rates as well as our decision to
leave our corporate cash balances in our operating account,
which had unlimited insurance from the Federal Deposit Insurance
Corporation, but earned no interest. Offsetting the interest
income earned was $0.5 million of mark-to-market losses on
U.S. Treasuries. |
55
|
|
|
(i) |
|
Reflects the income tax expense relating to the adjustments set
forth above. This adjustment relates to the year ended
December 31, 2008: |
|
|
|
|
|
|
|
|
|
|
|
Pro Forma
|
|
|
|
|
|
Footnote Reference
|
|
|
|
|
Increase/(decrease) in pre-tax income:
|
|
|
|
|
|
|
|
|
Incremental increase in salary and incentive compensation expense
|
|
|
(a
|
)
|
|
|
$(7
|
.2) million
|
Increase in compensation expense associated with share grants to
employees
|
|
|
(b
|
)
|
|
|
(10
|
.8)
|
Elimination of deferred compensation charge
|
|
|
(c
|
)
|
|
|
8
|
.9
|
Elimination of compensation expense associated with the
allocation of income relating to profits interest
|
|
|
(d
|
)
|
|
|
76
|
.1
|
Elimination of compensation charge associated with the changes
in redemption value of our Principals profits interests
|
|
|
(d
|
)
|
|
|
54
|
.6
|
Increased expenses due to interest costs, commitment fee as well
as amortization of deferred financing costs
|
|
|
(e
|
)
|
|
|
(3
|
.3)
|
Elimination of license fees expense that will be no longer
payable to our Parent
|
|
|
(f
|
)
|
|
|
6
|
.4
|
Reduction in general and administrative costs associated with
offering-related expenses
|
|
|
(g
|
)
|
|
|
8
|
.4
|
Reduction in non-operating income associated with lower
investable cash balances
|
|
|
(h
|
)
|
|
|
(3
|
.1)
|
|
|
|
|
|
|
|
|
|
Increase in pre-tax income
|
|
|
|
|
|
|
$130
|
.0 million
|
Effective tax rate
|
|
|
|
|
|
|
43
|
.7%*
|
|
|
|
|
|
|
|
|
|
Tax effect
|
|
|
|
|
|
|
$56
|
.8 million
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Effective tax rate utilized represents the incremental tax rate
for the year ended December 31, 2008. |
56
This adjustment relates to the six months ended June 30,
2009:
|
|
|
|
|
|
|
|
|
|
|
Pro Forma
|
|
|
|
|
|
Footnote Reference
|
|
|
|
|
Increase/(decrease) in pre-tax income:
|
|
|
|
|
|
|
|
|
Incremental increase in salary and incentive compensation expense
|
|
|
(a
|
)
|
|
|
$(3
|
.6) million
|
Increase in compensation expense associated with share grants to
employees
|
|
|
(b
|
)
|
|
|
(5
|
.4)
|
Elimination of deferred compensation charge
|
|
|
(c
|
)
|
|
|
|
|
Elimination of compensation expense associated with the
allocation of income relating to our Principals profits
interests
|
|
|
(d
|
)
|
|
|
21
|
.5
|
Elimination of compensation charge associated with the changes
in redemption value of our Principals profits interests
|
|
|
(d
|
)
|
|
|
35
|
.5
|
Increased expenses due to interest costs as well as amortization
of deferred financing costs
|
|
|
(e
|
)
|
|
|
(1
|
.7)
|
Elimination of license fees expense that will be no longer
payable to our Parent
|
|
|
(f
|
)
|
|
|
1
|
.6
|
Reduction in general & administrative costs associated
with offering-related expenditure
|
|
|
(g
|
)
|
|
|
0
|
.8
|
|
|
|
|
|
|
|
|
|
Increase in pre-tax income
|
|
|
|
|
|
|
$48
|
.7 million
|
Effective tax rate
|
|
|
|
|
|
|
43
|
.7%*
|
|
|
|
|
|
|
|
|
|
Tax effect
|
|
|
|
|
|
|
$21
|
.3 million
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Effective tax rate utilized represents the incremental tax rate
for the six months ended June 30, 2009. |
|
|
|
(j) |
|
Subsequent to this offering, we expect that our financial
statements will reflect a significant reduction in our effective
income tax rate, which we define as income tax expense divided
by income before income tax expense, as a result of the
reclassification of our Principals economic interests in
Artio Global Management from Class B profits interests to
non-controlling interests. The non-controlling interests are
treated as partnership interests for U.S. federal income tax
purposes and, therefore, the federal and state tax liabilities
associated with the income allocated to such interests are the
responsibility of the Principals and not us. The financial
statement presentation requirements of U.S. generally accepted
accounting principles mandate that income before income tax
expense include the income attributable to us as well as to our
Principals. Because income tax expense excludes U.S. federal and
state taxes for the income attributable to each of our
Principals, but includes each Principals portion of New
York City Unincorporated Business Tax, the result should be, for
financial statement presentation purposes, a significantly lower
effective tax rate. As each Principals non-controlling
interests are exchanged into shares of our Class A common
stock, we expect, for financial statement presentation purposes,
that our effective income tax rate will increase because more
income from Artio Global Holdings will be attributable to us,
and therefore we will be responsible for the tax liabilities on
a greater proportion of the income before income tax expense.
This adjustment represents an aggregate decrease in income tax
expense of $32.0 million for the year ended
December 31, 2008 and $8.1 million for the six months
ended June 30, 2009. |
57
|
|
|
(k) |
|
The New Class A Units in Artio Global Holdings that are
owned by our Principals will be considered non-controlling
interests for financial accounting purposes. The amount of
non-controlling interests represents the proportional interest
in the pro forma income of Artio Global Holdings owned by each
of our Principals, net of New York City Unincorporated Business
Tax. This adjustment amounted to $61.7 million for the year
ended December 31, 2008 and $16.2 million for the six
months ended June 30, 2009. The amount of the
non-controlling interest, from a Statement of Income
perspective, can be derived by multiplying the income before
income tax expense, on the Statement of Income, by the
Principals aggregate pro forma interest in Artio Global
Management of 26.0% for the year ended December 31, 2008
and 25.8% for the six months ended June 30, 2009, and
reducing the result by our operating subsidiarys effective
rate of New York City Unincorporated Business Tax of 3.3%. |
|
(l) |
|
The pro forma adjustments made to the unaudited pro forma
consolidated statement of income reflect only adjustments which
will have a continuing impact on our results of operations. The
following charges therefore are reflected only in the unaudited
pro forma consolidated statement of financial position (as
decreases to retained earnings) as such charges will be incurred
at the time of the reorganization transactions and are not
expected to have a continuing impact on our results of
operations after the transactions. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount Reflected in
|
|
|
|
Pro Forma
|
|
|
June 30, 2009
|
|
|
|
Footnote Reference
|
|
|
Unaudited Statement
|
|
|
|
for Statement of
|
|
|
of Financial
|
|
|
|
Financial Position
|
|
|
Position Information
|
|
|
|
(In millions)
|
|
|
Compensation expense relating to acceleration of the vesting of
our Principals interests and establishment of a tax
receivable agreement with our Principals
|
|
|
(d
|
)
|
|
$
|
(334.2
|
)
|
De-recognition of deferred tax asset
|
|
|
(d
|
)
|
|
|
(103.9
|
)
|
|
|
|
|
|
|
|
|
|
Total non-recurring charges
|
|
|
|
|
|
$
|
(438.1
|
)
|
|
|
|
|
|
|
|
|
|
No tax was computed on the compensation expense adjustment of
$334.2 million, as the deferred tax asset was to be
de-recognized as part of the transaction.
The amounts set forth above exclude the $2.2 million of charges
reflecting the grant of restricted stock units to employees
(other than our Principals), more fully discussed in
footnote (b) to the pro forma statement of income, that
will vest no later than February 2010.
|
|
|
(m) |
|
New investors in this offering will own shares of our
Class A common stock. The pro forma effect of this offering
and the repurchase of shares of Class C common stock from
Julius Baer Holding Ltd. and shares of Class A common stock from
our Principals are: |
|
|
|
|
|
the issuance of 25.0 million shares of Class A common
stock;
|
|
|
|
the exchange by each of our Principals of 1.2 million New
Class A Units (together with the corresponding shares of
Class B common stock) for 1.2 million shares of
Class A common stock; and
|
|
|
|
the repurchase and retirement by us of 22.6 million shares
of Class C common stock owned by Julius Baer Holding Ltd. and
the repurchase by us of 1.2 million shares of Class A
common stock from each of our Principals.
|
|
|
|
(n) |
|
Assumes exchange and issuance of the following securities, which
would have a dilutive impact on earnings per share: |
58
|
|
|
|
|
the exchange by each of our Principals of an additional
7.8 million New Class A Units (together with the
corresponding shares of Class B common stock) for an
additional 7.8 million shares of Class A common
stock; and
|
|
|
|
|
|
the issuance of approximately 6,924 shares of fully-vested
Class A common stock subject to transfer restrictions to our
non-employee directors and 2,147,132 restricted stock units
to our employees (other than our Principals) in connection with
this offering, which generally vest over a five-year period. Of
the total grant of stock and restricted stock units,
6,924 shares are entitled to non-forfeitable dividends and
as such are considered participating securities. These
securities are included in computing basic earnings per share.
Additionally, 75,866 restricted stock units issued to
employees will vest no later than February 2010 and are
therefore included within the calculation of basic earnings per
share for the year ended December 31, 2008 and six months
ended June 30, 2009. The remaining
2,071,266 restricted stock units will vest pro rata over a
five-year period, 414,253 shares of which are included
within the calculation of basic earnings per share for the six
months ended June 30, 2009. Using the treasury stock
method, the dilutive impact of the stock subject to transfer
restrictions and restricted stock units issuance to weighted
average shares used in diluted earnings per share would be
207,127 shares for the year ended December 31, 2008
and 103,563 shares for the six months ended June 30,
2009. The assumptions underlying the computation of the dilutive
shares are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Unaudited Pro Forma
|
|
|
Unaudited Pro Forma
|
|
|
|
For the Year Ended
|
|
|
For the Six Months
|
|
|
|
December 31,
|
|
|
Ended June 30,
|
|
|
|
2008
|
|
|
2009
|
|
|
Market price equals initial public offering price
|
|
$
|
26.00
|
|
|
$
|
26.00
|
|
Stock subject to transfer restrictions (other than participating
securities) issued to our non-employee directors and restricted
stock units issued to employees assumed to vest (other than our
Principals)
|
|
|
2,071,266
|
|
|
|
1,657,013
|
|
Shares assumed repurchased under the treasury stock method
|
|
|
1,864,139
|
|
|
|
1,553,450
|
|
|
|
|
|
|
|
|
|
|
Dilutive impact as of the end of the period
|
|
|
207,127
|
|
|
|
103,563
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(o) |
|
For purposes of calculating diluted pro forma, as adjusted, net
income per share attributable to Class A and Class C
common stockholders, we are required to assume the full exchange
of our Principals Class A Units into shares of our
Class A common stock if the exchange would be dilutive to
earnings per share. Because the assumed full exchange would be
dilutive to earnings per share, it is also necessary to recast
the pro forma statement of income to reflect the elimination of
the non-controlling interests and resulting increase in our
effective tax rate. As discussed in footnotes (j) and
(k) above, the non-controlling interests are treated as
partnership interests for U.S. federal income tax purposes and,
therefore, the federal and state liabilities associated with the
income allocated to such interests are the responsibility of the
Principals and not us. Income tax expense on the unaudited pro
forma consolidated statement of income excludes U.S. federal and
state taxes for the income attributable to each of our
Principals except for each Principals portion of New York
City Unincorporated Business Tax of 3.3%. Such income is assumed
to be taxed at our overall incremental effective tax rate.
Recast diluted pro forma net |
59
|
|
|
|
|
income per share attributable to Class A and Class C
common stockholders for the year ended December 31, 2008
and the six months ended June 30, 2009 follow: |
|
|
|
|
|
|
|
|
|
|
|
Unaudited Pro forma
|
|
|
Unaudited Pro Forma
|
|
|
|
For the Year Ended
|
|
|
For the Six Months Ended
|
|
|
|
December 31,
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2009
|
|
|
|
(In thousands, except shares and per share amounts)
|
|
|
Net income attributable to Artio Global Investors
|
|
$
|
104,689
|
|
|
$
|
27,757
|
|
Add: Income tax expense
|
|
|
79,488
|
|
|
|
21,079
|
|
Net income attributable to non-controlling interests
|
|
|
61,732
|
|
|
|
16,219
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense
|
|
|
245,909
|
|
|
|
65,055
|
|
Less: Artio Global Investors income tax expense, as adjusted
|
|
|
107,364
|
|
|
|
28,402
|
|
|
|
|
|
|
|
|
|
|
Net income, as adjusted, attributable to Artio Global Investors,
excluding the impact of non-controlling interests
|
|
$
|
138,545
|
|
|
$
|
36,653
|
|
|
|
|
|
|
|
|
|
|
Diluted, as adjusted, net income per share attributable to Artio
Global Investors Class A and Class C common
stockholders
|
|
$
|
2.30
|
|
|
$
|
0.60
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares used in diluted net income per share
attributable to Artio Global Investors Class A and
Class C common stockholders
|
|
|
60,289,917
|
|
|
|
60,600,606
|
|
|
|
|
|
|
|
|
|
|
60
UNAUDITED PRO
FORMA CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As of June 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual
|
|
|
Adjustments
|
|
|
Pro Forma
|
|
|
|
(In thousands, except shares and per share amounts)
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
111,324
|
|
|
$
|
58,900
|
(a)
|
|
$
|
17,652
|
|
|
|
|
|
|
|
|
(141,211
|
)(b)
|
|
|
|
|
|
|
|
|
|
|
|
614,900
|
(c)
|
|
|
|
|
|
|
|
|
|
|
|
(59,030
|
)(c)
|
|
|
|
|
|
|
|
|
|
|
|
(555,870
|
)(c)
|
|
|
|
|
|
|
|
|
|
|
|
(11,361
|
)(d)
|
|
|
|
|
Marketable securities, at fair value
|
|
|
28,622
|
|
|
|
(20,000
|
)(b)
|
|
|
8,622
|
|
Fees receivable and accrued fees, net of allowance for doubtful
accounts
|
|
|
46,309
|
|
|
|
|
|
|
|
46,309
|
|
Deferred taxes, net
|
|
|
107,335
|
|
|
|
(103,863
|
)(d)
|
|
|
44,451
|
|
|
|
|
|
|
|
|
40,979
|
(e)
|
|
|
|
|
Property and equipment, net
|
|
|
9,290
|
|
|
|
|
|
|
|
9,290
|
|
Other assets
|
|
|
3,265
|
|
|
|
1,100
|
(a)
|
|
|
4,365
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
306,145
|
|
|
$
|
(175,456
|
)
|
|
$
|
130,689
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and stockholders equity (deficit)
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
$
|
|
|
|
$
|
60,000
|
(a)
|
|
$
|
60,000
|
|
Accrued compensation and benefits
|
|
|
264,253
|
|
|
|
334,199
|
(d)
|
|
|
15,464
|
|
|
|
|
|
|
|
|
(571,627
|
)(d)
|
|
|
|
|
|
|
|
|
|
|
|
(11,361
|
)(d)
|
|
|
|
|
Accounts payable and accrued expenses
|
|
|
8,586
|
|
|
|
|
|
|
|
8,586
|
|
Due to affiliates
|
|
|
972
|
|
|
|
40,100
|
(b)
|
|
|
41,072
|
|
Amounts payable pursuant to tax receivable agreement
|
|
|
|
|
|
|
34,832
|
(e)
|
|
|
34,832
|
|
Other liabilities
|
|
|
4,689
|
|
|
|
|
|
|
|
4,689
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
278,500
|
|
|
|
(113,857
|
)
|
|
|
164,643
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Artio Global Investors stockholders equity (deficit)
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A common stock $0.001 par value per
share, none authorized and outstanding on an actual basis; and
500,000,000 shares authorized, 27,406,924 shares
issued and 25,006,924 outstanding on a pro forma basis
|
|
|
|
|
|
|
25
|
(c)
|
|
|
27
|
|
|
|
|
|
|
|
|
2
|
(c)
|
|
|
|
|
Class B common stock $0.001 par value per
share, none authorized and outstanding on an actual basis; and
50,000,000 shares authorized, 15,600,000 shares issued
and outstanding on a pro forma basis
|
|
|
|
|
|
|
18
|
(f)
|
|
|
16
|
|
|
|
|
|
|
|
|
(2
|
)(c)
|
|
|
|
|
Class C common stock $0.01 par value per
share, 210,000,000 authorized; 42,000,000 issued and outstanding
on an actual basis (after giving retroactive effect to a
10,500:1 stock split); 19,400,000 shares issued and
outstanding on a pro forma basis
|
|
|
420
|
|
|
|
(226
|
)(c)
|
|
|
194
|
|
61
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual
|
|
|
Adjustments
|
|
|
Pro Forma
|
|
|
|
(In thousands, except shares and per share amounts)
|
|
|
Additional paid-in capital
|
|
|
17,930
|
|
|
|
614,875
|
(c)
|
|
|
665,257
|
|
|
|
|
|
|
|
|
(555,644
|
)(c)
|
|
|
|
|
|
|
|
|
|
|
|
571,627
|
(d)
|
|
|
|
|
|
|
|
|
|
|
|
6,147
|
(e)
|
|
|
|
|
|
|
|
|
|
|
|
(18
|
)(f)
|
|
|
|
|
|
|
|
|
|
|
|
10,340
|
(g)
|
|
|
|
|
Retained earnings (deficit)
|
|
|
9,295
|
|
|
|
(201,311
|
)(b)
|
|
|
(630,078
|
)
|
|
|
|
|
|
|
|
(334,199
|
)(d)
|
|
|
|
|
|
|
|
|
|
|
|
(103,863
|
)(d)
|
|
|
|
|
Treasury Stock (2,400,000 shares of Class A common
stock on a pro forma basis), at cost
|
|
|
|
|
|
|
(59,030
|
)(c)
|
|
|
(59,030
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Artio Global Investors stockholders equity (deficit)
|
|
|
27,645
|
|
|
|
(51,259
|
)
|
|
|
(23,614
|
)
|
Non-controlling interests
|
|
|
|
|
|
|
(10,340
|
)(g)
|
|
|
(10,340
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity (deficit)
|
|
|
27,645
|
|
|
|
(61,599
|
)
|
|
|
(33,954
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity (deficit)
|
|
$
|
306,145
|
|
|
$
|
(175,456
|
)
|
|
$
|
130,689
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these unaudited
pro forma consolidated financial statements.
62
Notes to
Unaudited Pro Forma Consolidated Statement of Financial
Position
As of June 30, 2009
|
|
|
(a) |
|
Represents Artio Global Holdings incurrence, in connection
with this offering, of $60.0 million of indebtedness, which
increases cash by $58.9 million after the payment of
$1.1 million of structuring fees. The structuring fees will
be recorded as an asset within other assets in our
statement of financial position and amortized over time. |
|
(b) |
|
Represents a $201.3 million distribution to Julius Baer
Holding Ltd. which is comprised of the stockholders equity
of the company, funded from $141.2 million of cash and
$20.0 million of marketable securities, plus an additional
amount of $40.1 million that will be payable within one
year of the completion of this offering, which is recorded as
due to affiliates. |
|
|
|
(c) |
|
New investors in this offering will own shares of our
Class A common stock. We expect that the net proceeds from
this offering will be $614.9 million, which reflects a
reduction of $35.1 million relating to the underwriting
discount. The pro forma effect of this offering and the
repurchase of shares of Class C common stock from Julius
Baer Holding Ltd. and shares of Class A common stock from
each of our Principals, which also affects the par values of the
applicable shares of common stock and paid-in capital, are: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impact to
|
|
|
|
|
|
|
Stockholders
|
|
(In thousands except shares and per share amounts)
|
|
Per Share
|
|
|
Equity
|
|
|
Class A common stock (at par value):
|
|
|
|
|
|
|
|
|
Sale of 25,000,000 shares of Class A common stock in
this offering(1)
|
|
$
|
0.001
|
|
|
$
|
25
|
|
Exchange by each Principal of 1,200,000 New Class A Units
and corresponding shares of Class B common stock for shares
of Class A common stock(2)
|
|
|
0.001
|
|
|
|
2
|
|
Class B common stock (at par value):
|
|
|
|
|
|
|
|
|
Exchange by each Principal of 1,200,000 New Class A Units
and corresponding shares of Class B common stock for shares
of Class A common stock(2)
|
|
|
0.001
|
|
|
|
(2
|
)
|
Class C common stock (at par value):
|
|
|
|
|
|
|
|
|
Repurchase of 22,600,000 shares of Class C common
stock owned by Julius Baer Holding Ltd.(3)
|
|
|
0.01
|
|
|
|
(226
|
)
|
Additional paid-in capital (at cost):
|
|
|
|
|
|
|
|
|
Sale of 25,000,000 shares of Class A common stock in
this offering(1)
|
|
|
24.5960
|
|
|
|
614,875
|
|
Repurchase of 22,600,000 shares of Class C common
stock owned by Julius Baer Holding Ltd.(3)
|
|
|
24.5960
|
|
|
|
(555,644
|
)
|
Treasury Stock (at cost):
|
|
|
|
|
|
|
|
|
Repurchase from each principal of 1,200,000 shares of
Class A common stock(3)
|
|
|
24.5960
|
|
|
|
(59,030
|
)
|
|
|
|
(1) |
|
Reflects the recognition of the net proceeds from the sale of
25.0 million shares in this offering of
$614.9 million, after deducting underwriting discounts of
$35.1 million, based on the initial public offering price
of $26.00 per share of Class A common stock, less $1.4040
underwriting discount per share. The net proceeds are shown as
an increase in our paid-in capital and common stock on the
statement of financial position. |
|
|
|
(2) |
|
Reflects the exchange by each of our Principals of
1.2 million New Class A Units (together with the
corresponding shares of Class B common stock) for shares of
Class A common stock. |
63
|
|
|
(3) |
|
Reflects our use of the net proceeds of this offering to
repurchase and retire 22.6 million shares of Class C
common stock owned by Julius Baer Holding Ltd. and to
repurchase, and record as treasury stock, 1.2 million
shares of Class A common stock from each of our Principals
at a price equal to the per share net amount raised in the
offering. |
|
|
|
(d) |
|
In connection with this offering, each of our Principals will
exchange his Class B profits interests in Artio Global
Management for New Class A Units in Artio Global Holdings.
Upon such exchange, we will no longer have an obligation to
repurchase the Class B profits interests of each Principal
and each Principal will no longer have the ability to put his
interests to us. As a result of these changes to the operating
agreement of Artio Global Management, the complete vesting of
each Principals Class B profits interests and the tax
receivable agreement we will enter into with our Principals in
connection with this offering, we will incur a compensation
charge of $334.2 million, which is charged against retained
earnings. The portion of the compensation charge associated with
the vesting of the Class B profits interests differs from
the total vested and unvested amount reflected in the historical
financial statements. The amount reflected in the historical
financial statements was based on a model specified in the
operating agreement of Artio Global Management, which was
believed, in the absence of direct market inputs, to reflect the
fair value of the Class B profits interests, while the
amount reflected in the pro forma statement of financial
position is based on the assumed offering price of the shares of
our Class A common stock in this offering, which totals
$230.6 million as well as the value of the tax receivable
agreement which totals $103.6 million. As a result, the
liability we have historically accrued relating to the
redemption value of the profits interests of our Principals, as
of June 30, 2009, including the charge mentioned above
which total $571.6 million, will be reclassified to
additional paid-in capital within the consolidated statement of
financial position. No deferred tax asset will be computed on
the charge and the deferred tax asset of $103.9 million
that was historically recognized with respect to the redemption
value of the profits interests of our Principals, will be
de-recognized upon the completion of this offering and is
reflected in the pro forma statement of financial condition as a
reduction in stockholders equity. In connection with this
offering, we will pay out to our Principals the unpaid balance
of their aggregate allocation of profits interests, as of
immediately prior to this offering. This amount was
$11.4 million as of June 30, 2009. |
|
|
|
(e) |
|
We are required to make payments under the tax receivable
agreement that we will enter into in connection with this
offering. The exchange by each of our Principals of
1.2 million New Class A Units for shares of our Class
A common stock on a one-for-one basis is expected to result in
an increase in the tax basis of the tangible and intangible
assets that would not otherwise have been available. This
increase in tax basis will increase, for tax purposes, our
depreciation and amortization expense and will therefore reduce
the amount of tax that we would be required to pay in the
future. The pro forma amount for such increase in our deferred
tax assets totals $41.0 million as of June 30, 2009
based on an assumed share price of $26.00 and an incremental tax
rate of 43.7%. Accordingly, pursuant to the tax receivable
agreement, we will agree to pay each Principal 85% of the actual
reduction in U.S. federal, state and local tax payments
that we realize as a result of this increase in tax basis
created by such Principals exchanges. The obligation to
pay 85% of the actual reduction in tax payments to our
Principals is an obligation of the company. The pro forma
liability of $34.8 million payable under this tax
receivable agreement is shown as a liability in our statement of
financial position as of June 30, 2009. The net deferred
tax asset, after payment under this tax receivable agreement,
amounted to $6.1 million and is shown as an increase to
paid-in capital within the pro forma statement of financial
position. Future cash savings and related payments to our
Principals in respect of subsequent exchanges would be in
addition to these amounts. |
|
|
|
|
|
Any payments made under the tax receivable agreement may give
rise to additional tax benefits and additional potential
payments under the tax receivable agreement. See
Relationships and Related Party Transactions
Tax Receivable Agreement. We anticipate that we will
account for the income tax effects and corresponding tax
receivable agreement effects resulting from the |
64
|
|
|
|
|
future taxable exchanges by our Principals of New Class A
Units for shares of our Class A common stock by recognizing
an increase in our deferred tax assets, based on enacted tax
rates at the date of the exchange. Further, we will evaluate the
likelihood that we will realize the benefit represented by the
deferred tax asset and, to the extent that we estimate that it
is more likely than not that we will not realize the benefit, we
will reduce the carrying amount of the deferred tax asset with a
valuation allowance. We expect to record the estimated amount of
the increase in deferred tax assets, net of any valuation
allowance, directly in paid-in capital and we will record a
liability for the expected amount we will pay our Principals
under the tax receivable agreement (85% of the actual reduction
in tax payments), estimated using assumptions consistent with
those used in estimating the net deferred tax assets. |
|
|
|
The computation of the deferred tax benefit takes into account
the aforementioned additional tax benefits and additional
potential payments made under the tax receivable agreement. The
computation of the total deferred tax benefit is as follows: |
|
|
|
|
|
Fair value of 1.2 million shares sold upon exchange of New
Class A Units by each of the Principals
|
|
|
$59
|
.0 million
|
Assumed future effective tax rate
|
|
|
43
|
.7%
|
|
|
|
|
|
Tax deduction
|
|
|
25
|
.8
|
Additional deferred tax benefits
|
|
|
15
|
.2
|
|
|
|
|
|
Total deferred tax benefit
|
|
|
$41
|
.0 million
|
|
|
|
|
|
|
|
|
|
|
Therefore, at the date of an exchange of New Class A Units
for shares of our Class A common stock, the net effect of
the accounting for income taxes and the tax receivable agreement
on our financial statements will be a net increase to paid-in
capital of 15% of the estimated realizable tax benefit. The
effect of subsequent changes in any of our estimates after the
date of the exchange will be included in net income. Similarly,
the effects of changes in enacted tax rates and in the
applicable tax laws will be included in net income. |
|
(f) |
|
Represents the issuance of 18 million shares of
Class B common stock, in the aggregate, to our Principals
in the reorganization. |
|
|
|
(g) |
|
Represents the establishment of a non-controlling interest as a
result of the reclassification of our Principals economic
interests held in Artio Global Management from Class B
profits interests to non-controlling interests (representing our
Principals approximately 26% pro forma interest in
Artio Global Holdings, which exclude the dilutive impact of the
unvested portion of the 2,147,132 restricted stock units
that we expect to grant to our employees (other than our
Principals) in connection with this offering, totaling
1,657,013, which generally vest over a five-year period). |
65
SELECTED
HISTORICAL CONSOLIDATED FINANCIAL DATA
The following selected historical consolidated financial data of
Artio Global Investors Inc. and subsidiaries should be read in
conjunction with, and are qualified by reference to,
Managements Discussion and Analysis of Financial
Condition and Results of Operations and the historical
consolidated financial statements and notes thereto included
elsewhere in this prospectus. In accordance with Securities and
Exchange Commissions Staff Accounting Bulletin Topic
4:C, the selected consolidated statement of income data for the
years ended December 31, 2004, 2005, 2006, 2007 and 2008
and for the six months ended June 30, 2008 and 2009 give
retroactive effect to a 10,500:1 stock split that was effected
as of August 28, 2009. The selected consolidated statement
of income data for the years ended December 31, 2006, 2007,
and 2008 and the selected consolidated statement of financial
position data as of December 31, 2007 and 2008 have been
derived from our audited consolidated financial statements,
included elsewhere in this prospectus. The selected consolidated
statement of income data for the six months ended June 30,
2008 and 2009 and the consolidated statement of financial
position as of June 30, 2009 have been derived from our
unaudited interim consolidated financial statements. These
unaudited interim consolidated financial statements have been
prepared on substantially the same basis as our audited
consolidated financial statements and include all adjustments
that we consider necessary for a fair presentation of our
consolidated results of operations and financial condition for
the periods presented therein. Our results for the six months
ended June 30, 2008 and 2009 are not necessarily indicative
of our results for a full fiscal year.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months
|
|
|
|
|
|
|
Ended June 30,
|
|
|
|
Year Ended December 31,
|
|
|
(unaudited)
|
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2008
|
|
|
2009
|
|
|
|
(In thousands, except per share amounts)
|
|
|
Statement of Income Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues and other operating income Investment management fees
|
|
$
|
106,282
|
|
|
$
|
201,285
|
|
|
$
|
300,432
|
|
|
$
|
445,558
|
|
|
$
|
425,003
|
|
|
$
|
243,507
|
|
|
$
|
132,576
|
|
Net gains (losses) on assets held for deferred compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,856
|
)
|
|
|
(601
|
)
|
|
|
712
|
|
Foreign currency gains (losses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
186
|
|
|
|
(101
|
)
|
|
|
(21
|
)
|
|
|
32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues and other operating income
|
|
|
106,282
|
|
|
|
201,285
|
|
|
|
300,432
|
|
|
|
445,744
|
|
|
|
422,046
|
|
|
|
242,885
|
|
|
|
133,320
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee compensation and benefits Salaries, incentive
compensation and benefits
|
|
|
31,519
|
|
|
|
52,878
|
|
|
|
69,677
|
|
|
|
92,277
|
|
|
|
92,487
|
|
|
|
52,854
|
|
|
|
34,917
|
|
Allocation of Class B profits interests
|
|
|
13,704
|
|
|
|
33,748
|
|
|
|
53,410
|
|
|
|
83,512
|
|
|
|
76,074
|
|
|
|
43,991
|
|
|
|
21,472
|
|
Change in redemption value of Class B profits interests
|
|
|
|
|
|
|
23,557
|
|
|
|
46,932
|
|
|
|
76,844
|
|
|
|
54,558
|
|
|
|
36,433
|
|
|
|
35,538
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total employee compensation and benefits
|
|
|
45,223
|
|
|
|
110,183
|
|
|
|
170,019
|
|
|
|
252,633
|
|
|
|
223,119
|
|
|
|
133,278
|
|
|
|
91,927
|
|
Shareholder servicing and marketing
|
|
|
7,026
|
|
|
|
15,130
|
|
|
|
20,134
|
|
|
|
25,356
|
|
|
|
23,369
|
|
|
|
12,725
|
|
|
|
7,208
|
|
General and administrative
|
|
|
24,498
|
|
|
|
24,590
|
|
|
|
31,510
|
|
|
|
50,002
|
|
|
|
62,833
|
|
|
|
34,665
|
|
|
|
17,578
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
76,747
|
|
|
|
149,903
|
|
|
|
221,663
|
|
|
|
327,991
|
|
|
|
309,321
|
|
|
|
180,668
|
|
|
|
116,713
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income before income tax expense
|
|
|
29,535
|
|
|
|
51,382
|
|
|
|
78,769
|
|
|
|
117,753
|
|
|
|
112,725
|
|
|
|
62,217
|
|
|
|
16,607
|
|
Non-operating income (loss)
|
|
|
460
|
|
|
|
1,391
|
|
|
|
3,288
|
|
|
|
7,034
|
|
|
|
3,181
|
|
|
|
1,397
|
|
|
|
(333
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income tax expense
|
|
|
29,995
|
|
|
|
52,773
|
|
|
|
82,057
|
|
|
|
124,787
|
|
|
|
115,906
|
|
|
|
63,614
|
|
|
|
16,274
|
|
Income tax expense
|
|
|
13,617
|
|
|
|
24,123
|
|
|
|
38,514
|
|
|
|
58,417
|
|
|
|
54,755
|
|
|
|
31,992
|
|
|
|
7,874
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
16,378
|
|
|
|
28,650
|
|
|
|
43,543
|
|
|
|
66,370
|
|
|
|
61,151
|
|
|
|
31,622
|
|
|
|
8,400
|
|
Income (loss) from discontinued operations, net of taxes(1)
|
|
|
(3,396
|
)
|
|
|
(2,544
|
)
|
|
|
1,231
|
|
|
|
1,616
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
12,982
|
|
|
$
|
26,106
|
|
|
$
|
44,774
|
|
|
$
|
67,986
|
|
|
$
|
61,151
|
|
|
$
|
31,622
|
|
|
$
|
8,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
66
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months
|
|
|
|
|
|
|
Ended June 30,
|
|
|
|
Year Ended December 31,
|
|
|
(unaudited)
|
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2008
|
|
|
2009
|
|
|
Basic and diluted net income per share from continuing
operations(2)
|
|
$
|
0.39
|
|
|
$
|
0.68
|
|
|
$
|
1.04
|
|
|
$
|
1.58
|
|
|
$
|
1.46
|
|
|
$
|
0.75
|
|
|
$
|
0.20
|
|
Basic and diluted net income (loss) per share from discontinued
operations, net of taxes(2)
|
|
|
(0.08
|
)
|
|
|
(0.06
|
)
|
|
|
0.03
|
|
|
|
0.04
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net income per share(2)
|
|
$
|
0.31
|
|
|
$
|
0.62
|
|
|
$
|
1.07
|
|
|
$
|
1.62
|
|
|
$
|
1.46
|
|
|
$
|
0.75
|
|
|
$
|
0.20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends declared per basic share(2)
|
|
$
|
|
|
|
$
|
0.71
|
|
|
$
|
|
|
|
$
|
1.43
|
|
|
$
|
2.79
|
|
|
$
|
1.95
|
|
|
$
|
0.33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average Class C common shares used in basic and
diluted net income per share(2)
|
|
|
42,000
|
|
|
|
42,000
|
|
|
|
42,000
|
|
|
|
42,000
|
|
|
|
42,000
|
|
|
|
42,000
|
|
|
|
42,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
|
|
|
|
June 30,
|
|
|
|
As of December 31,
|
|
|
(unaudited)
|
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Statement of Financial Position Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
28,892
|
|
|
$
|
16,194
|
|
|
$
|
61,055
|
|
|
$
|
133,447
|
|
|
$
|
86,563
|
|
|
$
|
111,324
|
|
Assets of discontinued operations(1)
|
|
|
20,239
|
|
|
|
22,508
|
|
|
|
11,722
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
99,132
|
|
|
|
121,214
|
|
|
|
244,704
|
|
|
|
355,355
|
|
|
|
319,476
|
|
|
|
306,145
|
|
Accrued compensation and benefits
|
|
|
28,216
|
|
|
|
68,880
|
|
|
|
138,087
|
|
|
|
245,245
|
|
|
|
268,925
|
|
|
|
264,253
|
|
Long-term debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities of discontinued operations(1)
|
|
|
19,482
|
|
|
|
6,668
|
|
|
|
2,725
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
59,128
|
|
|
|
85,104
|
|
|
|
163,820
|
|
|
|
266,261
|
|
|
|
286,231
|
|
|
|
278,500
|
|
Total stockholders equity
|
|
|
40,004
|
|
|
|
36,110
|
|
|
|
80,884
|
|
|
|
89,094
|
|
|
|
33,245
|
|
|
|
27,645
|
|
|
|
|
(1) |
|
Discontinued operations include the former broker-dealer and
foreign exchange activities of our company. See
Managements Discussion and Analysis of Financial
Condition and Results of Operations General
Overview. |
|
(2) |
|
As recast to give retroactive effect to a 10,500:1 stock split
that was effected as of August 28, 2009. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months
|
|
|
|
|
|
|
Ended
|
|
|
|
Year Ended December 31,
|
|
|
June 30,
|
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2008
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
Selected Unaudited Operating Data (excluding legacy
activities):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets under management(1)
|
|
$
|
21,582
|
|
|
$
|
34,850
|
|
|
$
|
53,486
|
|
|
$
|
75,362
|
|
|
$
|
45,200
|
|
|
$
|
72,604
|
|
|
$
|
46,826
|
|
Net client cash flows(2)
|
|
|
10,784
|
|
|
|
8,633
|
|
|
|
7,582
|
|
|
|
12,150
|
|
|
|
1,930
|
|
|
|
4,991
|
|
|
|
973
|
|
Market appreciation (depreciation)(3)
|
|
|
3,282
|
|
|
|
4,635
|
|
|
|
11,054
|
|
|
|
9,726
|
|
|
|
(32,092
|
)
|
|
|
(7,749
|
)
|
|
|
653
|
|
|
|
|
(1) |
|
Reflects the amount of money our clients have invested in our
strategies as of the period-end date. |
|
(2) |
|
Reflects the amount of money our clients have invested in our
strategies during the period, net of outflows and excluding
appreciation (depreciation) due to changes in market value. |
|
(3) |
|
Represents the appreciation (depreciation) of the value of
assets under our management during the period due to market
performance and fluctuations in exchange rates. |
67
MANAGEMENTS
DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in
conjunction with the consolidated financial statements and
related notes included elsewhere in this prospectus.
The historical financial data discussed below reflect the
historical results of operations and financial condition of
Artio Global Investors Inc. and subsidiaries and do not give
effect to our reorganization. See Our Structure and
Reorganization and Unaudited Pro Forma Consolidated
Financial Information included elsewhere in this
prospectus for a description of our reorganization and its
effect on our historical results of operations.
General
Overview
Business
We are an asset management company that provides investment
management services to institutional and mutual fund clients. We
manage and advise proprietary funds, commingled institutional
investment vehicles, institutional separate accounts and
sub-advisory accounts. Our operations are based principally in
the United States, while our assets under management are
invested primarily outside the United States.
As a holding company, we conduct all of our business activities
through our direct subsidiary Artio Global Holdings, an
intermediate holding company that conducts no operations but
holds our ownership interest in Artio Global Management, our
operating subsidiary. In connection with this offering, Artio
Global Holdings operating agreement will be amended and
restated and we will be its sole managing member. Net profits,
net losses and distributions, from cash generated from Artio
Global Holdings and its subsidiaries, will be allocated and made
to its members pro rata in accordance with the percentages of
their respective equity interests. Accordingly, its net profits
and net losses will be allocated, and distributions of the
operating company will be made, approximately 74% to us and
approximately 13% to each of our Principals, after giving effect
to the transactions described herein. As sole managing member of
Artio Global Holdings, we will continue to operate and control
all of its business and affairs and will consolidate its
financial results with ours. We will reflect the ownership
interest of our Principals as a non-controlling interest in our
statement of income and statement of financial condition. For
more information on the pro forma impact of the reorganization
and this offering, see Unaudited Pro Forma Consolidated
Financial Information.
A significant portion of our current employee compensation and
benefits expense relates to our Principals economic
interests in the business. In May 2004, we granted Class B
profits interests in Artio Global Management to our Principals,
entitling them to a share of its future income. Subsequent to
this offering, the costs of the Class B profits interests
will no longer be reflected as compensation expense. The
economic interests now represented by the Class B profits
interests will be reflected as non-controlling interests.
Our historical consolidated financial results include, within
discontinued operations, the former broker-dealer and foreign
exchange activities of our company. Following the sale by Julius
Baer Holding Ltd. of the U.S. private banking business in
2005 and equity brokerage businesses in 2006, we withdrew our
broker-dealer registration. Our financial statements also
include the results of our foreign exchange activities,
conducted within Julius Baer Financial Markets LLC
(JBFM), which was a wholly owned subsidiary of our
company. This activity was initially transferred to our company
from an affiliate in December 2005. On December 1, 2007,
JBFM was distributed to Julius Baer Holding Ltd., our parent,
and is no longer a subsidiary of our company and is therefore
reported within discontinued operations. The impact of these
activities is described in the notes to our consolidated
financial statements, which are included elsewhere in this
prospectus.
In addition, our historical financial statements also contain
legacy activities. A legacy alternative fund-of-funds business
was transferred to an affiliate of our parent in 2006, and a
former hedge fund
68
product was discontinued in 2008. The financial results of these
legacy businesses did not satisfy the criteria for discontinued
operations treatment because of the similarity to the business
activities we currently conduct. They are therefore shown within
the respective line items of the financial statements as part of
continuing operations. In order to make comparisons more
meaningful, we present certain information below excluding such
legacy activities.
Economic
Environment
As an investment manager we derive substantially all of our
operating revenues from providing investment management services
to our institutional and mutual fund clients; such revenues are
driven by the amount and composition of our assets under
management as well as our fee structure. Accordingly, our
business results are highly dependent upon the prevailing global
economic climate and its impact on the capital markets.
The global economic environment deteriorated sharply in 2008,
particularly in the third and fourth quarters, with virtually
every class of financial asset experiencing significant price
declines and volatility. Several banks and other large financial
institutions incurred significant asset valuation write-downs
resulting in substantial losses and ultimately their failure,
merger or conservatorship.
Investors lost confidence in the financial sector and a severe
reduction in liquidity and credit availability spread rapidly
throughout global credit markets. Heightened risk aversion among
investors caused a flight to quality, lowering the
yield on U.S. Treasury securities, and significantly
widening corporate credit spreads. Furthermore, the
U.S. dollar, aided by its reserve-currency status,
strengthened against other major currencies as investors fled
riskier assets. In order to calm financial markets, central
governments intervened in traditional and non-traditional ways
to ensure the stability of the banking system and continued
availability of credit.
Global equity markets fell in 2008, particularly as the
financial crisis intensified in the third and fourth quarters.
For example, by year-end the MSCI All Country World Index
(ex-US) was down 41% in local currency terms and 45% in
U.S. dollar terms. In addition, equity market volatility
reached extreme levels around the world, evidenced by
dramatically higher average levels for the VSTOXX and VIX
indices.
The sizeable decline in stock prices worldwide resulted in
substantial withdrawals from equity funds during 2008 throughout
the asset management industry. By the end of 2008, it was clear
that the U.S. and other major economies were in recession,
and despite the coordinated efforts of governments around the
world to stabilize financial markets, volatility persisted.
Economic conditions worsened in the first quarter of 2009 and,
as a result, we continued to operate in a challenging business
environment and the economic outlook remains uncertain for the
remainder of the year. However, market conditions in the second
quarter of 2009 improved, reflecting a more optimistic view of
future economic recovery.
69
The following table sets forth the effects that economic
disruption has had on our business over the past six quarters:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Q1 2008
|
|
|
Q2 2008
|
|
|
Q3 2008
|
|
|
Q4 2008
|
|
|
Q1 2009
|
|
|
Q2 2009
|
|
|
|
(Dollars in millions)
|
|
|
Assets under management at end of period(1)
|
|
$
|
71,501
|
|
|
$
|
72,604
|
|
|
$
|
56,648
|
|
|
$
|
45,200
|
|
|
$
|
38,941
|
|
|
$
|
46,826
|
|
Market appreciation (depreciation)(1)
|
|
|
(6,712
|
)
|
|
|
(1,038
|
)
|
|
|
(14,917
|
)
|
|
|
(9,425
|
)
|
|
|
(6,481
|
)
|
|
|
7,134
|
|
Gross client cash inflows(1)(2)
|
|
|
5,934
|
|
|
|
4,848
|
|
|
|
2,912
|
|
|
|
3,557
|
|
|
|
2,945
|
|
|
|
3,178
|
|
Gross client cash outflows(1)(2)
|
|
|
(3,083
|
)
|
|
|
(2,707
|
)
|
|
|
(3,951
|
)
|
|
|
(5,580
|
)
|
|
|
(2,723
|
)
|
|
|
(2,427
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net client cash inflows (outflows)(1)
|
|
|
2,851
|
|
|
|
2,141
|
|
|
|
(1,039
|
)
|
|
|
(2,023
|
)
|
|
|
222
|
|
|
|
751
|
|
Average assets under management for period(1)
|
|
|
72,398
|
|
|
|
74,120
|
|
|
|
66,525
|
|
|
|
47,667
|
|
|
|
40,711
|
|
|
|
44,067
|
|
Investment management fees
|
|
|
116.8
|
|
|
|
126.7
|
|
|
|
107.6
|
|
|
|
73.9
|
|
|
|
62.8
|
|
|
|
69.8
|
|
MSCI ACWI (ex-US) (US$)
|
|
|
(9.1
|
)%
|
|
|
(1.1
|
)%
|
|
|
(21.9
|
)%
|
|
|
(22.3
|
)%
|
|
|
(10.7
|
)%
|
|
|
27.6
|
%
|
MSCI ACWI (ex-US) (local currency)
|
|
|
(13.4
|
)%
|
|
|
(0.3
|
)%
|
|
|
(15.0
|
)%
|
|
|
(19.5
|
)%
|
|
|
(7.1
|
)%
|
|
|
18.7
|
%
|
S&P 500
|
|
|
(9.4
|
)%
|
|
|
(2.7
|
)%
|
|
|
(8.4
|
)%
|
|
|
(21.9
|
)%
|
|
|
(11.0
|
)%
|
|
|
15.9
|
%
|
Barclays Capital Aggregate Bond
|
|
|
2.2
|
%
|
|
|
(1.0
|
)%
|
|
|
(0.5
|
)%
|
|
|
4.6
|
%
|
|
|
0.1
|
%
|
|
|
1.8
|
%
|
Merrill Lynch Global High Yield
|
|
|
(2.4
|
)%
|
|
|
1.9
|
%
|
|
|
(10.5
|
)%
|
|
|
(18.5
|
)%
|
|
|
5.1
|
%
|
|
|
25.3
|
%
|
|
|
|
(1) |
|
Excluding legacy activities. |
|
(2) |
|
Gross client cash inflows and outflows, as well as transfers
between funds, are tracked by information systems. We believe
the information set forth above is accurate in all material
respects, but such data is not subject to our internal controls
over financial reporting. In addition, certain of our
intermediaries elect to automatically reinvest all cash
dividends in our investment vehicles and, to the extent any of
such intermediarys underlying investors do not elect
dividend reinvestment but prefer cash, they cause such
investors newly received shares to be redeemed.
Accordingly, the gross flows data set forth above may overstate
redemptions, although we do not believe the effect is material. |
70
Key
Performance Indicators
Our management reviews our performance on a monthly basis,
focusing on the indicators described below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
|
|
|
|
|
|
|
December 31,
|
|
|
For the Six Months Ended June 30,
|
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2008
|
|
|
2009
|
|
|
|
(Dollars in millions)
|
|
|
Operating indicators(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AuM at end of period
|
|
$
|
53,486
|
|
|
$
|
75,362
|
|
|
$
|
45,200
|
|
|
$
|
72,604
|
|
|
$
|
46,826
|
|
Average AuM for period(2)
|
|
|
43,745
|
|
|
|
66,619
|
|
|
|
64,776
|
|
|
|
73,510
|
|
|
|
42,881
|
|
Net client cash flows
|
|
|
7,582
|
|
|
|
12,150
|
|
|
|
1,930
|
|
|
|
4,991
|
|
|
|
973
|
|
Financial indicators
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment management fees (dollars in thousands)
|
|
$
|
300,432
|
|
|
$
|
445,558
|
|
|
$
|
425,003
|
|
|
$
|
243,507
|
|
|
$
|
132,576
|
|
Effective fee rate (basis points)(3)
|
|
|
68.7
|
|
|
|
66.9
|
|
|
|
65.6
|
|
|
|
66.3
|
|
|
|
61.8
|
|
Operating margin(4)
|
|
|
60.1
|
%
|
|
|
62.7
|
%
|
|
|
59.8
|
%
|
|
|
60.6
|
%
|
|
|
55.2
|
%
|
Compensation as a % of total revenues and other operating
income(4)
|
|
|
22.7
|
%
|
|
|
20.4
|
%
|
|
|
19.8
|
%
|
|
|
19.9
|
%
|
|
|
26.2
|
%
|
Effective tax rate
|
|
|
46.9
|
%
|
|
|
46.8
|
%
|
|
|
47.2
|
%
|
|
|
50.3
|
%
|
|
|
48.4
|
%
|
|
|
|
(1) |
|
Excluding legacy activities. |
|
(2) |
|
Average AuM for a period is computed on the beginning-of-month
balance and all end-of-month balances in the period. |
|
(3) |
|
The effective fee rate is computed by dividing annualized
investment management fees by average AuM for the period. |
|
(4) |
|
Operating margin is operating income before income taxes,
divided by total revenues and other operating income. In this
computation we exclude compensation expenses for allocation of
Class B profits interests, change in redemption value of
Class B profits interests, and deferred compensation
relating to our Principals ($1.4 million,
$1.4 million, $8.9 million, $4.4 million and $-
million in the periods presented). None of such expenses will
continue after this offering. |
Operating
Indicators
Our revenues are driven by the amount and composition of our
assets under management. As a result, management reviews various
aspects of our assets under management. Average assets under
management is the average balance of our month-end assets under
management for a period of time. We believe this measure is
important because it allows us to analyze the change in the size
of assets under management over a period of time, which results
in a more useful comparison. It also represents a better
indication of our revenue stream as our fees are calculated
based on daily, monthly, or quarterly assets under management
average or periodic balances. Net client cash flows represent
sales either to new clients or existing clients, less
redemptions. Our net client cash flows are driven by the results
of our investment strategies, competitiveness of fee rates, the
success of our marketing and client service efforts, and the
state of the overall equity and fixed income markets.
71
Substantial declines in global equity markets, particularly in
the third and fourth quarters of 2008, and a strengthening of
the U.S. dollar resulted in our assets under management at
year-end 2008 being 40% lower than at the start of the year. In
addition, the poor performance of global equity markets, coupled
with forecasts of a global recession, discouraged investors from
entering or increasing their exposure to equity markets. Despite
these challenging market conditions, we had positive net client
cash flows of $1.9 billion for the full year 2008. This
continues a trend where our growth has come mostly from net
client cash inflows. The CAGR of our assets under management was
43.2% from December 31, 2003 to December 31, 2008
while the CAGR of the MSCI All Country World Index (ex-US) was
2.6% over the same period.
Economic conditions worsened in the first quarter of 2009.
However, market conditions in the second quarter of 2009
improved slightly, reflecting a more optimistic view of future
economic recovery. As a result, our assets under management
increased 4% in the first half of 2009. Net client cash inflows
totaled $973 million in the first half of 2009.
While net client cash flows have recently correlated with market
sentiment regarding economic conditions, net client cash flows
reflect specific client actions, such as rebalancing of
portfolios or decisions to switch portfolio managers and can
therefore be somewhat volatile. For example, although we
experienced positive net client cash flows in the first eight
months of 2009, our largest sub-advisory client has indicated to
us that they are likely to make a partial redemption of their
account in October 2009 and redeem approximately
$820 million (based on asset values as of August 31,
2009). If we do not have offsetting client cash flows, our net
client cash flows and our average assets under management for
the month or the quarter may decrease compared to prior periods.
Financial
Indicators
Management reviews certain financial ratios to monitor progress
with internal forecasts, understand the underlying business, and
compare our firm with others in our industry. The effective fee
rate represents the annualized ratio of investment management
fees as a percentage of average assets under management, i.e.,
the amount of investment management fees we earn for each dollar
of client assets we manage. We use this information to evaluate
the contribution to revenue of our products. Operating margin
represents pre-tax operating income from continuing operations
(excluding the allocation of Class B profits interests to
our Principals, the change in the redemption value of our
Principals Class B profits interests, and deferred
compensation to the Principals) divided by total revenues and
other operating income, and is an important indicator of our
profitability and the efficiency of our business model. We
exclude these expense items relating to our Principals in
calculating our operating margin because they are expected to be
replaced by non-controlling interests as part of our planned
restructuring. Other ratios shown in the table above allow us to
manage expenses in comparison with our revenues.
Our effective fee rate for the six months ended June 30,
2009 decreased from prior periods due to a change in the
composition of our assets under management, which was driven
primarily by the market impact on the value of the assets under
management in our International Equity strategies, which are our
highest margin strategies. Our International Equity strategies
represented approximately 90% of assets under management as of
June 30, 2008 and approximately 84% of assets under
management as of June 30, 2009. Also, we earn higher
investment management fees from our proprietary funds than our
other investment vehicles. Our proprietary funds have declined
from 50% of our assets under management as of December 31,
2006 to 43% of our assets under management as of June 30,
2009.
Our operating margin in 2008 was lower than in 2007 because
revenues flattened and then declined sharply in the latter half
of the year, while general and administrative expenses increased
as we prepared for our initial public offering. A significant
amount of our expenses are variable in nature. We monitor our
cost base to ensure proper alignment with revenues by reducing
expenses in light of downward pressure on revenues, while at the
same time seeking to maintain our investment in the
72
business for the long term and supporting existing client
relationships. Although we were able to reduce expenses as
revenues declined, the significant decline in revenues had the
effect of reducing operating margin.
Our operating margin in the first half of 2009 declined further
as revenues declined faster than expenses. We anticipate
continued pressure on operating margins in the second half of
2009, as we expect revenues to be materially lower in 2009 than
in 2008. Although the economic events of the past year have
severely impacted our business, we continued to generate strong
operating margins, which we believe reflects the strength of our
franchise and the variability of our expense base.
Assets under
Management
Changes to our operating results from one period to another are
primarily due to changes in our assets under management, changes
in the distribution of our assets under management among our
investment products and investment strategies, and the effective
fee rates on our products.
The amount and composition of our assets under management are,
and will continue to be, influenced by a variety of factors
including, among other things:
|
|
|
|
|
investment performance, including fluctuations in both the
financial markets and foreign currency exchange rates and the
quality of our investment decisions;
|
|
|
|
client cash flows into and out of our investment products;
|
|
|
|
the mix of assets under management among our various
strategies; and
|
|
|
|
our introduction or closure of investment strategies and
products.
|
Our five core investment strategies are: International Equity,
Global Equity, U.S. Equity, High Grade Fixed Income and
High Yield. See Business Investment
Strategies, Products and Performance for additional
information on these strategies. We offer investors the ability
to invest in each of our strategies through the investment
vehicles described below.
The following table sets forth our assets under management
(including legacy activities) by investment vehicle type as of
December 31, 2006, 2007 and 2008 and as of June 30,
2008 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As % of AuM
|
|
|
|
As of December 31,
|
|
|
As of June 30,
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2008
|
|
|
2009
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2008
|
|
|
2009
|
|
|
|
(Dollars in millions)
|
|
|
Proprietary Funds(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A shares
|
|
$
|
10,865
|
|
|
$
|
13,217
|
|
|
$
|
6,251
|
|
|
$
|
11,702
|
|
|
$
|
6,410
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
I shares(2)
|
|
|
15,735
|
|
|
|
23,900
|
|
|
|
13,215
|
|
|
|
22,272
|
|
|
|
13,743
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
26,600
|
|
|
|
37,117
|
|
|
|
19,466
|
|
|
|
33,974
|
|
|
|
20,153
|
|
|
|
49.7
|
%
|
|
|
49.3
|
%
|
|
|
43.1
|
%
|
|
|
46.8
|
%
|
|
|
43.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Institutional commingled funds
|
|
|
5,676
|
|
|
|
9,357
|
|
|
|
7,056
|
|
|
|
10,288
|
|
|
|
7,324
|
|
|
|
10.6
|
|
|
|
12.4
|
|
|
|
15.6
|
|
|
|
14.2
|
|
|
|
15.6
|
|
Separate accounts
|
|
|
16,574
|
|
|
|
22,897
|
|
|
|
14,342
|
|
|
|
21,270
|
|
|
|
14,778
|
|
|
|
31.0
|
|
|
|
30.4
|
|
|
|
31.7
|
|
|
|
29.3
|
|
|
|
31.6
|
|
Sub-advisory accounts
|
|
|
4,636
|
|
|
|
5,991
|
|
|
|
4,336
|
|
|
|
7,072
|
|
|
|
4,571
|
|
|
|
8.7
|
|
|
|
7.9
|
|
|
|
9.6
|
|
|
|
9.7
|
|
|
|
9.8
|
|
Legacy activities(3)
|
|
|
|
|
|
|
|
|
|
|
4
|
|
|
|
45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending AuM
|
|
$
|
53,486
|
|
|
$
|
75,362
|
|
|
$
|
45,204
|
|
|
$
|
72,649
|
|
|
$
|
46,826
|
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Proprietary funds include both SEC registered funds and private
offshore funds. SEC registered mutual funds within proprietary
funds are: Artio International Equity Fund, Artio International
Equity Fund II, Artio Total Return Bond Fund, Artio Global
High Income Fund, Artio Global Equity Fund Inc., Artio U.S.
Micro-cap Fund, Artio U.S. Mid-cap Fund, Artio U.S. Multi-cap
Fund, and Artio U.S. Small-cap Fund. |
|
(2) |
|
Amounts invested in private offshore funds are categorized as
I Shares. |
73
|
|
|
(3) |
|
Legacy activities relate to a hedge fund product which we
discontinued in the fourth quarter of 2008. |
The different fee structures associated with each type of
investment vehicle make the composition of our assets under
management an important determinant of the investment management
fees we earn. We typically earn higher effective investment
management fee rates from our proprietary funds and
institutional commingled funds than on our separate and
subadvised accounts. In the latter half of 2008, the amount of
assets under management related to proprietary funds as a
percentage of total assets under management decreased as
proprietary fund redemptions exceeded client cash inflows within
the proprietary funds, as proprietary funds include a
significant number of underlying retail investors. Generally,
institutional investors, who typically invest in other vehicles,
have longer-term investment horizons than retail proprietary
fund investors.
Proprietary
Funds
We offer no-load open-end share classes within our SEC
registered mutual funds business. We currently serve as
investment advisor to nine SEC registered mutual funds. Of these
nine SEC registered mutual funds, two are within our
International Equity strategy, one is within our High Grade
Fixed Income strategy, one is within our High Yield strategy,
one is within our Global Equity strategy, and four are within
our U.S. Equity strategy.
Our open-end funds are not listed on an exchange. These funds
issue new shares for purchase and redeem shares from those
shareholders who sell. The share price for purchases and
redemptions of open-end funds is determined by each funds
net asset value, which is calculated at the end of each business
day. Assets under management in open-end funds vary as a result
of both market appreciation and depreciation and the level of
new purchases or redemptions of shares of a fund. We earn
investment management fees for serving as an investment advisor
to these funds, which are based on the average daily net asset
value of each fund. Our standard fee rates for our proprietary
funds range from 0.35% of assets under management to 1.25% of
assets under management, depending on the strategy. Shareholders
may redeem their investment in our open-end funds without
advance notice on any day the NYSE is open for business.
Through financial intermediaries, we offer two share classes in
each open-end fund to provide investors with alternatives to
best suit their investment needs.
|
|
|
|
|
Class A shares of the SEC registered open-end funds
represented $6.4 billion and $11.7 billion of our
assets under management as of June 30, 2009 and
June 30, 2008, respectively. These shares are generally
offered to investors making initial investments of $1,000 or
more. The third-party distributor of our SEC registered mutual
funds, Quasar Distributors LLC, receives
Rule 12b-1
fees for distribution
and/or
administrative services on Class A shares, which are
generally offset by fees it pays to third-party agents.
|
|
|
|
Class I shares of the SEC registered open-end funds,
excluding the offshore funds discussed below, represented
$13.5 billion and $21.8 billion of our assets under
management as of June 30, 2009 and June 30, 2008,
respectively. These shares are generally offered to
institutional investors making initial investments of
$1 million or more. No
Rule 12b-1
distribution and service fees are charged to holders of
Class I shares.
|
We also offer two private offshore funds to select offshore
clients, one of which is within our International Equity
strategy and one of which is a global balanced fund categorized
as within our other strategy. Private offshore funds
represented $224 million and $472 million of our
assets under management as of June 30, 2009 and
June 30, 2008, respectively. The share price for purchases
and redemptions of these offshore funds is determined by each
funds net asset value, which is calculated at the end of
each month. Assets under management in these offshore funds vary
as a result of both market appreciation and depreciation and the
level of new purchases or redemptions of shares of a fund. The
fee rates, in general, decline as the fund size increases.
Investment management fees for offshore funds are calculated
using the month-end net asset value of each fund. Our standard
fee
74
rates for our private offshore funds range from 0.15% of assets
under management to 0.90% of assets under management, depending
on the strategy and the amount of the investment. Clients
invested in either of these private offshore funds may redeem
their investment on a weekly basis with one days notice.
Institutional
Commingled Funds
Institutional commingled funds are pooled investment vehicles
offered to institutional clients such as public and private
pension funds, foundations and endowments. Our revenues from
commingled funds are derived from investment management fees
that vary among our different investment strategies. The fee
rates, in general, decline as the investment size increases. We
earn investment management fees which are based on the average
month-end market value of the assets under management during the
quarter. Our standard fee rates for our institutional commingled
funds range from 0.40% of assets under management to 0.90% of
assets under management, depending on the strategy and the
amount of the investment. Depending on the vehicle, clients
invested in our institutional commingled funds may redeem their
investment on either a daily basis with one days notice or
a monthly basis with 30 days notice.
Separate
Accounts
Our separate accounts are primarily managed for institutional
clients, such as public and private pension funds, foundations
and endowments. Our revenues from separate accounts are
typically derived from investment management fees that vary
between our different investment strategies. The fee rates, in
general, decline as account size increases. In the case of a few
institutional separate accounts, we also earn performance fees.
Performance fees may be subject to clawback as a result of
performance declines subsequent to the most recent measurement
date. If such declines occur, the performance fee clawbacks are
recognized when the amount is known. Performance fees amounted
to (1.2)% and 2.0% of total revenues and other operating income
for the six months ended June 30, 2009 and 2008,
respectively, and 1.2%, 0.9% and 0.3% of total revenues and
other operating income for the years ended December 31,
2008, 2007 and 2006, respectively. Separate accounts are
generally offered to institutional investors making the required
minimum initial investment, which varies by strategy. We
typically earn investment management fees based on either the
quarter-end market value or the average of the month-end market
values during the quarter. The average investment management
fees we earn on these accounts are generally lower than the
investment management fees we earn on our proprietary funds and
institutional commingled funds. Our standard fee rates for our
separate accounts range from 0.18% of assets under management to
0.90% of assets under management, depending on the strategy and
the amount of the investment. Separate account clients generally
may terminate their account relationship with us at any time
without advance notice.
Sub-advisory
Accounts
As of June 30, 2009, we sub-advised seven SEC registered
mutual funds pursuant to sub-advisory agreements, all of which
are within our International Equity strategies. Under the 1940
Act, the sub-advisory agreements may have an initial term of up
to two years and are thereafter subject to the respective fund
boards annual approvals. In addition, we sub-advise eight
offshore funds and two onshore private funds pursuant to
contractual arrangements. Of the ten non-SEC registered funds we
sub-advise, three are within our International Equity
strategies, three are within our High Grade Fixed Income
strategies, one is within our High Yield strategy, two are
within our Global Equity strategy and one is within our
U.S. Equity strategies. We earn investment management fees
which are based on the average daily market value of the assets
under management. Approximately 40% of the sub-advisory assets
as of June 30, 2009 were attributable to one institutional
relationship. The average investment management fees we earn on
these accounts are generally lower than the investment
management fees we earn on our proprietary funds and
institutional commingled funds. Our standard fee rates for our
sub-advised accounts range from 0.12% of assets under management
to 0.80% of
75
assets under management, depending on the strategy and the
amount of the investment. As managing subscriptions and
redemptions are typically the managers responsibility, we
have no right to restrict redemptions in the funds we sub-advise.
Revenues and
Other Operating Income
Our revenues are driven by investment management fees earned
from managing clients assets. Investment management fees
fluctuate based on the total value of assets under management,
composition of assets under management among our investment
vehicles and among our investment strategies, changes in the
investment management fee rates on our products and, for the few
accounts on which we earn performance based fees, the investment
performance of those accounts. Performance fees may be subject
to clawback as a result of performance declines subsequent to
the most recent measurement date. If such declines occur, the
performance fee clawbacks are recognized when the amount is
known.
The following table sets forth investment management fee
revenues and average assets under management for the three years
ended December 31, 2006, 2007 and 2008 and the six months
ended June 30, 2008 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
|
|
|
|
|
|
|
December 31,
|
|
|
For the Six Months Ended June 30,
|
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2008
|
|
|
2009
|
|
|
Investment management fees (dollars in thousands)
|
|
$
|
300,432
|
|
|
$
|
445,558
|
|
|
$
|
425,003
|
|
|
$
|
243,507
|
|
|
$
|
132,576
|
|
Average AuM for period (dollars in millions)(1)
|
|
|
43,745
|
|
|
|
66,619
|
|
|
|
64,776
|
|
|
|
73,510
|
|
|
|
42,881
|
|
|
|
|
(1) |
|
Excluding legacy activities. |
We expect that lower average assets under management will result
in investment management fees in 2009 that are materially lower
than those in 2008.
Operating
Expenses
We manage our expenses and allocate resources in order to allow
us to focus on servicing our clients. As a result, we keep
in-house those functions that we believe are necessary for
providing investment management, client service and risk
management, and outsource others. Our efficient operating
structure has positioned us to better manage our costs in
challenging market conditions.
Many of our operating expenses vary due to a number of factors,
including the following:
|
|
|
|
|
variations in the level of total employee compensation and
benefits expense, which change as a result of discretionary
bonuses, sales incentives, changes in employee headcount and
mix, and competitive factors;
|
|
|
|
changes in shareholder servicing expenses as a result of
fluctuations in mutual fund sales, level of redemptions, and
market appreciation or depreciation of proprietary funds
assets under management;
|
|
|
|
changes in the level of our marketing and promotional expenses
in response to market conditions, including our efforts to
further access distribution channels;
|
|
|
|
the introduction or closure of product initiatives; and
|
|
|
|
increases in expenses such as rent, information technology
costs, professional service fees, and data-related costs
(including the cost of outsourced services provided by third
parties).
|
76
A significant amount of our expenses are correlated to some
degree with our revenues or are within our discretion. For
example, shareholder servicing is influenced by the value of our
proprietary funds assets under management. Similarly,
certain components of incentive compensation are to a large
extent based on our revenues for a particular period.
The following table sets forth the main categories of expenses
from our consolidated statements of income, expressed as a
percentage of total revenues and other operating income, for the
three years ended December 31, 2006, 2007 and 2008 and the
six months ended June 30, 2008 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the
|
|
|
|
|
|
|
Six Months
|
|
|
|
For the Year
|
|
|
Ended
|
|
|
|
Ended December 31,
|
|
|
June 30,
|
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2008
|
|
|
2009
|
|
|
Total revenues and other operating income
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries, incentive compensation, and benefits
|
|
|
23.2
|
|
|
|
20.7
|
|
|
|
21.9
|
|
|
|
21.8
|
|
|
|
26.2
|
|
Allocation of Class B profits interests(1)
|
|
|
17.8
|
|
|
|
18.7
|
|
|
|
18.0
|
|
|
|
18.1
|
|
|
|
16.1
|
|
Change in redemption value of Class B profits interests(1)
|
|
|
15.6
|
|
|
|
17.3
|
|
|
|
13.0
|
|
|
|
15.0
|
|
|
|
26.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total employee compensation and benefits
|
|
|
56.6
|
|
|
|
56.7
|
|
|
|
52.9
|
|
|
|
54.9
|
|
|
|
69.0
|
|
Shareholder servicing and marketing expenses
|
|
|
6.7
|
|
|
|
5.7
|
|
|
|
5.5
|
|
|
|
5.2
|
|
|
|
5.4
|
|
General and administrative expenses
|
|
|
10.5
|
|
|
|
11.2
|
|
|
|
14.9
|
|
|
|
14.3
|
|
|
|
13.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income before income taxes
|
|
|
26.2
|
|
|
|
26.4
|
|
|
|
26.7
|
|
|
|
25.6
|
|
|
|
12.4
|
|
Non-operating income
|
|
|
1.1
|
|
|
|
1.6
|
|
|
|
0.8
|
|
|
|
0.6
|
|
|
|
(0.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense
|
|
|
27.3
|
|
|
|
28.0
|
|
|
|
27.5
|
|
|
|
26.2
|
|
|
|
12.2
|
|
Income tax expense
|
|
|
12.8
|
|
|
|
13.1
|
|
|
|
13.0
|
|
|
|
13.2
|
|
|
|
5.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
14.5
|
|
|
|
14.9
|
|
|
|
14.5
|
|
|
|
13.0
|
|
|
|
6.3
|
|
Income from discontinued operations, net of taxes
|
|
|
0.4
|
|
|
|
0.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
14.9
|
%
|
|
|
15.3
|
%
|
|
|
14.5
|
%
|
|
|
13.0
|
%
|
|
|
6.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Subsequent to this offering, the Class B profits interests
will be replaced by non-controlling interests that are not
reflected as compensation expense. |
We manage our expenses with a view to both maximizing
profitability and achieving our long-term goals for the business.
During the second half of 2008 we implemented certain expense
reduction initiatives to proactively align our expense base with
the expectation that 2009 revenues would be significantly lower
than those of 2008. Significant reductions to incentive
compensation accruals were made during the fourth quarter of
2008, which resulted in an overall reduction of incentive
compensation awards paid for such year. Incentive compensation
accruals were further reduced during the first half of 2009 to
reflect the continued deterioration in global markets. In the
fourth quarter of 2008, we also reduced headcount, principally
support personnel, by approximately 5%, lowered our occupancy
costs by reducing our office space requirements and reduced
certain information technology and market data costs. We are
able to control costs because a significant amount of our cost
base is, to some degree, correlated to revenues or within our
discretion. Our business model has allowed us to control costs
to such a degree that, in a difficult period during which our
total revenues and other operating income
77
declined 45% (from the six months ended June 30, 2008 to
the six months ended June 30, 2009), our operating margin
declined only slightly, from 60.6% of total revenues and other
operating income to 55.2%.
On behalf of our mutual fund and investment advisory clients, we
make decisions to buy and sell securities for each portfolio,
select broker dealers to execute trades and negotiate brokerage
commission rates. In connection with these transactions, we may
receive soft dollar credits from broker dealers that
have the effect of reducing certain of our expenses. The
reduction in our operating expenses amounted to
$1.1 million, $0.7 million and $0.8 million for
the years ended December 31, 2006, 2007 and 2008,
respectively, and $0.5 million and $0.3 million in the
six months ended June 30, 2008 and 2009, respectively. Our
operating expenses would increase to the extent these soft
dollars were reduced or eliminated.
Employee
Compensation and Benefits
Our largest operating expense is employee compensation and
benefits, which includes salaries, incentive compensation
(including deferred incentive compensation), sales incentives,
and related benefits costs. A significant portion of salaries,
incentive compensation, and benefits is variable as sales
incentives and discretionary incentive compensation awards are
generally based on our revenues. We believe that the
compensation and benefits offered to our employees are
competitive within our industry.
A significant portion of our employee compensation and benefits
expense relates to the allocation of income and accrual for the
incremental increase in the redemption value of the Class B
profits interests. Pursuant to the terms of our operating
subsidiarys operating agreement, prior to this offering,
the holders of the Class B profits interests had the right
to require us to redeem their vested interests, under certain
circumstances, using a model that was based on the historic
average earnings (as defined in the operating agreement) as well
as our parents historic average price/earnings ratio. We
have accounted for the allocations of income relating to these
interests, as well as the annual increase in their redemption
value, as compensation expense within our financial statements.
The charge recorded for the change in redemption value of our
Principals Class B profits interests represents a
non-cash charge required for financial accounting purposes.
The following table sets forth our employee compensation and
benefits expenses for the three years ended December 31,
2006, 2007 and 2008, and the six months ended June 30, 2008
and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year
|
|
|
For the Six Months
|
|
|
|
Ended December 31,
|
|
|
Ended June 30,
|
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2008
|
|
|
2009
|
|
|
|
(Dollars in thousands)
|
|
|
Salaries, incentive compensation, and benefits
|
|
$
|
69,677
|
|
|
$
|
92,277
|
|
|
$
|
92,487
|
|
|
$
|
52,854
|
|
|
$
|
34,917
|
|
Allocation of Class B profits interests
|
|
|
53,410
|
|
|
|
83,512
|
|
|
|
76,074
|
|
|
|
43,991
|
|
|
|
21,472
|
|
Change in redemption value of Class B profits interests
|
|
|
46,932
|
|
|
|
76,844
|
|
|
|
54,558
|
|
|
|
36,433
|
|
|
|
35,538
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total employee compensation and benefits
|
|
$
|
170,019
|
|
|
$
|
252,633
|
|
|
$
|
223,119
|
|
|
$
|
133,278
|
|
|
$
|
91,927
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsequent to this offering and the amendment and restatement of
the operating agreement, the costs of the Class B profits
interests will no longer be reflected as compensation expense.
See Income Taxes Changes to
Class B Profits Interests. The economic interests now
represented by the Class B profits interests are expected
to be reflected as non-controlling interests, rather than as a
compensation expense.
78
Prior to this offering, the Principals have not received
incentive compensation, but have received distributions pursuant
to their Class B profits interests. Following this
offering, they will be eligible for incentive compensation,
which will partly offset the reduction in expense from the
elimination of charges relating to the Class B profits
interests. See Management Compensation
Discussion and Analysis Employment Agreements.
Included within salaries, incentive compensation, and benefits
are sales incentives costs which represent amounts due to our
internal sales personnel. These incentive amounts are correlated
to revenue as they are derived as a percentage of the revenues
associated with client assets (without consideration to our
overall financial performance) and are payable over a one to
three year period.
We expect to issue to non-employee directors 6,924 shares
of fully-vested Class A common stock (subject to transfer
restrictions) in connection with this offering. In addition, we
expect to issue to employees (other than our Principals)
2,147,132 restricted stock units in connection with this
offering, which generally vest over a five-year period. These
awards will vest over periods of up to five years, depending on
the terms of the awards. Accordingly, we will incur non-cash
compensation expenses related to this vesting. We anticipate
using a fair value method to record compensation expense for
future awards granted under our incentive compensation plans.
Fair value will be determined using an appropriate valuation
method.
Shareholder
Servicing and Marketing
Shareholder servicing and marketing expenses include payments we
make to broker dealers and other intermediaries for selling,
servicing, and administering our mutual funds. This expense is
influenced by new mutual fund sales, levels of redemptions, and
market appreciation or depreciation of assets under management
in these products. This expense varies with revenues as a
significant portion of shareholder servicing costs is based on
the value of our proprietary funds assets under management.
The third-party distributor of our SEC registered mutual funds,
Quasar Distributors LLC, receives
Rule 12b-1
fees for distribution
and/or
administrative expenses, which are generally offset by fees it
pays to third-party agents. If the amount of these fees were to
exceed the amount payable to those third-party agents, these
fees would be provided to us. We could use the excess to cover
marketing expenses (with the exception currently of the
International Equity Fund to the extent it remains
closed to new investors where any excess is returned
to the International Equity Fund). Historically, the amount of
excess fees returned to us has not been material.
In 2008, the financial services industry experienced
consolidation among certain large distributors. As a result, the
number of distributors available to us has decreased, and we
expect that the reduction in competition will result in higher
shareholder servicing expenses in the future.
The following table sets forth shareholder servicing and
marketing expenses for the three years ended December 31,
2006, 2007 and 2008 and the six months ended June 30, 2008
and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year
|
|
|
For the Six Months
|
|
|
|
Ended December 31,
|
|
|
Ended June 30,
|
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2008
|
|
|
2009
|
|
|
|
(Dollars in thousands)
|
|
|
Shareholder servicing and marketing expenses
|
|
$
|
20,134
|
|
|
$
|
25,356
|
|
|
$
|
23,369
|
|
|
$
|
12,725
|
|
|
$
|
7,208
|
|
Investment management fees
|
|
|
300,432
|
|
|
|
445,558
|
|
|
|
425,003
|
|
|
|
243,507
|
|
|
|
132,576
|
|
As a percentage of fees
|
|
|
6.7
|
%
|
|
|
5.7
|
%
|
|
|
5.5
|
%
|
|
|
5.2
|
%
|
|
|
5.4
|
%
|
79
General and
Administrative
General and administrative expenses include professional and
consulting fees for third-party service providers, occupancy
expenses, technology-related costs, client-related trading
errors, license fees paid to our parent, market data expenses,
depreciation, and the costs associated with operating and
maintaining our research, trading, and portfolio accounting
systems. Our occupancy-related costs and market data expenses,
in particular, generally increase or decrease in relative
proportion to the number of employees retained by us and the
overall size and scale of our business operations.
Following this offering, we expect, as an SEC registrant and
listed company, to incur additional recurring expenses of
approximately $4 to $5 million a year. These expenses will
include, among other things, directors and officers
insurance, director fees, reporting and compliance with SEC
rules and regulations (including compliance with the
Sarbanes-Oxley Act of 2002 and NYSE rules), investor relations,
transfer agent fees, professional fees, and other similar
expenses.
Following this offering, we will no longer pay license fees to
our parent.
The following table sets forth general and administrative
expenses for the three years ended December 31, 2006, 2007
and 2008 and the six months ended June 30, 2008 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year
|
|
|
For the Six Months
|
|
|
|
Ended December 31,
|
|
|
Ended June 30,
|
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2008
|
|
|
2009
|
|
|
|
(Dollars in thousands)
|
|
|
General and administrative expenses
|
|
$
|
31,510
|
|
|
$
|
50,002
|
|
|
$
|
62,833
|
|
|
$
|
34,665
|
|
|
$
|
17,578
|
|
Interest
Expense
In connection with this offering, Artio Global Holdings has
established a $60.0 million term debt facility which,
together with available cash, will fund a distribution to us
that we will use to fund a distribution to our parent, and will
also be utilized to provide working capital for our business
and, potentially, seed capital for future investment products.
Our distribution to our parent, which we have declared prior to
this offering and will be calculated as $40.1 million plus
total stockholders equity as of the date of the closing of
this offering, is estimated to be $201.3 million on a pro
forma basis (approximately $161.2 million of which will be
paid shortly after the completion of this offering and
$40.1 million of which will be payable within one year of
the completion of this offering). As a result, we will incur
interest expense in future periods.
Non-operating
Income
Non-operating income is revenue earned on invested excess funds.
The following table sets forth non-operating income and average
invested funds for the three years ended December 31, 2006,
2007 and 2008 and the six months ended June 30, 2008 and
2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year
|
|
|
For the Six Months
|
|
|
|
Ended December 31,
|
|
|
Ended June 30,
|
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2008
|
|
|
2009
|
|
|
|
(Dollars in thousands)
|
|
|
Non-operating income (loss)
|
|
$
|
3,288
|
|
|
$
|
7,034
|
|
|
$
|
3,181
|
|
|
$
|
1,397
|
|
|
$
|
(333
|
)
|
Average invested funds(1)
|
|
|
64,014
|
|
|
|
126,849
|
|
|
|
149,147
|
|
|
|
122,481
|
|
|
|
101,105
|
|
|
|
|
(1) |
|
Computed using the beginning and ending balances for the period
of cash equivalents and marketable securities, exclusive of
securities held for deferred compensation. |
The most significant factor to changes in our non-operating
income is the timing of dividends to our parent. Changes in the
redemption value of Class B profits interests, net of the
related deferred
80
tax benefits, have contributed substantially to cash flow as the
non-cash charges reduce our net income, which is what we use to
fund dividends, increasing cash available for investment.
Discontinued
Operations
The consolidated financial statements include the results of
certain activities that are deemed discontinued operations.
These discontinued operations comprise our former broker-dealer
and foreign exchange activities that were closed in 2006 and
2007, respectively. See General
Overview Business.
Income
Taxes
We are organized as a Delaware corporation, and therefore are
subject to U.S. federal and certain state income taxes. As
a member of Artio Global Holdings, we incur U.S. federal,
state and local income taxes on our allocable share of any net
taxable income of this operating company.
The following table sets forth our effective tax rates for the
three years ended December 31, 2006, 2007 and 2008 and the
six months ended June 30, 2008 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year
|
|
|
For the Six Months
|
|
|
|
Ended December 31,
|
|
|
Ended June 30,
|
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2008
|
|
|
2009
|
|
|
Effective income tax rate
|
|
|
46.9
|
%
|
|
|
46.8
|
%
|
|
|
47.2
|
%
|
|
|
50.3
|
%
|
|
|
48.4
|
%
|
Subsequent to this offering, we expect that our financial
statements will reflect a significant reduction in our effective
income tax rate, which we define as income tax expense divided
by income before income tax expense, as a result of the
reclassification of our Principals economic interests held
at the operating company level from Class B profits
interests to non-controlling interests. The non-controlling
interests are treated as partnership interests for
U.S. federal income tax purposes and, therefore, the
federal and state tax liabilities associated with the income
allocated to such interests are the responsibility of the
Principals and not us. The financial statement presentation
requirements of U.S. generally accepted accounting
principles mandate that income before income tax expense include
the income attributable to us as well as to our Principals.
Because income tax expense excludes U.S. federal and state
taxes for the income attributable to each of our Principals, but
includes each Principals portion of New York City
Unincorporated Business Tax, the result should be, for financial
statement presentation purposes, a significantly lower effective
tax rate. As each Principals non-controlling interests are
exchanged into shares of our Class A common stock, we
expect, for financial statement presentation purposes, that our
effective income tax rate will increase because more income from
the operating company will be attributable to us, and therefore
we will be responsible for the tax liabilities on a greater
proportion of the income before income tax expense. Taking all
of this into account, assuming our Principals exchange all of
their non-controlling interests in our operating company for
shares of our Class A common stock, our effective tax rate
should revert to a level slightly lower than pre-offering levels.
Changes to
Class B Profits Interests
In connection with this offering, we will amend and restate the
operating agreement of our operating subsidiary. The amendment
and restatement of the operating agreement will result in the
full vesting of the Class B profits interests, the
elimination of both our obligation to repurchase such interests
and the ability of the Principals to put their interests, and
the conversion of our operating subsidiary multiple-class
capital structure into a single new class of membership
interests. See Relationships and Related Party
Transactions Amended and Restated Limited Liability
Company Agreement of Artio Global Holdings LLC. As part of
the reorganization, the Class B units of our operating
subsidiary currently held by our Principals will be exchanged
for New Class A Units of Artio Global Holdings. Our
Principals will also receive shares of our Class B common stock.
At an initial
81
public offering price of $26.00 per share, we expect to record
compensation expense of $334.2 million on the date of the
consummation of this offering relating to acceleration of
vesting of such interests and the establishment of a tax
receivable agreement we will enter into with our Principals.
Results of
Operations
Six Months
Ended June 30, 2009 Compared to Six Months Ended
June 30, 2008
Assets under
Management
Assets under management (excluding legacy activities) decreased
by $25.8 billion, or 36%, to $46.8 billion as of
June 30, 2009 from $72.6 billion as of June 30,
2008. As of June 30, 2009, our assets under management
consisted of 43% proprietary funds, 16% commingled funds, 31%
separate accounts and 10% sub-advised accounts, as compared
to 47% proprietary funds, 14% commingled funds, 29% separate
accounts and 10% sub-advised accounts as of June 30,
2008.
82
The following table sets forth the changes in assets under
management for the six months ended June 30, 2008 and 2009,
by investment vehicle type:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six
|
|
|
|
|
|
|
|
|
|
Months Ended
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2009
|
|
|
$ Change
|
|
|
% Change
|
|
|
|
(In millions)
|
|
|
Proprietary Funds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning assets under management
|
|
$
|
37,117
|
|
|
$
|
19,466
|
|
|
$
|
(17,651
|
)
|
|
|
(48
|
)%
|
Gross client cash inflows
|
|
|
4,802
|
|
|
|
3,823
|
|
|
|
(979
|
)
|
|
|
(20
|
)
|
Gross client cash outflows
|
|
|
(3,880
|
)
|
|
|
(3,341
|
)
|
|
|
539
|
|
|
|
(14
|
)
|
Transfers between investment vehicles
|
|
|
(80
|
)
|
|
|
|
|
|
|
80
|
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net client cash flows
|
|
|
842
|
|
|
|
482
|
|
|
|
(360
|
)
|
|
|
(43
|
)
|
Market appreciation (depreciation)
|
|
|
(3,985
|
)
|
|
|
205
|
|
|
|
4,190
|
|
|
|
105
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending assets under management
|
|
|
33,974
|
|
|
|
20,153
|
|
|
|
(13,821
|
)
|
|
|
(41
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Institutional Commingled Funds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning assets under management
|
|
|
9,357
|
|
|
|
7,056
|
|
|
|
(2,301
|
)
|
|
|
(25
|
)
|
Gross client cash inflows
|
|
|
2,655
|
|
|
|
711
|
|
|
|
(1,944
|
)
|
|
|
(73
|
)
|
Gross client cash outflows
|
|
|
(779
|
)
|
|
|
(564
|
)
|
|
|
215
|
|
|
|
(28
|
)
|
Transfers between investment vehicles
|
|
|
125
|
|
|
|
1
|
|
|
|
(124
|
)
|
|
|
(99
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net client cash flows
|
|
|
2,001
|
|
|
|
148
|
|
|
|
(1,853
|
)
|
|
|
(93
|
)
|
Market appreciation (depreciation)
|
|
|
(1,070
|
)
|
|
|
120
|
|
|
|
1,190
|
|
|
|
111
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending assets under management
|
|
|
10,288
|
|
|
|
7,324
|
|
|
|
(2,964
|
)
|
|
|
(29
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Separate Accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning assets under management
|
|
|
22,897
|
|
|
|
14,342
|
|
|
|
(8,555
|
)
|
|
|
(37
|
)
|
Gross client cash inflows
|
|
|
1,150
|
|
|
|
1,163
|
|
|
|
13
|
|
|
|
1
|
|
Gross client cash outflows
|
|
|
(662
|
)
|
|
|
(921
|
)
|
|
|
(259
|
)
|
|
|
39
|
|
Transfers between investment vehicles
|
|
|
(45
|
)
|
|
|
(1
|
)
|
|
|
44
|
|
|
|
98
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net client cash flows
|
|
|
443
|
|
|
|
241
|
|
|
|
(202
|
)
|
|
|
(46
|
)
|
Market appreciation (depreciation)
|
|
|
(2,070
|
)
|
|
|
195
|
|
|
|
2,265
|
|
|
|
109
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending assets under management
|
|
|
21,270
|
|
|
|
14,778
|
|
|
|
(6,492
|
)
|
|
|
(31
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub-advisory Accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning assets under management
|
|
|
5,991
|
|
|
|
4,336
|
|
|
|
(1,655
|
)
|
|
|
(28
|
)
|
Gross client cash inflows
|
|
|
2,175
|
|
|
|
426
|
|
|
|
(1,749
|
)
|
|
|
(80
|
)
|
Gross client cash outflows
|
|
|
(470
|
)
|
|
|
(324
|
)
|
|
|
146
|
|
|
|
(31
|
)
|
Transfers between investment vehicles
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net client cash flows
|
|
|
1,705
|
|
|
|
102
|
|
|
|
(1,603
|
)
|
|
|
(94
|
)
|
Market appreciation (depreciation)
|
|
|
(624
|
)
|
|
|
133
|
|
|
|
757
|
|
|
|
121
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending assets under management
|
|
|
7,072
|
|
|
|
4,571
|
|
|
|
(2,501
|
)
|
|
|
(35
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Legacy Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning assets under management
|
|
|
|
|
|
|
4
|
|
|
|
4
|
|
|
|
100
|
|
Gross client cash inflows
|
|
|
44
|
|
|
|
|
|
|
|
(44
|
)
|
|
|
(100
|
)
|
Gross client cash outflows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfers between investment vehicles
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net client cash flows
|
|
|
44
|
|
|
|
|
|
|
|
(44
|
)
|
|
|
(100
|
)
|
Market appreciation (depreciation)
|
|
|
1
|
|
|
|
(4
|
)
|
|
|
(5
|
)
|
|
|
(500
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending assets under management
|
|
|
45
|
|
|
|
|
|
|
|
(45
|
)
|
|
|
(100
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
83
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six
|
|
|
|
|
|
|
|
|
|
Months Ended
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2009
|
|
|
$ Change
|
|
|
% Change
|
|
|
|
(In millions)
|
|
|
Total Assets under Management (including legacy
activities)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning assets under management
|
|
|
75,362
|
|
|
|
45,204
|
|
|
|
(30,158
|
)
|
|
|
(40
|
)
|
Gross client cash inflows
|
|
|
10,826
|
|
|
|
6,123
|
|
|
|
(4,703
|
)
|
|
|
(43
|
)
|
Gross client cash outflows
|
|
|
(5,791
|
)
|
|
|
(5,150
|
)
|
|
|
641
|
|
|
|
(11
|
)
|
Transfers between investment vehicles
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net client cash flows
|
|
|
5,035
|
|
|
|
973
|
|
|
|
(4,062
|
)
|
|
|
(81
|
)
|
Market appreciation (depreciation)
|
|
|
(7,748
|
)
|
|
|
649
|
|
|
|
8,397
|
|
|
|
108
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending assets under management
|
|
|
72,649
|
|
|
|
46,826
|
|
|
|
(25,823
|
)
|
|
|
(36
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets under Management (excluding legacy
activities)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning assets under management
|
|
|
75,362
|
|
|
|
45,200
|
|
|
|
(30,162
|
)
|
|
|
(40
|
)
|
Gross client cash inflows
|
|
|
10,782
|
|
|
|
6,123
|
|
|
|
(4,659
|
)
|
|
|
(43
|
)
|
Gross client cash outflows
|
|
|
(5,791
|
)
|
|
|
(5,150
|
)
|
|
|
641
|
|
|
|
(11
|
)
|
Transfers between investment vehicles
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net client cash flows
|
|
|
4,991
|
|
|
|
973
|
|
|
|
(4,018
|
)
|
|
|
(81
|
)
|
Market appreciation (depreciation)
|
|
|
(7,749
|
)
|
|
|
653
|
|
|
|
8,402
|
|
|
|
108
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending assets under management
|
|
$
|
72,604
|
|
|
$
|
46,826
|
|
|
$
|
(25,778
|
)
|
|
|
(36
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net client cash inflows for the six months ended June 30,
2009 were 81% lower than net client cash inflows for the six
months ended June 30, 2008, declining from
$5.0 billion to $1.0 billion. Gross client cash
inflows across all investment vehicles declined 43% or
$4.7 billion for the six months ended June 30, 2009 as
compared to the six months ended June 30, 2008. We believe
this reflects the impact of market volatility on the client
decision making process. However, gross client cash outflows
decreased by 11% or $0.6 billion during the comparable
period, which we believe may signal that stability is returning
to the financial markets.
Net client cash inflows in proprietary funds were 43% lower than
net client cash inflows for the six months ended June 30,
2009, declining from $0.8 billion to $0.5 billion. The
main reason for the decline was a reduction of $0.8 billion
in net client cash inflows in the Artio International Equity
Fund II, partially offset by reduced net client cash
outflows of $0.2 billion in the Artio International Equity
Fund for the six months ended June 30, 2009 as compared to
the same period of 2008. These were partly offset by an increase
of $0.3 billion in net client cash flows into the Artio
Global High Income Fund for the same six-month periods. Gross
client cash inflows decreased by $1.0 billion, or 20%,
mainly as a result of reduced gross client cash inflows of
$0.6 billion in the Artio International Equity Fund and
$0.6 billion in the Artio International Equity Fund II.
Net client cash inflows into commingled funds decreased by
$1.9 billion during the six months ended June 30, 2009
as compared to the same period of 2008, primarily due to reduced
net client cash inflows within the International Equity
strategies. Gross client cash inflows relating to institutional
commingled funds were $1.9 billion, or 73%, lower during
the six months ended June 30, 2009 as compared to the six
months ended June 30, 2008 primarily as a result of cash
inflows in the International Equity II vehicle that were
$1.6 billion lower in 2009 than in 2008.
Net client cash inflows into separate accounts decreased by
$0.2 billion, or 46%, for the six months ended
June 30, 2009 as compared to the same period of 2008
primarily due to an increase of $0.1 billion in net client
cash outflows in both the International Equity I and Global
Equity strategies.
84
Net client cash inflows in sub-advised accounts were
$1.6 billion lower during the six months ended
June 30, 2009 as compared to the six months ended
June 30, 2008. The 2008 period included a $1.5 billion
funding relating to a new International Equity II client.
Gross client cash inflows for sub-advised accounts of
$0.4 billion were $1.7 billion, or 80%, lower than the
comparable period of 2008 due to the impact of this
International Equity II client.
Market appreciation for the six months ended June 30, 2009
amounted to $653 million compared to market depreciation of
$7.7 billion for the six months ended June 30, 2008.
For the six months ended June 30, 2008, market depreciation
was attributable to our International Equity I
($4.7 billion) and International Equity II
($3.0 billion) strategies. For the six months ended
June 30, 2009, market appreciation of $653 million was
primarily attributable to our High Grade Fixed Income
($208 million) and High Yield ($344 million)
strategies.
The MSCI AC World ex USA Index experienced a 13.9% increase
during the six months ended June 30, 2009. In the six
months ended June 30, 2009, the gross performance of our
International Equity I and II strategies trailed the index
by 12.0% and 11.7%, respectively.
Revenues and
Other Operating Income
The following table sets forth the changes in total revenues and
other operating income for the six months ended June 30,
2008 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months
|
|
|
|
|
|
|
|
|
|
Ended June 30,
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2009
|
|
|
$ Change
|
|
|
% Change
|
|
|
|
(In thousands)
|
|
|
Investment management fees
|
|
$
|
243,507
|
|
|
$
|
132,576
|
|
|
$
|
(110,931
|
)
|
|
|
(46
|
)%
|
Net gains (losses) on securities held for deferred compensation
|
|
|
(601
|
)
|
|
|
712
|
|
|
|
1,313
|
|
|
|
218
|
|
Foreign currency gains (losses)
|
|
|
(21
|
)
|
|
|
32
|
|
|
|
53
|
|
|
|
252
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues and other operating income
|
|
$
|
242,885
|
|
|
$
|
133,320
|
|
|
$
|
(109,565
|
)
|
|
|
(45
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues and other operating income decreased by
$109.6 million, or 45%, to $133.3 million for the six
months ended June 30, 2009 from $242.9 million for the
six months ended June 30, 2008, primarily due to a 42%
decline in average assets under management and, to a lesser
extent, a decrease in the effective fee rate from
66.3 basis points to 61.8 basis points. The decline of
the fee rate is the result of a lower proportion of assets in
the International Equity strategies, our highest margin products.
85
Operating
Expenses
The following table sets forth the changes in operating expenses
for the six months ended June 30, 2008 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months
|
|
|
|
|
|
|
|
|
|
Ended June 30,
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2009
|
|
|
$ Change
|
|
|
% Change
|
|
|
|
(Dollars in thousands)
|
|
|
Salaries, incentive compensation and benefits
|
|
$
|
52,854
|
|
|
$
|
34,917
|
|
|
$
|
(17,937
|
)
|
|
|
(34
|
)%
|
Allocation of Class B profits interests
|
|
|
43,991
|
|
|
|
21,472
|
|
|
|
(22,519
|
)
|
|
|
(51
|
)
|
Change in redemption value Class B profits interests
|
|
|
36,433
|
|
|
|
35,538
|
|
|
|
(895
|
)
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total employee compensation and benefits
|
|
|
133,278
|
|
|
|
91,927
|
|
|
|
(41,351
|
)
|
|
|
(31
|
)
|
Shareholder servicing and marketing expenses
|
|
|
12,725
|
|
|
|
7,208
|
|
|
|
(5,517
|
)
|
|
|
(43
|
)
|
General and administrative expenses
|
|
|
34,665
|
|
|
|
17,578
|
|
|
|
(17,087
|
)
|
|
|
(49
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
$
|
180,668
|
|
|
$
|
116,713
|
|
|
$
|
(63,955
|
)
|
|
|
(35
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses decreased by $64.0 million, or 35%, to
$116.7 million for the six months ended June 30, 2009
from $180.7 million for the six months ended June 30,
2008. This decrease was largely due to decreased employee
compensation and benefits expenses, shareholder servicing costs
and professional fees.
Employee compensation and benefits decreased by
$41.4 million, or 31%, to $91.9 million for the six
months ended June 30, 2009 from $133.3 million for the
six months ended June 30, 2008. Salaries, incentive
compensation and benefits decreased by $17.9 million, or
34%, to $34.9 million for the six months ended
June 30, 2009 from $52.9 million for the six months
ended June 30, 2008, largely due to an $11.6 million
decrease in incentive compensation, including sales incentives.
The Principals deferred compensation awards were fully
amortized by the end of 2008, while their cost was
$4.4 million in the first half of 2008. Benefits and other
compensation-related expenses were $3.1 million lower in
the first half of 2009, compared to the same period in 2008.
Those decreases were slightly offset by a salary increase of
$0.8 million in the first half of 2009, as our headcount
climbed from 186 full-time permanent employees to 196
during the first half of 2009, due mainly to functions related
to our becoming a publicly-listed company. We will continue to
manage or reduce our compensation costs, to the extent
practicable, to align them with our business needs.
Approximately $23.4 million of the decrease in the first
half of 2009 compared to the same period in 2008 in total
employee compensation and benefits costs was attributable to a
reduced allocation of Class B profits interests to our
Principals as well as lower accruals associated with the change
in redemption value of Class B profits interests. Change in
redemption value of Class B profits interests varies with
profitability (calculated on an average basis). Following the
completion of this offering, the costs relating to these
Class B profits interests, as well as the change in the
redemption value of these Class B profits interests, will
no longer be reflected as compensation expense.
Shareholder servicing and marketing expenses decreased by
$5.5 million, or 43%, to $7.2 million for the six
months ended June 30, 2009 from $12.7 million for the
six months ended June 30, 2008, due to the significant
decrease in the average market value of proprietary fund assets
reducing shareholder servicing costs.
86
General and administrative expenses decreased
$17.1 million, or 49%, to $17.6 million for the six
months ended June 30, 2009 from $34.7 million for the
six months ended June 30, 2008, mainly as a result of a
$10.2 million decrease in consulting, professional and
licenses fees in the first half of 2009. We incurred expenses
related to the initial public offering of $7.3 million in
the first half of 2008, compared to $0.8 million in the
first half of 2009, as the company postponed the offering in
late 2008 and began work again on the offering in the second
quarter of 2009. The license fees associated with the use of the
parent companys brands were reduced as we rebranded in
mid-2008 to the use of the Artio Global name. Client-related
trading errors were losses of $0.2 million and
$3.0 million in the six months ended June 30, 2009 and
2008, respectively.
For the remainder of 2009, we expect that we will incur
additional expenses in connection with this offering, primarily
in consulting and professional fees associated with legal and
accounting services.
Non-operating
Income
The following table sets forth the changes in non-operating
income for the six months ended June 30, 2008 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six
|
|
|
|
|
|
|
|
|
|
Months Ended
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2009
|
|
|
$ Change
|
|
|
% Change
|
|
|
|
(Dollars in thousands)
|
|
|
Non-operating income (loss)
|
|
$
|
1,397
|
|
|
$
|
(333
|
)
|
|
$
|
(1,730
|
)
|
|
|
(124
|
)%
|
Non-operating income, which comprises interest income and gains
(losses) on marketable securities, decreased by
$1.7 million, or 124%, to a loss of $0.3 million for
the six months ended June 30, 2009 from income of
$1.4 million for the six months ended June 30, 2008.
Towards the end of 2008, heightened risk aversion among
investors substantially increased demand for
U.S. Treasuries, and resulted in extremely low interest
rates causing an increase in the value of our holdings. In the
first half of 2009, this situation reverted to more normal
valuations. First half 2009 non-operating income reflects the
reversal of most of the mark-to-market gains recorded in the
fourth quarter of 2008. Other factors that contributed to lower
interest income for the period are that average invested funds
in the six months ended June 30, 2009, were 17% lower than
in the same period of 2008, and yields were lower in the period.
Income
Taxes
The following table sets forth the changes in income taxes for
the six months ended June 30, 2008 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six
|
|
|
|
|
|
|
|
|
|
Months
|
|
|
|
|
|
|
|
|
|
Ended June 30,
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2009
|
|
|
$ Change
|
|
|
% Change
|
|
|
|
(Dollars in thousands)
|
|
|
Income before income tax expense
|
|
$
|
63,614
|
|
|
$
|
16,274
|
|
|
$
|
(47,340
|
)
|
|
|
(74
|
)%
|
Income tax expense
|
|
|
31,992
|
|
|
|
7,874
|
|
|
|
(24,118
|
)
|
|
|
(75
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
31,622
|
|
|
$
|
8,400
|
|
|
$
|
(23,222
|
)
|
|
|
(73
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The effective income tax rate declined from 50.3% to 48.4% for
the six months ended June 30, 2008 and 2009, respectively,
primarily as a result of permanent differences relating to
non-deductible costs of the offering incurred in 2008.
87
Year Ended
December 31, 2008 Compared to Year Ended December 31,
2007
Assets under
Management
Assets under management (excluding legacy activities) decreased
by $30.2 billion, or 40%, to $45.2 billion as of
December 31, 2008 from $75.4 billion as of
December 31, 2007. As of December 31, 2008, our assets
under management consisted of 43% proprietary funds, 16%
commingled funds, 32% separate accounts and 9% sub-advised
accounts, as compared to 49% proprietary funds, 12% commingled
funds, 31% separate accounts and 8% sub-advised accounts as
of December 31, 2007.
The following table sets forth the changes in assets under
management for the years ended December 31, 2007 and 2008,
by investment vehicle type:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2008
|
|
|
$ Change
|
|
|
% Change
|
|
|
|
(Dollars in millions)
|
|
|
Proprietary Funds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning assets under management
|
|
$
|
26,600
|
|
|
$
|
37,117
|
|
|
$
|
10,517
|
|
|
|
40
|
%
|
Gross client cash inflows
|
|
|
10,999
|
|
|
|
8,716
|
|
|
|
(2,283
|
)
|
|
|
(21
|
)
|
Gross client cash outflows
|
|
|
(5,103
|
)
|
|
|
(10,973
|
)
|
|
|
(5,870
|
)
|
|
|
115
|
|
Transfers between investment vehicles
|
|
|
(92
|
)
|
|
|
(188
|
)
|
|
|
(96
|
)
|
|
|
(104
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net client cash flows
|
|
|
5,804
|
|
|
|
(2,445
|
)
|
|
|
(8,249
|
)
|
|
|
(142
|
)
|
Market appreciation (depreciation)
|
|
|
4,713
|
|
|
|
(15,206
|
)
|
|
|
(19,919
|
)
|
|
|
(423
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending assets under management
|
|
|
37,117
|
|
|
|
19,466
|
|
|
|
(17,651
|
)
|
|
|
(48
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Institutional Commingled Funds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning assets under management
|
|
|
5,676
|
|
|
|
9,357
|
|
|
|
3,681
|
|
|
|
65
|
|
Gross client cash inflows
|
|
|
2,886
|
|
|
|
3,617
|
|
|
|
731
|
|
|
|
25
|
|
Gross client cash outflows
|
|
|
(813
|
)
|
|
|
(1,135
|
)
|
|
|
(322
|
)
|
|
|
40
|
|
Transfers between investment vehicles
|
|
|
371
|
|
|
|
194
|
|
|
|
(177
|
)
|
|
|
(48
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net client cash flows
|
|
|
2,444
|
|
|
|
2,676
|
|
|
|
232
|
|
|
|
9
|
|
Market appreciation (depreciation)
|
|
|
1,237
|
|
|
|
(4,977
|
)
|
|
|
(6,214
|
)
|
|
|
(502
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending assets under management
|
|
|
9,357
|
|
|
|
7,056
|
|
|
|
(2,301
|
)
|
|
|
(25
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Separate Accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning assets under management
|
|
|
16,574
|
|
|
|
22,897
|
|
|
|
6,323
|
|
|
|
38
|
|
Gross client cash inflows
|
|
|
5,928
|
|
|
|
2,361
|
|
|
|
(3,567
|
)
|
|
|
(60
|
)
|
Gross client cash outflows
|
|
|
(2,315
|
)
|
|
|
(1,803
|
)
|
|
|
512
|
|
|
|
(22
|
)
|
Transfers between investment vehicles
|
|
|
(279
|
)
|
|
|
(53
|
)
|
|
|
226
|
|
|
|
81
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net client cash flows
|
|
|
3,334
|
|
|
|
505
|
|
|
|
(2,829
|
)
|
|
|
(85
|
)
|
Market appreciation (depreciation)
|
|
|
2,989
|
|
|
|
(9,060
|
)
|
|
|
(12,049
|
)
|
|
|
(403
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending assets under management
|
|
|
22,897
|
|
|
|
14,342
|
|
|
|
(8,555
|
)
|
|
|
(37
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub-advisory Accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning assets under management
|
|
|
4,636
|
|
|
|
5,991
|
|
|
|
1,355
|
|
|
|
29
|
|
Gross client cash inflows
|
|
|
1,359
|
|
|
|
2,557
|
|
|
|
1,198
|
|
|
|
88
|
|
Gross client cash outflows
|
|
|
(791
|
)
|
|
|
(1,410
|
)
|
|
|
(619
|
)
|
|
|
78
|
|
Transfers between investment vehicles
|
|
|
|
|
|
|
47
|
|
|
|
47
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
88
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2008
|
|
|
$ Change
|
|
|
% Change
|
|
|
|
(Dollars in millions)
|
|
|
Net client cash flows
|
|
|
568
|
|
|
|
1,194
|
|
|
|
626
|
|
|
|
110
|
|
Market appreciation (depreciation)
|
|
|
787
|
|
|
|
(2,849
|
)
|
|
|
(3,636
|
)
|
|
|
(462
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending assets under management
|
|
|
5,991
|
|
|
|
4,336
|
|
|
|
(1,655
|
)
|
|
|
(28
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Legacy Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning assets under management
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross client cash inflows
|
|
|
|
|
|
|
44
|
|
|
|
44
|
|
|
|
N/A
|
|
Gross client cash outflows
|
|
|
|
|
|
|
(35
|
)
|
|
|
(35
|
)
|
|
|
N/A
|
|
Transfers between investment vehicles
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net client cash flows
|
|
|
|
|
|
|
9
|
|
|
|
9
|
|
|
|
N/A
|
|
Market appreciation (depreciation)
|
|
|
|
|
|
|
(5
|
)
|
|
|
(5
|
)
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending assets under management
|
|
|
|
|
|
|
4
|
|
|
|
4
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets under Management
(including legacy activities)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning assets under management
|
|
|
53,486
|
|
|
|
75,362
|
|
|
|
21,876
|
|
|
|
41
|
|
Gross client cash inflows
|
|
|
21,172
|
|
|
|
17,295
|
|
|
|
(3,877
|
)
|
|
|
(18
|
)
|
Gross client cash outflows
|
|
|
(9,022
|
)
|
|
|
(15,356
|
)
|
|
|
(6,334
|
)
|
|
|
70
|
|
Transfers between investment vehicles
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net client cash flows
|
|
|
12,150
|
|
|
|
1,939
|
|
|
|
(10,211
|
)
|
|
|
(84
|
)
|
Market appreciation (depreciation)
|
|
|
9,726
|
|
|
|
(32,097
|
)
|
|
|
(41,823
|
)
|
|
|
(430
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending assets under management
|
|
|
75,362
|
|
|
|
45,204
|
|
|
|
(30,158
|
)
|
|
|
(40
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets under Management
(excluding legacy activities)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning assets under management
|
|
|
53,486
|
|
|
|
75,362
|
|
|
|
21,876
|
|
|
|
41
|
|
Gross client cash inflows
|
|
|
21,172
|
|
|
|
17,251
|
|
|
|
(3,921
|
)
|
|
|
(19
|
)
|
Gross client cash outflows
|
|
|
(9,022
|
)
|
|
|
(15,321
|
)
|
|
|
(6,299
|
)
|
|
|
70
|
|
Transfers between investment vehicles
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net client cash flows
|
|
|
12,150
|
|
|
|
1,930
|
|
|
|
(10,220
|
)
|
|
|
(84
|
)
|
Market appreciation (depreciation)
|
|
|
9,726
|
|
|
|
(32,092
|
)
|
|
|
(41,818
|
)
|
|
|
(430
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending assets under management
|
|
|
75,362
|
|
|
|
45,200
|
|
|
|
(30,162
|
)
|
|
|
(40
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net client cash inflows of $1.9 billion for 2008 were 84%
lower than net client cash inflows of $12.2 billion for
2007. The challenging market environment in the second half of
2008 gave rise to a precipitous decline in global equity market
values. As a result, many investors shifted assets away from
equities and towards less risky investments such as
U.S. Treasuries, or exited investment markets entirely.
While we experienced net client cash outflows during the third
and fourth quarter of 2008, we had net client cash inflows for
the full year, which we attribute to the relative long-term
performance of our products as compared with their respective
benchmarks, the institutional nature of our clients, and our
focus on client service.
The lower net client cash flows in 2008 compared to 2007 were
driven by both a decrease in gross client cash inflows of
$3.9 billion, as well as an increase of $6.3 billion
in gross client cash
89
outflows. The reduction in gross cash inflows was mainly within
our proprietary funds and separate accounts investment vehicles.
The increase in gross client cash outflows was mainly
attributable to outflows within our proprietary funds, which
have a significant number of retail investors whose investment
horizons are not typically as long-term as institutional
investors. The decrease in net client cash flows for the
proprietary funds was largely attributable to an increase in
gross cash outflows of $2.6 billion, $2.5 billion and
$0.5 billion within the Artio International Equity Fund,
the Artio International Equity Fund II and the Total Return
Bond Fund, respectively. Additionally, the reduction in net
client cash flows was also attributable to a reduction in gross
client cash inflows of $1.5 billion and $1.3 billion
within the Artio International Equity Fund and the Artio
International Equity Fund II, respectively, partially
offset by increased gross client cash inflows of
$0.4 billion and $0.3 billion within the Artio Total
Return Bond Fund and the Artio Global High Income Fund,
respectively. Gross client cash inflows within the Artio
International Equity Fund represents investments by existing
investors only because this fund has been closed to new
investors since 2005.
Net client cash inflows in separate accounts decreased by 85% in
2008 compared to 2007. The decrease was primarily due to a
combined $2.1 billion reduction in gross client cash
inflows within our High Grade Fixed Income and High Yield
strategies as 2007 included a $1.6 billion fixed income
mandate relating to one account. Further, the reduction in gross
client cash inflows was also attributable to a $1.0 billion
reduction in gross client cash inflows into our International
Equity II strategy.
Net client cash flows relating to commingled accounts increased
by $232 million, or 9%, for the year ended
December 31, 2008 as compared to the full year 2007, due to
an increase in gross client cash inflows of $0.5 billion
and $0.1 billion in the International Equity II and
High Yield strategies, respectively. Gross client cash outflows
increased mainly as a result of an increase in gross client cash
outflows of $0.3 billion within the International
Equity II strategy.
Net client cash flows in sub-advised accounts were
$1.2 billion during the year ended December 31, 2008
as compared to $0.6 billion for the year ended
December 31, 2007 as the 2008 period included a
$1.5 billion mandate relating to a new International
Equity II client. This was partially offset by reduced
gross client cash inflows into sub-advised International
Equity II strategies by other clients as well as increased
gross outflows during 2008 in certain low-margin short-term
U.S. dollar fixed income products.
Our assets under management are directly impacted by movements
in global equity markets and foreign currency exchange rates. In
2008, global equity markets deteriorated significantly, which
drove the decrease in our assets under management. Market
depreciation of $32.1 billion for the year ended
December 31, 2008 compares to market appreciation of
$9.7 billion for the comparable period of 2007. The market
depreciation in 2008 was principally attributable to market
depreciation within our International Equity I
($17.9 billion) and International Equity II
($13.3 billion) strategies. Although a substantial portion
of the assets under management decline was due to market
depreciation, our core strategies outperformed their respective
benchmarks. The MSCI AC World ex USA Index is the benchmark for
our International Equity strategies. The benchmark suffered a
45.5% decline during the year ended December 31, 2008. Our
gross performance outperformed the index by 1.4% for our
International Equity I strategy and 3.3% for our International
Equity II strategy. In 2007, global equity markets
appreciated significantly and contributed 44.5% of our assets
under management growth. In 2007, our International Equity I and
International Equity II strategies outperformed the MSCI AC
World ex USA Index (which grew by 16.7%) by 1.8% and 1.6%,
respectively.
90
Revenues and
Other Operating Income
The following table sets forth the changes in total revenues and
other operating income for the years ended December 31,
2007 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2008
|
|
|
$ Change
|
|
|
% Change
|
|
|
|
(Dollars in thousands)
|
|
|
Investment management fees
|
|
$
|
445,558
|
|
|
$
|
425,003
|
|
|
$
|
(20,555
|
)
|
|
|
(5
|
)%
|
Net (losses) on securities held for deferred compensation
|
|
|
|
|
|
|
(2,856
|
)
|
|
|
(2,856
|
)
|
|
|
N/A
|
|
Foreign currency gains (losses)
|
|
|
186
|
|
|
|
(101
|
)
|
|
|
(287
|
)
|
|
|
(154
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues and other operating income
|
|
|
445,744
|
|
|
|
422,046
|
|
|
|
(23,698
|
)
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues and other operating income decreased by
$23.7 million, or 5%, to $422.0 million for the year
ended December 31, 2008 from $445.7 million for the
year ended December 31, 2007 as a result of a decrease in
our average assets under management and a shift in the
composition of assets under management among our investment
strategies and investment vehicles. Our 2008 average assets
under management decreased by 3% from our 2007 average assets
under management as a result of a substantial decrease in assets
under management during the third and fourth quarters of 2008,
driven primarily by deteriorating global equity markets. In
addition, our effective fee rate decreased to 65.6 basis
points in 2008 from 66.9 basis points in 2007 resulting
from our average International Equity strategies assets under
management, which are our highest margin strategies, becoming a
smaller proportion of our average assets under management in
2008.
Operating
Expenses
The following table sets forth the changes in operating expenses
for the years ended December 31, 2007 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2008
|
|
|
$ Change
|
|
|
% Change
|
|
|
|
(Dollars in thousands)
|
|
|
Salaries, incentive compensation and benefits
|
|
$
|
92,277
|
|
|
$
|
92,487
|
|
|
$
|
210
|
|
|
|
|
%
|
Allocation of Class B profits interests
|
|
|
83,512
|
|
|
|
76,074
|
|
|
|
(7,438
|
)
|
|
|
(9
|
)
|
Change in redemption value Class B profits interests
|
|
|
76,844
|
|
|
|
54,558
|
|
|
|
(22,286
|
)
|
|
|
(29
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total employee compensation and benefits
|
|
|
252,633
|
|
|
|
223,119
|
|
|
|
(29,514
|
)
|
|
|
(12
|
)
|
Shareholder servicing and marketing expenses
|
|
|
25,356
|
|
|
|
23,369
|
|
|
|
(1,987
|
)
|
|
|
(8
|
)
|
General and administrative expenses
|
|
|
50,002
|
|
|
|
62,833
|
|
|
|
12,831
|
|
|
|
26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
327,991
|
|
|
|
309,321
|
|
|
|
(18,670
|
)
|
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses decreased by $18.7 million, or 6%, for
the year ended December 31, 2008 from $328.0 million
for the year ended December 31, 2007. This decrease was
largely due to decreased employee compensation and benefits
expenses, partially offset by increased general and
administrative expenses.
91
Employee compensation and benefits decreased by
$29.5 million, or 12% to $223.1 million for the year
ended December 31, 2008 from $252.6 million for the
year ended December 31, 2007. Salaries, incentive
compensation and benefits increased slightly, by
$0.2 million, or less than 1%, to $92.5 million for
the year ended December 31, 2008 from $92.3 million
for the year ended December 31, 2007 due to an increase in
headcount year over year from 181 permanent employees to 198 in
anticipation of the completion of our initial public offering
and expansion in certain of our product offerings, which
contributed to an increase in salaries of $2.4 million. In
addition, the vesting of our Principals deferred
compensation awards was accelerated to December 31, 2008.
The acceleration of these awards increased compensation expense
by $7.5 million from the levels of the previous two years.
These additional costs were offset by a $10.6 million
decrease in incentive compensation from the prior year. The
decrease in employee compensation and benefits costs was
attributable to a reduced allocation of Class B profits
interests to our Principals, as well as lower accruals
associated with the change in redemption value of Class B
profits interests. Following the completion of this offering,
the costs relating to these Class B profits interests, as
well as the change in the redemption value of these Class B
profits interests, will no longer be reflected as compensation
expense, as the Principals membership interests will be
shown as non-controlling interests.
Shareholder servicing and marketing expenses decreased by
$2.0 million, or 8%, to $23.4 million for the year
ended December 31, 2008 from $25.4 million for the
year ended December 31, 2007, due to the decrease in the
average market value of proprietary fund assets. Shareholder
servicing and marketing expenses, which are mostly variable,
were relatively unchanged at approximately 5.5% of investment
management fees in 2007 and 2008.
General and administrative expenses increased by
$12.8 million, or 26%, to $62.8 million for the year
ended December 31, 2008 from $50.0 million for the
year ended December 31, 2007, primarily as a result of
higher costs for occupancy, information technology and system
support, and client-related trading errors, partly offset by a
decrease in professional fees. Occupancy costs increased due to
$0.7 million in additional rent expense resulting from
leasing additional office space in our corporate headquarters,
$2.4 million related to managements decision to cease
use of excess office space, and $0.7 million to
occupancy-related costs which were previously allocated to
affiliates that shared office space with us. Information
technology and system support increased as a result of
$1.6 million in costs allocated to the same affiliates in
2007. These costs are now incurred and paid by us. Further,
during 2008 we incurred $2.0 million of costs related to
our efforts to improve the companys infrastructure in
preparation for becoming an independent company. We also
incurred $5.5 million in client-related trading errors in
2008 and $0.6 million in 2007. Furthermore, in 2008, we
incurred non-recurring expenses of $8.9 million relating to
the preparation for this offering.
Non-operating
Income
The following table sets forth the changes in non-operating
income for the years ended December 31, 2007 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2008
|
|
|
$ Change
|
|
|
% Change
|
|
|
|
(Dollars in thousands)
|
|
|
Non-operating income
|
|
$
|
7,034
|
|
|
$
|
3,181
|
|
|
$
|
(3,853
|
)
|
|
|
(55
|
)%
|
Non-operating income, which comprises interest income and gains
(losses) on marketable securities, decreased by
$3.9 million, or 55%, to $3.2 million for the year
ended December 31, 2008 from $7.0 million for the year
ended December 31, 2007, as earnings on investments in 2008
declined significantly from 2007 as dividends totaling
$117 million were paid. Of this amount, $61 million
was paid in the first quarter of 2008, reducing excess funds
available for investment for the balance of the year.
92
Income
Taxes
The following table sets forth the changes in income taxes for
the years ended December 31, 2007 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2008
|
|
|
$ Change
|
|
|
% Change
|
|
|
|
(Dollars in thousands)
|
|
|
Income before income tax expense
|
|
$
|
124,787
|
|
|
$
|
115,906
|
|
|
$
|
(8,881
|
)
|
|
|
(7
|
)%
|
Income tax expense
|
|
|
58,417
|
|
|
|
54,755
|
|
|
|
(3,662
|
)
|
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before discontinued operations
|
|
|
66,370
|
|
|
|
61,151
|
|
|
|
(5,219
|
)
|
|
|
(8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense decreased by $3.7 million, or 6%, to
$54.8 million for the year ended December 31, 2008
from $58.4 million for the year ended December 31,
2007. The slight increase in our 2008 effective income tax rate
to 47.2% from 46.8% from 2007 was due to professional fees
related to the planned offering that are non-deductible for
income tax purposes. Offsetting this, during 2008 we were able
to avail ourselves of apportionment factors that reduced state
and local taxes.
Year Ended
December 31, 2007 Compared to Year Ended December 31,
2006
Assets under
Management
Assets under management (excluding legacy activities) increased
by $21.9 billion, or 41%, to $75.4 billion as of
December 31, 2007 from $53.5 billion as of
December 31, 2006. As of December 31, 2007, our assets
under management consisted of 49% proprietary funds, 12%
commingled funds, 31% separate accounts and 8% sub-advised
accounts, as compared to 50% proprietary funds, 10% commingled
funds, 31% separate accounts and 9% sub-advised accounts as
of December 31, 2006.
The following table sets forth the changes in assets under
management for the years ended December 31, 2006 and 2007,
by investment vehicle type:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2007
|
|
|
$ Change
|
|
|
% Change
|
|
|
|
(Dollars in millions)
|
|
|
Proprietary Funds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning assets under management
|
|
$
|
17,710
|
|
|
$
|
26,600
|
|
|
$
|
8,890
|
|
|
|
50
|
%
|
Gross client cash inflows
|
|
|
7,342
|
|
|
|
10,999
|
|
|
|
3,657
|
|
|
|
50
|
|
Gross client cash outflows
|
|
|
(4,148
|
)
|
|
|
(5,103
|
)
|
|
|
(955
|
)
|
|
|
23
|
|
Transfers between investment vehicles
|
|
|
|
|
|
|
(92
|
)
|
|
|
(92
|
)
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net client cash flows
|
|
|
3,194
|
|
|
|
5,804
|
|
|
|
2,610
|
|
|
|
82
|
|
Market appreciation (depreciation)
|
|
|
5,696
|
|
|
|
4,713
|
|
|
|
(983
|
)
|
|
|
(17
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending assets under management
|
|
|
26,600
|
|
|
|
37,117
|
|
|
|
10,517
|
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Institutional Commingled Funds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning assets under management
|
|
|
3,577
|
|
|
|
5,676
|
|
|
|
2,099
|
|
|
|
59
|
|
Gross client cash inflows
|
|
|
1,213
|
|
|
|
2,886
|
|
|
|
1,673
|
|
|
|
138
|
|
Gross client cash outflows
|
|
|
(305
|
)
|
|
|
(813
|
)
|
|
|
(508
|
)
|
|
|
167
|
|
Transfers between investment vehicles
|
|
|
52
|
|
|
|
371
|
|
|
|
319
|
|
|
|
613
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net client cash flows
|
|
|
960
|
|
|
|
2,444
|
|
|
|
1,484
|
|
|
|
155
|
|
Market appreciation (depreciation)
|
|
|
1,139
|
|
|
|
1,237
|
|
|
|
98
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending assets under management
|
|
|
5,676
|
|
|
|
9,357
|
|
|
|
3,681
|
|
|
|
65
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
93
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2007
|
|
|
$ Change
|
|
|
% Change
|
|
|
|
(Dollars in millions)
|
|
|
Separate Accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning assets under management
|
|
|
10,394
|
|
|
|
16,574
|
|
|
|
6,180
|
|
|
|
59
|
|
Gross client cash inflows
|
|
|
3,639
|
|
|
|
5,928
|
|
|
|
2,289
|
|
|
|
63
|
|
Gross client cash outflows
|
|
|
(984
|
)
|
|
|
(2,315
|
)
|
|
|
(1,331
|
)
|
|
|
135
|
|
Transfers between investment vehicles
|
|
|
(52
|
)
|
|
|
(279
|
)
|
|
|
(227
|
)
|
|
|
(437
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net client cash flows
|
|
|
2,603
|
|
|
|
3,334
|
|
|
|
731
|
|
|
|
28
|
|
Market appreciation (depreciation)
|
|
|
3,577
|
|
|
|
2,989
|
|
|
|
(588
|
)
|
|
|
(16
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending assets under management
|
|
|
16,574
|
|
|
|
22,897
|
|
|
|
6,323
|
|
|
|
38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub-advisory Accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning assets under management
|
|
|
3,169
|
|
|
|
4,636
|
|
|
|
1,467
|
|
|
|
(46
|
)
|
Gross client cash inflows
|
|
|
1,366
|
|
|
|
1,359
|
|
|
|
(7
|
)
|
|
|
|
|
Gross client cash outflows
|
|
|
(541
|
)
|
|
|
(791
|
)
|
|
|
(250
|
)
|
|
|
46
|
|
Transfers between investment vehicles
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net client cash flows
|
|
|
825
|
|
|
|
568
|
|
|
|
(257
|
)
|
|
|
(31
|
)
|
Market appreciation (depreciation)
|
|
|
642
|
|
|
|
787
|
|
|
|
145
|
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending assets under management
|
|
|
4,636
|
|
|
|
5,991
|
|
|
|
1,355
|
|
|
|
29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Legacy Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning assets under management
|
|
|
1,610
|
|
|
|
|
|
|
|
(1,610
|
)
|
|
|
(100
|
)
|
Gross client cash inflows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross client cash outflows
|
|
|
(1,610
|
)
|
|
|
|
|
|
|
1,610
|
|
|
|
(100
|
)
|
Transfers between investment vehicles
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net client cash flows
|
|
|
(1,610
|
)
|
|
|
|
|
|
|
1,610
|
|
|
|
100
|
|
Market appreciation (depreciation)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending assets under management
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets under Management (including legacy
activities)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning assets under management
|
|
|
36,460
|
|
|
|
53,486
|
|
|
|
17,026
|
|
|
|
47
|
|
Gross client cash inflows
|
|
|
13,560
|
|
|
|
21,172
|
|
|
|
7,612
|
|
|
|
56
|
|
Gross client cash outflows
|
|
|
(7,588
|
)
|
|
|
(9,022
|
)
|
|
|
(1,434
|
)
|
|
|
19
|
|
Transfers between investment vehicles
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net client cash flows
|
|
|
5,972
|
|
|
|
12,150
|
|
|
|
6,178
|
|
|
|
103
|
|
Market appreciation (depreciation)
|
|
|
11,054
|
|
|
|
9,726
|
|
|
|
(1,328
|
)
|
|
|
(12
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending assets under management
|
|
|
53,486
|
|
|
|
75,362
|
|
|
|
21,876
|
|
|
|
41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets under Management (excluding legacy
activities)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning assets under management
|
|
|
34,850
|
|
|
|
53,486
|
|
|
|
18,636
|
|
|
|
53
|
|
Gross client cash inflows
|
|
|
13,560
|
|
|
|
21,172
|
|
|
|
7,612
|
|
|
|
56
|
|
Gross client cash outflows
|
|
|
(5,978
|
)
|
|
|
(9,022
|
)
|
|
|
(3,044
|
)
|
|
|
51
|
|
Transfers between investment vehicles
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net client cash flows
|
|
|
7,582
|
|
|
|
12,150
|
|
|
|
4,568
|
|
|
|
60
|
|
Market appreciation (depreciation)
|
|
|
11,054
|
|
|
|
9,726
|
|
|
|
(1,328
|
)
|
|
|
(12
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending assets under management
|
|
|
53,486
|
|
|
|
75,362
|
|
|
|
21,876
|
|
|
|
41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net client cash flows in proprietary funds increased by
$2.6 billion, or 82%, to $5.8 billion for the year
ended December 31, 2007 from $3.2 billion for the year
ended December 31, 2006. The increase in proprietary fund
net client cash flows was largely attributable to a
$3.1 billion increase in gross client cash inflows into the
Artio International Equity Fund II and $0.2 billion
increase in gross
94
client cash inflows within the Artio Total Return Bond Fund
during the year ended December 31, 2007. Gross client cash
outflows increased as a result of an increase of
$0.6 billion, $0.3 billion and $0.1 billion in
gross client cash outflows within the Artio International Equity
Fund II, Artio International Equity Fund and Artio Total
Return Bond Fund, respectively.
Net client cash flows in institutional commingled funds
increased by $1.5 billion, or 155%, to $2.4 billion
for the year ended December 31, 2007 from $1.0 billion
for the year ended December 31, 2006 as a result of a
$1.5 billion increase in gross client cash inflows into the
International Equity II strategy partially offset by
increased gross client cash outflows within the International
Equity I and International Equity II strategies.
Net client cash flows in separate accounts increased by
$0.7 billion, or 28%, to $3.3 billion for the year
ended December 31, 2007 from $2.6 billion for the year
ended December 31, 2006. This increase was largely due to
the addition of a $1.6 billion fixed income mandate, during
2007, invested in both our High Grade Fixed Income and High
Yield strategies. Gross client cash inflows increased as a
result of this mandate as well as a combined increase of
$0.5 billion in gross client cash inflows within the
International Equity I and International Equity II
strategies. Gross client cash outflows within separate accounts
increased by $1.3 billion as a result of an increase in
gross client cash outflows of $1.3 billion within the
International Equity I strategy.
Net client cash flows within sub-advised accounts decreased by
$0.3 billion, or 31%, to $0.6 billion for the year
ended December 31, 2007 from $0.8 billion for the year
ended December 31, 2006. This decrease was attributable to
reduced net client cash flows in the Global Equity strategy.
Market appreciation for the year ended December 31, 2007
amounted to $9.7 billion as compared to $11.0 billion
for the year ended December 31, 2006. The impact of such
appreciation was material to us. Market appreciation for the
year ended December 31, 2007 was principally derived from
the International Equity I strategy $(6.4 billion),
International Equity II strategy $(2.8 billion), High
Grade Fixed Income strategy $(0.3 billion), High Yield
strategy $(0.1 billion) and Global Equity strategy
$(0.1 billion).
Market appreciation for the year ended December 31, 2006
was principally derived from the International Equity I strategy
$(9.4 billion), International Equity II strategy
$(1.5 billion) and other International Equity strategies
$(0.1 billion). Market appreciation reflected strong
performance of the underlying markets as well as the success of
our strategies in generally outperforming the relevant indices.
The $1.3 billion decrease in market appreciation for the
year ended December 31, 2007 as compared to the year ended
December 31, 2006 relates primarily to a positive return of
16.7% within the MSCI AC World ex USA Index during the year
ended December 31, 2007 as compared to a 26.7% positive
return in the index during the year ended December 31, 2006
as this index is comparable to the investment profile of our
International Equity strategies. This decline in benchmark
performance was partially offset by increased client cash flows,
and higher average assets under management, throughout 2007,
which resulted in increased market appreciation in absolute
terms. Additionally, the decline in relative performance was
partially offset by excess performance over the benchmark
generated by our International Equity strategies. For the year
ended December 31, 2007 our gross performance outperformed
the index by 1.8% for our International Equity I strategy and
1.6% for our International Equity II strategy. This
compares to an outperformance of the index by 6.2% for our
International Equity I strategy and 4.3% for our International
Equity II strategy for the year ended December 31,
2006.
95
Revenues and
Other Operating Income
The following table sets forth the changes in total revenues and
other operating income for the years ended December 31,
2006 and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2007
|
|
|
$ Change
|
|
|
% Change
|
|
|
|
(Dollars in thousands)
|
|
|
Investment management fees
|
|
$
|
300,432
|
|
|
$
|
445,558
|
|
|
$
|
145,126
|
|
|
|
48
|
%
|
Foreign currency gains (losses)
|
|
|
|
|
|
|
186
|
|
|
|
186
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues and other operating income
|
|
|
300,432
|
|
|
|
445,744
|
|
|
|
145,312
|
|
|
|
48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues and other operating income increased by
$145.3 million, or 48%, to $445.7 million for the year
ended December 31, 2007 from $300.4 million for the
year ended December 31, 2006. This increase was primarily
due to an increase in investment management fees of
$145.1 million, or 48%, to $445.6 million for the year
ended December 31, 2007 from $300.4 million for the
year ended December 31, 2006 as a result of a
$22.9 billion increase in average assets under management
during 2007 compared to 2006. This increase was primarily due to
an increase in net sales into the International Equity II
and Total Return Bond strategies, which was partially offset by
$1.2 billion of net client cash outflows in our
International Equity I strategy, as that was closed to new
investors during 2005. The increase was also due to an increase
in average assets under management due to market appreciation.
The effective fee rate declined from 68.7 basis points for
the year ended December 31, 2006 to 66.9 basis points
for the year ended December 31, 2007. The primary reason
for the decrease in the average annualized fee was the growth of
assets in certain of our strategies other than our International
Equity strategies, specifically our High Grade Fixed Income
strategy, which generally has lower average investment
management fees than our International Equity strategies.
Operating
Expenses
The following table sets forth the changes in operating expenses
for the years ended December 31, 2006 and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2007
|
|
|
$ Change
|
|
|
% Change
|
|
|
|
(Dollars in thousands)
|
|
|
Salaries, incentive compensation and benefits
|
|
$
|
69,677
|
|
|
$
|
92,277
|
|
|
$
|
22,600
|
|
|
|
32
|
%
|
Allocation of Class B profits interests
|
|
|
53,410
|
|
|
|
83,512
|
|
|
|
30,102
|
|
|
|
56
|
|
Change in redemption value Class B profits interests
|
|
|
46,932
|
|
|
|
76,844
|
|
|
|
29,912
|
|
|
|
64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total employee compensation and benefits
|
|
|
170,019
|
|
|
|
252,633
|
|
|
|
82,614
|
|
|
|
49
|
|
Shareholder servicing and marketing expenses
|
|
|
20,134
|
|
|
|
25,356
|
|
|
|
5,222
|
|
|
|
26
|
|
General and administrative expenses
|
|
|
31,510
|
|
|
|
50,002
|
|
|
|
18,492
|
|
|
|
59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
221,663
|
|
|
|
327,991
|
|
|
|
106,328
|
|
|
|
48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
96
Operating expenses increased by $106.3 million, or 48%, to
$328.0 million for the year ended December 31, 2007
from $221.7 million for the year ended December 31,
2006. The increase was largely due to increased employee
compensation and benefits expenses and professional fees.
Employee compensation and benefits increased by
$82.6 million, or 49%, to $252.6 million for the year
ended December 31, 2007 from $170.0 million for the
year ended December 31, 2006. Approximately
$60.0 million of the increase in our compensation costs was
driven by the allocations of income to our Principals made on
their Class B profits interests as well as the increase in
the redemption value of their Class B profits interests
during the year. Following the completion of this offering, the
costs relating to these Class B profits interests as well
as the change in the redemption value of these Class B
profits interests will no longer be reflected as compensation
expense. In addition, $20.3 million of the increase in
employee compensation and benefits was related to increases in
our staffing levels to support our growth and increased
incentive compensation related primarily to our increased
profitability.
Shareholder servicing and marketing expenses increased by
$5.2 million, or 26%, to $25.4 million for the year
ended December 31, 2007 from $20.1 million for the
year ended December 31, 2006, primarily due to the growth
of the average market value of mutual fund assets under
management increasing shareholder servicing expenses.
General and administrative expense increased by
$18.5 million, or 59%, to $50.0 million for the year
ended December 31, 2007 from $31.5 million for the
year ended December 31, 2006 primarily due to
(i) $4.6 million of professional fees relating to an
internal control project to prepare for our required compliance
with Sarbanes-Oxley, (ii) systems infrastructure costs
relating to the separation from our parent in connection with
this offering, (iii) $6.3 million of professional fees
and restructuring costs relating to our initiatives in
alternative products and (iv) $4.7 million of
professional fees related to this offering. License fees totaled
$7.3 million for the year ended December 31, 2007 as
compared to $5.3 million for the year ended
December 31, 2006. Subsequent to this offering, license
fees will no longer be payable to Julius Baer Holding Ltd.
Non-operating
Income
The following table sets forth the changes in non-operating
income for the years ended December 31, 2006 and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2007
|
|
|
$ Change
|
|
|
% Change
|
|
|
|
(Dollars in thousands)
|
|
|
Non-operating income
|
|
$
|
3,288
|
|
|
$
|
7,034
|
|
|
$
|
3,746
|
|
|
|
114
|
%
|
Non-operating income, which comprises interest income and gains
(losses) on marketable securities, increased by
$3.7 million, or 114%, to $7.0 million for the year
ended December 31, 2007 from $3.3 million for the year
ended December 31, 2006. No dividend was declared out of
2006 earnings until the third quarter of 2007, and no dividend
was declared on 2007 earnings until the first quarter of 2008.
As a result we had greater investable cash balances during 2007
than we did in 2006, which generated investment earnings in 2007
that were $3.7 million greater than investment earnings in
2006.
97
Income
Taxes
The following table sets forth the changes in income tax for the
years ended December 31, 2006 and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2007
|
|
|
$ Change
|
|
|
% Change
|
|
|
|
(Dollars in thousands)
|
|
|
Income before income tax expense
|
|
$
|
82,057
|
|
|
$
|
124,787
|
|
|
$
|
42,730
|
|
|
|
52
|
%
|
Income tax expense
|
|
|
38,514
|
|
|
|
58,417
|
|
|
|
19,903
|
|
|
|
52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before discontinued operations
|
|
|
43,543
|
|
|
|
66,370
|
|
|
|
22,827
|
|
|
|
52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense increased by $19.9 million, or 52%, to
$58.4 million for the year ended December 31, 2007
from $38.5 million for the year ended December 31,
2006 due to the increase in income. Our effective tax rate was
47% for both years.
Liquidity and
Capital Resources
Working
Capital
Our working capital requirements historically have been met
through cash generated by operations. Our current working
capital is sufficient to meet our current obligations. Below is
a table showing our liquid assets as of December 31, 2006,
2007, and 2008, and June 30, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
June 30,
|
|
|
% Change
|
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2007-2006
|
|
|
2008-2007
|
|
|
2009-2008
|
|
|
|
(Dollars in thousands)
|
|
|
Cash and cash equivalents
|
|
$
|
61,055
|
|
|
$
|
133,447
|
|
|
$
|
86,563
|
|
|
$
|
111,324
|
|
|
|
122
|
%
|
|
|
(35
|
)%
|
|
|
29
|
%
|
Marketable securities less securities held for deferred
compensation
|
|
|
65,070
|
|
|
|
42,711
|
|
|
|
65,418
|
|
|
|
21,682
|
|
|
|
(34
|
)
|
|
|
53
|
|
|
|
(67
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
126,125
|
|
|
|
176,158
|
|
|
|
151,981
|
|
|
|
133,006
|
|
|
|
41
|
|
|
|
(14
|
)
|
|
|
(12
|
)
|
Fees receivable and accrued revenues
|
|
|
55,526
|
|
|
|
87,378
|
|
|
|
54,799
|
|
|
|
46,309
|
|
|
|
57
|
|
|
|
(37
|
)
|
|
|
(15
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liquid assets
|
|
$
|
181,651
|
|
|
$
|
263,536
|
|
|
$
|
206,780
|
|
|
$
|
179,315
|
|
|
|
46
|
|
|
|
(22
|
)
|
|
|
(13
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We manage our cash balances in order to fund our day-to-day
operations. Excess cash balances are used to purchase primarily
U.S. Treasury obligations in order to earn interest income.
If there is a requirement for a large amount of cash, we
monetize our investments.
Fees receivable and accrued revenues represent fees that have
been, or will be billed to our clients. We perform a review of
our receivables on a monthly basis and contact clients with
receivables older than 60 days. We review receivables and
provide an allowance for doubtful accounts for any receivables
when appropriate. At June 30, 2009, the allowance for
doubtful accounts was not material to our receivables balance.
Historically, we have been able to collect most receivables
within a
60-day time
frame.
Future Capital
Requirements
We expect that our cash and liquidity requirements in the twelve
months following this offering, and over the long term, will be
met primarily through cash generated by our operations, a
98
$60.0 million three-year term debt facility, and borrowings
under a $50.0 million three-year revolving credit facility,
each of which was established in connection with this offering.
The $60.0 million three-year term debt facility will be
used, together with available cash, to fund a distribution to us
that we will use to fund a distribution to our parent, and will
also be utilized to provide working capital and, potentially,
seed capital for future investments. Borrowings under the term
debt facility will bear interest at a rate equal to, at our
option, (i) LIBOR plus 300 basis points under pricing
tier 1; 350 basis points under pricing tier 2 and
400 basis points under pricing tier 3 or (ii) the
base rate plus 200 basis points under pricing tier 1;
250 basis points under pricing tier 2 and
300 basis points under pricing tier 3. Interest will
be payable (i) at our option, on a one-, two- or
three-month basis, if related to a LIBOR borrowing or
(ii) quarterly, if related to a base rate borrowing. The
amortization schedule requires principal payments of 0%, 30% and
30%, in years one, two and three, respectively, as well as a
final payment of 40% at maturity. Our distribution to our
parent, which we have declared prior to this offering, will be
calculated as $40.1 million plus total stockholders
equity as of the date of the closing of this offering and is
estimated to be $201.3 million on a pro forma basis
(approximately $161.2 million of which will be paid shortly
after the completion of this offering and $40.1 million of
which will be payable within one year of the completion of this
offering).
The $50.0 million three-year revolving credit facility will
be used primarily for working capital needs. Borrowings under
the revolving credit facility will bear interest at a rate equal
to, at our option, (i) LIBOR plus 300 basis points
under pricing tier 1; 350 basis points under pricing
tier 2 and 400 basis points under pricing tier 3
or (ii) the base rate plus 200 basis points under
pricing tier 1; 250 basis points under pricing
tier 2 and 300 basis points under pricing tier 3.
The interest rate will be floating and will reset at certain
intervals.
The term debt facility and revolving credit facility contain
certain customary covenants including, but not limited to,
limitations on Artio Global Holdings ability to:
(1) incur indebtedness, (2) engage in mergers or other
fundamental changes to its business, or sales and other
dispositions of its property or assets and (3) make
dividend payments or other distributions (other than, among
others, distributions for taxes, a distribution in an amount
equal to the consolidated members equity of Artio Global
Holdings and its subsidiaries, which we have declared and which
will be paid shortly after the completion of this offering, or
the deferred distribution of $40.1 million which we have
declared and which will be payable within one year of the
completion of this offering), if its consolidated leverage ratio
(calculated as set forth below) would exceed 1.5x on a pro forma
basis after giving effect to such payment or if it is in default
under the term debt facility or the revolving credit facility.
In addition, the covenants in the term debt facility and
revolving credit facility require compliance with the following
financial ratios, to be calculated on a consolidated basis at
the end of each fiscal quarter:
|
|
|
|
|
maintenance of a maximum consolidated leverage ratio (calculated
as the ratio of consolidated funded indebtedness (as defined in
the credit facility agreement) plus the remaining amount of the
deferred distribution of $40.1 million which we will
declare prior to this offering and pay within one year of the
completion of this offering to consolidated EBITDA (as defined
in the credit facility agreement) for the last six months
calculated on an annualized basis) of less than or equal to
2.00x; and
|
|
|
|
maintenance of a minimum consolidated interest coverage ratio
(calculated as the ratio of consolidated EBITDA (as defined in
the credit facility agreement) for the last six months to
consolidated interest charges (as defined in the credit facility
agreement) for such period) of greater than or equal to 4.00x.
|
Our anticipated capital requirements include:
|
|
|
|
|
providing capital to facilitate our expansion into new products
or strategies, both to fund their operating expenses and,
potentially, as seed capital to invest in such products or
strategies;
|
|
|
|
managing working capital needs, as we receive payments of fees
on a deferred basis;
|
99
|
|
|
|
|
paying our operating expenses, primarily consisting of employee
compensation and benefits;
|
|
|
|
making principal payments on our $60.0 million term debt
facility;
|
|
|
|
paying interest expense on the indebtedness we intend to incur
in connection with this offering (including the term debt
facility and revolving credit facility);
|
|
|
|
paying dividends in accordance with our dividend policy and the
$40.1 million dividend declared prior to this offering that
will be payable to our parent within one year of the completion
of this offering;
|
|
|
|
paying income taxes, including distributions by our operating
company to us and the Principals to cover income taxes; and
|
|
|
|
paying amounts due to our Principals with respect to the tax
receivable agreement.
|
We are a holding company and have almost no assets other than
our ownership of membership units in Artio Global Holdings and
the deferred tax asset related to our Principals ownership
of interests in Artio Global Holdings. In connection with the
reorganization, our operating company intends to make an
estimated distribution of $161.2 million to its existing
members representing all of the undistributed earnings generated
up to the date of this offering. Artio Global Holdings has
established, in connection with this offering, a
$60.0 million term debt facility which, together with
available cash, will be used to fund a distribution to us and
for other purposes described above. We anticipate that
distributions to the members of Artio Global Holdings, which
immediately following this offering will consist of our
Principals and us, will continue to be a material use of our
cash resources and will vary in amount and timing based on our
operating results and dividend policy. We currently intend to
declare regular cash dividends, from the first quarter of 2010
onward, to holders of our Class A common stock and
Class C common stock.
We will fund any distribution pursuant to our dividend policy by
causing (i) Artio Global Management to make a distribution
to Artio Global Holdings, and (ii) Artio Global Holdings to
distribute to us and our Principals, on a pro rata basis, all or
a portion of the proceeds received by it.
We may be required to make payments under the tax receivable
agreement we will enter into with our Principals in connection
with this offering. The future taxable exchanges by our
Principals of New Class A Units of Artio Global Holdings
for our Class A common stock, on a one-for-one basis,
subject to customary conversion rate adjustments for stock
splits, stock dividends and reclassifications and other similar
transactions, is expected to result in an increase of the tax
basis of Artio Global Holdings tangible and intangible
assets with respect to such exchanged New Class A Units.
This increase in tax basis will increase, for tax purposes, the
amount of depreciation and amortization expense allocable to us
generally over a
15-year
period from the year of exchange and may therefore reduce the
amount of tax that we would otherwise have been required to pay.
Pursuant to the tax receivable agreement, we will agree to pay
to each of our Principals 85% of the amount of the reduction in
tax payments, if any, in U.S. federal, state and local
income tax that we actually realize as a result of this increase
in tax basis created by each Principals exchanges.
Assuming no material changes in the relevant tax law and that we
can earn sufficient taxable income to realize the full tax
benefit of the increased basis, the reduced tax payments for us
from such exchanges would aggregate approximately
$322.6 million over 15 years from conversion using the
offering price per share as a basis for calculation and assuming
such exchanges, other than the exchanges upon this offering,
would occur six months after this offering. Under such scenario
we would be required to pay our Principals 85% of such amount,
or $274.2 million over the
15-year
period from such assumed year of exchange based on an assumed
price of $26.00 per share of our Class A common stock at
the time of the exchange of all of their New Class A Units.
The actual amounts may materially differ from these hypothetical
amounts and may be substantial, as potential future payments
will be calculated using the market value of the shares and the
prevailing tax rates at the time of exchange and will be
dependent on us generating sufficient future taxable income to
realize the benefit.
100
Payments to the Principals under the tax receivable agreement,
if any, will be made on an annual basis to the extent there is
sufficient taxable income to utilize the increased depreciation
and amortization charges. The availability of sufficient taxable
income to utilize the increased depreciation and amortization
expense will not be determined until such time as the financial
results for the year in question are known and tax estimates
prepared which, typically, are within 90 days of the end of
such calendar year. We expect to make payments to our
Principals, to the extent they are required, within
105 days of the calendar year in which the increased
depreciation and amortization expense was utilized. Further, we
have the right to terminate the tax receivable agreement prior
to the utilization of the increased depreciation and
amortization expenses. If we choose to exercise such right, we
would be required to pay the Principals the net present value of
all future payments under the tax receivable agreement. If we
were required to make any such termination payment, we may have
to incur debt to finance the payment to the extent our cash
resources are insufficient to meet our obligations under the
agreement. Although we are not aware of any issue that would
cause the IRS to challenge a tax basis increase, we will not be
reimbursed for any payments previously made under the tax
receivable agreement if the basis increase were to be
successfully challenged by the IRS. As a result, in certain
circumstances, payments could be made under the tax receivable
agreement in excess of the reduction in tax payments that we
actually realize. Therefore, we may need to incur debt to
finance payments to the IRS if the basis increase is
successfully challenged by the IRS. The potential future
payments to our Principals, if any, under the tax receivable
agreement will be funded by the reduction in tax payments as
well as the incurrence of debt, to the extent necessary, as
described above.
The impact that the tax receivable agreement will have on our
consolidated financial statements will be the establishment of a
liability, upon the exchanges of our Principals New
Class A Units for our Class A common stock,
representing 85% of the estimated future tax benefits, if any,
relating to the increase in tax basis associated with the future
taxable exchanges by our Principals. As the amount and timing of
any payments will vary based on a number of factors (including
the timing of future exchanges, the price of our Class A
common stock at the time of any exchange, the extent to which
such exchanges are taxable and the amount and timing of our
income), depending upon the outcome of these factors, we may be
obligated to make substantial payments to our Principals. In
light of the numerous factors affecting our obligation to make
such payments, however, the timing and amount of any such actual
payments are not reasonably ascertainable at this time.
Cash
Flows
The following table sets forth our cash flows on a GAAP basis
for 2006, 2007 and 2008, and the first six months of 2008 and
2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31,
|
|
|
For the six months ended June 30,
|
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2008
|
|
|
2009
|
|
|
|
(Dollars in thousands)
|
|
|
Cash flow data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
$
|
45,501
|
|
|
$
|
112,215
|
|
|
$
|
100,109
|
|
|
$
|
22,316
|
|
|
$
|
(3,234
|
)
|
Net cash provided by (used in) investing activities
|
|
|
(11,924
|
)
|
|
|
19,991
|
|
|
|
(29,892
|
)
|
|
|
(11,418
|
)
|
|
|
41,963
|
|
Net cash (used in) financing activities
|
|
|
|
|
|
|
(60,000
|
)
|
|
|
(117,000
|
)
|
|
|
(82,000
|
)
|
|
|
(14,000
|
)
|
Effect of exchange rate changes on cash
|
|
|
|
|
|
|
186
|
|
|
|
(101
|
)
|
|
|
(22
|
)
|
|
|
32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
$
|
33,577
|
|
|
$
|
72,392
|
|
|
$
|
(46,884
|
)
|
|
$
|
(71,124
|
)
|
|
$
|
24,761
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101
The change in operating cash flows during the first six months
of 2009 from a provision to a use reflects materially lower net
income. The first six months of the year is the period of our
greatest cash use, since we make incentive compensation and
profits interests payments to our Principals for the prior year
during the first six months. The significant cash use is not
indicative of what can be expected for the remaining half of
2009. We reduced our holdings of investment securities during
the first half of 2009 to pay incentive compensation awards,
profits interests, and a $14 million dividend to our parent.
Net purchases of marketable securities are included in net cash
provided by operating activities in 2006 in accordance with
accounting guidance for SEC-registered broker dealers. We
discontinued this treatment as of January, 2007 since we
withdrew our broker-dealer license in the second half of 2006.
For 2007 and 2008, net purchases of marketable securities are
reflected in cash provided by (used in) investing activities. As
a result, the components of our cash flows are not comparable
between 2006 and the subsequent years. We believe it is more
meaningful to present cash flows relating to marketable
securities in 2006 in a manner consistent with the 2007 and 2008
presentations. This results in a non-GAAP presentation of
reclassified operating and investing cash flows for 2006. In
addition to these reclassifications, we also separated operating
cash flows related to discontinued operations from those related
to continuing operations in 2006 and 2007. We did not reflect
the cash flows for the six months ended June 30, 2008 and
2009 below, as such amounts are reported on a consistent basis
in the GAAP presentation.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
|
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
|
(Dollars in thousands)
|
|
|
Cash flow data:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
$
|
45,501
|
|
|
$
|
112,215
|
|
|
$
|
100,109
|
|
Net purchases of marketable securities
|
|
|
33,054
|
|
|
|
|
|
|
|
|
|
Discontinued operations
|
|
|
5,792
|
|
|
|
(7,938
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassified non-GAAP cash flow provided by continuing operating
activities
|
|
|
84,347
|
|
|
|
104,277
|
|
|
|
100,109
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
(11,924
|
)
|
|
|
19,991
|
|
|
|
(29,892
|
)
|
Net purchases of marketable securities
|
|
|
(33,054
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassified non-GAAP cash flow provided by (used in) investing
activities
|
|
|
(44,978
|
)
|
|
|
19,991
|
|
|
|
(29,892
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) financing activities
|
|
|
|
|
|
|
(60,000
|
)
|
|
|
(117,000
|
)
|
Reclassified net cash provided by (used in) discontinued
operations
|
|
|
(5,792
|
)
|
|
|
7,938
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash
|
|
|
|
|
|
|
186
|
|
|
|
(101
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
$
|
33,577
|
|
|
$
|
72,392
|
|
|
$
|
(46,884
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassified non-GAAP cash flow provided by continuing operating
activities decreased by $4.2 million in 2008 from 2007. Net
income in 2008 decreased by $6.8 million from 2007 levels
as our revenues decreased due to reduced average assets under
management and reduced effective fee rates as discussed in
Results of Operations. Net cash provided by
continuing operating activities (non-GAAP) increased by
$20.0 million to $104.3 million for the year ended
December 31, 2007 from $84.3 million for the year
ended December 31, 2006 primarily as a result of an
increase in net income of $23.2 million. In addition, cash
flows from operating activities (non-GAAP) has grown as a result
of higher non-cash expenses net of taxes totaling
$16.6 million, primarily relating to compensation charges
associated with the change in redemption value of our
Principals Class B profits interests. These were
partially offset by increased fees receivable and accrued income
of $11.6 million.
102
Investing activities consist primarily of investments of our
excess cash balances. We typically invest in instruments issued
by the U.S. Treasury or its agencies and manage our
purchases or sales of such investments in order to meet certain
large outlays, particularly dividend payments to our parent. In
2006, we did not make a dividend payment and, as a result, we
did not have to sell a significant part of our marketable
securities portfolio to meet that obligation. In 2007, we paid
our parent $60 million in dividends, which required us to
sell a portion of the investments we purchased in 2006 and 2007.
We ended 2007 with a large cash balance after the dividend
payment. In 2008, we partially funded the $117 million
dividend through the sale of marketable securities.
Net cash used by financing activities was $117 million and
$60 million for the years ended December 31, 2008 and
2007, respectively, as a result of dividends to our parent in
those amounts. No cash was used by financing activities in 2006.
Market
Risk
Revenues and
Other Operating Income
Our exposure to market risk is directly related to the role of
our operating company as investment advisor for the proprietary
funds, institutional commingled funds, separate accounts, and
sub-advised accounts it manages. Substantially all of our
revenue is derived from investment advisory agreements with
these funds and accounts. Under these agreements, the fees we
receive are based on the fair value of the assets under
management and our fee rates. Accordingly, our revenue and
income may decline as a result of:
|
|
|
|
|
the value of assets under management decreasing;
|
|
|
|
our clients withdrawing funds; or
|
|
|
|
a shift in product mix to lower margin products.
|
The fair value of assets under management was $46.8 billion
as of June 30, 2009. Assuming a 10% increase or decrease in
the value of the assets under management and the change being
proportionally distributed over all our products, the fair value
would increase or decrease by $4.7 billion, which would
cause an annualized increase or decrease in total revenues and
other operating income of approximately $29.0 million at
our current effective fee rate.
We have not adopted a corporate-level risk management policy
regarding client assets, nor have we historically attempted to
hedge at the corporate level the market risks that would affect
the value of separate client portfolios or our overall assets
under management. Indeed, some of these risks (e.g., sector
risks, currency risks) are inherent in certain strategies, and
clients may invest in particular strategies to gain exposure to
these risks.
Marketable
Securities
We are subject to market risk from a decline in the price of
marketable securities that we own to manage our excess cash and
fund future deferred compensation liabilities. These securities
consist primarily of U.S. government and agency
instruments. The fair value of these marketable securities was
$28.6 million as of June 30, 2009. Management
regularly monitors the value of these investments; however,
given their nature and relative size, we have not adopted a
specific risk management policy to manage the associated market
risk. Assuming a 10% increase or decrease in the values of these
marketable securities, the fair value would increase or decrease
by $2.9 million at June 30, 2009.
The marketable securities held as of June 30, 2009 were
denominated in U.S. dollars. The securities held in
relation to the deferred compensation plan include mutual funds
whose underlying assets are primarily non-dollar denominated.
The effect of a change in exchange rates on such securities
would not have a material effect on the financial statements.
103
Exchange Rate
Risk
A substantial portion of the accounts that we advise, or
sub-advise, hold investments that are denominated in currencies
other than the U.S. dollar. These client portfolios may
hold currency forwards or other derivative instruments. The fair
value of these investments and instruments may be affected by
movements in the rate of exchange between the U.S. dollar
and the underlying foreign currency. Such movements in exchange
rates affect the fair value of assets held in accounts we
manage, thereby affecting the amount of revenue we earn. The
fair value of the assets we manage was $46.8 billion as of
June 30, 2009. The fair value of the assets under
management would decrease, with an increase in the value of the
U.S. dollar, or increase, with a decrease in the value of
the U.S. dollar. Excluding the impact of any hedging
arrangements, a 10% increase or decrease in the value of the
U.S. dollar would decrease or increase the fair value of
the assets under management by $3.5 billion, which would
cause an annualized increase or decrease in total revenues and
other operating income of $21.6 million. As of
June 30, 2009, approximately 74.8% of our assets under
management was denominated in currencies other than the
U.S. dollar.
Interest Rate
Risk
Certain of the accounts we advise or sub-advise own fixed income
securities. Further, we typically invest our excess cash
balances in short-term U.S. government fixed income
securities. Interest rate changes affect the fair value of such
investments or the revenue we earn from them.
Assuming a 100 basis point increase or decrease in the
U.S. Treasury Note rate (and rates directly or indirectly
tied to such rate), we estimate that the value of the fixed
income securities we manage or sub-advise would change by
approximately $248.5 million. The impact of such change
would not have a material impact on our revenues or net income.
Additionally, borrowings under our $60.0 million term debt
facility will bear interest, at our option, (i) of one-,
two-, three-, or six-month LIBOR plus 300 basis points
under pricing tier 1; 350 basis points under pricing
tier 2 and 400 basis points under pricing tier 3
or (ii) the base rate plus 200 basis points under
pricing tier 1; 250 basis points under pricing
tier 2 and 300 basis points under pricing tier 3.
For every 10 basis point move in interest rates, our annual
interest expense will increase or decrease by approximately
$60,000.
Contractual
Obligations
The following table sets forth our total contractual obligations
as of December 31, 2008.
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Pay Period
|
|
|
|
|
|
|
Less than
|
|
|
|
|
|
|
|
|
More than
|
|
|
|
Total
|
|
|
1 year
|
|
|
1-3 Years
|
|
|
3-5 Years
|
|
|
5 Years
|
|
|
|
(Dollars in thousands)
|
|
|
Long-term debt facility
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Operating lease obligations
|
|
|
20,638
|
|
|
|
3,739
|
|
|
|
7,495
|
|
|
|
7,524
|
|
|
|
1,880
|
|
Other non-cancellable obligations
|
|
|
2,175
|
|
|
|
2,175
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested redemption value of Principals Class B profits
interests
|
|
|
201,890
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
201,890
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
224,703
|
|
|
$
|
5,914
|
|
|
$
|
7,495
|
|
|
$
|
7,524
|
|
|
$
|
203,770
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The majority of the long-term liabilities relate to the vested
redemption value of our Principals Class B profits
interests. As a result of the amendment and restatement of our
operating companys operating agreement at the time of this
offering, this liability will be eliminated upon closing of this
offering as the modification of the operating agreement will
result in the Class B profits interests being accounted for
as equity.
104
In connection with this offering, Artio Global Holdings has
established a $60.0 million term debt facility which,
together with available cash, will fund a distribution to us
that we will use to fund a distribution to our parent, and will
also be utilized to provide working capital for our business
and, potentially, seed capital for future investment products.
In addition, Artio Global Holdings has entered into a
$50.0 million revolving credit facility to be used
primarily for working capital needs. Our distribution to our
parent, which we have declared prior to this offering, will be
calculated as $40.1 million plus total stockholders
equity as of the date of the closing of this offering and is
estimated to be $201.3 million on a pro forma basis
(approximately $161.2 million of which will be paid shortly
after the completion of this offering and $40.1 million of
which will be payable within one year of the completion of this
offering).
Critical
Accounting Policies and Estimates
The preparation of our consolidated financial statements in
accordance with accounting principles generally accepted in the
United States requires management to make estimates and
judgments that affect the reported amounts of assets,
liabilities, revenues, and expenses and related disclosure of
contingent assets and liabilities. We base our estimates on
historical experience and on various other assumptions that we
believe to be reasonable under current circumstances. The
results form the basis for making judgments about the carrying
value of assets and liabilities that are not readily available
from other sources. We evaluate our estimates on an ongoing
basis. Actual results may differ from these estimates under
different assumptions or conditions.
Accounting policies are an integral part of our consolidated
financial statements. A thorough understanding of these
accounting policies is essential when reviewing our reported
results of operations and our financial position. Management
believes that the critical accounting policies and estimates
discussed below involve additional management judgment due to
the sensitivity of the methods and assumptions used.
Fair
Values
Marketable securities are carried at fair value in the statement
of financial condition. Fair value is defined 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. U.S. GAAP also provides guidance
on the use of certain valuation techniques to arrive at fair
value and creates a fair value hierarchy based upon the
transparency of inputs used in the valuation of the asset or
liability. Classification within the hierarchy is based upon the
lowest level of input that is significant to the fair value
measurement. The valuation hierarchy contains three levels:
(i) valuation inputs comprising unadjusted quoted market
prices for identical assets or liabilities in active markets
(Level 1); (ii) valuation inputs comprising quoted
prices for identical assets or liabilities in markets that are
not active, quoted market prices for similar assets and
liabilities in active markets, and other observable inputs
directly or indirectly related to the asset or liability being
measured (Level 2); and (iii) valuation inputs that
are unobservable and are significant to the fair value
measurement (Level 3). Marketable securities and cash
equivalents are valued using unadjusted quoted prices for
identical assets in active markets and, as a result, are
classified as Level 1 assets.
We elected to carry at fair value investments made to achieve
certain investment objectives. Our reasons for electing the fair
value option are as follows:
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We invest our excess cash for current yield, not for capital
gains. As such, we believe that recognizing realized and
unrealized gains or losses in the statement of income better
reflects the returns on these investments. Gains and losses on
such marketable securities, together with related interest
income, accretion and amortization, are reported in
non-operating income.
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|
We invest certain unvested deferred bonuses due employees in our
proprietary funds. As these bonuses vest, the principal and any
gains or losses are reflected as liabilities in the statement of
financial position. We believe that recognizing unrealized gains
or losses on these
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105
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|
investments in income is likely, in most cases, to better match
income with the related expense. As the expenses are reported in
employee compensation and benefits expense, the realized and
unrealized gains or losses on these securities are reported in
revenues and other operating income as net gains (losses) on
securities held for deferred compensation.
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Revenue
Recognition
We earn investment management fees as a percentage of the fair
value of assets under management. Fees earned from the
proprietary funds are calculated based on the average daily net
asset value of each fund; offshore funds fees are typically
calculated based on each funds net asset value at the end
of each month; fees earned from institutional commingled funds
are typically calculated on month-end market value of the assets
under management during the quarter; separate account fees are
calculated based on either the quarter-end market value or the
average of the month-end market values during the quarter; and
sub-advisory account fees are based on the average daily market
value of the assets under management. These fees are recorded as
earned.
Our proprietary funds and institutional commingled funds adopted
SFAS No. 157, Fair Value Measurements, for
their financial statements in 2008. In presenting data on the
sources of valuation of our assets under management, we discuss
separately those periods for which SFAS No. 157 data
are available and those years for which they are not.
Years Ended
December 31, 2006 and December 31, 2007
A substantial portion of our assets under management are
international investments, for which the last price traded on a
local exchange (which will often occur at an earlier time than
the time we use to calculate net asset value) may not
necessarily be the best price to use in calculating
the funds net asset value on a given day. Accordingly,
polices and procedures have been adopted, as described below, by
registered investment companies and commingled investment
vehicles to adjust such prices when appropriate to determine
fair value and to discourage arbitrage opportunities. During
2006 and 2007, the use of adjusted market prices had an
immaterial (less than 0.1%) impact on our total revenues and
other operating income.
The underlying securities within the portfolios we manage, which
are not reflected within our consolidated financial statements,
are carried at fair value. Policies and procedures used to
determine the fair value of assets under management are as
follows:
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|
|
The fair value policies of the proprietary funds are the
responsibility of the proprietary funds boards of
directors. Our procedures implement these policies.
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|
The fair value policy applied to valuing the commingled
investment vehicle investments is substantially the same as that
for the proprietary funds, although the procedures differ in
certain non-material respects. The procedural differences do not
result in valuation differences that would materially affect fee
revenues.
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|
Primary responsibility for valuation of separate accounts rests
with the custodians of our clients accounts. We have a
procedure for comparing valuations made following our procedures
with those reported by our clients custodians. This
procedure is intended to identify material discrepancies in fair
value. To date, there have not been any material differences
between the assets under management determined by our procedures
and those applied by the custodians. Fee revenue on separate
accounts is based on fair values determined by account
custodians.
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|
|
|
For sub-advised accounts, fair value policies are determined by
the primary advisor.
|
The proprietary funds have the following fair valuation policy:
Equity securities which are traded primarily on a U.S. or
foreign stock exchange are valued at the last sale price on that
exchange or, if there were no sales during the day, at the mean
of the
106
current quoted bid and asked prices. Other portfolio holdings
which are traded primarily on foreign securities exchanges are
generally valued at the preceding closing values of such
securities on their respective exchanges, except that when a
significant event subsequent to the closing of a foreign
exchange is likely to have changed such value, including
substantial changes in the values of U.S. markets
subsequent to the close of a foreign market. In these
circumstances, the fair value of those securities is determined
by consideration of other factors by or under the direction of
the proprietary funds board of directors or trustees or
their respective delegates.
Debt securities, including bank loans (other than government
securities and short-term obligations) are valued by independent
pricing services approved by the boards. Investments in
government securities (other than short-term securities) are
valued at the mean of the quoted bid and asked prices in the
over-the-counter market. Short-term investments that mature in
60 days or less are valued at amortized cost. Any
securities for which market quotations are not readily
available, or for which a significant event has occurred since
the time of the most recent market quotations, are valued in
accordance with fair value pricing procedures approved by the
respective board. To the extent that a fund invests in other
open-end funds, the fund calculates its net asset value based
upon the net asset value of the underlying funds in which it
invests. The prospectuses of these underlying funds explain the
circumstances under which they use fair value pricing and the
effects of such fair value pricing.
The boards of the registered investment companies have
implemented a specific fair value pricing method for foreign
equities that is applied when there is a significant increase or
decrease in U.S. markets. In such cases, security prices
are adjusted (based on their correlation to U.S. markets)
from the closing price on a local exchange to approximate the
best price as of the funds close of business. Under this
procedure, the board of the registered investment companies has
formed a valuation committee that is responsible for setting
valuation procedures. The responsibility for determining on a
daily basis when to enact fair value pricing rather than use the
last quoted market price for any security or securities has been
delegated to a pricing committee that includes the chief
financial officer and treasurer of each registered investment
company and certain other internal valuation experts. The
valuation committee regularly obtains reports to evaluate its
procedures and ensure that the pricing committee is adhering to
such procedures when reaching a decision.
Since a large number of the underlying holdings are
international investments, the valuation committee recognizes
that the last price traded on a local exchange may not
necessarily be the best price to use in calculating
the funds net asset value on a given day. The best
price represents an assessment of the effect that a local
market would have assigned to the event that gave rise to the
fair value pricing, had that local market been open
for business at the time of the funds close of business.
Consequently, it has implemented a standard-industry correlation
model which is applied to closing prices when markets rise or
fall by a level it determines is materially significant. The
approach applies stock-specific factor models which include
prices of index-linked futures, such as the S&P 500 or
Nikkei 225 Futures.
Prices obtained using this correlation model are referred to
below as prices obtained from independent pricing agents
using adjusted market prices. These prices are obtained
through application of the model, without any subjective input
by our pricing committee or other internal employees. The
pricing committee does, however, monitor the results derived
from the model to ensure that policies are being consistently
applied. As of December 31, 2006 and 2007, the substantial
majority of assets under management that were not valued solely
using data from independent pricing agents were valued using
this third-party correlation model.
On certain occasions, a specific stock, sector, or market may
not trade or abruptly halt trading during a given day.
Additionally, a post-market event may require the pricing
committee to evaluate whether the last quoted price reflects
fair value. In the rare circumstances where these post-market
events are determined by the pricing committee to result in the
last quoted market price, as adjusted by the correlation model,
not reflecting fair value, the pricing committee establishes its
own view in
107
light of the best price or fair value of the relevant
circumstances. These prices are referred to below as being
valued using valuations other than from independent
pricing agents. As of December 31, 2007 less than 5% of the
assets under management in our registered investment companies
were valued on this other basis. To establish this
valuation, the pricing committee evaluates available facts and
information, including but not limited to, the following:
|
|
|
|
|
fundamental analytical data relating to the investment and its
issuer;
|
|
|
|
the value of other comparable securities or relevant financial
instruments, including derivative securities, traded on other
markets or among dealers;
|
|
|
|
an evaluation of the forces which influence the market in which
these securities are purchased and sold (e.g., the existence of
merger proposals or tender offers for similarly situated
companies that might affect the value of the security);
|
|
|
|
information obtained from the issuer, analysts, other financial
institutions
and/or the
appropriate stock exchange (for exchange-traded securities);
|
|
|
|
government (domestic or foreign) actions or
pronouncements; and
|
|
|
|
other news events.
|
Additional factors that are considered by the pricing committee
when fair value pricing a portfolio security as a result of a
significant event may include: the nature and duration of the
event and the forces influencing the operation of the financial
markets; the factors that precipitated the event; whether the
event is likely to recur; and whether the effects of the event
are isolated or whether they affect entire markets, countries,
or regions.
In addition to establishing a best price, the implementation of
these policies is designed to help reduce arbitrage
opportunities. Management supports the boards policy and
has adopted a similar policy for its commingled investment
vehicles. At December 31, 2007, conditions merited the
application of this procedure.
As of December 31, 2006 and 2007, the sources of fair
values of assets of the registered investment companies were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2007
|
|
|
|
AuM
|
|
|
Pct
|
|
|
AuM
|
|
|
Pct
|
|
|
|
(Dollars in thousands)
|
|
|
Independent pricing agents using quoted market prices
|
|
$
|
25,711
|
|
|
|
96.7
|
%
|
|
$
|
11,734
|
|
|
|
31.6
|
%
|
Independent pricing agent using adjusted market prices to
reflect best price at U.S. market closing
|
|
|
|
|
|
|
|
%
|
|
|
23,709
|
|
|
|
63.9
|
%
|
Other
|
|
|
889
|
|
|
|
3.3
|
%
|
|
|
1,674
|
|
|
|
4.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
26,600
|
|
|
|
100.0
|
%
|
|
$
|
37,117
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The information in the table above reflects the valuation of our
sponsored proprietary funds. Because the assets of commingled
investment vehicles are very similar to those held in the
proprietary funds, the valuation of commingled investment
vehicles would mirror that of the proprietary funds in terms of
composition and valuation.
Independent pricing agents are sources such as Reuters or
Bloomberg, which provide quoted market prices. Other pricing
sources may also be independent. However, the prices are often
determined by a market-makers price levels, as opposed to
exchange prints or evaluated bid/ask or sale transactions. As
described above, with respect to the assets valued using
adjusted market prices, substantially all of such assets were
valued based on their quoted market price, adjusted by the
pricing committee to more closely reflect fair value at the
closing of U.S. markets rather than at the
108
time of their local exchanges closing, due to significant
movement in the value of equity securities during the relevant
day. During 2007, the adjustments to market price had no
material impact on our revenues, as the impact on total revenues
and other operating income in these periods compared to total
revenues and other operating income we would have earned if we
had used quoted market prices was less than 0.1%.
The information in the table above reflects the valuation of our
sponsored registered investment companies. Because the assets of
commingled investment vehicles are substantially identical to
those held in registered investment companies, the valuation of
commingled investment vehicles would substantially mirror that
of the registered investment companies in terms of composition
and valuation.
We are not responsible for determining the fair values of the
assets of separate accounts or sub-advised accounts, and do not
have access to the precise fair value methodology of the
custodians responsible for such valuation. However, as noted
above, we maintain our own internal valuation of the assets in
these vehicles and test these valuations, on a monthly basis,
against the values provided by these custodians and have not
found material deviations. Set out below, are the sources of
fair value of assets of separate, sub-advised, and hedge fund
accounts according to our internal valuation methodology as of
December 31, 2006 and 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2007
|
|
|
|
AuM
|
|
|
Pct
|
|
|
AuM
|
|
|
Pct
|
|
|
|
(Dollars in thousands)
|
|
|
Independent pricing agents using quoted market prices
|
|
$
|
20,789
|
|
|
|
98.0
|
%
|
|
$
|
28,179
|
|
|
|
97.5
|
%
|
Independent pricing agent using adjusted market prices to
reflect best price at U.S. market closing
|
|
|
421
|
|
|
|
2.0
|
%
|
|
|
709
|
|
|
|
2.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
21,210
|
|
|
|
100.0
|
%
|
|
$
|
28,888
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31, 2008 and Six-Month Period Ended June 30,
2009
Our proprietary funds and institutional commingled funds adopted
SFAS 157 for their financial statements in 2008.
The underlying securities within the portfolios we manage, which
are not reflected within our consolidated financial statements,
are carried at fair value. Policies and procedures used to
determine the fair value of assets under management are as
follows:
|
|
|
|
|
The fair value policies of the proprietary funds are the
responsibility of the funds boards of directors. Our
procedures implement these policies.
|
|
|
|
The fair value policy applied to valuing the commingled
investment vehicle investments is substantially the same as that
for the proprietary funds, although the procedures differ in
certain non-material respects. The procedural differences do not
result in valuation differences that would materially affect fee
revenues.
|
|
|
|
Primary responsibility for valuation of separate accounts rests
with the custodians of our clients accounts. We have a
procedure for comparing valuations made following our procedures
with those reported by our clients custodians. This
procedure is intended to identify material discrepancies in fair
value. To date, there have not been any material differences
between the assets under management determined by our procedures
and those applied by the custodians. Fee revenue on separate
accounts is based on fair values determined by account
custodians.
|
|
|
|
For sub-advised accounts, fair value policies are determined by
the primary advisor.
|
109
The proprietary funds have the following fair valuation policy:
Equity securities which are traded primarily on a U.S. or
foreign stock exchange are valued at the last sale price on that
exchange or, if there were no sales during the day, at the mean
of the current quoted bid and asked prices. Other portfolio
holdings, which are traded primarily on foreign securities
exchanges, are generally valued at the preceding closing values
of such securities on their respective exchanges, except that
when a significant event subsequent to the closing of a foreign
exchange is likely to have changed such value, including
substantial changes in the values of U.S. markets
subsequent to the close of a foreign market. In these
circumstances, the fair value of those securities is determined
by consideration of other factors by or under the direction of
the funds board of directors or trustees or their
respective delegates.
Debt securities, including bank loans (other than government
securities and short-term obligations) are valued by independent
pricing services approved by the boards. Investments in
government securities (other than short-term securities) are
valued at the mean of the quoted bid and asked prices in the
over-the-counter market. Short-term investments that mature in
sixty days or less are valued at amortized cost. Any securities
for which market quotations are not readily available, or for
which a significant event has occurred since the time of the
most recent market quotations, are valued in accordance with
fair value pricing procedures approved by the respective board.
To the extent that a fund invests in other open-end funds, the
fund calculates its net asset value based upon the net asset
value of the underlying funds in which it invests. The
prospectuses of these underlying funds explain the circumstances
under which they use fair value pricing and the effects of such
fair value pricing.
The boards have identified certain circumstances in which the
use of a fair value pricing method is necessary. In such
circumstances, the boards have also approved an independent fair
value service for foreign equities, which may provide the fair
value price. For options, swaps, and warrants, a fair value
price may be determined using an industry accepted modeling
tool. In addition, the funds pricing committees may
determine a fair value price, subject to the approval of the
respective board, based upon factors that include the type of
the security, the initial cost of the security and price
quotations from dealers
and/or
pricing services in similar securities or in similar markets.
On any given day, a substantial portion of the proprietary
funds assets may be classified as Level 2 solely due
to the funds use of a model-based fair value application
designed to reduce time zone arbitrage opportunities. If this
model had not been applied, these securities would have been
classified as Level 1 securities. This would not have had a
material impact on our revenues during 2008 or the first half of
2009.
The table below shows the composition of the investments in
securities of the proprietary funds and institutional commingled
funds by Levels 1, 2, and 3 as of December 31, 2008
and June 30, 2009.
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 3
|
|
|
|
|
|
|
|
|
|
Level 2
|
|
|
Significant
|
|
|
|
|
|
|
Level 1
|
|
|
Other Observable
|
|
|
Unobservable
|
|
|
|
|
|
|
Quoted Prices
|
|
|
Inputs
|
|
|
Inputs
|
|
|
Total(1)
|
|
|
|
|
|
|
(Dollars in millions)
|
|
|
|
|
|
December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proprietary funds
|
|
$
|
13,545
|
|
|
$
|
1,817
|
|
|
$
|
440
|
|
|
$
|
15,802
|
|
Institutional commingled funds
|
|
|
6,384
|
|
|
|
79
|
|
|
|
31
|
|
|
|
6,494
|
|
June 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proprietary funds
|
|
|
1,416
|
|
|
|
13,194
|
|
|
|
393
|
|
|
|
15,003
|
|
Institutional commingled funds
|
|
|
1,268
|
|
|
|
5,402
|
|
|
|
31
|
|
|
|
6,701
|
|
|
|
|
(1) |
|
Totals differ from aggregate assets under management, primarily
due to uninvested cash. |
110
We do not have responsibility for fair valuing the assets of
separate accounts or sub-advised accounts, and do not have
access to the fair value methodology of the custodians
responsible for such valuation. Accordingly, we do not compute
SFAS No. 157 data for these assets. The table below
represents our estimate of what the data for our separate
accounts and sub-advised assets might have been had we made such
a computation.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 3
|
|
|
|
|
|
|
|
|
|
Level 2
|
|
|
Significant
|
|
|
|
|
|
|
Level 1
|
|
|
Other Observable
|
|
|
Unobservable
|
|
|
|
|
|
|
Quoted Prices
|
|
|
Inputs
|
|
|
Inputs
|
|
|
Total
|
|
|
|
|
|
|
(Dollars in millions)
|
|
|
|
|
|
December 31, 2008
|
|
$
|
14,061
|
|
|
$
|
3,753
|
|
|
$
|
144
|
|
|
$
|
17,958
|
|
June 30, 2009
|
|
|
14,629
|
|
|
|
4,011
|
|
|
|
126
|
|
|
|
18,766
|
|
Deferred
Taxes
We are required to assess the probability of recovery of
deferred tax benefits recorded in the statement of financial
position at each reporting date, and to provide a valuation
allowance if one is deemed necessary.
At June 30, 2009, we did not establish a valuation
allowance for the deferred tax benefit because we believe it is
more likely than not that the benefit will be realized. In
evaluating the need for a valuation allowance, we took into
account our history of profitability and taxable income. It is
expected that the deferred tax asset will be recovered as a
result of increased amortization and depreciation deductions
allocated to us with respect to the operating subsidiarys
assets that arise as a result of each purchase of Class B
profits interests by us from a Principal under the operating
agreement of the operating subsidiary prior to its amendment and
restatement in connection with this offering. Such increased
amortization and depreciation deductions will generally occur
over a
15-year
period with respect to each such purchase.
Any recovery of deferred tax benefits over the
15-year
periods would depend on our ability to generate sufficient
taxable income. The deferred tax asset of $107.3 million at
June 30, 2009 would require annual taxable income of
$15.4 million over the
15-year
amortization period to be recovered in full. As our taxable
income has been significantly in excess of such amount and we
expect it to continue to be well in excess of such amount, we
believe that it is more likely than not that the deferred tax
asset will be recovered and, therefore, that no valuation
allowance is necessary.
Additionally, as a result of the amendment and restatement of
the operating agreement of the operating subsidiary that will
occur in connection with the offering, the liability associated
with the redemption value of the Principals Class B
profits interests in the operating subsidiary will no longer be
necessary given the exchange of the Principals
Class B profits interests results in a modification under
FAS 123(R) and will be reflected as equity upon the
offering. The deferred tax benefit related to this liability,
which represents the majority of the deferred tax asset, will be
de-recognized at the same time.
As each Principal exchanges his New Class A Units into
shares of our Class A common stock, the tax benefits
arising from the resultant
step-up in
tax basis will become determinable, and the deferred tax
benefits will be recorded at that time, to be recovered
generally over a
15-year
period in each instance. These benefits will be shared between
us and the Principals under a tax receivable agreement (see
Relationships and Related Party Transactions
Tax Receivable Agreement).
Uncertainty in
Tax Positions
We evaluate the positions we have taken (or will take) in our
tax returns, and assess the probability that, upon examination,
we will be able to realize the amounts reflected in the income
tax
111
provisions. We did not have material uncertain tax positions in
2007, 2008, and through June 30, 2009.
Adoption of
New Accounting Pronouncements
In December 2007, FASB issued Statement No. 160,
Non-controlling Interests in Consolidated Financial
Statements (SFAS 160). If we complete this
offering, the Statement will affect the accounting and
disclosure of the non-controlling interests in Artio Global
Holdings to be held by the Principals.
In June 2009, FASB issued SFAS No. 167, Amendments
to FASB Interpretation No. 46(R). We will evaluate the
effect of this Statement on our financial statements.
Off-Balance
Sheet Arrangements
We did not have any off-balance sheet arrangements as of
December 31, 2008 or as of June 30, 2009.
112
BUSINESS
Overview
We are an asset management company that provides investment
management services to institutional and mutual fund clients. We
are best known for our International Equity strategies, which
represented 84% of our assets under management as of
June 30, 2009. We also offer a broad range of other
investment strategies, including High Grade Fixed Income, High
Yield and Global Equity. As of June 30, 2009, all the
composites of these strategies had outperformed their benchmarks
since inception. In addition, since 2006, we have further
expanded our investment offerings by launching a series of
U.S. equity strategies. We offer investors the ability to
invest in each of our strategies through proprietary funds,
institutional commingled funds, separate accounts and
sub-advisory mandates where we advise other client funds. Our
superior investment performance has enabled us to attract a
diverse group of clients and to increase our assets under
management from $7.5 billion as of December 31, 2003
to $53.3 billion as of August 31, 2009, representing a
CAGR of 41%. This has driven a similar growth in our total
revenues and other operating income, from $106.3 million to
$422.0 million for the years ended December 31, 2004
and 2008, respectively, representing a CAGR of 41%. Our revenues
consist almost entirely of investment management fees which are
based primarily on the fair value of our assets under management
rather than investment performance-based fees. We believe that
our record of investment excellence and range of investment
strategies position us well for continued growth.
Our primary business objective is to consistently generate
superior investment returns for our clients. We manage our
investment portfolios based on a philosophy of style-agnostic
investing across a broad range of opportunities, focusing on
macro-economic factors and broad-based global investment themes.
We also emphasize fundamental research and analysis in order to
identify specific investment opportunities and capitalize on
price inefficiencies. We believe that the depth and breadth of
the intellectual capital and experience of our investment
professionals, together with this investment philosophy and
approach, have been the key drivers of the strong relative
returns we have generated for clients over the past decade. As
an organization, we concentrate our resources on meeting our
clients investment objectives and we seek to outsource,
whenever appropriate, support functions to industry leaders
thereby allowing us to focus our business on the areas where we
believe we can add the most value.
Our distribution efforts target institutions and organizations
that demonstrate institutional buying behavior and longer-term
investment horizons, such as pension fund consultants, broker
dealers, RIAs, mutual fund platforms and sub-advisory
relationships, enabling us to achieve significant leverage from
a relatively small sales force and client service
infrastructure. As of June 30, 2009, we provided investment
management services to a broad and diversified spectrum of
approximately 1,200 institutional clients, including some of the
worlds leading corporations, public and private pension
funds, endowments and foundations and major financial
institutions through our separate accounts, commingled funds and
proprietary funds. We also managed assets for more than 758,000
retail mutual fund shareholders through SEC-registered Artio
Global Investment Funds and other retail investors through 17
funds that we sub-advise for others.
In the mid-1990s, our Principals assumed responsibility
for managing our International Equity strategy. In the years
that followed, our superior performance began to attract
attention from third parties such as Morningstar, which awarded
a 5-star rating to the Artio International Equity Fund in 1999.
Consequently, we began to attract significant inflows. Since
1999, we have expanded to other strategies, added portfolio
managers and increased our assets under management to
$53.3 billion as of August 31, 2009. Revenues from our
parent and its affiliates represented less than 1.5% of total
revenues and other operating income for each of the years ended
December 31, 2006, 2007 and 2008 and the six months ended
June 30, 2008 and 2009.
113
Our assets under management as of June 30, 2009 by
investment vehicle and investment strategy are as follows:
|
|
|
Investment Vehicles (As of June 30, 2009)
|
|
Investment Strategies (As of June 30, 2009)
|
|
|
|
Industry
Overview
Investment management is the professional management of
securities and other assets on behalf of institutional and
individual investors. This industry has enjoyed significant
growth in recent years due to the capital inflows from sources
such as households, pension plans and insurance companies as
well as the appreciation of the worlds equity markets.
According to Cerulli Associates, global assets under management
grew by a CAGR of 12.2% from 2003 to 2007 to $53.0 trillion as
of December 31, 2007 before falling 18.5% to $43.2 trillion
as of December 31, 2008 due primarily to the dramatic fall
in stock markets around the world (for example, the MSCI World
Index fell 40.7% in 2008). According to the eVestment Alliance
database, total international equity assets under management
from U.S. institutional investors, our primary focus, grew
by 38% in 2006 to $2.1 trillion as of December 31, 2006 and
by 15% in 2007, to $2.4 trillion as of December 31, 2007,
before falling by 50% in 2008 to $1.2 trillion as of
December 31, 2008 due in large part to market depreciation.
The eVestment Alliance also reports that total equity assets
under management allocated to
non-U.S. equities
by U.S. institutional investors grew from 30% as of
December 31, 2004 to 36% as of June 30, 2009.
Traditional investment managers, such as separate account and
mutual fund managers, generally manage and advise investment
portfolios of equity and fixed income securities. The investment
objectives of these portfolios include maximizing total return,
capital appreciation, current income
and/or
tracking the performance of a particular index. Performance is
typically evaluated over various time periods based on
investment returns relative to the appropriate market index
and/or peer
group. Traditional managers are generally compensated based on a
small percentage of assets under management. Managers of such
portfolios in the United States are registered with the SEC
under the Advisers Act. Investors generally have unrestricted
access to their capital through market transactions in the case
of closed-end funds and exchange-traded funds, or through
withdrawals in the case of separate accounts and mutual funds,
or open-end funds.
Demand by U.S. investors for international equities, our
primary strategy, has been driven by investors desire to
diversify their investments and enhance investment returns.
According to
114
Pensions & Investments, the top 1,000 defined benefit
plans allocated 16.1% of their total assets to international
equities in 2008, and according to Strategic Insight, in the
U.S. mutual fund market international equities accounted
for 15.4% of total U.S. long-term mutual fund assets under
management in 2008.
Competitive
Strengths
We believe our success as an investment management company is
based on the following competitive strengths:
Long-Term
Track Record of Superior Investment Performance
We have a well-established track record of achieving superior
investment returns across our key investment strategies relative
to our competitors and the relevant benchmarks, as reflected by
the following:
|
|
|
|
|
our International Equity I composite (our longest-standing
composite) has outperformed its benchmark, the MSCI AC World ex
USA
Indexsm
ND, by 8.1% on an annualized basis since its inception in 1995
through June 30, 2009 (calculated on a gross basis before
payment of fees);
|
|
|
|
as of June 30, 2009, each of our next four largest
composites had also outperformed their benchmarks on a gross
basis since inception; and
|
|
|
|
as of June 30, 2009, four of our five funds eligible for a
Morningstar rating and representing over 99% of our assets were
rated 4- or 5- stars by Morningstar and of those five funds,
three were in the top quartile of Lipper rankings for
performance since inception.
|
Experienced
Investment Professionals and Management Team
We have an investment-centric culture that has enabled us to
maintain a consistent investment philosophy and to attract and
retain world-class professionals. Our current team of lead
portfolio managers is highly experienced, averaging
approximately 20 years of industry experience among them.
Over the past five years, our team of investment professionals
has expanded from approximately 20 to approximately
49 people and we have experienced only minimal departures
during this period. Furthermore, our entire team of senior
managers (including marketing and sales directors and client
service managers) averages approximately 24 years of
industry experience.
Leading
Position in International Equity
We have a leading position in international equity investment
management and our strategies have attracted a disproportionate
share of net asset flows in both the institutional and mutual
fund markets in recent years. As of December 31, 2008, we
ranked as the 11th largest manager of international equity
assets for U.S. institutional, tax-exempt clients and the
11th largest manager of international equity mutual funds
in the United States, according to Pensions &
Investments and Strategic Insight, respectively. We believe that
we are well-positioned to take advantage of opportunities in
this attractive asset class over the next several years.
However, in the first six months of 2009, our International
Equity strategies have generated returns that are well below
their benchmarks, which, despite our strong long-term investment
performance, could negatively impact our competitive position.
Strong Track
Records in Other Investment Strategies
In addition to our leading position in international equity, we
enjoy strong long-term track records in several of our other key
strategies. Our Total Return Bond Fund ranked in the
3rd quartile of its Lipper universe over the one-year
period, in the 2nd quartile of its Lipper universe over the
three- year period, and in the 1st decile of its Lipper
universe over the five-year period ended June 30, 2009 and
since inception, as of June 30, 2009. Our Global High
Income Fund ranked in the 1st quartile of its
115
Lipper universe over the one-year period and in the top decile
over the three and five-year periods ended June 30, 2009
and since inception, as of June 30, 2009. Our Global Equity
Fund ranked in the 3rd quartile of its Lipper universe over
the one-year period, in the 1st quartile of its Lipper
universe over the three-year period ended June 30, 2009 and
in the 2nd quartile of its Lipper universe since inception
as of June 30, 2009.
Strong
Relationships with Institutional Clients
We focus our efforts on institutions and organizations that
demonstrate institutional buying behavior and longer-term
investment horizons. As of June 30, 2009, we provided
investment management services to approximately 1,200
institutional clients invested in separate accounts, commingled
funds or proprietary funds. We have found that while
institutional investors generally have a longer and more
extensive due diligence process prior to investing, this results
in clients who are more focused on our method of investing and
our long-term results, and, as a result, our institutional
relationships tend to be longer, with less year-to-year
turnover, than is typical among retail clients.
Effective and
Diverse Distribution
Our assets under management are distributed through multiple
channels. By utilizing our intermediated distribution sources
and focusing on institutions and organizations that exhibit
institutional buying behavior, we are able to achieve
significant leverage from a relatively small sales force and
client service infrastructure. We have developed strong
relationships with most of the major pension and industry
consulting firms, which have allowed us access to a broad range
of institutional clients. As of June 30, 2009, no single
consulting firm represented greater than approximately 5% of our
assets under management and our largest individual client
represented approximately 4% of our total assets under
management. We access retail investors through our relationships
with intermediaries such as RIAs and broker dealers as well as
through mutual fund platforms and sub-advisory relationships.
Our distribution efforts with retail intermediaries,
particularly broker dealers, are more recent than our
institutional efforts and, as a result, our assets sourced
through the largest broker dealers represent a relatively small
portion of our assets under management. However, as a result of
recent consolidation among broker dealers with whom we have
established relationships, we believe we have opportunities to
reach additional retail investors through our existing
relationships.
Strong Organic
Growth in Assets under Management and Sustained Net Client
Inflows
In the period from December 31, 2003 through
August 31, 2009, our assets under management grew from
$7.5 billion to $53.3 billion, representing a CAGR of
41%. Until mid-2008, our assets under management growth was the
result of a combination of general market appreciation, our
record of outperforming the relevant benchmarks and an increase
in net client cash inflows, which we define as the amount by
which client additions to new and existing accounts exceed
withdrawals from client accounts. However, since mid-2008,
market depreciation has had a significant negative impact on our
assets under management. During the period between
December 31, 2003 and June 30, 2009, net client
inflows represented 107% of our overall growth, including
$1.9 billion of net client cash inflows during the year
ended December 31, 2008, $1.0 billion of net client
cash inflows during the six months ended June 30, 2009 and
$0.4 billion of net client cash flows for the months of
July and August 2009. The negative markets in 2008 and early
2009 reinforce the importance of sustained net client inflows in
supporting our long-term growth in assets under management.
Focused
Business Model
Our business model is designed to focus the vast majority of our
resources on meeting our clients investment objectives.
Accordingly, we take internal ownership of the aspects of our
operations that directly influence the investment process, our
client relationships and risk management. We seek to outsource,
whenever appropriate, support functions, including middle- and
back-office activities, to industry leaders, whose services we
closely monitor. This allows us to focus our efforts where we
116
believe we can add the most value. We believe this approach has
also resulted in an efficient and streamlined operating model,
which has generated strong operating margins, limited fixed
expenses and an ability to maintain profitability during
difficult periods. As a result, in the six months ended
June 30, 2009 and the year ended December 31, 2008, on
a pro forma basis, we produced an operating pre-tax profit of
$65.4 million and $245.8 million from total revenues
and other operating income of $133.3 million and
$422.0 million, representing an operating pre-tax profit
margin of 49.0% and 58.2%, respectively.
Strategy
We seek to achieve consistent and superior long-term investment
performance for our clients. Our strategy for continued success
and future growth is guided by the following principles:
Continue to
Capitalize on our Strong Position in International
Equity
We expect to continue to grow our International Equity assets
under management. Our International Equity I strategy, which had
$19.1 billion in assets under management as of
June 30, 2009, was closed to new investors in August 2005
in order to preserve its ability to invest effectively in
smaller capitalization investments. The successor strategy,
International Equity II, which mirrors the International Equity
I strategy in all respects except that it does not allocate
assets to these small capitalization investments, was launched
in March 2005. International Equity II has produced
attractive investment returns relative to industry benchmarks
since inception and has grown to $20.4 billion in assets
under management in four years (as of June 30, 2009).
According to Callan Associates, International Equity II
also had greater net flows than any other international equity
product in 2008. We believe we have the capacity to handle
substantial additional assets within our International
Equity II strategy. Given our strong reputation as a
manager of international equity and our expectation of continued
strong institutional demand for international equity, we aim to
continue to gather significant international equity assets under
management and leverage our experience in International Equity
to grow our Global Equity strategy in order to capitalize on
increasing flows into this strategy from investors in the United
States.
Grow our other
Investment Strategies
Historically, we concentrated our distribution efforts primarily
on our International Equity strategies. In recent years, we have
focused on expanding and growing our other strategies as well,
including our High Grade Fixed Income and High Yield strategies,
which have experienced significant growth in assets under
management as a result. We expect our U.S. Equity
strategies to provide additional growth now that they have
achieved their three-year performance track records, which are
an important pre-requisite to investing for many institutional
investors. In July 2009, Morningstar awarded the following
ratings for Class I shares: 5-star rating for Artio US
Smallcap Fund, 3-star rating for Artio US Multicap Fund, 3-star
rating for Artio US Midcap Fund and 2-star rating for Artio US
Microcap Fund. We also intend to continue to initiate new
product offerings in additional asset classes where we believe
our investment professionals have the potential to produce
attractive risk-adjusted returns.
Further Extend
our Distribution Capabilities
We continue to focus on expanding our distribution capabilities
into those markets and client segments where we see demand for
our product offerings and which we believe are consistent with
our philosophy of focusing on distributors who display
institutional buying behavior through their selection process
and due diligence. For example, in 2005 we supplemented our
existing distribution capabilities by developing a team to
distribute to broker dealers through targeting their head-office
product distribution teams. In addition, we have selectively
strengthened our international distribution by expanding into
Canada and expect to further develop our international
distribution over time.
117
Maintain a
Disciplined Approach to Growth
We are an investment-centric firm that focuses on the delivery
of superior long-term investment returns for our clients through
the application of our established investment processes and risk
management discipline. While we have generated significant
growth in our assets under management over the past several
years and have continued to develop a broader range of
investment offerings, we are focused on long-term success and we
will only pursue those expansion opportunities that are
consistent with our operating philosophy. This philosophy
requires that:
|
|
|
|
|
each new investment strategy and offering must provide the
potential for attractive risk adjusted returns for clients in
these new strategies without negatively affecting return
prospects for existing clients;
|
|
|
|
new client segments or distribution sources must value our
approach and be willing to appropriately compensate us for our
services; and
|
|
|
|
new product offerings and client segments must be consistent
with the broad investment mission and not alter the
investment-centric nature of our firms culture.
|
By ensuring that each new opportunity is evaluated against these
criteria we intend to maintain a disciplined approach to growth
for the long-term. For example, we closed our International
Equity I strategy to new investments in August 2005, in order to
preserve return opportunity in our smaller capitalization
investments for existing International Equity I investors. In
anticipation of this, we launched our International
Equity II strategy in March 2005 with the same focus as our
International Equity I strategy except that it does not invest
in small-cap companies.
Continue to
Focus on Risk Management
As an investment organization, we focus intensely on risk
management. We manage risk at multiple levels throughout the
organization, including directly by the portfolio manager, at
the Chief Investment Officer level, under the Enterprise Risk
Management Committee, among a dedicated risk management group
and through our legal and compliance team. At the portfolio
level, we seek to manage risk daily on a real-time basis with an
emphasis on identifying which investments are working, which
investments are not, and what factors are influencing
performance on both an intended and unintended basis. This
approach to managing portfolio-level risk is not designed to
avoid taking risks, but to seek to ensure that the risks we
choose to take are rewarded with an appropriate premium
opportunity for those risks. This approach to managing
portfolio-level risk has contributed significantly to our strong
relative investment performance and will continue to be an
integral component of our investment processes.
Investment
Strategies, Products and Performance
Overview
Our investment strategies are grouped into five categories:
International Equity (which as of June 30, 2009 included:
five proprietary funds, six institutional commingled funds, 71
separate accounts and 10 sub-advisory accounts); Global Equity
(which as of June 30, 2009 included: two proprietary funds,
three separate accounts, two institutional commingled funds and
two sub-advisory accounts); U.S. Equity (which as of
June 30, 2009 included: eight proprietary funds and one
sub-advisory account); High Grade Fixed Income (which as of
June 30, 2009 included: two proprietary funds, seven
separate accounts and three sub-advisory accounts); and High
Yield (which as of June 30, 2009 included: two proprietary
funds, one institutional commingled fund and one sub-advisory
account).
While each of our investment teams has a distinct process and
approach to managing their investment portfolios, we foster an
open, collaborative culture that encourages the sharing of ideas
and insights across teams. This approach serves to unify and
define us as an asset manager and has
118
contributed to the consistency of strong results across our
range of strategies. Although not specifically designed as such
nor centrally mandated, the following practices are core to each
teams philosophy and process:
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|
|
|
|
A team-based approach;
|
|
|
|
A reliance on internally generated research and independent
thinking;
|
|
|
|
A belief that broad-based quantitative screening prior to the
application of a fundamental research overlay is as likely to
hide opportunities as it is to reveal them;
|
|
|
|
A significant emphasis on top-down/macro inputs and broad-based
global investment themes to complement unique industry specific
bottom-up
analysis;
|
|
|
|
An intense focus on risk management, but not an aversion to
taking risk that is rewarded with an appropriate
premium; and
|
|
|
|
A belief that ultimate investment authority and accountability
should reside with individuals within each investment team
rather than committees.
|
We further believe that sharing ideas and analyses across
investment teams allows us to leverage our knowledge of markets
across the globe. In addition, this collaboration has enabled us
to successfully translate profitable ideas from one asset class
or market to another across our range of investment strategies.
We offer the following investment products to invest in our
investment strategies: proprietary funds, institutional
commingled funds, separate accounts and sub-advisory accounts.
We currently serve as investment advisor to nine SEC-registered
mutual funds that offer no-load open-end share classes. In
addition, we offer two private offshore funds to select offshore
clients. Our institutional commingled funds are private pooled
investment vehicles which we offer to qualified institutional
clients such as public and private pension funds, foundations
and endowments, membership organizations and trusts. We
similarly manage separate accounts for institutional clients
such as public and private pension funds, foundations and
endowments and generally offer these accounts to institutional
investors making the required minimum initial investments which
vary by strategy. Due to the size of the plans and specific
reporting requirements of these investors, a separately managed
account is often necessary to meet our clients needs. Our
sub-advisory accounts include seven SEC registered mutual funds
managed pursuant to sub-advisory agreements and ten non-SEC
registered funds. Our sub-advisory account services are
primarily focused on our International Equity strategies.
Clients include financial services companies looking to
supplement their own product offerings with products externally
managed by managers with specific expertise, which we provide.
The investment decisions we make and the activities of our
investment professionals may subject us to litigation and damage
to our professional reputation if our investment strategies
perform poorly. See Risk Factors Risks Related
to our Business If our investment strategies perform
poorly, clients could withdraw their funds and we could suffer a
decline in assets under management and/or become subject to
litigation which would reduce our earnings and Risk
Factors Risks Related to our Business
Employee misconduct could expose us to significant legal
liability and reputational harm.
119
Investment
Strategies
The table below sets forth the total assets under management for
each of our investment strategies as of June 30, 2009, the
strategy inception date and, for those strategies which we make
available through an SEC registered mutual fund, the Lipper
ranking of the Class I shares of such mutual fund against
similar funds based on performance since inception.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total AuM as of
|
|
|
Strategy
|
|
|
Quartile
|
|
|
|
June 30,
|
|
|
Inception
|
|
|
Ranking Since
|
|
Strategy
|
|
2009
|
|
|
Date
|
|
|
Inception
|
|
|
|
(Dollars in millions)
|
|
|
|
|
|
|
|
|
International Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
International Equity I
|
|
$
|
19,124
|
|
|
|
May 1995
|
|
|
|
2
|
|
International Equity II
|
|
|
20,371
|
|
|
|
April 2005
|
(1)
|
|
|
1
|
|
Other International Equity
|
|
|
62
|
|
|
|
Various
|
|
|
|
|
|
High Grade Fixed Income
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Return Bond
|
|
|
3,860
|
|
|
|
February 1995
|
|
|
|
1
|
|
U.S. Fixed Income & Cash
|
|
|
829
|
|
|
|
Various
|
|
|
|
|
|
High Yield
|
|
|
|
|
|
|
|
|
|
|
|
|
High Yield
|
|
|
2,017
|
|
|
|
April 2003
|
|
|
|
1
|
|
Global Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Global Equity
|
|
|
476
|
|
|
|
July 1995
|
|
|
|
2
|
|
U.S. Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Micro-Cap
|
|
|
41
|
|
|
|
August 2006
|
|
|
|
3
|
|
Small-Cap
|
|
|
7
|
|
|
|
August 2006
|
|
|
|
1
|
(2)
|
Mid-Cap
|
|
|
4
|
|
|
|
August 2006
|
|
|
|
3
|
(3)
|
Multi-Cap
|
|
|
4
|
|
|
|
August 2006
|
|
|
|
2
|
(4)
|
Other
|
|
|
31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
46,826
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
We classify within International Equity II certain
sub-advised mandates that were initially part of our
International Equity I strategy because net client cash flows
into these mandates, since 2005, have been invested according to
the International Equity II strategy and the overall
portfolios of these mandates are currently more similar to our
International Equity II strategy. |
|
(2) |
|
Lipper compares our Small Cap fund with the Lipper
Small-Cap Growth Funds class category. We believe
the Lipper Small-Cap Core Funds class category is
better aligned with the strategies with which we compete. Our
ranking since inception in the Small-Cap Core Funds
class category as of June 30, 2009 was also in the 1st
quartile. See Performance Information Used in This
Prospectus. |
|
(3) |
|
Lipper compares our Mid Cap fund with the Lipper Mid-Cap
Growth Funds class category. We believe the Lipper
Mid-Cap Core Funds class category is better aligned
with the strategies with which we compete. Our ranking since
inception in the Mid-Cap Core Funds class category
as of June 30, 2009 was also in the 3rd quartile. See
Performance Information Used in This Prospectus. |
|
(4) |
|
Lipper compares our Multi-Cap fund with the Lipper
Multi-Cap Growth Funds class category. We believe
the Lipper Multi-Cap Core Funds class category is
better aligned with the strategies with which we compete. Our
ranking since inception in the Multi-Cap Core Funds
class category as |
120
|
|
|
|
|
of June 30, 2009 was also in the 2nd quartile. See
Performance Information Used in This Prospectus. |
Set forth below is a description of each of our strategies and
their performance.
International
Equity
Our International Equity strategies are core strategies that do
not attempt to follow either a growth approach or a
value approach to investing. The International
Equity strategies invest in equity securities and equity
derivatives in developed and emerging markets outside the United
States. We believe that maintaining a diversified core
portfolio, driven by dynamic sector and company fundamental
analysis, is the key to delivering superior, risk-adjusted,
long-term performance in the international equity markets. The
investment process for the International Equity strategy is a
three phase process consisting of:
(i) thinking conducting broad global
fundamental analysis to establish relative values and priorities
across and between sectors and geographies,
(ii) screening conducting a detailed
fundamental analysis of the competitive relationship between
companies and the sectors and countries in which they operate,
and (iii) selecting carefully
considering whether the investment opportunity results from
(a) an attractive relative value, (b) a catalyst for
change, (c) in the case of emerging markets, in a market,
sector or region undergoing transformation from emerging toward
developed status, (d) a company in a dominant competitive
position or (e) a company exhibiting a strong financial
position with strong management talent and leadership. The
overall objective of our investment process is to create a
highly diversified portfolio of the most relatively attractive
securities in over 20 countries. The portfolio is monitored on a
daily basis using a proprietary attribution system that permits
us to track how particular investments contribute to performance.
The 30 professionals comprising our Global team are responsible
for managing International Equity investment strategies which,
in the aggregate, accounted for $39.6 billion of our total
assets under management as of June 30, 2009, with 44% of
these assets in proprietary funds, 30% in separate accounts, 8%
in sub-advised accounts and 18% in commingled funds.
|
|
|
|
|
International Equity I (IE I)
|
We launched this strategy in May 1995 and, as of June 30,
2009, it accounted for approximately $19.1 billion of
assets under management, including the $9.9 billion Artio
International Equity Fund. IE I was closed to new investors in
August 2005 in order to preserve the return opportunity in our
smaller capitalization investments for existing IE I investors.
As of June 30, 2009, the Artio International Equity Fund
ranked in the 77th percentile of its Lipper universe over
the past one-year period and in the 3rd and
1st quartile over the past three- and five-year periods,
respectively.
121
The following table sets forth the changes in assets under
management for the two years ended December 31, 2008 and
the six months ended June 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months
|
|
|
|
|
|
|
Ended
|
|
|
Year Ended
|
|
International Equity
I
|
|
June 30, 2009
|
|
|
December 31,
2008
|
|
|
December 31,
2007
|
|
|
|
(Dollars in millions)
|
|
|
Beginning assets under management
|
|
$
|
20,188
|
|
|
$
|
42,517
|
|
|
$
|
37,368
|
|
Net client cash flows
|
|
|
(914
|
)
|
|
|
(4,258
|
)
|
|
|
(1,223
|
)
|
Market appreciation (depreciation)
|
|
|
(160
|
)
|
|
|
(17,916
|
)
|
|
|
6,372
|
|
Transfer
|
|
|
10
|
|
|
|
(155
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending assets under management
|
|
$
|
19,124
|
|
|
$
|
20,188
|
|
|
$
|
42,517
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International Equity II (IE II)
|
We launched a second International Equity strategy in March
2005. IE II mirrors IE I in all respects except that it does not
allocate assets to small capitalization investments. We direct
all new International Equity mandates into this strategy. As of
June 30, 2009, IE II accounted for approximately
$20.4 billion of assets under management. We classify
within IE II certain sub-advised mandates that were initially
part of our IE I strategy because net client cash flows into
these mandates, since 2005, have been invested according to the
IE II strategy and the overall portfolios of these mandates are
currently more similar to our IE II strategy. As of
June 30, 2009 the Artio International Equity Fund II
ranked in the 49th percentile of its Lipper universe for
the one year and in the 1st quartile over the three year
period.
The following table sets forth the changes in assets under
management for the two years ended December 31, 2008 and
the six months ended June 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months
|
|
|
|
|
|
|
Ended
|
|
|
Year Ended
|
|
International Equity
II
|
|
June 30, 2009
|
|
|
December 31,
2008
|
|
|
December 31,
2007
|
|
|
|
(Dollars in millions)
|
|
|
Beginning assets under management
|
|
$
|
18,697
|
|
|
$
|
26,050
|
|
|
$
|
12,932
|
|
Net client cash flows
|
|
|
1,445
|
|
|
|
5,826
|
|
|
|
10,315
|
|
Market appreciation (depreciation)
|
|
|
229
|
|
|
|
(13,288
|
)
|
|
|
2,803
|
|
Transfer
|
|
|
|
|
|
|
109
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending assets under management
|
|
$
|
20,371
|
|
|
$
|
18,697
|
|
|
$
|
26,050
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other International Equity
|
In addition to our core IE I and IE II strategies, we have
several other smaller International Equity strategies that we
have developed in response to specific client requests which, in
the aggregate, accounted for approximately $0.1 billion in
assets under management as of June 30, 2009.
122
The table below sets forth the annualized returns, gross and net
(which represent annualized returns prior to and after payment
of fees, respectively) of our largest International Equity
composites from their inception to June 30, 2009, and in
the five-year, three-year and one-year periods ended
June 30, 2009, relative to the performance of the market
indices that are most commonly used by our clients to compare
the performance of the relevant composite.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period Ended June 30, 2009
|
|
International Equity
I
|
|
Since Inception
|
|
|
5 Years
|
|
|
3 Years
|
|
|
1 Year
|
|
|
Annualized Gross Returns
|
|
|
11.9
|
%
|
|
|
4.9
|
%
|
|
|
(7.2
|
)%
|
|
|
(36.0
|
)%
|
Annualized Net Returns
|
|
|
10.3
|
%
|
|
|
4.0
|
%
|
|
|
(7.9
|
)%
|
|
|
(36.5
|
)%
|
MSCI EAFE
Index®
|
|
|
3.3
|
%
|
|
|
2.3
|
%
|
|
|
(8.0
|
)%
|
|
|
(31.4
|
)%
|
MSCI AC World
ex USA
IndexSM
ND
|
|
|
3.8
|
%
|
|
|
4.5
|
%
|
|
|
(5.8
|
)%
|
|
|
(30.9
|
)%
|
International Equity II
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annualized Gross Returns
|
|
|
1.7
|
%
|
|
|
N/A
|
|
|
|
(6.2
|
)%
|
|
|
(34.1
|
)%
|
Annualized Net Returns
|
|
|
1.0
|
%
|
|
|
N/A
|
|
|
|
(6.8
|
)%
|
|
|
(34.5
|
)%
|
MSCI EAFE
Index®
|
|
|
(0.6
|
)%
|
|
|
N/A
|
|
|
|
(8.0
|
)%
|
|
|
(31.4
|
)%
|
MSCI AC World
ex USA
IndexSM
ND
|
|
|
1.5
|
%
|
|
|
N/A
|
|
|
|
(5.8
|
)%
|
|
|
(30.9
|
)%
|
The table below sets forth the annualized returns, gross and net
(which represent annualized returns prior to and after payment
of fees, respectively) of our largest International Equity
composites for the years ended December 31, 2004, 2005,
2006, 2007 and 2008, and the six months ended June 30,
2009, relative to the performance of the market indices that are
most commonly used by our clients to compare the performance of
the relevant composite.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
Year Ended December 31,
|
|
|
June 30,
|
|
International Equity
I
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
Gross Returns
|
|
|
24.0
|
%
|
|
|
18.3
|
%
|
|
|
32.9
|
%
|
|
|
18.4
|
%
|
|
|
(44.1
|
)%
|
|
|
1.9
|
%
|
Net Returns
|
|
|
22.8
|
%
|
|
|
17.1
|
%
|
|
|
31.5
|
%
|
|
|
17.5
|
%
|
|
|
(44.6
|
)%
|
|
|
1.6
|
%
|
MSCI EAFE
Index®
|
|
|
20.2
|
%
|
|
|
13.5
|
%
|
|
|
26.3
|
%
|
|
|
11.2
|
%
|
|
|
(43.4
|
)%
|
|
|
8.0
|
%
|
MSCI ACWI ex
USA
IndexSM
ND
|
|
|
20.9
|
%
|
|
|
16.6
|
%
|
|
|
26.7
|
%
|
|
|
16.7
|
%
|
|
|
(45.5
|
)%
|
|
|
13.9
|
%
|
International Equity II(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Returns
|
|
|
N/A
|
|
|
|
17.4
|
%
|
|
|
31.0
|
%
|
|
|
18.2
|
%
|
|
|
(42.3
|
)%
|
|
|
2.3
|
%
|
Net Returns
|
|
|
N/A
|
|
|
|
16.9
|
%
|
|
|
30.0
|
%
|
|
|
17.4
|
%
|
|
|
(42.6
|
)%
|
|
|
1.9
|
%
|
MSCI EAFE
Index®
|
|
|
N/A
|
|
|
|
13.7
|
%
|
|
|
26.3
|
%
|
|
|
11.2
|
%
|
|
|
(43.4
|
)%
|
|
|
8.0
|
%
|
MSCI ACWI ex
USA
IndexSM
ND
|
|
|
N/A
|
|
|
|
16.3
|
%
|
|
|
26.7
|
%
|
|
|
16.7
|
%
|
|
|
(45.5
|
)%
|
|
|
13.9
|
%
|
|
|
|
(1) |
|
Results for the year ended December 31, 2005 are for the
period from April 1, 2005 to December 31, 2005. |
The returns generated by the proprietary funds, sub-advisory
accounts, separate accounts and institutional commingled funds
invested in our International Equity strategies for the periods
ended December 31, 2008 and June 30, 2009 are
substantially similar to the returns presented in the tables
above. Please see Appendix A for more information on the
annualized returns, amount of assets under management and fee
percentages for the investment products which constitute our
International Equity strategies.
123
High Grade
Fixed Income
We manage investment grade fixed income strategies that include
high grade debt of both U.S. and
non-U.S. issuers.
Our main offering is our Total Return Bond strategy, also known
as the Core Plus strategy, which invests over 60% of portfolio
assets in the U.S. fixed income markets (the
Core) but also seeks to take advantage of those
opportunities available in the investment grade components of
non-U.S. markets
(the Plus). We also offer a Core Plus Plus strategy,
which combines our Total Return Bond strategy with allocations
from our High Yield strategy. The High Yield portion of these
assets is reflected in the High Yield section of our discussion.
In addition, we manage several U.S. fixed income and cash
strategies.
We believe an investment grade fixed income portfolio can
consistently deliver a source of superior risk-adjusted returns
when enhanced through effective duration budgeting, expansion to
include foreign sovereign debt, yield curve positioning across
multiple curves and sector-oriented credit analysis. The
investment process for the investment grade fixed income
strategies involves five key steps: (i) market
segmentation, (ii) macro fundamental analysis and screening
of global
macro-economic
factors, (iii) internal rating assignment, (iv) target
portfolio construction and (v) risk distribution
examination. The portfolio is constantly monitored and
rebalanced as needed.
The seven professionals in our High Grade Fixed Income team are
responsible for the two global high grade and U.S. fixed
income strategies which, in the aggregate, accounted for
$4.7 billion of our total assets under management as of
June 30, 2009. We have focused our distribution efforts on
these strategies since 2007 and have increased our assets under
management invested in these strategies by $2.7 billion,
since January 1, 2007, as a result. As of June 30,
2009, 31% of the $4.7 billion in assets under management
was in proprietary funds, 51% was in separate accounts and 18%
was in sub-advised accounts.
|
|
|
|
|
Total Return Bond We launched this strategy
in February 1995 and, as of June 30, 2009, it accounted for
approximately $3.9 billion of assets under management. As
of June 30, 2009, the Total Return Bond Fund ranked in the
3rd quartile of its Lipper universe over the past one-year
period and in the 2nd and 1st quartile over the past
three- and five-year periods, respectively.
|
|
|
|
U.S. Fixed Income & Cash As of
June 30, 2009, this strategy accounted for approximately
$0.8 billion of assets under management, mostly through
sub-advisory arrangements with Julius Baer Holding Ltd.s
offshore funds. See Relationships and Related Party
Transactions.
|
The following table sets forth the changes in assets under
management for the two years ended December 31, 2008 and
the six months ended June 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
Year Ended
|
|
High Grade Fixed
Income
|
|
June 30, 2009
|
|
|
December 31,
2008
|
|
|
December 31,
2007
|
|
|
|
(Dollars in millions)
|
|
|
Beginning assets under management
|
|
$
|
4,566
|
|
|
$
|
4,657
|
|
|
$
|
1,998
|
|
Net client cash flows
|
|
|
(90
|
)
|
|
|
27
|
|
|
|
2,375
|
|
Market appreciation (depreciation)
|
|
|
229
|
|
|
|
(1
|
)
|
|
|
284
|
|
Transfer
|
|
|
(16
|
)
|
|
|
(117
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending assets under management
|
|
$
|
4,689
|
|
|
$
|
4,566
|
|
|
$
|
4,657
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
124
The table below sets forth the annualized returns, gross and net
(which represent annualized returns prior to and after payment
of fees, respectively) of our principal composite, the Total
Return Bond (Core Plus) composite, from its inception to
June 30, 2009, and in the five-year, three-year, and
one-year periods ended June 30, 2009, relative to the
performance of the market indices that are most commonly used by
our clients to compare the performance of the composite.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period Ended June 30, 2009
|
|
Total Return Bond
|
|
Since Inception
|
|
|
5 Years
|
|
|
3 Years
|
|
|
1 Year
|
|
|
Annualized Gross Returns
|
|
|
7.7
|
%
|
|
|
5.8
|
%
|
|
|
6.2
|
%
|
|
|
3.9
|
%
|
Annualized Net Returns
|
|
|
6.8
|
%
|
|
|
5.1
|
%
|
|
|
5.7
|
%
|
|
|
3.4
|
%
|
Barclays Capital U.S. Aggregate Bond Index
|
|
|
6.6
|
%
|
|
|
5.0
|
%
|
|
|
6.4
|
%
|
|
|
6.0
|
%
|
Customized Index(1)
|
|
|
6.2
|
%
|
|
|
4.9
|
%
|
|
|
6.4
|
%
|
|
|
4.8
|
%
|
|
|
|
(1) |
|
The customized index is composed of 80% of the Merrill Lynch
1-10 year U.S. Government/Corporate Index and 20% of the JP
Morgan Global Government Bond
(non-U.S.)
Index. |
The table below sets forth the annualized returns, gross and net
(which represent annualized returns prior to and after payment
of fees, respectively) of our principal composite, the Total
Return Bond (Core Plus) composite, for the years ended
December 31, 2004, 2005, 2006, 2007 and 2008, and the six
months ended June 30, 2009, relative to the performance of
the market indices that are most commonly used by our clients to
compare the performance of the relevant composite.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
Year Ended December 31,
|
|
|
June 30,
|
|
Total Return Bond
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
Gross Returns
|
|
|
7.6
|
%
|
|
|
2.7
|
%
|
|
|
5.5
|
%
|
|
|
8.3
|
%
|
|
|
0.9
|
%
|
|
|
4.1
|
%
|
Net Returns
|
|
|
6.3
|
%
|
|
|
1.7
|
%
|
|
|
4.8
|
%
|
|
|
7.7
|
%
|
|
|
0.4
|
%
|
|
|
3.9
|
%
|
Barclays Capital U.S. Aggregate Bond Index
|
|
|
4.3
|
%
|
|
|
2.4
|
%
|
|
|
4.3
|
%
|
|
|
7.0
|
%
|
|
|
5.2
|
%
|
|
|
1.9
|
%
|
Customized Index(1)
|
|
|
4.7
|
%
|
|
|
(0.6
|
)%
|
|
|
4.7
|
%
|
|
|
8.2
|
%
|
|
|
5.6
|
%
|
|
|
1.4
|
%
|
|
|
|
(1) |
|
The customized index is composed of 80% of the Merrill Lynch
1-10 year U.S. Government/Corporate Index and 20% of the JP
Morgan Global Government Bond
(non-U.S.)
Index. |
The returns generated by the proprietary funds, sub-advisory
accounts and separate accounts invested in our High Grade Fixed
Income strategy for the periods ended December 31, 2008 and
June 30, 2009 are substantially similar to the returns
presented in the tables above. Please see Appendix A for
more information on the annualized returns, amount of assets
under management and fee percentages for the investment products
which constitute our High Grade Fixed Income strategies.
High
Yield
Our High Yield strategy invests in securities issued by
non-investment grade issuers in both developed markets and
emerging markets. By bringing a global perspective to the
management of high yield securities and combining it with a
disciplined, credit-driven investment process, we believe we can
provide our clients with a more diversified/higher yielding
portfolio that is designed to deliver superior risk-adjusted
returns. The investment process for the High Yield strategy
seeks to generate high total returns by following five
broad-based fundamental investment rules: (i) applying a
global perspective on industry risk analysis and the search for
investment opportunities, (ii) intensive credit research
based on a business economics approach,
(iii) stop-loss discipline that begins and ends with the
question Why should we not be selling the position?,
(iv) avoiding over-diversification to become more expert on
specific credits and (v) low portfolio turnover. The
investment process is
125
primarily a
bottom-up
approach to investing, bringing together the teams issuer,
industry and asset class research and more macro-economic,
industry and sector-based insights. With this information, the
team seeks to identify stable to improving credits. Once the
team has established a set of buyable candidates, it
constructs a portfolio through a process of relative value
considerations that seek to maximize the total return potential
of the portfolio within a set of risk management constraints.
The five professionals comprising our High Yield team are
responsible for managing the High Yield strategy which accounted
for approximately $2.0 billion of our total assets under
management as of June 30, 2009, with 48% of these assets in
proprietary funds, 20% in separate accounts, 22% in sub-advised
accounts and 10% in commingled funds. The main vehicle for this
strategy is the Artio Global High Income Fund, which we launched
in December 2002. The fund carried a Morningstar
5-star
rating on its Class I shares and Class A shares as of
June 30, 2009. The Global High Income Fund also ranked in
the 1st quartile of its Lipper universe over the one-year
period, and the top decile over the three- and five-year periods
ending June 30, 2009 and since inception, as of
June 30, 2009.
The following table sets forth the changes in assets under
management for the two years ended December 31, 2008 and
the six months ended June 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
Year Ended
|
|
High Yield
|
|
June 30, 2009
|
|
|
December 31,
2008
|
|
|
December 31,
2007
|
|
|
|
(Dollars in millions)
|
|
|
Beginning assets under management
|
|
$
|
977
|
|
|
$
|
852
|
|
|
$
|
261
|
|
Net client cash flows
|
|
|
690
|
|
|
|
365
|
|
|
|
473
|
|
Market appreciation (depreciation)
|
|
|
344
|
|
|
|
(357
|
)
|
|
|
118
|
|
Transfer
|
|
|
6
|
|
|
|
117
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending assets under management
|
|
$
|
2,017
|
|
|
$
|
977
|
|
|
$
|
852
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The table below sets forth the annualized returns, gross and net
(which represent annualized returns prior to and after payment
of fees, respectively) of our High Yield composite from its
inception to June 30, 2009, and in the five-year,
three-year, and one-year periods ended June 30, 2009,
relative to the performance of the market indices which are most
commonly used by our clients to compare the performance of the
composite.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period Ended June 30, 2009
|
|
High Yield
|
|
Since Inception
|
|
|
5 Years
|
|
|
3 Years
|
|
|
1 Year
|
|
|
Annualized Gross Returns
|
|
|
8.8
|
%
|
|
|
6.7
|
%
|
|
|
4.2
|
%
|
|
|
(1.4
|
)%
|
Annualized Net Returns
|
|
|
7.6
|
%
|
|
|
5.5
|
%
|
|
|
3.1
|
%
|
|
|
(2.3
|
)%
|
ML Global High Yield USD Constrained Index
|
|
|
7.1
|
%
|
|
|
4.5
|
%
|
|
|
2.2
|
%
|
|
|
(4.0
|
)%
|
126
The table below sets forth the annualized returns, gross and net
(which represent annualized returns prior to and after payment
of fees, respectively) of our High Yield composite for the years
ended December 31, 2004, 2005, 2006, 2007 and 2008, and six
months ended June 30, 2009 relative to the performance of
the market indices that are most commonly used by our clients to
compare the performance of the relevant composite.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
Year Ended December 31,
|
|
|
June 30,
|
|
High Yield
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
Gross Returns
|
|
|
12.9
|
%
|
|
|
5.7
|
%
|
|
|
12.6
|
%
|
|
|
5.2
|
%
|
|
|
(23.6
|
)%
|
|
|
29.4
|
%
|
Net Returns
|
|
|
11.5
|
%
|
|
|
4.4
|
%
|
|
|
11.2
|
%
|
|
|
4.1
|
%
|
|
|
(24.3
|
)%
|
|
|
28.8
|
%
|
ML Global High Yield USD Constrained Index
|
|
|
12.4
|
%
|
|
|
1.6
|
%
|
|
|
12.2
|
%
|
|
|
3.4
|
%
|
|
|
(27.5
|
)%
|
|
|
31.7
|
%
|
The returns generated by the proprietary funds, sub-advisory
accounts, separate accounts and institutional commingled funds
invested in our High Yield strategies for the periods ended
December 31, 2008 and June 30, 2009 are substantially
similar to the returns presented in the tables above. Please see
Appendix A for more information on the annualized returns,
amount of assets under management and fee percentages for the
investment products which constitute our High Yield strategies.
Global
Equity
Global Equity is a core, multi-cap equity strategy that invests
in companies worldwide. While U.S. investors have
traditionally split investment decisions into U.S. versus
non-U.S. categories,
we believe that U.S. investors will adopt the global
paradigm and this distinction will evolve into the adoption of
true global equity portfolios. The impact of globalization
continues to diminish the importance of country of
origin within the equity landscape and industry
considerations have become much more critical in understanding
company dynamics, particularly within more developed markets. We
believe that our strength in analyzing and allocating to
opportunities within developed and emerging markets positions us
to effectively penetrate this growing area. This strategy
employs the same investment process as our International Equity
strategies, but includes the U.S. equity market in its
investing universe.
In addition to managing our International Equity strategies, the
30 professionals comprising our Global team are also responsible
for our Global Equity strategy and receive input from our
U.S. Equity teams, as appropriate. As of June 30,
2009, Global Equity accounted for approximately
$476 million of assets under management, with 13% of these
assets in our proprietary funds, 56% in separate accounts, 4% in
sub-advised accounts and 27% in commingled funds. As of
June 30, 2009, the Artio Global Equity Fund ranked in the
3rd quartile of its Lipper universe over the past one-year
period and in the 1st quartile over the past three year
period and had a 3-star Morningstar rating.
We intend to focus on our Global Equity strategy as a key
additional growth driver in order to capitalize on increasing
flows into this strategy from U.S. investors. According to
InterSec Research, total net flows from U.S. tax-exempt
investors into global equity products totaled $11.4 billion
in 2008, up from $6.6 billion in 2007 and $1.8 billion
in 2006.
127
The table below sets forth the changes in assets under
management for the two years ended December 31, 2008 and
the six months ended June 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
Year Ended
|
|
Global Equity
|
|
June 30, 2009
|
|
|
December 31,
2008
|
|
|
December 31,
2007
|
|
|
|
(Dollars in millions)
|
|
|
Beginning assets under management
|
|
$
|
591
|
|
|
$
|
761
|
|
|
$
|
563
|
|
Net client cash flows
|
|
|
(121
|
)
|
|
|
115
|
|
|
|
124
|
|
Market appreciation (depreciation)
|
|
|
6
|
|
|
|
(331
|
)
|
|
|
74
|
|
Transfer
|
|
|
|
|
|
|
46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending assets under management
|
|
$
|
476
|
|
|
$
|
591
|
|
|
$
|
761
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The table below sets forth the annualized returns, gross and net
(which represents annualized returns prior to and after payment
of fees, respectively) of our Global Equity composite from its
inception to June 30, 2009, and in the five-year,
three-year and one-year periods ended June 30, 2009,
relative to the performance of the market indices that are most
commonly used by our clients to compare the performance of the
composite.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period Ended June 30, 2009
|
|
Global Equity
|
|
Since Inception
|
|
|
5 Years
|
|
|
3 Years
|
|
|
1 Year
|
|
|
Annualized Gross Returns
|
|
|
8.2
|
%
|
|
|
2.7
|
%
|
|
|
(7.1
|
)%
|
|
|
(30.9
|
)%
|
Annualized Net Returns
|
|
|
7.0
|
%
|
|
|
1.6
|
%
|
|
|
(7.7
|
)%
|
|
|
(31.3
|
)%
|
MSCI World Index
|
|
|
4.3
|
%
|
|
|
0.0
|
%
|
|
|
(8.0
|
)%
|
|
|
(29.5
|
)%
|
MSCI AC World
IndexSM
|
|
|
4.1
|
%
|
|
|
1.1
|
%
|
|
|
(7.0
|
)%
|
|
|
(29.3
|
)%
|
The table below sets forth the annualized returns, gross and net
(which represent annualized returns prior to and after payment
of fees, respectively) of our Global Equity composite for the
years ended December 31, 2004, 2005, 2006, 2007 and 2008
and the six months ended June 30, 2009, relative to the
performance of the market indices that are most commonly used by
our clients to compare the performance of the relevant composite.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
Year Ended December 31,
|
|
|
June 30,
|
|
Global Equity
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
Gross Returns
|
|
|
18.7
|
%
|
|
|
13.9
|
%
|
|
|
23.2
|
%
|
|
|
12.5
|
%
|
|
|
(40.8
|
)%
|
|
|
4.8
|
%
|
Net Returns
|
|
|
17.2
|
%
|
|
|
11.8
|
%
|
|
|
21.4
|
%
|
|
|
11.7
|
%
|
|
|
(41.2
|
)%
|
|
|
4.5
|
%
|
MSCI World Index
|
|
|
14.7
|
%
|
|
|
9.5
|
%
|
|
|
20.1
|
%
|
|
|
9.0
|
%
|
|
|
(40.7
|
)%
|
|
|
6.4
|
%
|
MSCI AC World
IndexSM
|
|
|
15.2
|
%
|
|
|
10.8
|
%
|
|
|
21.0
|
%
|
|
|
11.7
|
%
|
|
|
(42.2
|
)%
|
|
|
9.2
|
%
|
The returns generated by the proprietary funds, sub-advisory
accounts, separate accounts and institutional commingled funds
invested in our Global Equity strategies for the periods ended
December 31, 2008 and June 30, 2009 are substantially
similar to the returns presented in the tables above. Please see
Appendix A for more information on the annualized returns,
amount of assets under management and fee percentages for the
investment products which constitute our Global Equity
strategies.
128
U.S.
Equity
Our various U.S. Equity strategies were launched in July
2006 and include Micro-, Small-, Mid- and Multi-Cap investment
strategies that invest in equity securities of U.S. issuers
with market capitalizations that fit within the indicated
categories. We believe a diversified core portfolio, driven by
extensive independent research and the ability to capitalize on
price inefficiencies of companies are the key components to
delivering consistently superior long-term performance. The
investment process we undertake for these U.S. Equity
strategies focuses on individual stock selection based on
in-depth fundamental research, valuation and scenario analysis,
rather than market timing or sector/ industry concentration.
This process is comprised of three steps: (i) sector and
industry quantitative and qualitative screening,
(ii) conducting fundamental research and (iii) valuing
investments based on upside/downside scenario analysis. Our
investment process focuses on both quantitative and qualitative
factors.
The seven professionals comprising our U.S. Equity team are
responsible for managing the four distinct investment strategies
which, in the aggregate, accounted for $56 million of our
total assets under management as of June 30, 2009, with 35%
in proprietary funds and 65% in sub-advised accounts.
|
|
|
|
|
Multi-Cap We launched this strategy in
July 2006 and, as of June 30, 2009, it accounted for
approximately $4 million of assets under management. The
Multi-Cap strategy ranked in the 2nd quartile of the Lipper
Multi-Cap Growth Funds class category, since
inception as of June 30, 2009. In July 2009, Morningstar
awarded the Artio US Multicap Fund a 3-star rating.
|
|
|
|
Mid-Cap We launched this strategy in
July 2006 and, as of June 30, 2009, it accounted for
approximately $4 million of assets under management. The
Mid-Cap strategy ranked in the 3rd quartile of the Lipper
Mid-Cap Growth Funds class category, since inception
as of June 30, 2009. In July 2009, Morningstar awarded the
Class I shares of the Artio US Midcap Fund a 3-star rating.
|
|
|
|
Small-Cap We launched this strategy in
July 2006 and, as of June 30, 2009, it accounted for
approximately $7 million of assets under management. The
Small-Cap strategy ranked in the top decile in the Lipper
Small-Cap Growth Funds class category, since
inception as of June 30, 2009. In July 2009, Morningstar
awarded the Artio US Smallcap Fund a 5-star rating.
|
|
|
|
Micro-Cap We launched this strategy in
July 2006 and, as of June 30, 2009, it accounted for
approximately $41 million of assets under management. The
Micro-Cap strategy ranked in the 3rd quartile of its Lipper
universe since inception as of June 30, 2009. In July 2009,
Morningstar awarded the Artio US Microcap Fund a 2-star rating.
|
The table below sets forth the changes in assets under
management for the two years ended December 31, 2008 and
the six months ended June 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
Year Ended
|
|
U.S. Equity
|
|
June 30, 2009
|
|
|
December 31,
2008
|
|
|
December 31,
2007
|
|
|
|
(Dollars in millions)
|
|
|
Beginning assets under management
|
|
$
|
49
|
|
|
$
|
133
|
|
|
$
|
138
|
|
Net client cash flows
|
|
|
(4
|
)
|
|
|
(20
|
)
|
|
|
(9
|
)
|
Market appreciation (depreciation)
|
|
|
11
|
|
|
|
(64
|
)
|
|
|
4
|
|
Transfer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending assets under management
|
|
$
|
56
|
|
|
$
|
49
|
|
|
$
|
133
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
129
The table below sets forth the annualized returns, gross and net
(which represents annualized returns prior to and after payment
of fees, respectively) of our U.S. Equity composites from
their inception to June 30, 2009, and in the six months
ended June 30, 2009, relative to the performance of the
market indices which are most commonly used by our clients to
compare the performance of the relevant composite.
|
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|
|
|
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|
Period Ended June 30, 2009
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Since Inception
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1 Year
|
|
|
Multi-Cap
|
|
|
|
|
|
|
|
|
Annualized Gross Returns
|
|
|
(5.0
|
)%
|
|
|
(23.1
|
)%
|
Annualized Net Returns
|
|
|
(5.8
|
)%
|
|
|
(23.6
|
)%
|
Russell
3000®
Index
|
|
|
(8.5
|
)%
|
|
|
(26.6
|
)%
|
Mid-Cap
|
|
|
|
|
|
|
|
|
Annualized Gross Returns
|
|
|
(6.9
|
)%
|
|
|
(27.5
|
)%
|
Annualized Net Returns
|
|
|
(7.6
|
)%
|
|
|
(28.0
|
)%
|
Russell
Mid-Cap®
Index
|
|
|
(8.8
|
)%
|
|
|
(30.4
|
)%
|
Small-Cap
|
|
|
|
|
|
|
|
|
Annualized Gross Returns
|
|
|
(1.4
|
)%
|
|
|
(14.5
|
)%
|
Annualized Net Returns
|
|
|
(2.2
|
)%
|
|
|
(15.2
|
)%
|
Russell
2000®
Index
|
|
|
(9.1
|
)%
|
|
|
(25.0
|
)%
|
Micro-Cap
|
|
|
|
|
|
|
|
|
Annualized Gross Returns
|
|
|
(9.8
|
)%
|
|
|
(20.5
|
)%
|
Annualized Net Returns
|
|
|
(10.7
|
)%
|
|
|
(21.3
|
)%
|
Russell
2000®
Index
|
|
|
(9.1
|
)%
|
|
|
(25.0
|
)%
|
Russell
Micro-Cap®
Index
|
|
|
(12.9
|
)%
|
|
|
(24.5
|
)%
|
130
The table below sets forth the annualized returns, gross and net
(which represent annualized returns prior to and after payment
of fees, respectively) of our U.S. Equity composites for
the years ended December 31, 2004, 2005, 2006, 2007 and
2008 and the six months ended June 30, 2009, relative to
the performance of the market indices that are most commonly
used by our clients to compare the performance of the relevant
composite.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
Year Ended December 31,
|
|
|
June 30,
|
|
|
|
2004
|
|
|
2005
|
|
|
2006(1)
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|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
Multi-Cap
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Returns
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
17.1
|
%
|
|
|
6.1
|
%
|
|
|
(41.4
|
)%
|
|
|
18.3
|
%
|
Net Returns
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
16.4
|
%
|
|
|
5.1
|
%
|
|
|
(41.8
|
)%
|
|
|
17.9
|
%
|
Russell
3000®
Index
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
12.2
|
%
|
|
|
5.1
|
%
|
|
|
(37.3
|
)%
|
|
|
4.2
|
%
|
Mid-Cap
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Returns
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
18.3
|
%
|
|
|
3.7
|
%
|
|
|
(44.7
|
)%
|
|
|
19.8
|
%
|
Net Returns
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
17.7
|
%
|
|
|
3.0
|
%
|
|
|
(45.1
|
)%
|
|
|
19.3
|
%
|
Russell
Mid-Cap®
Index
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
12.4
|
%
|
|
|
5.6
|
%
|
|
|
(41.5
|
)%
|
|
|
10.0
|
%
|
Small-Cap
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Returns
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
14.5
|
%
|
|
|
11.3
|
%
|
|
|
(41.1
|
)%
|
|
|
27.8
|
%
|
Net Returns
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
13.9
|
%
|
|
|
10.7
|
%
|
|
|
(41.5
|
)%
|
|
|
27.2
|
%
|
Russell
2000®
Index
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
13.1
|
%
|
|
|
(1.6
|
)%
|
|
|
(33.8
|
)%
|
|
|
2.6
|
%
|
Micro-Cap
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Returns
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
17.0
|
%
|
|
|
(0.2
|
)%
|
|
|
(50.4
|
)%
|
|
|
27.7
|
%
|
Net Returns
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
16.3
|
%
|
|
|
(1.0
|
)%
|
|
|
(50.8
|
)%
|
|
|
27.1
|
%
|
Russell
2000®
Index
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
13.1
|
%
|
|
|
(1.6
|
)%
|
|
|
(33.8
|
)%
|
|
|
2.6
|
%
|
Russell
Micro-Cap®
Index
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
13.7
|
%
|
|
|
(8.0
|
)%
|
|
|
(39.8
|
)%
|
|
|
6.0
|
%
|
|
|
|
(1) |
|
Results for the year ended December 31, 2006 are for the
period from July 31, 2006 to December 31, 2006. |
The returns generated by the proprietary funds, sub-advisory
accounts and separate accounts invested in our U.S. Equity
strategies for the periods ended December 31, 2008 and
June 30, 2009 are substantially similar to the returns
presented in the tables above. Please see Appendix A for
more information on the annualized returns, amount of assets
under management and fee percentages for the investment products
which constitute our U.S. Equity strategies.
Other
In addition to our core strategies, we have approximately
$31 million of assets under management invested in other
strategies, 100% of which was invested in a private offshore
fund.
New
Initiatives
We currently expect to seed and launch a global credit hedge
fund, which will aim to deliver absolute returns with low
volatility and a low correlation to other asset classes by
exploiting overlooked areas of value in stressed capital
structures and under-researched international credits utilizing
the experience of our investment teams. It will take a
conservative approach to leverage and will be invested in bank
debt, bonds, credit default swaps, mezzanine capital and
equity-like instruments.
131
Distribution and
Client Service
We have historically distributed our products largely through
intermediaries, including investment consultants, broker
dealers, RIAs, mutual fund platforms and sub-advisory
relationships. This distribution model has allowed us to achieve
significant leverage from a relatively small sales and client
service infrastructure. We believe it is important to limit the
relative size of our distribution teams to maintain our
investment-centric mission, strategy and culture.
By leveraging our intermediated distribution sources and
focusing on institutions and organizations that demonstrate
institutional buying behavior and longer-term investment
horizons, we have built a balanced and broadly diversified
client base across both the institutional and retail investor
markets. As of June 30, 2009, 43% of assets under
management were in proprietary funds and 57% were in other
institutional assets, including separate accounts (32%),
sub-advisory accounts (10%) and commingled funds (15%). As of
June 30, 2009, we serviced approximately 1,200
institutional clients. The recent economic downturn and
consolidation in the broker-dealer industry have led to
increased competition to market through broker dealers and
higher costs, and may lead to reduced distribution access and
further cost increases; however, we believe the recent
consolidation provides us with opportunities to expand our reach
to additional retail investors through our existing
broker-dealer relationships.
We believe our client base to be more institutional in nature
and to a large extent exhibit buying behavior that demonstrates
such. We believe that institutional clients invest for the
long-term and given such are less likely to withdraw their
assets during stressed market conditions. The institutional
nature of our business has resulted in lower redemptions as
compared to asset management businesses that service primarily
retail clients. An example of this is our separate account and
commingled fund vehicles whose underlying investors are
typically comprised of institutions. The redemption rates, which
we define as gross outflows divided by average assets under
management, for these vehicles, in aggregate, were 10.4%, 11.1%
and 7.3% for the years ended December 31, 2008, 2007 and
2006, respectively.
Historically, we have concentrated our distribution efforts
primarily on our International Equity strategies. In recent
years, we have also begun to focus on other strategies as well,
including our High Grade Fixed Income, High Yield and Global
Equity strategies. In addition, we have selectively strengthened
our international distribution by expanding into Canada.
Institutional
Distribution and Client Service
We service a broad spectrum of institutional clients, including
some of the worlds leading corporations, public and
private pension funds, endowments and foundations and financial
institutions. As of June 30, 2009, we provided asset
management services to approximately 1,200 institutional clients
invested in separate accounts, commingled funds and proprietary
funds, including approximately 120 state and local
governments nationwide and approximately 412 corporate clients.
In addition, we manage assets for approximately 160 foundations;
approximately 102 colleges, universities or other educational
endowments; approximately 124 of the countrys hospital or
healthcare systems; and approximately 110 Taft-Hartley plans and
17 religious organizations.
In the institutional marketplace, our sales professionals,
client relationship managers and client service professionals
are organized into teams, each focusing on a geographic target
market in the United States. We have also established a sales
team in Canada and are considering expanding overseas in
countries where we believe there is significant demand for our
investment expertise, particularly our Global Equity and Global
Fixed Income strategies.
Our institutional sales professionals focus their efforts on
building strong relationships with the influential institutional
consultants in their regions, while seeking to establish direct
relationships with the largest potential institutional clients
in their region. Their efforts have led to consultant
relationships that are broadly diversified across a wide range
of consultants. As of June 30, 2009, our
132
largest consultant relationship represented approximately 5% of
our total assets under management. Our largest individual client
represented approximately 4% of our total assets under
management as of June 30, 2009, and our top ten clients
represented approximately 19% of our total assets under
management as of June 30, 2009.
Our relationship managers generally assume responsibility from
the sales professionals for maintaining the client relationship
as quickly as is practical after a new mandate is won.
Relationship managers and other client service professionals
focus on interacting
one-on-one
with key clients on a regular basis to update them on investment
performance and objectives.
We have also designated a small team of investment professionals
as product specialists. These specialists participate in the
investment process but their primary responsibility is
communicating with clients any developments in the portfolio and
answering questions beyond those where the client service staff
can provide adequate responses.
Proprietary Fund
and Retail Distribution
Within the proprietary fund and retail marketplace, we have
assembled a small team of sales professionals for the areas and
client segments where it can have meaningful impact. Our
approach to retail distribution is to focus on: (i) broker
dealers and major intermediaries, (ii) the RIA marketplace,
(iii) direct brokerage platforms and (iv) major
financial institutions through sub-advisory channels. In
general, their penetration has been greatest in those areas of
the intermediated marketplace which display an institutional
buying behavior. As of June 30, 2009, our largest mutual
fund platform represented approximately 9% of our total assets
under management.
Broker Dealers
In 2005, we established a broker-dealer sales team which
supports the head office product distribution teams of major
brokerage firms. This team also seeks to build general awareness
of our investment offering among individual advisors and
supports our platform sales, focusing particularly in those
areas within each of its distributors where our no-load share
classes are most appropriate. These dedicated marketing efforts
are supported by internal investment professionals. While recent
consolidation in the broker-dealer industry reduced the number
of broker-dealer platforms, we believe those organizations with
which we have existing relationships have become larger
opportunities as a result. As of June 30, 2009, our largest
broker-dealer relationship accounted for approximately 6% of our
total assets under management.
RIA
We are also actively pursuing distribution opportunities in the
RIA marketplace. Through the end of 2005, we relied on a
third-party to market our strategies to the RIA community, at
which point we terminated that relationship and developed an
internal capability. The professionals dedicated to the RIA
opportunity employ tailored communications to sophisticated
RIAs. Our professionals also maintain relationships with key
opinion leaders within the RIA community.
Brokerage Platforms
Finally, the strength of our investment performance and the
visibility it has brought (we were named Morningstars
International Fund Manager of the Year in 2002 and were
nominated for the distinction again in 2006) has also made
the mutual fund supermarkets an attractive source of new assets.
Our funds have been available on Schwabs platform since
the first quarter of 2000 and on Fidelitys Funds Network
since the fourth quarter of 1998. These platforms represented
approximately 9% and 8% of total assets under management,
respectively, as of June 30, 2009.
Sub-Advisory
We have accepted selected sub-advisory mandates that provide
access to market segments we would not otherwise serve. For
example, we currently serve as sub-advisor to funds offered by
major
133
financial institutions in retail channels that require mutual
funds with front-end sales commissions. These mandates are
attractive to us because we have chosen not to build the large
team of sales professionals typically required to service those
channels. Once we have sourced these sub-advisory mandates, we
typically approach the servicing of the relationships in a
manner similar to our approach with other large institutional
separate account clients.
Investment
Management Fees
We earn investment management fees on the proprietary funds,
commingled funds and separate accounts that we manage and under
our sub-advisory agreements for proprietary funds and other
investment funds. The fees we earn depend on the type of
investment product we manage and are typically negotiated after
consultation with the client based upon factors such as amount
of assets under management, investment strategy servicing
requirements, multiple or related account relationships and
client type. Fees on SEC registered mutual funds are calculated
based on the average daily market value of the funds and fees on
commingled funds and separate accounts are typically calculated
quarterly based on the market value of the account. In addition,
a small number of separate account clients pay us fees according
to the performance of their accounts relative to certain
agreed-upon
benchmarks, which results in a slightly lower base fee, but
allows us to earn higher fees if the relevant investment
strategy outperforms the
agreed-upon
benchmark. Performance fees represented only (1.2)%, 1.2% and
0.9% of our total revenues and other operating income for the
six months ended June 30, 2009 and the years ended
December 31, 2008 and December 31, 2007, respectively.
See Managements Discussion and Analysis of Financial
Condition and Results of Operations.
To the extent that we offer alternative products in the future,
we expect that our alternative products will primarily generate
revenues from performance fees rather than investment management
fees on assets under management.
Outsourced
Operations, Systems and Technology
As an organization, we have developed a business model which
focuses the vast majority of resources on meeting clients
investment objectives. As a result, we seek to outsource,
whenever appropriate, support functions to industry leaders to
allow us to focus on areas where we believe we can add the most
value. We regularly monitor the performance of our outsourced
service providers.
We outsource middle- and back-office activities to The Northern
Trust Company, which has responsibility for trade
confirmation, trade settlement, custodian reconciliations,
corporate action processing, performance calculation and client
reporting as well as custody, fund accounting and transfer
agency services for our commingled funds. Our separate and
subadvised accounts outsource their custody services to service
providers that they select. Custody services for our private
offshore funds, which represented $0.2 billion of our
assets under management as of June 30, 2009, are provided
by an affiliate of our parent.
Our SEC-registered mutual funds outsource their custody, fund
accounting and administrative services to State Street Bank and
Trust Co. which has responsibility for tracking assets and
providing accurate daily valuations used to calculate each
funds net asset value. In addition, State Street Bank and
Trust Co. provides daily and monthly compliance reviews,
quarterly fund expense budgeting, monthly fund performance
calculations, monthly distribution analysis, SEC reporting,
payment of fund expenses and board reporting. It also provides
annual and periodic reports, regulatory filings and related
services as well as tax preparation services. Our SEC-registered
mutual funds also outsource distribution to Quasar Distributors
LLC and transfer agency services to U.S. Bancorp.
We also outsource our hosting, management and administration of
our front-end trading and compliance systems as well as certain
data center, data replication, file transmission, secure remote
access and disaster recovery services.
134
Competition
In order to grow our business, we must be able to compete
effectively for assets under management. We compete in all
aspects of our business with other investment management
companies, some of which are part of substantially larger
organizations. We have historically competed principally on the
basis of:
|
|
|
|
|
investment performance;
|
|
|
|
continuity of investment professionals;
|
|
|
|
quality of service provided to clients;
|
|
|
|
corporate positioning and business reputation;
|
|
|
|
continuity of our selling arrangements with
intermediaries; and
|
|
|
|
differentiated products.
|
For information on the competitive risks we face, see Risk
Factors Risks Related to our Industry
The investment management business is intensely
competitive.
Employees
As of June 30, 2009, we employed 196 full-time and two
part-time employees, including 49 investment professionals, 48
sales and distribution professionals, 10 legal and compliance
professionals and 91 in various other functions including
operations and support. None of our employees is subject to
collective bargaining agreements. We consider our relationship
with our employees to be good and have not experienced
interruptions of operations due to labor disagreements.
Properties
Our corporate headquarters and principal offices are located in
New York, New York and are leased under a lease that will expire
in 2014. In addition to our headquarters, we have sales and
marketing teams based in Los Angeles, California and Toronto,
Canada where we maintain short-term leases. We believe our
existing facilities are adequate to meet our requirements.
Legal
Proceedings
We have been named in certain litigation. In the opinion of
management, the possibility of an outcome from this litigation
that is materially adverse to us is remote.
135
REGULATORY
ENVIRONMENT AND COMPLIANCE
Our business is subject to extensive regulation in the United
States at both the federal and state level, as well as by
self-regulatory organizations and outside the United States.
Under these laws and regulation, agencies that regulate
investment advisors have broad administrative powers, including
the power to limit, restrict or prohibit an investment advisor
from carrying on its business in the event that it fails to
comply with such laws and regulations. Possible sanctions that
may be imposed include the suspension of individual employees,
limitations on engaging in certain lines of business for
specified periods of time, revocation of investment advisor and
other registrations, censures and fines.
SEC
Regulation
Artio Global Management is registered with the SEC as an
investment advisor pursuant to the Advisers Act, and our retail
investment company clients are registered under the 1940 Act. As
compared to other, disclosure-oriented U.S. federal
securities laws, the Advisers Act and the 1940 Act, together
with the SECs regulations and interpretations thereunder,
are highly restrictive regulatory statutes. The SEC is
authorized to institute proceedings and impose sanctions for
violations of the Advisers Act and the 1940 Act, ranging from
fines and censures to termination of an advisors
registration.
Under the Advisers Act, an investment advisor (whether or not
registered under the Advisers Act) has fiduciary duties to its
clients. The SEC has interpreted these duties to impose
standards, requirements and limitations on, among other things:
trading for proprietary, personal and client accounts;
allocations of investment opportunities among clients; use of
soft dollars; execution of transactions; and
recommendations to clients. On behalf of our mutual fund and
investment advisory clients, we make decisions to buy and sell
securities for each portfolio, select broker dealers to execute
trades and negotiate brokerage commission rates. In connection
with these transactions, we may receive soft dollar
credits from broker dealers that have the effect of reducing
certain of our expenses. If our ability to use soft
dollars were reduced or eliminated as a result of the
implementation of new regulations, our operating expenses would
likely increase.
The Advisers Act also imposes specific restrictions on an
investment advisors ability to engage in principal and
agency cross transactions. As a registered advisor, we are
subject to many additional requirements that cover, among other
things, disclosure of information about our business to clients;
maintenance of written policies and procedures; maintenance of
extensive books and records; restrictions on the types of fees
we may charge; custody of client assets; client privacy;
advertising; and solicitation of clients. The SEC has legal
authority to inspect any investment advisor and typically
inspects a registered advisor every two to four years to
determine whether the advisor is conducting its activities
(i) in accordance with applicable laws,
(ii) consistent with disclosures made to clients and
(iii) with adequate systems and procedures to ensure
compliance.
A majority of our revenues are derived from our advisory
services to investment companies registered under the 1940
Act i.e., mutual funds. The 1940 Act imposes
significant requirements and limitations on a registered fund,
including with respect to its capital structure, investments and
transactions. While we exercise broad discretion over the
day-to-day management of these funds, every fund is also subject
to oversight and management by a board of directors, a majority
of whom are not interested persons under the 1940
Act. The responsibilities of the board include, among other
things, approving our advisory contract with the fund; approving
service providers; determining the method of valuing assets; and
monitoring transactions involving affiliates. Our advisory
contracts with these funds may be terminated by the funds on not
more than 60 days notice, and are subject to annual
renewal by the funds board after an initial two year term.
Under the Advisers Act, our investment management agreements may
not be assigned without the clients consent. Under the
1940 Act, advisory agreements with registered funds (such as the
mutual funds we manage) terminate automatically upon assignment.
The term assignment is broadly
136
defined and includes direct assignments as well as assignments
that may be deemed to occur upon the transfer, directly or
indirectly, of a controlling interest in us.
ERISA-Related
Regulation
To the extent that Artio Global Management is a
fiduciary under ERISA with respect to benefit plan
clients, it is subject to ERISA, and to regulations promulgated
thereunder. ERISA and applicable provisions of the Internal
Revenue Code of 1986, as amended, impose certain duties on
persons who are fiduciaries under ERISA, prohibit certain
transactions involving ERISA plan clients and provide monetary
penalties for violations of these prohibitions.
Non-U.S.
Regulation
In addition to the extensive regulation our asset management
business is subject to in the United States, we are also subject
to regulation internationally by the Ontario Securities
Commission, the Irish Financial Institutions Regulatory
Authority, and the Hong Kong Securities and Futures Commission.
Our business is also subject to the rules and regulations of the
more than 40 countries in which we currently conduct investment
activities.
Risk Management
and Compliance
Our Enterprise Risk Management Committee focuses on the key
risks to which the firm is subject. Our seven-person risk
management unit is responsible for measuring and monitoring
portfolio level risk, portfolio analysis including performance
attribution, performance reporting and operational risk. Our
legal and compliance functions are integrated into one team of
10 full-time professionals as of June 30, 2009. This
group is responsible for all legal and regulatory compliance
matters, as well as monitoring adherence to client investment
guidelines. Senior management is involved at various levels in
all of these functions including through active participation on
all the firms supervisory oversight committees.
For information about our regulatory environment, see Risk
Factors Risks Related to Our Industry
The regulatory environment in which we operate is subject to
continual change and regulatory developments designed to
increase oversight may adversely affect our business.
137
MANAGEMENT
Executive
Officers and Directors
The following table provides information regarding our directors
and executive officers.
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Name
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|
Age
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Position
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Richard Pell
|
|
|
55
|
|
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Chief Executive Officer and Chief Investment Officer and Director
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Glen Wisher
|
|
|
45
|
|
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President and Director
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Francis Harte
|
|
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47
|
|
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Chief Financial Officer
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Tony Williams
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|
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45
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|
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Chief Operating Officer
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Rudolph-Riad Younes
|
|
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47
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|
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Head of International Equity
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Adam Spilka
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54
|
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General Counsel and Corporate Secretary
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Elizabeth Buse
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|
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48
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|
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Director
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Duane Kullberg
|
|
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76
|
|
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Director
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Francis Ledwidge
|
|
|
59
|
|
|
Director
|
Richard Pell has been our Chief Investment Officer
since 1995, our Chief Executive Officer since December 2007 and
currently serves as a member of our board of directors. Prior to
December 2007, Mr. Pell served and continues to serve as
Co-Portfolio Manager of the International Equity strategy and
Co-Portfolio Manager of the Total Return Bond strategy.
Mr. Pell joined the Julius Baer Group in 1995 subsequent to
his tenure as Head of Global Portfolio Management with Bankers
Trust Company, a firm he served for five years. Starting in
1988, Mr. Pell was employed by Mitchell Hutchins
Institutional Investors where he served as Head of Corporate
Bonds and Mortgage-Backed Securities.
Glen Wisher has been our President since December
2007 and currently serves as a member of our board of directors.
He joined the Julius Baer Group in 1995 as a fixed income
portfolio manager in London. Mr. Wisher was appointed Head
of Institutional Asset Management in the U.S. in 2001 and
Chief Executive Officer of Julius Baer Americas Inc. in 2004.
Prior to joining the Julius Baer Group, Mr. Wisher worked
at S.G. Warburg Co. Mr. Wisher also serves as Chairman of
the board of managers of Artio Global Management LLC and serves
on the board of directors of Artio Global Equity Fund, Inc. He
is also a trustee of the Artio Global Investment Funds.
Francis Harte has been our Chief Financial Officer
since July 2002. Since joining the Julius Baer Group in 2002,
Mr. Harte has also served as our Financial and Operations
Principal, from 2002 to 2006, and was Senior Vice President and
Chief Financial Officer of Bank Julius Baer & Co.
Ltd. New York Branch from 2002 to 2005 and Treasurer
and Financial and Operations Principal of GAM USA Inc. from 2005
to September 2007. Prior to this, Mr. Harte acted as a
Managing Director and Chief Financial Officer for the North
American based activities of Dresdner Kleinwort Benson and,
prior to that, Mr. Harte held positions at The First Boston
Corporation and Deloitte, Haskins & Sells. He is a
Certified Public Accountant in the State of New York.
Tony Williams has been our Chief Operating Officer
since December 2007 and served as a member of our board of
directors prior to the offering. He joined as Chief Operating
Officer of Artio Global Management LLC in 2003 and, in 2004,
became the Head of Asset Management Americas for Artio Global
Management LLC. Prior to that, Mr. Williams acted as Head
of Cross Border Strategies at JP Morgan Fleming Asset Management
and Chief Operating Officer at Fleming Asset Management in New
York. Prior to this, Mr. Williams was Client Services
Director at Fleming Asset Management, UK.
Rudolph-Riad Younes has been our Head of
International Equity since 2001. He joined Artio Global
Management LLC as a portfolio manager in 1993 and has served as
Co-Portfolio Manager of the International Equity Fund and
International Equity Fund II since 1995. Prior to joining
the Julius
138
Baer Group in 1993, Mr. Younes was an Associate Director at
Swiss Bank Corp. He is a Chartered Financial Analyst.
Adam Spilka has been our General Counsel and
Corporate Secretary since March 2008. From April 2002,
Mr. Spilka was Senior Vice President, Counsel and Assistant
Secretary of AllianceBernstein L.P., where he was head of the
Corporate, M&A and Securities Practice Group from July
2003. He became Secretary of AllianceBernstein L.P. in July
2004. Prior to 2002, Mr. Spilka served as Vice President
and Counsel at the company now known as AXA Equitable Life
Insurance Company. Mr. Spilka began his legal career in
1987 as a corporate associate at Debevoise & Plimpton
LLP.
Elizabeth Buse became a director in connection
with the offering. Since 2007, she has been Global Head of
Product at Visa Inc. Prior to that, she served as Executive Vice
President of Product Development & Management for Visa
USA from 2003 to 2007, Executive Vice President of Emerging
Markets & Technologies from 2000 to 2002, and Senior
Vice President of Emerging Technologies from 1998 to 2000.
Before joining Visa, Ms. Buse was employed by First Data
Corporation and Windermere Associates.
Duane Kullberg became a director in connection
with the offering. He was Managing Partner and Chief Executive
Officer of Arthur Andersen, S.C. from 1980 to 1989. Prior to his
election as Chief Executive Officer, he was a partner in the
Minneapolis and Chicago offices and Head of the Audit Practice,
worldwide, from 1978 to 1980. Mr. Kullberg has also served
as Vice Chairman of the U.S. Japanese Business Council and
was a member of the Services Policy Advisory Committee of the
Office of the U.S. Trade Representative. He is currently a
Public Director on the Chicago Board Options Exchange and a past
member of the boards of Carlson Companies, Inc., Nuveen
Investments, Inc. and Visibility, Inc. Mr. Kullberg is a
life trustee of Northwestern University, the Art Institute of
Chicago, and the University of Minnesota Foundation.
Francis Ledwidge became a director in connection
with the offering. He has been a Managing Partner of Eddystone,
LLC and the Chief Investment Officer of Eddystone Capital, LLC
since 1997. From 1989 to 1995, Mr. Ledwidge served as the
Chief Investment Officer of Bankers Trusts international
private banking division in the United States and Switzerland
and was later responsible for much of Bankers Trusts
institutional international and global asset management
businesses. Prior to that, he worked at Robert Fleming from 1976
to 1989, first as a portfolio manager and director of Robert
Fleming Investment Management in London and then as a sell side
research director at Eberstadt Fleming in New York. Before
joining Fleming, he worked as a buy side analyst at British
Electric Traction.
There are no family relationships among any of our directors or
executive officers. The executive officers and directors named
above may act as authorized officers of the company when so
deemed by resolutions of the company.
Board
Composition
In connection with this offering, we appointed Elizabeth Buse,
Duane Kullberg and Francis Ledwidge to our board of directors.
Our board of directors has determined that Elizabeth Buse, Duane
Kullberg and Francis Ledwidge are independent directors within
the meaning of the applicable rules of the SEC and the NYSE, and
that Duane Kullberg is an audit committee financial expert
within the meaning of the applicable rules of the SEC and the
NYSE.
Our board of directors consists of five directors. Our amended
and restated certificate of incorporation will provide that our
board of directors will consist of no less than three or more
than 11 persons. The exact number of members on our board
of directors will be determined from time to time by resolution
of a majority of our full board of directors. Upon consummation
of this offering, our board will be divided into three classes
as described below, with each director serving a three-year term
and one class being elected at each years annual meeting
of stockholders. Mr. Kullberg will
139
serve initially as a Class I director (with a term expiring
in 2010). Ms. Buse and Mr. Ledwidge will serve
initially as Class II directors (with a term expiring in
2011). Messrs. Pell and Wisher will serve initially as
Class III directors (with a term expiring in 2012).
Until the later of the date upon which (i) Mr. Younes
ceases to be employed by us and (ii) the restrictions on
sale under the exchange agreement terminate, he will be entitled
to attend meetings of our board of directors as an observer.
Under the terms of the employment agreement which the company
will enter into with Mr. Pell in connection with the
offering, Mr. Pell will serve as Chairman of our board of
directors during the period that he remains our Chief Executive
Officer, unless he voluntarily cedes this role or declines to
stand for reelection to the board of directors. If Mr. Pell
ceases to be a member of our board of directors, he will be
entitled to attend meetings of our board of directors as an
observer until the date on which the restrictions on sale under
the exchange agreement terminate. As long as Julius Baer Holding
Ltd. directly or indirectly owns shares of our common stock
constituting at least 10% of the number of outstanding shares of
our common stock, it will be entitled to appoint a member to our
board of directors or to exercise observer rights. Julius Baer
Holding Ltd. has opted to exercise its observer rights but may
in the future decide to appoint a member to our board of
directors in lieu of exercising such observer rights. If Julius
Baer Holding Ltd.s ownership interest in us falls below
10%, it will no longer be entitled to appoint a member of our
board of directors but it will be entitled to certain observer
rights until the later of the date upon which (i) we cease
to use the Julius Baer name pursuant to the transition services
agreement we will enter into with Julius Baer Group Ltd. and
(ii) Julius Baer Holding Ltd. ceases to own at least 5% of
the number of outstanding shares of our common stock.
Board
Committees
In connection with this offering, we have established the
following committees of our board of directors:
Audit
Committee
Our Audit Committee will assist our board of directors in its
oversight of our internal audit function, the integrity of our
financial statements, our independent registered public
accounting firms qualifications and independence, and the
performance of our independent registered public accounting firm.
Our Audit Committees responsibilities will include, among
others:
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|
|
|
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reviewing the audit plans and findings of our independent
registered public accounting firm and our internal audit and
risk review staff, as well as the results of regulatory
examinations, and tracking managements corrective action
plans where necessary;
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reviewing our financial statements, including any significant
financial items
and/or
changes in accounting policies, with our senior management and
independent registered public accounting firm;
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|
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|
reviewing our financial risk and control procedures, compliance
programs and significant tax, legal and regulatory
matters; and
|
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appointing annually our independent registered public accounting
firm, evaluating its independence and performance, determining
its compensation and setting clear hiring policies for employees
or former employees of the independent registered public
accounting firm.
|
Messrs. Kullberg and Ledwidge and Ms. Buse serve on
the Audit Committee and Mr. Kullberg serves as its chair.
Messrs. Kullberg and Ledwidge and Ms. Buse are
independent under
Rule 10A-3
under the Securities Exchange Act.
140
Nominating and
Corporate Governance Committee
Our Nominating and Corporate Governance Committees
responsibilities will include, among others:
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|
|
making recommendations to the board regarding the selection of
candidates, qualification and competency requirements for
service on the board and the suitability of proposed nominees as
directors;
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advising the board with respect to the corporate governance
principles applicable to us;
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overseeing the evaluation of the board and management;
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|
reviewing and approving in advance any related party
transaction, other than those that are pre-approved pursuant to
pre-approval guidelines or rules established by the
committee; and
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establishing guidelines or rules to cover specific categories of
transactions.
|
Messrs. Kullberg and Ledwidge and Ms. Buse serve on
the Nominating and Corporate Governance Committee and
Mr. Ledwidge serves as its chair.
Compensation
Committee
Our Compensation Committee will assist our board of directors in
the discharge of its responsibilities relating to the
compensation of our executive officers.
Our Compensation Committees responsibilities will include,
among others:
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|
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|
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reviewing and approving, or making recommendations to our board
of directors with respect to, the compensation of our executive
officers;
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overseeing and administering, and making recommendations to our
board of directors with respect to, our cash and equity
incentive plans; and
|
|
|
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reviewing and making recommendations to the board of directors
with respect to director compensation.
|
Messrs. Kullberg and Ledwidge and Ms. Buse serve on
the Compensation Committee and Ms. Buse serves as its chair.
Compensation
Committee Interlocks and Insider Participation
Upon the effectiveness of the registration statement of which
this prospectus forms a part, our board of directors formed a
compensation committee as described above. Prior to this
offering, we were a direct subsidiary of Julius Baer Holding
Ltd., a publicly traded company on the SIX Swiss Exchange. Our
compensation practices prior to this offering were, to a large
extent, influenced by the policies of our parent. As a result,
our historic compensation was ultimately approved by the
Compensation Committee and board of directors of our parent.
Following this offering, the Compensation Committee of our board
of directors will have responsibility for establishing and
administering compensation programs and practices with respect
to our directors and executive officers, including the named
executive officers.
Compensation
Discussion and Analysis
This section discusses the principles underlying our policies
and decisions relating to the executive officers
compensation. This information describes the manner and context
in which compensation is earned by and awarded to our executive
officers and provides perspective on the tables and narrative
that follow.
141
Compensation
Program Objectives
We believe that our compensation program for our named executive
officers must support our business strategy; be competitive;
attract, motivate and retain highly-qualified individuals; and
be directly linked both to the companys performance and
the individuals performance. Our compensation program is
designed to motivate and challenge our named executive officers
and to reward the achievement of superior and sustained
performance and long-term service with the company. We have
historically followed a policy of using cash incentive bonuses
(in the case of Messrs. Williams, Wisher and Harte) and
equity-based compensation (in the case of Messrs. Pell and
Younes) to inspire and reward exceptional performance. As a
public company, we intend to compensate all of our named
executive officers with a combination of cash incentive and
equity-based incentive compensation. We believe it is important
that our compensation program is designed in such a way to align
our executives interests with that of our stockholders.
Prior to this offering, all material elements of our
compensation program were determined by our parent company and
based on recommendations by our Chief Executive Officer and
President.
We expect that our Compensation Committee will review and
approve the goals and objectives relevant to our Chief Executive
Officers compensation, will evaluate his performance and
will determine his compensation accordingly. In addition, we
expect that our Compensation Committee will review and recommend
to our board of directors, salaries, bonuses, equity incentive
grants and other compensation for our executive officers and
will provide assistance and recommendations with respect to our
compensation policies and practices for our employees. Our Chief
Executive Officer and President will continue to play a role in
making recommendations regarding compensation for our executives
and employees. We intend to continue to design our compensation
program to attract, retain and motivate executives and other
professionals of the highest quality and effectiveness. As a
public company, we intend to focus our programs on rewarding the
type of performance that increases long-term shareholder value,
including growing revenue, retaining clients, developing new
client relationships, improving operational efficiency and
managing risks. As we develop as a public company, we intend
periodically to evaluate our compensation program to ensure
compliance with these objectives.
Use of
Comparative Compensation Data
To ensure that our compensation levels remain reasonable and
competitive, we have historically reviewed survey information
concerning salary, bonus and total compensation levels in
comparative companies in the investment management industry
compiled by McLagan Partners, a compensation data collection
firm. For 2008 compensation, the group of companies included
U.S.-based
investment management and advisory firms who participated in the
McLagan Partners Compensation and Performance Surveys. The
survey and peer group data that we have historically used to
determine the level of executive compensation for
Messrs. Wisher, Williams and Harte represent a group of
over 100 companies which are either dedicated to asset
management or have asset management as a distinct business
within a larger organization. We have not followed any formal
practice of benchmarking against specific peers, but rather have
used comparative data as one component in our decision making
process relating to the base salary and annual bonus levels for
our executive team. In the future, we will work, together with
our Compensation Committee, to undertake a review of our use of
consultants and comparative data in our compensation-related
decision making and will determine our approach going forward.
The list of companies we used in our comparative analysis for
2008 compensation is as follows:
|
|
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40/86 Advisors (Conseco, Inc.)
|
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AEW Capital Management
|
|
American Beacon Advisors (AMR)
|
Aberdeen Asset Management, Inc.
|
|
AIG Investments
|
|
American Century Investments
|
Acadian Asset Management, Inc.
|
|
Alcatel-Lucent
|
|
Analytic Investors, Inc.
|
The Adams Express Company
|
|
AllianceBernstein L.P.
|
|
Ariel Capital Management, LLC
|
Advantus Capital Management, Inc.
|
|
Allianz Global Investors
|
|
Arrowstreet Capital, L.P.
|
AEGON USA Investment
|
|
Allianz of America, Inc.
|
|
Ashfield Capital Partners, LLC
|
Management, LLC
|
|
Allstate Investments, LLC
|
|
AVIVA USA
|
142
|
|
|
|
|
AXA Investment Managers
|
|
Frost National Bank
|
|
Morley Fund Management International
|
AXA Rosenberg Investment
|
|
Gannett Welsh & Kotler, LLC
|
|
Munder Capital Management
|
Management
|
|
GE Asset Management
|
|
National Railroad Retirement
|
Babson Capital Management LLC
|
|
General Motors Asset Management
|
|
Investment Trust
|
Barclays Global Investors, N.A
|
|
Glenmede Trust Company
|
|
Nationwide Insurance
|
Baring Asset Management, Inc.
|
|
Goldman Sachs Asset Management
|
|
Natixis Asset Management Advisors, L.P.
|
Baron Capital Group & Subsidiaries, Inc.
|
|
Government of Singapore Investment
|
|
New York Life Investment
|
Batterymarch Financial Management
|
|
Corporation
|
|
Management LLC
|
Bessemer Trust Company
|
|
Great-West Life Assurance Company
|
|
NFJ Investment Group L.P.
|
BlackRock Financial Management, Inc
|
|
Guardian Life Insurance Company
|
|
Nicholas Applegate Capital
|
BNY Mellon Asset Management
|
|
Hansberger Global Investors, Inc.
|
|
Management
|
The Boston Company Asset
|
|
Harris Alternatives LLC
|
|
Nikko Asset Management Americas
|
Management, LLC
|
|
Harris Associates, L.P.
|
|
Nomura Asset Management U.S.A. Inc.
|
Branch Banking & Trust Co.
|
|
Harris Investment Management Inc.
|
|
Northwestern Mutual Life Insurance
|
Brandes Investment Partners, L.P.
|
|
Hartford Investment Management
|
|
Company
|
Brandywine Global Investment
|
|
Company
|
|
Numeric Investors LLC
|
Management, LLC
|
|
Harvard Management Company, Inc.
|
|
Nuveen Investments
|
Bridgewater Associates, Inc.
|
|
Heitman
|
|
NWQ Investment Management
|
Bridgeway Capital Management, Inc.
|
|
Henderson Global Investors
|
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Company, LLC
|
Brown Brothers Harriman & Co.
|
|
(North America) Inc.
|
|
Old Mutual Asset Management
|
Calamos Investments
|
|
Hennessy Advisors, Inc.
|
|
Oppenheimer Capital LLC
|
The Capital Group Companies, Inc.
|
|
HighMark Capital Management
|
|
Oppenheimer Funds, Inc.
|
Capital Growth Management
|
|
(Union Bank of CA)
|
|
OShaughnessy Asset Management, LLC
|
Charles Schwab Investment
|
|
Hillspire, LLC
|
|
Pacific Life Insurance Company
|
Management
|
|
Howard Hughes Medical Institute
|
|
PanAgora Asset Management, Inc.
|
Choate Investment Advisors
|
|
HSBC Global Asset Management/
|
|
PartnerReinsurance Capital Markets Corp.
|
Christian Brothers Investment
|
|
Halbis Capital Mgmt
|
|
Phoenix Companies, Inc
|
Services, Inc.
|
|
ICMA Retirement Corporation
|
|
PIMCO Advisors, L.P.
|
CIGNA Investment Management, LLC
|
|
ING Investment Management Inc.
|
|
Pioneer Investment Management, USA
|
Citadel Investment Group, LLC
|
|
INTECH
|
|
Pitcairn Financial Group
|
Clay Finlay, Inc.
|
|
Invesco Plc
|
|
PPM America, Inc.
|
Claymore Group, Inc.
|
|
Investment Counselors of Maryland, LLC
|
|
Principal Global Investors
|
ClearBridge Advisors
|
|
Ivy Asset Management Corp.
|
|
ProFund Advisors LLC
|
Cohen & Steers, Inc.
|
|
J & W Seligman & Co. Incorporated
|
|
Provident Investment Counsel, Inc.
|
Columbia Partners, L.L.C. Investment
|
|
Jackson National Life
|
|
Prudential Financial
|
Management
|
|
Jacobs Levy Equity Management, Inc.
|
|
Putnam Investments
|
Copper Rock Capital Partners, LLC
|
|
Janus Capital Group
|
|
Pyramis Global Advisors
|
Cramer Rosenthal McGlynn, LLC
|
|
Jennison Associates LLC
|
|
Pzena Investment Management, LLC
|
Credit Suisse Asset Management, LLC
|
|
John Hancock Funds
|
|
Qwest Asset Management Company
|
CUNA Mutual Group
|
|
JPMorgan Asset Management
|
|
Raymond James Financial
|
Declaration Management & Research LLC
|
|
Key Asset Management Inc.
|
|
RCM Capital Management LLC
|
Deutsche Asset Management
|
|
Legal & General Investment
|
|
Reams Asset Management Company, LLC
|
Diamond Hill Capital Management, Inc.
|
|
Management (America)
|
|
Reich & Tang Asset Management
|
Dimensional Fund Advisors Inc.
|
|
Legg Mason, Inc.
|
|
RidgeWorth Capital Mgmt Inc.
|
Dreyfus Corporation
|
|
Lehman Brothers Asset Management
|
|
(SunTrust Bank)
|
Driehaus Capital Management LLC
|
|
Americas
|
|
RiverSource Investment Advisors, LLC
|
DuPont Capital Management
|
|
Liberty Ridge Capital, Inc.
|
|
(Ameriprise)
|
Dwight Asset Management Company
|
|
Lincoln Financial Corp./Delaware
|
|
Rockefeller & Co., Inc.
|
EACM Advisors LLC
|
|
Investments
|
|
RS Investment Management Co. LLC
|
Eaton Vance Management
|
|
Loomis, Sayles & Company, L.P.
|
|
Russell Investments
|
Epoch Investment Partners, Inc.
|
|
Lord, Abbett & Co. LLC
|
|
Rydex Investments
|
Evergreen Investment Management
|
|
Mairs and Power, Inc.
|
|
Sands Capital Management, LLC
|
(Wachovia)
|
|
Man Group plc
|
|
Santa Barbara Asset Management, LLC
|
FAF Advisors, Inc. (US Bancorp)
|
|
Matthews International Capital
|
|
Schroder Investment Management N.A. Inc.
|
Federated Investors, Inc.
|
|
Management, LLC
|
|
Sit Investment Associates, Inc.
|
Fidelity Investments
|
|
MEAG New York Corporation
|
|
Smith Breeden Associates, Inc.
|
Fifth Third Asset Management
|
|
(Munich RE)
|
|
SPARX Asset Management Co., Ltd.
|
Fischer Francis Trees & Watts, Inc.
|
|
Mellon Capital Management
|
|
Standish Mellon Asset Management
|
Fisher Investments
|
|
(incl. Mellon Equity)
|
|
Stanford Management Company
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Fortis Investment Management USA, Inc.
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|
MetLife Investments
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|
State Street Global Advisors
|
Forward Management, LLC
|
|
MFC Global Investment Management
|
|
STW Fixed Income Management
|
Franklin Portfolio Associates
|
|
MFS Investment Management
|
|
Summit Investment Partners LLC
|
Franklin Templeton Investments
|
|
Morgan Stanley Investment
|
|
Swiss Re
|
Fred Alger & Company, Incorporated
|
|
Management
|
|
Symphony Asset Management LLC
|
143
|
|
|
|
|
T. Rowe Price Associates, Inc.
|
|
Urdang Capital Management/Urdang
|
|
Wasatch Advisors Inc.
|
Thompson, Siegel & Walmsley LLC
|
|
Securities Mgmt
|
|
Wellington Management Company, LLP
|
Thomson Horstmann & Bryant, Inc.
|
|
The Vanguard Group, Inc.
|
|
Wells Capital Management
|
Thrivent Financial for Lutherans
|
|
Varde Partners
|
|
Western Asset Management Company
|
TIAA-CREF
|
|
Vaughn Nelson Investment
|
|
Westpeak Global Advisors, L.P.
|
Tradewinds Global Investors, LLC
|
|
Management, L.P.
|
|
Westwood Holdings Group, Inc.
|
Trilogy Global Advisors, LLC
|
|
Verizon Investment Management Corp.
|
|
William Blair & Company
|
Trust Company of the West
|
|
Vertical Capital, LLC
|
|
Williams College
|
UBS Global Asset Management
|
|
Voyageur Asset Management
|
|
Wilmington Trust Company
|
University of California, Office of the
|
|
(Royal Bank of Canada)
|
|
WisdomTree Investments, Inc.
|
Treasurer
|
|
Waddell & Reed Investment
|
|
XL Capital Ltd.
|
University of Texas Investment
|
|
Management Co.
|
|
|
Management Company
|
|
|
|
|
Elements of
Our Compensation Program
We currently provide the following elements of compensation to
some or all of our named executive officers:
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base salary;
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annual discretionary cash incentive awards;
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mandatory deferral of a portion of annual cash incentive awards
above a certain threshold;
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ownership interests in the company and its operating
subsidiaries; and
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retirement plans.
|
Each compensation element fulfills one or more of our
compensation program objectives.
As is typical in the investment management industry, the base
salaries of our executive team have represented a minority of
their compensation. In the case of executives (other than the
Principals), a large portion of their current compensation has
been paid in the form of annual discretionary cash incentive
awards, a portion of which is subject to vesting and payment on
a deferred basis. In the case of the Principals, a substantial
majority of their annual remuneration has been the economic
return derived through the ownership interests that they hold in
our operating subsidiary. In 2009 and future years, the
Principals will also be entitled to receive annual discretionary
cash incentive awards. See Employment
Agreements.
Base
Salary
Salaries are reviewed annually to maintain competitive levels
based on the named executive officers length of service,
experience and responsibilities. Prior to this offering, all
changes to base salaries were reviewed and approved by our
parent and based on recommendations from our Chief Executive
Officer and President. The changes to salaries were determined
based on the individuals responsibilities and compared to
peer group data.
Discretionary
Cash Bonus and Mandatory Bonus Deferral
In the investment management industry, annual cash incentive
awards are significant portions of the overall compensation
packages of executives. Our executive officers (other than the
Principals) are eligible to earn annual cash incentive awards
under our Incentive Award and Special Deferred Compensation
Award Program. Under this program, annual incentive awards are
awarded in our sole discretion to select employees and officers
based on criteria established by us. The awards are intended to
reward annual achievement. Awards may consist of a cash bonus
award and a deferred compensation award. The amount of the
awards to each executive are recommended by the company to our
parent at the end of each fiscal year based on overall company
performance and the individuals performance and are
typically not subject to binding minimum amounts or other
criteria set in advance. In determining award amounts, we take
into account a broad range of relevant factors,
144
including, but not limited to, operational efficiency and
revenue growth. Historically, we have not formally set target
levels of corporate or individual performance in connection with
our incentive award programs, and executive compensation has not
been tied to meeting particular financial measurements;
accordingly, there has been a significant subjective character
to our historical awards. We believe that the companys
business objectives and its expectations of each employee are
clearly communicated to employees on an ongoing basis, and the
companys latitude to assess performance and determine
annual awards on a discretionary basis has inspired a high level
of performance from employees and given the company appropriate
flexibility. Historically, incentive award amounts paid to
Messrs. Williams, Wisher and Harte have reflected our view
of the individuals performance relative to his
responsibilities, and have taken account of the companys
financial results and industry data regarding compensation for
similar roles. In 2008 and prior years, annual incentives were
approved by our parent and based on the recommendation of our
Chief Executive Officer and President. Following this offering,
the amount of these awards will be determined initially by our
Human Resources Committee and Chief Executive Officer and
submitted to the Compensation Committee of our board of
directors for its review and approval. The Compensation
Committee will review the companys approach to annual
incentives as appropriate.
A portion of the annual incentive award of each of our executive
officers typically has been provided in the form of a deferred
compensation award. The percentage of deferral is based on a
schedule and dollar amount that is fixed and set forth in the
program. The deferred compensation awards vest over three years
and reflect investment returns as if invested in one or more of
our mutual funds chosen by the participant. We believe that
mandatory deferral of a portion of each executives
incentive compensation and subjecting that deferred compensation
to a vesting period serves as an effective retention tool.
Ownership
Interests in the Company and its Operating
Subsidiaries
In 2004, as part of an arms-length negotiation between our
parent and our Principals, our parents board of directors
approved the issuance of Class B profits interests in Artio
Global Management LLC to our Principals and the admission of the
Principals as members to the limited liability company. These
interests gave each of the Principals a 15% share of the pre-tax
profits, as defined in the operating agreement, generated by the
business. Accordingly, a substantial portion of the economic
return derived by our Principals is obtained through the
Class B profits interests that they hold and the
allocations of income that they receive under these interests.
Prior to this offering, the Principals will each contribute to
Artio Global Holdings these interests in exchange for New
Class A Units in Artio Global Holdings. As of the
completion of this offering, the Principals will each hold
approximately 13% of the New Class A Units of Artio Global
Holdings. We will enter into an exchange agreement with the
Principals under which our Principals will have the right to
exchange a specified portion of their New Class A Units for
shares of Class A common stock on a one-for-one basis,
subject to customary conversion rate adjustments for stock
splits, stock dividends and reclassifications and other similar
transactions, and subject to the terms of the exchange
agreement. See Relationships and Related Party
Transactions Exchange Agreement. Thus,
following this offering, a substantial portion of the economic
return of our Principals will continue to be obtained through
their ownership interests in Artio Global Holdings and related
distributions. We believe that the continued link between the
amount of the economic return they realize and our performance
will encourage their continued exceptional performance. In
addition, we believe that the restrictions on transfer and the
ownership requirements to which they will be subject will help
to align their interests with the interests of our stockholders.
In the future, our compensation program will also include equity
awards as an element of total compensation. In connection with
this offering, we intend to make awards of Class A common stock
subject to transfer restrictions and restricted stock units
under the Artio Global Investors Inc. 2009 Stock Incentive Plan,
which has been adopted by our board of directors and approved by
our parent prior to the consummation of this offering. We
believe that these awards and any future equity awards under
this plan will help to align the interests of our executive
officers with those of our stockholders.
145
In addition, because the value of an award will increase as the
value of our stock increases and awards will be subject to a
vesting schedule, equity awards also encourage high performance
over a long period. See Artio Global Investors
Inc. 2009 Stock Incentive Plan.
Retirement
Plans
Our retirement plans include a 401(k) profit sharing plan, a
money purchase pension plan, and a nonqualified supplemental
retirement plan, which is linked to our money purchase plan. The
401(k) profit sharing plan and money purchase pension plan are
broad-based tax-qualified plans. The nonqualified supplemental
retirement plan is offered to our officers, including our named
executive officers, to increase their retirement benefits above
amounts available under the money purchase plan. Unlike the
money purchase plan, the nonqualified supplemental retirement
plan is an unsecured obligation of the company and is not
qualified for tax purposes. Each of the three plans is deemed to
be a defined contribution plan. The contribution amount under
the benefit formula under the nonqualified supplemental
retirement plan is described in the narrative that accompanies
the Nonqualified Deferred Compensation table below. We believe
our retirement plan program is competitive and is an important
tool in attracting and retaining executives.
Employment
Agreements
We expect to enter into employment agreements with each of our
named executive officers, to become effective upon the
consummation of this offering. See Executive
Compensation Employment Agreements.
Stock
Incentive Plan
We have adopted the Artio Global Investors Inc. 2009 Stock
Incentive Plan and expect to make awards of Class A common stock
subject to transfer restrictions and restricted stock unit
awards under this plan in connection with this offering, which
generally vest over a five-year period. See
Artio Global Investors Inc. 2009 Stock
Incentive Plan.
Our Policy on
Internal Revenue Code Section 162(m)
Following this offering, our policy will be to comply with the
requirements of Internal Revenue Code Section 162(m) to
avoid losing the deduction for compensation in excess of
$1 million paid to our named executive officers. However,
we believe that there are circumstances under which it may be
appropriate to forego deductibility to achieve our compensation
objectives.
146
Executive
Compensation
Summary
Compensation Table
The following table presents summary information concerning the
compensation earned during the years ended December 31,
2008 and 2007 by our Chief Executive Officer, Chief Financial
Officer and the next three most highly compensated executive
officers, whom we refer to collectively as the named
executive officers.
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Stock &
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Option
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All Other
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Salary
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Bonus
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Awards
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Compensation
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Total
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Name and Principal Position
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Year
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($)
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($)(1)
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($)(2)
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($)(3)
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($)
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Richard Pell
Chief Executive Officer
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2008
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400,000
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(4)
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7,035,440
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7,435,440
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2007
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400,000
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(4)
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27,475
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427,475
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Rudolph-Riad Younes
Head of International Equity
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2008
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400,000
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(4)
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7,035,440
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7,435,440
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2007
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400,000
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(4)
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27,475
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427,475
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Glen Wisher
President
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2008
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350,000
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1,250,000
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46,521
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18,840
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1,665,361
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2007
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350,000
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1,920,000
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46,521
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19,625
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2,336,146
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Tony Williams
Chief Operating Officer
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2008
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280,000
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1,250,000
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19,938
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7,850
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1,557,788
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2007
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280,000
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1,920,000
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19,938
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8,635
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2,228,573
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Francis Harte
Chief Financial Officer
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2008
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250,000
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600,000
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3,140
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853,140
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2007
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250,000
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675,000
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3,925
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928,925
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(1) |
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Amounts shown in this column represent the total annual
discretionary bonus award granted to the individual relative to
performance during 2008 or 2007. A portion of the total bonus is
subject to mandatory deferral and vesting over a three year
period, which is included within the amount above. The deferred
portion of these bonuses is as follows: Mr. Wisher $275,000
for 2008; $530,520 for 2007; Mr. Williams $275,000 for
2008; $530,500 for 2007; and Mr. Harte $67,500 for 2008;
$90,000 for 2007. The deferred portion also is reflected in the
Nonqualified Deferred Compensation table below. |
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(2) |
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Amounts shown in this column represent the estimated fair value,
for accounting purposes, relating to shares (and options, in the
case of Mr. Wisher) of our parent companys common
stock. The value of these awards is based on the market value of
such shares and options on the date of grant. |
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(3) |
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The amounts shown in this column reflect company contributions
to the executives account under the companys
nonqualified supplemental retirement plan and the payment for
Messrs. Pell and Younes in the amount of $7,008,750
relating to their deferred compensation agreement. See
Prospectus Summary Distributions. |
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(4) |
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Our Principals have not historically received a bonus but have
instead benefited from the increased value of their Class B
profits interests as well as distributions in respect of such
interests. We incurred compensation charges for financial
accounting purposes relating to the allocation of income to our
Principals pursuant to their Class B profits interests
which totaled $38,036,900 for 2008; $41,756,150 for 2007 for
Mr. Pell, and $38,036,900 for 2008; $41,756,150 for 2007
for Mr. Younes. We also incurred compensation charges, for
financial accounting purposes, for the changes in redemption
value of their Class B profits interests of our Principals.
Such amount, which is non-cash in nature, totaled $27,278,700
for 2008; $38,421,950 for 2007 for Mr. Pell, and
$27,278,700 for 2008; $38,421,950 for 2007 for Mr. Younes. |
147
Nonqualified
Deferred Compensation
The following table sets forth information concerning the
nonqualified deferred compensation benefits of the named
executive officers.
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Aggregate
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Executive
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Registrant
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Earnings
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Aggregate
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Aggregate
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Contributions
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Contributions
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(losses) in
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Withdrawals/
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Balance at
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in Last FY
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in Last FY
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Last FY
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Distributions
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Last FYE
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Name
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($)(1)
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($)(2)
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($)
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($)
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($)
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Richard Pell
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Nonqualified deferred compensation plan
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4,438,850
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(2)
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7,008,750
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Nonqualified supplemental retirement plan
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26,690
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(3)
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(56,288
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)
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321,108
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Rudolph-Riad Younes
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Nonqualified deferred compensation plan
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4,438,850
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(2)
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7,008,750
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Nonqualified supplemental retirement plan
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26,690
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(3)
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(32,685
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)
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189,707
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Glen Wisher
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Nonqualified supplemental retirement plan
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18,840
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(3)
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(17,601
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)
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104,768
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Mandatory bonus deferral plan
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275,000
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(311,315
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)
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223,597
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611,427
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Tony Williams
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Nonqualified supplemental retirement plan
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7,850
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(3)
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(3,718
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)
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26,130
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Mandatory bonus deferral plan
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275,000
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(369,284
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)
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246,432
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614,426
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Francis Harte
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Nonqualified supplemental retirement plan
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3,140
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(3)
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(3,137
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)
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22,313
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Mandatory bonus deferral plan
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67,500
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(38,717
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)
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9,601
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142,048
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(1) |
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Represents amounts deferred in conjunction with the
companys Incentive Award and Special Deferred Compensation
Award Program relating to 2008. These amounts were not reflected
within compensation expense in 2008 because they were deferred
and vest over a three year period and the compensation expense
will be distributed evenly throughout the vesting period. These
amounts are included in the summary compensation table above. |
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(2) |
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For Messrs. Pell and Younes, such amount includes the
amortization of awards under deferred compensation arrangements
entered into during 2004 which initially vested over a ten year
period. These arrangements were amended in December 2007 to
provide for the full payment of the deferred compensation as of
December 31, 2008. The 2008 compensation expense for these
arrangements amounted to $4,438,852 for Mr. Pell and
$4,438,852 for Mr. Younes. The amounts paid to
Messrs. Pell and Younes during 2008 in full settlement of
these deferred compensation arrangements amounted to $7,008,750
and $7,008,750, respectively and are included in the summary
compensation table above. |
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(3) |
|
Represents our contribution to the executives accounts
under our nonqualified supplemental retirement plan. |
Under the companys Incentive Award and Special Deferred
Compensation Award Program, annual incentive awards are awarded
in the companys sole discretion to select employees and
officers. The portion of a participants annual cash
incentive award that will be automatically deferred under the
program is determined in accordance with the schedule contained
in the program document. The deferred portion of the incentive
award vests and is paid in equal installments over three years
commencing on the first anniversary of the date the non-deferred
portion of the incentive awards are paid, as long as the
participant remains actively employed by the company through the
applicable vesting date. A participant forfeits all rights to a
deferred award if the participant violates the non-competition,
non-solicitation and confidentiality covenants set forth in the
program or violates the terms of any release previously entered
into as a condition of receipt of payment under the program. If
a participants employment terminates by reason of the
participants death, disability,
retirement or a qualifying termination
(as these terms are defined in the program), the participant
will be fully vested in his deferred compensation and the
deferred amounts will be paid in accordance with the payment
schedule described above. A qualifying termination
means a termination as a result of the permanent elimination of
the participants job position or any termination by the
company
148
(or its successor) without cause following a change in
control (as the term is defined in the program).
We offer a nonqualified supplemental retirement plan to our
officers. This plan is a nonqualified plan and is an unsecured
obligation of the company. The contribution amount is determined
by multiplying the individuals base salary in excess of
the compensation limit for determining contributions to
qualified plans mandated by the Internal Revenue Service in
effect for the plan year by 15.7%.
Potential
Payments upon Termination or Change in Control
We expect to enter into employment agreements (see
Employment Agreements below) that will
provide for compensation to the named executive officers in the
event of certain types of termination of employment. The table
below provides details of the nature and amounts of compensation
payable to each named executive officer, assuming that the
employment agreements became effective and their initial
restricted stock unit grants were issued as of December 31,
2008, the last day of our 2008 fiscal year, and a hypothetical
termination of employment occurred on such date.
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Termination
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Involuntary
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Change in
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Due to Death
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Not for Cause
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Control
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Name
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or Disability ($)
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Termination ($)
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Termination ($)
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Richard Pell(1)
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0
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0
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0
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Rudolph-Riad Younes(1)
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0
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0
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0
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Glen Wisher(2)
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1,920,000
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(2(a))
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6,210,994
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(2(b))
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8,319,240
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(2(c))
|
Tony Williams(2)
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|
1,920,000
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(2(a))
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6,000,994
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(2(b))
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|
8,109,240
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(2(c))
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Francis Harte(2)
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|
675,000
|
(2(a))
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|
2,768,566
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(2(b))
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3,611,860
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(2(c))
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|
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(1) |
|
The amounts shown in the table for the Principals reflect the
following payments and benefits to which they would have been
entitled under the hypothetical termination scenarios described
above: (i) $0 for any accrued but unpaid base salary (and
other vested and accrued employee benefits) through
December 31, 2008, under the assumption that there would
have been none (the company paid salary for the last payroll
period in 2008 on December 31, 2008); and (ii) $0 for
earned but unpaid bonus for 2007, as bonuses with respect to
2007 were paid during 2008 prior to December 31, 2008.
Please refer to Employment Agreements
for further description of the termination of employment
provision in the Principals employment agreements. |
|
(2) |
|
The amounts shown in the table for Messrs. Wisher, Williams
and Harte reflect the following payments and benefits to which
they would have been entitled under the hypothetical termination
scenarios described above: |
|
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(a) |
|
Termination due to Death or Disability: (i) $0 for accrued
benefits under the assumption that there would have been none;
(ii) $0 for earned but unpaid bonus for 2007, as bonuses
with respect to 2007 were paid during 2008 prior to
December 31, 2008; (iii) a pro-rata bonus equal to
100% (as the executives were employed for all of 2008) of
the bonus granted for 2007 performance of $1,920,000 for each of
Mr. Wisher and Mr. Williams and $675,000 for
Mr. Harte; and (iv) $0 for pro-rata vesting of the
restricted stock units, under the assumption that the executive
died on the grant date. |
|
(b) |
|
Involuntary Not for Cause Termination: (i) $0 for accrued
benefits under the assumption that there would have been none;
(ii) continued payments of base salary for the remaining
term of the employment agreement of three years, totaling
$1,050,000 for Mr. Wisher, $840,000 for Mr. Williams
and $750,000 for Mr. Harte; (iii) $0 for earned but
unpaid bonus for 2007, as bonuses with respect to 2007 were paid
during 2008 prior to December 31, 2008; (iv) a
pro-rata bonus equal to 100% (as the executives were employed
for all of 2008) of the bonus granted for 2007 performance
of $1,920,000 for each of Mr. Wisher and Mr. Williams
and $675,000 for Mr. Harte; (v) $78,624 for three
years of the employers portion of continued medical and
dental premiums for each executive; and (vi) continued
vesting of the restricted stock units granted to the executive
at the time of the offering through the three-year |
149
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|
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remaining term of the employment agreement, totaling $3,162,370
for each of Mr. Wisher and Mr. Williams and $1,264,942
for Mr. Harte. The amount of $3,162,370 for each of
Mr. Wisher and Mr. Williams is calculated as the
product of: (1) 202,716 shares multiplied by
(2) the offering price of $26.00 per share multiplied
by (3) the three-year remaining term of the employment
agreement divided by (4) the five-year vesting
period. The amount of $1,264,942 for Mr. Harte is
calculated as the product of: (1) 81,086 shares
multiplied by (2) the offering price of $26.00 per
share multiplied by (3) the three-year remaining
term of the employment agreement divided by (4) the
five-year vesting period. The actual value of the restricted
stock units that vest pursuant to clause (vi) will vary
based on the actual price of the shares underlying the
restricted stock units as of the dates of vesting and settlement
during the three-year remaining term of the agreement. |
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(c) |
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Change in Control Termination: Amounts reflect the same
amounts as for Involuntary Not for Cause Termination as
described in footnote (2)(b), except with respect to
clause (vi) thereof. If the executives were terminated by
the company as a result of a change in control (as defined under
the Artio Global Investors Inc. 2009 Stock Incentive Plan), all
of the restricted stock units would have vested and the
restrictions would have lapsed as of the change in control,
totaling a value of $5,270,616 for each of Mr. Wisher and
Mr. Williams (calculated as the product of
202,716 shares multiplied by the offering price of
$26.00 per share) and $2,108,236 for Mr. Harte (calculated
as the product of 81,086 shares multiplied by
$26.00). |
Please refer to Employment Agreements
for further description of the termination of employment
provisions in the employment agreements.
No compensation is expected to be payable to the named executive
officers in the event of a change in control of the company.
However, upon a change of control of the company (as defined in
the Exchange Agreement), the restrictions on sale of Class A
common stock received by the Principals upon exchange of New
Class A Units pursuant to the Exchange Agreement will cease with
respect to each Principal. In addition, the non-compete and
non-solicitation provisions to which the Principals are subject
under the Exchange Agreement will terminate if a change of
control or a potential change of control occurs and the relevant
Principal is terminated by us without cause or resigns with good
reason (in each case as such terms are defined in the Exchange
Agreement). See Relationships and Related Party
Transactions Exchange Agreement. Furthermore,
if Messrs. Wisher, Williams or Harte are terminated by the
company as a result of a change in control (as defined in the
Artio Global Investors Inc. 2009 Stock Incentive Plan), all
restrictions with respect to their restricted stock unit awards
will lapse as of the date of the change in control. See
Employment Agreements.
In addition to the specific payments and benefits described for
each named executive officer, our named executive officers will
also be entitled to receive any benefits due under the terms of
our benefit plans and programs, including nonqualified deferred
compensation benefits as further described in
Nonqualified Deferred Compensation.
Employment
Agreements
We will enter into employment agreements with each of our named
executive officers, to become effective upon the consummation of
this offering. The agreements with our Principals will provide
that Mr. Pell will serve as our Chief Executive Officer and
Chief Investment Officer and Mr. Younes as our Head of
International Equity. Pursuant to their employment agreements,
Messrs. Pell and Younes will each receive an annual base
salary of not less than $500,000 and an annual bonus for each
calendar year, targeted at a minimum of $3.5 million
annually for each of the first two years after the date of the
offering. The employment agreements also provide that each of
the Principals will be eligible to participate in our employee
benefit plans. The agreements will be in effect until terminated
by either the Principal or us. If a Principals employment
is terminated by us or if a Principals employment
terminates due to resignation, death or permanent incapacity,
such Principal (or his estate or representative) shall receive:
(i) any accrued but unpaid base salary (and other vested
and accrued employee benefits) through the termination date and
(ii) any earned but unpaid annual bonus relating
150
to a bonus year completed prior to the Principals
termination of employment and determined in accordance with
applicable bonus procedures. The agreements include customary
non-disparagement and confidentiality provisions, and provisions
that all work product produced by the Principal in the course of
employment belong to us. Finally, the agreements also permit the
Principals to refer, in the context of future employment or
investment management activities, to the track record of funds
managed by us for which such Principals had management or
investment authority, so long as such future activities are not
prohibited by the non-competition provisions set out in the
Exchange Agreement.
The agreements for our other named executive officers will
provide that Mr. Wisher will serve as our President,
Mr. Harte as our Chief Financial Officer and
Mr. Williams as our Chief Operating Officer. The agreements
are effective upon the closing of this offering and are for a
term of three years. At the end of the initial three-year term,
the agreements will automatically renew for an additional year
and each year thereafter, unless either party gives notice of
intent not to renew the agreement at least 90 days prior to
the end of the term. Pursuant to the agreements, Mr. Wisher
will receive an annual base salary of $350,000; Mr. Harte
will receive an annual base salary of $250,000; and
Mr. Williams will receive an annual base salary of
$280,000. In addition, each of the employment agreements
provides for an annual bonus for each calendar year. The
employment agreements also provide that each of the executive
officers will be eligible to participate in our employee benefit
plans. In addition, under their employment agreements, each of
Messrs. Wisher, Harte and Williams will receive an initial
grant of shares of restricted Class A common stock,
effective on the consummation of this offering. See
Artio Global Investors Inc. 2009 Stock
Incentive Plan.
If Messrs. Wisher, Williams or Harte are terminated by the
company without cause, they will be entitled to
receive accrued benefits; continued payment of base salary for
the greater of the remaining term of the agreement or
12 months (18 months for Mr. Wisher); payment of
any annual bonus earned but not paid as of the date of
termination of employment; a pro-rata bonus determined by
multiplying the greater of the prior years bonus or the
last three years average bonus times the percentage of
days the executive was employed for the current year; continued
medical and dental benefits through the end of the term of the
agreement or the date the executive becomes covered under
another plan; and continued vesting of restricted stock units
granted to the executive at the time of the offering through the
remaining term of the agreement. If the company elects not to
renew the agreement and Messrs. Wisher, Williams or Harte
are willing and able to provide services in circumstances that
constitute an involuntary termination, the executive will be
entitled to the payments and benefits described above that are
payable upon a termination without cause other than
continued medical and dental benefits and restricted stock unit
vesting. If Messrs. Wisher, Williams or Harte die or become
disabled during the term of the agreement, they will be entitled
to accrued benefits and payments of the annual bonus and
pro-rata bonus described above. In addition, a percentage of
awards under the Artio Global Investors Inc. 2009 Stock
Incentive Plan that would have vested in the year of death will
vest, determined by dividing the number of days the executive
was employed in that year by 365. If the executives are
terminated by the company as a result of a change in control (as
defined under the Artio Global Investors Inc. 2009 Stock
Incentive Plan), all restrictions with respect to their
restricted stock units will lapse as of the change in control.
As a condition to the receipt of any payments or benefits upon
termination, Messrs. Wisher, Williams or Harte agree that
they will not compete with the company and its affiliates and
will not solicit any clients or employees of the company or its
affiliates for a period of 12 months following termination.
Artio Global
Investors Inc. Management Incentive Plan
We have adopted, with the approval of our parent, the Artio
Global Investors Inc. Management Incentive Plan providing for
the payment of annual bonuses to our executive team. Our
Compensation Committee may establish the terms and provisions of
any incentive awards, including the performance objectives, the
performance period, which may be annual or over a multi-year
period, and other
151
features as it may determine in its discretion. The performance
objectives may include any or all of a combination of
individual, team, department, division, subsidiary, group or
corporate performance objectives. Incentive awards under this
plan generally will be paid in cash.
Artio Global
Investors Inc. 2009 Stock Incentive Plan
We have adopted, with the approval of our parent, the Artio
Global Investors Inc. 2009 Stock Incentive Plan (the
Incentive Plan). The purposes of the Incentive Plan
will be (i) to advance the interests of the company by
attracting and retaining high caliber employees and other key
individuals, (ii) to more closely align the interests of
recipients of Incentive Plan awards with the interest of the
companys stockholders by increasing the proprietary
interest of such recipients in our growth and success as
measured by the value of our stock, and (iii) to motivate
award recipients to act in the long-term best interests of our
stockholders.
Shares Available. 9,700,000 shares
of our Class A common stock may be subject to awards under
the Incentive Plan (the Plan Share Limit), subject
to adjustment in the event of a stock split, reverse stock
split, stock dividend, recapitalization, reorganization, merger,
consolidation, combination, exchange of shares,
split-up,
extraordinary dividend or distribution, spin-off, warrants or
rights offering to purchase common stock at a price
substantially below fair market value, or other similar event.
If, with respect to any award (other than a stock appreciation
right), such award is cancelled, forfeited, or terminates or
expires unexercised, or if shares are tendered or withheld from
an award to pay the option price or satisfy a tax withholding
obligation, such shares may again be issued under the Incentive
Plan.
Eligibility. Employees, directors and
consultants of the company and its affiliates are eligible to
receive awards under the Incentive Plan.
Administration. The administration of
the Incentive Plan will be overseen by our Compensation
Committee. The Compensation Committee will have the authority to
interpret the Incentive Plan and make all determinations
necessary or desirable for the administration of the Incentive
Plan. The Compensation Committee will have discretion to select
participants and determine the form, amount and timing of each
award to such persons, the exercise price or base price
associated with the award, the time and conditions of exercise
or settlement of the award and all other terms and conditions of
an award.
Forms of Awards. Awards under the
Incentive Plan may include one or more of the following types:
(i) stock options (both nonqualified and incentive stock
options), (ii) stock appreciation rights
(SARs), (iii) restricted stock,
(iv) restricted stock units, (v) performance grants,
(vi) other stock-based awards and (vii) cash. Such
awards may be for partial-year, annual or multi-year periods.
Options are rights to purchase a specified number of shares of
our Class A common stock at a price fixed by our
Compensation Committee, but not less than fair market value of
our Class A common stock on the date of grant. Options
generally expire no later than 10 years after the date of
grant. Options will become exercisable at such time and in such
installments as our Compensation Committee will determine, and
the Compensation Committee will determine the period of time, if
any, after termination of employment, death, or disability
during which options may be exercised.
An SAR entitles the holder to receive, upon exercise, an amount
equal to any positive difference between the fair market value
of one share of our Class A common stock on the date the
SAR is exercised and the exercise price, multiplied by the
number of shares of common stock with respect to which the SAR
is exercised. Our Compensation Committee will have the authority
to determine whether the amount to be paid upon exercise of a
SAR will be paid in cash, Class A common stock (including
restricted stock) or a combination of cash and Class A
common stock.
Restricted stock consists of shares of our Class A common
stock subject to a forfeiture or restriction against transfer
during a period of time or until performance measures are
satisfied, as established by our Compensation Committee. Unless
otherwise set forth in the agreement relating to
152
a restricted stock award, the holder will have all rights as a
stockholder, including voting rights, the right to receive
dividends and the right to participate in any capital adjustment
applicable to all holders of common stock. However, our
Compensation Committee may determine that distributions with
respect to shares of common stock will be deposited with the
company and will be subject to the same restrictions as the
shares of common stock with respect to which such distribution
was made.
A restricted stock unit is a right to receive a specified number
of shares of our Class A common stock (or the fair market
value thereof in cash, or any combination of our common stock
and cash, as determined by our Compensation Committee), subject
to the expiration of a specified restriction period
and/or the
achievement of any performance measures selected by the
Compensation Committee, consistent with the terms of the
Incentive Plan. The restricted stock unit award agreement will
specify whether the award recipient is entitled to receive
dividend equivalents with respect to the number of shares of our
Class A common stock subject to the award. Prior to the
settlement of a restricted stock unit award in our Class A
common stock, the award recipient will have no rights as a
stockholder of our company with respect to our Class A
common stock subject to the award.
Performance grants are awards whose final value or amount, if
any, is determined by the degree to which specified performance
measures have been achieved during a performance period set by
our Compensation Committee. Performance periods can be
partial-year, annual or multi-year periods, as determined by our
Compensation Committee. Performance measures that may be used
include (without limitation) one or more of the following: total
shareholder return; earnings per share; cash flow; free cash
flow; selling, general and administrative expense; working
capital management; price of a share of Class A common
stock; gross margin; revenue growth; operating income growth;
net earnings; net income (before or after taxes); return on
equity; return on assets or net assets; or any combination of
the foregoing. Such criteria and objectives may relate to
results obtained by the individual, the company, a subsidiary,
or an affiliate, or any business unit or division thereof, or
may relate to results obtained relative to a specific industry
or a specific index. Payment may be made in the form of cash,
Class A common stock, restricted stock, restricted stock
units or a combination thereof, as specified by our Compensation
Committee.
An award agreement may contain additional terms and
restrictions, including vesting conditions, not inconsistent
with the terms of the Incentive Plan, as the Compensation
Committee may determine.
We intend to file with the SEC a registration statement on
Form S-8
covering the shares of our Class A common stock issuable
under the Incentive Plan.
Initial Awards. All of our employees
(other than the Principals) and all employees of our
subsidiaries will receive awards at the time of this offering.
The awards will be made in the form of restricted stock units
and the restrictions will lapse if the employee is employed on
the lapse date, which is expected to be no later than February
2010. However, the restrictions in respect of the restricted
stock units granted to executive officers (including Messrs
Wisher, Williams and Harte) and other members of senior
management will lapse as to 20% of the total award on each of
the first five anniversaries of the date of grant, provided the
executive continues to be employed through each lapse date. For
employees other than executive officers and other members of
senior management, if their employment terminates, other than
for death, disability or termination without
cause (as defined in the restricted stock unit award
agreement), the employee will forfeit all restricted stock units
for which the restrictions have not yet lapsed. If such
employees terminate employment by reason of death,
disability or termination without cause,
all shares of restricted stock units will become vested and free
of restrictions on the lapse date, which is expected to be no
later than February 2010. For the executive officers (including
Messrs. Wisher, Williams and Harte) and other members of
senior management, if their employment terminates, and they are
party to an employment agreement, their rights with respect to
the restricted stock units will be governed by such employment
agreement. On an ongoing basis, certain employees may receive an
award as a component of their discretionary bonus or as a
supplementary incentive.
153
Non-employee directors will be entitled to receive a one-time
non-forfeitable award of $60,000 of stock subject to transfer
restrictions under the Incentive Plan. This one-time award will
be made to each sitting non-employee director at the time of the
offering and will be made to each new non-employee director
after this offering at the time he or she joins the board. These
stock awards are subject to certain transfer restrictions that
lapse based on time, generally pro rata over three years.
The table below sets forth these grants:
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Artio Global Investors Inc. 2009 Stock Incentive Plan
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Shares Subject to
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Transfer Restrictions
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or Restricted
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Stock Units
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Name and Position
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(as applicable)
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Dollar Value(1)
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Glen Wisher
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202,716
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$
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5,270,616
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Tony Williams
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202,716
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$
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5,270,616
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Francis Harte
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81,086
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$
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2,108,236
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Executive officers and directors as a group
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509,660
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$
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13,251,160
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All other employees
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1,644,396
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$
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42,754,296
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(1) |
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The value of these awards will be based on the market value at
the date of grant. The amounts shown in this table reflect a
market value per share of $26.00, the price set forth on the
cover of this prospectus. |
Director
Compensation
We expect that each independent director will receive the
following compensation for service on our board of directors and
any standing committees of our board of directors. Independent
directors are directors who are not our employees or employees
of our parent.
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An annual cash retainer fee of $60,000 and non-forfeitable award
of $60,000 of stock subject to transfer restrictions; and
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An additional cash retainer fee of $15,000 for the Chairperson
of the Audit Committee and $10,000 for the Chairperson of each
other standing committee of our board of directors.
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Retainers will be paid upon closing of this offering and
immediately following each regularly scheduled annual
shareholder meeting. If a director joins the board of directors
at any time other than the annual shareholder meeting, the
retainers will be prorated and paid at the time of such director
joining the board of directors. The directors will have the
right to elect to receive a portion of their annual cash
retainer in stock prior to the year of service in accordance
with restrictions as may be required by law.
As described above, non-employee directors also will be entitled
to receive a one-time non-forfeitable award of $60,000 of
fully-vested stock. This one-time award will be made to each
sitting non-employee director at the time of the offering and
will be made to each new non-employee director after this
offering at the time he or she joins the board. These stock
awards are subject to certain transfer restrictions that lapse
based on time, generally pro rata over three years.
All directors will be reimbursed for reasonable expenses
incurred in attending board of directors, committee and
stockholder meetings, including those for travel, meals and
lodging. We may consider also paying per-meeting fees.
154
RELATIONSHIPS AND
RELATED PARTY TRANSACTIONS
Common Stock
Repurchases
Immediately following this offering, we will use the net
proceeds from this offering to repurchase and retire an
aggregate of 22.6 million shares of Class C common
stock (26.35 million shares of Class C common stock if
the underwriters exercise in full their option to purchase
additional shares) from our parent, Julius Baer Holding Ltd. and
to repurchase, and record as treasury stock, 1.2 million
shares of Class A common stock from Richard Pell and
1.2 million shares of Class A common stock from
Rudolph-Riad Younes, at a repurchase price per share equal to
the public offering price per share of our Class A common
stock in this offering, less the underwriting discount. See
Use of Proceeds and Our Structure and
Reorganization.
Registration
Rights Agreement
Effective upon consummation of this offering, we will enter into
a registration rights agreement with our Principals and Julius
Baer Holding Ltd. pursuant to which we will grant them, their
affiliates and certain of their transferees the right, under
certain circumstances and subject to certain restrictions, to
require us to register under the Securities Act shares of our
Class A common stock issuable upon exchange of the New
Class A Units or upon conversion of the Class C common
stock, respectively, held or acquired by them. Under the
registration rights agreement, the Principals and Julius Baer
Holding Ltd. have the right to request us to register the sale
of their shares and can also require us to make available shelf
registration statements permitting sales of shares into the
market from time to time over an extended period. In addition,
the agreement will give our Principals and Julius Baer Holding
Ltd. the ability to exercise certain piggyback registration
rights in connection with registered offerings requested by any
of such holders or initiated by us.
Shareholders
Agreements
Julius Baer Holding Ltd. will enter into a shareholders
agreement with us under which it will agree that, to the extent
it has a vote as holder of the Class C common stock greater
than that to which it would be entitled on a one-vote-per-share
basis, it will on all matters vote such excess on the same basis
and in the same proportion as the votes cast by the holders of
our Class A and Class B common stock.
As long as Julius Baer Holding Ltd. owns shares of our common
stock constituting at least 10% of the aggregate number of
shares outstanding of our common stock, the agreement will
permit it to appoint a member to our board of directors or to
exercise observer rights, Julius Baer Holding Ltd. has opted to
exercise its observer rights but may in the future decide to
appoint a member to our board of directors in lieu of exercising
such observer rights. If Julius Baer Holding Ltd.s
ownership interest in us falls below 10%, it will no longer be
entitled to appoint a member of our board of directors but it
will be entitled to certain observer rights until the later of
the date upon which (i) we cease to use the Julius Baer
brand name pursuant to the transition services agreement we will
enter into with Julius Baer Group Ltd. and (ii) Julius Baer
Holding Ltd. ceases to own at least 5% of the number of
outstanding shares of our common stock. Mr. Younes will
enter into a shareholders agreement with us under which he will
be entitled to attend meetings of our board of directors as an
observer until the later of the date upon which (i) he
ceases to be employed by us and (ii) the restrictions on
sales under the exchange agreement terminate. Mr. Pell will
enter into a shareholders agreement with us under which, if he
ceases to be a member of our board of directors, he will be
entitled to attend meetings of our board of directors as an
observer until the date on which the restrictions on sales under
the exchange agreement terminate.
Exchange
Agreement
In connection with the closing of this offering, the Principals
will enter into an exchange agreement with us under which, from
time to time, each Principal (and certain of his permitted
transferees,
155
including the GRATs) will have the right to exchange his New
Class A Units, which represent membership interests in
Artio Global Holdings, for shares of Class A common stock
of our company on a one-for-one basis, subject to customary
conversion rate adjustments for stock splits, stock dividends
and reclassifications and other similar transactions. The
exchange agreement will permit each Principal to exchange a
number of New Class A Units for shares of Class A
common stock that we will repurchase in connection with this
offering as described under Use of Proceeds. Each
Principal will also be permitted to exchange additional New
Class A Units that he owns at the time of this offering at
any time following the completion of this offering. Any exchange
of New Class A Units will generally be a taxable event for
the exchanging Principal. As a result, at any time following the
expiration of the underwriters lock-up, 180 days
after the date of this prospectus, subject to extension as
described under Underwriting, each Principal will be
permitted to sell shares of Class A common stock in
connection with any exchange in an amount necessary to generate
proceeds (after deducting discounts and commissions) sufficient
to cover the taxes payable on such exchange (the amount of
shares permitted to be sold determined based upon the stock
price on the date of exchange, whether or not such shares are
sold then or thereafter). In addition, each Principal will be
permitted to sell up to 20% of the remaining shares of
Class A common stock that he owns (calculated assuming all
New Class A Units have been exchanged by him) on or after
the first anniversary of the pricing of this offering and an
additional 20% of such remaining shares of Class A common
stock on or after each of the next four anniversaries. As a
Principal exchanges New Class A Units with us, our
membership interests in Artio Global Holdings will be
correspondingly increased and his corresponding shares of
Class B common stock will be cancelled. The restrictions on
sales described above will terminate with respect to each
Principal upon the occurrence of (i) any breach by us of
any of the agreements we have with such Principal that
materially and adversely affects such Principal, after notice
and an opportunity to cure, (ii) the conduct by us of any
business other than through our operating company or any of our
operating companys subsidiaries, (iii) any change of
control (as defined below) or (iv) the dissolution,
liquidation or winding up of Artio Global Holdings. As used in
the exchange agreement, the prohibition on selling
Class A common stock is defined broadly to prohibit a
Principal from pledging, selling, contracting to sell, selling
any option or contract to purchase, purchasing any option or
contract to sell, granting any option, right or warrant to
purchase, lending, or otherwise transferring or disposing of,
directly or indirectly, any of his shares of Class A common
stock or his New Class A Units (other than transfers to
permitted transferees) or entering into any swap or other
arrangement that transfers to another, in whole or in part, any
of the economic consequences of ownership of the Class A
common stock or New Class A Units, whether any such
transaction is to be settled by delivery of Class A common
stock or such other securities, in cash or otherwise.
Change of control is defined under the exchange
agreement as (A) any person or group, other than the
Principals, Julius Baer Holding Ltd. and their permitted
transferees (or any group consisting of such persons),
(1) is or becomes the beneficial owner, directly or
indirectly, of 50% or more of the voting stock of the company
or, in the context of a consolidation, merger or other corporate
reorganization in which the company is not the surviving entity,
50% or more of the voting stock generally entitled to elect
directors of such surviving entity (or in the case of a
triangular merger, of the parent entity of such surviving
entity), calculated on a fully diluted basis, or (2) has
obtained the power (whether or not exercised) to elect a
majority of the board of directors (or equivalent governing
body) of our company or its successors; (B) the board of
directors (or equivalent governing body) of our company or its
successors shall cease to consist of a majority of continuing
directors, which is defined as the directors on the date of this
offering and subsequently elected directors whose election is
approved by the continuing directors; (C) we or our
successors, alone or together with the Principals and the
permitted transferees of the Principals, cease to own 50% or
more of the equity interests of Artio Global Holdings; or
(D) the sale of all or substantially all the assets of our
company or Artio Global Holdings.
The exchange agreement also includes non-solicit and
non-competition covenants that preclude each Principal from
soliciting our employees or customers and competing with our
business generally in the period beginning with the closing of
this offering and ending two years after termination of his
156
employment with us. The non-compete and non-solicitation
provisions will terminate if a change of control or
a potential change of control occurs and the
relevant Principal is terminated by us without cause or resigns
with good reason.
A potential change of control will deemed to have
occurred if: (A) the company enters into an agreement, the
consummation of which would result in the occurrence of a change
of control; (B) the board of directors of our company
adopts a resolution to the effect that a potential change of
control has occurred; (C) any person commences a proxy
contest, files solicitation material with the SEC, files a
Statement on Schedule 13D with the SEC or commences a
tender offer or exchange offer for any of the outstanding shares
of our companys stock, and a change of control occurs
within nine months following any of such events; or (D) any
person commences discussions or negotiations with our company
regarding the appointment or nomination of one or more
individuals as a director(s) of our company, or commences
discussions or negotiations with our company regarding the sale
or other disposition of a material product line of our company
or of a material portion of our companys assets, and a
change of control occurs as a result of any such event or events
within nine months following any such event or events.
Amended and
Restated Limited Liability Company Agreement of Artio Global
Holdings LLC
As a result of the reorganization and offering, Artio Global
Holdings will operate our business. The form of the operating
agreement is filed as an exhibit to the registration statement
of which this prospectus forms a part, and the following
description of the operating agreement is qualified by reference
thereto.
As the sole managing member of Artio Global Holdings, we will
have control over all of its affairs and decision making. As
such, we, through our officers and directors, will be
responsible for all its operational and administrative decisions
and the day-to-day management of its business. However, any
issuance by Artio Global Holdings of equity interests other than
New Class A Units and any voluntary dissolution generally
will require the consent of all members, including the
Principals. In addition, any amendments to the operating
agreement will require the consent of each Principal until such
Principal (together with his permitted transferees) holds less
than 2% of the equity interests of Artio Global Holdings. The
consent of each Principal also will be required for amendments
to certain fundamental provisions of the operating agreement.
In accordance with the operating agreement, net profits and net
losses of Artio Global Holdings will be allocated to its members
pro rata in accordance with the respective percentages of their
New Class A Units. Accordingly, net profits and net losses
initially will be allocated approximately 74% to us and
approximately 13% to each of our Principals, after giving effect
to the transactions described herein.
The holders of New Class A Units, including us, will
generally incur U.S. federal, state and local income taxes
on their proportionate share of any net taxable income of Artio
Global Holdings. Net profits and net losses will generally be
allocated to its members, including us, pro rata in accordance
with the percentages of their respective New Class A Units.
The operating agreement will require pro rata cash
distributions to the members of Artio Global Holdings in respect
of taxable income allocated to such members. The cash
distributions to the holders of its New Class A Units for
this purpose will be calculated at an assumed tax rate. Further,
taxable income of Artio Global Holdings for this purpose will be
calculated without regard to (i) any deduction arising out
of any exchange pursuant to the exchange agreement and
(ii) any deduction that we determine is not available to
any member, determined as if all members were individuals, for
interest expense in respect of the indebtedness incurred by it
in connection with this offering (or any interest expense in
respect of any future indebtedness incurred to repay the
principal of such indebtedness existing before this offering, up
to the aggregate amount of such indebtedness).
The operating agreement will provide that at any time we issue a
share of our Class A common stock, we are entitled to
transfer the net proceeds received by us with respect to such
share, if any, to Artio Global Holdings and it shall be required
to issue to us one New Class A Unit. Conversely, if at
157
any time, any shares of our Class A common stock are
redeemed by us for cash, we can cause Artio Global Holdings,
immediately prior to such redemption of our Class A common
stock, to redeem an equal number of New Class A Units held
by us, upon the same terms and for the same price, as the shares
of our Class A common stock are redeemed.
Immediately prior to this offering, we will amend and restate
Artio Global Managements operating agreement in connection
with the reorganization transactions and this offering, which
will result in the complete acceleration of the unvested portion
of the Class B profits interests of the Principals, the
elimination of both our obligation to repurchase such interests
and the ability of the Principals to put their interests to
Artio Global Management and the conversion of Artio Global
Managements multiple-class capital structure into a single
new class of membership units.
Tax Receivable
Agreement
Pursuant to the exchange agreement described above, from time to
time we may be required to acquire New Class A Units from
the Principals in exchange for shares of our Class A common
stock and the cancellation of a corresponding number of shares
of our Class B common stock held by the Principals. Artio
Global Holdings intends to have an election under
Section 754 of the Internal Revenue Code of 1986, as
amended, in effect for each taxable year in which such an
exchange occurs, pursuant to which each exchange is expected to
result in an increase in the tax basis of tangible and
intangible assets of Artio Global Holdings with respect to such
New Class A Units acquired by us in such exchanges. This
increase in tax basis is likely to increase (for tax purposes)
depreciation and amortization allocable to us from Artio Global
Holdings and therefore reduce the amount of income tax we would
otherwise be required to pay in the future. This increase in tax
basis may also decrease gain (or increase loss) on future
dispositions of certain capital assets to the extent increased
tax basis is allocated to those capital assets.
We will enter into a tax receivable agreement with the
Principals requiring us to pay to each of them 85% of the amount
of the reduction in tax payments, if any, in U.S. federal,
state and local income tax that we realize (or are deemed to
realize upon an early termination of the tax receivable
agreement or a change of control, both discussed below) as a
result of the increases in tax basis created by each
Principals exchanges described above. For purposes of the
tax receivable agreement, reduction in tax payments will be
computed by comparing our actual income tax liability to the
amount of such taxes that we would otherwise have been required
to pay had there been no increase to the tax basis of the
tangible and intangible assets of Artio Global Holdings. The
term of the tax receivable agreement will commence upon the
completion of this offering and will continue until all such tax
benefits have been utilized or expired, unless we exercise our
right to terminate the tax receivable agreement early. If we
exercise our right to terminate the tax receivable agreement
early, we will be obligated to make an early termination payment
to the Principals, or their transferees, based upon the net
present value (based upon certain assumptions and deemed events
set forth in the tax receivable agreement, including the
assumption that we would have enough taxable income in the
future to fully utilize the tax benefit resulting from any
increased tax basis that results from each exchange and that any
New Class A Units that the Principals or their transferees
own on the termination date are deemed to be exchanged on the
termination date) of all payments that would be required to be
paid by us under the tax receivable agreement. If certain change
of control events were to occur, we would be obligated to make
payments to the Principals using certain assumptions and deemed
events similar to those used to calculate an early termination
payment.
The actual increase in tax basis, as well as the amount and
timing of any payments under the tax receivable agreement, will
vary depending upon a number of factors, including the timing of
exchanges, the price of our Class A common stock at the
time of an exchange, the extent to which such exchanges are
taxable, the amount and timing of our income and the tax rates
then applicable.
We expect that, as a result of the size and increases in the tax
basis of the tangible and intangible assets of Artio Global
Holdings attributable to the exchanged New Class A Units,
and
158
assuming no material changes in the relevant tax law and that
we earn sufficient taxable income to realize the full tax
benefit of the increased tax basis, future payments under the
tax receivable agreement will be substantial, and based on the
assumptions discussed under Managements Discussion
and Analysis of Financial Condition and Results of
Operations Liquidity and Capital Resources
would be $274.2 million over a
15-year
period based on an assumed price of $26.00 per share of our
Class A common stock at the time of the exchange of all of
their New Class A Units. The payments under the tax
receivable agreement are not conditioned on the Principals
maintaining an ownership interest in us. Payments under the tax
receivable agreement are expected to give rise to certain
additional tax benefits attributable to further increases in
basis or, in certain circumstances, in the form of deductions
for imputed interest. Any such benefits are covered by the tax
receivable agreement and will increase the amounts due
thereunder. In addition, the tax receivable agreement will
provide for interest accrued from the due date (without
extensions) of the corresponding tax return to the date of
payment specified by the agreement.
Although we are not aware of any issue that would cause the IRS
to challenge a tax basis increase, we will not be reimbursed for
any payments previously made under the tax receivable agreement
if such basis increase is successfully challenged by the IRS. As
a result, in certain circumstances, payments could be made under
the tax receivable agreement in excess of our cash tax savings.
Transition
Services and Indemnification Agreements
In connection with this offering, we will enter into a
transition services agreement with Julius Baer Group Ltd.,
pursuant to which Julius Baer Group Ltd. will provide us with
certain services in connection with the operation of our
business, principally including the continued use of the
Julius Baer brand in a limited form and for a
transitional period following this offering. In addition, we
will enter into an indemnification and co-operation agreement
with Julius Baer Holding under which Julius Baer Holding will
indemnify us for any future losses relating to certain of our
legacy activities.
Indemnification
Agreements with Executive Officers and Directors
We have entered into separate indemnification agreements with
our executive officers and directors, which require us to
indemnify them against liabilities to the fullest extent
permitted by Delaware law.
Other Interested
Party Transactions
We and our subsidiaries engage in transactions with affiliates
as part of our business. Compensation for, and expenses of,
these transactions are governed by agreements between the
parties.
We earned revenue from advising our SEC registered mutual funds
which are currently marketed using the Artio Global brand.
Amounts earned from such activity, which are reported in
investment management fees, are as follows:
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Six months ended June 30, 2009
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$
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147.5 million
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Year ended December 31, 2008
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$
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253.9 million
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Year ended December 31, 2007
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$
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278.7 million
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Year ended December 31, 2006
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$
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190.0 million
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We earned revenue advising or sub-advising funds for affiliates.
The affiliates whom we sub-advise include Bank Julius
Baer & Co. Ltd. as well as GAM International
Management Limited.
159
Amounts earned from advising and sub-advising funds for
affiliates, which are reported in investment management fees,
are as follows:
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Six months ended June 30, 2009
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$
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1.9 million
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Year ended December 31, 2008
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$
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5.8 million
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Year ended December 31, 2007
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$
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6.0 million
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Year ended December 31, 2006
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$
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4.3 million
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We held investments in Artio Global registered investment
companies (pursuant to which certain of our employees had the
choice of investing their deferred bonuses) totaling
$6.9 million, $5.9 million and $4.8 million as of
June 30, 2009, December 31, 2008 and 2007,
respectively. Unrealized losses on the investments totaled
$0.5 million and realized losses on the investments totaled
$- million for the six months ended June 30, 2009.
Unrealized losses on the investments totaled $2.7 million
and realized losses totaled $0.2 million for the year ended
December 31, 2008. Unrealized gains on investments totaled
$0.5 million for the year ended December 31, 2007.
We allocated nil and $4.7 million for the years ended
December 31, 2008 and 2007, respectively, to affiliates for
both direct and indirect expenses of occupancy (including rent
and depreciation), information technology and support system
costs (including depreciation), administration and management
under the terms of service level agreements entered into with
such affiliates. The affiliates include Julius Baer Financial
Markets LLC and GAM USA Inc., both of which are 100% owned by
Julius Baer Holding Ltd. There were no allocated expenses for
the year ended December 31, 2008 and the six months ended
June 30, 2009.
We paid Julius Baer Holding Ltd. $1.6 million,
$6.4 million and $7.3 million in fees for the six
months ended June 30, 2009 and years ended
December 31, 2008 and 2007, respectively, for management
and licensing under the terms of a service level agreement
entered into with Julius Baer Holding Ltd. Following this
offering, we will no longer pay these license and management
fees to Julius Baer Holding Ltd.
In January 2006, we purchased certain fixed assets from Bank
Julius Baer & Co. Ltd. for $9.2 million at net
book value. Additionally, effective January 2006, the
administrative and support personnel who supported us were
transferred from Bank Julius Baer & Co. Ltd. to us.
Further, effective January 2006, Bank Julius Baer &
Co. Ltd. also assigned to us the lease for our office space as
well as other contracts relating to such lease.
In December 2005 the foreign exchange activities of an affiliate
were transferred to us. This activity was conducted in Julius
Baer Financial Markets LLC, which was our wholly owned
subsidiary. Julius Baer Financial Markets LLC, which was
distributed at book value to Julius Baer Holding Ltd. as of
December 1, 2007, is no longer our subsidiary and is
therefore shown in discontinued operations of our consolidated
financial statements.
During 2006 certain investment management agreements relating to
our legacy alternative fund-of-fund business were terminated for
no consideration. In conjunction with such termination, a
subsidiary of Julius Baer Holding Ltd. entered into replacement
investment management agreements with certain of the parties to
the agreements. The financial results relating to our legacy
alternative fund-of-fund business are included within continuing
operations as this business did not meet the criteria for
discontinued operations treatment.
Statement
Regarding Transactions with Affiliates
Upon the completion of this offering, we will adopt a policy
regarding the approval of any transaction or series of
transactions in which we or any of our subsidiaries is a
participant, the amount involved exceeds $120,000, and a
related person (as defined under SEC rules) has a
direct or indirect material interest. Under the policy, a
related person must promptly disclose to our general counsel any
related person transaction (defined as any
transaction that is required to be disclosed under
Item 404(a) of
Regulation S-K
in which we were or are to be a participant and the amount
160
involved exceeds $120,000 and in which any related person had or
will have a direct or indirect material interest) and all
material facts about the transaction. The general counsel will
then assess and promptly communicate that information to the
Nominating and Corporate Governance Committee of our board of
directors. Based on its consideration of all of the relevant
facts and circumstances, this board committee will decide
whether or not to approve such transaction and will generally
approve only those transactions that do not create a conflict of
interest. If we become aware of an existing related person
transaction that has not been pre-approved under this policy,
the transaction will be referred to this board committee, which
will evaluate all options available, including ratification,
revision or termination of such transaction. Our policy requires
any director who may be interested in a related person
transaction to recuse himself or herself from any consideration
of such related person transaction.
Grantor Retained
Annuity Trusts
Prior to this offering, each of our Principals will transfer a
portion of his existing Class B profits interest in Artio
Global Management to a GRAT for which such Principal will serve
as settlor and trustee. The Principals, together with the GRATs,
will contribute their Class B profits interests to Artio
Global Holdings in connection with this offering in exchange for
New Class A Units in Artio Global Holdings. Each GRAT will
also acquire a number of shares of our Class B common stock
corresponding to the number of New Class A Units that it
receives. Pursuant to SEC rules, each Principal will be
considered the beneficial owner of the securities held by the
GRAT for which he serves as settlor and trustee.
The GRATs (together with certain permitted transferees of the
Principals) will generally have the same rights and obligations
as the Principals (including consent rights) under each of the
agreements described in this Relationships and Related
Party Transactions section, and each reference to a
Principal in this section should be deemed to
include the GRATs and such permitted transferees.
161
PRINCIPAL
STOCKHOLDERS
The following table sets forth information regarding the
beneficial ownership of our Class A common stock for:
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each person who is known by us to beneficially own more than 5%
of any class of our outstanding shares;
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each of our named executive officers;
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each of our directors; and
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all of our executive officers and directors as a group.
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The number of shares of common stock outstanding and percentage
of beneficial ownership before this offering set forth below is
based on the number of shares of common stock outstanding
immediately prior to the consummation of this offering after
giving effect to the reorganization transactions discussed in
Our Structure and Reorganization. The number of
shares of our Class A common stock outstanding and
percentage of beneficial ownership after this offering set forth
below is based on the number of shares of our Class A
common stock outstanding after this offering, assuming that all
New Class A Units held by the Principals and Class C
common stock held by Julius Baer Holding Ltd. outstanding after
giving effect to the transactions described under Our
Structure and Reorganization, are exchanged for or
converted into shares of our Class A common stock.
Beneficial ownership is determined in accordance with the rules
of the SEC. These rules generally attribute beneficial ownership
of securities to persons who possess sole or shared voting power
or investment power with respect to such securities. Except as
otherwise indicated, all persons listed below have sole voting
and investment power with respect to the shares beneficially
owned by them, subject to applicable community property laws.
Except as otherwise indicated, the address for each of our
principal stockholders is
c/o Artio
Global Investors Inc., 330 Madison Ave., New York, NY 10017.
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% of Combined
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% of
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Voting Power
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No. of
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% of
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Combined
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After Offering,
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Shares
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Combined
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No. of
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Voting
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Including
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Before
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Before
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Shares
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Power After
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Full Option
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Name of Beneficial
Owner
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Offering
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Offering
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After Offering
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Offering
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Exercise
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Richard Pell
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9,000,000
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(1)
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15.0
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7,800,000
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(1)(2)
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13.0
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13.0
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Rudolph-Riad Younes
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9,000,000
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(1)
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15.0
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7,800,000
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(1)(3)
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13.0
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13.0
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Glen Wisher
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*
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*
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Tony Williams
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*
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*
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Francis Harte
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*
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*
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Elizabeth Buse
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2,308
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*
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*
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Duane Kullberg
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2,308
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*
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*
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Francis Ledwidge
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2,308
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*
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Directors and executive officers as a group (9 persons)
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18,000,000
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30.0
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15,606,924
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26.0
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26.0
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Julius Baer Holding Ltd.
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42,000,000
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70.0
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19,400,000
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32.3
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26.1
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Represents New Class A Units exchangeable on a one-for-one
basis for shares of Class A common stock. |
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Includes New Class A Units held by a GRAT, as to which
Mr. Pell is the settlor and trustee and receives annual
annuity payments therefrom. Mr. Pells spouse and
children are the remaindermen. Pursuant to SEC rules,
Mr. Pell is considered the beneficial owner of such
securities. |
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Includes New Class A Units held by a GRAT, as to which
Mr. Younes is the settlor and trustee and receives annual
annuity payments therefrom. Mr. Youness spouse, if
any, and the lineal descendants of his parents (other than
Mr. Younes) are the remaindermen. Pursuant to SEC rules,
Mr. Younes is considered the beneficial owner of such
securities. |
163
DESCRIPTION OF
CAPITAL STOCK
The following description of our capital stock is a summary and
is qualified in its entirety by reference to our amended and
restated certificate of incorporation and bylaws, which are
filed as exhibits to the registration statement of which this
prospectus forms a part, and by applicable law. This description
assumes the effectiveness of our amended and restated
certificate of incorporation and bylaws, which will take effect
immediately prior to the consummation of this offering. Under
our amended and restated certificate of incorporation, the
purpose of our company is to engage in any lawful act for which
corporations may be organized under the Delaware General
Corporation Law.
Our authorized capital stock consists of 500,000,000 shares
of Class A common stock, par value $0.001 per share,
50,000,000 shares of Class B common stock, par value
$0.001 per share, 210,000,000 shares of Class C common
stock, par value $0.01 per share and 100,000,000 shares of
preferred stock, par value $0.001 per share. The issuance of
Class A common stock in connection with this offering was
authorized by resolutions of the Board of Directors on
September 3, 2009.
Common
Stock
Class A
Common Stock
Holders of our Class A common stock are entitled to one
vote for each share held of record on all matters submitted to a
vote of stockholders.
Holders of our Class A common stock are entitled to receive
dividends when and if declared by our board of directors out of
funds legally available therefor, subject to any statutory or
contractual restrictions on the payment of dividends and to any
restrictions on the payment of dividends imposed by the terms of
any outstanding preferred stock. Any dividend paid in respect of
our Class A common stock must also be paid in respect of
our Class C common stock.
Upon our dissolution or liquidation or the sale of all or
substantially all of our assets, after payment in full of all
amounts required to be paid to creditors and to the holders of
preferred stock having liquidation preferences, if any, the
holders of our Class A common stock and Class C common
stock will be entitled to receive pro rata our remaining assets
available for distribution.
Holders of our Class A common stock do not have preemptive,
subscription, redemption or conversion rights.
Subject to the restrictions set forth in the exchange agreement,
the Principals may exchange their New Class A Units with us
for shares of Class A common stock on a one-for-one basis,
subject to certain limitations and customary conversion rate
adjustments for stock splits, stock dividends and
reclassifications and other similar transactions. Upon any such
exchange, a corresponding number of shares of Class B
common stock will be automatically cancelled. See
Relationships and Related Party Transactions
Exchange Agreement.
Class B
Common Stock
Holders of our Class B common stock are entitled to one
vote for each share held of record on all matters submitted to a
vote of stockholders. Our Principals will be the holders of all
shares of Class B common stock.
Holders of our Class B common stock will not have any right
to receive dividends (other than dividends consisting of shares
of our Class B common stock or in rights, options, warrants
or other securities convertible or exercisable into or
exchangeable for shares of Class B common stock paid
proportionally with respect to each outstanding share of our
Class B common stock) or to receive a distribution upon the
dissolution, liquidation or sale of all or substantially all of
our assets.
164
Class C
Common Stock
Holders of our Class C common stock are entitled to an
aggregate vote on all matters submitted to a vote of
stockholders equal to the greater of (1) the number of
votes they would be entitled to on a one-vote-per-share basis
and (2) 20% of the combined voting power of all classes of
common stock. Julius Baer Holding Ltd. will be the holder of all
shares of Class C common stock and will enter into a
shareholders agreement with us under which it will agree that,
to the extent it has a vote as holder of the Class C common
stock greater than that which it would be entitled to on a
one-vote-per-share basis, it will on all matters vote such
excess on the same basis and in the same proportion as the votes
cast by the holders of our Class A and Class B common
stock. See Relationships and Related Party
Transactions Shareholders Agreements.
Holders of our Class C common stock are entitled to receive
dividends when and if declared by our board of directors out of
funds legally available therefor, subject to any statutory or
contractual restrictions on the payment of dividends and to any
restrictions on the payment of dividends imposed by the terms of
any outstanding preferred stock. Any dividend paid in respect of
our Class C common stock must also be paid in respect of
our Class A common stock.
Upon our dissolution or liquidation or the sale of all or
substantially all of our assets, after payment in full of all
amounts required to be paid to creditors and to the holders of
preferred stock having liquidation preferences, if any, the
holders of our Class A common stock and Class C common
stock will be entitled to receive pro rata our remaining assets
available for distribution.
Holders of our Class C common stock do not have preemptive,
subscription or redemption rights. If Julius Baer Holding Ltd.
transfers any shares of Class C common stock to anyone
other than any of its subsidiaries, such shares will
automatically convert into shares of Class A common stock.
In addition, on the second anniversary of this offering, any
outstanding shares of Class C common stock will
automatically convert on a one-for-one basis into Class A
common stock.
Voting
Generally, all matters to be voted on by stockholders must be
approved by a majority (or, in the case of election of
directors, by a plurality) of the votes entitled to be cast by
all shares of Class A common stock, Class B common
stock and Class C common stock present in person or
represented by proxy, voting together as a single class.
However, as set forth below under Common Stock
Amendments to our Governing Documents, certain
material amendments to the amended and restated certificate of
incorporation must be approved by at least
662/3%
of the combined voting power of all of our outstanding capital
stock entitled to vote in the election of our board, voting
together as a single class. In addition, amendments to the
amended and restated certificate of incorporation that would
alter or change the powers, preferences or special rights of the
Class B common stock or Class C common stock so as to
affect them adversely also must be approved by a majority of the
votes entitled to be cast by the holders of the shares affected
by the amendment, voting as a separate class. Notwithstanding
the foregoing, any amendment to our amended and restated
certificate of incorporation to increase or decrease the
authorized shares of any class of common stock shall be approved
upon the affirmative vote of the holders of a majority of the
shares of Class A common stock, Class B common stock
and Class C common stock, voting together as a single class.
No shares of any class of common stock will be subject to
redemption or will have preemptive rights to purchase additional
shares of any class of common stock. Upon consummation of this
offering, all the outstanding shares of common stock will be
legally issued, fully paid and nonassessable.
Preferred
Stock
Our amended and restated certificate of incorporation authorizes
our board of directors to establish one or more series of
preferred stock (including convertible preferred stock). Unless
required
165
by law or by any stock exchange, the authorized shares of
preferred stock will be available for issuance without further
action by you. Our board of directors is able to determine, with
respect to any series of preferred stock, the terms and rights
of that series, including:
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the designation of the series;
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the number of shares of the series, which our board may, except
where otherwise provided in the preferred stock designation,
increase or decrease, but not below the number of shares then
outstanding;
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whether dividends, if any, will be cumulative or non-cumulative
and the dividend rate of the series;
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the dates at which dividends, if any, will be payable;
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the redemption rights and price or prices, if any, for shares of
the series;
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the terms and amounts of any sinking fund provided for the
purchase or redemption of shares of the series;
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the amounts payable on shares of the series in the event of any
voluntary or involuntary liquidation, dissolution or
winding-up
of the affairs of our company;
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whether the shares of the series will be convertible into shares
of any other class or series, or any other security, of our
company or any other entity, and, if so, the specification of
the other class or series or other security, the conversion
price or prices or rate or rates, any rate adjustments, the date
or dates at which the shares will be convertible and all other
terms and conditions upon which the conversion may be made;
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restrictions on the issuance of shares of the same series or of
any other class or series; and
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the voting rights, if any, of the holders of the series.
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We could issue a series of preferred stock that could, depending
on the terms of the series, impede or discourage an acquisition
attempt or other transaction that some, or a majority, of our
stockholders may believe is in their best interests or in which
they may receive a premium for their Class A common stock
over the market price of the Class A common stock.
Authorized but
Unissued Capital Stock
Delaware law does not require stockholder approval for any
issuance of authorized shares. However, the listing requirements
of the NYSE, which would apply so long as the Class A
common stock remains listed on the NYSE, require stockholder
approval of certain issuances equal to or exceeding 20% of the
then outstanding voting power or then outstanding number of
shares of Class A common stock. These additional shares may
be used for a variety of corporate purposes, including future
public offerings, to raise additional capital or to facilitate
acquisitions.
One of the effects of the existence of unissued and unreserved
common stock or preferred stock may be to enable our board of
directors to issue shares to persons friendly to current
management, which issuance could render more difficult or
discourage an attempt to obtain control of our company by means
of a merger, tender offer, proxy contest or otherwise, and
thereby protect the continuity of our management and possibly
deprive the stockholders of opportunities to sell their shares
of common stock at prices higher than prevailing market prices.
Anti-Takeover
Effects of Provisions of Delaware Law
We are a Delaware corporation subject to Section 203 of the
Delaware General Corporation Law. Section 203 provides
that, subject to certain exceptions specified in the law, a
Delaware corporation shall not engage in certain business
combinations with any interested stockholder
for a
166
three-year period after the date of the transaction in which the
person became an interested stockholder unless:
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prior to such time, our board of directors approved either the
business combination or the transaction that resulted in the
stockholder becoming an interested stockholder;
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upon consummation of the transaction that resulted in the
stockholder becoming an interested stockholder, the interested
stockholder owned at least 85% of our voting stock outstanding
at the time the transaction commenced, excluding certain
shares; or
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at or subsequent to the consummation of the transaction that
resulted in the stockholder becoming an interested stockholder,
the business combination is approved by our board of directors
and by the affirmative vote of holders of at least
662/3%
of the outstanding voting stock that is not owned by the
interested stockholder.
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Generally, a business combination includes a merger,
asset or stock sale or other transaction resulting in a
financial benefit to the interested stockholder. Subject to
certain exceptions, an interested stockholder is a
person who, together with that persons affiliates and
associates, owns, or within the previous three years did own,
15% or more of our voting stock.
Under certain circumstances, Section 203 makes it more
difficult for a person who would be an interested
stockholder to effect various business combinations with a
corporation for a three-year period. The provisions of
Section 203 may encourage companies interested in acquiring
our company to negotiate in advance with our board of directors
because the stockholder approval requirement would be avoided if
our board of directors approves either the business combination
or the transaction that results in the stockholder becoming an
interested stockholder. These provisions also may make it more
difficult to accomplish transactions that stockholders may
otherwise deem to be in their best interests.
Corporate
Opportunities and Transactions with Julius Baer Holding
Ltd.
In recognition that directors, officers and employees of Julius
Baer Holding Ltd. and its subsidiaries may serve as our
directors
and/or
officers, and that Julius Baer Holding Ltd. may acquire
interests in businesses that directly or indirectly compete with
certain portions of our business or are suppliers or clients of
ours, our amended and restated certificate of incorporation
provides for the allocation of certain corporate opportunities
between us and Julius Baer Holding Ltd. As set forth in our
amended and restated certificate of incorporation, neither
Julius Baer Holding Ltd. nor any of its subsidiaries, nor any
director, officer or employee of Julius Baer Holding Ltd. or any
of its subsidiaries has any duty to refrain from engaging,
directly or indirectly, in the same business activities or
similar business activities or lines of business in which we
operate. If Julius Baer Holding Ltd. acquires knowledge of a
potential transaction or matter which may be a corporate
opportunity for itself and us, we will not have any expectancy
in such corporate opportunity and Julius Baer Holding Ltd. will
not have any duty to communicate or offer such corporate
opportunity to us and may pursue or acquire such corporate
opportunity for itself or direct such opportunity to another
person. In addition, if a director or officer of our company who
is also a director, officer or employee of Julius Baer Holding
Ltd. or any of its subsidiaries acquires knowledge of a
potential transaction or matter which may be a corporate
opportunity for us and Julius Baer Holding Ltd., we will not
have any expectancy in such corporate opportunity unless such
corporate opportunity is offered to such person in his or her
capacity as a director or officer of our company.
Requirements
for Advance Notification of Stockholder Nominations and
Proposals
Our bylaws establish advance notice procedures with respect to
stockholder proposals and nomination of candidates for election
as directors.
167
Limits on
Written Consents
Any action required or permitted to be taken by the stockholders
must be effected at a duly called annual or special meeting of
stockholders and may not be effected by any consent in writing
in lieu of a meeting of such stockholders, subject to the rights
of the holders of our Class B common stock or Class C
common stock in connection with actions that require their vote
as a separate class of any series of preferred stock.
Limits on
Special Meetings
Special meetings of the stockholders may be called at any time
only by the board of directors, the Chairman of the Board or our
Chief Executive Officer, subject to the rights of the holders of
any series of preferred stock.
Amendments to
our Governing Documents
Generally, the amendment of our amended and restated certificate
of incorporation requires approval by our board and a majority
vote of stockholders; however, certain material amendments
(including amendments with respect to provisions governing board
composition, actions by written consent, special meetings and
the corporate opportunities limitation) require the approval of
at least
662/3%
of the votes entitled to be cast by the outstanding capital
stock in the elections of our board. Any amendment to our bylaws
requires the approval of either a majority of our board of
directors or holders of at least
662/3%
of the votes entitled to be cast by the outstanding capital
stock in the election of our board.
Amended and
Restated Limited Liability Company Agreement of Artio Global
Holdings LLC
As a holding company we will depend upon distributions from
Artio Global Holdings to fund all distributions. For a
description of the material terms of the Amended and Restated
Limited Liability Company Agreement of Artio Global Holdings,
see Relationships and Related Party
Transactions Amended and Restated Limited Liability
Company Agreement of Artio Global Holdings LLC.
Listing
Our Class A common stock has been approved for listing on
the NYSE under the symbol ART.
Transfer Agent
and Registrar
The transfer agent and registrar for our Class A common
stock is Mellon Investor Services LLC.
168
SHARES ELIGIBLE
FOR FUTURE SALE
Prior to this offering, there has been no market for our
Class A common stock. Future sales of substantial amounts
of our Class A common stock in the public market could
adversely affect market prices prevailing from time to time.
Furthermore, because only a limited number of shares will be
available for sale shortly after this offering due to existing
contractual and legal restrictions on resale as described below,
there may be sales of substantial amounts of our Class A
common stock in the public market after the restrictions lapse.
This may adversely affect the prevailing market price and our
ability to raise equity capital in the future.
Upon completion of this offering, we will have
25,006,924 shares of Class A common stock outstanding,
excluding the approximately 2.1 million restricted stock
units that we expect to grant to our employees (other than our
Principals) in connection with this offering, which generally
vest over a five-year period, and 2.4 million shares issued
but held as treasury stock. Pursuant to the terms of the
exchange agreement, the Principals may from time to time
exchange their New Class A Units for shares of our
Class A common stock on a one-for-one basis, subject to
customary conversion rate adjustments for stock splits, stock
dividends and reclassifications and other similar transactions.
Immediately following this offering and giving effect to the
application of net proceeds thereof, the Principals will each
beneficially own 7,800,000 New Class A Units, all of which
will be exchangeable for shares of our Class A common
stock. See Relationships and Related Party
Transactions Exchange Agreement. In addition,
upon any transfer of shares of Class C common stock by
Julius Baer Holding Ltd. (other than to one of its subsidiaries
or to us), such shares will automatically be converted into
shares of Class A common stock. Immediately following this
offering and giving effect to the application of net proceeds
thereof, Julius Baer Holding Ltd. will own
19,400,000 shares of Class C common stock.
Of the shares of common stock outstanding following this
offering, 25,000,000 shares of Class A common stock
(or 28,750,000 shares of Class A common stock if the
underwriters exercise their option to purchase additional
shares) sold in this offering will be freely tradable without
restriction or further registration under the Securities Act,
except for any shares of Class A common stock held by our
affiliates, as defined in Rule 144 under the
Securities Act, which would be subject to the limitations and
restrictions described below. The remaining 6,924 shares of
fully-vested Class A common stock (subject to transfer
restrictions) that will be outstanding and the
35,000,000 shares of Class A common stock that will be
reserved for issuance upon exchange or conversion of New
Class A Units or Class C common stock are
restricted shares as defined in Rule 144.
Restricted shares may be sold in the public market only if
registered or if they qualify for an exemption from registration
under Rules 144 or 701 of the Securities Act. As a result
of the contractual
180-day
lock-up
period described in Underwriting and the provisions
of Rules 144 and 701, these shares will be available for
sale in the public market as follows:
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Number of Shares
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Date
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25,000,000
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On the date of this prospectus.
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35,006,924
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After 180 days from the date of this prospectus (subject,
in some cases, to volume limitations).(1)
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Includes 7.8 million shares that each of the Principals
would hold if he exchanged all of his New Class A Units for
shares of Class A common stock. These shares are subject to
additional contractual restrictions on transfer as described in
Relationships and Related Party Transactions
Exchange Agreement. |
Effective upon consummation of this offering, we will enter into
a registration rights agreement with Julius Baer Holding Ltd.
and the Principals that would require us to register under the
Securities Act these shares of Class A common stock. See
Registration Rights Agreement and
Relationships and Related Party Transactions
Registration Rights Agreement.
169
Rule 144
In general, under Rule 144 as currently in effect,
beginning 90 days after this offering, our affiliates who
own shares for at least six months or own shares purchased in
the open market, are entitled to sell these shares as follows.
Within any three-month period, each person may sell a number of
shares that does not exceed the greater of 1% of our
then-outstanding shares of common stock, which will equal
approximately 250,069 shares immediately after this
offering, or the average weekly trading volume of our common
stock on the NYSE during the four calendar weeks preceding the
filing of a notice of the sale on Form 144. Sales under
Rule 144 by affiliates will also be subject to manner of
sale provisions, notice requirements and the availability of
current public information about us.
A person who is not deemed to have been one of our affiliates at
any time during the three months preceding a sale, and who owns
shares within the definition of restricted
securities under Rule 144 that were purchased from
us, or any affiliate, at least six months previously, would,
beginning 90 days after this offering, also be entitled to
sell shares under Rule 144. Such sales would be permitted
without regard to the volume limitations, manner of sale
provisions or notice requirements described above and, after one
year, without any limits, including the public information
requirement.
We are unable to estimate the number of shares that will be sold
under Rule 144 since this will depend on the market price
for our common stock, the personal circumstances of the
stockholder and other factors.
Equity
Awards
Upon completion of this offering, we intend to file a
registration statement under the Securities Act covering all
shares of our Class A common stock issued and issuable
pursuant to the Artio Global Investors Inc. 2009 Stock Incentive
Plan. Shares of our Class A common stock registered under
this registration statement will be available for sale in the
open market, subject to Rule 144 volume limitations
applicable to affiliates, vesting restrictions with us or the
contractual restrictions described under
Management Artio Global Investors Inc. 2009
Stock Incentive Plan.
Registration
Rights Agreement
Effective upon consummation of this offering, we will enter into
a registration rights agreement with the Principals and Julius
Baer Holding Ltd. pursuant to which we will grant them, their
affiliates and certain of their transferees the right, under
certain circumstances and subject to certain restrictions, to
require us to register under the Securities Act shares of our
Class A common stock issuable upon exchange of their New
Class A Units or upon conversion of their Class C
common stock, respectively. Such securities registered under any
registration statement will be available for sale in the open
market unless restrictions apply. See Relationships and
Related Party Transactions Registration Rights
Agreement.
170
MATERIAL U.S.
FEDERAL TAX CONSIDERATIONS FOR
NON-U.S.
HOLDERS
OF OUR CLASS A COMMON STOCK
In the opinion of Davis Polk & Wardwell LLP, the
following is a general discussion of the material
U.S. federal income and estate tax consequences of the
ownership and disposition of our Class A common stock by a
beneficial owner that is a
non-U.S. holder,
other than a
non-U.S. holder
that owns, or has owned, actually or constructively, more than
5% of our Class A common stock. A
non-U.S. holder
is a person or entity that, for U.S. federal income tax
purposes, is a:
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non-resident alien individual, other than certain former
citizens and residents of the United States subject to tax as
expatriates,
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foreign corporation, or
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foreign estate or trust.
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A
non-U.S. holder
does not include an individual who is present in the United
States for 183 days or more in the taxable year of
disposition and is not otherwise a resident of the United States
for U.S. federal income tax purposes. Such an individual is
urged to consult his or her own tax advisor regarding the
U.S. federal income tax consequences of the ownership or
disposition of our Class A common stock.
This discussion is based on the Internal Revenue Code of 1986,
as amended, administrative pronouncements, judicial decisions
and final, temporary and proposed Treasury Regulations, changes
to any of which subsequent to the date of this prospectus may
affect the tax consequences described herein, possibly on a
retroactive basis. This discussion does not address all aspects
of U.S. federal income and estate taxation that may be
relevant to
non-U.S. holders
in light of their particular circumstances and does not address
any tax consequences arising under the laws of any state, local
or foreign jurisdiction.
If a partnership holds Class A common stock, the
U.S. federal income tax treatment of a partner will
generally depend on the status of the partner and the tax
treatment of the partnership. A partner in a partnership holding
Class A common stock should consult its own tax advisor
with respect to the U.S. federal income tax treatment.
Prospective holders are urged to consult their tax advisors with
respect to the particular tax consequences to them of owning and
disposing of our Class A common stock, including the
consequences under the laws of any state, local or foreign
jurisdiction.
Dividends
Dividends paid to a
non-U.S. holder
of our Class A common stock generally will be subject to
withholding tax at a 30% rate or a reduced rate specified by an
applicable income tax treaty. In order to obtain a reduced rate
of withholding, a
non-U.S. holder
will be required to provide an IRS
Form W-8BEN
certifying its entitlement to benefits under an applicable
treaty.
The withholding tax does not apply to dividends paid to a
non-U.S. holder
who provides an IRS
Form W-8ECI,
certifying that the dividends are effectively connected with the
non-U.S. holders
conduct of a trade or business within the United States.
Instead, the effectively connected dividends will be subject to
U.S. income tax as if the
non-U.S. holder
were a U.S. resident, subject to an applicable income tax
treaty providing otherwise. A corporate
non-U.S. holder
recognizing effectively connected dividends may also be subject
to an additional branch profits tax imposed at a
rate of 30% (or a lower treaty rate).
Distributions of cash or other property that we pay to our
stockholders will constitute dividends for U.S. federal
income tax purposes to the extent paid from our current or
accumulated earnings and profits (as determined under
U.S. federal income tax principles). If the amount of a
distribution by us to our stockholders exceeds our current and
accumulated earnings and profits, such excess will be
171
treated first as a tax-free return of capital to the extent of a
holders basis in the Class A common stock and
thereafter as capital gain.
Gain on
Disposition of Our Class A Common Stock
A
non-U.S. holder
generally will not be subject to U.S. federal income tax on
gain realized on a sale or other disposition of our Class A
common stock unless:
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the gain is effectively connected with the conduct of a trade or
business of the
non-U.S. holder
in the United States, subject to an applicable treaty providing
otherwise, or
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we are or have been a U.S. real property holding
corporation at any time within the five-year period preceding
the disposition or the
non-U.S. holders
holding period, whichever period is shorter, and our
Class A common stock has ceased to be traded on an
established securities market prior to the beginning of the
calendar year in which the sale or disposition occurs.
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We are not, and do not anticipate becoming, a U.S. real
property holding corporation.
A corporate
non-U.S. holder
recognizing effectively connected gain may also be subject to an
additional branch profits tax imposed at a rate of
30% (or a lower treaty rate).
Information
Reporting Requirements and Backup Withholding
Information returns may be filed with the IRS in connection with
payments of dividends and the proceeds from a sale or other
disposition of our Class A common stock. A
non-U.S. holder
may have to comply with certification procedures to establish
that it is not a United States person in order to avoid
information reporting and backup withholding tax requirements.
The certification procedures required to claim a reduced rate of
withholding under a treaty will satisfy the certification
requirements necessary to avoid the backup withholding tax as
well. The amount of any backup withholding from a payment to a
non-U.S. holder
will be allowed as a credit against such holders
U.S. federal income tax liability and may entitle such
holder to a refund, provided that the required information is
timely furnished to the IRS.
Federal Estate
Tax
Individual
non-U.S. holders
and entities the property of which is potentially includible in
such an individuals gross estate for U.S. federal
estate tax purposes (for example, a trust funded by such an
individual and with respect to which the individual has retained
certain interests or powers), should note that, absent an
applicable treaty benefit, our Class A common stock will be
treated as U.S. situs property subject to U.S. federal
estate tax.
172
UNDERWRITING
Artio Global Investors Inc. and the underwriters named below
have entered into an underwriting agreement with respect to the
shares of Class A common stock being offered. Subject to
certain conditions, each underwriter has severally agreed to
purchase the number of shares indicated in the following table.
Goldman, Sachs & Co. is acting as sole book-running
manager of this offering and is acting as the representative of
the underwriters.
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Number of Shares
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of Class A
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Underwriters
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Common Stock
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Goldman, Sachs & Co.
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14,500,000
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Merrill Lynch, Pierce, Fenner & Smith
Incorporated
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4,625,000
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Deutsche Bank Securities Inc.
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2,625,000
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UBS Securities LLC
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2,625,000
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Keefe, Bruyette & Woods, Inc.
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625,000
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Total
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25,000,000
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The underwriters are committed to take and pay for all of the
shares being offered, if any are taken, other than the shares
covered by the option described below unless and until this
option is exercised.
If the underwriters sell more shares than the total number set
forth in the table above, the underwriters have an option to buy
up to an additional 3,750,000 shares from us. They may
exercise that option for 30 days. If any shares are
purchased pursuant to this option, the underwriters will
severally purchase shares in approximately the same proportion
as set forth in the table above.
The following tables show the per share and total underwriting
discounts and commissions to be paid to the underwriters by
Artio Global Investors Inc. Such amounts are shown assuming both
no exercise and full exercise of the underwriters option
to purchase additional shares.
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No Exercise
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Full Exercise
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Per Share
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$
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1.4040
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$
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1.4040
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Total
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$
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35,100,000
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$
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40,365,000
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Shares sold by the underwriters to the public will initially be
offered at the initial public offering price set forth on the
cover of this prospectus. Any shares sold by the underwriters to
securities dealers may be sold at a discount of up to $0.8424
per share from the initial public offering price. If all the
shares are not sold at the initial public offering price, the
representative may change the offering price and the other
selling terms. The offering of the shares by the underwriters is
subject to receipt and acceptance and subject to the
underwriters right to reject any order in whole or in part.
Artio Global Investors Inc. and its officers, directors and
parent have agreed with the underwriters, subject to certain
exceptions, not to dispose of or hedge any of their Class A
common stock or securities convertible into or exchangeable for
shares of Class A common stock during the period from the
date of this prospectus continuing through the date
180 days after the date of this prospectus, except with the
prior written consent of Goldman Sachs & Co. This
agreement does not apply to any existing employee benefit plans
and is subject to certain exceptions. See Shares Eligible
for Future Sale for a discussion of certain transfer
restrictions.
The 180-day
restricted period described in the preceding paragraph will be
automatically extended if: (1) during the last 17 days
of the
180-day
restricted period Artio Global Investors Inc. issues an earnings
release or announces material news or a material event; or
(2) prior to the expiration of the
180-day
restricted period, Artio Global Investors Inc. announces that it
will release
173
earnings results during the
15-day
period following the last day of the
180-day
period, in which case the restrictions described in the
preceding paragraph will continue to apply until the expiration
of the
18-day
period beginning on the issuance of the earnings release of the
announcement of the material news or material event.
Prior to this offering, there has been no public market for the
shares. The initial public offering price has been negotiated
between Artio Global Investors Inc. and the representative.
Among the factors to be considered in determining the initial
public offering price of the shares, in addition to prevailing
market conditions, will be Artio Global Investors Inc.s
historical performance, estimates of the business potential and
earnings prospects of Artio Global Investors Inc., an assessment
of Artio Global Investors Inc.s management and the
consideration of the above factors in relation to market
valuation of companies in related businesses.
Artio Global Investors Inc. will list the Class A common
stock on the New York Stock Exchange under the symbol
ART. In order to meet one of the requirements for
listing the common stock on the NYSE, the underwriters have
undertaken to sell lots of 100 or more shares to a minimum of
400 U.S. beneficial holders and thereby establish at least
1,100,000 shares in the public float having a minimum
aggregate market value of $60,000,000.
In connection with this offering, the underwriters may purchase
and sell shares of Class A common stock in the open market.
These transactions may include short sales, stabilizing
transactions and purchases to cover positions created by short
sales. Shorts sales involve the sale by the underwriters of a
greater number of shares than they are required to purchase in
this offering. Covered short sales are sales made in
an amount not greater than the underwriters option to
purchase additional shares from Artio Global Investors Inc. in
this offering. The underwriters may close out any covered short
position by either exercising their option to purchase
additional shares or purchasing shares in the open market. In
determining the source of shares to close out the covered short
position, the underwriters will consider, among other things,
the price of shares available for purchase in the open market as
compared to the price at which they may purchase additional
shares pursuant to the option granted to them. Naked
short sales are any sales in excess of such option. The
underwriters must close out any naked short position by
purchasing shares in the open market. A naked short position is
more likely to be created if the underwriters are concerned that
there may be downward pressure on the price of the Class A
common stock in the open market after pricing that could
adversely affect investors who purchase in this offering.
Stabilizing transactions consist of various bids for or
purchases of Class A common stock made by the underwriters
in the open market prior to the completion of this offering.
The underwriters may also impose a penalty bid. This occurs when
a particular underwriter repays to the underwriters a portion of
the underwriting discount received by it because the
representative has repurchased shares sold by or for the account
of such underwriter in stabilizing or short covering
transactions.
Purchases to cover a short position and stabilizing
transactions, as well as other purchases by the underwriters for
their own accounts, may have the effect of preventing or
retarding a decline in the market price of Artio Global
Investors Inc.s stock, and together with the imposition of
the penalty bid, may stabilize, maintain or otherwise affect the
market price of the Class A common stock. As a result, the
price of the Class A common stock may be higher than the
price that otherwise might exist in the open market. If these
activities are commenced, they may be discontinued at any time.
These transactions may be effected on the NYSE, in the
over-the-counter market or otherwise.
The underwriters do not expect sales to discretionary accounts
to exceed five percent of the total number of shares offered.
We estimate that our share of the total expenses of this
offering, excluding underwriting discounts and commissions, will
be approximately $15,549,400.
174
We have agreed to indemnify the several underwriters against
certain liabilities, including liabilities under the Securities
Act of 1933, as amended.
Certain of the underwriters and their respective affiliates
have, from time to time, performed, and may in the future
perform, various financial advisory and investment banking
services for Artio Global Investors Inc. and its affiliates,
including Julius Baer Holding Ltd., for which they received or
will receive customary fees and expenses. Affiliates of certain
of the underwriters are lenders under the term debt facility and
the revolving credit facility established by Artio Global
Holdings in connection with this offering.
Argentina
No authorization before the Argentine Comission Nacional de
Valores to publicly offer the shares in Argentina was requested.
Therefore, the shares cannot be publicly offered in Argentina.
Australia
This document does not constitute a prospectus, product
disclosure statement or other disclosure document under the
Corporations Act 2001 (Cth) (the Corporations Act) and does not
include the information required for a disclosure document under
the Corporations Act. This document has not been lodged with the
Australian Securities and Investments Commission (ASIC) and no
steps have been taken to lodge it with ASIC. Any offer in
Australia of the shares under this prospectus may only be made
to persons who come within one of the categories set out in
sections 708(8), 708(10), 708(11) of the Corporations Act,
or otherwise pursuant to one or more exemptions in
section 708 of the Corporations Act, or to persons who come
within the definition of wholesale client set out in
section 761G of the Corporations Act so that it is lawful
to offer the securities without disclosure to investors under
Part 6D.2 or Part 7.9 of the Corporations Act
(collectively referred to as Sophisticated and
Professional Investors). As no formal disclosure document
(such as a prospectus or product disclosure statement) will be
lodged with ASIC, the securities will only be offered and issued
in Australia to one of the categories of Sophisticated or
Professional Investors. If a person to whom the securities are
issued (called an Investor) on-sells the securities in Australia
within 12 months from their issue, the Investor may need to
lodge a prospectus with ASIC unless that sale is to another
Sophisticated or Professional Investor or otherwise in reliance
on a disclosure exemption under the Corporations Act. Any person
acquiring the securities should observe such Australian on-sale
restrictions.
Austria
The underwriters have agreed to comply with the following
selling restrictions applicable to the Republic of Austria.
The underwriters have agreed that they shall not offer or sell
the shares in the Republic of Austria other than in compliance
with the Austrian Capital Market Act (Kapitalmarktgesetz) and
the Austrian Investment Fund Act (Investmentfondsgesetz),
respectively, and any other laws and regulations applicable in
the Republic of Austria governing the issue, the offering and
the sale of securities.
The shares may neither be nor are intended to be distributed by
way of public offering, public advertisement or in a similar
manner within the meaning of sections 2(1) of the Austrian
Capital Market Act (Kapitalmarktgesetz) and section 24(1)
of the Austrian Investment Fund Act (Investmentfondsgesetz)
nor shall the distribution of this prospectus or any other
document relating to the shares constitute such public offer
except that an offer may be made in the Republic of Austria in
circumstances which do not require the publication of a
prospectus in accordance with the Austrian Capital Market Act
(Kapitalmarktgesetz).
175
The distribution of the shares has not been notified and the
shares are not registered or authorized for public distribution
in the Republic of Austria under the Austrian Capital Market Act
(Kapitalmarktgesetz) or the Austrian Investment
Fund Act (Investmentfondsgesetz). Accordingly, this
prospectus has not been filed or deposited with the Austrian
Financial Market Supervisory Authority
(Finanzmarktaufsichtsbehörde - FMA).
Prospective Austrian investors in the shares are urged to seek
independent tax advice and to consult their professional
advisors as to the legal and tax consequences that may arise
from the application of, inter alia, section 42 of the
Austrian Investment Fund Act (Investmenfondsgesetz)
to the shares and neither we nor the initial purchasers accept
any responsibility in respect of the Austrian tax position of
the shares.
Belgium
This offer is exclusively conducted under applicable private
placement exemptions and therefore neither this prospectus nor
any other offering material related to the shares has been or
will be notified to, and neither this prospectus nor any other
offering material relating to the shares has been or will be
approved or reviewed by, the Belgian Banking, Finance and
Insurance Commission (Commission bancaire, financiere et des
assurances/Commissie voor het Bank, Financie en Assurantiewezen)
or the CBFA. Nor has the CBFA commented as to their accuracy or
adequacy or recommended the purchase of the shares. Nor will the
CBFA so comment or recommend.
Neither this prospectus nor any other offering material relating
to our circumstances which would require the publication by
Artio Global Investors Inc. of a prospectus, information
circular, brochure or similar document pursuant to
article 3 of the Belgian Law of June 16, 2006 on public
offerings of investment instruments and the admission of
investment instruments to trading on a regulated market.
Furthermore, none of the shares may be sold or offered for sale
to consumers as such term is defined in the Belgian Law dated
July 14, 1991 on commercial practices and the information
and protection of consumers.
This prospectus and any other offering material relating to the
shares that you may receive is intended for your confidential
use only, and may not be reproduced or used for any other
purpose. Any action contrary to these restrictions may cause you
and us to be in violation of the Belgian securities laws.
Bermuda
The securities being offered hereby are being offered to
investors who satisfy criteria outlined in this prospectus. This
prospectus is not subject to and has not received approval from
either the Bermuda Monetary Authority or the Registrar of
Companies in Bermuda and no statement to the contrary, explicit
or implicit, is authorized to be made in this regard. The shares
being offered hereby may be offered or sold in Bermuda only in
compliance with the provisions of the Investment Business Act
2003 of Bermuda. Additionally, non-Bermudian persons may not
carry on or engage in any trade or business in Bermuda unless
such persons are authorized to do so under applicable Bermuda
legislation. Engaging in the activity of offering or marketing
the offered shares in Bermuda to persons in Bermuda may be
deemed to be carrying on business in Bermuda.
Botswana
Artio Global Investors Inc. hereby represents and warrants that
it has not offered for sale or sold, and will not offer or sell,
directly or indirectly the shares to the public in the Republic
of Botswana, and confirms that this prospectus will not be
subiect to any registration requirements as a prospectus
pursuant to the requirements
and/or
provisions of the Companies Act, 2003 or the Listing
Requirements of the Botswana Stock Exchange.
176
Brazil
For purposes of Brazilian securities law, this offer of
securities is addressed to you personally upon your request and
for your sole benefit, and it is not to be transmitted to anyone
else, to be relied upon by anyone else or for any other purpose
either quoted or referred to in any other public or private
document or to be filed with anyone without our prior, express
and written consent. This offer of securities is not to be
deemed a public offer in Brazil under any circumstances.
Brunei
Notice to Residents
of Brunei Darussalam
This prospectus and the shares described herein are not an offer
to sell or a solicitation of an offer to buy
and/or to
subscribe for any shares to the public or any member of the
public in Brunei Darussalam but for information purposes only
and are directed solely at such persons as the law in Brunei
Darussalam would regard as a person whose ordinary business or
part thereof it is to buy or sell shares, whether as principal
or agent (Targeted Persons). As such, this
prospectus and any other document, circular, notice, or other
material issued in connection therewith may not be distributed
or redistributed to and may not be relied upon or used by the
public or any member of the public in Brunei Darussalam. All
offers, acceptances, subscription, sales, and allotments of the
shares or any part thereof shall, unless it relates to Targeted
Persons, be made outside Brunei Darussalam. This prospectus has
not been registered as a prospectus with the Registrar of
Companies under the Companies Act, Cap. 39 of Brunei Darussalam
and the shares have not been approved, by Registrar of Companies
or by any other government agency in Brunei Darussalam.
Cayman
Islands
The shares will not be offered to the general public of the
Cayman Islands. However, non-resident or exempted companies (and
other non-resident or exempted entities) established in the
Cayman Islands may subscribe for the shares.
Chile
The shares have not been registered in the Securities Registry
(Registro de Valores) of the Chilean Superintendency of
Securities and Insurance (Superintendencia de Valores y Seguros)
and, therefore, the shares may not be publicly offered or sold
in Chile.
Costa
Rica
This product is not intended for the Costa Rican public or
market and neither is registered or will get registered before
the SUGEVAL, nor can be traded in the secondary market.
Colombia
The issuance of the shares, as well as trading and payments in
respect of the shares, will occur outside Colombia. This
material is for the sole and exclusive use of the Colombian
client (the Client), and cannot be understood as being addressed
to, or be used by, any third party. The shares have not been and
will not be registered in the Colombian National Registry of
Securities and issuers or on the Colombian Stock Exchange.
Therefore, the shares may not be publicly offered in Colombia.
The Client acknowledges the Colombian laws and regulations
(specifically foreign exchange and tax regulations) applicable
to any transaction or investment made in connection with the
shares and represents that it is the sole party liable for full
compliance with any such laws and regulations.
Denmark
This prospectus does not constitute a prospectus under any
Danish laws or regulations and has not been filed with or
approved by the Danish Financial Supervisory Authority
(Finanstilsynet) as this
177
prospectus has not been prepared in the context of either
(i) a public offering of shares in Denmark within the
meaning of the Danish Securities Trading Act as amended from
time to time or any Executive Orders issued in connection
thereto or (ii) an offering of a collective investment
scheme comprised by the Danish Investment Association Act as
amended from time to time or any Executive Orders issued in
connection thereto. This prospectus is only directed to persons
or entities in Denmark who acquire the shares in circumstances
which will not result in the offering becoming subject to Danish
Prospectus requirements pursuant of the Danish Securities
Trading Act as amended from time to time or any Executive Orders
issued in connection thereto.
Dubai
International Financial Center
This prospectus relates to an exempt offer in accordance with
the Offered Securities Rules of the Dubai Financial Services
Authority. This prospectus is intended for distribution only to
persons of a type specified in those rules. It must not be
delivered to, or relied on by, any other person. The Dubai
Financial Services Authority has no responsibility for reviewing
or verifying any documents in connection with exempt offers. The
Dubai Financial Services Authority has not approved this
document nor taken steps to verify the information set out in
it, and has no responsibility for it. The shares to which this
prospectus relates may be illiquid
and/or
subject to restrictions on their resale. Prospective purchasers
of the shares offered should conduct their own due diligence on
the shares. If you do not understand the contents of this
document you should consult an authorized financial adviser.
Egypt
The shares discussed in the prospectus are not being offered or
sold publicly in Egypt and they have not been and will not be
registered with the Egyptian Capital Markets Authority and may
not be offered or sold to the public in Egypt. No offer, sale or
delivery of such shares, or distribution of any prospectus
relating thereto, may be made in or from Egypt except in
compliance with any applicable Egyptian laws and regulations.
Estonia
The shares may and shall only be offered in Estonia through
private placement, as defined in the Securities Market Act of
Estonia of 2001, as amended (the Securities Market Act). The
proposed offer of the shares has not been and shall not be
registered or otherwise authorized under the Securities Market
Act, as a public offer and no offer of the shares in Estonia
shall constitute a public offer of shares pursuant to applicable
Estonian law. The shares may not be publicly offered or sold,
directly or indirectly, in Estonia or to or for the benefit of
any resident of Estonia (which term as used herein means any
person resident in Estonia, including any corporation or other
entity incorporated under the laws of Estonia), or to others for
re-offering or resale, directly or indirectly, publicly in
Estonia or to a resident of Estonia except in compliance with
applicable laws or regulations of Estonia.
Member States of
the European Economic Area
In relation to each Member State of the European Economic Area
which has implemented the Prospectus Directive (each, a Relevant
Member State), each underwriter has represented and agreed that
with effect from and including the date on which the Prospectus
Directive is implemented in that Relevant Member State (the
Relevant Implementation Date) it has not made and will not make
an offer of shares to the public in that Relevant Member State
prior to the publication of a prospectus in relation to the
shares which has been approved by the competent authority in
that Relevant Member State or, where appropriate, approved in
another Relevant Member State and notified to the competent
authority in that Relevant Member State, all in accordance with
the Prospectus Directive,
178
except that it may, with effect from and including the Relevant
Implementation Date, make an offer of shares to the public in
that Relevant Member State at any time:
(a) to legal entities which are authorized or regulated to
operate in the financial markets or, if not so authorized or
regulated, whose corporate purpose is solely to invest in
securities;
(b) to any legal entity which has two or more of
(1) an average of at least 250 employees during the
last financial year; (2) a total balance sheet of more than
43,000,000 and (3) an annual net turnover of more
than 50,000,000, as shown in its last annual or
consolidated accounts;
(c) to fewer than 100 natural or legal persons (other than
qualified investors as defined in the Prospectus Directive)
subject to obtaining the prior consent of the representative for
any such offer; or
(d) in any other circumstances which do not require the
publication by the Issuer of a prospectus pursuant to
Article 3 of the Prospectus Directive.
For the purposes of this provision, the expression an
offer of shares to the public in relation to any
shares in any Relevant Member State means the communication in
any form and by any means of sufficient information on the terms
of the offer and the shares to be offered so as to enable an
investor to decide to purchase or subscribe the shares, as the
same may be varied in that Relevant Member State by any measure
implementing the Prospectus Directive in that Relevant Member
State and the expression Prospectus Directive means Directive
2003/71/EC and includes any relevant implementing measure in
each Relevant Member State.
Finland
The shares may not be offered or sold, or this prospectus be
distributed, directly or indirectly, to any resident of the
Republic of Finland or in the Republic of Finland, except
pursuant to applicable Finnish laws and regulations.
Specifically, the shares may not be offered or sold, or this
prospectus be distributed directly or indirectly, to any
resident of the Republic of Finland or in the Republic of
Finland, other than to a limited number of pre-selected
professional investors (under the Finnish Investment Funds Act
of 1999 and the Finnish Securities Market Act of 1989).
France
Neither this prospectus or any other offering material relating
to the shares described in this prospectus has been prepared in
the context of a public offer of securities in the Republic of
France within the meaning of
article L.411-1
of the French Code monétaire et financier and
articles 211-1
& seq. of the General Regulations of the Autorité des
marchés financiers, nor has been and will be submitted to
applicable clearance procedures of the Autorité des
marchés financiers. The shares have not been and will not
be offered or sold or otherwise transferred, directly or
indirectly, to the public in the Republic of France, and any
offer, sale or other transfer of the shares in the Republic of
France will and may be made strictly in accordance with
article L.411-2
of the French Code monétaire et financier, and only to:
(a) qualified investors (investisseurs qualifies) acting
for their own account except as otherwise stated under French
laws and regulations; and/or
(b) a restricted circle of investors (cercle restreint
dinvestisseurs) acting for their own account, all as
defined in and in accordance with
articles L.411-2,
D.411-1 to D.411-4, D.734-1, D.744-1, D.754-1 and D.764-1 of the
French Code monétaire et financier; and/or
(c) persons providing portfolio management services on a
discretionary basis (personnes fournissant le service
dinvestissement de gestion de portefeuille pour compte de
tiers); and/or
179
(d) and generally to persons and in any transaction that,
in accordance with article l.411-2-II-1° - or
2° - or 3° of the French Code monétaire et
financier and
article 211-2
of the General Regulations of the Autorité des marchés
financiers, does not constitute a public offer.
The shares may be resold, directly or indirectly, only in
compliance with the above selling restrictions.
Greece
This prospectus and the investment activity to which it relates
and any other material related thereto may not be advertised,
distributed, offered or otherwise made available to any person
in the Hellenic Republic in such manner as it may constitute an
offer to the public within the meaning of any applicable Greek
law or regulation. The Hellenic Capital Market Commission has
not authorized any offer to the public or otherwise of the
shares to which this prospectus relates, and accordingly this
prospectus and the shares to which it relates may not be
advertised, distributed or in any way offered or sold in the
Hellenic Republic except as may be permitted under Greek law.
Hong
Kong
The shares may not be offered or sold by means of any document
other than (i) in circumstances which do not constitute an
offer to the public within the meaning of the Companies
Ordinance (Cap.32, Laws of Hong Kong), or (ii) to
professional investors within the meaning of the
Securities and Futures Ordinance (Cap.571, Laws of Hong Kong)
and any rules made thereunder, or (iii) in other
circumstances which do not result in the document being a
prospectus within the meaning of the Companies
Ordinance (Cap.32, Laws of Hong Kong), and no advertisement,
invitation or document relating to the shares may be issued or
may be in the possession of any person for the purpose of issue
(in each case whether in Hong Kong or elsewhere), which is
directed at, or the contents of which are likely to be accessed
or read by, the public in Hong Kong (except if permitted to do
so under the laws of Hong Kong) other than with respect to
shares which are or are intended to be disposed of only to
persons outside Hong Kong or only to professional
investors within the meaning of the Securities and Futures
Ordinance (Cap. 571, Laws of Hong Kong) and any rules made
thereunder.
India
This prospectus has not and will not be registered as a
prospectus with the Registrar of Companies, Securities and
Exchange Board of India or any other statutory or regulatory
body of like nature in India, and the securities will not be
offered or sold, and are not being offered or sold directly or
indirectly, to any person or the public or any member of the
public in India other than to a maximum of 49 persons.
Further, the securities are not being offered or sold, and will
not be offered or sold, in India in circumstances which would
constitute an offer to the public within the meaning of the
Companies Act, 1956 and other laws for the time being in force.
Israel
No action has been or will be taken in Israel that would permit
an offering of the shares or a distribution of this prospectus
to the public in Israel.
Japan
The shares have not been and will not be registered under the
Financial Instruments and Exchange Law of Japan (the Financial
Instruments and Exchange Law) and each underwriter has agreed
that it will not offer or sell any shares, directly or
indirectly, in Japan or to, or for the benefit of, any resident
of Japan (which term as used herein means any person resident in
Japan, including any corporation or other entity organized under
the laws of Japan), or to others for re-offering or resale,
directly or indirectly, in Japan or to a resident of Japan,
except pursuant to an exemption from the
180
registration requirements of, and otherwise in compliance with,
the Financial Instruments and Exchange Law and any other
applicable laws, regulations and ministerial guidelines of Japan.
Jersey
Nothing in this prospectus, nor anything communicated to holders
or potential holders of the shares is intended to constitute or
should be construed as advice on the merits of the purchase of
or subscription for the shares or the exercise of any rights
attached thereto for the purposes of the Financial Services
(Jersey) Law 1998, as amended.
Jordan
The shares are being offered in Jordan on a cross border basis
based on
one-on-one
contacts to no more than thirty potential investors and
accordingly the shares will not be registered with the Jordanian
Securities Commission and a local prospectus is not required.
Korea
The shares may not be offered, sold and delivered directly or
indirectly, or offered or sold to any person for re-offering or
resale, directly or indirectly, in Korea or to any resident of
Korea except pursuant to the applicable laws and regulations of
Korea, including the Financial Investment Services and Capital
Market Act and the Foreign Exchange Transaction Law and the
decrees and regulations thereunder. The shares have not been
registered with the Financial Services Commission of Korea for
public offering in Korea. Furthermore, the shares may not be
re-sold to Korean residents unless the purchaser of the shares
complies with all applicable regulatory requirements (including
but not limited to government approval requirements under the
Foreign Exchange Transaction Law and its subordinate decrees and
regulations) in connection with the purchase of the shares.
Latvia
This document and offering of the shares has not been approved
by the Financial and Capital Market Commission of the Republic
of Latvia. Accordingly, the shares may not be offered, sold or
delivered, nor may this document, or any other document or
communication presenting information on the terms of the offer
and the shares to be offered, be distributed in the Republic of
Latvia unless an exemption from the obligation to approve and
publish a prospectus applies under the Financial Instruments
Market Law of the Republic of Latvia.
Lithuania
This prospectus has not been submitted for approval to the
Lithuanian securities commission and, accordingly, the shares
may not be offered or sold in Lithuania unless in compliance
with article 5.2 of the Lithuanian Securities Act.
Luxembourg
The shares may not be offered or sold in the Grand Duchy of
Luxembourg, except for shares which are offered in circumstances
that do not require the approval of a prospectus by the
Luxembourg financial regulatory authority and the publication of
such prospectus pursuant to the law of July 10, 2005 on
prospectuses for securities. The shares are offered to a limited
number of investors or to institutional investors, in all cases
under circumstances designed to preclude a distribution that
would be other than a private placement. This prospectus may not
be reproduced or used for any purposes, or furnished to any
persons other than those to whom copies have been sent.
181
Malta
The offer of the shares is not to be construed as an offer to
the public in terms of the Companies Act of Malta
(Chapter 386 of the Laws of Malta) in view of the fact that
the offer is being made only to qualified investors in Malta and
to less than 100 investors in Malta (not including qualified
investors). Accordingly this prospectus has not been lodged,
filed or notified with, nor has it been approved by, any
authority in Malta.
Oman
For the attention of the citizens and residents of Oman. The
information contained in this prospectus neither constitutes a
public offer of securities in the Sultanate of Oman (Oman) as
contemplated by the Commercial Companies Law of Oman (Sultani
Decree 4/74) or the Capital Market Law of Oman (Sultani Decree
80/98), nor does it constitute an offer to sell, or the
solicitation of any offer to buy non-Omani securities in Oman as
contemplated by Article 6 of the Executive Regulations to
the Capital Market Law of Oman (issued vide Ministerial Decision
No 4/2001), and nor does it constitute a distribution of
non-Omani securities in Oman as contemplated under the Rules for
Distribution of Non-Omani Securities in Oman issued by the
Capital Market Authority of Oman (CMA). Additionally, this
prospectus is not intended to lead to the conclusion of any
contract of whatsoever nature within the territory of Oman.
This prospectus has been sent at the request of the investor in
Oman, and by receiving this prospectus, the person or entity to
whom it has been issued and sent understands, acknowledges and
agrees that this prospectus has not been approved by the CMA or
any other regulatory body or authority in Oman, nor has any
authorization, license or approval been received from the CMA or
any other regulatory authority in Oman, to market, offer, sell,
or distribute the shares within Oman.
No marketing. offering, selling or distribution of any financial
or investment products or services has been or will be made from
within Oman and no subscription to any securities, products or
financial services may or will be consummated within Oman. The
issuer or distributor of the prospectus is neither a company
licensed by the CMA to provide investment advisory, brokerage,
or portfolio management services in Oman, nor a bank licensed by
the Central Bank of Oman to provide investment banking services
in Oman. The issuer or distributor of the prospectus does not
advise persons or entities resident or based in Oman as to the
appropriateness of investing in or purchasing or selling
securities or other financial products. Nothing contained in
this prospectus is intended to constitute Omani investment,
legal, tax, accounting or other professional advice.
This prospectus is for your information only, and nothing herein
is intended to endorse or recommend a particular course of
action. You should consult with an appropriate professional for
specific advice on the basis of your situation.
Any recipient of this prospectus and any purchaser of the shares
pursuant to this prospectus shall not market, distribute,
resell, or offer to resell the shares within Oman without
complying with the requirements of applicable Omani law, nor
copy or otherwise distribute this prospectus to others.
Panama
The shares, nor their offer, or the transactions related to them
have been registered with the National Securities Commission.
The exemption of registration is made based on numeral 3 of
Article 83 of Decree-Law 1 of 1999 (institutional
investors). In consequence, the fiscal system provided in
Articles 269 to 271 of Decree-Law 1 of 1999 is not
applicable to them. The shares do not fall under the supervision
of the National Securities Commission.
Paraguay
You represent and acknowledge that the shares hereby offered,
have not been and will not be registered with the Paraguayan
Securities and Exchange Commission (Comisión Nacional de
Valores
182
(the CNV)). Subsequent trading of the shares in Paraguay in
private transactions is not subject to registration with the CNV
to the extent that it does not qualify as a public offering or
distribution.
Portugal
This prospectus has not been approved by, nor notified to, the
Comissão do Mercado de Valores Mobiliarios (CMVM), the
Portuguese Securities Market Commission, nor any application has
been or will be made to obtain said approval.
The shares have not been directly or indirectly offered, sold or
distributed to undetermined addressees in the Republic of
Portugal nor any prospecting or advertisement activities or the
collection of investment intentions from undetermined addressees
have been or will be undertaken in the Republic of Portugal in
connection, preceding or accompanying the offer of the shares,
in circumstances which could qualify the Portuguese jurisdiction
as the competent authority pursuant to Article 145
applicable ex vi Article 108 of the Portuguese Securities
Code (Código dos Valores Mobiliarios or CVM) or in
circumstances which could qualify as a public offering of
securities pursuant to Article 109 of CVM.
Consequently, the shares will only be directly or indirectly
offered, sold or distributed in the Republic of Portugal to
qualified investors as defined in Article 30 of the CVM or
as registered with CMVM under
Article 110-A
of the CVM.
Accordingly, this prospectus or any other document relating to
the shares or its offer has not been directly or indirectly
distributed or caused to be distributed and will not, in any
circumstances, in whole or in part, be directly or indirectly
distributed, reproduced, redistributed, published or delivered
or caused to be distributed, reproduced, redistributed,
published or delivered, nor its contents disclosed by any means,
directly or indirectly, to any other persons other than to
qualified investors as referred to above.
For the avoidance of doubt, Madeira and Azores Islands fall
within the jurisdiction of the Republic of Portugal.
Qatar
This prospectus does not constitute an invitation or a public
offer of securities in the State of Qatar and should not be
considered as such. This prospectus is intended only for the
original recipient and must not be provided to any other person.
It is not for general circulation in the State of Qatar and may
not be reproduced or used for any purpose.
Saudi
Arabia
This document may not be distributed in the Kingdom except to
such persons as are permitted under the Offers of Securities
Regulations issued by the Capital Market Authority.
The Capital Market Authority does not make any representation as
to the accuracy or completeness of this document, and expressly
disclaims any liability whatsoever for any loss arising from, or
incurred in reliance upon, any part of this document.
Prospective purchasers of the securities offered hereby should
conduct their own due diligence on the accuracy of the
information relating to the securities. If you do not understand
the contents of this document you should consult an authorised
financial adviser.
Singapore
This prospectus has not been registered as a prospectus with the
Monetary Authority of Singapore. Accordingly, this prospectus
and any other document or material in connection with the offer
or sale, or invitation for subscription or purchase, of the
shares may not be circulated or distributed, nor may the shares
be offered or sold, or be made the subject of an invitation for
183
subscription or purchase, whether directly or indirectly, to
persons in Singapore other than (i) to an institutional
investor under Section 274 of the Securities and Futures
Act, Chapter 289 of Singapore (the SFA), (ii) to a
relevant person, or any person pursuant to Section 275(1A),
and in accordance with the conditions, specified in
Section 275 of the SFA or (iii) otherwise pursuant to,
and in accordance with the conditions of, any other applicable
provision of the SFA.
Where the shares are subscribed or purchased under
Section 275 by a relevant person which is: (a) a
corporation (which is not an accredited investor) the sole
business of which is to hold investments and the entire share
capital of which is owned by one or more individuals, each of
whom is an accredited investor; or (b) a trust (where the
trustee is not an accredited investor) whose sole purpose is to
hold investments and each beneficiary is an accredited investor,
shares, debentures and units of shares and debentures of that
corporation or the beneficiaries rights and interest in
that trust shall not be transferable for six months after that
corporation or that trust has acquired the shares under
Section 275 except: (1) to an institutional investor
under Section 274 of the SFA or to a relevant person, or
any person pursuant to Section 275(1A), and in accordance
with the conditions, specified in Section 275 of the SFA;
(2) where no consideration is given for the transfer; or
(3) by operation of law.
Slovakia
This offer of the shares does not qualify as a public offer of
securities within the meaning of section 120 of the Slovak
Securities Act (No. 566/2001 Coll., as amended) nor does it
qualify as a public offer within the meaning of
section 5(a) of the Slovak Collective Investment Act
(No. 594/2003 Coll., as amended). This offer does not
constitute a public offer of economic values within the meaning
of section 126(1) of the Slovak Securities Act.
This prospectus is addressed to the named recipients and to the
employees of affiliated undertakings of Artio Global Investors,
Inc. under section 120(5)(e) of the Slovak Securities Act
only and must not be distributed, directly or indirectly, to any
persons in the Slovak Republic other than to: (i) qualified
investors as defined in section 120(6) of the Slovak
Securities Act; or (ii) other investors in circumstances
which do not require the publication by the Issuer of a
prospectus as set forth in sections 120(3) and 120(5)(e) of
the Slovak Securities Act. The recipients of this prospectus
must not pass it on or make it available to any third party.
Accordingly, this prospectus has not been nor will be approved
by the National Bank of Slovakia nor will any notice,
advertisement, poster or other materials relating to the offer
of shares be filed with the National Bank of Slovakia.
Consequently, this prospectus or any notice, advertisement,
poster or other materials relating to the offer of the shares
must not:
(a) be published in any publication in daily press with a
national coverage in the Slovak Republic or sufficient
circulation in the European Economic Area member states in which
the offer of the shares is made or where the admission to the
regulated market is being sought;
(b) be made available in a printed form free of charge in
the premises of the regulated market on which the securities are
being admitted for trading or in the Issuers seat and in
the premises of the financial institutions of any institutions
placing or selling the shares as well as in the premises of
paying agents;
(c) be made available in electronic form on the website of
the Issuer or on the website of any placement agent, underwriter
or any paying agent or on the website of the regulated market
where admission to trading is being sought;
(d) be disseminated in any way, including by any of the
following means of communication: as addressed or unaddressed
printed matter, electronic message or advertisement received via
a mobile telephone or pager, standard letter, press advertising
with or without order form, catalogue, telephone with or without
human intervention, seminars and presentations, radio,
184
videophone, videotext, electronic mail, fax, television, notice,
bill, poster, brochure or web posting including internet banners.
Spain
The shares may not be offered, sold or distributed in the
Kingdom of Spain except in accordance with the requirements of
Law 24/1988, of 28 July, on the Securities Market (Ley
24/1988, de 28 de julio, del Mercado de Valores) as amended
and restated, and Royal Decree 1310/2005, of 4 November
2005, partially developing Law 24/1988, of 28 July, on the
Securities Market in connection with listing of securities in
secondary official markets, initial purchase offers, rights
issues and the prospectus required in these cases (Real Decreto
1310/2005, de 4 de noviembre, por el que se desarrolla
parcialmente Ia Ley 24/1988, de 28 Julio, del Mercado de
Valores, en material de admisión a negociación de
valores en mercados secundarios oficiales, de ofertas
públicas de venta o suscripción y del folleto exigible
a tales efectos) and the decrees and regulations made
thereunder. Neither the shares nor this prospectus have been
verified or registered in the administrative registries of the
National Stock Exchange Commission (Comisión Nacional de
Mercado de Valores).
Sweden
Neither the offering of the shares nor this prospectus may be
distributed in circumstances that would require a prospectus to
be prepared pursuant to the Swedish Financial Instruments
Trading Act (Sw. lagen (1991:980) om handel med
finansiella instrument). This means that an offer may only
be made in the following circumstances: (a) the offer is
addressed solely to Qualified Investors; (b) the offer is
addressed to fewer than 100 natural or legal persons per member
state of the European Economic Area, other than Qualified
Investors; (c) the offer is addressed to investors who
acquire financial instruments for a total consideration of at
least 50,000 per investor; (d) the denomination per
unit of the financial instruments offered amounts to at least
50,000; or (e) the total consideration for the offer
in any
12-month
period is not more than 1,000,000. For these
purposes the term Qualified Investors means
(1) legal entities which are authorised to act on the
financial markets; (2) legal entities whose corporate
purpose is solely to invest in financial instruments;
(3) national and regional governments, central banks, the
European Central Bank, the European Investment Bank, the
International Monetary Fund and other similar supranational
institutions; (4) legal persons which according to each of
their last two annual or consolidated accounts, meet at least
two of the following three criteria: (a) an average number
of employees during the financial year of at least 250;
(b) a total balance sheet exceeding 43,000,000;
and (c) an annual net turnover exceeding 50,000,000;
and (5) other legal persons or natural persons if they are
considered as qualified investors by another member state of the
European Economic Area. Accordingly, this prospectus has not
been, nor will it be, registered or approved by the Swedish
Financial Supervisory Authority (Sw. Finansinspektionen).
The Company is not a collective investment undertaking (Sw.
fondföretag) authorised for the purposes of the
Swedish Investment Funds Act (Sw. lagen (2004:46) om
investeringsfonder).
United
Kingdom
Each underwriter has represented and agreed that:
(a) it has only communicated or caused to be communicated
and will only communicate or cause to be communicated an
invitation or inducement to engage in investment activity
(within the meaning of Section 21 of the FSMA) received by
it in connection with the issue or sale of the shares in
circumstances in which Section 21(1) of the FSMA does not
apply to the Issuer; and
(b) it has complied and will comply with all applicable
provisions of the FSMA with respect to anything done by it in
relation to the shares in, from or otherwise involving the
United Kingdom.
185
VALIDITY OF
CLASS A COMMON STOCK
The validity of the issuance of the shares of Class A
common stock offered hereby will be passed upon for Artio Global
Investors Inc. by Davis Polk & Wardwell LLP, New York,
New York and for the underwriters by Sullivan &
Cromwell LLP, New York, New York.
EXPERTS
The consolidated financial statements of Artio Global Investors
Inc. and Subsidiaries as of December 31, 2008 and 2007 and
for each of the years ended December 31, 2008, 2007 and
2006, have been included in this prospectus and registration
statement in reliance upon the report of KPMG LLP, independent
registered public accounting firm whose registered address is
345 Park Avenue, New York, NY 10154, appearing elsewhere herein,
and upon the authority of said firm as experts in accounting and
auditing.
186
WHERE YOU CAN
FIND MORE INFORMATION
We have filed with the SEC a registration statement on
Form S-1
under the Securities Act with respect to the Class A common
stock we are offering. This prospectus does not contain all of
the information in the registration statement and the exhibits
to the registration statement. For further information with
respect to us and our Class A common stock, we refer you to
the registration statement and the exhibits thereto. With
respect to documents described in this prospectus, we refer you
to the copy of the document if it is filed as an exhibit to the
registration statement.
You may read and copy the registration statement of which this
prospectus is a part at the SECs Public Reference Room,
which is located at 100 F Street, N.E.,
Washington, D.C. 20549. You can request copies of the
registration statement by writing to the SEC and paying a fee
for the copying cost. Please call the SEC at
1-800-SEC-0330
for more information about the operation of the SECs
Public Reference Room. In addition, the SEC maintains an
Internet website, which is located at
http://www.sec.gov,
that contains reports, proxy and information statements and
other information regarding issuers that file electronically
with the SEC. You may access the registration statement, of
which this prospectus is a part, at the SECs Internet
website. Upon completion of this offering, we will be subject to
the information reporting requirements of the Securities
Exchange Act of 1934, as amended, and we will file reports,
proxy statements and other information with the SEC.
187
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholder
Artio Global Investors Inc.:
We have audited the accompanying consolidated statements of
financial position of Artio Global Investors Inc. and
Subsidiaries (formerly known as Julius Baer Americas Inc. and
Subsidiaries) as of December 31, 2008 and 2007, and the
related consolidated statements of income, stockholders
equity and other comprehensive income, and cash flows for each
of the years in the three-year period ended December 31,
2008. These consolidated financial statements are the
responsibility of the Companys management. Our
responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of Artio Global Investors Inc. and Subsidiaries as of
December 31, 2008 and 2007, and the results of their
operations and their cash flows for each of the years in the
three-year period ended December 31, 2008, in conformity
with U.S. generally accepted accounting principles.
/s/ KPMG LLP
New York, New York
February 27, 2009, except as to the first paragraph of
Note 16, which is as of September 4, 2009
F-2
ARTIO GLOBAL
INVESTORS INC. AND SUBSIDIARIES
(formerly Julius Baer Americas Inc. and Subsidiaries)
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2008
|
|
|
ASSETS
|
Cash and cash equivalents
|
|
$
|
133,447,100
|
|
|
$
|
86,563,000
|
|
Marketable securities, at fair value (Note 5)
|
|
|
47,465,900
|
|
|
|
71,329,500
|
|
Fees receivable and accrued fees (Note 4)
|
|
|
87,377,500
|
|
|
|
54,799,100
|
|
Due from affiliates (Note 4)
|
|
|
4,075,500
|
|
|
|
4,400
|
|
Deferred taxes, net
|
|
|
71,182,400
|
|
|
|
92,702,300
|
|
Property and equipment, net
|
|
|
9,252,800
|
|
|
|
9,833,200
|
|
Other assets
|
|
|
2,553,500
|
|
|
|
4,244,100
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
355,354,700
|
|
|
$
|
319,475,600
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Accrued compensation and benefits
|
|
$
|
245,245,400
|
|
|
$
|
268,924,700
|
|
Accounts payable and accrued expenses
|
|
|
14,223,000
|
|
|
|
9,372,400
|
|
Due to affiliates (Note 4)
|
|
|
95,000
|
|
|
|
1,311,400
|
|
Accrued income taxes payable
|
|
|
3,789,600
|
|
|
|
1,238,600
|
|
Other liabilities
|
|
|
2,907,900
|
|
|
|
5,383,400
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
266,260,900
|
|
|
|
286,230,500
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Notes 9 and 10)
|
|
|
|
|
|
|
|
|
Common Stock:
|
|
|
|
|
|
|
|
|
Class C common stock, $0.01 par value per share,
210,000,000 shares authorized; 42,000,000 shares
issued and outstanding (Note 16)
|
|
|
420,000
|
|
|
|
420,000
|
|
Additional paid-in capital (Note 16)
|
|
|
17,930,000
|
|
|
|
17,930,000
|
|
Retained earnings
|
|
|
70,420,000
|
|
|
|
14,895,100
|
|
Accumulated other comprehensive income, net of tax
|
|
|
323,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
89,093,800
|
|
|
|
33,245,100
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
355,354,700
|
|
|
$
|
319,475,600
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements
F-3
ARTIO GLOBAL
INVESTORS INC. AND SUBSIDIARIES
(formerly Julius Baer Americas Inc. and Subsidiaries)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
Revenues and other operating income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment management fees
|
|
$
|
300,432,600
|
|
|
$
|
445,558,400
|
|
|
$
|
425,002,600
|
|
Net (losses) on securities held for deferred compensation
|
|
|
|
|
|
|
|
|
|
|
(2,856,500
|
)
|
Foreign currency gains (losses)
|
|
|
|
|
|
|
185,900
|
|
|
|
(100,600
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues and other operating income
|
|
|
300,432,600
|
|
|
|
445,744,300
|
|
|
|
422,045,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee compensation and benefits
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries, incentive compensation and benefits
|
|
|
69,677,000
|
|
|
|
92,276,900
|
|
|
|
92,487,100
|
|
Allocation of Class B profits interests
|
|
|
53,410,100
|
|
|
|
83,512,300
|
|
|
|
76,073,800
|
|
Change in redemption value of Class B profits interests
|
|
|
46,932,000
|
|
|
|
76,843,900
|
|
|
|
54,557,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total employee compensation and benefits
|
|
|
170,019,100
|
|
|
|
252,633,100
|
|
|
|
223,118,300
|
|
Shareholder servicing and marketing
|
|
|
20,133,900
|
|
|
|
25,356,300
|
|
|
|
23,369,100
|
|
General and administrative
|
|
|
31,510,000
|
|
|
|
50,001,500
|
|
|
|
62,833,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
221,663,000
|
|
|
|
327,990,900
|
|
|
|
309,320,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income before income tax expense
|
|
|
78,769,600
|
|
|
|
117,753,400
|
|
|
|
112,725,000
|
|
Non-operating income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
2,990,700
|
|
|
|
6,930,400
|
|
|
|
2,947,900
|
|
Net gains on marketable securities
|
|
|
289,500
|
|
|
|
81,800
|
|
|
|
252,100
|
|
Other income (loss)
|
|
|
7,600
|
|
|
|
21,400
|
|
|
|
(18,600
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-operating income
|
|
|
3,287,800
|
|
|
|
7,033,600
|
|
|
|
3,181,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income tax expense
|
|
|
82,057,400
|
|
|
|
124,787,000
|
|
|
|
115,906,400
|
|
Income taxes related to income from continuing operations
|
|
|
38,514,200
|
|
|
|
58,417,400
|
|
|
|
54,755,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations, net of taxes
|
|
|
43,543,200
|
|
|
|
66,369,600
|
|
|
|
61,151,300
|
|
Income from discontinued operations, net of taxes
|
|
|
1,230,700
|
|
|
|
1,616,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
44,773,900
|
|
|
$
|
67,985,800
|
|
|
$
|
61,151,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share, basic and diluted (Note 16):
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
1.07
|
|
|
$
|
1.62
|
|
|
$
|
1.46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations, net of taxes
|
|
$
|
1.04
|
|
|
$
|
1.58
|
|
|
$
|
1.46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations, net of taxes
|
|
$
|
0.03
|
|
|
$
|
0.04
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average Class C common shares used in basic and
diluted net income per share
|
|
|
42,000,000
|
|
|
|
42,000,000
|
|
|
|
42,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma diluted net income per share, including impact of
distributions (unaudited)
|
|
|
|
|
|
|
|
|
|
$
|
1.16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements
F-4
ARTIO GLOBAL
INVESTORS INC. AND SUBSIDIARIES
(formerly Julius Baer Americas Inc. and Subsidiaries)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
Shares
|
|
|
Common
|
|
|
Paid-in
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
Outstanding
|
|
|
Stock
|
|
|
Capital
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
Stockholders
|
|
|
|
(Note 16)
|
|
|
(Note 16)
|
|
|
(Note 16)
|
|
|
Earnings
|
|
|
Income
|
|
|
Equity
|
|
|
Balance at December 31, 2005
|
|
|
42,000,000
|
|
|
$
|
420,000
|
|
|
$
|
17,930,000
|
|
|
$
|
17,760,300
|
|
|
$
|
|
|
|
$
|
36,110,300
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
44,773,900
|
|
|
|
|
|
|
|
44,773,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2006
|
|
|
42,000,000
|
|
|
|
420,000
|
|
|
|
17,930,000
|
|
|
|
62,534,200
|
|
|
|
|
|
|
|
80,884,200
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
67,985,800
|
|
|
|
|
|
|
|
67,985,800
|
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains on available for sale securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
632,100
|
|
|
|
632,100
|
|
Income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(308,300
|
)
|
|
|
(308,300
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
323,800
|
|
|
|
323,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends ($1.43 per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(60,100,000
|
)
|
|
|
|
|
|
|
(60,100,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
|
42,000,000
|
|
|
|
420,000
|
|
|
|
17,930,000
|
|
|
|
70,420,000
|
|
|
|
323,800
|
|
|
|
89,093,800
|
|
Cumulative effect of adoption of SFAS 159
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
323,800
|
|
|
|
(323,800
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2008
|
|
|
42,000,000
|
|
|
|
420,000
|
|
|
|
17,930,000
|
|
|
|
70,743,800
|
|
|
$
|
|
|
|
|
89,093,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
61,151,300
|
|
|
|
|
|
|
|
61,151,300
|
|
Dividends ($2.79 per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(117,000,000
|
)
|
|
|
|
|
|
|
(117,000,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
|
42,000,000
|
|
|
$
|
420,000
|
|
|
$
|
17,930,000
|
|
|
$
|
14,895,100
|
|
|
|
|
|
|
$
|
33,245,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements
F-5
ARTIO GLOBAL
INVESTORS INC. AND SUBSIDIARIES
(formerly Julius Baer Americas Inc. and Subsidiaries)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
44,773,900
|
|
|
$
|
67,985,800
|
|
|
$
|
61,151,300
|
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
2,741,100
|
|
|
|
1,925,400
|
|
|
|
2,904,100
|
|
Deferred compensation
|
|
|
49,695,700
|
|
|
|
80,433,700
|
|
|
|
57,001,400
|
|
Deferred income taxes
|
|
|
(22,167,100
|
)
|
|
|
(35,509,400
|
)
|
|
|
(21,519,900
|
)
|
Interest accrued on marketable securities and accretion and
amortization of bonds
|
|
|
|
|
|
|
(1,304,800
|
)
|
|
|
(60,200
|
)
|
(Gains)/losses on marketable securities and securities held for
deferred compensation
|
|
|
|
|
|
|
(81,800
|
)
|
|
|
2,604,400
|
|
(Increase) decrease in:
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable securities
|
|
|
(33,053,600
|
)
|
|
|
|
|
|
|
|
|
Fees receivable and accrued fees
|
|
|
(20,282,700
|
)
|
|
|
(31,851,300
|
)
|
|
|
32,578,400
|
|
Due from affiliates
|
|
|
(2,123,200
|
)
|
|
|
(1,526,800
|
)
|
|
|
4,071,100
|
|
Other assets
|
|
|
(1,254,400
|
)
|
|
|
(348,900
|
)
|
|
|
(1,690,600
|
)
|
Increase (decrease) in:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued compensation and benefits
|
|
|
19,511,100
|
|
|
|
26,724,600
|
|
|
|
(33,322,100
|
)
|
Accounts payable and accrued expenses
|
|
|
5,019,400
|
|
|
|
3,336,700
|
|
|
|
(4,750,000
|
)
|
Due to affiliates
|
|
|
4,923,000
|
|
|
|
(5,615,700
|
)
|
|
|
1,216,400
|
|
Accrued income taxes payable
|
|
|
182,500
|
|
|
|
522,200
|
|
|
|
(2,551,000
|
)
|
Other liabilities
|
|
|
3,327,500
|
|
|
|
(412,900
|
)
|
|
|
2,475,500
|
|
Cash flows provided by (used in) operating
activities discontinued operations
|
|
|
(5,792,300
|
)
|
|
|
7,938,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total adjustments
|
|
|
727,000
|
|
|
|
44,229,500
|
|
|
|
38,957,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
45,500,900
|
|
|
|
112,215,300
|
|
|
|
100,108,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of marketable securities and securities held for
deferred compensation
|
|
|
|
|
|
|
(199,936,400
|
)
|
|
|
(120,807,400
|
)
|
Proceeds from sales or maturities of marketable securities and
securities held for deferred compensation
|
|
|
|
|
|
|
221,931,300
|
|
|
|
94,399,600
|
|
Purchase of fixed assets from affiliate
|
|
|
(9,170,800
|
)
|
|
|
|
|
|
|
|
|
Purchase of fixed assets
|
|
|
(2,753,600
|
)
|
|
|
(2,003,900
|
)
|
|
|
(3,484,500
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
(11,924,400
|
)
|
|
|
19,991,000
|
|
|
|
(29,892,300
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends paid
|
|
|
|
|
|
|
(60,000,000
|
)
|
|
|
(117,000,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
|
|
|
|
(60,000,000
|
)
|
|
|
(117,000,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rates on cash
|
|
|
|
|
|
|
185,900
|
|
|
|
(100,600
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
33,576,500
|
|
|
|
72,392,200
|
|
|
|
(46,884,100
|
)
|
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of period
|
|
|
27,478,400
|
|
|
|
61,054,900
|
|
|
|
133,447,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of period
|
|
$
|
61,054,900
|
|
|
$
|
133,447,100
|
|
|
$
|
86,563,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during period for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes, net of refunds
|
|
$
|
61,693,100
|
|
|
$
|
94,783,300
|
|
|
$
|
80,109,600
|
|
Supplementary information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash transaction Distribution of JBFM to parent
|
|
$
|
|
|
|
$
|
100,000
|
|
|
$
|
|
|
See accompanying notes to consolidated financial statements
F-6
|
|
Note 1
|
Organization and
Description of Business
|
Artio Global Investors Inc. (formerly known as Julius Baer
Americas Inc.) (Investors) and Subsidiaries (the
Company) comprises Investors and its three
subsidiaries, Artio Global Management LLC (formerly known as
Julius Baer Investment Management LLC) (Management
LLC), a registered investment adviser under the Investment
Advisers Act of 1940; Artio Capital Management LLC (formerly
known as JB Private Equity Partners LLC), a private equity
adviser; and Artio Global Holdings LLC (formerly known as JB
Americas Holdings LLC) (Holdings), an intermediate
holding company. Investors is a wholly owned subsidiary of
Julius Baer Holding Ltd., a Swiss corporation (the
Parent).
Management LLC is the primary operating entity of the Company
and an asset manager based in the United States that provides
investment management services to institutional and retail
clients. It manages and advises the Artio Global Funds (formerly
known as the Julius Baer Investment Funds) (the
Funds), which are U.S. registered investment
companies; commingled institutional investment vehicles;
separate accounts; and sub-advisory accounts. The Companys
assets under management are invested primarily outside the
United States.
Discontinued
Operations
Investors was previously a registered broker dealer under the
Securities Exchange Act of 1934, and a member of the National
Association of Securities Dealers. It executed and cleared
securities transactions for its customers, including the
customers of Bank Julius Baer New York Branch (the
Branch), through March 31, 2005. In June 2006,
Investors withdrew its broker-dealer registration and
discontinued its brokerage-related operations.
Julius Baer Financial Markets LLC (JBFM) was a
subsidiary of the Company through November 2007. It introduced
domestic foreign exchange trades to an affiliate, Bank Julius
Baer & Co. Ltd. (the Bank). In December
2007, JBFM was distributed to the Parent as a non-cash dividend.
The results of the regulated brokerage and foreign exchange
operations of the Company as described above have been recast as
discontinued operations in these Consolidated Financial
Statements and are further discussed in Note 3.
Initial Public
Offering
In February 2008, Investors filed a registration statement with
the Securities and Exchange Commission for an initial public
offering of its common stock. If consummated, this offering will
result in the Parent selling some or all of its ownership
interests in Investors, and the Chief Executive Officer and the
Head of International Equity (the Principals), who
currently own Class B profits interests in Management LLC,
owning equity stakes in Holdings and voting (non-economic)
shares in Investors.
|
|
Note 2
|
Summary of
Significant Accounting Principles
|
The Consolidated Financial Statements are prepared in conformity
with accounting principles generally accepted in the United
States of America (U.S. GAAP). These principles
require management to make estimates and assumptions that affect
the reported amounts of assets, liabilities (including
contingent liabilities), revenues, and expenses at the date of
the Consolidated Financial Statements. Actual results could
differ from those estimates and may have a material effect on
the Consolidated Financial Statements.
F-7
ARTIO GLOBAL
INVESTORS INC. AND SUBSIDIARIES
(formerly Julius Baer Americas Inc. and Subsidiaries)
Notes to Consolidated Financial
Statements (Continued)
Prior years Consolidated Statements of Income have been
conformed to the current years presentation. Employee
compensation and benefits has been disaggregated to disclose
separately the allocation of Class B profits interests and
changes in redemption value of the Class B profits
interests. General and administrative expenses have been
aggregated.
The Consolidated Financial Statements include the accounts of
Investors and its subsidiaries. Amounts related to JBFM and the
broker-dealer operations are also included in the Consolidated
Financial Statements and are presented as discontinued
operations in the appropriate reporting periods. All material
inter-company balances have been eliminated in consolidation.
The Company also evaluates for consolidation the investment
vehicles through which it provides its investment management
services. Consolidation is required if the Company holds a
controlling financial interest in the investment vehicle as
defined by U.S. GAAP. The Companys assessment for
consolidation occurs at the inception date of the investment
vehicle. The conclusion is reassessed only when certain events
take place, as prescribed by U.S. GAAP.
Following is an overview of the framework used by the Company to
evaluate whether it has a controlling financial interest in the
investment vehicles:
|
|
|
|
|
Variable interest entities (VIEs)
A VIE is defined as an entity which, by design,
lacks sufficient equity at risk to finance its activities
without additional subordinated financial support, and where
equity holders lack any of three characteristics of owning a
controlling financial interest. The party that absorbs a
majority of expected losses or receives a majority of expected
residual returns is the primary beneficiary and is required to
consolidate the VIE.
|
|
|
|
Voting interest entities For vehicles
determined to not be VIEs, consolidation is required if the
Company holds a controlling financial interest of more than
fifty percent. The general partner or managing member of a
limited partnership or limited liability company is presumed to
have the controlling financial interest. Consolidation is
required by the general partner or managing member unless the
presumption of control is overcome by providing certain rights
to the limited partners or non-managing members.
|
At December 31, 2007 and 2008, the Company did not
consolidate any of the investment vehicles, for the following
reasons:
|
|
|
|
|
The Funds are considered voting interest entities but are
controlled by their independent Boards of Directors or Trustees.
|
|
|
|
Certain of the commingled investment vehicles are trusts and are
considered VIEs. The Company is not the primary beneficiary of
these trusts.
|
|
|
|
Other investment vehicles are membership organizations and are
considered voting interest entities. Although the Companys
interests in these vehicles are nominal and do not meet the
ownership threshold for consolidation, the Company is the
managing member of these organizations. The operating agreements
of the organizations each provides to its unaffiliated
non-managing members substantive rights to remove the Company as
managing member. As a result, the Company does not have a
controlling financial interest in these organizations.
|
F-8
ARTIO GLOBAL
INVESTORS INC. AND SUBSIDIARIES
(formerly Julius Baer Americas Inc. and Subsidiaries)
Notes to Consolidated Financial
Statements (Continued)
|
|
(c)
|
Cash and Cash
Equivalents
|
The Company classifies as cash equivalents money market and
other highly liquid instruments with remaining maturities of
less than three months at acquisition.
|
|
(d)
|
Marketable
Securities
|
Marketable securities are carried at fair value. In 2007,
Marketable securities were classified as available for sale and
unrealized changes in fair value were recognized in Accumulated
other comprehensive income. In 2006, Marketable securities were
classified as trading and were carried at fair value.
In 2008, the Company adopted Statement of Financial Accounting
Standards No. 157, Fair Value Measurements
(SFAS 157). SFAS 157 defines fair
value, establishes a framework for measuring fair value and
expands disclosures about fair value measurements. Fair value is
defined 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. SFAS 157 also
provides guidance on the use of certain valuation techniques to
arrive at fair value and creates a fair value hierarchy based
upon the transparency of inputs used in the valuation of the
asset or liability.
In 2008, the Company also adopted SFAS 159, The Fair
Value Option for Financial Assets and Financial Liabilities
(SFAS 159). SFAS 159 permits entities
to measure financial instruments and certain other items at fair
value. In most cases, companies are able to make an instrument
by instrument election. The Company elected to carry at fair
value investments made to achieve certain stated investment
objectives. The Companys reasons for electing the fair
value option are as follows:
|
|
|
|
|
The Company invests its excess cash for current yield, not for
capital gains. As such, the Company believes that recognizing
realized and unrealized gains or losses in the Statement of
Income better reflects the returns on these investments. Gains
and losses on such Marketable Securities, together with related
interest income, accretion and amortization, are reported in
Non-operating income.
|
|
|
|
The Company invests certain unvested deferred bonuses due
employees in the Funds. As these bonuses vest, the principal and
any gains or losses are reflected as liabilities in the
Consolidated Statement of Financial Position. The Company
believes that recognizing unrealized gains or losses on these
investments in income is likely, in most cases, to better match
income with the related expense. As the expenses are reported in
Employee compensation and benefits expense, the realized and
unrealized gains or losses on these securities are reported in
Gains (losses) on securities held for deferred compensation.
|
Realized gains and losses are computed on a specific
identification basis. Interest income is recognized as earned.
Discounts and premiums are amortized over the term of the
security.
|
|
(e)
|
Property and
Equipment
|
Property and equipment are carried at cost. The Company expenses
depreciation of property and equipment based on the estimated
useful lives of the assets using the straight-line method.
Amortization of leasehold improvements is computed over the
lesser of the economic useful life of the improvement or the
remaining term of the lease. Internal-use software that
qualifies for capitalization is capitalized and subsequently
amortized over the estimated useful life of the software,
generally three years.
F-9
ARTIO GLOBAL
INVESTORS INC. AND SUBSIDIARIES
(formerly Julius Baer Americas Inc. and Subsidiaries)
Notes to Consolidated Financial
Statements (Continued)
|
|
(f)
|
Investment
Management Fees
|
Investment management fees are recognized as earned. They are
computed as a percentage of the fair value of assets under
management and accrued monthly. Fees vary significantly, from
under ten basis points for certain cash and fixed income
mandates to over one hundred basis points for certain asset
classes. Fees on registered investment companies are computed
and billed monthly as a percentage of average daily fair value
of the assets of the Funds. Fees on other vehicles and on
separate accounts are computed and billed in accordance with the
provisions of the applicable investment management agreements.
The investment management agreements for a small number of
accounts provide for performance fees. Performance fees, if
earned, are recognized on the contractually determined
measurement date.
|
|
(g)
|
Foreign
Currency Transactions
|
The Company maintains foreign currency cash balances for
disbursing funds. These accounts are translated to the
Companys functional currency (U.S. dollars) at rates
prevailing at the reporting date. Transactions in foreign
currency are translated at average rates during the reporting
period. Gains and losses arising from translation of
transactions are recognized in other operating income in the
Consolidated Statement of Income.
Certain employees of the Company participate in deferred
compensation plans. Deferred compensation expense is recognized
using a straight-line method over the vesting period. Assets of
funded deferred bonus plans are invested in the Funds, and are
included in Marketable securities at fair value. Realized and
unrealized gains and losses related to these assets are
recognized in Net gains (losses) on securities held for deferred
compensation in 2008. Unrealized gains were reported in
Accumulated other comprehensive income in 2007.
The Principals have a Class B profits interest in
Management LLC which entitles them to a combined 30% of profits,
as well as a combined 30% of the increase in the value of the
business, as defined in Management LLCs operating
agreement. The allocation of the profits associated with this
plan is expensed on an accrual basis. The Company records the
obligation associated with these profits interests as a
liability at fair value.
The Company sponsors two non-contributory defined contribution
retirement plans for employees (the Non-Contributory
Plans), as well as a 401(k) plan. The Non-Contributory
Plans include a qualified and non-qualified plan. Company
contributions to the Non-Contributory Plans are based on
employees eligible compensation.
The Companys contributions to the Non-Contributory Plans
are accrued over the period of employees active service.
Forfeitures from employees who leave the Company prior to
completion of the vesting period are used to reduce the
Companys contribution. The Non-Contributory Plans do not
require contributions after the employees active service
has ended.
F-10
ARTIO GLOBAL
INVESTORS INC. AND SUBSIDIARIES
(formerly Julius Baer Americas Inc. and Subsidiaries)
Notes to Consolidated Financial
Statements (Continued)
|
|
(j)
|
License and
Management Fees
|
The Company pays the Parent fees for management and licensing of
its brand name under the terms of a service level agreement.
Fees are accrued based on the terms of the agreement and are
recognized as a component of General and administrative
expenses. The Parent reduced the licensing fee during 2008 as a
result of the Companys rebranding of its products.
The Company accounts for income taxes under the asset and
liability method. Deferred taxes are recognized for the future
tax benefits or consequences attributable to temporary
differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered
or settled.
The Company accounts for uncertainty in income tax positions by
recognizing in its Consolidated Financial Statements the impact
of a tax position when it is more likely than not that the tax
position would be sustained upon examination by the tax
authorities based on the technical merits of the position.
Interest and penalties relating to tax liabilities are
recognized on actual tax liabilities and exposure items.
Interest is accrued according to the provisions of the relevant
tax law and is reported as interest expense. Penalties are
accrued when the Company expects to take the related position in
its tax return and are reported as General and administrative
expenses.
Basic earnings per share are computed by dividing net income by
the weighted average number of shares outstanding during the
period. As there are no common stock equivalents, diluted
earnings per share are equivalent to basic earnings per share.
|
|
(m)
|
Discontinued
Operations
|
The Company reflects revenues and expenses (including income tax
expense) and cash flows of discontinued operations separately in
the Consolidated Statements of Income and Cash Flows for the
years ended December 31, 2006 and 2007. Income taxes are
allocated to discontinued operations based on the Companys
consolidated effective tax rate, adjusted for any material tax
attributes related solely to the discontinued operation. The
Companys taxes are filed on a consolidated basis. Tax
liabilities of discontinued operations are not separately
identifiable and all material deferred tax benefits relate to
continuing operations.
|
|
Note 3
|
Discontinued
Operations
|
Investors withdrew its broker-dealer registration during 2006
after determining that it no longer would receive benefits from
the registration in excess of the costs incurred in maintaining
it. Accordingly, the results of the broker-dealer operations
have been classified as discontinued operations.
In December, 2007, the foreign exchange operations of JBFM were
distributed to the Parent. There was no gain or loss on the
distribution. Assets and liabilities of JBFM were distributed at
their carrying amounts, with the net asset of $100,000 being
reflected as a non-cash dividend. The foreign
F-11
ARTIO GLOBAL
INVESTORS INC. AND SUBSIDIARIES
(formerly Julius Baer Americas Inc. and Subsidiaries)
Notes to Consolidated Financial
Statements (Continued)
exchange operations of JBFM are classified as discontinued
operations for the years ended December 31, 2006 and 2007.
JBFMs revenues were derived from providing services to the
Bank, for which it was compensated under the terms of a transfer
pricing agreement.
Summary financial information relating to discontinued
operations follows. There were no discontinued operations in
2008.
Income
statement
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
2006
|
|
|
2007
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
Broker-dealer
|
|
$
|
7,101,100
|
|
|
$
|
|
|
Foreign exchange
|
|
|
9,443,500
|
|
|
|
8,694,800
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
16,544,600
|
|
|
|
8,694,800
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
Employee compensation and benefits
|
|
|
|
|
|
|
|
|
Broker-dealer
|
|
|
1,696,400
|
|
|
|
|
|
Foreign exchange
|
|
|
5,052,900
|
|
|
|
3,699,400
|
|
|
|
|
|
|
|
|
|
|
Total employee compensation and benefits
|
|
|
6,749,300
|
|
|
|
3,699,400
|
|
General and administrative
|
|
|
|
|
|
|
|
|
Broker-dealer
|
|
|
4,805,000
|
|
|
|
|
|
Foreign exchange
|
|
|
2,565,400
|
|
|
|
2,000,500
|
|
|
|
|
|
|
|
|
|
|
Total general and administrative
|
|
|
7,370,400
|
|
|
|
2,000,500
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
14,119,700
|
|
|
|
5,699,900
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
2,424,900
|
|
|
|
2,994,900
|
|
Income tax expense
|
|
|
1,194,200
|
|
|
|
1,378,700
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations, net of tax
|
|
$
|
1,230,700
|
|
|
$
|
1,616,200
|
|
|
|
|
|
|
|
|
|
|
Cash
flows
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
2006
|
|
|
2007
|
|
|
Net cash provided by (used in) discontinued operations:
|
|
|
|
|
|
|
|
|
Broker-dealer
|
|
$
|
1,837,600
|
|
|
$
|
1,025,500
|
|
Foreign exchange
|
|
|
(7,629,900
|
)
|
|
|
6,913,000
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(5,792,300
|
)
|
|
$
|
7,938,500
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 4
|
Related Party
Activities
|
The Company engages in transactions with the Parent and other
affiliates in the ordinary course of business.
F-12
ARTIO GLOBAL
INVESTORS INC. AND SUBSIDIARIES
(formerly Julius Baer Americas Inc. and Subsidiaries)
Notes to Consolidated Financial
Statements (Continued)
Parent company
transactions
|
|
|
|
|
The Company pays the Parent fees for management and licensing
under the terms of a service level agreement. These fees are
computed based on Investment management fees. The rate applied
to Investment management fees is determined by the Parent. They
are accrued during the year and paid annually, generally near
year-end. These fees are included in General and administrative
expenses on the Consolidated Statement of Income and in Due to
affiliates in the Consolidated Statement of Financial Position
as follows:
|
License and
management fees
|
|
|
|
|
For the Years Ended
December 31,
|
|
|
|
|
2006
|
|
$
|
6,388,000
|
|
2007
|
|
|
7,327,300
|
|
2008
|
|
|
6,414,400
|
|
Due to
affiliates
|
|
|
|
|
At December 31,
|
|
|
|
2007
|
|
$
|
95,000
|
|
2008
|
|
|
1,311,400
|
|
Affiliate
transactions mutual and offshore funds
|
|
|
|
|
Management LLC provides investment management services to the
Funds. Management LLC has investment management agreements with
the Funds which are reviewed and ratified by their Boards of
Directors or Trustees on an annual basis. Revenues related to
these services are included in Investment management fees in the
Consolidated Statement of Income and fees receivable are
included in Fees receivable and accrued fees in the Consolidated
Statement of Financial Position as follows:
|
Investment
management fees
|
|
|
|
|
For the Years Ended
December 31,
|
|
|
|
|
2006
|
|
$
|
189,982,200
|
|
2007
|
|
|
278,696,700
|
|
2008
|
|
|
253,926,000
|
|
Fees receivable
and accrued fees
|
|
|
|
|
At December 31,
|
|
|
|
2007
|
|
$
|
26,492,000
|
|
2008
|
|
|
14,231,200
|
|
|
|
|
|
|
Management LLC also derives investment management revenue from
advising or sub-advising certain offshore funds sponsored by
affiliates of the Parent. The amounts earned from such
|
F-13
ARTIO GLOBAL
INVESTORS INC. AND SUBSIDIARIES
(formerly Julius Baer Americas Inc. and Subsidiaries)
Notes to Consolidated Financial
Statements (Continued)
|
|
|
|
|
activity are reported in Investment management fees in the
Consolidated Statement of Income as follows:
|
Investment
management fees
|
|
|
|
|
For the Years Ended
December 31,
|
|
|
|
|
2006
|
|
$
|
4,292,400
|
|
2007
|
|
|
5,990,000
|
|
2008
|
|
|
5,832,100
|
|
Fees receivable
and accrued fees
|
|
|
|
|
At December 31,
|
|
|
|
2007
|
|
$
|
1,530,900
|
|
2008
|
|
|
1,060,700
|
|
Other
affiliate transactions
Due from affiliates in the Consolidated Statement of Financial
Position comprise the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31,
|
|
|
|
|
|
|
2007
|
|
|
2008
|
|
|
|
|
|
Due from affiliates:
|
|
|
|
|
|
|
|
|
|
|
|
|
From local affiliates, for shared expenses
|
|
$
|
3,043,400
|
|
|
$
|
|
|
|
|
|
|
From foreign affiliates, for services
|
|
|
1,032,100
|
|
|
|
4,400
|
|
|
|
|
|
|
|
|
|
|
The Company shared office space with certain unconsolidated
affiliates. The Company allocated to these affiliates both
direct and indirect expenses for occupancy (including rent and
depreciation), information technology and support systems costs
(including depreciation), administration, and management, under
the terms of service level agreements. In 2007 and 2006, the
Company allocated $4,664,700 and $2,365,600, respectively, to
these unconsolidated affiliates under the terms of such
agreements. Such amounts are reflected in the Consolidated
Statement of Income under General and administrative expenses
and in Due from affiliates (from local affiliates) in the
Consolidated Statement of Financial Position. In 2008, these
affiliates moved from the Companys offices, and the
service level agreements were cancelled. There are no allocated
expenses in 2008.
|
|
|
|
Amounts in Due from affiliates (from foreign affiliates)
represent amounts paid by the Company on behalf of the Parent.
These expenses are paid monthly by the Parent to Management LLC
and are not material in 2008.
|
Other related
party transactions
|
|
|
|
|
Participants in the Funded Plan (as defined in
Note 8) invest their deferred bonuses in their choice
of the Funds. The Company does not guarantee any returns and the
changes in the fair value of the investments are offset in part
by an adjustment to the obligation of the Company to the
participants for the vesting of the deferred bonuses. At
December 31, 2008 and 2007, the Company held investments in
the Funds of $5,911,400 and $4,754,800, respectively. Unrealized
gains (losses) on the investments totaled $(2,683,500) and
$507,700 for the years ended December 31, 2008 and 2007,
respectively. Unrealized gains (losses) for 2008 and
|
F-14
ARTIO GLOBAL
INVESTORS INC. AND SUBSIDIARIES
(formerly Julius Baer Americas Inc. and Subsidiaries)
Notes to Consolidated Financial
Statements (Continued)
|
|
|
|
|
2006 were recognized in the Consolidated Statement of Income in
Net (losses) on securities held for deferred compensation and
Net gains (losses) on marketable securities, respectively.
Unrealized gains for 2007 were reported in Accumulated other
comprehensive income in the Consolidated Statement of Financial
Position. There were no material realized gains in 2008, 2007,
or 2006.
|
|
|
|
|
|
The Company manages the assets of the Non-Contributory Plans, at
no cost to the plans.
|
|
|
Note 5
|
Marketable
Securities, at Fair Value
|
The Company carries its Marketable Securities portfolio at fair
value using a valuation hierarchy based on the transparency of
the inputs to the valuation techniques used to measure fair
value. Classification within the hierarchy is based upon the
lowest level of input that is significant to the fair value
measurement. The valuation hierarchy contains three levels:
(i) valuation inputs comprising unadjusted quoted market
prices for identical assets or liabilities in active markets
(Level 1); (ii) valuation inputs
comprising quoted prices for identical assets or liabilities in
markets that are not active, quoted market prices for similar
assets and liabilities in active markets, and other observable
inputs directly or indirectly related to the asset or liability
being measured (Level 2); and
(iii) valuation inputs that are unobservable and are
significant to the fair value measurement
(Level 3). The Companys Marketable
securities and Cash equivalents at December 31, 2008 are
valued using prices as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable
|
|
|
Cash
|
|
|
|
|
|
|
Securities
|
|
|
Equivalents
|
|
|
Total
|
|
|
Level 1
|
|
$
|
71,314,900
|
|
|
$
|
71,116,600
|
|
|
$
|
142,431,500
|
|
Level 2
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 3
|
|
|
14,600
|
|
|
|
|
|
|
|
14,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
71,329,500
|
|
|
$
|
71,116,600
|
|
|
$
|
142,446,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The change in Level 3 securities during 2008 is as follows:
|
|
|
|
|
Beginning of year
|
|
$
|
10,000
|
|
Unrealized gains
|
|
|
4,600
|
|
|
|
|
|
|
End of year
|
|
$
|
14,600
|
|
|
|
|
|
|
Marketable securities as of December 31, 2007 consist of
the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
|
|
|
|
Fair Value
|
|
|
Amortized Cost
|
|
|
Gains/(Losses)
|
|
|
U.S. government and agency instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Due within 1 year
|
|
$
|
36,696,300
|
|
|
$
|
36,232,900
|
|
|
$
|
463,400
|
|
Due 1-5 years
|
|
|
1,652,400
|
|
|
|
1,967,200
|
|
|
|
(314,800
|
)
|
Due more than 10 years
|
|
|
4,352,400
|
|
|
|
4,376,600
|
|
|
|
(24,200
|
)
|
Artio Global Funds
|
|
|
4,754,800
|
|
|
|
4,247,100
|
|
|
|
507,700
|
|
Other investments
|
|
|
10,000
|
|
|
|
10,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
47,465,900
|
|
|
$
|
46,833,800
|
|
|
$
|
632,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-15
ARTIO GLOBAL
INVESTORS INC. AND SUBSIDIARIES
(formerly Julius Baer Americas Inc. and Subsidiaries)
Notes to Consolidated Financial
Statements (Continued)
Marketable securities as of December 31, 2008 consist of
the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
|
|
|
|
Fair Value
|
|
|
Amortized Cost
|
|
|
Gains/(Losses)
|
|
|
U.S. government and agency instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Due within 1 year
|
|
$
|
60,375,200
|
|
|
$
|
60,277,300
|
|
|
$
|
97,900
|
|
Due more than 10 years
|
|
|
5,028,300
|
|
|
|
4,587,600
|
|
|
|
440,700
|
|
Artio Global Funds
|
|
|
5,911,400
|
|
|
|
8,594,900
|
|
|
|
(2,683,500
|
)
|
Other investments
|
|
|
14,600
|
|
|
|
10,000
|
|
|
|
4,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
71,329,500
|
|
|
$
|
73,469,800
|
|
|
$
|
(2,140,300
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In 2007, changes in unrealized gains of $632,100 were recognized
in Accumulated other comprehensive income. Realized gains, net
of losses, for the year ended December 31, 2007 totaled
$81,800 and are included in the Statement of Income.
In 2008, the Company elected the fair value option permitted by
SFAS 159 to report its Marketable Securities. The election
was effected by a cumulative effect adjustment that transferred
Accumulated other comprehensive income of $323,800 (net of tax)
to Retained earnings as of January 1, 2008. In the year
ended December 31, 2008, unrealized gains of $543,200 and
realized losses of $(291,100) on U.S. government and agency
securities are reported in non-operating income. For that
period, changes in unrealized losses of $(2,683,500) and
realized losses of $(173,000) on the Funds are reported in Net
gain (loss) on securities held for deferred compensation.
|
|
Note 6
|
Market, Credit
and Foreign Exchange Risks
|
The Companys holdings of U.S. government and agency
instruments are considered to have minimal credit risk. A
portion of the Companys balance of Cash and cash
equivalents represent short-term investments in
U.S. government and agency securities, and similarly is
considered to have minimal credit risk. The amounts of
short-term U.S. government and agency securities included
in Cash and cash equivalents are $119,047,200 and $71,116,600 as
of December 31, 2007 and December 31, 2008,
respectively.
The remaining balance in Cash and cash equivalents represents
cash held by the Company for its operating activities. These
cash balances are held primarily with a single institution.
Substantially all of these amounts exceed the insurance provided
by the Federal Deposit Insurance Corporation.
Investments in U.S. government and agency securities are
subject to market risk and will fluctuate in value based on
interest rates prevailing in the market. Investments in the
Funds will fluctuate in value based on overall market conditions
as well as factors specific to those Funds.
Fees receivable and accrued fees have credit risk related to our
clients. Fees receivable from sponsored funds
(Note 4) are billed and collected monthly. Other fees
are generally billed quarterly. Fees receivable are recorded net
of any allowance for doubtful accounts.
The Companys revenues are based primarily on the
U.S. dollar value of the investment assets it manages for
clients. The assets under management vary as a result of the
market performance of the investments and client cash flows into
or out of the investments. A majority of assets under management
are invested in assets denominated in currencies other than the
dollar. As a result, the U.S. dollar value of assets under
management fluctuates with changes in foreign currency exchange
rates. Revenues fluctuate with changes in assets under
management resulting from all of the above factors.
F-16
ARTIO GLOBAL
INVESTORS INC. AND SUBSIDIARIES
(formerly Julius Baer Americas Inc. and Subsidiaries)
Notes to Consolidated Financial
Statements (Continued)
|
|
Note 7
|
Property and
Equipment
|
The major classifications of property and equipment are as
follows:
|
|
|
|
|
|
|
|
|
|
|
At December 31,
|
|
|
|
2007
|
|
|
2008
|
|
|
Furniture, fixtures, software and equipment
|
|
$
|
6,336,700
|
|
|
$
|
9,574,600
|
|
Leasehold improvements
|
|
|
10,111,800
|
|
|
|
10,358,400
|
|
Less: accumulated depreciation and amortization
|
|
|
(7,195,700
|
)
|
|
|
(10,099,800
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
9,252,800
|
|
|
$
|
9,833,200
|
|
|
|
|
|
|
|
|
|
|
Furniture and fixtures are depreciated over five years.
Equipment is depreciated over three and five year periods.
Software is amortized over its estimated useful life, generally
three years. Leasehold improvements are amortized over the
lesser of the economic useful life of the improvement or the
remaining life of the lease.
|
|
Note 8
|
Benefit Plans and
Deferred Compensation
|
The Company sponsors a non-contributory qualified defined
contribution retirement plan that covers most employees (the
Qualified Plan). Employees with at least one year of
service are eligible to participate in this plan. Contributions
to this plan are calculated at 10% of annual salary up to the
Social Security Taxable wage base plus 15.7% of annual base
salary in excess of the Social Security Taxable wage base up to
the Internal Revenue Service compensation limit for qualified
plans. Earnings on an individuals account in the plan are
limited to the performance of the underlying plan investments in
the account.
The Company also sponsors a supplemental non-qualified defined
contribution retirement plan (the Non-qualified
Plan). Contributions to this plan are calculated as 15.7%
of annual base salary that exceeds the Internal Revenue Service
compensation limit for qualified plans. Contributions to both
the qualified and non-qualified retirement plans have three-year
vesting.
Additionally, the Company sponsors a qualified 401(k) plan which
permits employer matching contributions. No matching
contributions have ever been made to the 401(k) plan.
The Company sponsors a deferred compensation plan for employees
whose annual discretionary bonus award exceeds $250,000 (the
Funded Plan). Amounts contributed to the plan vest
rateably over a three-year period. Additionally, the Company
sponsored an unfunded, non-qualified deferred compensation plan
for the Principals (the Unfunded Plan). The total
amount payable under the Unfunded Plan was $14,017,500, which
vested ratably over a ten-year period and was to be fully vested
in 2014. In December, 2007, the Unfunded Plan was amended to
reflect that it would be payable in a lump sum upon the earlier
of an initial public offering of the Company or
December 31, 2008. The Company expensed the remaining
amount of the Unfunded Plan in 2008 and has made the payments.
F-17
ARTIO GLOBAL
INVESTORS INC. AND SUBSIDIARIES
(formerly Julius Baer Americas Inc. and Subsidiaries)
Notes to Consolidated Financial
Statements (Continued)
The tables below show the Companys assets and liabilities
as of December 31, 2007 and December 31, 2008 as well
as the expenses recognized by the Company related to these plans
for the years ended December 31, 2006, 2007 and 2008. The
assets are reported in Marketable securities, and the
liabilities in Accrued compensation and benefits.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007
|
|
December 31, 2008
|
|
|
Assets
|
|
Liabilities
|
|
Assets
|
|
Liabilities
|
|
Funded Plan
|
|
$
|
4,754,800
|
|
|
$
|
2,049,900
|
|
|
$
|
5,911,400
|
|
|
$
|
2,499,700
|
|
Unfunded Plan
|
|
|
|
|
|
|
5,139,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
Expenses
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
Qualified Plan
|
|
$
|
1,143,500
|
|
|
$
|
1,553,700
|
|
|
$
|
2,847,900
|
|
Non-qualified Plan
|
|
|
60,600
|
|
|
|
273,400
|
|
|
|
223,200
|
|
Funded Plan
|
|
|
1,361,700
|
|
|
|
2,187,800
|
|
|
|
2,444,000
|
|
Unfunded Plan
|
|
|
1,402,000
|
|
|
|
1,402,000
|
|
|
|
8,877,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,967,800
|
|
|
$
|
5,416,900
|
|
|
$
|
14,392,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 9
|
Class B
Profits Interests
|
The Company has granted to each of the Principals a
Class B, non-voting profits interest in Management LLC
which entitles each of them to receive 15% of profits (30% in
the aggregate) of Management LLC (as more fully described in
Management LLCs operating agreement). The allocation of
such profits interests is expensed as incurred and included in
Employee compensation and benefits. The liabilities for these
interests at December 31, 2007 and 2008 are as follows:
|
|
|
|
|
|
|
Liabilities
|
|
December 31, 2007
|
|
$
|
55,763,300
|
|
December 31, 2008
|
|
|
34,101,500
|
|
The Company is required to repurchase the Class B profits
interests. The repurchase price is computed utilizing a model
which is based on the average profitability of Management LLC
(as more fully described in the operating agreement) and the
average price-earnings multiple of the common stock of the
Parent. The benefits vest rateably over a ten-year period ending
in 2014. The Company records the obligation associated with the
change in redemption value of the profits interest as a
liability at fair value in Accrued compensation and benefits in
the Consolidated Statements of Financial Position, and
recognizes the expense as Employee compensation and benefits in
the Consolidated Statement of Income. Certain events, including
a change in control (such as the contemplated initial public
offering) will cause the unvested balances to vest prior to the
end of the stated period. Total redemption values and
liabilities of this obligation are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redemption Value
|
|
Liabilities
|
|
Unvested Balance
|
|
December 31, 2007
|
|
$
|
491,108,900
|
|
|
$
|
147,332,900
|
|
|
$
|
343,776,000
|
|
December 31, 2008
|
|
|
504,725,000
|
|
|
|
201,890,300
|
|
|
|
302,834,700
|
|
F-18
ARTIO GLOBAL
INVESTORS INC. AND SUBSIDIARIES
(formerly Julius Baer Americas Inc. and Subsidiaries)
Notes to Consolidated Financial
Statements (Continued)
|
|
Note 10
|
Commitments and
Contingencies
|
The Company leases office space under non-cancellable agreements
that expire in June 2014. Minimum annual rental payments under
the lease at December 31, 2008 are as follows:
|
|
|
|
|
Years Ending
December 31,
|
|
|
|
|
2009
|
|
$
|
3,738,700
|
|
2010
|
|
|
3,738,700
|
|
2011
|
|
|
3,756,000
|
|
2012
|
|
|
3,761,800
|
|
2013
|
|
|
3,761,800
|
|
2014
|
|
|
1,880,900
|
|
|
|
|
|
|
|
|
$
|
20,637,900
|
|
|
|
|
|
|
In addition to the minimum annual rentals, the lease also
includes provisions for escalations. The lease provides for a
rent holiday and leasehold improvement incentives. These
concessions are recognized on a straight-line basis as
reductions in rent expense over the term of the lease.
In 2007, a portion of the annual rental expense was charged to
affiliates who occupied portions of the space. Rent expense
incurred by the Company and its subsidiaries for the years ended
December 31, 2006, 2007, and 2008 was $2,052,500,
$2,641,800, and $3,309,400, respectively.
The Company has non-cancellable contractual commitments for
periods of up to two years for recordkeeping and software
services.
The Company has a license fee arrangement with the Parent for
the use of its name in the Companys products and
marketing. The arrangement obligates the Company to pay a fee,
based on applicable revenues, at a rate determined by the
Parent. The rate determined by the Parent may vary by year.
The Companys largest shareholder servicing arrangement
provides that, in the event of termination, fees of thirty-five
basis points annually on the value of the shares held on the
platform will accrue as long as the shares are held on the
platform. A portion of these charges may be offset by
12b-1 fees.
The Company has a severance policy covering employees terminated
for reasons other than cause. In the event of an employees
termination, the Company may incur a liability for salary and
benefits continuation. The amount varies based on the
employees level and length of service.
The Company has, at its discretion, reimbursed client accounts
for certain operational losses incurred. Such amounts were not
material in the years ended December 31, 2006, 2007, and
2008.
There is no litigation against the Company that is considered
probable or reasonably possible of having a material effect on
the cash flows, results of operations or financial position of
the Company.
F-19
ARTIO GLOBAL
INVESTORS INC. AND SUBSIDIARIES
(formerly Julius Baer Americas Inc. and Subsidiaries)
Notes to Consolidated Financial
Statements (Continued)
The components of income taxes for continuing and discontinued
operations for the periods
2006-2008
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
38,373,700
|
|
|
$
|
59,806,100
|
|
|
$
|
54,127,600
|
|
State and local
|
|
|
22,852,000
|
|
|
|
34,109,500
|
|
|
|
22,147,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
61,225,700
|
|
|
|
93,915,600
|
|
|
|
76,275,000
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(14,744,600
|
)
|
|
|
(23,851,900
|
)
|
|
|
(17,380,900
|
)
|
State and local
|
|
|
(7,966,900
|
)
|
|
|
(11,646,300
|
)
|
|
|
(4,139,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
(22,711,500
|
)
|
|
|
(35,498,200
|
)
|
|
|
(21,519,900
|
)
|
Income taxes on continuing operations
|
|
|
38,514,200
|
|
|
|
58,417,400
|
|
|
|
54,755,100
|
|
Tax effect of discontinued operations -
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
649,800
|
|
|
|
1,389,900
|
|
|
|
|
|
Deferred
|
|
|
544,400
|
|
|
|
(11,200
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,194,200
|
|
|
|
1,378,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
$
|
39,708,400
|
|
|
$
|
59,796,100
|
|
|
$
|
54,755,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company computes its taxes using the asset and liability
method. Deferred income taxes reflect the net tax effect of
temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts
used for income tax purposes.
Net deferred tax assets comprise the following:
|
|
|
|
|
|
|
|
|
|
|
At December 31,
|
|
|
|
2007
|
|
|
2008
|
|
|
Deferred tax assets
|
|
|
|
|
|
|
|
|
Deferred compensation
|
|
$
|
69,668,000
|
|
|
$
|
89,434,100
|
|
Depreciation and amortization
|
|
|
879,000
|
|
|
|
764,500
|
|
Provisions and other
|
|
|
943,700
|
|
|
|
2,503,700
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
71,490,700
|
|
|
|
92,702,300
|
|
Less: valuation allowance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax asset, net of valuation allowance
|
|
|
71,490,700
|
|
|
|
92,702,300
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liability
|
|
|
|
|
|
|
|
|
Unrealized (gains)
|
|
|
(308,300
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax liability
|
|
|
(308,300
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset
|
|
$
|
71,182,400
|
|
|
$
|
92,702,300
|
|
|
|
|
|
|
|
|
|
|
F-20
ARTIO GLOBAL
INVESTORS INC. AND SUBSIDIARIES
(formerly Julius Baer Americas Inc. and Subsidiaries)
Notes to Consolidated Financial
Statements (Continued)
Management of the Company has not established a valuation
allowance for its deferred tax asset because it believes that it
is more likely than not the benefit will be realized. The
Companys analysis of recoverability is based on the future
income streams that could be generated from its assets under
management.
A reconciliation between the Federal statutory tax rate of
35 percent and the Companys effective tax rates is as
follows:
|
|
|
|
|
|
|
|
|
2006
|
|
|
|
|
|
|
|
|
Federal statutory rate
|
|
$
|
28,720,100
|
|
|
|
35
|
%
|
State and local, net of federal benefit
|
|
|
9,794,100
|
|
|
|
12
|
%
|
|
|
|
|
|
|
|
|
|
Taxes on income from continuing operations
|
|
$
|
38,514,200
|
|
|
|
47
|
%
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
|
|
|
|
|
Federal statutory rate
|
|
$
|
43,675,500
|
|
|
|
35
|
%
|
State and local, net of federal benefit
|
|
|
14,741,900
|
|
|
|
12
|
%
|
|
|
|
|
|
|
|
|
|
Taxes on income from continuing operations
|
|
$
|
58,417,400
|
|
|
|
47
|
%
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
|
Federal statutory rate
|
|
$
|
40,567,200
|
|
|
|
35
|
%
|
State and local, net of federal benefit
|
|
|
13,611,200
|
|
|
|
12
|
%
|
Permanent differences
|
|
|
3,005,200
|
|
|
|
2
|
%
|
Other adjustments
|
|
|
(2,428,500
|
)
|
|
|
(2
|
)%
|
|
|
|
|
|
|
|
|
|
Taxes on income from continuing operations
|
|
$
|
54,755,100
|
|
|
|
47
|
%
|
|
|
|
|
|
|
|
|
|
Permanent differences consist of the non-deductible portion of
meals, entertainment, and gifts, and certain costs related to
the anticipated initial public offering of Investors
common stock. They were not material to the reconciliation in
2007. Other adjustments represent adjustments made as a result
of the 2007 tax filings.
The effective tax rates of the discontinued operations in 2006
and 2007 do not differ materially from those of continuing
operations.
Management LLC is subject to a four percent New York City
unincorporated business tax (UBT), of which a
substantial portion is credited against Investors state
and local liability.
The Company has evaluated its tax positions and believes that in
each case, it is more likely than not that the tax positions
taken will be sustained, on their technical merits, upon audit.
For the years ended December 31, 2007 and 2008, there were
no material charges relating to interest and penalties. As of
December 31, 2007 and 2008, the Company did not have any
unrecognized tax benefits.
The Companys tax years 2006 to the present are open for
examination by Federal and state tax authorities. The Internal
Revenue Service completed its audit of the Companys 2005
tax year and did not propose any adjustments to the filed
returns. New York State completed its audit of years 2000
through 2003 of a predecessor company of Management LLC, and did
not propose any material adjustments to the filed returns. The
resolution of the audits did not have a material effect on the
Consolidated Financial Statements or liquidity of the Company.
F-21
ARTIO GLOBAL
INVESTORS INC. AND SUBSIDIARIES
(formerly Julius Baer Americas Inc. and Subsidiaries)
Notes to Consolidated Financial
Statements (Continued)
The Company expects, in connection with its planned initial
public offering, to amend Management LLCs operating
agreement governing the Class B profits interests. The
effect of such a change on the deferred tax asset, if any, is
not known, and an estimate of the possible effect cannot be made.
|
|
Note 12
|
Segment
Information
|
The Companys continuing operations are classified as one
segment: investment advisory and management services. Management
evaluates performance and allocates resources for the management
of each type of investment vehicle on a combined basis. The fee
from the largest Fund represented 56%, 47% and 39% of Investment
management fees for the years ended December 31, 2006,
2007, and 2008, respectively. The Companys clients are
primarily domiciled in the United States.
In January, 2008, the Company entered into a lease with its
landlord at its New York headquarters to lease additional space
in the building. The lease expires in June, 2014. In December,
2008, management of the Company decided that the Company would
no longer utilize this office space and that any activity
related to the preparation of this floor for Company use would
be terminated. The Company measured and recorded a liability
related to this exit activity at its fair value in the period in
which the liability was incurred. The liability is included in
Other liabilities in the Consolidated Statement of Financial
Position and the amortization of the liability will be
recognized in General and administrative expenses in the
Consolidated Statement of Income. The Company recognized the
estimate of the loss and transferred $468,700 previously
recorded for the lease incentives to the liability for this exit
activity.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning Balance
|
|
|
Change in
|
|
|
Ending Balance
|
|
|
|
1/1/2008
|
|
|
Current Year
|
|
|
12/31/2008
|
|
|
Exit liability
|
|
|
|
|
|
$
|
2,868,700
|
|
|
$
|
2,868,700
|
|
|
|
Note 14
|
Recently Issued
Accounting Pronouncements
|
In December, 2007, FASB issued Statement No. 160,
Noncontrolling Interests in Consolidated Financial Statements
(SFAS 160). The Statement is effective for
the Company in the 2009 fiscal year. If the Company completes
its planned initial public offering, this Statement will affect
the accounting and disclosure of the noncontrolling interests in
Holdings to be held by the Principals. At this time, the Company
cannot estimate the value of the noncontrolling interests in
Holdings to be held by the Principals.
In December, 2008, FASB issued FASB Staff Position
(FSP)
FAS 140-4
and FIN 46(R)-8, Disclosures by Public Entities
(Enterprises) about Transfers of Financial Assets and Interests
in Variable Interest Entities (FSP
FAS 140-4
and FIN 46(R)-8). FSP
FAS 140-4
and FIN 46(R)-8 increases disclosure requirements for
certain transactions accounted under SFAS 140 and
FIN 46(R) for public companies and is effective for
reporting periods (interim and annual) ending after
December 15, 2008. The Company adopted this FSP for its
financial statements ending on December 31, 2008. The
Company completed its evaluation and determined that no
additional disclosures were required.
F-22
ARTIO GLOBAL
INVESTORS INC. AND SUBSIDIARIES
(formerly Julius Baer Americas Inc. and Subsidiaries)
Notes to Consolidated Financial
Statements (Continued)
|
|
Note 15
|
Quarterly
Information (unaudited)
|
The following table presents unaudited quarterly results of
operations for 2007 and 2008. These quarterly results reflect
all normal recurring adjustments that are, in the opinion of
management, necessary for a fair presentation of the results.
Revenues and net income can vary significantly from quarter to
quarter due to the nature of the Companys business
activities.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Quarter Ended
|
|
|
|
March 31, 2007
|
|
|
June 30, 2007
|
|
|
Sept. 30, 2007
|
|
|
Dec. 31, 2007
|
|
|
Total revenues and other operating income
|
|
$
|
95,002,600
|
|
|
$
|
111,990,700
|
|
|
$
|
114,279,200
|
|
|
$
|
124,471,800
|
|
Operating income before income taxes
|
|
|
26,835,400
|
|
|
|
31,526,300
|
|
|
|
25,705,500
|
|
|
|
33,686,200
|
|
Net income
|
|
|
14,784,700
|
|
|
|
16,610,700
|
|
|
|
17,191,700
|
|
|
|
19,398,700
|
|
Earnings per share, basic and fully diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
0.35
|
|
|
$
|
0.40
|
|
|
$
|
0.41
|
|
|
$
|
0.46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Quarter Ended
|
|
|
|
March 31, 2008
|
|
|
June 30, 2008
|
|
|
Sept. 30, 2008
|
|
|
Dec. 31, 2008
|
|
|
Total revenues and other operating income
|
|
$
|
116,317,000
|
|
|
$
|
126,567,700
|
|
|
$
|
106,528,100
|
|
|
$
|
72,632,700
|
|
Operating income before income taxes
|
|
|
22,590,200
|
|
|
|
39,626,500
|
|
|
|
27,054,500
|
|
|
|
23,453,800
|
|
Net income
|
|
|
11,410,300
|
|
|
|
20,211,800
|
|
|
|
16,280,300
|
|
|
|
13,248,900
|
|
Earnings per share, basic and fully diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
0.27
|
|
|
$
|
0.48
|
|
|
$
|
0.39
|
|
|
$
|
0.32
|
|
|
|
Note 16
|
Subsequent
Events
|
Revisions to Capitalization Structure
As of August 28, 2009, the Company designated its existing
shares of common stock as Class C common stock and effected
a 10,500:1 split of these shares. In accordance with the
Securities and Exchange Commissions Staff Accounting
Bulletin Topic 4:C, the consolidated financial statements
give retroactive effect to the 10,500:1 stock split.
Pro Forma Impact of Distributions in Connection with Initial
Public Offering (unaudited)
In connection with the Companys public offering, the
Company expects to make an estimated distribution of
$201.3 million on a pro forma basis to its Parent. The
actual distribution will be $40.1 million plus total
stockholders equity as of the date of the closing of the
Companys public offering. This distribution, as well as
dividends paid during the preceding eighteen months in excess of
earnings during the same period, are used to present certain pro
forma information.
F-23
ARTIO GLOBAL
INVESTORS INC. AND SUBSIDIARIES
(formerly Julius Baer Americas Inc. and Subsidiaries)
Notes to Consolidated Financial
Statements (Continued)
|
|
|
|
|
Distribution
|
|
$
|
201,311,000
|
|
Net income for the eighteen months ended June 30, 2009
|
|
|
(69,550,900
|
)
|
Dividends paid during the eighteen months ended June 30,
2009
|
|
|
131,000,000
|
|
|
|
|
|
|
Total distributions
|
|
$
|
262,760,100
|
|
|
|
|
|
|
If the total distributions were assumed to be paid from the net
proceeds of the offering, approximately 10,683,000 shares
would be issued for this purpose.
The effect on earnings per share for the year ended
December 31, 2008 would be as follows:
|
|
|
|
|
|
|
Year Ended
|
|
|
|
December 31,
2008
|
|
|
Diluted earnings per share, as reported
|
|
$
|
1.46
|
|
Dilution resulting from the issuance of 10,683,000 shares
|
|
|
(0.30
|
)
|
|
|
|
|
|
Pro forma diluted earnings per share, as adjusted
|
|
$
|
1.16
|
|
|
|
|
|
|
F-24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma
|
|
|
|
December 31,
|
|
|
|
|
|
June 30, 2009
|
|
|
|
2008
|
|
|
June 30, 2009
|
|
|
(Note 10)
|
|
|
ASSETS
|
Cash and cash equivalents
|
|
$
|
86,563,000
|
|
|
$
|
111,324,200
|
|
|
$
|
111,324,200
|
|
Marketable securities, at fair value (Note 4)
|
|
|
71,329,500
|
|
|
|
28,622,000
|
|
|
|
28,622,000
|
|
Fees receivable and accrued fees, net of allowance for doubtful
accounts (Note 3)
|
|
|
54,799,100
|
|
|
|
46,309,300
|
|
|
|
46,309,300
|
|
Deferred taxes, net
|
|
|
92,702,300
|
|
|
|
107,334,800
|
|
|
|
107,334,800
|
|
Property and equipment, net
|
|
|
9,833,200
|
|
|
|
9,289,700
|
|
|
|
9,289,700
|
|
Other assets
|
|
|
4,248,500
|
|
|
|
3,264,800
|
|
|
|
3,264,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
319,475,600
|
|
|
$
|
306,144,800
|
|
|
$
|
306,144,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Accrued compensation and benefits
|
|
$
|
268,924,700
|
|
|
$
|
264,253,100
|
|
|
$
|
264,253,100
|
|
Accounts payable and accrued expenses
|
|
|
9,372,400
|
|
|
|
8,586,000
|
|
|
|
8,586,000
|
|
Due to affiliates
|
|
|
1,311,400
|
|
|
|
971,800
|
|
|
|
202,282,800
|
|
Accrued income taxes payable
|
|
|
1,238,600
|
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
|
5,383,400
|
|
|
|
4,689,200
|
|
|
|
4,689,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
286,230,500
|
|
|
|
278,500,100
|
|
|
|
479,811,100
|
|
Commitments and contingencies (Notes 6 and 7)
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock (Note 10):
|
|
|
|
|
|
|
|
|
|
|
|
|
Class C common stock, $0.01 par value per share,
210,000,000 shares authorized; 42,000,000 shares
issued and outstanding
|
|
|
420,000
|
|
|
|
420,000
|
|
|
|
420,000
|
|
Additional paid-in capital
|
|
|
17,930,000
|
|
|
|
17,930,000
|
|
|
|
17,930,000
|
|
Retained earnings
|
|
|
14,895,100
|
|
|
|
9,294,700
|
|
|
|
(192,016,300
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
33,245,100
|
|
|
|
27,644,700
|
|
|
|
(173,666,300
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
319,475,600
|
|
|
$
|
306,144,800
|
|
|
$
|
306,144,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements
F-25
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30,
|
|
|
|
2008
|
|
|
2009
|
|
|
Revenues and other operating income:
|
|
|
|
|
|
|
|
|
Investment management fees
|
|
$
|
243,507,300
|
|
|
$
|
132,576,200
|
|
Net gains (losses) on securities held for deferred compensation
|
|
|
(601,000
|
)
|
|
|
712,200
|
|
Foreign currency gains (losses)
|
|
|
(21,700
|
)
|
|
|
31,600
|
|
|
|
|
|
|
|
|
|
|
Total revenues and other operating income
|
|
|
242,884,600
|
|
|
|
133,320,000
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
Employee compensation and benefits
|
|
|
|
|
|
|
|
|
Salaries, incentive compensation and benefits
|
|
|
52,854,300
|
|
|
|
34,917,000
|
|
Allocation of Class B profits interests
|
|
|
43,990,700
|
|
|
|
21,471,800
|
|
Change in redemption value of Class B profits interests
|
|
|
36,433,000
|
|
|
|
35,538,000
|
|
|
|
|
|
|
|
|
|
|
Total employee compensation and benefits
|
|
|
133,278,000
|
|
|
|
91,926,800
|
|
Shareholder servicing and marketing
|
|
|
12,725,100
|
|
|
|
7,208,300
|
|
General and administrative
|
|
|
34,664,900
|
|
|
|
17,577,900
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
180,668,000
|
|
|
|
116,713,000
|
|
|
|
|
|
|
|
|
|
|
Operating income before income tax expense
|
|
|
62,216,600
|
|
|
|
16,607,000
|
|
Non-operating income:
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
1,776,700
|
|
|
|
201,900
|
|
Net (losses) on marketable securities
|
|
|
(379,600
|
)
|
|
|
(535,000
|
)
|
|
|
|
|
|
|
|
|
|
Total non-operating income
|
|
|
1,397,100
|
|
|
|
(333,100
|
)
|
|
|
|
|
|
|
|
|
|
Income before income tax expense
|
|
|
63,613,700
|
|
|
|
16,273,900
|
|
Income taxes
|
|
|
31,991,700
|
|
|
|
7,874,300
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
31,622,000
|
|
|
$
|
8,399,600
|
|
|
|
|
|
|
|
|
|
|
Net income per share, basic and diluted (Note 10):
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
0.75
|
|
|
$
|
0.20
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares of Class C common stock used in
basic and diluted net income per share
|
|
|
42,000,000
|
|
|
|
42,000,000
|
|
|
|
|
|
|
|
|
|
|
Pro forma diluted net income per share, including impact of
distributions
|
|
|
|
|
|
$
|
0.16
|
|
See accompanying notes to consolidated financial statements
F-26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
Common Shares
|
|
|
Common
|
|
|
Paid-in
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
Outstanding
|
|
|
Stock
|
|
|
Capital
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
Stockholders
|
|
|
|
(Note 10)
|
|
|
(Note 10)
|
|
|
(Note 10)
|
|
|
Earnings
|
|
|
Income
|
|
|
Equity
|
|
|
Balance at December 31, 2007
|
|
|
42,000,000
|
|
|
$
|
420,000
|
|
|
$
|
17,930,000
|
|
|
$
|
70,420,000
|
|
|
$
|
323,800
|
|
|
$
|
89,093,800
|
|
Cumulative effect of adoption of SFAS 159
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
323,800
|
|
|
|
(323,800
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2008
|
|
|
42,000,000
|
|
|
|
420,000
|
|
|
|
17,930,000
|
|
|
|
70,743,800
|
|
|
$
|
|
|
|
|
89,093,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31,622,000
|
|
|
|
|
|
|
|
31,622,000
|
|
Dividends ($1.95 per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(82,000,000
|
)
|
|
|
|
|
|
|
(82,000,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2008
|
|
|
42,000,000
|
|
|
$
|
420,000
|
|
|
$
|
17,930,000
|
|
|
$
|
20,365,800
|
|
|
|
|
|
|
$
|
38,715,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
|
42,000,000
|
|
|
$
|
420,000
|
|
|
$
|
17,930,000
|
|
|
$
|
14,895,100
|
|
|
|
|
|
|
$
|
33,245,100
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,399,600
|
|
|
|
|
|
|
|
8,399,600
|
|
Dividends ($0.33 per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14,000,000
|
)
|
|
|
|
|
|
|
(14,000,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2009
|
|
|
42,000,000
|
|
|
$
|
420,000
|
|
|
$
|
17,930,000
|
|
|
$
|
9,294,700
|
|
|
|
|
|
|
$
|
27,644,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements
F-27
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30,
|
|
|
|
2008
|
|
|
2009
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
31,622,000
|
|
|
$
|
8,399,600
|
|
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
1,369,300
|
|
|
|
1,278,100
|
|
Deferred compensation
|
|
|
42,490,800
|
|
|
|
37,117,900
|
|
Deferred income taxes
|
|
|
(18,758,300
|
)
|
|
|
(14,632,500
|
)
|
Interest accrued on marketable securities and accretion and
amortization of premium and discount
|
|
|
(74,200
|
)
|
|
|
187,000
|
|
(Gains)/losses on marketable securities and securities held for
deferred compensation
|
|
|
980,600
|
|
|
|
(177,200
|
)
|
(Increase) decrease in:
|
|
|
|
|
|
|
|
|
Fees receivable and accrued fees
|
|
|
3,420,100
|
|
|
|
8,489,800
|
|
Other assets
|
|
|
91,000
|
|
|
|
983,700
|
|
Increase (decrease) in:
|
|
|
|
|
|
|
|
|
Accrued compensation and benefits
|
|
|
(46,557,900
|
)
|
|
|
(41,789,500
|
)
|
Accounts payable and accrued expenses
|
|
|
1,624,400
|
|
|
|
(818,000
|
)
|
Due to affiliates
|
|
|
4,621,100
|
|
|
|
(339,600
|
)
|
Accrued income taxes payable
|
|
|
(226,600
|
)
|
|
|
(1,238,600
|
)
|
Other liabilities
|
|
|
1,713,400
|
|
|
|
(694,200
|
)
|
|
|
|
|
|
|
|
|
|
Total adjustments
|
|
|
(9,306,300
|
)
|
|
|
(11,633,100
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
22,315,700
|
|
|
|
(3,233,500
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Purchase of marketable securities and securities held for
deferred compensation
|
|
|
(44,387,500
|
)
|
|
|
(2,528,900
|
)
|
Proceeds from sales or maturities of marketable securities and
securities held for deferred compensation
|
|
|
34,348,800
|
|
|
|
45,226,600
|
|
Purchase of fixed assets
|
|
|
(1,379,400
|
)
|
|
|
(734,600
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
(11,418,100
|
)
|
|
|
41,963,100
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Dividends paid
|
|
|
(82,000,000
|
)
|
|
|
(14,000,000
|
)
|
|
|
|
|
|
|
|
|
|
Net cash used by financing activities
|
|
|
(82,000,000
|
)
|
|
|
(14,000,000
|
)
|
|
|
|
|
|
|
|
|
|
Effect of exchange rates on cash
|
|
|
(21,700
|
)
|
|
|
31,600
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
(71,124,100
|
)
|
|
|
24,761,200
|
|
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
Beginning of period
|
|
|
133,447,100
|
|
|
|
86,563,000
|
|
|
|
|
|
|
|
|
|
|
End of period
|
|
$
|
62,323,000
|
|
|
$
|
111,324,200
|
|
|
|
|
|
|
|
|
|
|
Cash paid during period for:
|
|
|
|
|
|
|
|
|
Income taxes, net of refunds
|
|
$
|
50,976,700
|
|
|
$
|
23,285,400
|
|
See accompanying notes to consolidated financial statements
F-28
ARTIO GLOBAL
INVESTORS INC. AND SUBSIDIARIES
(formerly Julius Baer Americas Inc. and Subsidiaries)
Notes to Consolidated Financial Statements
(Unaudited)
|
|
Note 1
|
Organization and
Description of Business
|
Artio Global Investors Inc. (formerly known as Julius Baer
Americas Inc.) (Investors) and Subsidiaries (the
Company) comprises Investors and its three
subsidiaries, Artio Global Management LLC (formerly known as
Julius Baer Investment Management LLC) (Management
LLC), a registered investment adviser under the Investment
Advisers Act of 1940; Artio Capital Management LLC (formerly
known as JB Private Equity Partners LLC), a private equity
adviser; and Artio Global Holdings LLC (formerly known as JB
Americas Holdings LLC) (Holdings), an intermediate
holding company. Investors is a wholly owned subsidiary of
Julius Baer Holding Ltd., a Swiss corporation (the
Parent).
Management LLC is the primary operating entity of the Company
and an asset manager based in the United States that provides
investment management services to institutional and retail
clients. It manages and advises the Artio Global Funds (formerly
known as the Julius Baer Investment Funds) (the
Funds), which are U.S. registered investment
companies; commingled institutional investment vehicles;
separate accounts; and sub-advisory accounts. The Companys
assets under management are invested primarily outside the
United States.
Initial Public
Offering
The Company has filed a registration statement with the
Securities and Exchange Commission for an initial public
offering of its stock. If consummated, this offering will result
in the Parent selling some of its ownership of the Company. In
addition, the Chief Executive Officer and Head of International
Equity (the Principals) will exchange their current
Class B profits interests in Management LLC, which are
accounted for as compensation under FAS 123(R), for
economic interests that are accounted for as equity.
The Principals currently each have a fifteen percent profits
interest in Management LLC, which are accounted for as
compensation expense under FAS 123(R). Immediately prior to
the offering, they will exchange these Class B profits
interests for fifteen percent membership interests in Holdings.
In addition, they will receive non-participating, exchangeable
common stock of Investors, and will enter into a tax receivable
agreement with the Company that provides to the Principals
eighty-five percent of certain tax benefits resulting from the
differences in the tax and book bases of their interests. The
Class B profits interests will fully vest as a result of
the offering. The unvested portion will be charged under
FAS 123(R) to compensation expense immediately, and the
total adjusted to the fair value that is being provided to the
Principals, which is $571.6 million. This will result in a
compensation charge for the difference between the fair value
and the current liability for such interests
($237.4 million as of June 30, 2009). As the
Principals new economic interests will not be accounted
for as compensation, that adjusted liability will be reversed
into paid-in capital. The related deferred tax asset will be
de-recognized with the charge going to expense. The
Principals membership interests in Holdings will be
accounted for by the Company as non-controlling interests.
On August 28, 2009, the Company converted the common stock
of Investors into Class C common stock and split the
outstanding shares 10,500:1. Immediately after the offering, the
Company will have the following capital structure:
|
|
|
|
|
25.0 million shares Class A common stock, which will
be sold in the public offering,
|
|
|
|
18 million shares Class B non-participating common
stock, exchangeable into Class A common stock on a
one-for-one basis, to be owned by the Principals. The Principals
will have
|
F-29
ARTIO GLOBAL
INVESTORS INC. AND SUBSIDIARIES
(formerly Julius Baer Americas Inc. and Subsidiaries)
Notes to Consolidated Financial
Statements (Continued)
(Unaudited)
the ability to exchange their Class B common stock,
together with proportional amount of their membership interests
in Holdings, for Class A common stock, and will do so for
2.4 million shares concurrent with the offering, leaving
15.6 million shares outstanding. After this transaction,
the Principals combined non-controlling interests in
Holdings will be reduced to approximately 26%.
|
|
|
|
|
42.0 million shares Class C common stock, owned by the
Parent. The proceeds of the offering of Class A stock,
after repurchasing 2.4 million shares converted by the
Principals, will be used to purchase and retire
22.6 million shares of Class C common stock, leaving
19.4 million shares outstanding.
|
|
|
Note 2
|
Summary of
Significant Accounting Principles
|
The Consolidated Financial Statements are prepared in conformity
with U.S. Generally Accepted Accounting Principles
(U.S. GAAP). These principles require
management to make estimates and assumptions that affect the
reported amounts of assets, liabilities (including contingent
liabilities), revenues, and expenses at the date of the
Consolidated Financial Statements. Actual results could differ
from those estimates.
Prior period Consolidated Statements of Income have been
conformed to the current years presentation. Employee
compensation and benefits has been disaggregated to disclose
separately the allocation of Class B profits interests and
changes in redemption value of the Principals Class B
profits interests. General and administrative expenses have been
aggregated.
The December 31, 2008 financial information contained
herein has been derived from the audited consolidated financial
statements and notes thereto included in the Companys
financial statements for the year ended December 31, 2008.
The December 31, 2008 financial information and the interim
consolidated financial statements (unaudited) should be read in
conjunction with the audited consolidated financial statements
and notes thereto included in the Companys financial
statements for the year ended December 31, 2008.
Interim results reflect all normal recurring adjustments that
are, in the opinion of management, necessary for a fair
presentation of the results. Revenues and net income can vary
significantly from quarter to quarter due to the nature of the
Companys business activities. The financial results of
interim periods may not be indicative of the financial results
for the entire year.
The Consolidated Financial Statements include the accounts of
Investors and its subsidiaries. All material inter-company
balances have been eliminated in consolidation.
The Company also evaluates for consolidation the investment
vehicles through which it provides its investment management
services. Consolidation is required if the Company holds a
controlling financial interest in the investment vehicle, as
defined by U.S. GAAP. The Companys assessment for
consolidation occurs at the inception date of the investment
vehicle. The conclusion is reassessed only when certain events
take place, as prescribed by U.S. GAAP.
F-30
ARTIO GLOBAL
INVESTORS INC. AND SUBSIDIARIES
(formerly Julius Baer Americas Inc. and Subsidiaries)
Notes to Consolidated Financial
Statements (Continued)
(Unaudited)
|
|
(c)
|
Cash and Cash
Equivalents
|
The Company classifies as cash equivalents money market and
other highly liquid instruments with remaining maturities of
less than three months at acquisition.
|
|
(d)
|
Marketable
Securities
|
The Company has elected the fair value option for investments
which are made to achieve certain stated investment objectives.
The Companys reasons for electing the fair value option
are as follows:
|
|
|
|
|
The Company invests its excess cash for current yield, not for
capital gains. As such, the Company believes that recognizing
realized and unrealized gains or losses in the Statement of
Income better reflects the returns on these investments. Gains
and losses on such marketable securities, together with related
interest income, accretion and amortization, are reported in
Non-operating income.
|
|
|
|
The Company invests certain unvested deferred bonuses due
employees in the Funds. As these bonuses vest, the principal and
any gains or losses are reflected as liabilities in the
Consolidated Statement of Financial Position. The Company
believes that recognizing unrealized gains or losses on these
investments in income is likely, in most cases, to better match
income with the related expense. As the expenses are reported in
Employee compensation and benefits expense, the realized and
unrealized gains or losses on these securities are reported in
Net gains (losses) on securities held for deferred compensation.
|
Realized gains and losses are computed on a specific
identification basis. Interest income is recognized as earned.
Discounts and premiums are amortized over the term of the
security.
|
|
(e)
|
Investment
Management Fees
|
Investment management fees are recognized as earned. They are
computed as a percentage of the fair value of assets under
management and accrued monthly. Fees vary significantly, from
under ten basis points for certain cash and fixed income asset
classes to over one hundred basis points for other asset
classes. Fees on registered investment companies are computed
and billed monthly as a percentage of average daily fair value
of the assets of the Funds. Fees on other vehicles and on
separate accounts are computed and billed in accordance with the
provisions of the applicable investment management agreements.
The investment management agreements for a small number of
accounts provide for performance fees. Performance fees, if
earned, are recognized on the contractually determined
measurement date. Performance fees may be subject to clawback as
a result of performance declines subsequent to the most recent
measurement date. If such declines occur, the performance fee
clawbacks are recognized when the amount is known.
Each Principal has a Class B profits interest in Management
LLC which entitles them to a combined thirty percent of profits,
as well as a combined thirty percent of the increase in the
value of the business, as defined in Management LLCs
operating agreement. The allocation of the profits associated
with this plan is expensed on an accrual basis. The Company
records the obligation associated with these profits interests
as a liability at fair value.
F-31
ARTIO GLOBAL
INVESTORS INC. AND SUBSIDIARIES
(formerly Julius Baer Americas Inc. and Subsidiaries)
Notes to Consolidated Financial
Statements (Continued)
(Unaudited)
The Company accounts for income taxes under the asset and
liability method. Deferred taxes are recognized for the future
tax benefits or consequences attributable to temporary
differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered
or settled.
The Company accounts for uncertainty in income tax positions by
recognizing in its Consolidated Financial Statements the impact
of a tax position when it is more likely than not that the tax
position would be sustained upon examination by the tax
authorities based on the technical merits of the position.
Interest and penalties relating to tax liabilities are
recognized on actual tax liabilities and exposure items.
Interest is accrued according to the provisions of the relevant
tax law and is reported as interest expense. Penalties are
accrued when the Company expects to take the related position in
its tax return and are reported as General and administrative
expenses.
Basic earnings per share are computed by dividing net income by
the weighted average number of shares outstanding during the
period. As there are no common stock equivalents, diluted
earnings per share are equivalent to basic earnings per share.
|
|
Note 3
|
Related Party
Activities
|
The Company engages in transactions with the Parent and other
affiliates in the ordinary course of business.
Affiliate Transactions Mutual and offshore
funds
|
|
|
|
|
Management LLC provides investment management services to the
Funds. Management LLC has investment management agreements with
the Funds which are reviewed and ratified by their Boards of
Directors or Trustees on an annual basis. Revenues related to
these services are included in Investment management fees in the
Consolidated Statement of Income as follows:
|
Investment management fees
|
|
|
|
|
|
|
Six Months Ended
|
|
June 30, 2008
|
|
$
|
147,469,000
|
|
June 30, 2009
|
|
|
75,368,300
|
|
Fees receivable related to investment management fees are
included in Fees receivable and accrued fees in the Consolidated
Statement of Financial Position and were $14,231,200 as of
December 31, 2008 and $15,086,800 as of June 30, 2009.
|
|
|
|
|
Management LLC also derives investment management revenue from
advising or sub-advising certain offshore funds sponsored by
affiliates of the Parent. The amounts earned from such
|
F-32
ARTIO GLOBAL
INVESTORS INC. AND SUBSIDIARIES
(formerly Julius Baer Americas Inc. and Subsidiaries)
Notes to Consolidated Financial
Statements (Continued)
(Unaudited)
|
|
|
|
|
activity are reported in Investment management fees in the
Consolidated Statement of Income as follows:
|
Investment management fees
|
|
|
|
|
|
|
Six Months Ended
|
|
June 30, 2008
|
|
$
|
1,790,700
|
|
June 30, 2009
|
|
|
1,870,500
|
|
Fees receivable related to advising or sub-advising certain
offshore funds are included in Fees receivable and accrued fees
in the Consolidated Statement of Financial Position and were
$1,060,700 as of December 31, 2008 and $966,400 as of
June 30, 2009.
|
|
Note 4
|
Marketable
Securities, at Fair Value
|
The Company carries its marketable securities portfolio at fair
value using a valuation hierarchy based on the transparency of
the inputs to the valuation techniques used to measure fair
value. Classification within the hierarchy is based upon the
lowest level of input that is significant to the fair value
measurement. The valuation hierarchy contains three levels:
(i) valuation inputs comprising unadjusted quoted market
prices for identical assets or liabilities in active markets
(Level 1); (ii) valuation inputs
comprising quoted prices for identical assets or liabilities in
markets that are not active, quoted market prices for similar
assets and liabilities in active markets, and other observable
inputs directly or indirectly related to the asset or liability
being measured (Level 2); and
(iii) valuation inputs that are unobservable and are
significant to the fair value measurement
(Level 3). The Companys Marketable
securities and Cash equivalents at December 31, 2008 are
valued using prices as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable Securities
|
|
|
Cash Equivalents
|
|
|
Total
|
|
|
Level 1
|
|
$
|
71,314,900
|
|
|
$
|
71,116,600
|
|
|
$
|
142,431,500
|
|
Level 2
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 3
|
|
|
14,600
|
|
|
|
|
|
|
|
14,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
71,329,500
|
|
|
$
|
71,116,600
|
|
|
$
|
142,446,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The change in Level 3 securities during the six months
ended June 30, 2008 is as follows:
|
|
|
|
|
Beginning of year
|
|
$
|
10,000
|
|
Unrealized gains included in net (losses) on marketable
securities
|
|
|
|
|
|
|
|
|
|
June 30, 2008
|
|
$
|
10,000
|
|
|
|
|
|
|
The Companys Marketable securities and Cash equivalents as
of June 30, 2009 are valued using prices as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable Securities
|
|
|
Cash Equivalents
|
|
|
Total
|
|
|
Level 1
|
|
$
|
28,607,200
|
|
|
$
|
43,994,300
|
|
|
$
|
72,601,500
|
|
Level 2
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 3
|
|
|
14,800
|
|
|
|
|
|
|
|
14,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
28,622,000
|
|
|
$
|
43,994,300
|
|
|
$
|
72,616,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-33
ARTIO GLOBAL
INVESTORS INC. AND SUBSIDIARIES
(formerly Julius Baer Americas Inc. and Subsidiaries)
Notes to Consolidated Financial
Statements (Continued)
(Unaudited)
The change in Level 3 securities during the six months
ended June 30, 2009 is as follows:
|
|
|
|
|
Beginning of year
|
|
$
|
14,600
|
|
Unrealized gains included net (losses) as marketable securities
|
|
|
200
|
|
|
|
|
|
|
June 30, 2009
|
|
$
|
14,800
|
|
|
|
|
|
|
Marketable securities as of December 31, 2008 consist of
the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
|
Amortized Cost
|
|
|
Unrealized Gains
|
|
|
Unrealized Losses
|
|
|
U.S. government and agency instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due within 1 year
|
|
$
|
60,375,200
|
|
|
$
|
60,277,300
|
|
|
$
|
97,900
|
|
|
$
|
|
|
Due more than 10 years
|
|
|
5,028,300
|
|
|
|
4,587,600
|
|
|
|
440,700
|
|
|
|
|
|
Artio Global Funds
|
|
|
5,911,400
|
|
|
|
8,594,900
|
|
|
|
|
|
|
|
(2,683,500
|
)
|
Other investments
|
|
|
14,600
|
|
|
|
10,000
|
|
|
|
4,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
71,329,500
|
|
|
$
|
73,469,800
|
|
|
$
|
543,200
|
|
|
$
|
(2,683,500
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable securities as of June 30, 2009 consist of the
following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
|
Amortized Cost
|
|
|
Unrealized Gains
|
|
|
Unrealized Losses
|
|
|
U.S. government and agency instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due within 1 year
|
|
$
|
17,109,600
|
|
|
$
|
17,074,400
|
|
|
$
|
35,200
|
|
|
$
|
|
|
Due 5 10 years
|
|
|
4,557,800
|
|
|
|
4,589,600
|
|
|
|
|
|
|
|
(31,800
|
)
|
Artio Global Funds
|
|
|
6,939,800
|
|
|
|
8,749,000
|
|
|
|
|
|
|
|
(1,809,200
|
)
|
Other investments
|
|
|
14,800
|
|
|
|
10,000
|
|
|
|
4,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
28,622,000
|
|
|
$
|
30,423,000
|
|
|
$
|
40,000
|
|
|
$
|
(1,841,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In 2008, the Company elected the fair value option to report its
marketable securities. The election was effected by a cumulative
effect adjustment that transferred Accumulated other
comprehensive income of $323,800 (net of tax) to Retained
earnings as of January 1, 2008.
In the six months ended June 30, 2008, unrealized losses of
$284,800 and realized losses of $94,800 on U.S. government
and agency securities are reported in non-operating income. In
the six months ended June 30, 2008, unrealized losses of
$427,900 and realized losses of $173,100 on the Funds are
reported in Net gains (losses) on securities held for deferred
compensation.
In the six months ended June 30, 2009, unrealized losses of
$535,000 and realized losses of $- on U.S. government and
agency and other securities are reported in non-operating
income. In the six months ended June 30, 2009, unrealized
gains of $874,300 and realized losses of $162,100 on the Funds
are reported in Net gains (losses) on securities held for
deferred compensation.
|
|
Note 5
|
Market, Credit,
and Foreign Exchange Risks
|
The Companys holdings of U.S. government and agency
instruments are considered to have minimal credit risk. A
portion of the Companys balance of Cash and cash
equivalents represent short-
F-34
ARTIO GLOBAL
INVESTORS INC. AND SUBSIDIARIES
(formerly Julius Baer Americas Inc. and Subsidiaries)
Notes to Consolidated Financial
Statements (Continued)
(Unaudited)
term investments in U.S. government and agency securities,
and similarly is considered to have minimal credit risk. The
amounts of short-term U.S. government and agency securities
included in Cash and cash equivalents are $71,116,600 and
$43,994,300 as of December 31, 2008 and June 30, 2009,
respectively.
The remaining balance in Cash and cash equivalents represents
cash held by the Company for its operating activities. These
cash balances are held primarily with a single institution.
Investments in U.S. government and agency securities are
subject to market risk and will fluctuate in value based on
interest rates prevailing in the market. Investments in the
Funds will fluctuate in value based on overall market conditions
as well as factors specific to those Funds.
Fees receivable and accrued fees have credit risk related to our
clients. Fees receivable from sponsored funds
(Note 3) are billed and collected monthly. Other fees
are generally billed quarterly. Fees receivable are recorded net
of any allowance for doubtful accounts.
The Companys revenues are based primarily on the
U.S. dollar value of the investment assets it manages for
clients. The assets under management vary as a result of the
market performance of the investments and client cash flows into
or out of the investments. A majority of assets under management
are invested in assets denominated in currencies other than the
dollar. As a result, the U.S. dollar value of assets under
management fluctuates with changes in foreign currency exchange
rates. Revenues fluctuate with changes in assets under
management resulting from all of the above factors.
|
|
Note 6
|
Class B
Profits Interests
|
The Company has granted to each of the Principals a
Class B, non-voting profits interest in Management LLC
which entitles each of them to receive fifteen percent of
profits (thirty percent in the aggregate) of Management LLC (as
more fully described in Management LLCs operating
agreement). The allocation of such profits interests is expensed
as incurred and included in Employee compensation and benefits.
The liabilities for these interests as of December 31, 2008
and June 30, 2009 are as follows:
|
|
|
|
|
|
|
Liabilities
|
|
December 31, 2008
|
|
$
|
34,101,500
|
|
June 30, 2009
|
|
|
11,360,600
|
|
The Company is required to repurchase the Class B profits
interests. The repurchase price is computed utilizing a model
which is based on the average profitability of Management LLC
(as more fully described in the operating agreement) and the
average price-earnings multiple of the common stock of the
Parent. The benefits vest ratably over a ten-year period ending
in 2014. The Company records the obligation associated with the
change in redemption value of the profits interest as a
liability at fair value in Accrued compensation and benefits in
the Consolidated Statements of Financial Position, and
recognizes the expense as Employee compensation and benefits in
the Consolidated Statement of Income. Certain events, including
a change in control (such as the
F-35
ARTIO GLOBAL
INVESTORS INC. AND SUBSIDIARIES
(formerly Julius Baer Americas Inc. and Subsidiaries)
Notes to Consolidated Financial
Statements (Continued)
(Unaudited)
contemplated initial public offering) will cause the unvested
balances to vest prior to the end of the stated period. Total
redemption values and liabilities of this obligation are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redemption Value
|
|
Liabilities
|
|
Unvested Balance
|
|
December 31, 2008
|
|
$
|
504,725,000
|
|
|
$
|
201,890,300
|
|
|
$
|
302,834,700
|
|
June 30, 2009
|
|
|
568,306,000
|
|
|
|
237,428,300
|
|
|
|
330,877,700
|
|
If the initial public offering is completed as contemplated, the
redemption value will be determined from the offering price of
the stock, and will differ from the redemption value as computed
using the aforementioned model.
|
|
Note 7
|
Commitments and
Contingencies
|
The Company leases office space under non-cancellable agreements
that expire in June 2014. Minimum annual rental payments under
the lease as of June 30, 2009 are as follows:
|
|
|
|
|
Years ending December 31,
|
|
|
|
|
2009
|
|
$
|
3,738,700
|
|
2010
|
|
|
3,738,700
|
|
2011
|
|
|
3,756,000
|
|
2012
|
|
|
3,761,800
|
|
2013
|
|
|
3,761,800
|
|
2014
|
|
|
1,880,900
|
|
|
|
|
|
|
|
|
$
|
20,637,900
|
|
|
|
|
|
|
In addition to the minimum annual rentals, the lease also
includes provisions for escalations. The lease provides for a
rent holiday and leasehold improvement incentives. These
concessions are recognized on a straight-line basis as
reductions in rent expense over the term of the lease.
Rent expense incurred by the Company and its subsidiaries for
the six months ended June 30, 2008 and 2009 was $1,637,200
and $1,276,000, respectively.
The Company has non-cancellable contractual commitments for
periods of up to two years for recordkeeping and software
services.
The Company has a license fee arrangement with the Parent for
the use of its name in the Companys products and
marketing. The arrangement obligates the Company to pay a fee,
based on applicable revenues, at a rate determined by the
Parent. The rate determined by the Parent may vary by year.
The Companys largest shareholder servicing arrangement
provides that, in the event of termination, fees of thirty-five
basis points annually on the value of the shares held on the
platform will accrue as long as the shares are held on the
platform. A portion of these charges may be offset by
12b-1 fees.
The Company has a severance policy covering employees terminated
for reasons other than cause. In the event of an employees
termination, the Company may incur a liability for salary and
benefits continuation. The amount varies based on the
employees level and length of service.
The Company has, at its discretion, reimbursed client accounts
for certain operational losses incurred. Such amounts were not
material in the six months ended June 30, 2008 and 2009.
F-36
ARTIO GLOBAL
INVESTORS INC. AND SUBSIDIARIES
(formerly Julius Baer Americas Inc. and Subsidiaries)
Notes to Consolidated Financial
Statements (Continued)
(Unaudited)
There is no litigation against the Company that is considered
probable or reasonably possible of having a material effect on
the cash flows, results of operations or financial position of
the Company.
The components of income taxes for the six-months ended June 30
are as follows:
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
|
2008
|
|
|
2009
|
|
|
Current:
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
32,357,500
|
|
|
$
|
15,122,100
|
|
State and local
|
|
|
18,392,500
|
|
|
|
7,384,700
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
50,750,000
|
|
|
|
22,506,800
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(12,750,300
|
)
|
|
|
(10,191,400
|
)
|
State and local
|
|
|
(6,008,000
|
)
|
|
|
(4,441,100
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
(18,758,300
|
)
|
|
|
(14,632,500
|
)
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
$
|
31,991,700
|
|
|
$
|
7,874,300
|
|
|
|
|
|
|
|
|
|
|
The Company computes its taxes using the asset and liability
method. Deferred income taxes reflect the net tax effect of
temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts
used for income tax purposes.
Net deferred tax assets comprise the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
2008
|
|
|
June 30, 2009
|
|
|
Deferred tax assets
|
|
|
|
|
|
|
|
|
Deferred compensation
|
|
$
|
89,434,100
|
|
|
$
|
104,998,100
|
|
Depreciation and amortization
|
|
|
764,500
|
|
|
|
901,900
|
|
Provisions and other
|
|
|
2,503,700
|
|
|
|
1,434,800
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
92,702,300
|
|
|
|
107,334,800
|
|
Less: valuation allowance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset
|
|
$
|
92,702,300
|
|
|
$
|
107,334,800
|
|
|
|
|
|
|
|
|
|
|
Management of the Company has not established a valuation
allowance for its deferred tax asset because it believes that it
is more likely than not the benefit will be realized.
In evaluating the need for a valuation allowance, the Company
took into account its history of profitability and taxable
income. It is expected that the deferred tax asset will be
recovered as a result of increased amortization and depreciation
deductions allocated to the Company with respect to Management
LLCs assets that arise as a result of each purchase of
Class B profits interests by the Company from a Principal.
Such increased amortization and depreciation deductions will
occur over a
15-year
period with respect to each such purchase.
F-37
ARTIO GLOBAL
INVESTORS INC. AND SUBSIDIARIES
(formerly Julius Baer Americas Inc. and Subsidiaries)
Notes to Consolidated Financial
Statements (Continued)
(Unaudited)
A reconciliation between the Federal statutory tax rate of
thirty-five percent and the Companys effective tax rates
is as follows:
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
June 30, 2008
|
|
|
|
|
|
|
|
|
Federal statutory rate
|
|
$
|
22,264,800
|
|
|
|
35
|
%
|
State and local, net of federal benefit
|
|
|
7,228,500
|
|
|
|
11
|
%
|
Permanent differences and other
|
|
|
2,498,400
|
|
|
|
4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
$
|
31,991,700
|
|
|
|
50
|
%
|
|
|
|
|
|
|
|
|
|
June 30, 2009
|
|
|
|
|
|
|
|
|
Federal statutory rate
|
|
$
|
5,695,900
|
|
|
|
35
|
%
|
State and local, net of federal benefit
|
|
|
1,881,900
|
|
|
|
11
|
%
|
Permanent differences and other
|
|
|
296,500
|
|
|
|
2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
$
|
7,874,300
|
|
|
|
48
|
%
|
|
|
|
|
|
|
|
|
|
Permanent differences consist of the non-deductible portion of
meals, entertainment, and gifts, and certain costs related to
the anticipated initial public offering of Investors
common stock.
Management LLC is subject to a four percent New York City
unincorporated business tax (UBT), of which a
substantial portion is credited against Investors state
and local liability.
The Company has evaluated its tax positions and believes that in
each case, it is more likely than not that the tax positions
taken will be sustained, on their technical merits, upon audit.
For the six months ended June 30, 2008 and 2009, there were
no material charges relating to interest and penalties. As of
December 31, 2008 and June 30, 2009, the Company did
not have any unrecognized tax benefits.
The Companys tax years 2005 to the present are open for
examination by Federal and state tax authorities. The Company is
not currently under examination by any major tax jurisdiction.
The Company expects, in connection with its planned initial
public offering, to amend Management LLCs operating
agreement governing the Class B profits interests. The
effect of such a change on the deferred tax asset will be a
de-recognition of approximately $103.9 million of such
deferred tax asset.
|
|
Note 9
|
Recently Issued
Accounting Pronouncements
|
In June 2009, the FASB issued SFAS No. 167,
Amendments to FASB Interpretation No. 46(R). The
Company will evaluate the effect of this Statement on its
financial statements.
In December, 2007, FASB issued Statement No. 160,
Noncontrolling Interests in Consolidated Financial Statements
(SFAS 160). The Statement is effective for
the Company in 2009, but had no effect. If the Company completes
its planned initial public offering, this Statement will affect
the accounting and disclosure of the noncontrolling interests in
Holdings to be held by the Principals.
F-38
ARTIO GLOBAL
INVESTORS INC. AND SUBSIDIARIES
(formerly Julius Baer Americas Inc. and Subsidiaries)
Notes to Consolidated Financial
Statements (Continued)
(Unaudited)
|
|
Note 10
|
Subsequent
Events
|
The Company has evaluated the need for disclosures
and/or
adjustments resulting from subsequent events through
August 25, 2009, the date the Consolidated Financial
Statements were available to be issued. This evaluation did not
result in any subsequent events that necessitated disclosures
and/or
adjustments.
Revisions to Capitalization Structure
As of August 28, 2009, the Company designated its existing
shares of common stock as Class C common stock and effected
a 10,500:1 split of these shares. In accordance with the
Securities and Exchange Commissions Staff Accounting
Bulletin Topic 4:C, the consolidated financial statements
give retroactive effect to the 10,500:1 stock split.
Pro Forma Impact of Distributions in Connection with Initial
Public Offering
In connection with the Companys public offering, the
Company expects to make an estimated distribution of
$201.3 million on a pro forma basis to its Parent. The
actual distribution will be $40.1 million plus total
stockholders equity as of the date of the closing of the
Companys public offering. This distribution, as well as
dividends paid during the preceding eighteen months in excess of
earnings during the same period, are used to present certain pro
forma information.
|
|
|
|
|
Distribution
|
|
$
|
201,311,000
|
|
Net income for the eighteen months ended June 30, 2009
|
|
|
(69,550,900
|
)
|
Dividends paid during the eighteen months ended June 30,
2009
|
|
|
131,000,000
|
|
|
|
|
|
|
Total distributions
|
|
$
|
262,760,100
|
|
|
|
|
|
|
If the total distributions were assumed to be paid from the net
proceeds of the offering, approximately 10,683,000 shares
would be issued for this purpose.
The statement of financial position as of June 30, 2009
presents, on a pro forma basis, the effect of the
$201.3 million distribution.
The effect on earnings per share for the six months ended
June 30, 2009 would be as follows:
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
June 30, 2008
|
|
|
Diluted earnings per share, as reported
|
|
$
|
0.20
|
|
Dilution resulting from the issuance of 10,683,000 shares
|
|
|
(0.04
|
)
|
|
|
|
|
|
Pro forma diluted earnings per share, as adjusted
|
|
$
|
0.16
|
|
|
|
|
|
|
F-39
APPENDIX A
ANNUALIZED RETURNS, ASSETS UNDER MANAGEMENT AND FEE
PERCENTAGES OF INVESTMENT PRODUCTS*
The following tables set forth the annualized returns, gross and
net (which represent annualized returns prior to and after
payment of fees, respectively) of each of the investment
products which invest in our strategies. Information for certain
SEC registered funds have not been included because each of
these funds holds less than approximately $1,000 in assets.
None of the information provided in this Appendix A, nor
any other information provided in this prospectus or the
registration statement, constitutes either an offer or a
solicitation to buy or sell any fund securities, nor is any such
information a recommendation for any fund security or investment
services.
The performance quoted below and elsewhere in the prospectus and
registration statement represents past performance, which does
not guarantee future results. The investment return and
principal value of an investment in any fund described below
will fluctuate so that an investment in a fund, when redeemed,
may be worth more or less than its original cost. Current
performance of any fund may be higher or lower than the
performance quoted.
The index returns provided below have not been reduced by fees
and expenses associated with investing in securities, but do
assume reinvestment of dividends. It is not possible to invest
directly in any index. Indexes that are used for performance
comparisons are unmanaged, assume reinvestment of income, do not
reflect fees or expenses and have differing volatility, credit
and other characteristics.
International
Equity Strategies
The tables below set forth the annualized returns, gross and net
(which represent annualized returns prior to and after payment
of fees, respectively) of each of the investment products which
invest in our International Equity strategies (including
proprietary funds, institutional commingled funds, separate
accounts on an aggregate basis and sub-advisory accounts), from
inception to June 30, 2009, and in the five-year,
three-year, and one-year periods ended June 30, 2009,
relative to the performance of the market index that is most
commonly used by our clients to compare the performance of the
strategy.
International
Equity I Strategy**
Proprietary
Funds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Artio International Equity Fund, Class A
|
|
|
|
|
|
|
|
|
|
|
|
|
(inception: 10/4/93)
|
|
|
|
|
|
|
|
|
|
|
|
|
AuM (as of 06/30/09): $4,045 million
|
|
|
|
|
|
|
|
|
|
|
|
|
Fee percentage: schedule beginning at 0.90% and
|
|
Period Ended June 30, 2009
|
|
declining to 0.85% as the amount of assets
|
|
Since
|
|
|
|
|
|
|
|
|
|
|
under management increases
|
|
Inception
|
|
|
5 Years
|
|
|
3 Years
|
|
|
1 Year
|
|
|
Annualized Gross Returns
|
|
|
9.6
|
%
|
|
|
5.6
|
%
|
|
|
(6.4
|
)%
|
|
|
(34.9
|
)%
|
Annualized Net Returns
|
|
|
7.8
|
%
|
|
|
4.3
|
%
|
|
|
(7.6
|
)%
|
|
|
(35.7
|
)%
|
MSCI AC World ex US
IndexSM ND
|
|
|
4.0
|
%
|
|
|
4.5
|
%
|
|
|
(5.8
|
)%
|
|
|
(30.9
|
)%
|
A-1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Artio International Equity Fund, Class I
|
|
|
|
|
|
|
|
|
|
|
|
|
(inception: 11/17/99)
|
|
|
|
|
|
|
|
|
|
|
|
|
AuM (as of 06/30/09): $5,816 million
|
|
|
|
|
|
|
|
|
|
|
|
|
Fee percentage: schedule beginning at 0.90% and
|
|
Period Ended June 30, 2009
|
|
declining to 0.85% as the amount of assets
|
|
Since
|
|
|
|
|
|
|
|
|
|
|
under management increases
|
|
Inception
|
|
|
5 Years
|
|
|
3 Years
|
|
|
1 Year
|
|
|
Annualized Gross Returns
|
|
|
6.1
|
%
|
|
|
5.6
|
%
|
|
|
(6.4
|
)%
|
|
|
(34.9
|
)%
|
Annualized Net Returns
|
|
|
5.1
|
%
|
|
|
4.6
|
%
|
|
|
(7.3
|
)%
|
|
|
(35.5
|
)%
|
MSCI AC World ex US
IndexSM ND
|
|
|
1.5
|
%
|
|
|
4.5
|
%
|
|
|
(5.8
|
)%
|
|
|
(30.9
|
)%
|
|
|
|
* |
|
Fee percentages represent our undiscounted standard fee
schedule. Certain client mandates are subject to discounted fee
schedules. |
|
** |
|
For purposes of this Appendix, the performance table of one
account was reclassified from the International Equity II
Strategy Separate Accounts to the International Equity I
Strategy Proprietary Funds. The performance attributes of the
account are not materially different from that of the other
accounts in either strategy. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fund A (inception: 6/30/02)
|
|
|
|
|
|
|
|
|
|
|
|
|
AuM (as of 06/30/09): $193 million
|
|
Period Ended June 30, 2009
|
|
Fee percentage: 0.90% on all A-Share assets; 0.80% on
|
|
Since
|
|
|
|
|
|
|
|
|
|
|
all B- and C-Share assets
|
|
Inception
|
|
|
5 Years
|
|
|
3 Years
|
|
|
1 Year
|
|
|
Annualized Gross Returns
|
|
|
7.2
|
%
|
|
|
4.7
|
%
|
|
|
(6.4
|
)%
|
|
|
(33.7
|
)%
|
Annualized Net Returns
|
|
|
6.6
|
%
|
|
|
3.9
|
%
|
|
|
(7.2
|
)%
|
|
|
(34.3
|
)%
|
MSCI AC World ex US
IndexSM ND
|
|
|
6.6
|
%
|
|
|
4.5
|
%
|
|
|
(5.8
|
)%
|
|
|
(30.9
|
)%
|
Institutional
Commingled Funds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fund A
|
|
|
|
|
|
|
|
|
|
|
|
|
(inception: 8/10/06)
|
|
Period Ended June 30, 2009
|
|
AuM (as of 06/30/09): $1,319 million
|
|
Since
|
|
|
|
|
|
|
|
|
|
|
Fee percentage: 0.90% on all assets
|
|
Inception
|
|
|
5 Years
|
|
|
3 Years
|
|
|
1 Year
|
|
|
Annualized Gross Returns
|
|
|
(8.5
|
)%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
(37.0
|
)%
|
Annualized Net Returns
|
|
|
(9.3
|
)%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
(37.6
|
)%
|
MSCI AC World ex US
IndexSM ND
|
|
|
(6.4
|
)%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
(30.9
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fund B
|
|
|
|
|
|
|
|
|
|
|
|
|
(inception: 6/30/03)
|
|
Period Ended June 30, 2009
|
|
AuM (as of 06/30/09): $943 million
|
|
Since
|
|
|
|
|
|
|
|
|
|
|
Fee percentage: 0.90% on all assets
|
|
Inception
|
|
|
5 Years
|
|
|
3 Years
|
|
|
1 Year
|
|
|
Annualized Gross Returns
|
|
|
7.5
|
%
|
|
|
4.2
|
%
|
|
|
(8.0
|
)%
|
|
|
(37.5
|
)%
|
Annualized Net Returns
|
|
|
6.5
|
%
|
|
|
3.2
|
%
|
|
|
(8.8
|
)%
|
|
|
(38.0
|
)%
|
MSCI AC World ex US
IndexSM ND
|
|
|
8.6
|
%
|
|
|
4.5
|
%
|
|
|
(5.8
|
)%
|
|
|
(30.9
|
)%
|
A-2
Separate
Accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate
|
|
|
|
|
|
|
|
|
|
|
|
|
AuM (as of 06/30/09): $6,658 million
|
|
|
|
|
|
|
|
|
|
|
|
|
Fee percentage: schedule beginning at 0.80% and
|
|
Period Ended June 30, 2009
|
|
declining to 0.40% as the amount of assets
|
|
Since
|
|
|
|
|
|
|
|
|
|
|
under management increases
|
|
Inception
|
|
|
5 Years
|
|
|
3 Years
|
|
|
1 Year
|
|
|
Annualized Gross Returns
|
|
|
8.2
|
%
|
|
|
4.5
|
%
|
|
|
(7.5
|
)%
|
|
|
(36.7
|
)%
|
Annualized Net Returns
|
|
|
7.7
|
%
|
|
|
4.0
|
%
|
|
|
(7.9
|
)%
|
|
|
(37.0
|
)%
|
MSCI AC World ex US
IndexSM ND
|
|
|
8.3
|
%
|
|
|
4.5
|
%
|
|
|
(5.8
|
)%
|
|
|
(30.9
|
)%
|
Separate
Accounts Hybrid*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate
|
|
|
|
|
|
|
|
|
|
|
|
|
AuM (as of 06/30/09): $150 million
|
|
|
|
|
|
|
|
|
|
|
|
|
Fee percentage: schedule beginning at 0.80% and
|
|
Period Ended June 30, 2009
|
|
declining to 0.40% as the amount of assets
|
|
Since
|
|
|
|
|
|
|
|
|
|
|
under management increases
|
|
Inception
|
|
|
5 Years
|
|
|
3 Years
|
|
|
1 Year
|
|
|
Annualized Gross Returns
|
|
|
3.5
|
%
|
|
|
N/A
|
|
|
|
(7.4
|
)%
|
|
|
(35.9
|
)%
|
Annualized Net Returns
|
|
|
3.0
|
%
|
|
|
N/A
|
|
|
|
(7.8
|
)%
|
|
|
(36.2
|
)%
|
MSCI
EAFE®
Index + Canada Index
|
|
|
2.9
|
%
|
|
|
N/A
|
|
|
|
(7.5
|
)%
|
|
|
(31.6
|
)%
|
|
|
|
* |
|
Hybrid Strategy: International Equity I Developed Markets/
International Equity II Emerging Markets |
International
Equity II Strategy**
Proprietary
Funds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Artio International Equity Fund II, Class A
|
|
|
|
|
|
|
|
|
|
|
|
|
(inception: 5/4/05)
|
|
|
|
|
|
|
|
|
|
|
|
|
AuM (as of 06/30/09): $1,660 million
|
|
|
|
|
|
|
|
|
|
|
|
|
Fee percentage: schedule beginning at 0.90% and
|
|
Period Ended June 30, 2009
|
|
declining to 0.85% as the amount of assets
|
|
Since
|
|
|
|
|
|
|
|
|
|
|
under management increases
|
|
Inception
|
|
|
5 Years
|
|
|
3 Years
|
|
|
1 Year
|
|
|
Annualized Gross Returns
|
|
|
3.0
|
%
|
|
|
N/A
|
|
|
|
(4.9
|
)%
|
|
|
(31.0
|
)%
|
Annualized Net Returns
|
|
|
1.7
|
%
|
|
|
N/A
|
|
|
|
(6.1
|
)%
|
|
|
(31.9
|
)%
|
MSCI AC World ex US
IndexSM ND
|
|
|
1.9
|
%
|
|
|
N/A
|
|
|
|
(5.8
|
)%
|
|
|
(30.9
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Artio International Equity Fund II, Class I
|
|
|
|
|
|
|
|
|
|
|
|
|
(inception: 5/4/05)
|
|
|
|
|
|
|
|
|
|
|
|
|
AuM (as of 06/30/09): $5,875 million
|
|
|
|
|
|
|
|
|
|
|
|
|
Fee percentage: schedule beginning at 0.90% and
|
|
Period Ended June 30, 2009
|
|
declining to 0.85% as the amount of assets
|
|
Since
|
|
|
|
|
|
|
|
|
|
|
under management increases
|
|
Inception
|
|
|
5 Years
|
|
|
3 Years
|
|
|
1 Year
|
|
|
Annualized Gross Returns
|
|
|
3.1
|
%
|
|
|
N/A
|
|
|
|
(4.9
|
)%
|
|
|
(31.0
|
)%
|
Annualized Net Returns
|
|
|
2.0
|
%
|
|
|
N/A
|
|
|
|
(5.9
|
)%
|
|
|
(31.7
|
)%
|
MSCI AC World ex US
IndexSM ND
|
|
|
1.9
|
%
|
|
|
N/A
|
|
|
|
(5.8
|
)%
|
|
|
(30.9
|
)%
|
A-3
Institutional
Commingled Funds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fund A (inception: 3/31/05)
|
|
|
|
|
|
|
|
|
|
|
|
|
AuM (as of 06/30/09): $2,811 million
|
|
|
|
|
|
|
|
|
|
|
|
|
Fee percentage: schedule beginning at 0.85% and
|
|
Period Ended June 30, 2009
|
|
declining to 0.45% as the amount of assets
|
|
Since
|
|
|
|
|
|
|
|
|
|
|
under management increases
|
|
Inception
|
|
|
5 Years
|
|
|
3 Years
|
|
|
1 Year
|
|
|
Annualized Gross Returns
|
|
|
2.1
|
%
|
|
|
N/A
|
|
|
|
(6.2
|
)%
|
|
|
(34.6
|
)%
|
Annualized Net Returns
|
|
|
1.7
|
%
|
|
|
N/A
|
|
|
|
(6.6
|
)%
|
|
|
(34.9
|
)%
|
MSCI AC World ex US
IndexSM ND
|
|
|
1.5
|
%
|
|
|
N/A
|
|
|
|
(5.8
|
)%
|
|
|
(30.9
|
)%
|
|
|
|
** |
|
For purposes of this Appendix, the performance table of one
account was reclassified from the International Equity II
Strategy Separate Accounts to the International Equity I
Strategy Proprietary Funds. The performance attributes of the
account are not materially different from that of the other
accounts in either strategy. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fund B (inception: 12/15/06)
|
|
|
|
|
|
|
|
|
|
|
|
|
AuM (as of 06/30/09): $449 million
|
|
|
|
|
|
|
|
|
|
|
|
|
Fee percentage: schedule beginning at 0.90% and
|
|
Period Ended June 30, 2009
|
|
declining to 0.50% as the amount of assets
|
|
Since
|
|
|
|
|
|
|
|
|
|
|
under management increases
|
|
Inception
|
|
|
5 Years
|
|
|
3 Years
|
|
|
1 Year
|
|
|
Annualized Gross Returns
|
|
|
(13.9
|
)%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
(35.7
|
)%
|
Annualized Net Returns
|
|
|
(14.4
|
)%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
(36.1
|
)%
|
MSCI AC World ex US
IndexSM ND
|
|
|
(11.6
|
)%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
(30.9
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fund C (inception: 4/30/05)
|
|
|
|
|
|
|
|
|
|
|
|
|
AuM (as of 06/30/09): $1,261 million
|
|
|
|
|
|
|
|
|
|
|
|
|
Fee percentage: schedule beginning at 0.80% and
|
|
Period Ended June 30, 2009
|
|
declining to 0.40% as the amount of assets
|
|
Since
|
|
|
|
|
|
|
|
|
|
|
under management increases
|
|
Inception
|
|
|
5 Years
|
|
|
3 Years
|
|
|
1 Year
|
|
|
Annualized Gross Returns
|
|
|
1.9
|
%
|
|
|
N/A
|
|
|
|
(6.6
|
)%
|
|
|
(35.0
|
)%
|
Annualized Net Returns
|
|
|
1.1
|
%
|
|
|
N/A
|
|
|
|
(7.3
|
)%
|
|
|
(35.4
|
)%
|
MSCI AC World ex US
IndexSM ND
|
|
|
2.2
|
%
|
|
|
N/A
|
|
|
|
(5.8
|
)%
|
|
|
(30.9
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fund D (inception: 7/31/06)
|
|
|
|
|
|
|
|
|
|
|
|
|
AuM (as of 06/30/09): $206 million
|
|
|
|
|
|
|
|
|
|
|
|
|
Fee percentage: schedule beginning at 0.85% and
|
|
Period Ended June 30, 2009
|
|
declining to 0.45% as the amount of assets
|
|
Since
|
|
|
|
|
|
|
|
|
|
|
under management increases
|
|
Inception
|
|
|
5 Years
|
|
|
3 Years
|
|
|
1 Year
|
|
|
Annualized Gross Returns
|
|
|
(8.5
|
)%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
(37.4
|
)%
|
Annualized Net Returns
|
|
|
(9.1
|
)%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
(37.7
|
)%
|
MSCI AC World ex US
IndexSM ND
|
|
|
(6.3
|
)%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
(30.9
|
)%
|
A-4
Separate
Accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate
|
|
|
|
|
|
|
|
|
|
|
|
|
AuM (as of 06/30/09): $4,872 million
|
|
|
|
|
|
|
|
|
|
|
|
|
Fee percentage: schedule beginning at 0.80% and
|
|
Period Ended June 30, 2009
|
|
declining to 0.40% as the amount of assets
|
|
Since
|
|
|
|
|
|
|
|
|
|
|
under management increases
|
|
Inception
|
|
|
5 Years
|
|
|
3 Years
|
|
|
1 Year
|
|
|
Annualized Gross Returns
|
|
|
0.4
|
%
|
|
|
N/A
|
|
|
|
(6.8
|
)%
|
|
|
(35.7
|
)%
|
Annualized Net Returns
|
|
|
(0.1
|
)%
|
|
|
N/A
|
|
|
|
(7.3
|
)%
|
|
|
(36.0
|
)%
|
MSCI AC World ex US
IndexSM ND
|
|
|
0.8
|
%
|
|
|
N/A
|
|
|
|
(5.8
|
)%
|
|
|
(30.9
|
)%
|
Sub-advisory
Account
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Account 1 (inception: 6/30/07)
|
|
|
|
|
|
|
|
|
|
|
|
|
AuM (as of 06/30/09): $75 million
|
|
|
|
|
|
|
|
|
|
|
|
|
Fee percentage: schedule beginning at 0.80% and
|
|
Period Ended June 30, 2009
|
|
declining to 0.40% as the amount of assets
|
|
Since
|
|
|
|
|
|
|
|
|
|
|
under management increases
|
|
Inception
|
|
|
5 Years
|
|
|
3 Years
|
|
|
1 Year
|
|
|
Annualized Gross Returns
|
|
|
(23.9
|
)%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
(37.5
|
)%
|
Annualized Net Returns
|
|
|
(24.3
|
)%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
(37.9
|
)%
|
MSCI AC World ex US
IndexSM ND
|
|
|
(19.7
|
)%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
(30.9
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Account 2 (inception: 6/30/02)
|
|
|
|
|
|
|
|
|
|
|
|
|
AuM (as of 06/30/09): $114 million
|
|
|
|
|
|
|
|
|
|
|
|
|
Fee percentage: schedule beginning at 0.45% and
|
|
Period Ended June 30, 2009
|
|
declining to 0.40% as the amount of assets
|
|
Since
|
|
|
|
|
|
|
|
|
|
|
under management increases
|
|
Inception
|
|
|
5 Years
|
|
|
3 Years
|
|
|
1 Year
|
|
|
Annualized Gross Returns
|
|
|
6.5
|
%
|
|
|
4.7
|
%
|
|
|
(7.5
|
)%
|
|
|
(36.7
|
)%
|
Annualized Net Returns
|
|
|
6.0
|
%
|
|
|
4.2
|
%
|
|
|
(7.9
|
)%
|
|
|
(36.9
|
)%
|
MSCI AC World ex US
IndexSM ND
|
|
|
6.6
|
%
|
|
|
4.5
|
%
|
|
|
(5.8
|
)%
|
|
|
(30.9
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Account 3 (inception: 6/30/03)
|
|
Period Ended June 30, 2009
|
|
AuM (as of 06/30/09): $247 million
|
|
Since
|
|
|
|
|
|
|
|
|
|
|
Fee percentage: 0.40% on all assets
|
|
Inception
|
|
|
5 Years
|
|
|
3 Years
|
|
|
1 Year
|
|
|
Annualized Gross Returns
|
|
|
6.9
|
%
|
|
|
4.0
|
%
|
|
|
(7.9
|
)%
|
|
|
(37.5
|
)%
|
Annualized Net Returns
|
|
|
6.4
|
%
|
|
|
3.6
|
%
|
|
|
(8.3
|
)%
|
|
|
(37.7
|
)%
|
MSCI AC World ex US
IndexSM ND
|
|
|
8.6
|
%
|
|
|
4.5
|
%
|
|
|
(5.8
|
)%
|
|
|
(30.9
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Account 4 (inception: 9/30/03)
|
|
Period Ended June 30, 2009
|
|
AuM (as of 06/30/09): $1,600 million
|
|
Since
|
|
|
|
|
|
|
|
|
|
|
Fee percentage: 0.40% on all assets
|
|
Inception
|
|
|
5 Years
|
|
|
3 Years
|
|
|
1 Year
|
|
|
Annualized Gross Returns
|
|
|
6.1
|
%
|
|
|
3.9
|
%
|
|
|
(7.6
|
)%
|
|
|
(36.6
|
)%
|
Annualized Net Returns
|
|
|
5.6
|
%
|
|
|
3.5
|
%
|
|
|
(7.9
|
)%
|
|
|
(36.9
|
)%
|
MSCI AC World ex US
IndexSM ND
|
|
|
7.5
|
%
|
|
|
4.5
|
%
|
|
|
(5.8
|
)%
|
|
|
(30.9
|
)%
|
A-5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Account 5 (inception: 1/31/01)
|
|
|
|
|
|
|
|
|
|
|
|
|
AuM (as of 06/30/09): $42 million
|
|
|
|
|
|
|
|
|
|
|
|
|
Fee percentage: schedule beginning at 0.80% and
|
|
Period Ended June 30, 2009
|
|
declining to 0.40% as the amount of assets
|
|
Since
|
|
|
|
|
|
|
|
|
|
|
under management increases
|
|
Inception
|
|
|
5 Years
|
|
|
3 Years
|
|
|
1 Year
|
|
|
Annualized Gross Returns
|
|
|
2.2
|
%
|
|
|
2.6
|
%
|
|
|
(9.3
|
)%
|
|
|
(38.5
|
)%
|
Annualized Net Returns
|
|
|
1.6
|
%
|
|
|
2.1
|
%
|
|
|
(9.8
|
)%
|
|
|
(38.9
|
)%
|
MSCI AC World ex US
IndexSM ND
|
|
|
2.4
|
%
|
|
|
4.5
|
%
|
|
|
(5.8
|
)%
|
|
|
(30.9
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Account 6 (inception: 7/31/00)
|
|
Period Ended June 30, 2009
|
|
AuM (as of 06/30/09): $53 million
|
|
Since
|
|
|
|
|
|
|
|
|
|
|
Fee percentage: 0.50% on all assets
|
|
Inception
|
|
|
5 Years
|
|
|
3 Years
|
|
|
1 Year
|
|
|
Annualized Gross Returns
|
|
|
3.5
|
%
|
|
|
4.9
|
%
|
|
|
(7.0
|
)%
|
|
|
(36.1
|
)%
|
Annualized Net Returns
|
|
|
1.7
|
%
|
|
|
3.5
|
%
|
|
|
(7.8
|
)%
|
|
|
(36.4
|
)%
|
MSCI AC World ex US
IndexSM ND
|
|
|
1.4
|
%
|
|
|
4.5
|
%
|
|
|
(5.8
|
)%
|
|
|
(30.9
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Account 7 (inception: 8/31/02)
|
|
Period Ended June 30, 2009
|
|
AuM (as of 06/30/09): $35 million
|
|
Since
|
|
|
|
|
|
|
|
|
|
|
Fee percentage: 0.50% on all assets
|
|
Inception
|
|
|
5 Years
|
|
|
3 Years
|
|
|
1 Year
|
|
|
Annualized Gross Returns
|
|
|
7.0
|
%
|
|
|
4.0
|
%
|
|
|
(7.9
|
)%
|
|
|
(36.7
|
)%
|
Annualized Net Returns
|
|
|
6.5
|
%
|
|
|
3.5
|
%
|
|
|
(8.4
|
)%
|
|
|
(37.0
|
)%
|
MSCI
EAFE®
Index
|
|
|
6.6
|
%
|
|
|
2.3
|
%
|
|
|
(8.0
|
)%
|
|
|
(31.4
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Account 8 (inception: 1/31/08)
|
|
|
|
|
|
|
|
|
|
|
|
|
AuM (as of 06/30/09): $949 million
|
|
|
|
|
|
|
|
|
|
|
|
|
Fee percentage: schedule beginning at 0.80% and
|
|
Period Ended June 30, 2009
|
|
declining to 0.40% as the amount of assets
|
|
Since
|
|
|
|
|
|
|
|
|
|
|
under management increases
|
|
Inception
|
|
|
5 Years
|
|
|
3 Years
|
|
|
1 Year
|
|
|
Annualized Gross Returns
|
|
|
(27.2
|
)%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
(35.5
|
)%
|
Annualized Net Returns
|
|
|
(27.5
|
)%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
(35.8
|
)%
|
MSCI AC World ex US
IndexSM ND
|
|
|
(23.3
|
)%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
(30.9
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Account 9 (inception: 11/1/07)
|
|
|
|
|
|
|
|
|
|
|
|
|
AuM (as of 06/30/09): $47 million
|
|
|
|
|
|
|
|
|
|
|
|
|
Fee percentage: schedule beginning at 0.60% and
|
|
Period Ended June 30, 2009
|
|
declining to 0.40% as the amount of assets
|
|
Since
|
|
|
|
|
|
|
|
|
|
|
under management increases
|
|
Inception
|
|
|
5 Years
|
|
|
3 Years
|
|
|
1 Year
|
|
|
Annualized Gross Returns
|
|
|
(28.0
|
)%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
(33.1
|
)%
|
Annualized Net Returns
|
|
|
(28.4
|
)%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
(33.5
|
)%
|
MSCI
EAFE®
Index
|
|
|
(27.7
|
)%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
(31.4
|
)%
|
A-6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Account 10 (inception: 7/22/08)
|
|
|
|
|
|
|
|
|
|
|
|
|
AuM (as of 06/30/09): $75 million
|
|
|
|
|
|
|
|
|
|
|
|
|
Fee percentage: schedule beginning at 0.60% and
|
|
Period Ended June 30, 2009
|
|
declining to 0.40% as the amount of assets
|
|
Since
|
|
|
|
|
|
|
|
|
|
|
under management increases
|
|
Inception
|
|
|
5 Years
|
|
|
3 Years
|
|
|
1 Year
|
|
|
Annualized Gross Returns
|
|
|
(33.1
|
)%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Annualized Net Returns
|
|
|
(33.4
|
)%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
MSCI AC World ex US Index ND
|
|
|
(28.7
|
)%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Other
International Equity
Separate
Accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Strategy A
|
|
Period Ended June 30, 2009
|
|
AuM (as of 06/30/09): $62 million
|
|
Since
|
|
|
|
|
|
|
|
|
|
|
Fee percentage: 0.40% on all assets
|
|
Inception
|
|
|
5 Years
|
|
|
3 Years
|
|
|
1 Year
|
|
|
Annualized Gross Returns
|
|
|
3.7
|
%
|
|
|
5.6
|
%
|
|
|
(7.2
|
)%
|
|
|
(36.9
|
)%
|
Annualized Net Returns
|
|
|
3.1
|
%
|
|
|
5.1
|
%
|
|
|
(7.7
|
)%
|
|
|
(37.2
|
)%
|
MSCI Europe Index
|
|
|
0.7
|
%
|
|
|
2.3
|
%
|
|
|
(8.4
|
)%
|
|
|
(34.5
|
)%
|
A-7
High Grade Fixed
Income Strategies
The tables below set forth the annualized returns, gross and net
(which represent annualized returns prior to and after payment
of fees, respectively) of each of the investment products which
invest in our High Grade Fixed Income strategies (including
proprietary funds, institutional commingled funds, separate
accounts on an aggregate basis and sub-advisory accounts), from
inception to June 30, 2009, and in the five-year,
three-year, and one-year periods ended June 30, 2009,
relative to the performance of the market index that is most
commonly used by our clients to compare the performance of the
strategy.
Total Return Bond
Strategy
Proprietary
Funds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Artio Total Return Bond Fund, Class A
|
|
|
|
|
|
|
|
|
|
|
|
|
(inception: 6/30/92)
|
|
Period Ended June 30, 2009
|
|
AuM (as of 06/30/09): $304 million
|
|
Since
|
|
|
|
|
|
|
|
|
|
|
Fee percentage: 0.35% on all assets
|
|
Inception
|
|
|
5 Years
|
|
|
3 Years
|
|
|
1 Year
|
|
|
Annualized Gross Returns
|
|
|
7.3
|
%
|
|
|
6.0
|
%
|
|
|
6.2
|
%
|
|
|
3.8
|
%
|
Annualized Net Returns
|
|
|
5.9
|
%
|
|
|
5.1
|
%
|
|
|
5.5
|
%
|
|
|
3.1
|
%
|
Barclays Capital U.S. Aggregate Index
|
|
|
6.4
|
%
|
|
|
5.0
|
%
|
|
|
6.4
|
%
|
|
|
6.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Artio Total Return Bond Fund, Class I
|
|
|
|
|
|
|
|
|
|
|
|
|
(inception: 11/17/99)
|
|
Period Ended June 30, 2009
|
|
AuM (as of 06/30/09): $1,177 million
|
|
Since
|
|
|
|
|
|
|
|
|
|
|
Fee percentage: 0.35% on all assets
|
|
Inception
|
|
|
5 Years
|
|
|
3 Years
|
|
|
1 Year
|
|
|
Annualized Gross Returns
|
|
|
7.2
|
%
|
|
|
6.0
|
%
|
|
|
6.2
|
%
|
|
|
3.8
|
%
|
Annualized Net Returns
|
|
|
6.2
|
%
|
|
|
5.4
|
%
|
|
|
5.8
|
%
|
|
|
3.4
|
%
|
Barclays Capital U.S. Aggregate Index
|
|
|
6.1
|
%
|
|
|
5.0
|
%
|
|
|
6.4
|
%
|
|
|
6.0
|
%
|
Separate
Accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate
|
|
|
|
|
|
|
|
|
|
|
|
|
AuM (as of 06/30/09): $2,739 million*
|
|
|
|
|
|
|
|
|
|
|
|
|
Fee percentage: schedule beginning at 0.30% and
|
|
Period Ended June 30, 2009
|
|
declining to 0.18% as the amount of assets
|
|
Since
|
|
|
|
|
|
|
|
|
|
|
under management increases
|
|
Inception
|
|
|
5 Years
|
|
|
3 Years
|
|
|
1 Year
|
|
|
Annualized Gross Returns
|
|
|
7.7
|
%
|
|
|
6.1
|
%
|
|
|
5.9
|
%
|
|
|
3.3
|
%
|
Annualized Net Returns
|
|
|
7.4
|
%
|
|
|
5.8
|
%
|
|
|
5.6
|
%
|
|
|
3.0
|
%
|
Barclays Capital U.S. Aggregate Index
|
|
|
5.2
|
%
|
|
|
5.0
|
%
|
|
|
6.4
|
%
|
|
|
6.0
|
%
|
|
|
|
* |
|
Performance relating to the high yield component of our Core
Plus Plus Strategy is shown within our Total Return Bond
Strategy. |
A-8
U.S. Fixed
Income & Cash Strategy
Sub-advisory
Accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fund A (inception: 10/31/98)
|
|
|
|
|
|
|
|
|
|
|
|
|
AuM (as of 06/30/09): $132 million
|
|
Period Ended June 30, 2009
|
|
Fee percentage: 0.12% on A, B and E Shares;
|
|
Since
|
|
|
|
|
|
|
|
|
|
|
0.0525% on C Shares
|
|
Inception
|
|
|
5 Years
|
|
|
3 Years
|
|
|
1 Year
|
|
|
Annualized Gross Returns
|
|
|
5.2
|
%
|
|
|
3.6
|
%
|
|
|
3.7
|
%
|
|
|
(1.8
|
)%
|
Annualized Net Returns
|
|
|
4.3
|
%
|
|
|
2.9
|
%
|
|
|
3.3
|
%
|
|
|
(2.0
|
)%
|
Merrill Lynch US Corporate & Government,
A Rated and above Index
|
|
|
5.3
|
%
|
|
|
4.8
|
%
|
|
|
6.2
|
%
|
|
|
4.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fund B (inception: 1/31/95)
|
|
|
|
|
|
|
|
|
|
|
|
|
AuM (as of 06/30/09): $561 million
|
|
|
|
|
|
|
|
|
|
|
|
|
Fee percentage: schedule beginning at 0.175%
|
|
Period Ended June 30, 2009
|
|
and declining to 0.05% as the amount of assets
|
|
Since
|
|
|
|
|
|
|
|
|
|
|
under management increases
|
|
Inception
|
|
|
5 Years
|
|
|
3 Years
|
|
|
1 Year
|
|
|
Annualized Gross Returns
|
|
|
4.4
|
%
|
|
|
3.6
|
%
|
|
|
3.6
|
%
|
|
|
1.4
|
%
|
Annualized Net Returns
|
|
|
3.8
|
%
|
|
|
3.1
|
%
|
|
|
3.3
|
%
|
|
|
1.3
|
%
|
Citigroup USD 3 Month EUR Deposit Index
|
|
|
4.2
|
%
|
|
|
3.8
|
%
|
|
|
4.1
|
%
|
|
|
2.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fund C (inception: 11/30/99)
|
|
|
|
|
|
|
|
|
|
|
|
|
AuM (as of 06/30/09): $137 million
|
|
Period Ended June 30, 2009
|
|
Fee percentage: 0.09% on A, B and E Shares;
|
|
Since
|
|
|
|
|
|
|
|
|
|
|
0.045% on C Shares
|
|
Inception
|
|
|
5 Years
|
|
|
3 Years
|
|
|
1 Year
|
|
|
Annualized Gross Returns
|
|
|
6.7
|
%
|
|
|
5.7
|
%
|
|
|
7.5
|
%
|
|
|
3.9
|
%
|
Annualized Net Returns
|
|
|
6.0
|
%
|
|
|
5.1
|
%
|
|
|
7.2
|
%
|
|
|
3.8
|
%
|
Merrill Lynch US Corporate & Government,
3-5 Years Index
|
|
|
5.9
|
%
|
|
|
4.6
|
%
|
|
|
6.4
|
%
|
|
|
5.7
|
%
|
A-9
High Yield
Strategy
The tables below set forth the annualized returns, gross and net
(which represent annualized returns prior to and after payment
of fees, respectively) of each of the investment products which
invest in our High Yield strategy (including proprietary funds,
institutional commingled funds, separate accounts on an
aggregate basis and sub-advisory accounts), from inception to
June 30, 2009, and in the five-year, three-year, and
one-year periods ended June 30, 2009, relative to the
performance of the market index that is most commonly used by
our clients to compare the performance of the strategy.
High Yield
Strategy
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proprietary Funds
|
|
Artio Global High Income Fund, Class A
|
|
|
|
|
|
|
|
|
|
|
|
|
(inception: 12/17/02)
|
|
Period Ended June 30, 2009
|
|
AuM (as of 06/30/09): $374 million
|
|
Since
|
|
|
|
|
|
|
|
|
|
|
Fee percentage: 0.65% on all assets
|
|
Inception
|
|
|
5 Years
|
|
|
3 Years
|
|
|
1 Year
|
|
|
Annualized Gross Returns
|
|
|
9.4
|
%
|
|
|
6.7
|
%
|
|
|
4.2
|
%
|
|
|
(1.3
|
)%
|
Annualized Net Returns
|
|
|
8.1
|
%
|
|
|
5.5
|
%
|
|
|
3.1
|
%
|
|
|
(2.3
|
)%
|
Merrill Lynch USD Global High Yield Constrained Index (USD)
|
|
|
8.1
|
%
|
|
|
4.5
|
%
|
|
|
2.2
|
%
|
|
|
(4.0
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Artio Global High Income Fund, Class I
|
|
|
|
|
|
|
|
|
|
|
|
|
(inception: 1/31/03)
|
|
Period Ended June 30, 2009
|
|
AuM (as of 06/30/09): $597 million
|
|
Since
|
|
|
|
|
|
|
|
|
|
|
Fee percentage: 0.65% on all assets
|
|
Inception
|
|
|
5 Years
|
|
|
3 Years
|
|
|
1 Year
|
|
|
Annualized Gross Returns
|
|
|
9.4
|
%
|
|
|
6.7
|
%
|
|
|
4.2
|
%
|
|
|
(1.2
|
)%
|
Annualized Net Returns
|
|
|
8.4
|
%
|
|
|
5.8
|
%
|
|
|
3.4
|
%
|
|
|
(2.0
|
)%
|
Merrill Lynch USD Global High Yield Constrained Index (USD)
|
|
|
7.6
|
%
|
|
|
4.5
|
%
|
|
|
2.2
|
%
|
|
|
(4.0
|
)%
|
Separate
Accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate
|
|
|
|
|
|
|
|
|
|
|
|
|
AuM (as of 06/30/09): $101 million
|
|
|
|
|
|
|
|
|
|
|
|
|
Fee percentage: schedule beginning at 0.60% and
|
|
Period Ended June 30, 2009
|
|
declining to 0.40% as the amount of assets
|
|
Since
|
|
|
|
|
|
|
|
|
|
|
under management increases
|
|
Inception
|
|
|
5 Years
|
|
|
3 Years
|
|
|
1 Year
|
|
|
Annualized Gross Returns
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Annualized Net Returns
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Merrill Lynch USD Global High Yield Constrained Index (USD)
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Institutional
Commingled Funds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fund A (inception: 5/16/08)
|
|
Period Ended June 30, 2009
|
|
AuM (as of 06/30/09): $134 million
|
|
Since
|
|
|
|
|
|
|
|
|
|
|
Fee percentage: 0.15% on all assets
|
|
Inception
|
|
|
5 Years
|
|
|
3 Years
|
|
|
1 Year
|
|
|
Annualized Gross Returns
|
|
|
(4.0
|
)%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
(1.4
|
)%
|
Annualized Net Returns
|
|
|
(4.5
|
)%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
(1.9
|
)%
|
Merrill Lynch USD Global High Yield Constrained Index (USD)
|
|
|
(5.8
|
)%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
(4.0
|
)%
|
A-10
Sub-advisory
Accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Account 1 (inception: 12/31/02)
|
|
|
|
|
|
|
|
|
|
|
|
|
AuM (as of 06/30/09): $450 million
|
|
|
|
|
|
|
|
|
|
|
|
|
Fee percentage: schedule beginning at 0.44% and
|
|
Period Ended June 30, 2009
|
|
declining to 0.15% as the amount of assets
|
|
Since
|
|
|
|
|
|
|
|
|
|
|
under management increases
|
|
Inception
|
|
|
5 Years
|
|
|
3 Years
|
|
|
1 Year
|
|
|
Annualized Gross Returns
|
|
|
6.2
|
%
|
|
|
2.9
|
%
|
|
|
0.2
|
%
|
|
|
(8.9
|
)%
|
Annualized Net Returns
|
|
|
4.8
|
%
|
|
|
1.5
|
%
|
|
|
(1.2
|
)%
|
|
|
(10.2
|
)%
|
Merrill Lynch (EUR, 100% Hedged) Global High Yield Constrained
Index
|
|
|
6.6
|
%
|
|
|
2.8
|
%
|
|
|
0.4
|
%
|
|
|
(5.0
|
)%
|
Global Equity
Strategy
The tables below set forth the annualized returns, gross and net
(which represent annualized returns prior to and after payment
of fees, respectively) of each of the investment products which
invest in our Global Equity strategy (including proprietary
funds, institutional commingled funds, separate accounts on an
aggregate basis and sub-advisory accounts), from inception to
June 30, 2009, and in the five-year, three-year, and
one-year periods ended June 30, 2009, relative to the
performance of the market index that is most commonly used by
our clients to compare the performance of the strategy.
Global Equity
Strategy
Proprietary
Funds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Artio Global Equity Fund, Class A
|
|
|
|
|
|
|
|
|
|
|
|
|
(inception: 6/30/04)
|
|
Period Ended June 30, 2009
|
|
AuM (as of 06/30/09): $16 million
|
|
Since
|
|
|
|
|
|
|
|
|
|
|
Fee percentage: 0.90% on all assets
|
|
Inception
|
|
|
5 Years
|
|
|
3 Years
|
|
|
1 Year
|
|
|
Annualized Gross Returns
|
|
|
4.0
|
%
|
|
|
4.0
|
%
|
|
|
(5.6
|
)%
|
|
|
(27.8
|
)%
|
Annualized Net Returns
|
|
|
2.2
|
%
|
|
|
2.2
|
%
|
|
|
(7.0
|
)%
|
|
|
(28.8
|
)%
|
MSCI All Country World Index
|
|
|
1.1
|
%
|
|
|
1.1
|
%
|
|
|
(7.0
|
)%
|
|
|
(29.3
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Artio Global Equity Fund, Class I
|
|
|
|
|
|
|
|
|
|
|
|
|
(inception: 3/11/05)
|
|
Period Ended June 30, 2009
|
|
AuM (as of 06/30/09): $45 million
|
|
Since
|
|
|
|
|
|
|
|
|
|
|
Fee percentage: 0.90% on all assets
|
|
Inception
|
|
|
5 Years
|
|
|
3 Years
|
|
|
1 Year
|
|
|
Annualized Gross Returns
|
|
|
(0.2
|
)%
|
|
|
N/A
|
|
|
|
(5.6
|
)%
|
|
|
(27.8
|
)%
|
Annualized Net Returns
|
|
|
(1.4
|
)%
|
|
|
N/A
|
|
|
|
(6.6
|
)%
|
|
|
(28.6
|
)%
|
MSCI All Country World Index
|
|
|
(1.7
|
)%
|
|
|
N/A
|
|
|
|
(7.0
|
)%
|
|
|
(29.3
|
)%
|
Institutional
Commingled Funds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fund A (inception: 2/6/07)
|
|
|
|
|
|
|
|
|
|
|
|
|
AuM (as of 06/30/09): $109 million
|
|
|
|
|
|
|
|
|
|
|
|
|
Fee percentage range: schedule beginning at 0.85% and
|
|
Period Ended June 30, 2009
|
|
declining to 0.45% as the amount of assets
|
|
Since
|
|
|
|
|
|
|
|
|
|
|
under management increases
|
|
Inception
|
|
|
5 Years
|
|
|
3 Years
|
|
|
1 Year
|
|
|
Annualized Gross Returns
|
|
|
(15.0
|
)%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
(31.2
|
)%
|
Annualized Net Returns
|
|
|
(15.5
|
)%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
(31.6
|
)%
|
MSCI All Country World Index
|
|
|
(14.4
|
)%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
(29.3
|
)%
|
A-11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fund B (inception: 5/4/07)
|
|
|
|
|
|
|
|
|
|
|
|
|
AuM (as of 06/30/09): $21 million
|
|
|
|
|
|
|
|
|
|
|
|
|
Fee percentage: schedule beginning at 0.85% and
|
|
Period Ended June 30, 2009
|
|
declining to 0.45% as the amount of assets under
|
|
Since
|
|
|
|
|
|
|
|
|
|
|
management increases
|
|
Inception
|
|
|
5 Years
|
|
|
3 Years
|
|
|
1 Year
|
|
|
Annualized Gross Returns
|
|
|
(18.6
|
)%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
(31.5
|
)%
|
Annualized Net Returns
|
|
|
(19.2
|
)%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
(32.0
|
)%
|
MSCI All Country World Index
|
|
|
(18.1
|
)%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
(29.3
|
)%
|
Separate
Accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate
|
|
|
|
|
|
|
|
|
|
|
|
|
AuM (as of 06/30/09): $267 million
|
|
|
|
|
|
|
|
|
|
|
|
|
Fee percentage range: schedule beginning at 0.80% and
|
|
Period Ended June 30, 2009
|
|
declining to 0.40% as the amount of assets
|
|
Since
|
|
|
|
|
|
|
|
|
|
|
under management increases
|
|
Inception
|
|
|
5 Years
|
|
|
3 Years
|
|
|
1 Year
|
|
|
Annualized Gross Returns
|
|
|
(7.0
|
)%
|
|
|
N/A
|
|
|
|
(7.0
|
)%
|
|
|
(30.8
|
)%
|
Annualized Net Returns
|
|
|
(7.4
|
)%
|
|
|
N/A
|
|
|
|
(7.4
|
)%
|
|
|
(31.2
|
)%
|
MSCI All Country World Index
|
|
|
(7.0
|
)%
|
|
|
N/A
|
|
|
|
(7.0
|
)%
|
|
|
(29.3
|
)%
|
Sub-advisory
Accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Account 1 (inception: 7/21/08)
|
|
Period Ended June 30, 2009
|
|
AuM (as of 06/30/09): $18 million
|
|
Since
|
|
|
|
|
|
|
|
|
|
|
Fee percentage: 0.45% on all assets
|
|
Inception
|
|
|
5 Years
|
|
|
3 Years
|
|
|
1 Year
|
|
|
Annualized Gross Returns
|
|
|
(28.3
|
)%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Annualized Net Returns
|
|
|
(28.6
|
)%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
MSCI World Index
|
|
|
(27.5
|
)%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
U.S. Equity
Strategies
The tables below set forth the annualized returns, gross and net
(which represent annualized returns prior to and after payment
of fees, respectively) of each of the investment products which
invest in our U.S. Equity strategies (including proprietary
funds and institutional commingled funds, on an aggregate basis
and sub-advisory accounts), from inception to June 30,
2009, and in the five-year, three-year, and one-year periods
ended June 30, 2009, relative to the performance of the
market index that is most commonly used by our clients to
compare the performance of the strategy.
Micro-Cap
Strategy
Proprietary
Funds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Artio US Microcap Fund, Class A
|
|
|
|
|
|
|
|
|
|
|
|
|
(inception: 7/24/06)
|
|
Period Ended June 30, 2009
|
|
AuM (as of 06/30/09): $2 million
|
|
Since
|
|
|
|
|
|
|
|
|
|
|
Fee percentage: 1.25% on all assets
|
|
Inception
|
|
|
5 Years
|
|
|
3 Years
|
|
|
1 Year
|
|
|
Annualized Gross Returns
|
|
|
(7.9
|
)%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
(19.9
|
)%
|
Annualized Net Returns
|
|
|
(9.6
|
)%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
(21.3
|
)%
|
Russell
2000®
Index
|
|
|
(8.6
|
)%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
(25.0
|
)%
|
A-12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Artio US Microcap Fund, Class I
|
|
|
|
|
|
|
|
|
|
|
|
|
(inception: 7/24/06)
|
|
Period Ended June 30, 2009
|
|
AuM (as of 06/30/09): $3 million
|
|
Since
|
|
|
|
|
|
|
|
|
|
|
Fee percentage: 1.25% on all assets
|
|
Inception
|
|
|
5 Years
|
|
|
3 Years
|
|
|
1 Year
|
|
|
Annualized Gross Returns
|
|
|
(7.9
|
)%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
(19.8
|
)%
|
Annualized Net Returns
|
|
|
(9.3
|
)%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
(21.0
|
)%
|
Russell
2000®
Index
|
|
|
(8.6
|
)%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
(25.0
|
)%
|
Sub-advisory
Accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Account 1 (inception: 10/13/06)
|
|
|
|
|
|
|
|
|
|
|
|
|
AuM (as of 06/30/09): $36 million
|
|
|
|
|
|
|
|
|
|
|
|
|
Fee percentage: schedule beginning at 0.90% and
|
|
Period Ended June 30, 2009
|
|
declining to 0.70% as the amount of assets
|
|
Since
|
|
|
|
|
|
|
|
|
|
|
under management increases
|
|
Inception
|
|
|
5 Years
|
|
|
3 Years
|
|
|
1 Year
|
|
|
Annualized Gross Returns
|
|
|
(13.3
|
)%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
(20.7
|
)%
|
Annualized Net Returns
|
|
|
(14.0
|
)%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
(21.4
|
)%
|
Russell
2000®
Index
|
|
|
(12.6
|
)%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
(25.0
|
)%
|
Small-Cap
Strategy
Proprietary
Funds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Artio US Smallcap Fund, Class A
|
|
|
|
|
|
|
|
|
|
|
|
|
(inception: 7/24/06)
|
|
Period Ended June 30, 2009
|
|
AuM (as of 06/30/09): $4 million
|
|
Since
|
|
|
|
|
|
|
|
|
|
|
Fee percentage: 0.95% on all assets
|
|
Inception
|
|
|
5 Years
|
|
|
3 Years
|
|
|
1 Year
|
|
|
Annualized Gross Returns
|
|
|
(0.8
|
)%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
(15.2
|
)%
|
Annualized Net Returns
|
|
|
(2.3
|
)%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
(16.5
|
)%
|
Russell
2000®
Index
|
|
|
(8.6
|
)%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
(25.0
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Artio US Smallcap Fund, Class I
|
|
|
|
|
|
|
|
|
|
|
|
|
(inception: 7/24/06)
|
|
Period Ended June 30, 2009
|
|
AuM (as of 06/30/09): $3 million
|
|
Since
|
|
|
|
|
|
|
|
|
|
|
Fee percentage: 0.95% on all assets
|
|
Inception
|
|
|
5 Years
|
|
|
3 Years
|
|
|
1 Year
|
|
|
Annualized Gross Returns
|
|
|
(0.8
|
)%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
(15.1
|
)%
|
Annualized Net Returns
|
|
|
(1.9
|
)%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
(16.2
|
)%
|
Russell
2000®
Index
|
|
|
(8.6
|
)%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
(25.0
|
)%
|
Mid-Cap
Strategy
Proprietary
Funds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Artio US Midcap Fund, Class A
|
|
|
|
|
|
|
|
|
|
|
|
|
(inception: 7/24/06)
|
|
Period Ended June 30, 2009
|
|
AuM (as of 06/30/09): $2 million
|
|
Since
|
|
|
|
|
|
|
|
|
|
|
Fee percentage: 0.80% on all assets
|
|
Inception
|
|
|
5 Years
|
|
|
3 Years
|
|
|
1 Year
|
|
|
Annualized Gross Returns
|
|
|
(6.9
|
)%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
(28.4
|
)%
|
Annualized Net Returns
|
|
|
(8.2
|
)%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
(29.4
|
)%
|
Russell
Mid-Cap®
Index
|
|
|
(8.4
|
)%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
(30.4
|
)%
|
A-13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Artio US Midcap Fund, Class I (inception: 7/24/06)
|
|
Period Ended June 30, 2009
|
|
AuM (as of 06/30/09): $2 million
|
|
Since
|
|
|
|
|
|
|
|
|
|
|
Fee percentage: 0.80% on all assets
|
|
Inception
|
|
|
5 Years
|
|
|
3 Years
|
|
|
1 Year
|
|
|
Annualized Gross Returns
|
|
|
(6.9
|
)%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
(28.4
|
)%
|
Annualized Net Returns
|
|
|
(7.9
|
)%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
(29.2
|
)%
|
Russell
Mid-Cap®
Index
|
|
|
(8.4
|
)%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
(30.4
|
)%
|
Multi-Cap
Strategy
Proprietary
Funds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Artio US Multicap Fund, Class A
|
|
|
|
|
|
|
|
|
|
|
|
|
(inception: 7/24/06)
|
|
Period Ended June 30, 2009
|
|
AuM (as of 06/30/09): $2 million
|
|
Since
|
|
|
|
|
|
|
|
|
|
|
Fee percentage: 0.75% on all assets
|
|
Inception
|
|
|
5 Years
|
|
|
3 Years
|
|
|
1 Year
|
|
|
Annualized Gross Returns
|
|
|
(5.4
|
)%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
(24.1
|
)%
|
Annualized Net Returns
|
|
|
(6.6
|
)%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
(25.1
|
)%
|
Russell
3000®
Index
|
|
|
(8.1
|
)%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
(26.6
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Artio US Multicap Fund, Class I
|
|
|
|
|
|
|
|
|
|
|
|
|
(inception: 7/24/06)
|
|
Period Ended June 30, 2009
|
|
AuM (as of 06/30/09): $2 million
|
|
Since
|
|
|
|
|
|
|
|
|
|
|
Fee percentage: 0.75% on all assets
|
|
Inception
|
|
|
5 Years
|
|
|
3 Years
|
|
|
1 Year
|
|
|
Annualized Gross Returns
|
|
|
(5.4
|
)%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
(24.0
|
)%
|
Annualized Net Returns
|
|
|
(6.3
|
)%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
(24.8
|
)%
|
Russell
3000®
Index
|
|
|
(8.1
|
)%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
(26.6
|
)%
|
Other
The table below sets forth the annualized returns, gross and net
(which represent annualized returns prior to and after payment
of fees, respectively) of each of the investment products which
invest in our other strategy (including SEC registered mutual
and private offshore funds), from inception to June 30,
2009, and in the five-year, three-year, and one-year periods
ended June 30, 2009, relative to the performance of the
market index that is most commonly used by our clients to
compare the performance of the strategy.
Other
Proprietary
Funds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fund A, Class A (inception: 12/31/08)
|
|
Period Ended June 30, 2009
|
|
AuM (as of 06/30/09): $21 million
|
|
Since
|
|
|
|
|
|
|
|
|
|
|
Fee percentage: 0.15% on all assets
|
|
Inception
|
|
|
5 Years
|
|
|
3 Years
|
|
|
1 Year
|
|
|
Annualized Gross Returns
|
|
|
8.1
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Annualized Net Returns
|
|
|
7.7
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Custom Index*
|
|
|
4.8
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fund A, Class B (inception: 8/31/06)
|
|
Period Ended June 30, 2009
|
|
AuM (as of 06/30/09): $10 million
|
|
Since
|
|
|
|
|
|
|
|
|
|
|
Fee percentage: 0.15% on all assets
|
|
Inception
|
|
|
5 Years
|
|
|
3 Years
|
|
|
1 Year
|
|
|
Annualized Gross Returns
|
|
|
(3.0
|
)%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
(16.3
|
)%
|
Annualized Net Returns
|
|
|
(3.2
|
)%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
(16.7
|
)%
|
Custom Index*
|
|
|
(2.4
|
)%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
(14.3
|
)%
|
|
|
|
* |
|
55% MSCI AC World Index; 45% Barclays Capital U.S. Aggregate
Index |
A-14
25,000,000 Shares
BofA Merrill Lynch
Deutsche Bank Securities
UBS Investment Bank
Keefe, Bruyette & Woods
Through and including October 18, 2009 (the 25th day
after the date of this prospectus), all dealers effecting
transactions in these securities, whether or not participating
in this offering, may be required to deliver a prospectus. This
is in addition to a dealers obligation to deliver a
prospectus when acting as an underwriter and with respect to an
unsold allotment or subscription.